§ (1) Section fifteen of the Finance Act, 1956 (which suspends investment allowances with certain exceptions), shall cease to have effect and subsections (2) to (5) of section sixteen of the Finance Act, 1954 (which provide for giving investment allowances in respect of capital expenditure on certain new assets), shall apply to expenditure incurred after the commencement of this Act being expenditure incurred—
- (a) on industrial buildings or structures, or on machinery or plant, in any industry prescribed as of special national importance; or
- (b) on machinery or plant of any description prescribed as of special national importance.
§ (2) For the purposes of the last foregoing subsection an industry or a description of machinery or plant shall be prescribed as of special national importance, if, and only if, the produce of that industry or the use of machinery or plant of that description is of special value in increasing exports, saving imports or promoting technical development or the better use of national resources.—[Mr. Roy Jenkins.]
§ Brought up, and read the First time.
§ 3.45 p.m.
§ Mr. Roy Jenkins (Birmingham, Stechford)
I beg to move, That the Clause be read a Second time.
The proposed new Clause proposes that investment allowances should be restored for industries of special national importance and that, broadly speaking, what is considered to be of special national importance shall be laid down by the Treasury if certain plant or machineryis of special value in increasing exports, saving imports or promoting technical development or the better use of national resources.The assumptions underlying the proposed new Clause are, I think, central 1341 to the whole approach of hon. Members on this side to present economic policy. They are central in that we believe that it is vitally necessary now to give a further stimulus to the British economy. We want that stimulus to be applied primarily to the investment sector rather than to the consumption sector, and we are not in the least afraid of applying it on a selective basis to ensure that we get the best possible use of our resources and to safeguard against returning to the 1955 situation.
I now propose to deal with some of the more detailed considerations involved in the proposed new Clause. I do not think that there will be much dispute in the Committee about the effectiveness of investment allowances as a stimulus to investment. There is no doubt at all that they are far more powerful than the initial allowances. I do not wish to decry the initial allowance, which is a useful weapon in a minor key, but there is no doubt at all that the investment allowance is a much more powerful weapon. One would expect this to be so on a priori grounds. The investment allowance gives something to industry if it invests. The initial allowance, to some extent, is nothing more than an interest-free loan to industry, as hon. Members opposite have frequently pointed out.
One can see the difference in the relative degree of effectiveness by reference to what happened during the period when investment allowances, introduced by the Lord Privy Seal, were in operation. It so happened that when the investment allowances came into operation our level of industrial investment, in private industry in particular, was at a very low level. Also, investment allowances were allowed to remain in operation for all too short a period. But these two facts should not obscure what was undoubtedly the result of the investment allowance, namely, a rate of growth in investment which, as long as it was allowed to continue, and remembering that it started from a low level, was highly satisfactory. The effectiveness of this weapon is not in dispute, and I should be surprised if the Chancellor were to dissent from that.
The point about selectivity which is contained in our proposal may be open to more controversy. On this point, I would say two things. First, I do not 1342 think that there can be any difficulty of principle, from the Government's point of view, about introducing an element of selectivity. It would be possible to imagine an intellectual standpoint which could be taken, namely, that it is intolerable that the tax system should be used in a way that would place upon the Treasury the burden of deciding whether a certain form of industrial activity was more desirable than another. I do not accept that point of view, but I can see that it is a perfectly tenable intellectual point of view. However, it is not tenable for the present occupants of the Treasury Bench, because the principle has already been breached in several important respects—in the shipping industry, fuel-saving devices and scientific research.
The Chancellor and the Treasury Bench have been quite willing to introduce elements of selectivity into the use of investment allowances. So far as these three things are concerned, investment allowances, which were generally abolished in 1956, still persist. Therefore, it is clear that the Chancellor is willing that the Treasury should exercise its judgment or that he should exercise his own judgment on what is relatively more important and what is relatively less important. That is the first point that I make about selectivity.
The second point is that if the Chancellor, for what I think would not on the whole be good reasons, found the great difficulty about our new Clause to be its selective approach, then, if he prefers our new Clause, "Restoration of investment allowances," which is non-selective, then, although we certainly lean towards the one which I am now moving, we should be prepared to accept the other as second best. I therefore hope that he will not put forward as a decisive reason anything to do with the selective approach.
I now turn to what in a sense is the more crucial question, whether it is desirable at this time to stimulate investment—having disposed, I hope satisfactorily, of the question, if it was so desirable, whether the method we put forward is adequate. There is no longer any doubt about this issue, even in the mind of the Chancellor himself. He has swung round a good deal on this matter since the Budget. It seems to be becoming a habit of Chancellors of the Exchequer, under the present Government, to swing very sharply indeed 1343 between April and July in each year, since the right hon. Member for Monmouth (Mr. P. Thorneycroft) last year swung round equally sharply, although, of course, in the opposite direction. He introduced an expansionist Budget and then, by July, turned in favour of restriction.
The present Chancellor introduced what was, on the whole, a restrictive Budget and is now beginning to turn towards expansion. It is certainly true to say that the thoughts at the back of the Chancellor's mind in April were very different from those which now seem to be in the recesses of his mind. I quote one very important sentence from his Budget statement, when he said:At home our first priority must continue to be to win the battle against inflation and our success or failure there will largely determine our fortunes in the months and years ahead."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 53.]That is one of the decisive sentences in his Budget statement.
While I am sure that he would not for a moment say that he has completely abandoned that battle, I doubt whether, if he were making a Budget speech today, he would give that first priority. At any rate, that is the impression which has emerged from his recent statements. However, I think that the change is nothing but a change for the good and I am glad to welcome it so far as it goes. However, I am bound to point out, as I did in more general terms on a previous occasion, that he cannot take the view that he is now moving towards relaxation and expansion because he has achieved the objectives which he inherited from the right hon. Member for Monmouth.
The objective clearly laid down by the right hon. Member for Monmouth was achieving a restrictive monetary and credit policy of complete price stability. What we have seen over the past seven months has been more restriction, certainly less expansion, more unemployment and a more dismal climate in industry, but a more rapid rate of price increase than we saw in the seven months of the previous year.
I have the figures for the month between October, 1957, and May, 1958. During that period, the Retail Price Index increased from 107.1 to 109.2, a move- 1344 ment of 2.1 points. Over the corresponding seven months of the year 1956 to 1957, the Retail Price Index rose from 102.8 to 104.6, an increase of 1.8 points.
Let us, therefore, be in no doubt that we have paid heavy penalties in seeking to achieve the objective of price stability, and yet we have got less near to it during the past winter than we did during the preceding winter. We should, therefore, not take the view that we are able to advance from the policy of the right hon. Member for Monmouth because the objectives which he laid down have been achieved. We are able to advance because the Chancellor, moving perhaps a little out of the shadow of his right hon. Friend, is beginning to feel at long last, and all too late, that the objectives which he inherited are intolerable objectives and that if he is to run the economy in any tolerable way, he had better abandon them, perhaps delicately, but as quickly as possible.
There can be no doubt that the reasons for thinking that a stimulus should now be applied to the economy, quite independently of what has happened to price stability, are now overwhelming. First, the figures for capital investment in private industry show a distinct falling off. New factory building, which is a significant guide to the future, in the first quarter of this year was lower than at any period since the end of 1953. It is clear that so long as nationalised industry has to operate under the rigidity of the Government's ceiling, there is no possibility of increases in investment in nationalised industry offsetting the fall off which is taking place in private industry.
Secondly, we have the Federation of British Industries' extremely interesting and valuable survey, which was published about ten days ago and which indicates a still more gloomy prospect for the future.
Thirdly, the Index of Industrial Production for May shows not merely—although that would be bad enough—a persistence of the stagnation to which we have now grown used, but, for the first time, a distinct dip downwards. For example, to take one aspect of the figures, steel production last month was no less than 15 per cent. below its level in May last year, a very severe falling off.
One can sum up the position as neatly and as clearly as in any other way by 1345 quoting the words with which the Financial Times leader this morning opened. It said:The arguments about the general balance of the economy have at last been brought to an end. The practical question now is not whether there will be a down-turn (unless effective measures are taken to maintain demand) but how fast the decline will come and how far it is likely to go.We therefore have a situation in which there is an overwhelming and indisputable need for a further stimulus to be given to the economy.
The Chancellor has recently taken some faltering steps in the right direction, but they do not go far enough—the reduction of the Bank Rate, extension of initial allowances and so on. At the back of his mind, as indicated by his shrewd but disturbing speech to the Commonwealth Correspondents' Association luncheon on Monday, there is the disturbing thought that things will get worse. I hazard the prophecy that before the autumn the Chancellor will be desperately looking round for substantial measures to stimulate investment in British industry.
I appeal to the right hon. Gentleman to take those measures before the autumn and for once to give the impression of guiding events and not merely following them, and at any rate to accept some part of the proposals which we are putting forward now, at the beginning of July, instead of waiting for something, which I am sure he will have to do within three or four months, to give a further stimulus to investment to prevent this decline from continuing, a decline which is serious for the medium and long-term future of British industry, and serious from the point of view of maintaining prosperity, let alone moving back towards expansion, in the months ahead.
§ Mr. Geoffrey Stevens (Portsmouth, Langstone)
In so far as his remarks were directly related to the new Clause, I would not dissent from anything which the hon. Member for Stechford (Mr. Roy Jenkins) said. He felt that it was necessary—and I have no quarrel with this—to add a certain amount of background, about which I might possibly argue with him on another occasion. However, apart from that, I could almost hear myself saying very similar things to what he said about the stimulating effect of investment allowances. I am sure that industry as a 1346 whole will be very pleased to read what he said about that, since industry as a whole is very anxious that investment allowances should be restored.
However, since I supported my right hon. Friend the Lord Privy Seal when he introduced investment allowances I have rather gone back on what I then said. I have reconsidered the matter, and I am not so sure that I think that investment allowances are the best way of stimulating the capital investment which, I think, we all agree is desirable. I think that they have two serious drawbacks.
First, by the very nature of things, investment allowance is a form of subsidy. I cannot think of any other example in the whole range of our taxation law and practice of an Income Tax allowance which is more than 100 per cent. of the cost of the capital item affected, more than 100 per cent. of the loss which has been suffered. I cannot think of another example of subsidy in the whole of our taxation law and practice. We ought to regard that departure from the general rule very carefully before we reintroduce this investment allowance.
The other drawback which occurs to me readily is that investment allowances are highly selective for the purpose. Indeed, this new Clause is to make them even more so. Obviously, they cannon apply to those people who carry on a large part of the industry and commerce of this country but without a substantial amount of capital equipment. I have in mind the distributive trades. I agree that they use motor vehicles and things of that sort, but they also use a large amount of experience and skill in respect of which no initial allowance let alone investment allowance is made. Investment allowances are discriminatory as between one class of taxpayer and another class of taxpayer.
For these two reasons, the more I think about investment allowances the less I like them, though I am with the hon. Gentleman completely in the object which he has in mind.
§ Mr. Roy Jenkins
I cannot understand how it is possible to have any taxation device which will stimulate investment, and which is not discriminatory between those who invest and those who do not.
§ Mr. Stevens
I entirely agree, but one can marry the two. However, the investment allowance is, in fact, a subsidy, and there is no other taxpayer who is subsidised in that manner. I thought that I had made that fairly clear. I would take my own case. I am a professional man and get no kind of investment allowance or even initial allowance. Therefore, one thinks that there is an anomaly perhaps in that some other form of the business life of this country should receive a direct subsidy from the Exchequer in this way. That was the point I was trying to make.
I am not trying to quarrel with the hon. Gentleman. I am very sympathetic with the object which he has in view, but I myself believe that it could be achieved in a better and more equitable manner by a further extension of the initial allowances which are in no sense of the term a subsidy. The initial allowances do not give to the taxpayer more than 100 per cent. of the asset affected. My right hon. Friend in this Budget has increased the initial allowances to some extent. If the hon. Gentleman wants to do what I want to do, stimulate capital investment, I should like us to be joined for once in a while so as to encourage my right hon. Friend to go further along that road.
§ Mr. Roy Jenkins
I want to follow the hon. Gentleman's speech, which I have been trying to do very closely. As I understand, he puts two quite distinct objections. The first is that the investment allowance is a subsidy and that this is a departure in our tax practice. Then he makes an entirely separate point, which is that there are disadvantages about the investment allowance because it is discriminatory—against the retail trade, for instance, that being the example he cited, in that it does not employ a great deal of fixed capital assets.
I do not understand how his preference for the initial allowance deals with his second argument. Why we should accept a less effective stimulus to investment at one point of at least equal importance, to that one which is quite irrelevant, I do not follow.
§ Mr. Stevens
I suggested two rather separate points, I agree, but they are none the less correlated. I point out once more that investment allowance is 1348 a subsidy for a person trading with a great deal of fixed capital equipment when no investment allowance is given to another taxpayer who trades without a substantial amount of fixed capital investment. The recipient of the allowance gets 10 per cent. on his equipment, in the case of ships 140 per cent. of his capital investment. With initial allowance there is no element of subsidy at all, and therefore there is no discrimination to that extent between one class of taxpayer and another.
§ Mr. John Diamond (Gloucester)
I wonder whether the hon. Gentleman will reconsider his statement that there is no element of subsidy in initial allowances, for, of course, there is the subsidy of an interest-free loan made by the Exchequer to the taxpayer.
§ Mr. Stevens
I accept that readily, but the element of subsidy is extremely small, as I think the hon. Gentleman will agree.
Therefore, I think that the object which the hon. Gentleman the Member for Stechford has in mind and which I, too, have in mind, of stimulating capital investment, would be better achieved by accelerating the initial allowances, by extending them, perhaps to commercial buildings beyond industrial buildings as at present, by extending them to 100 per cent. in the year of acquisition provided that the company which is the purchaser charges the cost of that asset against its profits at the time. I think that this is a better way of proceeding along the road which I think we all in this Committee want to travel, and for those reasons I do not feel inclined at the moment to support the new Clause.
§ Mr. H. Rhodes (Ashton-under-Lyne)
I support the new Clause. I understand initial and investment allowances quite well from the practical point of view, having watched them come on, and go off, and initial allowances giving way to investment allowances, etc. It is not difficult, if one has a hand closely on a business which is expanding, to see the benefit of both kinds of allowance.
I want to ask for information and to say that even if the Chancellor cannot find it in his heart to accede to this request today, perhaps he will think over some of the things which we say and, by the Report stage, may be able to substitute investment allowances in some form or 1349 another for the proposal to increase initial allowances. The climate of industry, the background against which we are working, has changed enormously even since the Budget. Otherwise, there would be no point in the Chancellor's introducing the extra 5 per cent. of initial allowance. By the Report stage there can be an even larger change. If the right hon. Gentleman cannot answer me today, I should like to think that on Report he will give me his opinion. I ask him to be patient with me while I go over the matter.
As I understand, initial allowances were provided in 1945 on the basis of 20 per cent. for plant and machinery, 10 per cent. for industrial buildings, and 10 per cent. for mining. That went on quite merrily in an expanding economy where the investment was being made to repair the ravages of war. No alteration was made to that scale of initial allowances until 1949, when the allowance for plant and machinery was increased to 40 per cent. We all know what happened after that—and on this issue I would briefly put politics on one side. We all know the statement which was made by the then Chancellor of the Exchequer in 1951, when notice was served on industry that initial allowances would be taken off in April, 1952.
May I draw the Chancellor's attention to those years? The initial allowance was out of operation for only twelve months, that is, from April, 1952, to April, 1953, when it was reintroduced on the basis of 20 per cent. for plant and machinery, 10 per cent. for industrial buildings and, a rather large increase, 40 per cent. for mining. The reason for the announcement being made in 1951 that the initial allowances would be discontinued was that private investment had to give place to the gigantic armaments programme which was running at that time.
A glance at the fixed investment figures for 1951 to 1954 shows that there was a run-down in 1951–52 with a slight pickup in 1953, when the initial allowances were reintroduced. But the business climate was different then. There was more optimism. There was more certainty about the future. People were not so apprehensive. Then investment allowances were introduced for the first time in the House of Commons in April, 1350 1954. Although the investment of British capital between 1951 and 1953 had been slightly run down, it was just picking up by 1954. Why was there a case for applying investment allowances in 1954 when it is argued that there is no case today? I should have thought that there would have been enormous backing for the introduction of investment allowances at present if there was reason at all for their existence in 1954.
It may be that investment allowances are selective, and it may be a good thing if they are, but that is not quite the point that I want to make. I am seeking the Chancellor's reaction to the general usefulness of either one method or the other for the purpose of inducing businessmen to invest. When the investment allowances were introduced in 1954, people who had been doing well in business and had funds to spare immediately began to order machinery, irrespective of whether they needed them or not in many cases.
To a small extent, the argument which was produced in the debate on Monday about some of the more up-to-date plants in Lancashire being among the first to suffer, might have had its roots in the way in which the investment was made at a time when a closer examination of the economic needs of the industry might have paid better. These allowances were taken off in 1956. In support of what my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) said about the effect of the investment allowances, I would quote from the Economic Survey for this year. I will not quote the figures, but I will give the percentage increases as I have worked them out.
There was a period of stagnation from 1951 to 1953. The investment allowances, as I have said, were introduced in 1954, and I estimate that there was an increase of 4.8 per cent. in fixed investment in 1954 compared with 1953. In 1955, the increase was 15.9 per cent. on 1954.
The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)
I am following very closely what the hon. Member is saying, but I am not absolutely clear what these increases refer to. I may have missed a word or two.
§ Mr. Rhodes
In fixed investments.
In 1955, the increase was 15.9 per cent. on 1954, and in 1956 the increase was 11.2 per cent. on 1955. In 1957, the increase was 2.9 per cent. on 1956. One realises that at that time the delivery of machines and capital equipment was long delayed, sometimes up to eighteen months and two years and in some cases for considerably longer. Therefore, it may be understood that there may be some relationship between the percentages which I have mentioned and the introduction of investment allowances, and the decline in fixed investments as soon as those allowances were taken off.
I remind the Chancellor again, however, that the climate in industry was different then from what it is now. Even in those days, a person who intended to spend money and had to watch every penny that he spent in fixed investment, would keep a close watch and choose his time. It was not merely the relief from taxation which he would receive that influenced him to invest. It was the feeling he had whether he would be able to sell his product or not.
If the Chancellor takes that point into consideration and compares the climate now with the climate then, I am sure that he will readily see that it needs something more than we had in 1953 to give industry any stimulus at all. I beg the Chancellor to think seriously about what I am saying and to consider whether, by the time we come to the Report stage, he will be able to introduce some form of investment allowance to give that shot in the arm which industry needs. In the meantime, I hope that someone will prepare a statement on the degree of importance which the Treasury attaches to initial and investment allowances, so that when we come to the remaining stages of the Bill we can make our contribution to the debate.
§ Mr. Alan Green (Preston, South)
The hon. Member has a practical interest in these matters. Would he agree that, although investment allowances are a potent shot in the arm, it is even more important to make full and efficient use of the investment achieved? I am sure that the hon. Member would not want to leave an impression of creating a kind 1352 of dogma that investment allowances are the whole of the matter, without pointing out that the use of what is invested is at least of equal if not of more importance at present.
§ Mr. Rhodes
Yes, I tried to illustrate that point in a small way by drawing attention to what was said on Monday about firms which had installed new equipment going out of the cotton industry. If equipment is not used round the clock it is a waste of time to install it. That is why, if it is necessary during these next few months to have investment allowances, they may have to be made more selective.
§ Mr. John Cronin (Loughborough)
This proposed Clause crystallises the real anxiety on this side of the Committee about the investment situation and the unfortunate way it has been developing over the last few years. First, I think that we should look at the background against which we are considering this proposed Clause.
Investment in this country has been stagnant for at least the last two years. I see the Paymaster-General wrinkling his brows. Probably he will suggest that at the moment investment is the highest it has ever been, but that is a superficial point of view because, by the very nature of things, one expects investment to increase every year and it is not increasing fast enough or as fast as that of other countries. We are lagging behind severely in the race with our competitors both in Europe and across the Atlantic.
The figures of the O.E.E.C. reports show that this country has probably the lowest rate of investment per capita of Western Europe. It is unfortunate that this deplorable state of affairs should be occurring just when we are considering entering a European Free Trade Area, just when we are considering competing with countries which have a very high standard of investment and, therefore, we are likely to suffer more severely. On top of this, we have entered a recession, and the first section of industry which is affected by a recession is the capital goods part. It seems, therefore, that investment will be depressed lower still.
Of course, investment has been most severely effected by the blunderbuss weapon of monetary policy used by a succession of Conservative Chancellors during the last two or three years. It 1353 is not enough merely to use monetary policy for discouraging inessential investment. It should be used for encouraging essential investment which is vital to our national interest. The really desirable point about this proposed Clause is its selectivity. The hon. Member for Portsmouth, Langstone (Mr. Stevens) was somewhat depressed by this selectivity. He seemed to think it very inequitable, but equity must on some occasions give way to the national interest. If the hon. Gentleman really felt so strongly about favouring one group of taxpayers against others, he might well have voted against the enormous subsidy given to the Surtax payers by the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) comparatively recently. So the hon. Gentleman should not shed these crocodile tears over equity amongst taxpayers.
§ Mr. Cronin
If you are permitted not to pay what you normally would pay, it puts money in your pocket. But I think, Sir Charles, that I ought not to pursue this further, as it would clearly be out of order and I have noticed that any reference to Surtax causes such a state of distemperature on the other side of the Committee that it is not conducive to a high standard of debate.
Returning to what I was saying, we find these days that although the general standard of investment is low in this country, there is a lot of luxury and unnecessary investment. For instance, one has only to glance around London to see great masses of office building going up. This may be nice and desirable, but should this investment have priority when we consider the large number of manufacturing firms which are carrying on with inadequate and obsolescent machinery? The cotton industry is one example.
Over the last few years I have had occasion to drive to Loughborough. A few years ago one had to be careful to ensure that one's tank was full of petrol, 1354 but now one can fill the tank almost every few miles because of the large number of petrol stations that have been built. Are these really necessary? They are probably helpful to the oil companies, but should they have priority investment? On this side of the Committee, we feel that that should not be the case.
The investment allowance is obviously a powerful incentive to investment, and if the Chancellor really wants to increase investment this is clearly the mechanism he should use. Last night he referred to the Report of the Royal Commission on the Taxation of Profits and Income in rather favourable terms. If the right hon. Gentleman will look at paragraph 413 he will see that the Royal Commission came down strongly in favour of investment allowances as opposed to initial allowances. But does the Chancellor really want Ito increase investment? It is not very clear. What is his policy about this? If he could make it a little more clear today that would help us in assessing the future.
Initial allowances, which find favour with right hon. Gentlemen opposite, have the disadvantage of being uncertain and variable. They do not carry the same confidence to business and industry generally. The Chancellor knows that initial allowances have been used for some time and that they are not having a very useful effect. They are rather like a carrot put in front of a donkey which is constantly being drawn away. I believe that the donkey these days needs a carrot put into its mouth, with the promise of more carrots to come. People are much more likely to increase their investment plans if they have a real subsidy in the form of an investment allowance as opposed to what is really a revolving credit, which is really what an initial allowance is.
The average businessman is probably rather disturbed, too, by the extreme variability of Government policy over this matter in the last few years. There have been constant changes. Will he really feel enough confidence to increase his investment in plant and machinery and factory buildings merely by the prospect of getting an increased initial allowance?
§ Mr. Raymond Gower (Barry)
The hon. Gentleman has referred to the constant 1355 changes, but under all Governments in this country, since the war, were not such changes, if not inevitable, rather likely, in view of our continuously precarious and delicately balanced position, which tends itself to change from time to time?
§ Mr. Cronin
The hon. Gentleman has made a fair point, but I think that we should try to achieve as much constancy as possible.
This brings me to another aspect. Industry in general will particularly welcome investment allowances of the type specified in this Clause because it has been put down by the Opposition. Both sides of the Committee must appreciate that, in the nature of things, there must be a General Election next year, and the betting appears to be in favour of a change of Government. I feel sure, therefore, that industry will be pleased to know that this Clause has been proposed by what will probably be the next Government and, therefore, can think in terms of some continuity of policy.
I know that such an argument may not be popular with hon. Members opposite, but this is a very practical argument and one which is very much in the minds of businessmen. I saw last week an article in the Economist or the Financial Times, entitled, "Preparing for a Socialist Government". One feels that this consideration is very much in the mind of the Government and, therefore, should be given due weight by the Chancellor, on the assumption that he really has good intentions with regard to the future of industrial investment.
I think that the Chancellor, in his Budget speech, said that initial allowances would to some extent remedy the hardship suffered by firms which would normally plough back a large part of their profits into capital equipment and, therefore, be likely to suffer by the change in the Profits Tax. If the Chancellor is really concerned about doing justice to those firms—and there are many firms which go to a great deal of trouble to function for the national interest as opposed merely to the interests of their shareholders—I suggest that such firms should receive some encouragement and adequate compensation for what they 1356 have suffered as a consequence of the change in the Profits Tax.
Here is a very useful instrument for the Chancellor to make up for the damage which he has done by this change in the Profits Tax. We have had the arguments in favour of the proposed new Clause very well put from the economic point of view by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) and from a practical and businessman's point of view by my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes). I hope that the Chancellor will study those arguments carefully and, if he cannot accept the new Clause, make some radical changes in his policy in the near future.
§ Mr. B. T. Parkin (Paddington, North)
In rising to support this new Clause, I should like particularly to refer to the importance of the words… industry prescribed as of special national importanceand the definition thatthe produce of that industry … is of special value in increasing exports, saving imports or promoting technical development for the better use of national resources.The value of this Clause, should the Chancellor be disposed to accept it, seems to lie in the fact that he can give some practical encouragement to selected industries along the lines suggested. I have no doubt that many hon. Members would wish to support the case in favour of industries in the constituencies which they represent. For myself, I should like to call the Chancellor's attention to the national importance of the hotel industry. That is, indeed, an important industry and much more important than the public, generally realise. I do not know whether it is generally realised, either in this Committee or elsewhere, that the hotel industry pulls in £130 million a year from foreign tourists. That is not something to be neglected.
I do not know whether my right hon. Friend the Member for Huyton (Mr. H. Wilson) has ever included this in one of his "league tables", but I think that it would be fairly high on the list of industries concerned with the export trade Furthermore, this industry uses resources which are equally available. In some cases it uses the scenery and architecture of this country, which costs nothing and which are still there after they have been used.
1357 The achievement of this high figure of foreign currency earned reflects very great credit on those charged with the duty of publicising tourism in Great Britain in foreign countries, and also upon hoteliers who have done a very good job without hitherto having had any encouragement from the Government.
Good as many good-class hotels are, anyone who looks around can see that too many were not built as hotels at all; they are converted private mansions. That means that the working of them, however ingeniously the conversion has been carried out, is necessarily wasteful of labour, and greater economies could be made if there were a drive to erect better and more up-to-date hotels.
I am not suggesting that all over the country there should be a great burst of new building of hotels, but I am seriously suggesting that it would do a great deal of good to the industry if a few new hotels could be built in London. London, after all, is the first place to which the foreigner comes; it is the show window of the world, and it is generally admitted that its hotel accommodation is inadequate. It would be an advantage to have a few examples of the latest products of the architects' skill and experience in hotel building.
Moreover, if the Chancellor saw fit to encourage this industry, he would increase the chances of bringing in more foreign currency and improving the morale of the industry, which is a little dejected because there are not many ways in which it can ask the Chancellor for assistance. It complains that it has to pay Purchase Tax on the tools of its trade because these are not distinguishable from the same articles used by ordinary domestic users. It complains that it does not get derated as other service industries got derated, and it complains that it cannot get mortgages because it is generally considered to be a risk to lend money on hotels. It has to bear various other burdens like the archaic monopoly tax, which it has to pay, and it does not get any investment allowance.
This is one way in which the industry could be encouraged. Apart from the industry, I submit to the Chancellor that the encouragement of the building of new hotels in London would be an experiment in new techniques in high building, which 1358 it is so important that we should develop and master in this country.
The spread of hotels—I will not say second-rate hotels, but hotels which are bound to be makeshift in so far as they consist of converted existing dwellings—is a serious erosion on the living accommodation in London. If some new hotels could be built that would be the easiest way to bring a profitable return to the industry. It would also give experience of new techniques and bring nearer the time when those new techniques could be applied to housing in general, which remains one of the greatest problems in London.
I think that if the Chancellor were disposed to accept the principle of this new Clause and to look selectively at the industries of this country, he would come to the conclusion that the hotel industry ranks high among those which would bring an increased return of foreign currency earnings if they were encouraged to invest more, and, at the same time, do something to solve other problems of London.
§ Mr. Gower
There is one comment which I should like to make about this new Clause. I am distrustful of the phrase… prescribed as of special national importance.The question that one asks at all stages is: prescribed by whom? Is it to be prescribed by the Government of the day, by a committee of experts, by a special committee of the Treasury, or by Parliament as a whole, as the hon. Gentleman the Member for Paddington, North (Mr. Parkin) suggested?
The hon. Member suggested that there might be competing interests from the separate constituencies of hon. Members. I think that that is a most unsound basis for assessing the value of industry.
§ Mr. Parkin
I do not know whether it is worth While answering that, but I do not think any back bencher would suggest that Parliament itself should prescribe the industries. Parliament has to give the Chancellor a power which we think he ought to have because he has the maximum amount of information at his command. Obviously, individual Members of Parliament would make representations to him in debate as to 1359 which industries are in greatest need. Not only would Members of Parliament make such representations, but they would be made in the whole field of consultation which goes on every day between the Treasury and industries and the Board of Trade and industries throughout the country.
§ Mr. Gower
This seems a rather more subtle and perhaps more generous reassertion of the old phrase, "The gentleman in Whitehall knows best". I do not think it possible, nor indeed desirable—unless it is unavoidable in conditions of supreme emergency—for a committee of experts to forecast future economic developments. Who, twenty years ago, could have asserted that a certain industry would in the long run prove to be our most valuable export? A committee of experts might long ago have rejected, for example, such an industry as the confectionery industry, but I find it possible for such an industry in future to prove to be one of our best sellers overseas. A committee of experts may not foresee the potential of a new discovery. These future trends can generally only be proved by what is sometimes a rather painful and bitter experience.
There may be many hon. Members on both sides of the Committee who have a considerable amount of sympathy for expanding investment, but the whole question is one of very nice judgment by my right hon. Friend who, for the time being, has this dreadful responsibility. I am sure he recognises that both here and in other countries in the free world there is a great deal of apprehension about the discordant advice given by so many economists. There seems a tremendous divergence of view between fairly reputable economists upon the relationship, for example, between inflation and industrial activity. It may not have passed the notice of many hon. Members on both sides of the Committee that those who asserted that if one slowed down economic activity one would thereby prevent any future inflation at all have been demonstrably proved wrong.
On the other hand, it has seemed to me from many speeches they have made, in support of this Clause particularly, that hon. Members opposite are disposed to say one of two things—either that inflation is no longer a real danger, or that 1360 it is a lesser danger. They seem to be advocating that we should now take off the brakes and go ahead. That obviously would also have its danger. While we have sympathy with the idea of increasing investment, I hope that if my right hon. Friend has additional reasons for not accepting this Clause he will at all times be very ready, not only to increase investment, but to increase economic activity generally as and when that becomes desirable.
§ Mr. Harold Wilson (Huyton)
We have never suggested taking off all the brakes and, for the purpose of this recession, the suggestion is not to take off the brakes on consumption, but on investment. In the field of investment we suggest taking off the brakes for certain types of investment particularly necessary to the economy. The hon. Member was wrong in saying, perhaps by a slip of the tongue, that our policy was that of taking off all the brakes. What we need is more accelerator, less brake, but, above all, more steering wheel.
§ Mr. Gower
I accept that statement from the right hon. Member, but he will agree that the whole atmosphere that is expressed—that may be a mixed metaphor—is that there should be a great loosening up at this moment. I submit that the economic position is so obscure, both here and overseas, that my right hon. Friend should not lightly take this step. This is a step which he should hesitate to take before he has more information than is available to the House and the country at the moment.
§ 4.45 p.m.
§ Mr. W. R. Rees-Davies (Isle of Thanet)
This subject has been fairly widely canvassed and it is my duty to be brief at this stage so that we can hear the Chancellor on the matter. A great deal of what I would have said has been covered, and I do not intend to say it over again.
Three things are important on the question of the particular selective industries. Hon. Members have referred to the tourists and catering industry. Very recently the Board of Trade has been doing stalwart work in encouraging and getting together various associations with consultation and conference particularly under my hon. Friend the Parliamentary Secretary to the Board of Trade. There 1361 are three things which the catering industry as a whole requires. First, there is a proper review needed of the Catering Wages Act; secondly there is encouragement of investment; and, thirdly, the question of a measure of derating for rateable hereditaments.
This Clause deals with one question. It is in accordance with the philosophy of the Socialist Party, namely, selective control. Hon. Members opposite ask that special national importance should be prescribed by the Government. I do not like the Clause for that reason. I think it is bad; I think it is unsound to leave completely and entirely in the discretion of the Chancellor, or of any Minister, an absolutely selective right to pick out one industry and exclude another at any given moment.
I strongly urge the Chancellor, not on the vehicle of this Clause but in its spirit, to have a look at the question of investment allowances in the forthcoming year and see that all the ordinary tools of trade of the catering industry can come within the ambit of provided plant. It seems to me that all the things which are necessary to this industry should be considered as part of the responsibility of a grant of investment or capital allowances which would enable the industry properly to capitalise itself.
We have had an excellent debate on this subject. I have listened to every word with great interest, and I think there has been great thought in many of the remarks that have been made and that every single word was relevant.
We have heard arguments advanced for extending investment allowances, either in part or whole, to a variety of industries, either selected by the Government as industries of special national importance or, as the hon. Member for Stechford (Mr. Roy Jenkins) said, if that was too difficult, just for a general extension. I want to make it clear at the start that I do not want to be dogmatic in this matter at all. I think there is great force in the arguments which have been advanced. Many of the aspects of this problem are matters of judgment, and judgment is subjective. I have had to exercise my judgment this year. I have done so to the best of my ability, but I frankly acknowledge that my judgment may not be right. I feel quite humble in this matter because it is an 1362 extremely difficult judgment I have to form this year.
Hon. Members have naturally referred to the fact that there are in existence at present investment allowances for certain purposes, scientific research, approved fuel saving equipment and for the shipping industry. I ought to remind the Committee of the basis on which those activities were selected for special treatment.
In the case of scientific research and fuel saving there is no question of a preference for a particular industry the investment allowance applies to all approved expenditure of that form, regardless of the industry in which it is used. I freely acknowledge that we did exercise a judgment and a discrimination in deciding, on grounds of national economy, that priority should be given to scientific research, but I do not think that anybody will quarrel with that decision. I acknowledge that, in a limited way, that is an exercise of discretion, and therefore a breach. That is why I have said that I do not want to be too dogmatic in this matter.
The extension of investment allowances to shipping comes into a slightly different category. My right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) described it in his Budget speech last year, when he said that the shipping industry wasin a special position. It is faced with severe competition in a world market, often from ships sailing under flags of convenience with small tax liabilities. It finds it increasingly difficult to build up finance for the replacement of its ships when they become obsolete.He went on to emphasise that this wasa unique step for a unique industry which is the life line of our country …"—[OFFICIAL REPORT, 9th April, 1957; Vol. 568. c. 995.]It has been generally accepted that that is a fair assessment of the position of the shipping industry, but again I acknowledge that the argument that it is unique at once invites the reply, "Well, possibly there are other strong cases, too." We have no regrets about giving investment allowances in those three cases, and I do not want to convey the impression that we are having second thoughts in that matter.
I described the economic situation as I saw it in my Budget speech, and I will not repeat what I said except that I 1363 pointed out that it seemed to me that the situation was changing and that we must keep our policies flexible for that reason, and that I should not hesitate to make such changes as I thought were required, in the light of future circumstances. I am trying to carry out that policy at present and, in accordance with it, I have thought it appropriate to increase the initial allowances that I announced at the time of the Budget to a greater extent than in my Budget proposals. As the Committe knows, I proposed that the increases should be doubled. At the time of the Budget I did not think it appropriate to extend the scope of investment allowances and I still do not think so. That is not to say that in no circumstance would it ever be right to consider doing so.
The effect of initial allowances, as an incentive to undertake fresh or additional investment expenditure—that is to say, expenditure which would not otherwise be undertaken—is limited. It is an incentive, but an investment allowance is a stronger incentive. But the problem is not as simple as that. It is possible at any time to over-stimulate investment, even in an industry of primary national importance, with a consequent extravagant and unwise expenditure.
Apart from having some incentive to additional investment, however, I believe that initial allowances are an important psychological incentive to writing off industrial assets over an appropriately short period. In saying that I speak from certain personal experience—as does the hon. Member for Ashton-under-Lyne (Mr. Rhodes). I believe that they are an encouragement to a very good practice.
Apart from the general proposal to substitute investment allowances for initial allowances, my objections to the Clause lie in matters of principle and practice. First, it is extraordinarily difficult—as my hon. Friend the Member for Barry (Mr. Gower) and my hon. Friend the Member for Isle of Thanet (Mr. Rees-Davies) pointed out—to select industries as being of special national importance. We can pick out some, but I do not believe that we can ever make sure that we are doing absolute justice, particularly when we specify industries or certain assets which are going to lead to the better use of material resources. I should have thought 1364 that it was possible to argue that a very large proportion of capital investment has that as its aim.
The less we make it a Government responsibility to make selections of that kind the better it is. The Royal Commission pointed out the difficulties involved in discrimination between industries and said that it was sounder to discriminate between assets than between industries. I agree. My hon. Friend the Member for Barry rightly pointed out the changing importance of industries, and also the impossibility of estimating the real importance of new industries which are cropping up.
The hon. Member for Stechford chastised me in regard to the present degree of stability, but I believe that both in respect of our economy and the level of prices we are in better balance than at any time during the past few years. Statistics always work a little behind the clock, but I believe that they will show that we have achieved a higher degree of balance in price levels than at any time since the war.
§ Mr. Roy Jenkins
Can the right hon. Gentleman expand a little on that slightly cryptical phrase, "the balance of the price level"? I take it that he accepts my figures—which are in fact his own—and will agree that it has not shown itself over the past winter. Does he take the view that the prospect is much better for the next six months? Is that what he means by the word "balance"?
Yes. I take the view that the reductions in prices are working gradually through the economy but have not in all cases fully reached the consumer. I also believe that in the matter of wages there are signs that we are approaching a stage where, if everybody behaves sensibly, we shall achieve a greater measure of stability in production.
Coming back to the Budget, I want to make it plain that at that time I was trying to ensure two things; first, that there should not be a renewal of inflationary pressure and, as a consequence of that, fresh balance of payments troubles, and, secondly, that our policies should not be so rigid that they could not be adjusted as necessary from restriction to stimulation. The hon. Member for Ashton-under-Lyne, speaking from great practical experience, mentioned that the climate is 1365 different today from what it was in 1951, and that business men take a less happy view of the future than they did at that time.
§ 5.0 p.m.
The point is the same, whether we take 1951 or 1954. We were in a period, particularly in 1951, of pretty brisk inflation. I would also remind the hon. Member for Ashton-under-Lyne that total investment is very much higher than it was in either of those two years. The hon. Member for Loughborough (Mr. Cronin) referred to the present level of investment and then to stagnation. If there is stagnation, it is at a relatively high level, and an all-time record for this country.
I was asked what I would like to see happen to investment. I would like to see private investment go still higher from the record level of last year. If it does go higher again, we must remember that there may be limits to the pace and we must be sure that the pace is within our resources. The hon. Member for Paddington, North (Mr. Parkin) and my hon. Friend the Member for Isle of Thanet referred to the hotel industry. It is our policy and practice to interpret the capital allowances for the hotel industry as generously as we possibly can, in regard to the interpretation of "plant and equipment." I agree entirely with the importance of the hotel and catering industries and we shall continue to keep the matter under sympathetic consideration.
I would add that I shall continue to study the effects of the investment allowances when they are applied and of the proposed higher initial allowances, to see what the consequences are. In the meantime, I believe that the step I have taken of raising the initial allowances, although I agree that it is a subjective judgment and that other people may take a contrary view—I am not going to be dogmatic about whether I am right or wrong—was a sensible decision. In the circumstances, I am afraid that I cannot advise the Committee to accept the proposed new Clause.
§ Mr. H. Wilson
With one thing that the Chancellor said I find myself in agreement, that this has been an interesting debate. In accordance with what I said 1366 at a very late hour last night or early this morning, it is right that these debates should be brief and pithy because there is a lot of ground to cover. I shall be brief in following the Chancellor.
In what the right hon. Gentleman has said he has given himself away. He is usually very cautious and usually says no word that means very much. The blessed word "flexible" covers a lot of vices and few virtues; the right hon. Gentleman usually gives nothing away. I have admired the way in which he makes his public speeches. However much one inspects them, as the City editors do, we find no real meaning or significance in what he has been saying. By some unaccountable lapse he has now given himself away. He said that his hope was to see private investment rise above last year's record level, yet we know that the right hon. Gentleman is holding down public investment so that it cannot rise above last year's level.
So far from holding the ring between the two forms of investment, whether essential or inessential, it looks as though the right hon. Gentleman, while holding down most of public investment which is highly essential, is giving private investment a bias in the wrong direction. For the first time I almost find myself in agreement with Government supporters about the "gentleman in Whitehall", who is now embarking upon a policy of selectivity but is selecting the wrong things to expand.
I said I would be brief. I spoke at some length on Clause 13 when the Chancellor made his epoch-making announcement about his fiddling little increase in initial allowances, and I do not want to repeat now what I said on that occasion. There will be an opportunity on Report, when the Chancellor tables his Amendment on initial allowances, but I want to make three comments to underline what the right hon. Gentleman said about the need for more capital allowances.
It is not really true, as the Chancellor said in reply to my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes), that investment is now higher than it was in 1954. That year saw the beginning of an enormous boom. Although there is still a certain amount of spending going on it is the finishing off process of capital investment. They are putting on the last coat of paint to 1367 the factories started during the investment boom.
We now need a big increase in investment. If we look at the figures for Europe this will be evident. Many times in the House I have given an account of these, but now let me give figures which I have not previously given. In 1956 we were spending 15 per cent. of our national income in all forms of investment. In the same year, the Netherlands were spending 25 per cent., Germany 23 per cent., Italy 20 per cent. and France 17 per cent. It is not enough to say, after seven years of Tory freedom, business men's Government, etc., that we are devoting a smaller amount of our capital investment than France with all her problems. France has been almost continuously at war on some front or another for many years.
The whole Committee agrees about the need for more capital investment. The Chancellor made quite a reasonable speech a few days ago when he said that it was time to take off the brakes, to see ahead, to go round the corner, and so on. He wanted to see expansion begin by investment and not by consumption. We are all in complete agreement, because that was the theme that we have taken in these debates for many years past. During the peak of our boom we said, "Let us maintain investment and cut down inessential consumption und the inessential factors in investment." Since the recession began we have said, "Let us begin selectivity and expand investment." It was in the Budget debate, 1957, that I suggested to the then Chancellor of the Exchequer, the right hon. Member for Monmouth (Mr. P. Thorneycroft) that he should announce a forthcoming restoration of investment allowances. It was a great pity that he did not. We should have seen a piling up of investment in the third quarter of last year.
We agree with the Chancellor that we want to see expansion taking place in investment rather than in consumption, so let us be frank about this. We are not hesitant about saying it. It may be necessary in present conditions to hold down consumption by budgetary and other means in order that investment can have a go. I agree with what is sometimes said from Government benches 1368 that if we get to the point where inflation is a real danger it may be necessary and desirable to hold back consumption in order that investment can have a clear priority in its call on the resources of this country.
There are various means of encouraging private investment. We are all speaking about private investment at this point, because public investment could increase considerably if the Chancellor took off the brake on public investment. There are various means. Initial allowances have been mentioned and they are obviously a rather favourite method of the hon. Member for Langstone (Mr. Stevens). Investment allowances are proposed in the new Clause and there are other means. Some industrialists advocate a more rapid write-off of capital equipment as a means of increasing capital investment. We all know how powerful a factor that was, for example, in the United States during the Korean rearmament period, when America allowed a five-year write-off of war plants and plants in essential industry.
Other industrialists have advocated their different proposals. One which I have seen recently is a suggestion that Profits Tax should be levied—and Income Tax too—not on profits as at present calculated, but on gross profits, and that there should be an offset against taxation of 100 per cent. of actual capital investment expenditure within the year. That is an interesting proposition. We all see many snags in it. It is obviously a difficult one to propose. It would be, in effect, a levy on those firms which are not expanding their investment and a strong incentive to those who are. There are, therefore, various means within the taxation field of encouraging investment.
There are various means by which the Government could do it outside the taxation field, the most obvious being direct—
§ The Temporary Chairman (Sir Robert Grimston)
The right hon. Gentleman is getting a little wide of the new Clause.
§ Mr. Wilson
I fully accept that, Sir Robert. I am trying to suggest the reasons why we favour the investment allowances among the various methods. In view of what you have said, I will not pursue the various other means which could be used. All we can do in discussing the new Clause is to refer to those within the 1369 taxation field and only those which do not in any way, directly or indirectly, impose a charge on any taxpayer. In the new Clause, we have proposed investment allowances, although we consider that this would be only part of a much wider scheme of expanding investment and that there are other means which must take place at the same time if the Clause was to be effective, means which, in view of your intervention, Sir Robert, I will not proceed to specify.
The Lord Privy Seal, who invented investment allowances, introduced them in 1954 with a great fanfare of trumpets and his great speech about "Invest in success". Most of those who did so have, of course, regretted it ever since. It was the present Prime Minister who abolished the investment allowances on 17th February, 1956. I sometimes feel that Members of this Committee, especially on this side, are a little unfair to the right hon. Member for Monmouth (Mr. P. Thorneycroft) in suggesting that he was the author of these restrictive policies. It started to some extent with the Lord Privy Seal, but the real author of restrictive policies was the Prime Minister. It was he who first enunciated as a matter of economic doctrine that we had been expanding too fast or producing too much and that we must apply the brake and reduce our national rate of production. All that the unfortunate former Chancellor, the right hon. Member for Monmouth, had to do was to intensify that policy when he got into a panic last September. As we know, he was advised by various obsolete economists and he carried his proposals to a point which went far beyond even the views of his advisers in the Treasury.
So we have had the investment allowances. There is no doubt, as, I think, hon. Members in all parts of the Committee will agree, that the Lord Privy Seal's introduction of them was accompanied with great success in expanding investment. He stood at the Dispatch Box year after year wringing his hands and complaining that the private sector would not expand its investment. The public sector was doing so in a very satisfactory manner. But it was when the right hon. Gentleman introduced the investment allowances that there was this great release, this great boom in investment, which unfortunately, because the Tory Party will not accept controls, nearly 1370 brought the country to the verge of bankruptcy because it went too far, it went in the wrong direction and it was accompanied with an uncontrolled consumption boom at the same time.
We say that provided there are the right controls and it is selectively done, it could be a great boom. I am prepared, as I always have been to pay tribute to the Lord Privy Seal for his initiative in introducing this idea of investment allowances as one part of a policy selectively to increase investment.
The second thing I want to say, much more briefly, is that in the present industrial situation the need for an expansion of investment is urgent. We have disagreed with the right hon. Gentleman's assessment and diagnosis of our economic position. All the things that he is now saying with such an air of discovery, all the things that the Prime Minister apparently said in Washington, we said from these benches last summer and last autumn—all the questions about the need for expansion, the need for more liquidity in world trade and all the rest.
I am sorry for the Chancellor. I have expressed my sympathy for him before and I know that he appreciates this. Having to succeed his right hon. Friend the Member for Monmouth, the circumstances of whose going were marked by some rather special circumstances, the Chancellor has never been free—perhaps he is just becoming free now—to follow his own judgment about the economic situation. The one thing he had to do was to prove that he would out-Herod Herod in the matter of economic restriction and in the fight against an inflation which is long past.
Therefore, in this year's Budget, when, I say frankly, it was difficult for anyone in any part of the House to make an accurate forecast of the future—I admitted it at the time—the Chancellor leaned over backwards to show that he was a better restrictionist and a more doughty fighter against inflation even than his predecessor. It was because of that that he could not see what was happening to British industry.
In the debate on Clause 13, on the Question "That the Clause stand part of the Bill," when the Chancellor announced the increase in the initial allowances, I said that he must not be 1371 misled by the relatively small figures of unemployment. I gave figures to show that in each successive month of this year, the numbers unemployed compared with the same period of 1957 had been increasing. For example there were 70,000 more in March, 100,000 more in April and 130,000 more in May. I said also that the fact that there were only roughly 2 per cent. unemployed did not mean that industry was working at 98 per cent of capacity. There is a great waste and under-use of labour and capacity.
Speaking right off the cuff—I was not making considered statements—I said in the debate a fortnight ago that a large number of British firms could today increase their production by 10, 20, 30 or 40 per cent. without any increase in labour or without stretching their resources. Since then, we have had the F.B.I. report, which clearly underlines the truth of what I was saying.
I have no statistical knowledge on which to base myself, but we now know that the F.B.I. report shows that of some 540 firms, 76 per cent. consider that they are working below capacity. I know that that is a rather indefinable phrase. It needs interpreting with what the Chancellor would, no doubt, call a little flexibility. Nevertheless, if the same question had been put to British industry two, three, four, six or seven years ago, we should have had a very different answer.
It is clear that we are now facing a partial recession. I know that the Chancellor thinks—the Prime Minister has put the idea into his head—that if the recession develops, it will be easy to put it into reverse. I must, however, warn him again that that is not the position. Once a psychology of recession has been created, any amount of easement of credit squeezes and other restrictions will not of itself restore full production and the continuance of economic growth.
That is why we stress the importance of expanding investment. That is the point from which we begin, the escape from the recession which the Government have brought upon our economy. It is in any case the means of raising not only our standard of living, but our competitiveness with the other nations with whom we are meeting stronger and stronger export competition in the markets of the world.
1372 My third and final point is the principle of selectivity, which we have stressed in the new Clause. I know that there are difficulties about it. It means that someone must say which are the essential industries and which are not. Successive Chancellors in the past have said it when they have introduced investment allowances for certain industries, such as shipping and the others which have been mentioned in this debate. Somebody must take these decisions. Under the credit squeeze, it is the unfortunate bank managers who are being forced to take them. It is not that we have no control, but that we have a Government who are afraid of taking the responsibility for the controls which they introduce.
I suggest that on the principle enunciated in the proposed Clause the Government would have the clear responsibility of saying which sectors of the economy should expand. It is obvious that some are more essential than others. It is more important to be building up the steel industry than the breweries, despite the help given in the opposite direction by the Chancellor with his Profits Tax changes. It is more important to be building up the machine tool industry and the engineering industries, especially those with a big export demand, than industries which are merely useful and pleasant, such as laundries and commercial television. It makes sense to distinguish between them.
We are afraid that as soon as they feel that they are within a sufficient distance of the next General Election the Government will suddenly let up. Indeed, we know they will. As soon as the Prime Minister gets the scent of battle, he will, like an old political warhorse, be pounding the ground with his feet, and we know what will happen. He will cast aside all the warnings that we have heard from three or four successive Chancellors and say, "Now is the time for expansion". We shall then have an expansion such as we had in 1954 and 1955 on the eve of the General Election of that time. The General Election will then take place against a background of rising investment, full employment and overtime, and it will be left to the next Government, which will be supplied from this side of the House, to clear up the mess. It was a shock to the Tories last time when they found they had to clear up the mess created by the boom.
1373 Under Tory methods of encouraging investment, all we can get is a boom leading either to stagnation in investment or inflation, balance of payments crises, shortage of resources, and a scramble for materials and labour. That is why we have stressed in our Clause the importance of selectivity between essential and non-essential investment.
In view of the Chancellor's cautious attitude and, I am afraid, his regrettable recommendation that the new Clause should not be accepted, we have no alter-
§ native to pressing the matter in the Lobby, making it clear as we do so that we regard this as one important part—because of the rules of order, the only important part that we have sought to deal with on the Notice Paper—of a selective policy of expansion of investment in British industry.
§ Question put, That the Clause be read a Second time:—
§ The Committee divided: Ayes 181, Noes 229.1375
|Division No. 186.]||AYES||[5.23 p.m.|
|Ainsley, J. W.||Hastings, S.||Paget, R. T.|
|Albu, A. H.||Hayman, F. H.||Palmer, A. M. F.|
|Allaun, Frank (Salford, E.)||Healey, Denis||Parkin, B. T.|
|Allen, Arthur (Bosworth)||Henderson, Rt. Hn. A. (Rwly Regis)||Paton, John|
|Awbery, S. S.||Herbison, Miss M.||Pearson, A.|
|Bacon, Miss Alice||Hobson, C. R. (Keighley)||Peart, T. F.|
|Balfour, A.||Holman, P.||Pentland, N.|
|Bellenger, Rt. Hon. F. J.||Houghton, Douglas||Plummer, Sir Leslie|
|Benson, Sir George||Howell, Denis (All Saints)||Popplewell, E.|
|Bevan, Rt. Hon. A. (Ebbw Vale)||Hoy, J. H.||Price, J. T. (Westhoughton)|
|Blackburn, F.||Hughes, Emrys (S. Ayrshire)||Price, Philips (Gloucestershire, W.)|
|Blenkinsop, A.||Hughes, Hector (Aberdeen, N.)||Probert, A. R.|
|Blyton, W. R.||Hynd, H. (Accrington)||Proctor, W. T.|
|Boardman, H.||Hynd, J. B. (Attercliffe)||Pursey, cmdr. H.|
|Bottomley, Rt. Hon. A. G.||Irving, Sydney (Dartford)||Rankin, John|
|Bowden, H. W. (Leicester, S. W.)||Isaacs, Rt. Hon. G. A.||Redhead, E. C.|
|Brockway, A. F.||Janner, B.||Reeves, J.|
|Broughton, Dr. A. D. D.||Jay, Rt. Hon. D. P. T.||Reid, William|
|Brown, Rt. Hon. George (Belper)||Jeger, George (Goole)||Reynolds, G. W.|
|Brown, Thomas (Ince)||Jeger, Mrs. Lena (Holbn & St. Pncs. S.)||Rhodes, H.|
|Burke, W. A.||Jenkins, Roy (Stechford)||Robens, Rt. Hon. A.|
|Butler, Herbert (Hackney, C.)||Johnston, Douglas (Paisley)||Roberts, Goronwy (Caernarvon)|
|Callaghan, L. J.||Jones, David (The Hartlepools)||Robinson, Kenneth (St. Pancras, N.)|
|Champion, A. J.||Jones, J. Idwal (Wrexham)||Shinwell, Rt. Hon. E.|
|Chapman, W. D.||Kenyon, C.||Short, E. W.|
|Chetwynd, G. R.||Key, Rt. Hon. C. W.||Silverman, Julius (Aston)|
|Clunie, J.||King, Dr. H. M.||Simmons, C. J. (Brierley Hill)|
|Collins, V. J. (Shoreditch & Finsbury)||Lawson, G. M.||Smith, Ellis (Stoke, S.)|
|Corbet, Mrs. Freda||Ledger, R. J.||Snow, J. W.|
|Craddock, George (Bradford, S.)||Lee, Frederick (Newton)||Sorensen, R. W.|
|Cronin, J. D.||Lee, Miss Jennie (Cannock)||Soskice, Rt. Hon. Sir Frank|
|Crossman, R. H. S.||Lever, Leslie (Ardwick)||Sparks, J. A.|
|Darling, George (Hillsborough)||Lindgren, G. S.||Stewart, Michael (Fulham)|
|Davies, Ernest (Enfield, E.)||Lipton, Marcus||Stones, W. (Consett)|
|Davies, Stephen (Merthyr)||Logan, D. G.||Stross, Dr. Barnett (Stoke-on-Trent, C.)|
|Deer, G.||Mabon, Dr. J. Dickson||Summerskill, Rt. Hon. E.|
|de Freitas, Geoffrey||McAlister, Mrs. Mary||Swingler, S. T.|
|Delargy, H. J.||McCann, J.||Taylor, Bernard (Mansfield)|
|Diamond, John||MacDermot, Niall||Thomas, George (Cardiff)|
|Donnelly, D. L.||McInnes, J.||Tomney, F.|
|McLeavy, Frank||Ungoed-Thomas, Sir Lynn|
|Dugdale, Rt. Hn. John (W. Brmwch)||MacPherson, Malcolm (Stirling)||Viant, S. P.|
|Ede, Rt. Hon. J. C.||Mahon, Simon||Warbey, W. N.|
|Edelman, M.||Mallalieu, E. L. (Brigg)||Watkins, T. E.|
|Edwards, Rt. Hon. Ness (Caerphilly)||Mallalieu, J. P. W. (Huddersfd, E.)||Weitzman, D.|
|Edwards, W. J. (Stepney)||Mann, Mrs. Jean||Wheeldon, W. E.|
|Evans, Edward (Lowestoft)||Mason, Roy||White, Mrs. Eirene (E. Flint)|
|Fernyhough, E.||Mikardo, Ian||Willey, Frederick|
|Fletcher, Eric||Mitchison, G. R.||Williams, David (Neath)|
|Foot, D. M.||Monslow, W.||Williams, Rev. Llywelyn (Ab'tillery)|
|Fraser, Thomas (Hamilton)||Morrison, Rt. Hn. Herbert (Lewis'm, S.)||Williams, Rt. Hon. T. (Don Valley)|
|Gaitskell, Rt. Hon. H. T. N.||Moss, R.||Willis, Eustace (Edinburgh, E.)|
|George, Lady Megan Lloyd (Car'then)||Moyle, A.||Wilson, Rt. Hon. Harold (Huyton)|
|Gibson, C. W.||Neal, Harold (Bolsover)||Winterbottom, Richard|
|Gordon Walker, Rt. Hon. P. C.||Noel-Baker, Francis (Swindon)||Woodbum, Rt. Hon. A.|
|Greenwood, Anthony||Noel-Baker, Rt. Hon. P. (Derby, S.)||Yates, V. (Ladywood)|
|Grenfell, Rt. Hon. D. R.||Oliver, G. H.||Younger, Rt. Hon. K.|
|Grey, C. F.||Oram, A. E.||Zilliacus, K.|
|Griffiths, David (Rother Valley)||Orbach, M.|
|Hall, Rt. Hn. Glenvil (Colne Valley)||Oswald, T.||TELLERS FOR THE AYES:|
|Hamilton, W. W.||Owen, W. J.||Mr. John Taylor and Mr. Rogers.|
|Harrison, J. (Nottingham, N.)||Padley, W. E.|
|Agnew, Sir Peter||Green, A.||Nugent, G. R. H.|
|Allan, R. A. (Paddington, S.)||Grimond, J.||Oakshott, H. D.|
|Alport, C. J. M.||Grimston, Hon. John (St. Albans)||O'Neill, Hn. Phelim (Co. Antrim, N.)|
|Amory, Rt. Hn. Heathcoat (Tiverton)||Gurden, Harold||Orr, Capt. L. P. S.|
|Anstruther-Gray, Major Sir William||Harris, Frederic (Croydon, N. W.)||Orr-Ewing, Charles Ian (Hendon, N.)|
|Arbuthnot, John||Harris, Reader (Heston)||Osborne, C.|
|Ashton, H.||Harrison, A. B. C. (Maldon)||Page, R. G.|
|Atkins, H. E.||Harvey, Sir Arthur Vere (Macolesf'd)||Panned, N. A. (Kirkdale)|
|Baldock, Lt.-Cmdr. J. M.||Harvey, John (Walthamstow, E.)||Partridge, E.|
|Baldwin, Sir Archer||Head, Rt. Hon. A. H.||Peel, W. J.|
|Barber, Anthony||Heald, Rt. Hon. Sir Lionel||Pickthorn, K. W. M.|
|Barlow, Sir John||Heath, Rt. Hon. E. R. G.||Pilkington, Capt. R. A.|
|Barter, John||Henderson-Stewart, Sir James||Pitman, I. J.|
|Batsford, Brian||Hesketh, R. F.||Powell, J. Enoch|
|Barter, Sir Beverley||Hicks-Beach, Maj. W. W.||Price, Henry (Lewisham, W.)|
|Beamish, Col. Tufton||Hirst, Geoffrey||Profumo, J. D.|
|Bell, Philip (Bolton, E.)||Hobson, John (Warwick & Leam'gt'n)||Ramsden, J. E.|
|Bell, Ronald (Bucks, S.)||Holland-Martin, C. J.||Rawlinson, Peter|
|Bennett, F. M. (Torquay)||Holt, A. F.||Redmayne, M.|
|Bevins, J. R. (Toxteth)||Hope, Lord John||Rees-Davies, W. R.|
|Bidgood, J. C.||Horobin, Sir Ian||Renton, D. L. M.|
|Biggs-Davison, J. A.||Howard, Gerald (Cambridgeshire)||Ridsdale, J. E.|
|Bishop, F. P.||Hughes-Young, M. H. C.||Roberts, Sir Peter (Heeley)|
|Black, C. W.||Hutchison, Michael Clark (E'b'gh, S.)||Robertson, Sir David|
|Bonham Carter, Mark||Hyde, Montgomery||Robinson, Sir Roland (Blackpool, S.)|
|Bottom, Sir Alfred||Hylton-Foster, Rt. Hon. Sir Harry||Rodgers, John (Sevenoaks)|
|Boyle, Sir Edward||Iremonger, T. L.||Roper, Sir Harold|
|Braine, B. R.||Irvine, Bryant Godman (Rye)||Ropner, Col. Sir Leonard|
|Braithwaite, Sir Albert (Harrow, W.)||Jenkins, Robert (Dulwich)||Scott-Miller, Cmdr. R.|
|Bromley-Davenport, Lt.-Col. W. H.||Jennings, Sir Roland (Hallam)||Sharples, R. C.|
|Brooke, Rt. Hon. Henry||Johnson, Dr. Donald (Carlisle)||Shepherd, William|
|Browne, J. Nixon (Craigton)||Johnson, Eric (Blackley)||Simon, J. E. S. (Middlesbrough, W.)|
|Bryan, P.||Joseph, Sir Keith||Spearman, Sir Alexander|
|Burden, F. F. A.||Kerr, Sir Hamilton||Speir, R. M.|
|Butcher, Sir Herbert||Kershaw, J. A.||Spence, H. R. (Aberdeen, W.)|
|Butler, Rt. Hn. R. A. (Saffron Walden)||Kimball, M.||Stanley, Capt. Hon. Richard|
|Campbell, Sir David||Lagden, G. W.||Stevens, Geoffrey|
|Cary, Sir Robert||Leather, E. H. C.||Steward, Harold (Stockport, S.)|
|Channon, Sir Henry||Leavey, J. A.||Steward, Sir William (Woolwich, W.)|
|Chichester-Clark, R.||Leburn, W. G.||Stoddart-Scott, Col. Sir Malcolm|
|Cole, Norman||Legge-Bourke, Maj. E. A. H.||Storey, S.|
|Conant, Maj. Sir Roger||Legh, Hon. Peter (Petersfield)||Stuart, Rt. Hon. James (Moray)|
|Studholme, Sir Henry|
|Cooke, Robert||Lindsay, Martin (Solihull)||Summers, Sir Spencer|
|Cooper-Key, E. M.||Linstead, Sir H. N.||Sumner, W. D. M. (Orpington)|
|Craddock, Beresford (Spelthorne)||Lloyd, Maj. Sir Guy (Renfrew, E.)||Taylor, Sir Charles (Eastbourne)|
|Crowder, Sir John (Finchley)||Lloyd, Rt. Hon. Selwyn (Wirral)||Taylor, William (Bradford, N.)|
|Dance, J. C. G.||Lucas, Sir Jocelyn (Portsmouth, S.)||Teeling, W.|
|Davidson, Viscountess||Lucas, P. B. (Brentford & Chiswick)||Temple, John M.|
|D'Avigdor-Goldsmid, Sir Henry||Lucas-Tooth, Sir Hugh||Thomas, Leslie (Canterbury)|
|Deedes, W. F.||McAdden, S. J.||Thompson, Kenneth (Walton)|
|Digby, Simon Wingfield||Macdonald, Sir Peter||Thompson, R. (Croydon, S.)|
|Donaldson, Cmdr. C. E. McA.||Mackeson, Brig. Sir Harry||Thorneycroft, Rt. Hon. P.|
|Drayson, G. B.||McKibbin, Alan||Thornton-Kemsley, Sir Colin|
|du Cann, E. D. L.||Mackie, J. H. (Galloway)||Tiley, A. (Bradford, W.)|
|Dugdale, Rt. Hn. Sir T. (Richmond)||McLaughlin, Mrs. P.||Tilney, John (Wavertree)|
|Duncan, Sir James||Maclean, Sir Fitzroy (Lancaster)||Turton, Rt. Hon. R. H.|
|Eden, J. B. (Bournemouth, West)||MacLeod, John (Ross & Cromarty)||Tweedsmuir, Lady|
|Elliott, R. W. (Ne'castle upon Tyne, N.)||Macmillan, Rt. Hn. Harold (Bromley)||Vane, W. M. F.|
|Emmet, Hon. Mrs. Evelyn||Macmillan, Maurice (Halifax)||Vaughan-Morgan, J. K.|
|Errington, Sir Eric||Macpherson, Niall (Dumfries)||Vickers, Miss Joan|
|Farey-Jones, F. W.||Maddan, Martin||Vosper, Rt. Hon. D. F.|
|Finlay, Graeme||Markham, Major Sir Frank||Wade, D. W.|
|Fletcher-Cooke, C.||Marlowe, A. A. H.||Wakefield, Edward (Derbyshire, W.)|
|Fort, R.||Marshall, Douglas||Wakefield, Sir Wavell (St. M'lebone)|
|Fraser, Hon. Hugh (Stone)||Mathew, R.||Wall, Patrick|
|Fraser, Sir Ian (M'cambe & Lonsdale)||Maudling, Rt. Hon. R.||Ward, Rt. Hon. G. R. (Worcester)|
|Gammans, Lady||Medlicott, Sir Frank||Ward, Dame Irene (Tynemouth)|
|Garner-Evans, E. H.||Molson, Rt. Hon. Hugh||Watkinson, Rt. Hon. Harold|
|George, J. C. (Pollok)||Moore, Sir Thomas||Webbe, Sir H.|
|Gibson-Watt, D.||Morrison, John (Salisbury)||Whitelaw, W. S. I.|
|Glover, D.||Nabarro, G. D. N.||Williams, Paul (Sunderland, S.)|
|Glyn, Col. Richard H.||Nairn, D. L. S.||Wilson, Geoffrey (Truro)|
|Godber, J. B.||Nicholls, Harmar||Wood, Hon. R.|
|Gower, H. R.||Nicholson, Sir Godfrey (Farnham)||Woollam, John Victor|
|Graham, Sir Fergus||Nicolson, N. (B'n'm'th, E. & Chr'ch)|
|Grant, Rt. Hon. W. (Woodside)||Noble, Comdr. Rt. Hon. Allan||TELLERS FOR THE NOES:|
|Grant-Ferris, Wg. Cdr. R. (Nantwich)||Noble, Michael (Argyll)||Sir Gerald Wills and|
|Colonel J. H. Harrison|