Clause 13.—(INCREASE OF CERTAIN INITIAL ALLOWANCES.)

HC Deb 17 June 1958 vol 589 cc960-1030

6.45 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I beg to move, in page 8, line 9, at the end to insert: Provided that this subsection shall not apply in respect of expenditure incurred on the provision of road vehicles unless they are of a type not commonly used as private vehicles and unsuitable to be so used or are provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade.

The Temporary Chairman

It will probably be for the convenience of the Committee to consider at the same time the next Amendment in the name of the right Dn. Member for Huyton (Mr. H. Wilson), in line 9, at end insert: Provided that in computing any additional initial allowance to be made to a person for any year by virtue of this subsection there shall be disregarded an amount equal to the annual average of the expenditure (if any) allowed to be deducted in computing profits and gains for the purposes of income tax for that and for the two next preceding years being expenditure incurred by that person on the provision of road vehicles which are of a type commonly used as private vehicles or not unsuitable to be so used and are not provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade.

Mr. Jenkins

The purpose of the first Amendment is that the increase in initial allowances shall not apply to expenditure on private motor cars. The purpose of the Clause as a whole, I take it, is to give a fillip to the at present slightly declining rate of industrial re-equipment. The Opposition are certainly in general support of the Clause in its endeavour to achieve that purpose, though we think it does not go far enough in that direction.

It is extremely doubtful, however, whether any hon. Member would argue that the supply of private motor cars is in real terms a piece of industrial equipment, as we normally understand the phrase. In the first place, I think it is undoubtedly the case that the purchase by firms of motor cars of a private type is at present almost entirely a replacement demand. To a very much less extent is it an increase in their total fleet of motor cars than a question of year by year providing directors or executives in the firm with new cars at a very rapid rate of turnover.

Apart from the fiscal unfairness which is very often involved in this practice, I should say that on the whole the purchase of motor cars in this way at an almost steadily increasing rate of turnover is, if anything, a drain on the investment resources of the companies concerned, particularly as I think that the practice of buying large and expensive motor cars at frequent intervals for directors or high executives is one which operates more proportionately in medium sized and small companies than in big companies. I think that in a large number of cases the practice encouraged by the present working of the initial allowances stepped up by the Clause would lead to an undesirable drain of investment resources rather than an addition to the true rate at which the firms build up their productive capacity.

In dealing with the Amendment we have to consider not only the fairness of the existing position and the extent to which it is desirable to encourage investment of this sort but also the effect which our Amendment would have upon the state of the motor industry. As I represent a constituency which has a very great interest in the prosperity of the motor industry—though it is not as dependent on it as are the constituencies of my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) and my hon. Friends who represent Coventry—I would not wish to put forward an Amendment without considering very closely this other aspect. My right hon. Friend the Member for Battersea, North (Mr. Jay) moved a new Clause to the Finance Bill in 1956 which went further than my Amendment because it sought to put private motor cars outside the range of initial allowances altogether. The present Prime Minister, who was then Chancellor of the Exchequer, used some rather extravagant language about the deleterious effect which this would have upon the prosperity of the motor industry as a whole.

Let us be clear about the logical position before we consider the facts of the case. To the extent that an Amendment along these lines—towards a mitigation of the application of the initial allowance in respect of private motor cars—would have an important effect upon the prosperity of the motor car industry, it must follow that this concession, which enables many people to buy motor cars which they would not otherwise buy, is a very important one. It cannot be argued at one and the same time that the position with which we are seeking to deal is unimportant, although if we were to correct it it would have a damaging effect upon the prosperity of an industry as large as the British motor car industry today.

I do not believe that the Amendment would have a damaging effect, and I do not believe that the best-informed and most forward-looking people in the motor car industry believe that to be so, especially if, as should be the case, this change were to be considered in conjunction with the level of Purchase Tax. At present the motor car industry is in a highly prosperous condition; far more so than when we last debated the matter, during the debates on the Finance Bill of 1956. That is very fortunate for the Government, in so far as they take pride in the index of industrial production being up rather than down. Incidentally, I am never sure whether the Government feel it to be a matter for congratulation when the index is up, stationary or down. But since, on the whole, they obviously do not wish it to go down, it should be a matter of great importance and comfort to them that the motor car industry is as prosperous as it is, because it is moving very rapidly against the general trend. If the level of production in that industry in the past twelve months had moved in step with that of British industry as a whole, instead of very sharply against the trend, I suspect that instead of being the same as it was a year ago the index of industrial production would be two or three points down.

To that extent the industry is in a better state to stand up to changes than might otherwise be the case. One would not necessarily argue that we should impose a burden upon it for that reason, but if we are to make taxation changes which affect the industry we ought to consider whether it would be better not to allow it to depend upon this quite unreasonable and unfair working of the initial allowances but, instead, to give it a slighty lower level of Purchase Tax. If we were to keep the industry producing at the same level, while making an adjustment of this sort, it would mean that there would be a shift—

The Temporary Chairman

Order. The hon. Member can argue about initial allowances but he cannot argue in favour of a reduction in Purchase Tax.

Mr. Jenkins

I certainly do not wish to go against your Ruling, Sir Norman. One of the difficulties we always find in debating these complicated matters, and deciding what is and what is not in order, is that we can go very wide—almost completely wide—of the Amendment under discussion, whereas if we go a little wide it is much more apparent, and we are far more open to be challenged by the Chair.

Mr. Donald Chapman (Birmingham, Northfield)

On 20th May we were debating Purchase Tax on commercial vehicles, and at that time it was felt to be in order to allow hon. Members, in developing their arguments, to refer to the question of initial allowances. The two matters are so interlinked that the debate on that occasion covered them both. There is, therefore, a case for allowing us to develop this argument to some extent.

The Temporary Chairman

Today happens to be 17th June.

Mr. J. T. Price (Westhoughton)

I respectfully submit for your consideration, Sir Norman, that when we are discussing initial allowances, and reducing our consideration to the terms of a mathematical formula, we must relate the initial allowances to the total cost of the vehicle, including Purchase Tax. With great respect, therefore, it seems quite irrational to imagine that we can distinguish between the two factors and at the same time have a comprehensive discussion of the point at issue. We are making initial allowances on the Purchase Tax as well as on the capital value of the machine.

The Temporary Chairman

It is not in order to argue about alternative means of taxation.

Mr. Jenkins

I accept your Ruling, Sir Norman, although the powerful points which have been raised by my hon. Friends have taken about five times as long as I would have taken to complete my point. All I will submit is that I should be allowed to put before the Committee arguments dealing with the submission—which I am sure will be put by the Paymaster-General and possibly other hon. Members opposite—that the Amendment might deal a damaging blow to the prosperity of the motor car industry. I would not in any way go outside that argument, which I am sure you will agree must be relevant to the Amendment.

Accepting the fact that we want to order our system of taxation in such a way that we do not reduce total output in the British motor car industry, we must consider whether we wish to have the particular balance which is produced by giving an enormous advantage to business men purchasing motor cars, as against those who are not business men. That is the only point that I am seeking to argue. The system which we at present operate undoubtedly produces a different shape of market than would be the case with a system of taxation which did not give this great and unreasonable advantage to the business man, but enabled the industry to maintain and expand its present level of production by depending less upon the increasing velocity of circulation of new cars amongst the business community and more upon bringing the possibility of buying new motor cars within the range of new income brackets. That would be fiscally more desirable and socially more just, and it would provide a more secure economic basis for the motor car industry.

The Amendment fits in with others which have been put from this side of the Committee today and on previous occasions. A dispute may exist between hon. Members on the respective sides of the Committee as to what general level of taxation is compatible with the healthy working of the economy, but, whether we have a high, low or medium level of taxation, there should not be any dispute about the proposition that taxation should be levied in such a way as to bear as fairly as possible upon all sections of the community. That is not the position at present, because—to use a phrase which was used by my right hon. Friend the Member for Huyton (Mr. H. Wilson) a few years ago—there are great islands of fiscal privilege. This is a very big one, enabling a great number of new and expensive motor cars to be bought by business firms. Indeed, this is encouraged by the present operation of initial allowances, stepped up as they are under the Bill.

7.0 p.m.

Mr. Austen Albu (Edmonton)

I support the Amendment. This is an attempt to deal with something akin to the use of business expenses which, as we have so often pointed out, narrows the tax base and therefore makes the general levels of direct taxation higher than they would otherwise be. There can be no doubt that very full advantage is taken of those provisions, and I have never been able to understand the logic of in- cluding motor cars other than for reasons of pure practicability, and that is a matter which, I believe, can be dealt with.

The object of the initial allowance was not to encourage the sales of particular types of machinery and plant but to encourage their purchase in order to increase productivity and to change and technically develop our industries. No one can argue that the continual change of motor cars, especially in the luxury range, does anything to raise the productivity of British industry. No doubt it enables businessmen to get rather more quickly from offices to clubs or places where they lunch on their expenses accounts, but I cannot really think that it helps British industry in any way. In any case, I am sure that there are ways of ensuring that those means of transport which are necessary for a manufacturing or trading company are relieved of taxation, if that is thought desirable. The present system has no logic in it at all.

My hon. Friend the Member for Stechford (Mr. Roy Jenkins), in moving this Amendment, had something to say, as one would expect of one who has a constituency interest, about the effect of the Amendment on the motor manufacturing industry. I have no constituency interest, so perhaps I can be a little rougher about it than he was. We shall never, surely, have taxation relief for the sole purpose of encouraging the consumption of particular types of products. Those taxation reliefs are in the nature of subsidies, and that is what this concession is. A motor car industry which was dependent on subsidies and a similar type of stimuli to purchases would be an industry very dangerously placed indeed. I have very grave doubts about the motor industry's future in its present form. I should be loth to see the continuation of any concession to provide the motor industry with what is really an artificial market. This is extremely dangerous.

I agree with my hon. Friend that a higher general level of consumption of motor cars by ordinary people is more desirable than a high turnover by a number of business purchasers, because the size of the home market for motor cars of all types must be determined by the level of the motor car industry's exports. We have seen in the last few years what happens to the home market where the industrial or commercial market, which is, of course, what this Amendment is about, grows at the expense of exports and when the industrial output grows faster than the economy as a whole can stand. We are approaching the situation in which our imports of steel sheet and other raw materials exceed the total earnings which the industry is obtaining by its extra exports. There is a serious danger in an artificial stimulus to consumption in the motor car industry.

The whole object of tax policy as it affects the price of motor cars must be to try to maintain the correct balance. I believe that there will be very substantial changes in the motor car industry, especially if the Paymaster-General has any success—which is extremely unlikely at the present time—in the negotiations that he is conducting for a Free Trade Area. The type of artificial stimulus given in the present concession of initial allowances is, apart from its social injustice, economically unsound.

I would say one word about the practicability of these Amendments and how they can be carried out. One has to distinguish between the use of cars. One can either, as in the Amendment, refer to them by type, or one can, as has been suggested in the House before now by, I think, hon. Members opposite, mark those cars which are used for business purposes. If every car used for business purposes were marked like a commercial vehicle with the name of the company to which it belonged, I think that the present practice of buying large and expensive cars for the use of directors or anyone else would soon disappear. These would be the alternative methods by which I would propose to deal with the problem.

To return to the main argument on the Amendment, it is that there is absolutely no logic at all in having the initial allowance for motor cars. It bears no relation whatsoever to the purpose of the initial allowance when it was originally introduced, and it is socially unjust as between different classes of consumers of transport.

Mr. J. T. Price

I should like briefly to support the Amendment. In the first place, I would remind hon. Members opposite that my colleagues on this side of the Committee have consistently sup- ported the extension of initial allowances and investment allowances for quite good economic reasons, as we see them. We have done so because we have felt that special inducement ought to be offered to industry to plough back profits into re-equipment and increased efficiency rather than to disperse profits in the form of large dividends.

Surely, when we look at this question rationally, we are bound to confess, regardless of what our political angle may be on fiscal questions, that the allowance of 20 per cent. on the initial value of a motor vehicle which is used largely for private purposes in no way assists in the re-equipment of industry by the use of those surpluses which we should like to encourage to be ploughed back into industry.

It is commonly known by anyone who has any contact with the business world that, particularly in large-scale industry and the newer industries, there is always a struggle for the services of qualified executives to fill the most important positions. In this struggle, it is almost axiomatic that one of the inducements of any important or well-established firm that wishes to attract the services of a competent executive is to offer, along with whatever salary is offered, a large glossy motor car which will be renewed at frequent intervals. I know from close personal knowledge that these offers are made and that no restriction is placed on the use of the vehicle for the purpose of the company's business. It is conveyed to the man offered the job that he will have the unlimited free use of the car for his own private pleasure and that of his family. If that were done at the expense of the company, it would be very difficult to resist it in the sense that we are objecting to it in these Amendments; but when it is being done, not at the expense of the company making the offer, but at the expense of the Revenue and the Treasury, to that extent a burden is transferred to the rest of the taxpayers which ought not to be borne by them.

As I have said, the initial allowance has no reference whatever to motor cars when we consider its application to the requirement of ploughing back capital into industry. We have seen a wide extension of this abuse in recent years. From time to time we have heard critical statements from Treasury Minister about the payment of benefits in kind instead of cash to avoid taxation. If a man is offered large-scale benefits in kind, including the one mentioned in the Amendments—the provision of a motor car—to that extent he does not pay tax on the equivalent capital value of the service given by the vehicle and what it brings to him in personal amenities. We object to that and we do so, as we hope, on sound financial principles.

I think that my hon. Friend the Member for Stechford (Mr. Roy Jenkins) made a valid point when he said that none of us on this side of the Committee—I am sure the same applies to hon. Gentlemen opposite—wishes to do anything detrimental to the continued prosperity of the motor industry. But we say that these entirely artificial fiscal arrangements—giving substantial benefits to those who purchase motor cars for executives or other servants as an inducement to secure their services—render no kind of economic service to the industry or to the economy of the country.

Mr. Stevens

Is it not a fact that in the case of any director or senior executive in receipt of a salary of £2,000 a year or more, the value of benefits, which would include the private use of the company's motor cars, is required to be returned each year under Schedule E to the Inspector of Taxes?

Mr. J. T. Price

The hon. Gentleman is, of course, accepted in this Committee as an authority on taxation. If I am paying him an unworthy compliment, I will not withdraw it and he may take what satisfaction he likes from what I have said. But do not let him delude himself or me—he will not delude me although he may delude himself—that these motor cars about which I am complaining are handed over to the people who use them. They remain the property of the company and when the company is making its return for general taxation on the various schedules, they are charged back against the taxation imposed on the company in an appropriate depreciation allowance of 10 per cent. having regard to the ten-year life of the car, so that in the first year there may be as much as 30 per cent. charged back.

Not only is the capital value of the vehicle charged back on its purchase price from the company or agent providing it, but a very large proportion of the Purchase Tax is included in addition. I say that it is a Gilbertian situation for any Government to go on with this sort of thing. I am a member of a motoring organisation, like most hon. Members and I understand that propaganda is not always identical with truth. But when members of motor organisations complain that a large amount of the taxation collected from motorists is not returned in the form of more high-class roads and all the other things motorists want, they forget that a good deal of that taxation is charged back in business accounts, because over 80 per cent. of the motor vehicles in the country are chargeable wholly or mainly to business accounts.

I repeat what has been said before in these finance debates. There are many private citizens who have not the advantage of this highly lucrative arrangement enjoyed by many business people, and they strongly object to being treated on an unequal footing regarding taxation when they buy a vehicle for their private purpose. It is about time the Treasury woke up to this. Treasury officials are not unaware of the situation. I have had the privilege and pleasure of saying these things before both in this Chamber and privately to Treasury Ministers. If the Ministers were honest with this Committee and with themselves, they would admit that there is great force in the case we are putting forward.

We appeal to the Treasury seriously to consider these Amendments. We consider this an entirely unsatisfactory and unfair discriminatory system as applied to the purchase of private motor cars for private pleasure in order to induce people to give their services. I strongly support the Amendment and appeal to the right hon. Gentleman responsible for this Bill to come with us some of the way in meeting this case which we have tried to present moderately and temperately tonight.

7.15 p.m.

Mr. Chapman

I think that I ought to pay a tribute to my hon. Friend the Member for Westhoughton (Mr. J. T. Price). He has raised this matter from year to year in our Finance Bill debates and has been tenacious about it. He has been exposing continually the taxation evasion and abuse which we all know this to be. He should be very pleased that more and more people are coming round to his view that it is time something was done about it.

We have already had a debate on this subject. The position was put very well indeed by the hon. Member for Kidderminster (Mr. Nabarro) on 20th May when we debated the question of the taxation of commercial vehicles and the Purchase Tax upon them. By taking the 30 per cent. Purchase Tax on chassis and by saying, quite rightly, that there is an initial allowance of 20 per cent. plus a depreciation allowance of 25 per cent. per annum for commercial vehicles, the hon. Member for Kidderminster was able to show that the net effect of the two taken together was lunatic. The hon. Gentleman said on 20th May: It follows that the amount of Purchase Tax which is paid by a buyer of one of these articles namely a chassis, gives what is in effect, an interest-free loan to the Treasury over a period of five years."—[OFFICIAL REPORT, 20th May, 1958; Vol. 588, c. 1173.] This is indeed the general situation. I am not talking about abuse in the case of passenger-carrying vehicles, but in the case of commercial vehicles. The two together, the Purchase Tax and the depreciation allowance, end up by creating the rather farcical situation outlined by the hon. Member for Kidderminster on 20th May.

On that occasion we had a very unsatisfactory reply from the Solicitor-General. All the right hon. and learned Gentleman could say about these calculations, and this general problem, was that the Treasury had made no estimate of the impact of a package deal. Nor had the Treasury considered some way of reducing Purchase Tax and at the same time cutting out these initial allowances. The right hon. and learned Gentleman could give no indication of the way in which the Treasury was examining the general problem. We consider that the Treasury should begin to think whether some such package deal could be made on a future occasion.

I do not expect the right hon. Gentleman even now to say that the Government are in favour of some package deal of this kind, or anything similar. But late in the day during the debate on 20th May, after we had, so to speak, asked him to intervene personally, we got from the Chancellor an assurance that in the course of the coming year he would receive representations from the motor car industry about the general problem of motor car taxation. This statement has been well received by the industry, and I think the Chancellor ought to expect that representatives of the industry will try to come to see him later in the year to discuss this whole matter. If so, I hope that the Paymaster-General will now say that this will be one of the matters that the Chancellor will be quite willing to discuss.

Here, indeed, is a very formidable case of evasion in the case of passenger-carrying vehicles, and an almost farcical position in the case of goods vehicles. It really is time that these matters, together with all the other problems of motor car taxation, were reviewed by the Treasury, in consultation with the industry during the coming year. I do not want to press the right hon. Gentleman to give an assurance that would be embarrassing, but the Chancellor has given that broad assurance that he would receive this general respesentation, so what I ask him now is that these matters should also be included in that general review which we believe will take place in the next few months.

The Paymaster-General (Mr. Reginald Maudling)

In reply to the hon. Member for Northfield (Mr. Chapman), I can certainly confirm that my right hon. Friend would be very glad to receive the representations of the motor car industry on any subject affecting its welfare, including, if necessary, this present matter, but I must say that I do not see that this point has much relevance to the Amendment now before the Committee.

In moving the Amendment, the hon. Member for Stechford (Mr. Roy Jenkins) placed quite a bit of the burden of his argument on countering what he thought that I would say about the effect on the motor industry. In fact, I do not intend to say anything about the effect on the motor car industry, because, whether or not it is accepted, I do not think that this Amendment would have any significant effect on the demand for motor cars. The effect of the Amendment would be to leave the initial allowance on motor cars used for business purposes at 20 per cent., rather than increasing it to 25 per cent. I do not think, really, that that difference would make any noticeable change in the demand for motor ears in this country—

Mr. Harold Wilson (Huyton)

The right hon. Gentleman will realise, of course, that what we should like to have is a debate on the whole question of initial allowances for motor cars, and not whether the allowance should be 20 per cent., or 25 per cent. or nought. That has been discussed many times before, but it would be quite out of order to put down an Amendment to reduce the figure to nought, as that would be introducing a charge. Therefore, the broad issue has to be mounted on this rather narrow Amendment. But if the right hon. Gentleman were now to announce that the Government were to drop the allowance to nought in this case, it would be a very suitable occasion for such debate.

Mr. Maudling

I think that the right hon. Gentleman has it the wrong way round, because if an Amendment to reduce the figure to nought were in order it would give me the sort of argument that hon. Members opposite suggested I would use, and which I do not need to use now. The arguments that I propose to advance against the Amendment are, I think, more relevant—

Mr. Roy Jenkins

Is the right hon. Gentleman advancing the argument that the level of initial allowances at 20 per cent. or 25 per cent. is not really sufficiently different to affect the demand for whatever goods are being purchased?

Mr. Maudling

indicated dissent.

Mr. Jenkins

If he is not doing that, why draw the distinction between motor cars and other forms of capital equipment?

Mr. Maudling

The demand for motor cars, and the position of the industry, is very different from the demand for other capital goods. The arguments that I shall now put forward are not only relevant to this Amendment but would, I think, have been even more relevant to an Amendment to double or to abolish this allowance on motor cars.

The charge of Income Tax on businesses depends on their profits, and the capital allowances are designed to ensure that, in the computation of their profits for tax purposes, a proper allowance is made for the cost of the capital assets used in earning those profits. The case made by the hon. Gentleman and his colleagues is that a special exception from this rule should be made in the case of motor cars suitable for private use, and those motor cars only. I think that is the case that must be sustained in support of this Amendment, or in support of any similar Amendment, and I do not think that it has been sustained in any way this afternoon.

Only three main arguments have been advanced for treating motor cars used for business purposes on a wholly different basis from any other capital asset used for business purposes. The hon. Gentleman's first argument was that, by and large, motor cars at the moment are bought for replacement rather than for expansion purposes. I would have thought that that would apply to a very large proportion of all the new plant and machinery going into British industry today. A great deal of the new plant and machinery now going into British industry is not sheer expansion of capacity but replacement of existing capacity. Therefore, I do not think that that is at all a good argument for the special treatment of motor cars.

Secondly, the hon. Gentleman said that the buying of new motor cars was an excessive drain on the companies' investment resources. For myself, I should have thought that it would probably he wiser to leave that decision to the businesses themselves. If they think that it is an excessive drain on their investment resources, I think that they will cease that expenditure.

The third argument, and the one to which most importance appears to be attached by hon. Members opposite, is that there is widespread abuse in this matter. I noticed that the hon. Member for Stechford put his argument far more on the economic basis, with which I have been dealing so far, whilst others of his hon. Friends addressed themselves more to the question of abuse. There still seems to be some misunderstanding about the tax position of those motor cars that are suitable for use for private purposes. The hon. Member for Westhoughton (Mr. J. T. Price) certainly seemed to be under a slight misapprehension about the position of cars owned by companies.

In the first place, where there is a car not owned by a company but owned by a taxpayer and used by him partly for business and partly for private purposes, that part of the use that is private is taken into account in working out the allowances he can take in computing his business profits. For instance, if he uses it half for business and half for private purposes, only half of the capital allowances are allowed to him in computing his profits. That applies not only to the proportion of private use, but also if the type, size or expense of the car was greater than would be justified solely for its use for business purposes—

Mr. J. T. Price

I quite understand what the right hon. Gentleman has just put to the Committee, that there is an allocation where the vehicle is used by the individual partly for his private purposes and partly for his business. I am under no misapprehension at all about that. I think that I know the situation as well as he does. My complaint is based, not upon the division of the two functions of the car, but on the practice of the car being wholly owned and controlled by the company, and unlimited use of the vehicle being given to the individual for his own private purposes. In those circumstances, the Treasury cannot make the sort of assessment that the Paymaster-General has just described.

Mr. Maudling

If the hon. Gentleman had only waited for a second, I was about to deal with that. There are two points—there is the point of the privately-owned car being used partly for business and partly for private purposes, and the point of the company-owned car. In the case of the company-owned car, my hon. Friend the Member for Langstone (Mr. Stevens) pointed out the tax position, which is that in so far as the car owned by the company is given or lent to a director or executive who is paid more than £2,000 a year and is used by him for private purposes, the cost of that private use of the car is treated as part of that individual's salary, is returnable as such and is chargeable in full both as to Income Tax and Surtax.

Therefore, if he is charged fully as to tax on the benefit that he obtains it is reasonable that the company should have the benefit of the allowances because the company's provision of the car for use for private purposes is clearly analogous to additional salary and in the case of those people who are caught by the Income Tax Act, 1952, it is treated as additional salary both for Income Tax and Surtax purposes.

I think, therefore, that both in the case of the privately-owned car and in the case of the company-owned car—by reason of legislation for which, I think, the party opposite was responsible—there is full provision for charging for tax all private use of cars which is not justifiable, within the relevant statutes, as business expenditure. I therefore do not think that a case has been made out that this Amendment can be supported on grounds of abuse, or on grounds of the inadequacy of the tax laws. Nor, for the reasons that I put forward earlier, do I think that any economic case has been made out, or can be made out, for putting this form of plant and equipment on a basis slightly different from that of any other form of plant and equipment. I recommend the Committee to reject the Amendment.

7.30 p.m.

Mr. Douglas Jay (Battersea, North)

We have to bring forward this Amendment every year because, under the present Government, we have a new Chancellor every year and as soon as one has understood the argument he moves to another place and we have to start all over again. That is why I was a little disappointed with the Paymaster-General's speech, because off and on he has been at the Treasury for some years and I had hoped that he would have grasped the argument by now.

We are not putting forward this argument in any party or contentious sipirit. We are trying to appeal to the better instincts of the Treasury Ministers, and I am sure that they have some better instincts left, however long or short a time they have been at the Treasury. If we have to divide the Committee on this issue tonight, it is not in order to be contentious, but to try to stir the better instincts of the Treasury Ministers and to establish the hope that they may keep an open mind on the issue.

It is necessary to recall the history of initial allowances. When they were introduced by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), with the support of Sir John Anderson, who had been his predecessor at the Treasury, what everybody had in mind was the re-equipment of British industry with automatic looms and mechanised foundries and plant of that kind and not motor cars for stockbrokers. I am not saying that stockbrokers ought not to have motor cars.

Mr. Stevens

Is the right hon. Gentleman not aware that motor cars for stockbrokers most emphatically are not the subject of Income Tax relief?

Mr. Jay

It all depends on their use. I do not want to introduce any hint of prejudice into the argument. I am merely saying that what we all had in mind was the re-equipment of industry, and I do not think any of the Chancellors or any hon. Member realised that we were giving a concession which affected private motor cars.

What happened was that the Inland Revenue naturally and legitimately stepped in and used the traditional argument, which the Paymaster-General trotted out tonight, that where a motor car happened to be a tool of trade it was fiscally on all fours with any other form of equipment and that there must therefore not be a special exception for motor cars. That was the Paymaster-General's argument, and in all these years it is the only serious argument which has ever been advanced against the proposals which we are making tonight.

I remind the Paymaster-General that this article in the sacred books of the Inland Revenue was entirely abandoned when the present Lord Privy Seal introduced investment allowances, I think with the assistance of the Paymaster-General, in the Budget of 1954. When investment allowances were introduced, it was apparent to the present Lord Privy Seal that it would be a scandal if investment allowances were given for private motor cars, and he admitted that fiscally and practically it was possible to make precisely this special exception which the Paymaster-General now says it is impossible to make. There is, therefore, no substance in that part of the argument, and we can reasonably consider it from a general moral and economic point of view.

There is another point which nobody has mentioned. Quite a few Chancellors—we have had so many—when they have considered this problem freshly have been influenced by another argument which we have not heard tonight, but which is quite persuasive.

Mr. William Shepherd (Cheadle)

The right hon. Gentleman will remember that investment allowances were given to encourage the use of certain articles of capital equipment. It was quite right for the Government to take the view that they did not wish to encourage the use of motor cars, which may be essential in many respects, but not in that respect.

Mr. Jay

That is my point, because the only objection is that it is fiscally and practically impossible to make this distinction.

I was about to say that Chancellors have also been influenced by the argument that there are certain classes of taxpayers, such as doctors, midwives and travelling workers of that kind, who in a genuine and special sense use a private motor car as a means of business. It is now argued that it would be unfair to withdraw the concession from them, since they are very worthy people. Those who advance that argument forget that such people get the ordinary depreciation allowance anyway. For them a motor car would possibly be classed as a 100 per cent. tool of trade, and they would get the ordinary depreciation allowance. All that is at issue is whether they should get the initial allowance, which is an interest free loan, in addition.

Mr. Maudling

If the right hon. Gentleman is arguing that they would lose nothing by losing the initial allowance, how can he argue that they gain too much by getting it?

Mr. Jay

The right hon. Gentleman cannot answer the point that way. I am not arguing that they would lose nothing, but I am saying that they would be reasonably and properly treated and do not need this additional concession on top of the ordinary depreciation allowance.

So much for the fiscal and legal aspect of the matter. On the economic side, the irony of the argument is that although we appear to be dealing with a rather small point of fiscal law, there is a good deal of evidence that economically this is a substantial issue relating to the whole state of the country's internal economy. It is true that when we made this argument two years ago the present Prime Minister replied that, if the proposal to abolish the allowance altogether were accepted, it would be a savage blow to the motor industry. As we have not been given figures, I do not know what proportion of cars sold in the home market are sold with the assistance of the initial allowance. There are many people, such as accountants and persons in the motor industry, who say that the figure is 70 or 80 per cent. of the total.

Mr. J. T. Price

I am sorry that I cannot produce the quotation tonight, but I think I am correct in saying that two years ago the research staff of the Economist suggested the figure of more than 80 per cent. I do not have a clue as to what the figure is now, but I should think that it was something of that order.

Mr. Jay

That figure has been frequently quoted. If it is the case that the removal of the concession would have a serious effect on the motor industry, then it must be a very substantial abuse and there must be much revenue lost.

I agree that the Amendment which we are formerly moving to leave the allowance at 20 per cent. instead of 25 per cent. would presumably not present very much revenue to the Chancellor. However, I draw the Chancellor's attention to the fact that we are trying to present him with some revenue and not, as is more usual, to take it from him—and I hope that that is some attraction. Can the Paymaster-General say what is the total annual loss of revenue which results from the initial allowance being applied to private motor cars? There are those who say that it is as much as £30 million or £40 million a year. If it is as large as that, it is a serious item in our accounts.

Economically, there is not much doubt, on the basis of this evidence, that the initial allowance has been a subsidy from the Treasury to the sale of cars in the home market ever since the war, an effect which was not intended. I shall not enter into the argument, which we so often have, about whether a good home market is a basis for exports. The truth is that when an industry is under-producing, bigger sales at home probably help it to export more, but when it is producing to capacity, more sales at home are an impediment to exports. In most years since the war, and it is true now, the motor industry has been producing very near to capacity. There is not much doubt that this deliberate stimulus to sales in the home market, which the Treasury has been effecting on the one hand through initial allowances while trying to restrain it on the other hand by Purchase Tax, has been a substantial national cost in terms of steel and other resources.

I agree with my hon. Friend the Member for Stechford (Mr. Roy Jenkins)—and I only say this in passing—that if it were shown that a reduction or withdrawal of the allowance would have a serious effect on the motor industry, it would perhaps be a much better general solution to give a concession of the Purchase Tax and remove the allowance at the same time. That would at least put the purchaser of the purely private car and the business car on an equality instead of discriminating, as at present, so heavily in favour of the business car.

I leave aside the argument that what we are proposing would make no difference one way or the other, which argument I have heard advanced. If the initial allowance is of no help, there would be no objection to withdrawing it, but I do not think anyone would regard that as a serious argument. I appeal to the Chancellor and the Paymaster-General at least to keep an open mind on this matter. It seems to me that this is a case of one of those islands of fiscal privilege, as my hon. Friend said. I do not call it a scandal, but it does amount to an abuse if the figures are anything like what has been said by the Economist and others.

It seems to me that it is unfair fiscally, that it is undesirable economically, and that it is perfectly practicable, as we saw from what was done in the case of investment allowances, legally to correct the position. If it is to be done, surely the time to do it is when the motor car industry is, as we are all very happy to see, in a thoroughly prosperous state.

Mr. Diamond

I hope we shall not let the Paymaster-General get away with the argument he put without dealing fully with all those points on which one feels the Treasury Bench should be most happy to accept the Amendment, and showing that the Government appreciate that here is one place where tax dodging has focused the attention of very many people. The Treasury is under suspicion at the moment with its withdrawal of the dividend stripping taxation proposal and is under a charge of helping or, at least, of not being sufficiently harsh towards tax dodgers at this point of time, and one would have thought that the Amendment would have been one they would have been most happy to accept.

I referred to an earlier Amendment as affecting Honest John. No one by any stretch of the imagination could refer to this Amendment as one affecting Honest John. Anything but that. This part of the Clause, if it is left unamended, will encourage in a most unsatisfactory way the diversion of resources to ever bigger and better motor cars, partly at the expense of the Treasury.

The economic argument has been very adequately put by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) as the only right thing to do as far as exports are concerned. The Government here have suggested giving art additional allowance as an encouragement to the exports of motor cars, which are such a vital part of our economy. Let us start from the beginning. Initial allowances are granted on plant and machinery and industrial buildings and, in this particular connection, on plant and machinery. It is a doubtful extension of English to include a motor car used for the conveyance of employees of a company from place to place in what is called plant and machinery at all.

One starts off by having initial allowances on plant and machinery for the very good reason that we want to encourage what the Chancellor himself referred to in his Budget speech—the willingness of those engaged in running plant and factories to be progressive and to change from something that is now old and becoming obsolete to something that is up to date, which is, incidentally, the answer to the point which the Paymaster-General made when he said that there was no difference in changing cars and changing plant. One changes plant and machinery in order to get rid of plant which is no longer doing the job efficiently and to get newer plant that will do it more efficiently. To that extent, it was in the country's interests to get rid of old plant.

7.45 p.m.

That cannot possibly be said to apply to motor cars. It is doubtful whether motor cars should ever have been included in these allowances from the beginning. The case for motor cars being included rests on a very thin argument indeed. The Paymaster-General says that the motor car is in and he saw no good reason why it should be taken out, but the real point is that there is very little reason why it should be in at all. As has been shown with the investment allowance, it is very easy to differentiate between motor cars and other items of so-called plant for the purpose of revenue relief.

The point I want to make is that there is no real justification for including the motor car in the first place, but if we do include it, the last thing we want to do at this point of time is to encourage inflationary expenditure on bigger, brighter, longer and more space-taking motor cars, which is in fact what happens. This is a great psychological encouragement, though, of course, it is only from 20 to 25 per cent., but when the Government say to a consumer, "We are going to increase your allowance by a quarter," does the consumer think the Government do not want him to buy a new car—an up-to-date, new car, a bigger and brighter car? If the Government take the positive step of introducing an allowance like this, a motor car owner says to himself that it is obviously in the country's interests that he should discard his car which takes up only 16 or 18 ft. and buy another which will take up 20 or 24 ft., or whatever it may be.

The Chancellor is taking up the time of Parliament in bringing in a Clause in the Finance Bill which gives the motor car owner this advantage, provided that it is used for business purposes. I should have thought that this was entirely inflationary. It certainly has a considerable effect. It either means cars being changed more often, as the Paymaster-General said, which is no particular benefit to anybody, so long as the motor car industry is fully employed, or it means that a man gets a more expensive car, and that means a bigger one. What advantage to the nation is there in that?

There is the other aspect of it, to which the Paymaster-General referred. What he said, of course, was, theoretically, 100 per cent. right, and, in practice, 5 per cent. right, in my humble experience, if he thinks that we can deal with the matter as simply as that—this business of 50 per cent. for private and 50 per cent. for business use. My hon. Friend was dead right so far as a quarter of a century's experience in practice is concerned, and the Paymaster-General is only 5 per cent. right.

How can Inland Revenue officers of the greatest ability and with the powers at their elbow proceed to winkle out this information relating to a car owned by a company which is put at the disposal of an employee who works five days a week and goes home at the weekend? How do they know what he does with the car at the weekend? How are they going to apportion the mileage and the additional initial allowance which the Paymaster-General referred to? Why does not an hon. Member opposite get up and—

Mr. Stevens

To respond to that invitation, may I say that the hon. Member for Gloucester (Mr. Diamond) belongs to a profession of which I am also a member? He will know perfectly well that a very large number of these inquiries come through his office to him and to other members of the profession. Is he suggesting that his profession and mine, in answering these inquiries as to how much is private use and how much is public, are perjuring themselves, because if so, he is a disgrace to his profession?

Mr. Diamond

The hon. Member belongs to a very distinguished profession and is a great luminary of that profession. Let us leave it at that. I repeat that it is beyond the capacity of the Inland Revenue officers—if the Chancellor doubts it, let him ask them—to needle out this information relating to motor cars which are wholly owned by a company and used by that company, as my hon. Friend the Member for Westhoughton (Mr. J. T. Price) rightly said, as part of the conditions to entice a particular employee to become an employee.

One has only to read the enormous advertisements in the Sunday papers and elsewhere to see how difficult it is for large firms to attract to their employment the right sort of brains. They make all sorts of offers. The right hon. Gentleman must know that, in the City of London, and, indeed, throughout London, if someone wants a clerical employee the first question asked by an inquirer is, "What about luncheon vouchers?" It is not a question about hours of work or about promotion. There it is on a small scale.

On a larger scale, the question is, "What about a car?" Why does the Paymaster-General think that the manufacturers of Bentley motor cars advertise and say, "Go into partnership with a Bentley"? I think I recall the terms of the advertisement aright. It is a very powerful advertisement; the manufacturers are appealing to every company to buy a Bentley. Why buy a Bentley? It has now become part of the esteem in which a businessman is held that he should own and run a Bentley and be seen by everyone running a Bentley. A Bentley is a very expensive motor car. It is a very expensive initial allowance, and the difference between 20 per cent. and 25 per cent. on a Bentley is worth having. The right hon. Gentleman said that it is only another 5 per cent., but there is the inducement to go one better.

My right hon. Friend the Member for Battersea, North (Mr. Jay) referred to midwives and doctors. The doctor who has a car and uses it, quite properly, for professional purposes is a human being also and may well like a nicer and better car, something to indicate how well he is getting on in his profession. I know from experience of two occasions on which I have been rung and asked, "Is this really true? Can it be done? If so, I am scrapping my so-and-so and getting a more expensive one". If that is what the Chancellor wants, let him say so. I did not think that it is. I thought he wanted to discourage inflationary moves of this kind. I thought he wanted to give a sign to the nation that the Government were not on the side of the tax dodger. He is in great jeopardy at the moment of being held to be on the side of the tax dodger because of what he has done in another matter which we shall be debating shortly. In view of these very powerful arguments and because what the Paymaster-General said is, as usual, right in theory but utterly wrong in practice, I hope that the Chancellor will say that he will reconsider the matter.

Question put, That those words be there inserted:—

The Committee divded: Ayes 196, Noes 238.

Division No. 158.]	AYES	[7.54 p.m.
Ainsley, J. W.	Hale, Leslie	Paling, Will T. (Dewsbury)
Albu, A. H.	Hall, Rt. Hn. Glenvil (Colne Valley)	Pannell, Charles (Leeds, W.)
Allaun, Frank (Salford, E.)	Hamilton, W. W.	Parker, J.
Allen, Arthur (Bosworth)	Harrison, J. (Nottingham, N.)	Paton, John
Allen, Scholefield (Crewe)	Hastings, S.	Pearson, A.
Awbery, S. S.	Hayman, F. H.	Peart, T. F.
Bacon, Miss Alice	Herbison, Miss M.	Pentland, N.
Balfour, A.	Hewitson, Capt. M.	Popplewell, E.
Bence, C. R. (Dunbartonshire, E.)	Hobson, C. R. (Keighley)	Prentice, R. E.
Benson, Sir George	Holman, P.	Probert, A. R.
Bevan, Rt. Hon. A. (Ebbw Vale)	Houghton, Douglas	Proctor, W. T.
Blenkinsop, A.	Howell, Charles (Perry Barr)	Pursey, Cmdr. H.
Blyton, W. R.	Hoy, J. H.	Rankin, John
Boardman, H.	Hubbard, T. F.	Redhead, E. C.
Bottomley, Rt. Hon. A. G.	Hughes, Emrys (S. Ayrshire)	Reeves, J.
Bowden, H. W. (Leicester, S. W)	Hunter, A. E.	Reid, William
Bowles, F. G.	Hynd, H. (Accrington)	Reynolds, G. W.
Boyd, T. C.	Irvine, A. J. (Edge Hill)	Rhodes, H.
Braddock, Mrs. Elizabeth	Irving, Sydney (Dartford)	Roberts, Albert (Normanton)
Brockway, A. F.	Janner, B.	Roberts, Goronwy (Caernarvon)
Broughton, Dr. A. D. D.	Jay, Rt. Hon. D. P. T.	Robinson, Kenneth (St. Pancras, N.)
Burke, W. A.	Jeger, George (Goole)	Rogers, George (Kensington, N.)
Burton, Miss F. E.	Jeger, Mrs. Lena (Holbn & St. Pncs, S.)	Ross, William
Butler, Herbert (Hackney, C)	Jenkins, Roy (Stechford)	Royle, C.
Butler, Mrs. Joyce (Wood Green)	Johnson, James (Rugby)	Silverman, Julius (Aston)
Callaghan, L. J.	Jones, Rt. Hon. A. Creech (Wakefield)	Silverman, Sydney (Nelson)
Carmichael, J.	Jones, David (The Hartlepools)	Simmons, C. J. (Brierley Hill)
Castle, Mrs. B. A.	Jones, Elwyn (W. Ham, S.)	Skeffington, A. M.
Chapman, W. D.	Jones, Jack (Rotherham)	Slater, Mrs. H. (Stoke, N.)
Clunie, J.	Jones, J. Idwal (Wrexham)	Slater, J. (Sedgefield)
Collins, V. J. (Shoreditch & Finsbury)	Kenyon, C.	Smith, Ellis (Stoke, S.)
Cove, W. G.	Key, Rt. Hon. C. W.	Sorensen, R. W.
Craddock, George (Bradford, S.)	King, Dr. H. M.	Soskice, Rt. Hon. Sir Frank
Cronin, J. D.	Lawson, G. M.	Spriggs, L.
Crossman, R. H. S.	Lee, Frederick (Newton)	Stewart, Michael (Fulham)
Dalton, Rt. Hon. H.	Lee, Miss Jennie (Cannock)	Storehouse, John
Darling, George (Hillsborough)	Lever, Leslie (Ardwick)	Stones, W. (Consett)
Davies, Harold (Leek)	Lewis, Arthur	Summerskill, Rt. Hon. E.
Davies Stephen (Merthyr)	Lindgren, G. S.	Swingler, S. T.
Deer, G.	Mabon, Dr. J. Dickson	Sylvester, G. O.
de Freitas, Geoffrey	McCann, J.	Taylor, Bernard (Mansfield)
Diamond, John	MacColl, J. E.	Taylor, John (West Lothian)
Dodds, N. N.	MacDermot, Niall	Thomas, George (Cardiff)
Donnelly, D. L.	McGhee, H. G.	Thomson, George (Dundee, E.)
Dugdale, Rt. Hn. John (W. Brmwch)	McGovern, J.	Ungoed-Thomas, Sir Lynn
Dye, S.	McInnes, J.	Warbey, W. N.
Ede, Rt. Hon. J. C.	McLeavy, Frank	Watkins, T. E.
Edwards, Rt. Hon. John (Brighouse)	MacMillan, M. K. (Western Isles)	Weitzman, D.
Edwards, Rt. Hon. Ness (Caerphiliy)	MacPherson, Malcolm (Stirling)	Wells, William (Walsall, N.)
Edwards, Robert (Bilston)	Mann, Mrs. Jean	Wheeldon, W. E.
Edwards, W. J. (Stepney)	Mason, Roy	White, Mrs. Eirene (E. Flint)
Evans, Edward (Lowestoft)	Mitchison, C. R.	Wilcock, Group Capt. C. A. B.
Fernyhough, E.	Monslow, W.	Wilkins, W. A.
Finch, H. J.	Moody, A. S.	Willey, Frederick
Fitch, E. A.	Morris, Percy (Swansea, W.)	Williams, David (Neath)
Foot, D. M.	Morrison, Rt. Hn. Herbert (Lewis' m, S.)	Williams, Rev, Llywelyn (Ab' tillery)
Forman, J. C.	Mort, D. L.	Williams, Rt. Hon. T. (Don Valley)
Fraser, Thomas (Hamilton)	Moyle, A.	Willis, Eustace (Edinburgh, E.)
George, Lady Megan Lloyd (Car' then)	Mulley, F. W.	Wilson, Rt. Hon. Harold (Huyton)
Gibson, C. W.	Neal, Harold (Bolsover)	Woodburn, Rt. Hon. A.
Gordon Walker, Rt. Hon. P. C.	Noel-Baker, Rt. Hon. P. (Derby, S.)	Woof, R. E.
Greenwood, Anthony	Oliver, G. H.	Yates, V. (Ladywood)
Grenfell, Rt. Hon. D. R.	Oswald, T.	Younger, Rt. Hon. K.
Grey, C. F.	Owen, W. J.	Zilliacus, K.
Griffiths, Rt. Hon. James (Llanelly)	Padley, W. E.	TELLERS FOR THE AYES:
Griffiths, William (Exchange)	Paling, Rt. Hon. W. (Dearne Valley)	Mr. Short and Mr. J. T. Price.
NOES
Agnew, Sir Peter	Baldock, Lt.-Cmdr. J. M.	Bell, Ronald (Bucks, S.)
Aitken, W. T.	Baldwin, A. E.	Bennett, F. M. (Torquay)
Amery, Julian (Preston, N.)	Barber, Anthony	Bevins, J. R. (Toxteth)
Amory, Rt. Hn. Heathcoat (Tiverton)	Barlow, Sir John	Biggs-Davison, J. A.
Arbuthnot, John	Barter, John	Bingham, R. M.
Armstrong, C. W.	Batsford, B. C. C.	Birch, Rt. Hon. Nigel
Ashton, H.	Baxter, Sir Beverley	Bishop, F. P.
Atkins, H. E.	Beamish, Col, Tufton	Body, R. F.
Bonham Carter, Mark	Holland-Martin, C. J.	Noble, M. A. C. (Argyll)
Bossom, Sir Alfred	Holt, A. F.	Oakshott, H. D.
Bowen, E. R. (Cardigan)	Hope, Lord John	O'Neill, Hn. Phelim (Co. Antrim, N.)
Boyle, Sir Edward	Hornby, R. P.	Orr, Capt, L. P. S.
Braine, B. R.	Hornsby-Smith, Miss M. P.	Orr-Ewing, Charles Ian (Hendon, N.)
Braithwaite, Sir Albert (Harrow, W.)	Horobin, Sir Ian	Osborne, C.
Bryan, P.	Howard, Gerald (Cambridgeshire)	Page, R. G.
Bullus, Wing Commander E. E.	Howard, John (Test)	Pannell, N. A. (Kirkdale)
Butcher, Sir Herbert	Hudson, W. R. A. (Hull, N.)	Partridge, E.
Butler, Rt. Hn. R. A. (Saffron Walden)	Hughes Hallett, Vice-Admiral J.	Peel, W. J.
Campbell, Sir David	Hurd, A. R.	Peyton, J. W. W.
Carr, Robert	Hutchison, Michael Clark (E 'b' gh, S.)	Pickthorn, K. W. M.
Chichester-Clark, R.	Hutchison, Sir James (Scotstoun)	Pilkington, Capt. R. A.
Conant, Maj. Sir Roger	Hyde, Montgomery	Pitman, I. J.
Cooke, Robert	Hylton-Foster, Rt. Hon. Sir Harry	Pitt, Miss E. M.
Cooper-Key, E. M.	Iremonger, T. L.	Powell, J. Enoch
Cordeaux, Lt.-Col. J. K.	Irvine, Bryant Godman (Rye)	Price, David (Eastleigh)
Craddock, Beresford (Spelthorne)	Jenkins, Robert (Dulwich)	Price, Henry (Lewisham, W.)
Crosthwaite-Eyre, Col. O. E.	Jennings, J. C. (Burton)	Prior-Palmer, Brig. O. L.
Crowder, Sir John (Finchley)	Johnson, Dr. Donald (Carlisle)	Profumo, J. D.
Crowder, Petre (Ruislip—Northwood)	Johnson, Eric (Blackley)	Rawlinson, Peter
Cunningham, Knox	Joseph, Sir Keith	Redmayne, M.
Currie, G. B. H.	Joynson-Hicks, Hon. Sir Lancelot	Roberts, Sir Peter (Heeley)
Davidson, Viscountess	Kaberry, D.	Robertson, Sir David
D' Avigdor-Goldsmid, Sir Henry	Keegan, D.	Robinson, Sir Roland (Blackpool, S.)
Deedes, W. F.	Kerby, Capt. H. B.	Roper, Sir Harold
Digby, Simon Wingfield	Kerr, Sir Hamilton	Ropner, Col. Sir Leonard
Donaldson, Cmdr. C. E. McA.	Kershaw, J. A.	Russell, R. S.
Doughty, C. J. A.	Kimball, M.	Sharples, R. C.
du Cann, E. D. L.	Lambton, Viscount	Shepherd, William
Dugdale, Rt. Hn. Sir T. (Richmond)	Langford-Holt, J. A.	Simon, J. E. S. (Middlesbrough, W.)
Duncan, Sir James	Leavey, J. A.	Smithers, Peter (Winchester)
Eden, J. B. (Bournemouth, West)	Legge-Bourke, Maj. E. A. H.	Smyth, Brig. Sir John (Norwood)
Elliott, R. W. (N' castle upon Tyne, N.)	Legh, Hon. Peter (Petersfield)	Spearman, Sir Alexander
Emmet, Hon. Mrs. Evelyn	Lindsay, Hon. James (Devon, N.)	Speir, R. M.
Errington, Sir Eric	Lindsay, Martin (Solihull)	Stevens, Geoffrey
Fell, A.	Linstead, Sir H. N.	Steward, Harold (Stockport, S.)
Finlay, Graeme	Lloyd, Maj. Sir Guy (Renfrew, E.)	Steward, Sir William (Woolwich, W.)
Fisher, Nigel	Low, Rt. Hon. Sir Toby	Studholme, Sir Henry
Fletcher-Cooke, C.	Lucas, P. B. (Brentford & Chiswick)	Summers, Sir Spencer
Fort, R.	Lucas-Tooth, Sir Hugh	Sumner, W. D. M. (Orpington)
Fraser, Sir Ian (M'cmbe & Lonsdale)	McAdden, S. J.	Taylor, Sir Charles (Eastbourne)
Freeth, Denzil	Macdonald, Sir Peter	Taylor, William (Bradford, N.)
Gammans, Lady	Mackeson, Brig. Sir Harry	Teeling, W.
Garner-Evans, E. H.	McKibbin, Alan	Temple, John M.
George, J. C. (Pollok)	Mackie, J. H. (Galloway)	Thomas, Leslie (Canterbury)
Gibson-Watt, D.	McLaughlin, Mrs. P.	Thomas, P. J. M. (Conway)
Glyn, Col. Richard H.	McLean, Neil (Inverness)	Thompson, Kenneth (Walton)
Godber, J. B.	MacLeod, John (Ross & Cromarty)	Thompson, R. (Croydon, S.)
Goodhart, Philip	Macmillan, Rt. Hn. Harold (Bromley)	Thorneycroft, Rt. Hon. P.
Gough, C. F. H.	Macpherson, Niall (Dumfries)	Thornton-Kemsley, Sir Colin
Gower, H. R.	Maddan, Martin	Tiley, A. (Bradford, W.)
Graham, Sir Fergus	Maitland, Hon. Patrick (Lanark)	Turton, Rt. Hon. R. H.
Grant, W. (Woodside)	Manningham-Buller, Rt. Hn. Sir R.	Tweedsmuir, Lady
Green, A.	Markham, Major Sir Frank	Vaughan-Morgan, J. K.
Gresham Cooke, R.	Marlowe, A. A. H.	Vickers, Miss Joan
Grimston, Hon. John (St. Albans)	Marples, Rt. Hon. A. E.	Vosper, Rt. Hon. D. F.
Grimston, Sir Robert (Westbury)	Marshall, Douglas	Wade, D. W.
Grosvenor, Lt.-Col. R. G.	Mathew, R.	Wakefield, Edward (Derbyshire, W.)
Gurden, Harold	Maudling, Rt. Hon. R.	Wakefield, Sir Wavell (St. M' lebone)
Hall, John (Wycombe)	Mawby, R. L.	Wall, Patrick
Harrison, Col. J. H. (Eye)	Maydon, Lt.-Comdr. S. L. C.	Ward, Rt. Hon. G. R. (Worcester)
Harvey, John (Walthamstow, E.)	Medlicott, Sir Frank	Ward, Dame Irene (Tynemouth)
Heald, Rt. Hon. Sir Lionel	Milligan, Rt. Hon. W. R.	Webster, D. W. E.
Heath, Rt. Hon. E. R. G.	Molson, Rt. Hon. Hugh	Whitelaw, W. S. I.
Henderson-Stewart, Sir James	Morrison, John (Salisbury)	Williams, Paul (Sunderland, S.)
Hesketh, R. F.	Mott-Radclyffe, Sir Charles	Williams, R. Dudley (Exeter)
Hill, Rt. Hon. Charles (Luton)	Nabarro, G. D. N.	Wills, Sir Gerald (Bridgwater)
Hill, Mrs. E. (Wythenshawe)	Nairn, D. L. S.	Wilson, Geoffrey (Truro)
Hinchingbrooke, Viscount	Neave, Airey	Woollam, John Victor
Hirst, Geoffrey	Nicholls, Harmar	TELLERS FOR THE NOES:
Hobson, John (Warwick & Leam' gt' n)	Nicolson, N. (B 'n' m' th, E. & Chr'ch)	Mr. Brooman-White and Mr. Hughes-Young.

Amendment proposed: In page 8, line 9, at end insert: Provided that in computing any additional initial allowance to be made to a person for any year by virtue of this subsection there shall be disregarded an amount equal to the annual average of the expenditure (if any) allowed to be deducted in computing profits and gains for the purposes of income tax for that and for the two next preceding years being expenditure incurred by that person on the provision of road vehicles which are of a type commonly used as private vehicles or not unsuitable to be so used and are not provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade.—[Mr. H. Wilson.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 200, Noes 240.

Division No. 159.]	AYES	[8.3 p. m
Ainsley, J. W.	Hamilton, W. W.	Paling, Will T. (Dewsbury)
Albu, A. H.	Harrison, J. (Nottingham, N.)	Pannell, Charles (Leeds, W.)
Allaun, Frank (Salford, E.)	Hastings, S.	Parker, J.
Allen, Arthur (Bosworth)	Hayman, F. H.	Paton, John
Allen, Scholefield (Crewe)	Herbison, Miss M.	Pearson, A.
Awbery, S. S.	Hewitson, Capt. M.	Peart, T. F.
Bacon, Miss Alice	Hobson, C. R. (Keighley)	Pentland, N.
Balfour, A.	Holman, P.	Popplewell, E.
Bence, C. R. (Dunbartonshire, E.)	Houghton, Douglas	Prentice, R. E.
Benson, Sir George	Howell, Charles (Perry Barr)	Price, Philips (Gloucestershire, W)
Bevan, Rt. Hon. A. (Ebbw Vale)	Hoy, J. H.	Probert, A. R.
Blenkinsop, A.	Hubbard, T. F.	Proctor, W. T.
Blyton, W. R.	Hughes, Emrys (S. Ayrshire)	Pursey, Cmdr. H.
Boardman, H.	Hunter, A. E.	Rankin, John
Bottomley, Rt. Hon. A. G.	Hynd, H. (Accrington)	Redhead, E. C.
Bowden, H. W. (Leicester, S. W.)	Irvine, A. J. (Edge Hill)	Reeves, J.
Bowles, F. G.	Irving, Sydney (Dartford)	Reid, William
Boyd, T. C.	Isaacs, Rt. Hon. G. A.	Reynolds, G.
Braddock, Mrs. Elizabeth	Janner, B.	Rhodes, H.
Brockway, A. F.	Jay, Rt. Hon. D. P. T.	Roberts, Albert (Normanton)
Broughton, Dr. A. D. D.	Jeger, George (Goole)	Roberts, Goronwy (Caernarvon)
Burke, W. A.	Jeger, Mrs. Lena (Holbn & St. Pncs, S.)	Robinson, Kenneth (St. Pancras, N.)
Burton, Miss F. E.	Jenkins, Roy (Stechford)	Rogers, George (Kensington, N.)
Butler, Herbert (Hackney, C.)	Johnson, James (Rugby)	Ross, William
Butler, Mrs. Joyce (Wood Green)	Jones, Rt. Hon. A. Creech (Wakefield)	Royle, C.
Callaghan, L. J.	Jones, David (The Hartlepools)	Silverman, Julius (Aston)
Carmichael, J.	Jones, Elwyn (W. Ham, S.)	Silverman, Sydney (Nelson)
Castle, Mrs. B. A.	Jones, Jack (Rotherham)	Simmons, C. J. (Brierley Hill)
Chapman, W. D.	Jones, J. Idwal (Wrexham)	Skeffington, A. M.
Clunie, J.		Slater, Mrs. H. (Stoke, N.)
Collins, V. J. (Shoreditch & Finsbury)	Kenyon, C.	Slater, J. (Sedgefield)
Cove, W. G.	Key, Rt. Hon. C. W.	Smith, Ellis (Stoke, S.)
Craddock, George (Bradford, S.)	King, Dr. H. M.	Sorensen, R. W.
Cronin, J. D.	Lawson, G. M.	Soskice, Rt. Hon. Sir Frank
Crossman, R. H. S.	Lee, Frederick (Newton)	Spriggs, L.
Dalton, Rt. Hon. H.	Lee, Miss Jennie (Cannock)	Stewart, Michael (Fulham)
Darling, George (Hillsborough)	Lever, Leslie (Ardwick)	Stonehouse, John
Davies, Harold (Leek)	Lewis, Arthur	Stones, W. (Consett)
Davies, Stephen (Merthyr)	Lindgren, G. S.	Summerskill, Rt. Hon. E.
Deer, G.	Mabon, Dr. J. Dickson	Swingler, S. T.
de Freitas, Geoffrey	McCann, J.	Sylvester, G. O.
Diamond, John	MacColl, J. E.	Taylor, Bernard (Mansfield)
Dodds, N. N.	MacDermot, Niall	Taylor, John (West Lothian)
Donnelly, D. L.	McGhee, H. G.	Thomas, George (Cardiff)
Dugdale, Rt. Hn. John (W. Brmwch)	McGovern, J.	Thomson, George (Dundee, E.)
Dye, S.	McInnes, J.	Ungoed-Thomas, Sir Lynn
Ede, Rt. Hon. J. C.	McLeavy, Frank	Warbey, W. N.
Edwards, Rt. Hon. John (Brighouse)	MacMillan, M. K. (Western Isles)	Watkins, T. E.
Edwards, Rt. Hon. Ness (Caerphilly)	MacPherson, Malcolm (Stirling)	Weitzman, D.
Edwards, Robert (Bilston)	Mann, Mrs. Jean	Wells, William (Walsall, N.)
Edwards, W. J. (Stepney)	Marquand, Rt. Hon. H. A.	Wheeldon, W. E.
Evans, Edward (Lowestoft)	Mason, Roy	White, Mrs. Eirene (E. Flint)
Fernyhough, E.	Mitchison, G. R.	Wilcock, Group Capt. C. A. B.
Finch, H. J.	Monslow, W.	Wilkins, W. A.
Fitch, E. A.	Moody, A. S.	Willey, Frederick
Foot, D. M.	Morris, Percy (Swansea, W.)	Williams, David (Neath)
Forman, J. C.	Morrison, Rt. Hn. Herbert (Lewis' m, S.)	Williams, Rev, Llywelyn (Ab'tillery)
Fraser, Thomas (Hamilton)	Mort, D. L.	Williams, Rt. Hon. T. (Don Valley)
George, Lady Megan Lloyd (Car' then)	Moyle, A.	Willis, Eustace (Edinburgh, E.)
Gibson, C. W.	Mulley, F. W.	Wilson, Rt. Hon. Harold (Huyton)
Gordon Walker, Rt. Hon. P. C.	Neal, Harold (Bolsover)	Woodburn, Rt. Hon. A.
Greenwood, Anthony	Noel-Baker, Rt. Hon. P. (Derby, S.)	Woof, R. E.
Grenfell, Rt. Hon. D. R.	Oliver, G. H.	Yates, V. (Ladywood)
Grey, C. F.	Oswald, T.	Younger, Rt. Hon. K.
Griffiths, Rt. Hon. James (Lianelly)	Owen, W. J.	Zilliacus, K.
Griffiths, William (Exchange)	Padley, W. E.
Hale, Leslie	Paget, R. T.	TELLERS FOR THE AYES:
Hall, Rt. Hn. Glenvil (Colne Valley)	Paling, Rt. Hon. W. (Dearne Valley)	Mr. Short and Mr. J. T. Price.
NOES
Agnew, Sir Peter	Ashton, H.	Batsford, B. C. C.
Aitken, W. T.	Atkins, H. E.	Baxter, Sir Beverley
Amery, Julian (Preston, N.)	Baldock, Lt.-Cmdr. J. M.	Beamish, Col. Tufton
Amory, Rt. Hn. Heathcoat (Tiverton)	Baldwin, A. E.	Bell, Ronald (Bucks, S.)
Anstruther-Gray, Major Sir William	Barber, Anthony	Bennett, F. M. (Torquay)
Arbuthnot, John	Barlow, Sir John	Bennett, Dr. Reginald
Armstrong, C. W.	Barter, John	Bevins, J. R. (Toxteth)
Biggs-Davison, J. A.	Holt, A. F.	O'Neill, Hn. Phelim (Co. Antrim, N.)
Bingham, R. M.	Hope, Lord John	Orr, Capt. L. P. S.
Birch, Rt. Hon. Nigel	Hornby, R. P.	Orr-Ewing, Charles Ian (Hendon, N.)
Bishop, F. P.	Hornsby-Smith, Miss M. P.	Osborne, C.
Body, R. F.	Horobin, Sir Ian	Page, R. G.
Bonham Carter, Mark	Howard, Gerald (Cambridgeshire)	Pannell, N. A. (Kirkdale)
Bossom, Sir Alfred	Howard, John (Test)	Partridge, E.
Bowen, E. R. (Cardigan)	Hudson, W. R. A. (Hull, N.)	Peel, W. J.
Boyle, Sir Edward	Hughes Hallett, Vice-Admiral J.	Peyton, J. W. W.
Braine, B. R.	Hughes-Young, M. H. C.	Pickthorn, K. W. M.
Braithwaite, Sir Albert (Harrow, W.)	Hurd, A. R.	Pilkington, Capt. R. A.
Bryan, P.	Hutchison, Michael Clark (E'b'gh, S.)	Pitman, I. J.
Bullus, Wing Commander E. E.	Hutchison, Sir James (Scotstoun)	Pitt, Miss E. M.
Butcher, Sir Herbert	Hyde, Montgomery	Powell, J. Enoch
Butler, Rt.Hn. R. A. (Saffron Walden)	Hylton-Foster, Rt. Hon. Sir Harry	Price, David (Eastleigh)
Campbell, Sir David	Iremonger, T. L.	Price, Henry (Lewisham, W.)
Carr, Robert	Irvine, Bryant Godman (Rye)	Prior-Palmer, Brig, O. L.
Conant, Maj. Sir Roger	Jenkins, Robert (Dulwich)	Profumo, J. D.
Cooke, Robert	Jennings, J. C. (Burton)	Rawlinson, Peter
Cooper-Key, E. M.	Johnson, Dr. Donald (Carlisle)	Redmayne, M.
Cordeaux, Lt.-Col. J. K.	Johnson, Eric (Blackley)	Renton, D. L. M.
Craddock, Beresford (Spelthorne)	Joseph, Sir Keith	Roberts, Sir Peter (Heeley)
Crosthwaite-Eyre, Col. O. E.	Joynson-Hicks, Hon. Sir Lancelot	Robertson, Sir David
Crowder, Sir John (Finchley)	Kaberry, D.	Robinson, Sir Roland (Blackpool, S.)
Crowder, Petre (Ruislip—Northwood)	Keegan, D.
Cunningham, Knox	Kerby, Capt. H. B.	Roper, Sir Harold
Currie, G. B. H.	Kerr, Sir Hamilton	Ropner, Col. Sir Leonard
Davidson, Viscountess	Kershaw, J. A.	Russell, R. S.
D'Avigdor-Goldsmid, Sir Henry	Kimball, M.	Sharples, R. C.
Deedes, W. F.	Lambton, Viscount	Shepherd, William
Digby, Simon Wingfield	Langford-Holt, J. A.	Simon, J. E. S. (Middlesbrough, W.)
Donaldson, Cmdr. C. E. McA.		Smithers, Peter (Winchester)
Doughty, C. J. A.	Leavey, J. A.	Smyth, Brig. Sir John (Norwood)
du Cann, E. D. L.	Legge-Bourke, Maj. E. A. H.	Spearman, Sir Alexander
Dugdale, Rt. Hon. Sir T. (Richmond)	Legh, Hon. Peter (Petersfield)	Speir, R. M.
Duncan, Sir James	Lindsay, Hon. James (Devon, N.)	Stevens, Geoffrey
Eden, J. B. (Bournemouth, West)	Lindsay, Martin (Solihull)	Steward, Harold (Stockport, S.)
Elliott, R. W. (Ne'castle upon Tyne, N.)	Linstead, Sir H. N.	Steward, Sir William (Woolwich, W.)
Emmet, Hon. Mrs. Evelyn	Lloyd, Maj. Sir Guy (Renfrew, E.)	Studholme, Sir Henry
Errington, Sir Eric	Low, Rt. Hon. Sir Toby	Summers, Sir Spencer
Finlay, Graeme	Lucas, P.B. (Brentford & Chiswick)	Sumner, W. D. M. (Orpington)
Fisher, Nigel	Lucas-Tooth, Sir Hugh	Taylor, Sir Charles (Eastbourne)
Fletcher-Cooke, C.	McAdden, S. J.	Taylor, William (Bradford, N.)
Fort, R.	Macdonald, Sir Peter	Teeling, W.
Fraser, Sir Ian (M'cmbe & Lonsdale)	Mackeson, Brig. Sir Harry	Temple, John M.
Freeth, Denzil	McKibbin, Alan	Thomas, Leslie (Canterbury)
Gammans, Lady	Mackie, J. H. (Galloway)	Thomas, P. J. M. (Conway)
Garner-Evans, E. H.	McLaughlin, Mrs. P.	Thompson, Kenneth (Walton)
George, J. C. (Pollok)	McLean, Neil (Inverness)	Thompson, R. (Croydon, S.)
Gibson-Watt, D.	MacLeod, John (Ross & Cromarty)	Thorneycroft, Rt. Hon. P.
Glyn, Col. Richard H.	Macmillan, Rt. Hn. Harold (Bromley)	Thornton-Kemsley, Sir Colin
Godber, J. B.	Macpherson, Niall (Dumfries)	Tiley, A. (Bradford, W.)
Goodhart, Philip	Maddan, Martin	Turton, Rt, Hon. R. H.
Gough, C. F. H.	Maitland, Hon. Patrick (Lanark)	Tweedsmuir, Lady
Gower, H. R.	Manningham-Buller, Rt. Hn. Sir R.	Vaughan-Morgan, J. K.
Graham, Sir Fergus	Markham, Major Sir Frank	Vickers, Miss Joan
Grant, W. (Woodside)	Marlowe, A. A. H.	Vosper, Rt. Hon. D. F.
Green, A.	Marples, Rt. Hon. A. E.	Wade, D. W.
Gresham Cooke, R.
Grimston, Hon. John (St. Albans)	Marshall, Douglas	Wakefield, Edward (Derbyshire, W.)
Grimston, Sir Robert (Westbury)	Mathew, R.	Wakefield, Sir Wavell (St. M'lebone)
Grosvenor, Lt.-Col. R. G.	Maudling, Rt. Hon. R.	Wall, Patrick
Gurden, Harold	Mawby, R. L.	Ward, Rt. Hon. G. R. (Worcester)
Hall, John (Wycombe)	Maydon, Lt.-Comdr. S. L. C.	Ward, Dame Irene (Tynemouth)
Harrison, Col. J. H. (Eye)	Medlicott, Sir Frank	Webster, D. W. E.
Harvey, John (Walthamstow, E.)	Milligan, Rt. Hon. W. R.	Whitelaw, W. S. I.
Heald, Rt. Hon. Sir Lionel	Molson, Rt. Hon. Hugh	Williams, R. Dudley (Exeter)
Heath, Rt. Hon. E. R. G.	Morrison, John (Salisbury)	Wills, Sir Gerald (Bridgwater)
Henderson-Stewart, Sir James	Mott-Radclyffe, Sir Charles	Wilson, Geoffrey (Truro)
Hesketh, R. F.	Nabarro, G. D. N.	Wood, Hon. R.
Hill Rt. Hon. Charles (Luton)	Nairn, D. L. S.	Woollam, John Victor
Hill, Mrs. E. (Wythenshawe)	Neave, Airey
Hinchingbrooke, Viscount	Nicholls, Harmar	TELLERS FOR THE NOES:
Hirst, Geoffrey	Nicolson, N. (B 'n' m' th, E. & Chr'ch)	Mr. Brooman-White and Mr. Chichester-Clark.
Hobson, John (Warwick & Leam' gt' n)	Noble, M. A. C. (Argyll)
Holland-Martin, C. J.	Oakshott, H. D.

Sir Frank Soskice (Newport)

I beg to move, in page 8, line 9, at the end to insert: Provided that this subsection shall not apply to expenditure on the provision of a ship for the purposes of a trade, unless the claimant proves that the ship is registered or intended to be registered as a British ship and delivers to the Commissioners of Inland Revenue a statement and undertaking that the ship is or will be so registered and will remain se registered for three years from the date of her first registry: Provided also that if the claimant fails to cause the ship to be registered as a British ship or by any disposition made before the expiry of the said three years causes or allows the ship to cease to be so registered, he shall be liable to a penalty not exceeding the sum of one hundred pounds and to a further penalty of the like amount for every day from the date when the ship ceases to be registered as a British ship or, not having been so registered, is registered under a foreign flag until the expiry of the said three years. I hope that whichever of the right hon. Gentlemen, the Chancellor of the Exchequer or the Paymaster-General, replies will not answer by saying that he finds it extremely difficult to conceive of a case to which the Amendment could apply, because I entirely agree. One might conceive of the case of a secondhand ship in respect of which the person who had caused it to be provided might seek an initial allowance rather than an investment allowance, which he would get in the case of a new ship at the rate of 40 per cent.

If, however, one assumes the case of a second-hand ship and one which has been incorporated in a fleet and which, having been incorporated in a fleet, has been used for the purpose of trading and making profits in such circumstances that there would be profits against which the initial allowance could be set off, and if one then assumes that the person who has that ship for some reason or other within three years decides that he will sell it to a foreign owner to be registered on a foreign registry, I suppose that the Amendment might have some application.

The right hon. Gentleman will, no doubt, ask why, if it is so difficult to find a case to which the Amendment could apply, it has been put down at all. I should like to explain. Frankly, we have put down the Amendment for the purpose of probing and asking the Government a question. The right hon. Gentleman knows perfectly well that the Opposition are tightly constricted by the rules of order and cannot put down an Amendment which would impose a charge unless it is one which is sanctioned by a Financial Resolution. Therefore, what we have done is to select and put down this Amendment as the vehicle through which we can ask the Government whether they have given thought to what is today an extremely pressing problem: that is, the question of ships registered under flags of convenience.

8.15 p.m.

On Thursday, we are to debate the question of shipping. That will be a Supply Day and it will not, I believe, be in order to debate matters of taxation then. Therefore, we are taking this opportunity to ask the Government whether they have given thought to the question whether it is possible by means of a taxation discouragement to impose some disability upon the use of these flags of convenience. Theoretically, I suppose, there might be a case which would fall within the scope of the Amendment of a ship which is used for trading here first and is then turned over to a fleet registered under a flag of convenience.

We do not find it easy to conceive of a way in which by fiscal legislation some solid discouragement could be placed upon persons who run ships under flags of convenience. When one remembers, however, that in 1939 the fleets under those flags totalled nil tonnage and now total, I think, a tonnage of about 15 million tons, virtually 17 per cent. of the total world's merchant tonnage, one realises the magnitude of the problem which these flags of convenience present. A number of suggestions have been made for dealing with them. Within the scope of this debate, we can discuss only the rather narrow one of a tax discouragement.

I therefore ask the Chancellor of the Exchequer or the Paymaster-General, if he is to reply, this plain question. I hope that the Government have considered whether there is some way of imposing a tax obstacle in the use of these ships. Frankly, I doubt it. I should like to know the result of the research upon which the Government have embarked—if they have embarked on any research—and whether they can assure the Committee that they will give thought to the problem of whether there is any method whereby, in some way at least, some portion of profits which might otherwise go to the owners of these fleets registered in these "Panlibhonco" countries, as they are called, could be taken away from them and used in the public interest in this country.

Obviously, one would have thought that the only sort of case in which that could be applied would be one in which profits had been made here at least for some period of time. Having that in mind, we have chosen a three-year period in respect of which the Amendment would impose a penalty if a ship registered, perhaps, first under a British registry is transferred to a foreign registry. I do not think that much more can be said in asking the question.

In moving the Amendment, I say quite frankly that that is our purpose. We accept that the Amendment is possibly in a sense somewhat unreal as it can apply to only a very few cases, if any, and I have no evidence of any special case to which it might be thought to be applicable. I do not know whether there are any such cases of the kind I have described, but I ask the Government fairly and squarely whether they have considered whether some tax burden could be imposed on these people in order in some way to equate their situation with the situation of comparative British shipping. If not, will the Government give an undertaking that they will think carefully of this and will in due course, in some form or other, give the House the result of their inquiries? I imagine that some thought has been given to the problem and I should be grateful if the right hon. Gentleman would be good enough to say what it is.

I do not imagine that my right hon. or hon. Friends would regard this as an Amendment which they should press to a Division. Its purpose is probing and to ask a question. I have explained the reasons why it is put down. I hope that we may have an answer, which will give pleasure in all parts of the Committee if it is a positive and effective answer.

Mr. Maudling

I will gladly respond to the questioning of the right hon. and learned Member for Newport (Sir F. Soskice) as far as I can within the rules of order. First, as the right hon. and learned Gentleman pointed out, the Amendment in fact would have no practical effect. Indeed, even in the actual case which he quoted it would have no effect because though a person bought a second-hand ship and sold it again there would be a balancing charge and he would get benefit only over a period. I believe that the right hon. and learned Gentleman would accept that the Amendment is not likely to have any practical effect, but he has raised, in relation to shipping and flags of convenience generally, an immensely important matter, and I should like to say a few words about the Government's attitude to it.

Clearly, an extension of the merchant fleets of flags of convenience countries causes much concern to the Government, and has been causing concern over a considerable period. In the near future, there is to be a general discussion in the House on the subject. Therefore, on this occasion, I must confine myself strictly to the question of taxation. It seems to me that by way of taxation there are very few ways in which we, as a Government, can do anything to help in this problem of flags of convenience. Owners of ships registered under flags of convenience are by definition outside the net of British taxation. That is why they register under those flags. Therefore, there is nothing we can do as far as tax goes to affect the owners.

Theoretically, we can do something to impose a penalty on people who sell ships to owners operating in those countries, or who hire the ships of those operating in those countries, but I should think that no one would propose that we use the tax law in that discriminating way. Speaking without the book, I should have thought that it would be contrary to all our international obligations. The Government, therefore, cannot see any way in which the imposition of tax of a deterrent kind upon people who own ships and operate them under flags of convenience or who trade with them could do anything to alleviate the situation, even if it were accepted—and I do not know that it is necessarily accepted—that it would be the right way to proceed. In any case, it is impracticable. Therefore, we need not argue the merits of the case.

What the Government have been able to do, with the general approval of the House of Commons, has been to assist British shipowners to meet competition by improving their tax position. That is why a ship is treated in a particular way and the 40 per cent. investment allowance has been retained in the case of shipping, whereas otherwise the investment allowance is retained only for scientific research assets and fuel equipment. The rest of industry has gone back to the initial allowance. It was thought right to maintain the investment allowance for shipping because of the special nature of the asset used in the industry and because of the nature of the competition. People can set up a shipping industry in any country but not motor car manufacture. The position of shipping has been recognised as being different.

The attitude of the Government would be that the 40 per cent. investment allowance has done an immense amount to help British shipping in competing with ships under flags of convenience which pay no tax. Some of my friends in the shipping industry were at first inclined to doubt it, but when an undertaking regularly ploughs part of its profit into new construction and gets 40 per cent. addition to capital allowance, it is left better off than if it paid no tax at all. So far as tax is paid, something net is received back from the Revenue. It is true that that applies much more to the bigger concerns and to those who are replacing tonnage more rapidly.

What has already been done in the field of taxation relief for shipping and new tonnage goes as far as we consider at present one can go by way of taxation relief to put the British shipping industry in a position to compote with flags of convenience. The ship owner operating under a flag of convenience and pays no taxation has no advantage in that respect over the British owner who pays taxation but gets 140 per cent. of what he pays back again. That being over and above the 100 per cent. depreciation, it means that if one spends £100 on replacing a ship not only does one get back tax of £100 but in addition one gets tax on £40.

Mr. Rhodes

That is precisely why my right hon. and learned Friend the Member for Newport (Sir F. Soskice) moved the Amendment. If, having got back 40 per cent. over the 100 per cent., the owner within a short time sells that ship abroad, who will get the advantage—the person abroad? Surely there should be some method of re-writing into the value of the ship what has been allowed by the taxpayer.

Mr. Maudling

That is covered already by the Income Tax Act. The Amendment refers not to the investment allowance but to the initial allowance. That point is covered in the rather complicated arrangement which was made when we introduced the investment allowance. I agree that the hon. Member has made a perfectly good point, but I was arguing the rather broader point on which the right hon. and learned Member for Newport was hanging the Amendment. By common consent, the Amendment is not so much a practical matter as a peg on which to hang an argument. I have been trying to put the Government's thoughts in the specific context of taxation. In the wider, general context, this matter will be discussed in the House of Commons soon. It is one to which we attach the greatest importance, and the Government will be glad to see suggestions from the Opposition or elsewhere as to what more can be done.

Mr. J. T. Price

There is another point which to my mind conclusively demolishes the right hon. Gentleman's argument. He has replied to the intervention by my hon. Friend the Member for Aston-under-Lyne (Mr. H. Rhodes) by saying that the man who receives 140 per cent. is actually in a better position than the man overseas who is operating under a flag of convenience, but that relates only to one year. The man who gets the ship under a flag of convenience escapes the continuing liability of current taxation during every year in which the ship operates.

Mr. Maudling

The point is that the man who pays no tax has to buy his new tonnage out of his gross profits, not out of his net profits. The man who gets an investment allowance can also buy new tonnage out of gross profits, to the extent that he gets the 40 per cent. investment allowance. This is a very complicated subject, but this point is strictly limited to cases where there is a large-scale replacement of tonnage, and I think that in those cases the hon. Member will find my argument valid.

Mr. Mitchison

May I ask the right hon. Gentleman a question which puzzles me in this connection? It relates both to the initial allowances which we are discussing and to the investment allowances which we cannot discuss, but in principle it is the same point.

Let us suppose there is a shipowner here carrying on a trade, and let us suppose that he buys a ship and gets on it a tax advantage, whether in the nature of an initial allowance or an investment allowance. Having had that tax advantage he is thereby enabled to resell the ship to a foreign owner at a price lower than it would otherwise have suited him to sell it, so that in the result the original British shipowner does not do too badly and will, in the type of case I am contemplating, actually put the ship into use for a little time and thereby bring it into his trade, whereas the foreign owner will get the advantage of a ship at a cheap price because of the lax advantage given to the British shipowner.

I appreciate that balancing charges come into this, but that is a question of what is the final price. If there is any uncertainty in the matter, is not the door wide open to a collusive arrangement by which there is a very close business connection between the original British owner and the final owner under the flag of convenience? So much so, indeed, that the British owner may promote, let us say, a company in Panama—I do not know that this is even necessary in most of these cases—or may have some sort of subsidiary with an independent trade or some sort of body which, without being a subsidiary, he is nevertheless interested in.

8.30 p.m.

I would respectfully ask the right hon. Gentleman whether he is satisfied that the present legislation really covers that kind of case, because the inherent difficulty in the giving of what from the taxation point of view is an abnormal concession to a specific British industry, shipping, for a purpose the merits of which are not under discussion now, is that this abnormal concession might very well be used, if the law so permits, to pass on some of the benefit, collusively or to some independent foreigner whom we do not really wish to benefit by it, having regard to the purpose for which it is made.

Is the right hon. Gentleman really satisfied that this is impossible? One could work out all sorts of possible combinations of ways in which it might be done. I am not at all happy, because the original initial allowance and investment allowance arrangements were intended to deal with re-sales and so on, but they were intended to deal with them in cases where there were no phenomenal and special advantages, and in which the asset being dealt with did not in general play such an overwhelming part in the trade in question as a ship necessarily does in a shipowner's business.

Mr. Maudling

These are important points and the answers are twofold, according to whether the transaction is of the type which the hon. and learned Gentleman is suggesting and is a genuine or a collusive transaction.

On the first point, I do not see how any difficulty could arise in relation to the initial allowance where the transaction is genuine, because, taking the period over which the man owns the ship, the total amount he receives by way of capital allowances cannot exceed the difference between what he pays for the ship and what he sells it for. In other words, he has bought it for £100,000, has written it down to £50,000, has taken the capital allowance and then sells it for £80,000. He has to pay back the capital charges, so I cannot see how in any genuine transaction any difficulty can arise.

On the question of a possibly collusive transaction, there are provisions in the Income Tax Acts, Which I cannot quote out of my head, but for which I think the party opposite were responsible, dealing with the use of capital allowances where transactions are not at arms length. My impression is that these are sufficient to deal with what the hon. and learned Gentleman has in mind, but it would be unwise for me to try to give a firm assurance off the cuff. I will look at the point, but my impression is that with a genuine transaction there should be no difficulty and that any collusive transaction is covered by existing legislation. However, I will look at the point again.

Mr. Mitchison

Perhaps the right hon. Gentleman will be able to look at that point before the Report stage in case the matter arises again then?

Mr. Maudling

Yes, certainly. That is understood.

Amendment negatived.

Motion made, and Question proposed, That the Clause stand part of the Bill.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

The object of this Clause is to enact the proposal which I announced in my Budget speech that, in order to give what I called a little practical encouragement to industrial investment, the initial allowance should be increased from Budget day by one-quarter. That increase brought these allowances to a level of 25 per cent. for plant and machinery and 12½ per cent. for industrial building. The special rate of 40 per cent. for mining works will remain.

It is still the main aim, I should like to remind the Committee, of the Government's economic policy to put the strength of sterling, the soundness of our international financial position and price stability as our first objective. The need to maintain the value of our money by the exercise of moderation in demands for higher money incomes, I need not remind the Committee, has not diminished, but I also made it clear in my Budget statement that, while our objectives are fundamental and unchanging, we are determined to keep our policies flexible and to adjust them promptly whenever our assessment of the situation suggests the need for that.

The two parts of our economy in which we must make sure, in particular, that we go ahead as fast as conditions allow are, first, those activities which concern our export trade and, secondly, our industrial investment. I have been considering whether I should be justified now, two months after I took the decision on initial allowances which I announced in my Budget speech and which is embodied in the Clause, in going a little further in this matter. It is very desirable, as I said in my Budget speech, that plans for investment in industry should continue to be made with confidence if we are to be in a position to exploit the opportunities that lie ahead.

Weighing the various factors which I have to take into account, I have come to the conclusion that it would be well to make some increase in the practical encouragement which I sought to give to industrial investment by improvement in the initial allowances. While one cannot suppose that initial allowances are by themselves often likely to be a determining factor in investment plans when they are under consideration, I believe that they nevertheless exert a positive influence. Although frequent changes in the rates would be confusing, the fact that the allowances can be varied year by year may influence the timing of capital expenditure.

If you will allow me to do so, Mr. Blackburn, I should like to tell the Committee that I propose to move on the Report stage of the Bill an Amendment to this Clause which will provide for an increase in these allowances by one-half instead of one-quarter. The effect will be to raise them to 30 per cent. for plant and machinery and 15 per cent. for industrial building. I do not propose to alter the special rate for mining works.

This amended increase in the rate of the allowances will date, as did my original proposal, from Budget day. The total effect of the new proposals will be, approximately, to double the cost of the original proposal embodied in the Clause. I believe that the Clause, amended in due course as I have indicated, will be even more acceptable to the Committee than the Clause in its present form.

Mr. H. Wilson

I am sure the whole Committee will welcome what the Chancellor has just told us, though I am bound to say that it is a rather pussyfooted way of doing it.

In the Budget debates in 1957 we said to the then Chancellor that it was obvious that the boom rate of investment would diminish and that by 1958 there would be a need to give some further stimulus to industry. We suggested to the then Chancellor in that debate that he ought to make it clear that he would restore investment allowances in this year's Budget. That would have enabled businessmen who had rather vaguely at the back of their minds plans for capital expansion to prepare their plans to take advantage of a tax concession this year, and then just as the slack began to appear in the economy, especially on the investment side, they could have taken full advantage of what the Chancellor could offer. That advice was not accepted by the then Chancellor.

This year we were glad to see that the present Chancellor made a small bow in the direction of encouraging increased investment by increasing the initial allowances to 25 per cent., though we told him in April that it was not enough, and suggested that it would have been better to restore investment allowances which, by the common agreement of the Committee, are a better incentive to capital investment than the initial allowances. In his rather cautious approach to these matters—and still busily fighting last year's inflation—he seemed to think that that advice was not right at the time, although, to be fair to him, he said that he would consider the matter again in due course. So tonight, two months afterwards, we have had this further increase.

The Chancellor said that we do not want too many changes in these rates, but I do not think that anyone will criticise him on the ground that he has changed them upwards. Changes up and down are the ones which cause difficulties. I only wish that he had made the changes all at once, in April, but I am glad that he did not feel inhibited from making them now by the fear that there would be criticism from hon. Members on this side of the Committee or anywhere else about the uncertainty created by his action. Despite the terrifying appearance of the right hon. Member for Blackpool, North (Sir T. Low), I hope that the Chancellor will not be worried that on this occasion he is introducing retrospective legislation.

He made it quite clear that he is going to backdate this concession to April. It is right that he should do that, because it is only making good the excess of caution which he displayed at the time of the Budget, and I have not seen the right hon. Member for Blackpool, North rising in his wrath to threaten the Chancellor with an adverse vote by hon. Members opposite. That is because they do not object to retrospective legislation which benefits public companies; they object to it only when it acts to their detriment. I can promise the Chancellor that if the right hon. Member for Blackpool, North opposes this use of retrospective legislation, we shall be glad—as we would have been on the other occasion—to come to his rescue and to bail him out against the wishes of his contumacious back benchers. On those two points we certainly do not criticise the Chancellor. Since we are debating the question of initial allowances, however, I hope that the Committee will be able to take the debate rather more widely.

What is the position in relation to investment? Over the past four or five years there has been a virtual stagnation—the word is being rather over-used in these days—of investment in industry. I well remember the then Chancellor, the present Lord Privy Seal, standing at the Dispatch Box and wringing his hands on many occasions about the failure of industry to expand investment. Year by year he had to concede that the publicly-owned industries were expanding investment reasonably well while the privately-owned industries were not expanding at all. It was not until, in 1954, the then Chancellor introduced investment allowances that we had the upsurge in investment which has now gone down in economic history as the period of the Butler boom.

The then Chancellor was pleased with the investment increase. That was the year when he coined the phrase, "Invest in Success," and said that we could double our standard of living in twenty-five years, and all the rest of it. An essential part of any such programme must be a great increase in capital investment. His investment allowances were designed for that purpose and, in effect, they have replaced the initial allowances, because any firm having a choice between the two would obviously go for investment allowances.

But what happened? There was an enormous increase in the rate of capital investment and plans for further capital investment in 1954–55, and that increase was spread very widely over the whole economy. It could not be claimed that it was concentrated mainly in the essential sectors of the economy. The biggest increases were in motor cars, then mainly producing for the home market although there has been a big improvement since which we are all pleased to see. The other big increase was in printing, paper and packaging, which has no doubt had a great deal to do with the advertising and sales boom and with the higher standards of consumer packaging in this country—desirable, but not essential.

8.45 p.m.

All this was superimposed upon—I quote from memory the Economic Survey of 1956—a buoyant consumer economy, a buoyant rate of consumption to the point where, as soon as the election was safely out of the way, right hon. Gentlemen opposite decided that there must be some restraint; and we had a whole series of restraints. It would be out of order if I tried to deal with them all but I think that there is no doubt that highly relevant to this Clause was the decision of the then Chancellor, now the Prime Minister, which was announced, speaking from memory, on 17th February, 1956, when he withdrew the investment allowances.

From the time of the withdrawal of the investment allowances, the initial allowances became of much greater importance, and, of course, they have remained at 20 per cent. There have been the small changes, referred to by the Paymaster-General just now, in the maintenance of investment allowances for shipping and the other two items which he mentioned—scientific research and fuel economy equipment. Apart from that very narrow field, and apart from the debates which we have had in the past when we have sought to extend the range of this special exemption, initial allowances are now the principal tax incentive for industrialists to extend their investment.

The 20 per cent. initial allowance was an incentive, as the Chancellor has said. It was not an inappropriate rate for a Government who were trying to hold down investment and curb the excesses of the Butler boom. With the present situation of investment beginning to tail off and this country facing much more the danger of recession than inflation—a fact which became clear to this side of the Committee long before it penetrated the minds of most hon. Members opposite—the Chancellor is right, if he is going to depend on the initial allowances, to increase the rate, as he has done, from 20 to 30 per cent. It would have been better, in our view, to reintroduce investment allowances. Even if he had kept them at a fairly low rate in the early stages, this would have been a better incentive.

I want to put this point to the Chancellor, whether he thinks that he can regulate the rate of investment in this rather thermostatic way, this kind of built-in initial allowances thermostat. The right hon. Gentleman wants to encourage investment. There is no disagreement between the two sides of the Committee about that. We on this side of the Committee believe the time has come, and is long overdue, for that investment in the industrial production of this country. Hon. Members opposite—I want to be fair—take the view that the time has not yet come, though they hope it will come soon. They take that view because they think it essential to hold back and to hold down the economy. I am trying to put the point of view of both sides of the Committee as fairly and objectively as possible. I am not trying to make party capital out of this.

Hon. Members opposite have sometimes said to us—not so much in the House, where arguments are usually reasonably fair and sophisticated, but in rather crude forms of propaganda which we sometimes see emanating from the party opposite—that we want a rip-roaring consumption boom. Of course we do not. We want an investment boom. I am sure that that is what the Chancellor wants. The difference between us is on how to achieve these things and the timing of them. There can be no doubt that this country needs a high investment economy. Surely, that must receive endorsement from both sides of the Committee.

Although the total rate of investment in this country has increased compared with 1951—I concede that to the Government, and, my goodness, it ought to, thirteen years after the end of the war compared with a period of six years after the end of the war—we have lagged a long way behind most other advanced industrial countries in the matter of industrial investment. Looking at any form of international comparison, and the figures of investment between these countries, there is no doubt that Britain has lagged a long way behind most of these countries over that period. Therefore, there can be no doubt that we want this expansion in capital investment in industry.

The Chancellor, therefore, gives this encouragement by initial allowances. We should like to see the next stage of industrial expansion in this country concentrated so far as possible, on investment, but more narrowly than the Chancellor contemplates. We want to see it concentrated above all on essential investment; because on the experience of the so-called Butler boom—I trust that I am not out of order in using that expression; I think it has become rather a term of art in economic discussions, but I will alter it if any hon. Member takes objection to it—we had a vast expansion in inessential investment which caused a dangerous strain on the economy. We all know to what kind of things I am referring. I have mentioned some industries. There was a great deal of expansion outside productive industry, particularly in certain aspects of distribution—and there was commercial television and all those other things—to the point where, in 1955–56, the Government had to introduce very strong doses of medicine in order to purge the economy of its excesses and its difficulties.

One of the results of doing so during that period was that the Government had to cut down more than they wanted to—more than otherwise they would have done—on the level of public investment, on the rate of investment in the nationalised industries, many of them highly essential, and on the rate of investment by local authorities. It was because of the push they had given to inessential private investment—uncontrollable as it is by anything in the Tory philosophy—that the Government had to put on controls over essential investment.

The Chancellor is slowly coming to the point of view that we must encourage investment again; now he is moving away, I hope, from the right hon. Member for Monmouth (Mr. P. Thorneycroft) and from Professor Robbins and these other mid-nineteenth century types we have around, and slowly emancipating himself from the fetters he inherited when he became Chancellor so far as these things are concerned. But I am afraid that the right hon. Gentleman will stick to the view of the Lord Privy Seal, that there cannot be any selectivity in investment or controls; that it is all or nothing in investment; either everything expands and shoots ahead or everything has to be held back.

We have often complained—making use of one of the Chancellor's favourite phrases—that it is "all accelerator or brake and never the steering wheel." I know that the Chancellor likes that phrase. He used it again a couple of weeks ago, and he often used it during the Budget debates. He is going to take off the brakes as soon as he can see the road ahead, and all that sort of thing. We have suggested that the most modern cars in these days have steering wheels fitted to them and that they are valuable accessories. The Chancellor is in the position of the driver of a car—and an extremely old-fashioned type it must be—who steps on the gas and goes zooming ahead, and then has to jam on the brakes when he gets to a corner and get out and hump the wheels until he can get round the corner. This leads to a rather lurching form of progress, which is what we have been having regarding investment policy and the economy graph over these past few years.

I hope, therefore, that the Chancellor, now that at last he is beginning to take a timid and occasional little step every couple of months towards expansion, looking over his shoulder to see if the right hon. Member for Monmouth is there and whether he approves [Laughter.]—no, the right hon. Member for Monmouth is not present tonight and it is quite safe, though one of his hon. Friends is present—will give a great deal of thought to the question whether he could go ahead more vigorously and strongly if at the same time he introduced some controls to prevent the less essential section of the economy from expanding. I hope that he will think very hard about that possibility—

Sir Toby Low (Blackpool, North)

Garages.

Mr. Wilson

That was a case in point. I did not myself intend to refer to it, because I know that it is a sore point with some hon. Members opposite, but I remember that in the debate on the Gracious Speech in 1955, only a couple of weeks after the General Election—I think that the date of the debate was 10th June, but the right hon. Gentleman can check this—I pressed this point very strongly on the then President of the Board of Trade who later became Chancellor, but who is now no longer on the Treasury Bench. The arguments he used about the virtues of expansion and about how we did not want to restrict investment read very strangely today when one looks at what he had to say on these issues last September and subsequently.

We have pressed the necessity for increasing investment. The Chancellor, I think, in his heart would not only like to accept our arguments, but would like to go a long way in the matter of invest- ment, because none knows better than he—or, if anyone does, it must be the Paymaster-General, so I say that both of them know—that if ever the Paymaster-General succeeds in negotiating the European Free Trade Area involving this country, then this country stands or falls on whether or not we are a high or a low investment economy.

We cannot face that competition with the level of investment that we have had in the last few years. I know there are some who say that we should, therefore, oppose the Free Trade Area, but whether or not there is a Free Trade Area, sooner or later we shall find the competition from abroad if we do not become a high investment economy as we need to be. It is not a question of a Free Trade Area or of no Free Trade Area, but simply that the Free Trade Area will merely hasten the process and the extent of that competition that we know we have to face—that, indeed, we are already facing in an increasing degree—in the markets of the world.

Therefore, it is vital that we become a high investment economy, but we must not go forward on the same basis that we did in 1954–55 of encouraging such vast and wide expansion of investment in essential and inessential industry that a month or two later we have to come back, cut down on everything and, because of the Government's fear of controls, have to rely on methods which, in the main, cut down an the essential investment while having a less direct impact on the inessential investment.

There is another reason why the Chancellor has come forward with this proposal tonight. He has been very cautious about it; he put it in a very restrained way because he knows that the country is facing a danger of recession that is much greater than the problem of inflation about which, of course, he has to keep on making these speeches if he is to keep well in with some of his more weighty back benchers. I do not, of course, refer to any physical characteristics.

As I say, he knows that we are facing that danger. The position since April is not encouraging in that respect. Indeed, it is worse. I know that there are right hon. Gentlemen opposite who say that unemployment did not rise very much last month. I did not know that it would be necessary to deal with this question tonight, because I did not know that the Chancellor was to make this announcement, so I have not had an opportunity of looking up facts and figures and dates, but have to rely on my memory. However, I do not think that the right hon. Gentleman will challenge these figures, which I quote from memory.

In March of this year the numbers unemployed were 70,000 greater than in March of last year. In April, the numbers unemployed were 100,000 greater than in the same month of last year, and in May they were 130,000 greater. Therefore, in each of those months the position relative to the previous year was 30,000 worse.

9.0 p.m.

It is not a question of whether the absolute figure rose by only 4,000 or 5,000, because this is the period when seasonally there should be a sharp decrease in the numbers unemployed, and we all know that in many areas the unemployment position is a great deal worse.

Frankly, I believe that the unemployment figures at present gravely understate the true position of the under-capacity of industry. It is not a question of the number being turned off. There is a great degree of under-use. We know that there is considerably less overtime and considerably more recorded short time, but we also know, apart from those factories where it can be measured in terms of overtime and short time, that there is a great deal of slackness which cannot be measured, but which is none the less real. There are many factories which could produce 10, 20 or 30 per cent. more with the same degree of labour. This problem cannot be measured in terms of the numbers of unemployed.

Many employers have a different attitude from that adopted in pre-war days and when they try to keep on labour as long as possible, some because they are afraid of union action in case of redundancy, but many because they feel that the recession is only temporary and will not affect them. I do not want to pursue that matter, but there is a great deal more of recession in this country than one would dream from the figures and facts given by the Chancellor.

That recession—and here we have a very close parallel with what happened in the United States a few months ago—is being concentrated more and more in the investment industries. Certain industries, like cotton which is abysmally depressed, are seriously depressed. I am glad the Minister of Works has now entered the Chamber, because this affects him very much, since one of the most depressed is the building industry, as he well knows. The reason for the depression in the building industry is the slow drying-up of investment programmes of the 1954–55 boom.

One would be glad if one felt that the Chancellor's announcement about initial allowances would lead to an increase in essential investment, since it could have an important effect on the position of the building industry. I am concerned only because the result of the Chancellor's efforts over the past few months has been to create a psychology in industry which will make it difficult for this concession to correct the position.

It is no good the Chancellor continuing on the basis of brake-accelerator, accelerator-brake in the way he has done, because the kind of braking action which was applied last September—and it did not start last September; it started with the Budget of the Prime Minister two years ago—has had such an effect on the psychology of British industry that even if the Chancellor were now to remove the credit squeeze and remove many of the other inhibitions on investment, and even if, as he now proposes, he were to increase initial allowances. I doubt whether the psychology of expansion is there for industry to accept his offer.

The greatest tragedy in the past two or three years is that whereas before the war there was a generation of stagnation in industry, as we all know, and too much restrictive practice on both sides of industry and too much playing for safety, and so on, both parties can take satisfaction from the fact that since the war there has been a change in the psychology of British industry and British management. Whereas it was anti-investment before the war, today many industrialists and business managers are pro-investment, very investment conscious. Given half a chance, they will do all they can to modernise and mechanise their industries.

It is therefore a double tragedy that just when we have this psychological change of climate in British industry the Government have come along in the last two or three years and have said that we could not afford investment because we should run into so many crises. We must welcome the fact that the Chancellor is slowly moving, but we must warn him that if he moves in this direction without a steering wheel he will run into the same difficulties which the Lord Privy Seal encountered. If he succeeds in getting investment expansion—recognising that we warned the Government many months ago that this was happening in America, although they were still very complacent about it—it is doubtful whether the Chancellor's proposals will create the expansionist urge in industry, especially in essential industry, which both sides of the Committee would like to see.

Sir T. Low

After that considerable impromptu speech by the right hon. Member for Huyton (Mr. H. Wilson), I should like to express on behalf of myself, and I believe all my hon. Friends on this side of the Committee, a very warm welcome to the statement which my right hon. Friend the Chancellor of the Exchequer made at the beginning of this short debate.

My welcome is warm and complete, and I have no reservations—no nonsense about "pussyfooting", which was the word which the right hon. Member for Huyton introduced. I think my right hon. Friend is to be congratulated on having got his timing about right. When we heard him speak to us at the time of the Budget debate, we thought that the move which is now embodied in the Clause was the right thing to do, and we welcomed very much his statement that he was keeping his eye on the position and that his approach was one of flexibility. It is good to know that after two months he has re-examined the matter and has found it wise to move forward once again, and that he has come to tell the Committee so this evening.

The right hon. Member for Huyton made a speech which we all realised was impromptu, and I think that all Members of the Committee would like to congratulate him upon the way in which he steered through the difficult rules of order on the Question, "That the Clause stand part of the Bill", so that he managed to express his innermost thoughts on some of the most fundamental matters of our economic life. If I tried to answer him on all those points, I should indeed try your patience, Mr. Blackburn, and therefore I shall not do so.

I should like to make this general observation. I hope that we shall not exaggerate the significance of this important step which the Chancellor has announced, and I think the right hon. Member for Huyton was in danger of getting into hyperbole too often. He seems to think that we ought to live in a boom, but what I want to see is a steady expansion based upon stable conditions, which are now very nearly in being here. On that basis of steady expansion, I believe that we can get the steadily expanding standard of life which he and his right hon. and hon. Friends want every bit as much as we do.

I hope the right hon. Gentleman will refrain from crying "stinking fish" on the level of investment in British industry in the course of the last two years or so. If he studies the figures, he will see that we have got up to a level of investment which does challenge our main competitors in overseas markets, and that is the way we want to keep going. My right hon. Friend told us in his Budget speech that he wanted to avoid a gap taking place between what had been done and what it was essential to do if we are to keep a steady expansion going. That seems to me to be the right thing, and we do not want to talk now about suddenly stamping our feet on the accelerator and projecting ourselves forward into an unhealthy boom. That is not, as I understand it, the philosophy of the right hon. Gentleman, and it certainly is not my view.

I welcome this because I think it has the makings of an incentive to industry just at the right time, when we have stable conditions which will allow industry to take advantage of it and really earn the fruits of the conditions which have at last been created by the very wise economic policy pursued by the Government during the course of the last year, the result of which we see in the value of the £ and in the very good balance of trade we now enjoy.

Mr. Harold Lever (Manchester, Cheetham)

Will the right hon. Gentleman clear up one point? He spoke about an unhealthy boom. Could he give us an example of a recent case of an unhealthy boom, and give the date of it?

Sir T. Low

An unhealthy boom, as I mean it, is a state of affairs in which there is great expansion and prices go up and up and costs go up.

Mr. Lever

What was the date of the last one?

Mr. Rhodes

As for stable conditions, I would remind the right hon. Member for Blackpool, North (Sir T. Low) that before de Gaulle came on the scene merino wool was at 46d. During de Gaulle, it was at 64d., and is back again now to 48d. We do not know how far prices will go further down.

We must ask ourselves again what we will do about stable conditions. Unless the question of commodity prices is tackled, it is not a ha' p' orth of use giving initial allowances. It might be an inducement if the Chancellor gave us investment allowances, but not initial allowances, because they are really valueless. It is the timing which matters. The situation now is quite different from what it was two or four years ago. Then the delivery dates for machinery were long, and it was not unusual to be told that it would take two years to deliver a machine of a particular sort. Now, one can have it in three months.

To what extent one will encourage the desire of manufacturers or those putting in capital equipment by an increase of initial allowances up to 30 per cent., I really do not know. It would have been far better if the Chancellor had said, "I believe it is time that we thought more in terms of an expansionist policy. If we get over the difficult period in September in the matter of the £, I will introduce a mild dose of investment allowances, nicely timed, say, in September or October." That would have been better from the point of view of an industrialist thinking of investing in capital equipment.

The industrialist, during the last eighteen months or two years, has not really been encouraged to think ahead about buying new machinery. He has, indeed, been discouraged. He has been told all that time that he has been producing too much. Gradually, there has been a run-down. Manufacturers have assessed their requirements up to date, and I think it will be found that a great many manufacturers will be content to run on at their present levels, if they can, for some time ahead. I urge the Chancellor to think again about this question of initial allowances and investment allowances during the months between now and September. I think that initial allowances are very overrated. They have to be taken into account over the years in any case. If the Chancellor could introduce a mild inducement in the form of an investment allowance later, it would be welcomed by those who are now thinking of placing orders.

9.15 p.m.

Mr. John Arbuthnot (Dover)

I should like to join with my right hon. Friend the Member for Blackpool, North (Sir T. Low) in congratulating my right hon. Friend the Chancellor of the Exchequer on the further step he has foreshadowed to improve initial allowances. I am not in agreement with the remarks of the hon. Member for Ashton-under-Lyne (Mr. Rhodes) in what he said comparing the merits of initial allowances with investment allowances. Personally, if I had to choose between the two from the national point of view, I would think that initial allowances are the better in the sense that they do not in the long run cost the Exchequer anything. But the corollary to that is that one can have larger initial allowances with greater impunity than investment allowances.

Therefore, I should like the Chancellor of the Exchequer to consider before he tables his Amendment on Report whether he cannot go further than the proposal that he has told us about this evening. One of the things that strikes me about the proposal is that it could be extended still further if he were prepared to insist that any initial allowance that is given should be written off in the books of the company at the same time. By doing that it would provide a deflationary effect to counteract the possible inflationary effect that an increase in initial allowances might provide.

Mr. Rhodes rose—

Mr. Arbuthnot

May I just finish this part of what I am saying?

Therefore, I hope that my right hon. Friend will consider that point, bearing in mind that the total cost over the life of machinery or plant to the Exchequer of initial allowances at whatever rate will be no greater than it is at the present moment. I should like him to consider whether it would be possible to take the lid off completely and to allow industry to write off its plant and machinery at whatever rate it wishes. The important thing at the moment is that we should encourage our industrialists to bring in new equipment, to experiment with new plant and to make themselves as efficient in competition with other countries—

Mr. R. T. Paget (Northampton)

Is that why the Government have a credit squeeze?

Mr. Arbuthnot

—as they possibly can. The credit squeeze is another matter. I am sure that my right hon. Friend is right to respond to the decrease in industrial investment that has taken place since he introduced his Budget two months ago by giving this additional increase in initial allowances. I hope that he will go still further than that.

I think that the hon. Member for Ashton-under-Lyme wishes to interrupt.

Mr. Rhodes

Yes, because I could not follow the hon. Gentleman. I thought he was getting very mixed up with regard to the principle of initial allowances. It does not matter in the long run whether one gets 30 per cent. in the first year or at some other time. But with investment allowances it does matter, if they are at the rate of 40 per cent., as with shipping. In that case, one gets a tax relief of 40 per cent. straight away, which, of course, is at the expense of other taxpayers. If we are going to give an incentive to industry to put in plant, the best incentive that we can give them is to put in plant at the expense of somebody else, which means investment allowances.

Mr. Arbuthnot

What the hon. Member is suggesting is that we should put in plant at the expense of the Chancellor of the Exchequer or other taxpayers. I appreciate that point and that that might be a still greater incentive. The hon. Member is not, however, right in saying that it does not matter at what rate we can write down plant and machinery through initial allowances. It matters a great deal, for this reason. We in this country say that our working man does not have the same chance as his American competitor since the capital equipment behind his American competitor is three times the capital equipment behind our own working man.

If we encourage our industry to use its capital equipment more rapidly, to make greater use of it and to use it for three shifts a day instead of only one or even part of one, that would be of immense use in stimulating our industrial activity. If the initial allowance is high in the first place, not only will it encourage industry to use its capital equipment more and to use it more quickly, but it will also mean that the industrialist will be able to replace his capital equipment more rapidly since he knows that he has been able to write it off, both from a tax point of view and in his accounts, at a much earlier date. Therefore, the hon. Member was not right in saying that the rate of the initial allowances does not matter. It matters a great deal.

It would, however, be even more helpful to industry, and it would not cost the Exchequer anything in the long run, if my right hon. Friend were to take the lid off and allow industry to decide itself the rate at which it could write off its capital equipment, provided that it also wrote off that equipment in its accounts.

Mr. H. Wilson

I should like to put a question to the Chancellor, who might be able to help the progress of the debate. This is obviously an important debate. Both sides of the Committee have taken that from the right hon. Gentleman's announcement. A number of my hon. Friends have speeches to make on the Clause which they probably would have made without the Chancellor's announcement but which are now rather more pointed to what the Chancellor has said.

Is the Chancellor's announcement part of a general series of anti-recession measures, and does it merely happen to be convenient that tonight is the night when he has announced this one? I obviously would not ask him his intentions about Bank Rate. If I did, he would not be likely to give much of an answer tonight. Even if he did, it would be out of order. It is important to know whether this is one of a series of measures that the Chancellor intends to announce over the next day or two or whether it is one on its own.

The Temporary Chairman (Mr. F. Blackburn)

The Chancellor would have difficulty in keeping in order in answering the question.

Mr. Wilson

Surely he would say "Yes" or "No" and still be in order.

Some of my hon. Friends might want to say that the need for anti-recession measures is so great that if the Chancellor is not announcing any other measures, we ought to press him to go from 30 per cent. to 40 per cent. or from 40 to 50 per cent. If this is part of a well-considered plan and a real shift of Government policy compared with the Budget, many of us might say that the 30 per cent. is more reasonable.

Mr. Amory

I can answer that within the terms of order by repeating that our policies are flexible and we shall change our policies whenever we feel that change is required in the light of changing circumstances.

Mr. H. Lever

I join my hon. and right hon. Friends in giving a conditional welcome to the Chancellor's proposal. There are, however, one or two words which must be said in qualification. I am glad to note that the indulgence to the Front Bench in discussing this matter is being extended with equal generosity to the back benches. Contrary to the views of the hon. Member for Blackpool, North (Sir T. Low), this issue opens up the consideration of the whole of our economic policies. It is impossible to discuss what is or should be the right investment allowances without considering what is the inflationary position and what are the Chancellor's economic and financial policies.

It is quite clear that the Chancellor has revealed tonight the Government's divided mind. He cuffs industry now and again and then suddenly starts giving it encouraging concessions. If there were any wobbling in the exchange rate of sterling there would be more reaction on the part of his party and we should hear once again of what the hon. Member for Blackpool, North calls an unhealthy boom and we should have investment allowances cut again.

Perhaps the Chancellor would explain why he thinks it is desirable to give this investment encouragement in this case when he thinks it necessary to pull it back in so many essential fields. Criticism of the Chancellor from this side of the Committee has been too fair. My complaint is not that the Chancellor is encouraging unselective investment. It is that he is encouraging selective investment, but the wrong investment. He has deliberately used financial control to cut down on the most vital investment for the future of the country, namely, roads and railways, and he is allowing a general investment encouragement, with tax incentive, as proposed tonight.

Why does the Chancellor think it more essential that money should be made available, with a tax reward, without qualification or selection in this matter when at the same time he and the Government have deliberately hamstrung the most vital development work upon railways and roads? If anybody surveys our economy he will realise that, apart from the morale of the people, the greatest national resource of the country today in the modern world, which makes it competitive, is the country's compact size and splendid communications. It is a natural advantage. Very often people do not realise what a big part it plays in modern complicated industrial processes when one has to go only within a radius of a few miles to carry out innumerable complicated processes on the same article. Somebody running a pin-table can benefit from the Chancellor's proposals tonight, but there is no incentive to investment in absolutely basic and vital matters such as roads and railways.

This is a key question. Britain, instead of leading the world as it once did, is every year, under the present Government, quite unjustifiably falling behind in railway and road development. Everywhere we go on the Continent of Europe we can see immense and very wise expenditure on communications, and only in Britain is this subject neglected.

Sir T. Low

Nonsense.

Mr. Lever

The hon. Member for Blackpool, North says that it is nonsense. Either he suffers from defective eyesight or he has not travelled very far. All the facts are available, but it might very well be felt Chat I was trespassing the rules of order if I quoted them in detail. Every schoolboy who has paid any attention to economics knows that there is a woeful bottom-of-the-table look about expenditure in this country on the roads and railways compared with expenditure in other European countries.

Sir T. Low

No.

Mr. Lever

If the hon. Member wants to go on record in HANSARD as denying that, I will be very ready to allow him to have the opportunity of having his fatuousness reported in the Committee debates. I hope that the hon. Member for Dover (Mr. Arbuthnot) will encourage the Chancellor. He does not believe in a policy of restriction, but he is like an old man in love. The intentions are excellent but the capacity is in question. The Government have a past of intentions and I do not believe them. We have seen this happen in so many fields at home and abroad.

Mr. Amory

I trust that the hon. Gentleman is referring to my colleagues and myself collectively.

9.30 p.m.

Mr. Lever

I am compelled to say that it is a collective difficulty which seems to have afflicted the Government even before the right hon. Gentleman was Chancellor of the Exchequer. I was pointing out that he himself was the most expansionist of these right hon. Gentlemen, and he would therefore be the least open to the suggestion which has just been made if it were taken in a personal manner.

Mr. Raymond Gower (Barry)

But does not the hon. Gentleman agree that a policy which has brought about the position where the trade gap is the lowest since the end of the war and where the overall position is that this country is earning a surplus would appear to be justified by results?

Mr. Lever

Members of the Conservative Party seem to be considerably bone-headed in spite of the many lectures which many of my hon. Friends have given, and which I myself at intervals have offered for their consideration. They must get out of this habit of reasoning because it would not deceive a subnormal schoolboy that when things go well with our balance of payments that is due to the Chancellor of the Exchequer and when things go badly that is an unfortunate conjunction of international circumstances beyond their control. We have suffered from this puerile reasoning for too long.

The reason why our balance of trade figures have improved has nothing material to do with anything the Government have done. It is largely because the immediate effect of the American recession has been to alter the terms of trade favourably to this country. It has many dangers in it, though the immediate result is of a character guaranteed to cheer up the hearts of the backwoodsmen in the Conservative ranks.

Mr. Cyril Osborne (Louth)

It has a long way to go before it is back to normal.

Mr. Lever rose—

The Deputy-Chairman (Sir Gordon Touche)

Order. The hon. Member is going far beyond the Question, "Thai the Clause stand part of the Bill."

Mr. Lever

I was led away not only by your predecessor, Sir Gordon, but by the Chancellor and by my right hon. Friend the Member for Huyton (Mr. H. Wilson), who when you were not present discussed exhaustively matters of great interest to the Committee which have a great relevance to these proposals, namely, the state of inflation, the state of world trade, and the like. I assure you that if you had heard this contribution you would not have wished that the Front Bench opposite should be allowed to spread an error and that the back bench on this side of the Committee, by some rule of order, should be restricted from correcting it.

The Deputy-Chairman

The point of order applies in both cases. I understand that brief references were made to these subjects, but we are bound by the rule of order on the Question, "That the Clause stand part of the Bill."

Mr. Lever

I will not try your patience, Sir Gordon, as I have always been treated with extreme generosity by the Chair. I will say, without appearing at all obstreperous, that it is very odd that the Chancellor of the Exchequer, who is still retarding investment in our basic and essential industries, is making this proposal and, at the same time, has not yet recanted from his previous position that we are in some need of restriction upon production when, on the other hand, he gives it a push.

This is a crucial question for a democratic society—whether we can encourage investment; that is to say, whether we can get the society in which we live to save enough to build its future and by competition with the rest of the world, and particularly with the authoritarian part of the world, to make these allocations of investment material at the expense of the consumer by simple degrees. The technique of developing this kind of encouragement ought to be studied.

There is one word of caution I ought to utter before joining the uncritical welcome for this tax concession. I have a brief general complaint to make. Every selective concession of tax delays and makes more difficult a general concession of tax. I would not go the whole way with the hon. Member for Dover, but I have a great deal of sympathy with those industrialists who say that their rates of tax are kept at too high a level because other people are getting immense tax concessions which they perhaps do not need and without which they would perhaps operate just as efficiently, and that this keeps up the rate of taxation.

I urge the Chancellor to make his proposal tonight a final and firm act of defiance of the bankers and all others who, representing the mortgage interests of society, so to speak, have sought to curb production at the expense of the welfare of the community and the expansion of the country's productive capacity.

Mr. M. Philips Price (Gloucestershire, West)

We all agree about the desirability of assisting investment enterprise by some method. There is no doubt that the initial allowances have provided one way in which it can be done. The difficulty with both initial allowances and investment allowances seems to be that they are not selective. As my hon. Friends have pointed out—I emphasise it still further—if we are to proceed with encouraging the most useful kind of investment, improving and cheapening our methods of production and increasing efficiency, the Chancellor must find some way by which he can be more selective than is possible today.

I am not sufficiently expert to say whether this could better be done with initial allowances than investment allowances, but I have a feeling that attention will have to be given to other things as well, and particularly, if he is in earnest, the Chancellor must take further steps to encourage the nationalised industries, which have been hamstrung, once more to invest as they wish.

There has been some relaxation in the case of tie railways. Owing to the wage crisis, the railways are to be allowed to do something more. The road and railway problem is absolutely vital. We are a small country with many geographical advantages and many important resources, such as coal, but our transport system is extraordinarily behind the times. I cannot visualise initial allowances or any other allowances dealing with the problem, although we all welcome the steps which the Chancellor has taken and the further step which he foreshadows of increasing the allowances by one-half instead of one-quarter. All this seems to show that he has very much in mind the importance of the problem. We shall listen with much interest on Report to the details of what he proposes.

The hon. Member for Dover (Mr. Arbuthnot) raised an important point, arguing that it was important to write off investments as quickly as possible in order to encourage further investments. There is something in that. I have noticed in the agricultural industry how, owing to rapid scientific discoveries in relation to machinery, what a farmer today considers to be the most up-to-date machinery for one type of work on the land is almost out of date in a couple of years' time and something better is introduced. Knowing that that problem exists in agriculture—I am certain that it exists in industry, too—there is much to be said for something which would encourage rapid writing off and further investment in more up-to-date machines. I raised this question during the Second Reading debate, and the Chancellor was kind enough to write me a letter explaining that this provision applied to agricultural machinery, although not to buildings. I am glad that he has seen his way to apply it to agriculture, and we shall listen with much interest to his further statement on the matter.

Mr. Paget

If this concession is made in order to encourage further investment, I should like to know where the money is coming from. The former Chancellor of the Exchequer had a somewhat obsolete theory that inflation could be controlled by controlling the amount of available money, and he did just that through the banks. If we are going to do that I can never see the point of having a high Bank Rate. If the demand for credit is greater than the amount of credit allowed to be available at 7 per cent., what in the world does it matter if it is made available at 2 per cent.?

Further, if investment is to be encouraged but no more money is to be made available to replace these machines which are to be written off, where are the machines coming from? Shall we have a change in this restrictionist policy or shall we not? What matters is not the investment allowance but the credit policy of the Government.

Mr. Roy Jenkins

I hesitate to rise in case the Chancellor wishes to answer the question put by my hon. and learned Friend the Member for Northampton (Mr. Paget). I take it that the right hon. Gentleman does not wish to do so.

Mr. Amory

I should be out of order if I made a speech on the credit policy of the Government.

Mr. Jenkins

I should have thought that it was possible to answer my hon. and learned Friend's question in terms which were either in order or out of order—entirely as the Chancellor wished to take it. No doubt we shall hear from the Government upon that matter at a later stage.

There is no doubt that the Chancellor's important announcement reflects a change of Government policy. How significant a change it is we must judge, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) said, by taking into account whether or not it is accompanied by other measures. But it is clear that the Chancellor's diagnosis of the situation and of what it is safe and proper for him to do today is different from what it was two months ago, in the middle of April. Why is it different? The right hon. Member for Blackpool, North (Sir T. Low) who assured us, to our great regret, that he was making his only speech on the Finance Bill—and he made it very fast—has always seemed to me to be attempting the rather difficult and thank- less task of trying to build a bridge between the policy of the right hon. Member for Monmouth (Mr. P. Thorneycroft) and that of the present Chancellor. I thought he sought to do that this evening by suggesting that it was now possible to have a change of policy because the objective of stability had been almost achieved.

If that is the Government's view, what basis of stability has been almost achieved at present? Presumably it is not a basis of price stability, because, whatever else has happened in the past six months, it is clear that we have made a much less close approximation to price stability than we did during the same period a year ago. This is one of the striking facts which are now available to us. I do not seek to make a great deal of the rise of two points in the cost of living index which suddenly appeared a month ago. That was largely to be accounted for by the fact of rounding off to the nearest number. I would not make much of anything that happened in one month. But I would make a good deal of a six or seven months' move.

9.45 p.m.

If one looks back over this winter and compares it with the previous winter, one sees that the rate of price increase has been quite appreciably greater for this six months than it was for the comparable six months. That is a striking fact. It has happened during the past six months, during the period when we have been greatly helped by falling import prices, whereas during the comparable six months of 1956–57 we had prices working against us and other troubles as well.

Therefore, it must not be thought that the policy announced on 19th September, the policy associated particularly with the name of the right hon. Member for Monmouth, has produced price stability. Under extraordinarily favourable international conditions, it has been less successful in producing price stability than the policy applied twelve months before, and there is no foundation here on which the Chancellor—if his object before he moved to expansion was to achieve price stability—can say that success has been achieved.

I should quite understand if he came to the Committee—I expect that to some extent this was at the back of his mind —and said that we have tried a good deal of deflation, we have lost a good deal of national wealth, we are on the edge not merely of losing national wealth but of actual depression and growing unemployment, and we therefore have become extremely sceptical as to whether we can get price stability by means of this deflationary policy and we shall try to get it by the much more attractive and sensible policy of a little expansion. That would have been a possible attitude, although it would have involved throwing the right hon. Member for Monmouth right out of the window.

Do not let us try to pretend that everyone can be perfectly happy. The right hon. Member for Blackpool, North, sitting in the corner seat, almost as if the right hon. Member for Monmouth were here, has told us that both the Chancellor and his right hon. Friend have been right, and he is now in the happy position of promoting an intellectual union between them.

There is no basis of success on which the Chancellor can now relax. There is a basis of failure, and I think that he is perfectly right to recognise this and to try another policy. I hope, from what he has said, he now realises that he is doing that. The perfectly clear position is that price stability has not been maintained.

It is perfectly true, as one hon. Member opposite said earlier, that we have a very favourable balance of payments position at the present time. I forget which hon. Member it was who paid tribute to the policies which have produced a most favourable credit trade balance, but he said that the Government's policy had produced in May the most favourable trade balance since the war. The dock strike had something to do with it.

It may be, of course, that Government policy produced the dock strike, but that question apart, the underlying trade position is very favourable at present; but it was not quite so favourable, but comparatively very favourable, last September. We did not have a 7 per cent. Bank Rate, or the policies specifically associated with the right hon. Member for Monmouth, because we had created a position in which we had an unfavourable trade balance. We already had a favourable trade balance.

Whatever those policies were designed to do, it was something other than that. I have always understood that they were designed to produce price stability here at home. From this point of view, despite the most favourable possible international conditions, they have failed to do that, and in the seven months since last October we have had a worse movement of prices than in the seven equivalent months of the preceding years. Therefore, I hope, as I say, that there will be no doubt about realising that there is no basis of success on which to proceed from that point of view.

The hon. Member for Dover (Mr. Arbuthnot) made a number of interesting technical points about the difference between investment allowances and initial allowances. He also made a point which my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) said he could not understand. I was with my hon. Friend in finding it extremely difficult to understand, though I thought it was an interesting point, and I wish that the hon. Member for Dover had developed it more. As I understood it, his point was that it was possible that any increase in the initial allowances may have no inflationary effect, provided it was merely given as a short-term tax concession to companies and was not accompanied by their writing off in their own books at a faster rate than they otherwise would do. As I understand it, the point the hon. Member had in mind was that, unless this happened, the tax concessions made to companies by an increase in initial allowances would merely make them more eager to distribute and make them have more funds available for distribution. Unless that is so, I am unable to clothe the hon. Member's words with any meaning. I think that is what he meant.

If so, the hon. Gentleman takes the view, which is clearly a view that could be supported very strongly, that it is important at present not to encourage a distribution policy, and I can well understand how he might adopt that view. But I find it difficult to see how he can support the Budget as a whole, and the unification of Profits Tax, at a time when he regards the most important thing to be done in continuing initial allowance concessions to be to ensure that companies should apply this in their own bookkeeping policy in such a way as to make it difficult for them to use those concessions in any way to encourage an increase in distribution policy. I find it difficult to see how the hon. Member can take that view strongly on Clause 13 when I think one may hazard the guess that he will possibly take a slightly different view and one favourable to the Government when we come to discuss Clause 20 and put forward a constructive point of view.

The right hon. Member for Blackpool, North (Sir T. Low)—to whom I come back for a moment—was eager that we on this side of the Committee should not "cry stinking fish" regarding the level of investment which we had achieved in this country. I think it important that we should not "cry stinking fish". I have never been absolutely sure what that expression means—

Sir T. Low

It was an expression frequently used in the old days by the hon. Gentleman's former leader, now Earl Attlee, who constantly accused me of doing so, and therefore the hon. Gentleman ought to know.

Mr. Jenkins

I am sorry if the right hon. Gentleman has indulged in this unfortunate practice. I did not myself accuse him of doing so, and I do not recollect any speech in which he has done so. But if he says that he has, the Committee must accept it. I am still not absolutely clear about what the expression means.

Mr. Mitchison

It means something nasty.

Mr. Jenkins

I understand it means something nasty or disagreeable when applied to the level of investment or to anything else.

It is true that over the few years and up to a year or so ago we had a mounting level of investment, largely as a result of the investment allowances introduced by the Lord Privy Seal, which, I think, were by far the most effective method yet developed of stimulating investment in the private sector. We did have a rising level of investment, and one should not underestimate the amount achieved. But equally, it is important to bear in mind that investment rose from a low level very slowly, and even at its highest level—before it recently began to tail off a little and while it was a good deal better than previously—it was not nearly at the level at which we want to see it jerked up, and at which we ought to keep it if we are to do as well as our major competitors by a really dynamic expansion economy.

I must say that I do not think either of the Governments which have governed this country since the war have in any way a faultless record in this respect. Nothing is less rewarding, of course, than an argument based on the assumption on one side that everything was all right until 1951 and, on the other side, that nothing was right until 1951 but that everything got right afterwards in some mysterious way. Broadly speaking, whatever the reasons, and different although the circumstances were, over the whole of the post-war period our investment has been inadequate. It is still not adequate today and has to go a lot higher. I think that on that basis we can agree, and I hope that we can do something more than agree and really move towards getting it higher.

The Chancellor's concession this evening is a move in that direction, though a small one. But as the investment allowances appear on a priori grounds to be more effective than initial allowances, I hope that he will turn towards them, go further in that direction, and realise overtly as well as explicitly that the policy of the last six months has been a dismal one, has not achieved the results it was designed to achieve, has given great disadvantages without corresponding benefits, and that we should turn our back on it as firmly and quickly as we can.

I recognise that the Chancellor, still placed somewhat under the shadow of his right hon. Friend the Member for Monmouth, cannot do this too dramatically. I hope, however, that he will not worry too much about this shadow—perhaps disguising what he is doing under a few phrases designed for consumption below the Gangway on his own side of the Chamber—and that we may begin to move firmly and rapidly towards a return to expansion which will not only bring great benefits for its own sake but, on the evidence, is far more likely to give stable prices than is the bankrupt and sterile policy that has been pursued in the last few months.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Consideration of postponed Clauses 15 to 34 and new Clauses further postponed until after consideration of Schedule 5.—[Mr. Amory.]