Clause 15.—(INCREASE OF CERTAIN INITIAL ALLOWANCES.) (Hansard, 15 July 1958)

Mr. Amory
I beg to move, in page 8, line 20, to leave out "one-eighth" and to insert "three-twentieths".
The object of this Amendment and of the four which immediately follow it, and also the Amendments to page 8, line 43, and page 9, line 3, is simply to give effect to the proposal I announced on 17th June to increase the rates of initial allowances for capital expenditure incurred on or after the Budget day to 30 per cent. for plant and machinery and 15 per cent. for industrial buildings instead of to 25 per cent. and to 12½ per cent. respectively, as I proposed originally in my Budget statement.
I do not think that there is any need for me to repeat the reasons which I then gave for this change; I think that they were generally accepted as sound by both sides of the Chamber. I know that different views are held as to the precise value of initial allowances as compared with investment allowances, but for the reasons I gave I feel that an increase in initial allowances this year was the appropriate step to take, and I hope that the proposal to increase the rates by more than I originally proposed will be acceptable to the House.

§ Mr. Roy Jenkins
The Chancellor knows that we do not in any way oppose the Amendments, even though we are slightly sceptical about the adequacy of the stimulus contained within them, but there is one point that I want to put to the Chancellor, in the hope that he might give the House a little more information by way of a further brief intervention.
In the sphere of investment there are obviously two sectors which might be stimulated—the private and the public—and the Chancellor will recall that he and I had an exchange at Question Time today on this matter. I understand that his view is that there is no likelihood of investment in the private sector rising above the level which it attained last year and that this, in effect, is a measure taken to counteract what appears to him to be a declining level of private investment. This is an attempt to hold it near the present level.
On this basis he considers that there is no discrimination against the public sector, because that is also being held level. 1160 He sees the problem in the private sector to be one of holding investment at the level at which it stood last year, if that is possible. Could he possibly clear up that point?

Mr. Amory
Yes. The hon. Member has set out the position quite accurately. The level of private investment last year was an all-time record. I would be sorry to see it go down; I would like to see it go up, even above that all-time level, and I hope that that will be possible in due course, because we want a high investment economy.
As for the public sector, again the level being maintained this year is an all-time record. But there the control is much more direct, and there is no need to provide an incentive for an increase. At any moment the Government consider it appropriate they can bring about an increase directly. But we can influence the private sector in a far less direct way, and it is because I think that there is a risk that private investment may be falling somewhat at present that I am anxious to provide a further incentive.

§ Mr. Roy Jenkins
I am very grateful to the Chancellor for that intervention, and for clearing up the point to some extent, but I hope that we can be assured—and this did not emerge clearly from what the Chancellor said—that if we got into a position when it was possible to stimulate private investment above the level of last year the Chancellor would immediately remove the ceiling on investment in the nationalised industries. We think that this should be done earlier, but it should certainly be done in those circumstances.
It seems much more likely, however, that the ceiling on the nationalised industries is to be maintained, and that in the private sector the struggle will be to prevent a fall in the level of investment and not to create a rise, because it is very difficult to see any other factor in the economy at present which will lead to an increased level of demand. Exports are falling, Government expenditure is steady, and there is no reason for consumption expenditure to rise. If this is so, then surely the Chancellor will agree that, looking towards the autumn, there is no factor making for a stimulus to demand generally and a number of factors which may well operate in the opposite direction.
1161 One of the things about which we are afraid in these circumstances is this. Investment expenditure takes rather longer to stimulate than does consumption expenditure. We believe that a stimulus is necessary. We would rather it were applied to the investment sector than to the consumption sector. What we think is the danger in the Chancellor's rather tardy steps is that he is taking them too late and that they are too short.
A situation will arise in the autumn in which the right hon. Gentleman will be desperately anxious to step up demand and then he will turn, because it will be a more sensitive mechanism, to relaxing hire-purchase control when it would have been better in the summer on the investment sector. I hope that the right hon. Gentleman will keep these points in mind.

Mr. Amory
I beg to move, in page 8, line 40, at the end to insert: (3) Notwithstanding subsection (3) of section fifteen of the Finance Act, 1956 (which exempted certain fuel economy expenditure from the suspension of investment allowances) an initial allowance under Chapter I or Chapter II of the said Part X shall, if the person entitled so elects, be made instead of an investment allowance in respect of any such expenditure as is mentioned in paragraph (a) or paragraph (b) of that subsection, being expenditure to which this section applies. The purpose of this Amendment and of the consequential Amendment in page 9, line 23, is to give the taxpayer an option to choose the new rates of initial allowance instead of the investment allowance in respect of certain fuel economy expenditure which qualifies for investment allowances. As the law stands, there is no general option to take an initial allowance instead of an investment allowance. Indeed, there has been no need for such an option since, in general, rates of investment allowance have been equal to the current rate of initial allowances.
1162 The House will remember that under the Finance Act, 1956, certain types of expenditure were exempted from the general suspension of investment allowances—expenditure on ships, on scientific research and prescribed fuel economy plant. Ships attract an investment allowance of 40 per cent., so I do not think that there is need of an option there. Nor does it arise in connection with scientific research expenditure, since there it is not a question of an initial allowance in the normal sense; it gets a specially rapid rate of annual write off instead.
Expenditure on fuel economy plant which attracts the investment allowance of 20 per cent. now qualifies for 30 per cent. initial allowance. Although probably the investment allowance is usually the more attractive, still there may be cases in which the taxpayer may prefer to have the more immediate effect of the 30 per cent. initial allowance. I think it is right, therefore, that the trader should have the option to judge which best suits his circumstances. I think it likely that this Amendment will receive general support, and I commend it to the House accordingly.