HC Deb 08 June 1961 vol 641 cc1476-525
Mr. R. Gresham Cooke (Twickenham)

I beg to move, in page 16, line 13, to leave out "two thousand pounds" and to insert: an amount calculated in accordance with subsection (3) of this section".

The Chairman

It might be convenient to discuss with this Amendment the second Amendment in line 13, the Amendment in line 15, the two Amendments in line 16, the two Amendments in line 23, the two Amendments in line 25, the two Amendments in line 46, the two Amendments in page 17, line 20, the two Amendments in line 23, the two Amendments in line 35, the Amendment to Clause 21, page 18, line 2, the two Amendments in line 3, the two Amendments in line 10, the two Amendments to Clause 22, page 18, line 17, and the two Amendments in line 18.

Mr. Gresham Cooke

Yes, Sir Gordon.

The proposed new subsection, which is the Amendment to line 15, says: The amount referred to in subsection (2) of this section shall be two thousand pounds together with the purchase tax paid at any time in respect of the vehicle concerned. Such amount is in this and the following two sections referred to as 'the said limit'. The object of my Amendment is to increase the limit of chargeable capital expenditure by a company on a motor car from £2,000 to £2,000 plus the amount of Purchase Tax on the vehicle.

The Clause as it stands discourages companies from acquiring certain motor cars, particularly Rolls-Royce cars, and to a lesser extent Daimler cars. Incidentally, having regard to the Common Market, it will discourage companies from acquiring Mercedes-Benz cars.

It would be a tragedy for this country if the Rolls-Royce Company were to be driven out of the manufacture of motor cars. My private commercial interest would benefit from the Clause, because I happen to be a director of a company which manufactures cars costing under £2,000, but I think that the Clause is a mistake.

The Rolls-Royce Company is known today mainly as an aircraft company, but the development of the Merlin engine before the war, which went into the Spitfire and Hurricane, was based on the development of the motor car engine. In an integrated company there is undoubtedly a great deal of exchange of opinion between the aircraft side and the motor car side of that company.

I have been told, and I believe it to be true, that the sales of aircraft engines made by Rolls-Royce are greatly assisted by the presence of a motor car in every part of the world, which is used by many important people. My experience is that the Rolls-Royce has been an "ice- breaker" in the past for the sales of British cars throughout the world because no one wanted to have a British motor exhibition in any part of the world without the Rolls being present. We are also told by the company that the exports of Rolls-Royce cars total £4.7 million per annum at present, which is half its output. People are apt to raise their eyebrows at the price of a car being £6,000, as the standard Rolls-Royce is, and at the fact that the price should be paid by a company, but included in that price is £1,750 Purchase Tax.

Secondly, the cost of the car is due to the high standard of design and specification because the company takes its components, not from the mass-produced components, but from a completely individualistic range. Thirdly, it goes in for individual testing of components and all the materials which go into the car and complete testing of every car. I think that I have said enough to demonstrate that this exceptional company, which has been in operation for fifty years, has brought great credit to this country in the past and does so at present.

The question before us is: does the Clause as it stands put the company and its 5,600 employees at Crewe in jeopardy? I suggest that it does. Half the output of the Rolls-Royce company goes into the home market. I have been told that already, by the presence of this Clause in the Finance Bill, the home order book has been cut by a third. That, as anyone concerned with industry would know, must tend to put up the price of the product. I should estimate that it might easily put it up by £400. That would start off a vicious circle and put the motor car further out of the reach of buyers at home and abroad.

Further, there is the question of the long-term prospects of this company. It is now considering laying down a further £3 million for development of a new model. The directors obviously had a grave decision before them whether to go on with such a long-term development. We have to be practical in this Committee and not merely theoretical. Wherever one goes in any industry all over the world there is a hierarchy in every industrial company, and that is reflected in office staffs. There is a hierarchy in this House of Commons. The ordinary private Member has the smallest and humblest locker available. A Minister has a small room, but the Prime Minister, the Chancellor of the Exchequer and other important Ministers have good-sized rooms.

Mr. Julian Snow (Lichfield and Tamworth)

They all have one vote.

Mr. Gresham Cooke

That is true in industry, and it reflects itself in the size of the motor car used in an industry. The commercial traveller has a very modest family car; the executive managers have medium-sized cars, such as Humbers. Then one works up to the chairman and directors of a large company and find that they have a Rolls at their disposal—and why not? It is not an unusual pattern. One of my sons was the other day working in a foundry. Men who work in foundries earn very good wages nowadays and one of those men had a Vauxhall Cresta. When I turned up at the foundry in a medium-sized car, the worker said to my son, "Is that all your dad can afford, a car of that type?" That is the ordinary industrial attitude.

In 1947, Mr. Dalton, the then Chancellor of the Exchequer, doubled Purchase Tax on cars over £1,280 by raising Purchase Tax from 33⅓ per cent. to 66⅔ per cent. That was in line with the sumptuary legislation in those days. The result was to drive about half a dozen cars out of the market. In 1950, Sir Stafford Cripps, assisted by the right hon. Member for Battersea, North (Mr. Jay), had the good sense to see what was happening. He abolished double Purchase Tax on the more expensive motor cars in order to keep those firms going. This legislation today is in my view exactly in the same tradition as that double Purchase Tax. It is equally discriminatory and Socialist legislation.

Mr. J. T. Price

Since the hon. Member introduces ideology into this, we had better get the facts straight. He is aware that the Purchase Tax on a Rolls-Royce, or any other make of car, if the car is used for business purposes, plus the cost of the vehicle, is chargeable as an allowance under Schedule D, and also as an allowance against Profits Tax of the company. If this matter is to be viewed as a question of prestige or class status, to put it more crudely, we should have to deal with the type of gold-plated car which Lady Docker and other very important members of the community have had. We have no objection to people who can afford them having sumptuous cars so long as the taxpayer is not expected to pay for the luxury, as is happening now.

7.45 p.m.

Mr. Gresham Cooke

If the hon. Member takes that view, logically no car should be chargeable against business profits.

I think that the Chancellor has probably been worried, as a number of other people have been worried, by stories which are current from time to time of abuse of the use of motor cars required for business purposes. He may well be worried, but in my view there is plenty of machinery for dealing with that. If a businessman were to buy a Bentley and use it to go to the golf links instead of for business purposes, the usual practice by which one-seventh is charged back to him could be charged back by the inspector at a very much higher rate. He might be charged five-sevenths on the oar as an emolument or benefit in kind. We have plenty of machinery to take care of that.

If there is any abuse it is not confined to higher-priced cars. If the commercial traveller takes his family to the seaside in the most modest mini-car, and charges it to his company, that is an abuse which, in my view, should be brought to the notice of the inspector just as much as in the case of the abuse of the use of the higher-priced car. The method of dealing with possible abuse under this Clause is a rather ham-handed one. Anyone who travels about the world, as many hon. Members do, and meets top executives of big companies throughout the world, knows that in the United States the top executive uses a Cadillac and in Germany he uses a Mercedes-Benz. It would be a tragic day if the directors of big companies were prevented from driving in the highest quality car of all in this country.

Mr. Scholefield Allen (Crewe)

If the firm is prepared to pay for the prestige let it have the car, but it should not come out of the taxpayers' pocket.

Mr. Gresham Cooke

I was surprised that the hon. and learned Member is not doing more to support his constituents.

Mr. Scholefield Allen

If the hon. Member will wait until I have the benefit of catching your eye, Sir Gordon, I shall put my point of view.

Mr. Gresham Cooke

No doubt the hon. and learned Member will do that.

I was handed only today a resolution, passed this morning, by the British Engineering Association. That is an industry which deals more with nuclear matters than other things. The resolution says: The British Engineers' Association, representing the mechanical engineering industry of this country, views with great concern even the possibility of Rolls-Royce Ltd. ceasing to carry on business as manufacturers of motor cars as it regards Rolls-Royce as the hallmark of British craftsmanship and excellence bringing great prestige to the whole British engineering industry. My hon. Friend the Member for St. Marylebone (Sir W. Wakefield), who apologises for not being present today, having had to speak at a dinner tonight, raised an interesting point in Question No. 39 today, when he asked the Chancellor of the Exchequer what is the present practice with regard to the capital allowances which are permitted in respect of the use of private aeroplanes by business executives; and whether any maximum limit with regard to the cost of such aeroplanes is imposed in connection with such allowances. My right hon. and learned Friend replied: A concern which uses a private aeroplane for business purposes, for example, for the transport of directors or employees, may claim the ordinary capital allowances available for machinery or plant. There is no limit on the cost ranking for such relief. My hon. Friend the Member for St. Marylebone pointed out to me that an aeroplane may cost £20,000 to £30,000 and that it may carry employees and directors about. He asked what is the difference between an aeroplane and a motor car beyond the fact that one carries them in the air and the other on the ground.

The Amendment suggests a compromise, which I hope the Government will regard as helpful, by including Purchase Tax within the limit suggested in the Clause. Purchase Tax is responsible for one-third of the cost of a motor car today, and it is, therefore, logical to include it in the limit. If this were done we should be giving a chance to one of our oldest and proudest companies to adjust itself gradually to a change instead of its standing, as I believe it does, in great jeopardy at present.

Mr. Scholefield Allen

I take a diametrically opposite view to that of the hon. Member for Twickenham (Mr. Gresham Cooke). In effect, he wants to increase the £2,000 to about £3,600, and my Amendment suggests reducing it to £800.

Mr. Hirst

That is hardly helpful to Crewe.

Mr. Scholefield Allen

The Rolls-Royce Company has a long and honourable history. It started in 1905. Without the slightest doubt it produces the finest motor car in the world. In pre-war days my constituency of Crewe was practically a railway town, with no diversification of industry, and anybody who lived through the depression of the 1930s knows what a terrible thing it was to see a one-industry town when that industry was assailed by the economic blast.

In the years before the war we welcomed Rolls-Royce to Crewe. It is probably not well known, but it is a fact, that the car production of Rolls-Royce is nowadays concentrated in Crewe. So long was Rolls-Royce in Derby that many people, on seeing a Rolls-Royce, think that it has been made in Derby, but the whole of the car production of Rolls and Bentleys is concentrated in Crewe where the company employs 6,500 people, slightly more than half of them on cars. The company produces 2,400 cars, Rolls and Bentleys combined, in the course of a year, and 1,300 of them go to the home market and 1,100 go to the export market. In other words, nearly 50 per cent. are sold abroad. Their export value is £4,600,000 and the proportion of the dollar market is 2½ million dollars.

I do not know who advised the Chancellor in this matter, but I do not think that he was well advised and I am sure that he did not appreciate the facts of this Clause. I am very glad that the Chancellor is in the Chamber and that I can say this to him: the effect of the Clause as it stands is a direct stab in the back for one company and practically one company only—Rolls-Royce and Rolls-Royce cars. That company is concentrated in Crewe and all its workers are in Crewe. If the Chancellor had wanted to single out one firm or one industry in this country for a very cruel stab, he could not have thought of a better way than fixing the amount at £2,000.

I am suggesting, contrary to the proposition of the hon. Member for Twickenham, that the allowance should be £800, and I hope that the Chancellor will give serious consideration to this proposal. The reason that I propose it is that we on these benches all recognise that there is some case for a modest car being employed in the ordinary business of a company's production. In a range around £800 there are many cars in which one can ride in comfort, in fact, in luxury. They are grouped around that figure of £800. Anybody who does not want to keep up with the Joneses and does not wish to ride in a prestige car can be happy in any of a large range of cars costing about that amount. I need not mention names because they will occur to hon. and right hon. Gentlemen as soon as they are mentioned.

These cars are adequate for the purpose. If we fix £800 as the maximum, then in my view it will be of considerable assistance to Rolls-Royce. Instead of seeking out Rolls-Royce, in particular, as has been done in this Clause, thus having a more damaging effect upon the Rolls-Royce Company than on any other manufacturer of motor cars in the country, the proposal will be much fairer. That is the view of Rolls-Royce.

If the Chancellor accepts this figure of £800, what do we do? First, we congratulate him on having the courage to bring in Clause 20 in the first place and to mention an amount of £2,000, because we all know that there are great abuses. We congratulate him on that. We can also congratulate him on having taken a good step without depriving himself of the better step of reducing the amount to £800, thus providing a proper allowance for an adequate car and not concentrating this blow entirely on Rolls-Royce.

If we have an allowance of £800 we shall find a number of cars which can be bought in that range. There are a number of other cars up to a limit of £2,000 which a company can buy if it is prepared to pay. No doubt a large number of companies, for prestige reasons, will pay the extra amount, even if they have to pay taxation on it and do not receive the general allowance.

Mr. Gresham Cooke rose

Mr. Scholefield Allen

The hon. Member had a very good go. He made suggestions against me before I was able to speak. Therefore I shall not give way

8.0 p.m.

If the Chancellor of the Exchequer does not accept my suggestion he will do a great service to companies like the Jaguar Company, which produces just about the last word in cars costing about £2,000. He will do a great disservice to the company manufacturing the finest motor car in the world. Last August I was sitting near Lake Iseo having a cup of coffee. I saw a crowd of people of all ages and sizes obviously looking at something. As I had nothing better to do, I strolled over to where the crowd was to see what was happening. I was proud, as the Member of Parliament for Crewe, to find that a wonderful Rolls-Royce had driven up to the side of the lake. The crowd was looking at the Rolls-Royce. Wherever there is a Rolls-Royce on the Continent little groups of people surround it because they recognise, as it is recognised throughout the world, that the Rolls-Royce is the finest of motor cars.

I earnestly appeal to the Chancellor of the Exchequer to accept my Amendment. He has done one good thing by limiting unjustifiable expense claims. He should go a little further. If he does, he will increase his revenue. He will save the Rolls-Royce Company, because he will place it in a fairer position vis-à-vis manufacturers of cars costing between £800 and £2,000. He will save Crewe, which depends upon this industry. If the Chancellor acceded to the suggestion of the hon. Member for Twickenham, he would not do a service but a disservice.

Mr. Hirst

I do not question for one moment the aim and sincerity of the hon. and learned Member for Crewe (Mr. Scholefield Allen) in standing up for the Rolls-Royce Company. However, I cannot have been the only hon. Member who, when listening to him, questioned in his mind whether the hon. and learned Gentleman's proposition was being advanced by the Rolls-Royce company.

Mr. Scholefield Allen

The proposition has been advanced to me personally by the shop stewards and workers in the Rolls-Royce Company. The company knows that I hold this point of view. I have explained it to the company. As I gathered, the company's view is that my proposal is better than the present proposal. The company understands and appreciates that the suggestion of increasing the sum is not likely to meet with much favour from the Chancellor of the Exchequer.

Mr. Hirst

I am very grateful to the hon. and learned Gentleman for that explanation. I still wonder if the Rolls-Royce company can have understood it, because the net effect of the proposition would be to increase the swing against Rolls-Royce by precisely £1,200, making it all the more unlikely that the people we are considering would want to buy this excellent car, which is of such advantage to everybody. I have never heard a proposition advanced by an hon. Member on behalf of his constituency which is less likely to be helpful to it, as any hon. Member who has studied the problem will recognise. However, that is the hon. and learned Gentleman's funeral.

I prefer to deal with the Amendment of my hon. Friend the Member for Twickenham (Mr. Gresham Cooke), to which I have added my name. I support it. My hon. Friend advanced an extraordinarily good case. I do not want to go over all the ground again. I agree with the hon. and learned Gentleman's attitude at least in this respect, that despite my profound regard and respect for the Chancellor I am staggered at him taking this step. When I have been here much longer, I may understand the working of my right hon. and learned Friend's mind. I have known a few Chancellors in my time. However good a Finance Bill is, every Chancellor must pepper it with what I call pieces of nonsense, which this proposal is. The Chancellor is a good enough friend of mine to accept that mild word.

I do not like the proposal, and I do not see its significance and purpose. I know what the Chancellor is aiming at, but I do not see the significance of it. I entirely support what my hon. Friend the Member for Twickenham said. The Rolls-Royce is a fantastic prestige car. It has no equal. For a long time it has been advertised as the best car in the world, and throughout its long existence it has maintained its high standard and merited that description. There is not the slightest doubt that it is an ambassador.

There is no doubt that people coming to this country are flattered by being met by a Rolls-Royce. [Interruption.] It is no use hon. Members opposite saying that business people do not react to the car in that way. I have met many of them, and I know that they do. They are flattered to be met by what they regard as the best car in the world. That may be distressing to the manufacturers of other cars, but it is the fact.

What has my right hon. and learned Friend set out to do? He has not set out to damage the Rolls-Royce company. I am sure that that is not in his mind. Beyond saying that, I do not know what is in his mind, except that he thinks that something should be done about the expenses racket—as it has been called. [HON. MEMBERS: "Oh."] The racket is much worse in other directions—meals, etc. I admit that, and we all know it. I must not develop that, because it has nothing to do with group of Amendments. There is not a great racket as regards cars.

What is serious is that we should take any step of this sort. This debate alone is bad for Rolls-Royce and bad for all the company stands for. The Rolls-Royce car has gained a reputation which hardly any other piece of machinery has ever enjoyed. It is sad that the Government should make this mistake. It is bad that this proposal should ever have been put into the Finance Bill. I shall not withdraw that, because that is how I feel. I always say what I feel, whether it is popular or not.

What will be the financial significance of the Government's proposal? How much will the proposal save and claw back into the Exchequer? There will be a loss in Purchase Tax. A phenomenal amount of Purchase Tax is attached to each of these cars. If this action adversely affects the sales of Rolls-Royce cars, as it certainly will, what shall we achieve by this piece of window-dressing? I do not like it. It will be very damaging to the prestige of our country.

I support every word that my hon. Friend said. It is most unfortunate that a provision such as this should be included in the Finance Bill. It will damage one company alone. The car division of the Rolls-Royce Company spends a vast sum of money on research and development, a great deal of which is useful to the company in other spheres. This is an important factor.

I will now examine the alternatives which have been suggested. The incredible suggestion of the hon. and learned Member for Crewe was that the figure of £2,000 should be further reduced to cover a whole range of cars. It is the same old story of the desire to level everything down. It has been Socialist philosophy through the ages, but it does nothing to help. It will do everything to damage even further the Rolls-Royce Company which my right hon. and learned Friend, perhaps unwittingly, has involved in this issue.

Mr. Jay

The hon. Member objects to what he calls levelling down. Surely he would rather treat all motor car companies equally and fairly than strike a blow at one company.

Mr. Hirst

That is exactly what the Government's proposal does. It will strike particularly at one class of car.

Mr. Jay

That is what I said.

Mr. Hirst

There is no point in levelling it down. I am trying to level it all up again to something like its former status. [Laughter.] Hon. Members opposite can laugh as much as they like. If they do so, they will only cast themselves in the rôle of fools.

What my hon. Friends and I are endeavouring to do is clear, namely, to go some way back to the present position, which will obtain until the Bill becomes an Act.

We are not asking my right hon. and learned Friend—although we should— to wipe out this proposition altogether. We are being reasonable. I do not like being reasonable all through the proceedings on a Finance Bill, but here I am being reasonable, and I say that my hon. Friend the Member for Twickenham has suggested a compromise that would do something to avoid if not all the damage at least a great deal of it.

Mr. Snow

I shall not attempt to follow the hon. Member for Shipley (Mr. Hirst) in his somewhat confused mathematics. If he would only have some regard to the pattern of employment of cars in commerce he would realise that there is a grossly inflationary tendency which I should have thought he would be the first to try to defeat.

I must admit that when I first saw the Chancellor's proposal I had very grave doubts about it—and I still have them. I do not speak with any constituency interest here, but I cannot get out of my mind the fact that in the few years preceding the war this country owed a very great debt to the technological level achieved by the Rolls-Royce Company. Many ultimate weapons of war had an origin that was, broadly speaking, a civil origin. The engines for some of the aircraft used at the beginning of the war, the engines used in the power boats for the Royal Air Force and for the Navy had origins which, in the late 'thirties, were of purely civil interest. The Government will be doing a great disservice if in any way they threaten the perfection of teamwork at high technical level that has been one of the master achievements of the company.

On the other hand, I can understand that the Chancellor, like many of my hon. Friends, has been worried by the irritation that many people feel about the abuse of the purchase of these high-priced cars by people in business. Unfortunately, the Rolls-Royce and the Bentley have become status symbols. The most ordinary sawbones in Harley Street must have a Rolls-Royce or a Bentley or he will not get his trade—

Sir D. Walker-Smith

Wait until the hon. Gentleman next has an operation.

Mr. Snow

I would say that that is also true of the legal profession—if there are sawbones in that profession; I do not know, but there is no doubt some equivalent. If one goes to any point-to-point in the country one will see these very expensive cars being operated on the charge of controlled-loss farming. We all know these things.

The hon. Member for Twickenham (Mr. Gresham Cooke) said that the provisions of the present fiscal law would take account of the abuse of the operation of these cars for private purposes. He knows as well as I do that these provisions are unenforceable. We should need a vast army of inspectors to enforce them. At the same time, I think that the company is under a misapprehension. I wrote to the management to find out certain of its viewpoints on the question of the abuse of purchase of cars for alleged commercial purposes. Those concerned in the company are under the impression that the existing legislation already empowers the Inland Revenue to disallow any expenditure that is not solely, exclusively and necessarily incurred in the course of business. That is utter nonsense—and, with great respect to the directors of Rolls-Royce, they know that it is a lot of nonsense.

Having said that, I still come back to the point that if the Chancellor's proposal can in all fairness be construed as a threat to the technical team built up by Rolls-Royce, he should think again. People say that the aero-engine, the oil-engine and the motor car divisions of Rolls-Royce are virtually separate companies. With respect, I think that is a superficial view. One cannot but admire what has been done by this company over the years, and acknowledge the very great debt that we owe to Rolls-Royce, whose examples, starting as examples of production of craft material, have been followed in the mass production of vehicles and machinery in industry as a whole.

8.15 p.m.

I have therefore come to the conclusion that the proposal put forward by my hon. and learned Friend the Member for Crewe (Mr. Scholefield Allen) is about right. It was either the hon. Member for Shipley or the hon. Member for Twickenham—I am not sure which, but they were both on the same point—who talked of a hierarchy which, at the top, uses the Rolls-Royce and at the bottom uses a cheap Vauxhall or Ford. In fact, as my hon. and learned Friend has said, these so-called cheap Vauxhalls and Fords are very good vehicles indeed and they supply all the comfort that the ordinary person wants.

The fact of the matter is that inflation in salaries is directly produced by the sort of argument advanced in regard to Rolls-Royce. There is not the most humble field representative of a commercial distribution company who does not demand, as a method of tax evasion, a car as part of his salary. I should have thought that the argument would have been in favour of some measure whereby everyone pays for his own motor car and that, where cars are necessary for business, they should be marked as business cars, or should be chargeable in such a way that there is no possible abuse—abuse that is recognised by many companies as a means of getting staff and of avoiding paying higher salaries.

I therefore support my hon. and learned Friend, and say that these provisions would put some sort of stop to the existing tax avoidance. One can drive a coach and horses through the present provisions—or, perhaps, in this context one should say that one can drive an expensive Rolls-Royce or Bentley through them. The results of that are inflationary, and I think that a limit of £800 would produce results far more satisfactory from the inflation point of view than would any of the suggestions coming from hon. Gentlemen opposite. Nevertheless, I repeat to the Chancellor, "Please do not do anything that would prejudice the craftsmanship represented by Rolls-Royce." It is not just a matter of prestige; in my opinion, it is a national asset.

Mr. William Clark (Nottingham, South)

I should like to follow the example of everyone who has so far spoken in this debate by paying tribute to Rolls-Royce. The amount of work that the company has put into the development of engines generally has been of great benefit to the country. I could not quite follow the argument of the hon. and learned Member for Crewe (Mr. Scholefield Allen). He appeared to argue that my right hon. and learned Friend the Chancellor had stabbed Rolls-Royce in the back, and that, therefore, every other car manufacturer should be stabbed in the back.

There is one thing that I do not like about the Clause. I think that I am right in saying that this is the first time that the Inland Revenue has said, "Thou shalt not pay so much for any particular capital item." This is a dangerous precedent. The Inland Revenue has said, "If you spend so much money, we will add back a certain proportion and charge you on it as income," but I do not think it has ever said, "You shall not pay so much for a vehicle."

My right hon. and learned Friend's purpose here is to limit the amount of tax relief given to a company, or to an individual if he happens to be in business. The emphasis that the Chancellor has placed on this is the wrong emphasis. I do not think it matters what the vehicle is provided that the allowance given for tax purposes is controlled. I would rather the Chancellor had controlled the capital allowance per year instead of saying that the capital value of the vehicle should be a set amount.

If we consider two types of car—the ordinary car about which hon. Members have been speaking and the Rolls-Royce—the car costing £800 in the Amendment moved by the hon. and learned Member for Crewe, if used wholly for business purposes—and for the purpose of my argument I shall assume that it is—the taxpayer or the company must prove to the Inland Revenue that the car has been purchased for that purpose. In the first year of purchase the taxpayer will get an initial allowance and one year's annual allowance.

That allowance, in many cases, is too high for the first year because if one buys a new car one finds that the initial allowance and the first year's capital allowance more than compensate the taxpayer for the market depreciation of the vehicle. Let us consider the case of the Rolls-Royce. I understand that it costs £6,000—and I must make it clear that in my constituency we are not directly concerned with this lavish sort of vehicle and I am not the owner of one—and the initial allowance and the capital allowance for the first year is about £3,000.

This means that at the end of one year, for tax purposes, the Rolls-Royce car will be worth £3,000. I am told in the trade that a Rolls-Royce depreciates in market value at about £1,200 to £1,500 in the first year. Consequently, with the initial allowance for the first year and the ordinary allowance any owner of any car, whether a Rolls-Royce, Ford or Humber, receives allowances in excess of the actual market depreciation.

This does not normally matter, because in the second year the allowance is given on a reduced figure. After two or three years one still finds that £800 or £900, for tax purposes, has been written down and the value of the car roughly approximates to its market value. It will be found that a Rolls-Royce car, over four or five years, depreciates at an average annual amount of £500. I am told that after five years a £6,000 Rolls-Royce is worth about £3,500.

If the Revenue were to restrict the capital allowances that are given for any particular vehicle—whether a Rolls-Royce, Ford or Humber—it would be found that on the lower-priced cars there would still be an initial advantage and that the taxpayer would still get an excess allowance over the market value of the car. It must be remembered that not many people buy a new Rolls-Royce every year. I dare say that the average period for retaining a Rolls-Royce is four or five years. Over such a period the car will depreciate by about £500 a year.

I should like the Chancellor to look at this matter again, for he should have placed the emphasis not on the capital cost of the vehicle—no matter what the vehicle—because it is a dangerous precedent to restrict the annual capital allowances available for vehicles in this way, not only for the Rolls-Royce Company but for every car manufacturer in the country.

Mr. J. T. Price

I hope that the hon. Member for Nottingham, South (Mr. W. Clark) does not assume that this is the first time hon. Members have debated the principle involved in this Amendment. This year we are merely debating a particular application of an aspect of taxation which has often come before the Committee in the years I have been here. On a number of occasions I have ventured to express certain views about the whole system of motor taxation reliefs and those views have not been shared by a large number of hon. Members opposite or, indeed, by some of my hon. Friends.

I do not in any way challenge or dispute the high regard in which everyone who has a knowledge of British industry holds the Rolls-Royce Company and its products, which are unrivalled in the world.

Coming back to the comments of my hon. and learned Friend the Member for Crewe (Mr. Scholefield Allen), I know, being Lancashire-born, that the Rolls-Royce Company began its operation about sixty years ago in a back street in Manchester when a craftsman, a special genius, applied himself in such a way that he built up this wonderful industry which is the admiration of the world. Therefore, what I have to say in a critical sense does not reflect in any way upon the Rolls-Royce Company, or the high regard in which it is held here.

My hon. and learned Friend the Member for Crewe has suggested a variation of the principle embodied in Clause 20. On this question, when we are dealing with the basic facts of the situation, one thing was skilfully avoided by the hon. Member for Shipley (Mr. Hirst), who assumed that this idea of granting an extraordinary tax relief under the Income Tax Act of 1952 is something that could be taken for granted.

The initial allowances were given under that legislation, and have been amplified and varied from time to time in subsequent legislation. The initial allowance of 30 per cent. was intended at that time to be an encouragement to British industrialists and capitalists to plough more money back into industry in the form of machinery and plant in order to gain greater efficiency.

I do not suppose that anyone imagined at that time that that legislation would ever be applied to motor cars. Who can say with any certainty that a motor car, whether used in the normal utilitarian way or for prestige purposes, such as the Rolls-Royce, is aiding production? It may aid distribution and public relations, but not one can say that when Parliament laid down the initial allowance of 30 per cent. it would apply to motor vehicles. I admit that I did not think it would, and I believe that the whole system is being abused.

Some years ago the Economist carried out an inquiry in which it was revealed that over 70 per cent. of all motor cars on British roads were chargeable, in part or in whole, to Schedule D, as business expenses. It is now complained by some hon. Members, who are objecting to what the Chancellor is doing, that this is an unfair penalty placed on the motor industry or upon the users of luxury cars.

8.30 p.m.

Mr. Hirst

The hon. Gentleman was having a sly dig at me. I was not objecting or suggesting that various forms of allowances should remain the same every year in all circumstances. In fact, I saw a great deal of merit in the argument of my hon. Friend the Member for Nottingham, South (Mr. W. Clark). What I object to is what the Chancellor has done in this Clause, because it happens to hit one company in the main. That is altogether different.

Mr. Price

I quite understand that point though I do not fully accept its implications. In fact, the 70 per cent. of cars on British roads which are carrying these enormous allowances for tax purposes are carrying not only the initial 30 per cent. plus the 10 per cent. per annum depreciation allowance, but allowances in respect of Schedule D drawbacks when Schedule D assessments and liabilities are calculated, and Profits Tax allowances, too. One begins to wonder who is paying for the use of the millions of cars on the road.

We sometimes hear complaints from hon. Members about the very high rate of Purchase Tax on cars. It used to be higher, of course. In fact, when one takes the total cost of a motor car—a Rolls-Royce or any other—when it is charged back for tax purposes, those drawbacks include quite legitimately not only the capital cost of the machine itself but also the Purchase Tax. All is loaded against the account. I hope that the Chancellor will have a close calculation made at the Treasury one day about how much net taxation is held by the Treasury after all those drawbacks and allowances have been taken into account.

I fully understand that if in practice a step taken by the Chancellor—a discriminatory step, some hon. Members will say, I suppose—has the effect of hitting Rolls-Royce more harshly than it his its competitors, there is a case for arguing for an adjustmnt. I am much attracted by the suggestion put forward by my hon. and learned Friend the Member for Crewe, that is, to reduce the amount to be allowed. My own position is quite clear. I do not think that there should be any allowance at all. I may be in a minority of one of thinking that. [HON. MEMBERS: "No."] If hon. Members complain, whatever their politics may be—I am not discussing this ideologically; I try to be objective in these matters—that because Rolls-Royce cars will not now carry an initial allowance of about £2,500 as they have hitherto if chargeable to a business, they are complaining really that British business men and the top tycoons of big concerns will stop buying Rolls-Royce cars if they have to pay for them out of their own resources instead of receiving an enormous subsidy from public funds for the purpose. That is an immoral approach. I do not want to import any undue heat or passion into the discussion, but this is not just a question of the economics of the motor industry. It is a matter of public morality.

When hon. and right hon. Members talk to us on this side so patronisingly, what they say amounts to this, "We object to the Chancellor putting his foot into a nice little concession which we have been enjoying for a long time, and we do not like paying for our motor cars. We want to have a large of the cost paid out of public funds."

There is an old axiom of politics which, in a bowderised version, goes like this: if somebody is getting an advantage without paying for it, then somebody else is paying for it without getting it. It put that quite seriously in the context of this debate. The cause of the complaining and "belly-aching" which we hear about is that, for the first time—I congratulate the right hon. and learned Gentleman quite sincerely on his vision—the Chancellor has seen that the concession in its present form is no longer justified. This is the first sign from the Treasury Bench in recent years that the argument we have advanced so often for so long is at last beginning to bear fruit. If, unfortunately, Rolls-Royce, with all its marvellous traditions, is exposed to special hardship, the Chan- cellor must look into the matter again and take counsel with the rest of us about what should be done. At the moment, I believe that the suggestion made by my hon. and learned Friend the Member for Crewe is probably about right.

Cars are used for prestige purposes today to an enormous extent. They are used as a sort of ground bait to attract people, and both the cars and the companies are graded into different categories. In order to attract the high executive people which industry must have, certain companies, as is well known, will say that, if a man is after a top job, he might be given a Rolls-Royce. Another large company a little lower down the scale, in the second division perhaps, will offer a Jaguar. Among the smaller fry a man gets a Ford or something like that.

Mr. Hirst

Or a minicar.

Mr. Price

Or a minicar. The hon. Member for Twickenham (Mr. Gresham Cooke) knows this perfectly well, and so does the hon. Member for Shipley who is laughing loudly at this moment. For the first time, we see this year a partial break through the hypocritical idea that firms need to use these very expensive motor cars but they are not prepared to buy them unless the Chancellor stands a big part of the money. It is time this stopped. If we are likely to hit Rolls-Royce or any other company, we must consider what adjustments should be made. I should like to see the whole apparatus of initial allowances for cars go.

Why should I as a private motorist, together with other citizens in the minority of 30 per cent., have to pay the full cost of a motor car, including Purchase Tax and all the running costs, while those in companies are able to charge back to business account all those expenses where a person is on Schedule D?

I apologise for having taken so long. This is not just a matter of economics. It is a matter of morality. I am a little ashamed to see that so many hon. Members opposite speak with the tongue in the cheek and refuse to face the serious depressing effect these matters have on the industrial psychology of ordinary people who know that the rackets are going on and that, what is more, they are countenanced and condoned by many hon. Members of the House of Commons.

Mr. Jay

I have no interest to declare in this matter, because the only place where I have ridden freely in a Rolls-Royce is Moscow, the Rolls-Royce being that of the British Ambassador. My hon. and learned Friend the Member for Crewe (Mr. Scholefied Allen) talked about the crowds which gathered round a Rolls-Royce at a lake which he had visited. The trouble about using a Rolls-Royce in Moscow is that, the moment one stops, it is almost impossible to start again because of the size of the crowd which gathers.

There is no doubt that in that country, as in many others, the Rolls-Royce car, quite apart from the rest of the work of the company, is a great advertisement for British industry. I agree that the Rolls-Royce Company is a great national asset. Its jet aircraft division is a branch of British industry which is ahead of the rest of the world. I do not think that any of us should lightly take any action which would damage this company or the technical lead which it at present holds. The Crewe and Derby works have been mentioned. There is also the extremely important factory at Hillingdon, which was of the greatest importance to war industry in war time and is highly important to employment in Scotland at present.

The real trouble is that the Chancellor has, rightly in principle, tried to strike at an abuse. Although it would be more appropriate to argue this on the Question "That the Clause stand part of the Bill", I agree with my hon. Friend the Member for Westhoughton (Mr. J. T. Price) that the whole initial allowance on passenger cars is an abuse and should be got rid of. The trouble is that we have allowed this abuse to go on for so long, although I have been protesting against it since 1952, that it cannot be got rid of without hurting somebody.

There seems to be some evidence, bearing in mind both the abuse and the importance of the Rolls-Royce Company, that the Chancellor has, inadvertently, chosen a way of doing it which risks doing damage to a particular company. I am informed that by setting the level at the figure chosen the effect is to strike a considerable blow at this company and, incidentally, to benefit the Jaguar Company—I do not think there is any reason why we should not use its name since we all know it—which, I believe, happens to come next in the hierarchy of cars ladder which was described earlier this evening. I do not think that the Chancellor in his tax-collecting capacity, would wish to penalise one company, or, accidentally or unintentionally, to subsidise another. I imagine that if this is the effect of what he has done, it is unintentional.

I was attracted by my hon. Friend's proposal to put the figure at a level which would not strike at one particular company and would not, in effect, subsidise another but would attempt to correct the general abuse and, until we can get rid of the initial allowance altogether, affect all companies reasonably equally.

The hon. Member for Shipley (Mr. Hirst) poured great contempt for my hon. Friend's solution on the ground that it would do even greater damage to the Rolls-Royce Company. He was a little dogmatic. It is not very easy to say. It may be that, relatively, it would do less damage, because it would not throw the whole advantage on to a competitor company which might be exceedingly damaging to Rolls-Royce. However, I do not wish to be dogmatic about this.

Mr. Hirst

The right hon. Gentleman is forgetting the enormous differential between the Rolls-Royce, on the one hand, and the other cars to which he has referred, on the other. I still maintain that my point is valid.

Mr. Jay

That is the hon. Gentleman's opinion. There is genuine difference of opinion as to what the effect would be of taking the different levels which have been suggested for the limit.

I should like the Chancellor to look at the suggestions which have been made and to see whether he can achieve what I think is, subject to the general argument which we will, perhaps, have on the Question "That the Clause stand part of the Bill", what most of us want to do, namely, to correct this abuse without doing unnecessary damage to this particularly valuable company.

Mr. Charles A. Howell (Birmingham, Perry Barr)

It is seldom that I have the opportunity of speaking in this Committee these days, particularly on financial matters on which I could not claim to be an expert. However, the suggestion in the Amendment compared with what is in the Clause intrigues me exceedingly.

First, I was rather intrigued by my hon. Friend the Member for Westhoughton (Mr. J. T. Price) congratulating the Chancellor of the Exchequer on this Clause. It must be unusual to the right hon. and learned Gentleman to hear any hon. Member on this side congratulating him on what is in his Budget. However, I reiterate what my hon. Friend said. Having handed out largesse to the Surtax payers, the wealthiest people, it is rather strange that the right hon. and learned Gentleman should attack them in this way. He kicks the ball one way and then taps the fellow the other. He gives a nice little hand-out to certain people and then gives them a sort of backhanded smack over the tax allowance on cars. However, since he has the courage to do this to people who can well afford to suffer it, I congratulate him. I am only sorry that he has not gone a little further.

8.45 p.m.

It is passing strange that when sitting a little lower down in this Chamber the first job that I have to do is to try to recall the names attached to the faces which I see sitting opposite me. In doing that through The Times handbook, I am struck by the number of directorships which are held by hon. Members opposite. According to what we have been told in the debate, these cars should be used wholly and exclusively for the business. How any director or chairman of directors who has one of these expensive Rolls-Royce cars, bought and maintained by the firm, can in all honesty say that he is using it wholly and exclusively for the firm if he uses it to go to the office, or even backwards and forwards to home, I do not understand. I cannot see how it is possible for any man to say that he is using, say, a Rolls-Royce Silver Wraith, or whatever it may be, exclusively for one firm if at the same time, while he is out, he is working as a director for other companies.

Mr. Michael Shaw (Brighouse and Spenborough)

I must remind the hon. Member that where these benefits arise there is the necessity for the director to raise the matter with the Inland Revenue every year and that, in many cases—I have settled many—the amounts concerned are considerable.

Mr. Howell

I accept that, for the simple reason that my hon. Friend the Member for Litchfield and Tamworth (Mr. Snow) indicated how that happens. I do not have the chance—I do not want it—to go to point-to-point meetings. Perhaps my hon. Friend the Member for Lichfield and Tamworth sees these point-to-point meetings. I have, however, seen the county show and one cannot get in the car parks, where the cost is 10s. or £1, because of these big cars.

A lot of the directors who have expense accounts have had a disservice done to them. I congratulate the hon. Member for Shipley (Mr. Hirst). He is one of the first on the benches opposite whom I have heard admit without qualification that we all know about the expense account racket. The horn Member was frank about it. What is more, the Chancellor knows about it, because he made some threatening noises in his Budget speech that, having given these concessions, if the racket did not stop he would do something about it. I have a recollection that Lord Amory, when Chancellor of the Exchequer, said something to that effect in one of his Budgets. Although I have not been a Member of the House anything like as long as the hon. Member for Shipley or the hon. Member for Twickenham (Mr. Gresham Cooke), I am fairly certain that during the last ten years Conservative Chancellors have warned people about these expense rackets. The present Chancellor is the first who has put in even the thin end of the wedge against the expense racket with regard to these cars.

Let us consider the position of a noted baronet whose wife seems to get a gold-plated car every year. One of the things that we are told about a Rolls-Royce is that although the hon. Member for Nottingham, South (Mr. W. Clark) said how much they depreciate in the balance sheet—

Mr. W. Clark

The hon. Member must not misquote me. I am sure he did it unintentionally. I was speaking about the market depreciation, which I compared with the paper depreciation which one gets under the existing initial and annual allowances.

Mr. Howell

When we talk about the market depreciation, surely I am right in speaking of the balance sheet depreciation—

Mr. Clark indicated assent.

Mr. Howell

But the car never goes out of the possession of the firm. It must be an asset until the firm sells it. If the market value has depreciated, I should imagine that as an asset, the value of the car in the balance sheet has also been reduced. The hon. Gentleman says, "No." That shows my ignorance. [HON. MEMBERS: "Yes."] Oh, yes, I frankly admit it.

Mr. Charles Loughlin (Gloucestershire, West)

It is not my hon. Friend's ignorance, but others'.

Mr. Howell

It just shows what ramifications go on in balance sheets. I have had to deal with them as a trade union secretary. If an article became secondhand its value on the balance sheet depreciated. My auditors would not allow me to show the purchase value of something for year after year.

So I think I am quite right in saying that this depreciation of the car goes on the balance sheet, but can anybody tell me how, with all the prestige which Rolls-Royce have—and rightly so—thirteen months after purchase of the Rolls-Royce car we can assess how much it has depreciated in value? We are told that a Rolls-Royce never fails. One can see them doing all sorts of menial tasks in Britain with all sorts of bodies on them. It is not the body with which we are concerned; it is the Rolls-Royce engine.

I do not think for one moment that there was any justification for a certain baronet and his wife having a gold-plated car, a very posh car, on show at the Motor Show every year, for were we not told that it was the lady who was running it about although it was he who was the director? We are told that showing that car year after year was a jolly good advertisement whether in Britain or by the Mediterranean. If that is the argument, how can we assess what percentage of the value of a car is its value for personal use and how much is in its use solely and exclusively for the business of the firm? It is utterly impossible to do it.

Let us look at another thing. I refer to another firm of which that gentleman used to be the chairman. There are in the firm tradesmen who help to make the industry secure, or at least the products of that industry, whether a Daimler, a B.S.A., or whatever it is. The tradesmen get an allowance. They get an allowance for their tools, but, by Jove, they do not get an allowance like that which those people get for their Rolls-Royces or Daimlers or Bentleys. There as a vast difference.

Perhaps I ought here to declare an interest, having represented railwaymen. Many people do not realise that a railway engine driver, in the employ of the British Transport Commission, which we own, has to provide his own watch. He has to have a watch to make sure his train is keeping time—a thing which hon. Gentlemen opposite often complain about. We have made application year after year for railway engine drivers to be provided with watches. My trade union, along with the associated society, negotiated with the Inland Revenue on behalf of the drivers, and now a driver gets an allowance of 10s. a year in respect of the maintenance of his own watch. There is a very big difference between that allowance and allowances which directors get, with their privileges, although a railway engine driver is doing a good job of work and had plenty of credit given him during the war for the work he did in the difficult conditions of that time, with the blackout and so on.

Mr. Loughlin

Credit, not wages.

Mr. Howell

Let us not minimise the position referred to by the hon. Member for Shipley when he said that these expense allowances are prevalent. They are prevalent even today. I know that now these people have a posh name. They are called sales representatives. Years ago they used to be called travellers. There is hardly a sales representative in the country who does not get a car as part of his perquisites.

I have known many a sales representative who has told me, "I have got a new job. I am now with so-and-so and I get a car provided which I can keep in my own garage and I am entitled to use it for purposes I like".

Somebody said that it was not quite right that he should go on holiday to the seaside in it and that that was an abuse. From the point of view of the Inland Revenue it is an abuse, but I would not like it to be thought that from the point of view of the firm it is an abuse. Many firms provide cars in addition to salaries. They have to do that. They do it for directors. Directors are provided with houses. I remember that it was stated in a Budget debate, I think two years ago, that they are provided with gardeners—

The Temporary Chairman (Mr. H. Hynd)

I wish that the hon. Member would come to the Amendment now.

Mr. Howell

I apologise for straying a little. I was trying to show that these expense allowances were all lined up on one level and that it is only one type of people, that is, directors and higher executives, which receives them.

The hon. Member for Twickenham gave as an illustration the fact that back benchers are each allotted a cupboard of about 12 ins. by 18 ins. He said that some people have rooms. I share a room with several others. The hon. Member mentioned that the Chancellor of the Exchequer had his own "posh" room and so did the Prime Minister, but do not let us forget that they also have the use of a motor car. I do not think that there is the slightest abuse of those cars, but it should not be imagined that directors do not use cars to take them home. They are invariably used, but by some stretch of the imagination that is regarded as part of the business of a director. It is passing strange that everybody else has to sign in—all the workers and probably the office staff as well.

Mr. W. Clark indicated dissent.

Mr. Howell

The hon. Member for Nottingham, South shakes his head, but I know what I am talking about because I have represented people who have to clock in.

The Temporary Chairman

I really must ask the hon. Member to reach the Amendment.

Mr. Howell

I thought that I was reaching the Amendment when I objected to the proposal by the hon. Member for Twickenham to change the sum of £2,000 mentioned in the Clause. I do not think that this change should be made. It is impossible to assess how much a car is used wholly and exclusively for the business of the undertaking and how much for the personal use of a director.

Mr. A. P. Contain (Folkestone and Hythe)

It is quite easy. A log-book is kept and the director is charged for that proportion of the use of the car involved in travelling to and from his office and his home. I am sure that is right from my personal experience.

Mr. Loughlin

An honest director.

Mr. Howell

In accordance with the traditions of the House, I would never challenge a personal statement by an hon. Member. One hon. Member opposite told me that he had a motor car belonging to his firm and also his own car and that on no occasion had he used his firm's car in place of his own car. I accept that, but I am sure that my hon. Friends would doubt whether that is universal practice. It may be among hon. Members.

Mr. Ross

The hon. Member for Twickenham (Mr. Gresham Cooke) admitted in his first speech that this practice was prevalent.

Mr. Howell

The hon. Member for Shipley also said that he knew that this was prevalent.

Mr. Hirst

I was not talking about motor cars but about meals. I think that the hon. Member is straying even more than I was.

Mr. Loughlin

The hon. Member obviously means that there is a higher moral standard in the purchase and use of cars than there is in the purchase of meals.

Mr. Howell

I will not elaborate on that. I have already been in trouble for not keeping to the Amendment. The question is whether the Chancellor is benevolently-minded towards the Amendment. I am rather worried that having made this honest gesture to reduce what the right hon. and learned Gentleman knows to be an expense racket, he will then allow these firms the full amount of £2,000 if they want to buy these cars.

9.0 p.m.

I do not go all the way with my hon. and learned Friend the Member for Crewe (Mr. Scholefield Allen) in suggesting that the figure should be reduced to £800. It would have been better to have had an Amendment completely negativing the proposal, but I do not know whether that would have been selected.

I have no objection to any firm having these expensive cars if that enhances its prestige and improves its business possibilities and impresses potential customers. It is then a good business proposition, but a proposition which should be paid for out of the firm's profits and not by the taxpayers as a whole. I have noticed no diminution in profits recently and I do not see why the railway engine driver, the bricklayer, the carpenter and the fitter in a factory, who get agreed allowances for Income Tax purposes, should have to contribute towards the cost of these cars.

My home is in Derby and I pay tribute to the Rolls-Royce company for what it has done to the country—the production of Merlin engines for Spitfires and so on. In Derby we were not always too pleased when those engines were being tested because the horrible noise used to wake us up in the middle of the night. However, as good employers, Rolls-Royce were always building baffles and so on to try to minimise the nuisance.

I was therefore rather shocked when I received a circular from Rolls-Royce, as other hon. Members probably did, containing a subtle form of blackmail of hon. Members, saying that if this proposal of the Chancellor's was not withdrawn, the motor car section of Rolls-Royce would go out of existence. That is a shocking piece of propaganda. We are told that 2,400 production cars a year are made by Rolls-Royce and that about half of them go abroad. That means that only half of Rolls-Royce motor car production will be affected.

In a newspaper recently a representative of the motor trade gave details of how long one has to wait before getting delivery of a Rolls-Royce, and I saw that the period was seven or eight months even now—and presumably it is the same for Bentleys and Daimlers. There does not appear to be much threat to the motor car section of Rolls-Royce. The overseas market will not deteriorate as a result of the Chancellor's proposals and there will still be people in this country, outside those using expense accounts who will want these prestige cars for their point-to-point meetings and Ascot and so on.

The Chancellor is clearly aware of the profits which some firms are making and which have prompted him to raise Profits Tax to 12½ per cent., and there is no doubt that because of that he will not be getting the money which would have been paid for these cars, because when a car is bought by a firm there is the cost of the original purchase and the cost of running, and so on, to set against the gross profits. Any firm which thinks that a Rolls-Royce or Bentley or Daimler is necessary for its prestige will not forgo such a car for the sake of another £2,000, £3,000 or £4,000, because it is not necessary to buy such a car every year and the cost can be set against the firm's profits.

The circular is, therefore, only a threat. It is sheer bunk on the part of the Rolls-Royce company to pretend that the factory would have to close down. I can recollect an occasion when the owner of another motor-car company threatened to close his factory and when my party, then in office, said that if he closed it we would open it. I do not expect the Chancellor to say that on behalf of his party, but I am certain that if the Rolls-Royce company decides to give up the motor-car section it will not close it down and write it off. It will obviously attempt to sell it, and, as things are today, with the profits that would be coming from these expensive cars—because, after all, the company does not have to depend on the saleability of Rolls-Royce cars, for that is assured; it chooses the price and the people take it or leave it—I do not think the Amendment will have the slightest effect on the purchase of cars.

It may well be that for a month or two agents will reduce their stocks, and to that extent, the demand will decline, but I am convinced that even if the Amendment of my hon. and learned Friend the Member for Crewe were accepted by the Chancellor, it would not make the slightest difference to the prestige purchase of these Rolls-Royce cars. I suggest to the Chancellor that he might be fair in this Clause and not rob Peter to pay Paul, because the Clause as he has drafted it is quite good enough for this year, even if it is only the thin end of the wedge.

Mr. Barber

I hope that the Committee will think it appropriate if I accede to the request of the hon. Member for Birmingham, Perry Barr (Mr. C. A. Howell) to indicate at this stage the views of my right hon. and learned Friend on this series of Amendments, the first of which was moved by my hon. Friend the Member for Twickenham (Mr. Gresham Cooke).

As the Committee knows, the purpose of Clause 20 and the two related Clauses is to restrict the tax allowances and deductions on cars costing more than £2,000, and, broadly speaking, they provide that in the computation of any such allowances and deductions any expenditure over £2,000 is to be ignored. These fourteen or more Amendments which we are considering together deal, so far as those in the names of my hon. Friends are concerned, with a proposal to increase the allowances, and, in regard to the Amendment of the hon. and learned Member for Crewe (Mr. Scholefield Allen) to decrease the allowances, in his case from the £2,000 proposed by my right hon. and learned Friend to £800.

If I may take, first, the Amendments in the names of my hon. Friend the Member for Twickenham and others of my hon. Friends, they propose that the £2,000 limit for cars set out in Clauses 20 to 22 should be increased by the amount of the Purchase Tax which has been paid on those cars. At present, the rate of Purchase Tax on passenger cars is 50 per cent. of the wholesale value, so that the Amendment will have two effects. The first will be that, since a purchaser of a car costing £2,000 basic price has to pay £833 in Purchase Tax, these Amendments would, therefore, raise the limit at which the restriction begins to operate from £2,000 to £2,833. The second effect of this series of Amendments would be that cars costing more than £2,833 would also benefit from the fact that the Purchase Tax had been ignored.

This debate has been marked by two characteristics. The first is that the speeches of the overwhelming majority of Members, while, no doubt, deeply felt, have been extremely moderate in tone. The second characteristic, without any exception, taking the line of my hon. Friend the Member for Twickenham, is that every hon. Member who has spoken in the debate has paid tribute to the Rolls-Royce Company and to the men working in that company. They were absolutely right to do so. The right hon. Member for Battersea, North (Mr. Jay) described the Rolls-Royce as a national asset, and my hon. Friend the Member for Shipley (Mr. Hirst) referred to the car as the best in the world. I doubt whether anybody would disagree.

Mr. Ronald Bell (Buckinghamshire, South)

I want to make sure that we all understand the Amendments in the same way. I understood the Amendment in the name of my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) to refer to the sum of £2,000, together with the Purchase Tax paid at any time in respect of the vehicle concerned, and to be based not on the £2,000, but upon the amount actually paid in respect of the vehicle concerned, including Purchase Tax, which might bring the price up to £6,000.

Mr. Barber

My hon. Friend is quite right. That is why I said that the Amendments would have two effects. I dealt, first, with the question of raising the limit from £2,000 to £2,833, and I went on to explain that there would also be an additional benefit in respect of Purchase Tax for the more expensive cars.

I was pointing out that almost everybody had referred to the Rolls-Royce car. The very fact that this car is renowned throughout the world will ensure that there is no question of the fears of one of my hon. Friends being realised, namely, that the demand will fall so much that the firm will be forced to cease production.

Mr. Harold Wilson (Huyton)

I associate myself with what is being said about the Rolls-Royce Company, but I hope that some limitation will be placed on this enthusiasm. If we keep on talking in these terms—and Rolls-Royce has been referred to as a national asset—the next thing will be that there is an American take-over bid for the firm.

Mr. Barber

The basis of my right hon. and learned Friend's proposals were clearly stated in his Budget speech, when he said: I also propose to include in the Finance Bill a Clause limiting the capital allowances that may be granted in respect of ordinary motor cars used by business and professional people to the allowances appropriate to a maximum cost of £2,000 for each car. If business men want to use more expensive cars, I think that it is not unreasonable that they should carry the excess over £2,000 themselves and not pass part of it on to the Exchequer."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 816.] My hon. Friend the Member for Twickenham, if I heard him correctly, said that my right hon. and learned Friend's proposals were a hard-handed way of dealing with abuses. I must point out that if that is what he said he has misunderstood the purpose of these proposals. It is very important to realise that my right hon. and learned Friend has never suggested that businessmen should not ride about in the more expensive types of motor car. That is entirely a matter for them. All that he has said is that the extent to which the cost of an expensive car can be recouped from the Exchequer should be limited in the way proposed in the Clause.

I do not believe that this will have the effect mentioned by certain hon. Members. We may all have differing views as to the desirability of businessmen riding about in these more expensive types of motor car. I can only say that, speaking personally, I think that it would be a very bad day for this country if those men who, by their business and professional acumen, contribute a great deal to our wealth, ceased to use the more expensive kind of car. I do not believe that this will happen as a result of my right hon. and learned Friend's proposal. What will happen is that some relief will be given to the general body of taxpayers.

My hon. Friend the Member for Shipley asked me whether I could state the amount involved. It will be about £3 million in a full year. As against that, there will have to be offset some loss in Purchase Tax. I do not believe, and my right hon. and learned Friend does not believe, that this will be very great, but the extent of it must inevitably be a matter of judgment and speculation.

9.15 p.m.

As I think all hon. Members know, the extent to which tax allowances are given in respect of plant varies according to the type of plant. For instance, the normal investment allowance is 20 per cent. For ships, it is 40 per cent., and there is no investment allowance for motor cars. This series of Amendments, which, incidentally, would cost about £1½ million in a full year, runs counter to the general principle of restricting the tax allowances given in respect of cars. What this series of Amendments does is to raise the limit by reference to the amount of Purchase Tax which is payable in respect of the car.

I should like to say two things in respect of the figure of £2,000. First, in one sense any figure must be arbitrary. Indeed, some hon. Members, mostly my hon. Friends, would prefer a higher figure, but there are other hon. Members, like the hon. and learned Member for Crewe, who would prefer a lower figure. This is a matter of judgment, but I assure the Committee—indeed, I would have thought that it would have been obvious—that this figure of £2,000 was decided on by my right hon. and learned Friend after the most careful consideration of what he thought would be reasonable.

Mr. Jay

The hon. Gentleman may be right, but what evidence has he for thinking that this will not have a serious effect on the sale of Rolls-Royce cars? His opinion seems contrary to the opinion held throughout the motor industry.

Mr. Barber

This must be a matter of opinion and judgment, but as this is an opinion concerning demand, I would have thought that it was not an opinion on which only the motor industry would be entitled to express a view.

Mr. Hirst

This is a most outrageous argument. Does my hon. Friend seriously contend that it will undermine Rolls-Royce to find that out? This is a scandalous argument.

Mr. Barber

My hon. Friend takes a different view from myself.

Mr. Hirst

Very definitely.

Mr. Barber

As this is a matter of judgment, I must leave it there.

I was making the point that the figure of £2,000 was decided on by my right hon. and learned Friend after the most careful consideration. The other point of particular significance in relation to these Amendments is that in deciding on the figure of £2,000 the incidence of Purchase Tax was taken into account. I tried to follow the argument of the hon. and learned Member for Crewe, who would like the figure of £2,000 reduced to £800. I am bound to tell him in all honesty that I cannot see how this would help Rolls-Royce. I agree with the point made by my hon. Friend the Member for Shipley that the one consequence would be to reduce the allowance by about £1,200.

If one takes a specific case of a Rolls-Royce car which costs, say, £6,000, and is sold later for £4,000, a difference of £2,000, under the proposal of the hon. and learned Member for Crewe the tax allowances would be reduced by £400 compared with the proposals of my right hon. and learned Friend. In the case of Jaguar cars in similar circumstances, the reduction would be less, and I cannot see how this would be of assistance to Rolls-Royce.

In any event, so far as the Amendments are concerned, it is doubtful whether the method of raising the limit by reference to Purchase Tax would be the right one because it would lead to some strange results. Take the case of two cars which are bought for the same price, one a new car and one a secondhand car which originally cost more than the new car. The greater amount will be liable in respect of the secondhand car than for the new car although the cost to the company would be precisely the same. I do not see how one can avoid this. Under the Amendment, if the company bought a new Aston Martin for £2,000 (basic price), the allowance would be on £2,000 plus Purchase Tax and it would be liable for Purchase Tax of £1,168, giving a total of £3,168.

On a Bentley it would be £2,000 plus the Purchase Tax originally paid on the total and would probably amount to £4,145. In other words, the additional £1,000 would be allowable in respect of precisely the same deal. If there were a change in the rate of Purchase Tax there would be yet another anomaly. These difficulties are inherent in the way in which my hon. Friends have proceeded. The proposals of my right hon. and learned Friend will have no effect whatever on the allowance on cars costing £2,000 or less and even on the more expensive cars there would still be a substantial allowance.

It has been pointed out that I may inadvertently have misled the Committee in giving the figure of £3 million in a full year as being the amount involved in this Clause. I hope that I did not give the impression that I was referring only to Rolls-Royce for, of course, all cars affected by the Clause would be included. If I gave the contrary impression, I regret it.

Mr. Callaghan

Could the hon. Gentleman tell us how much the Revenue will save as a result of this Clause? Is it £3 million?

Mr. Barber

It would be £3 million in a full year, less—

Mr. Hirst


Mr. Barber

May I be allowed to answer? It would be £3 million in a full year, less some figure for Purchase Tax less as a result of loss of sales of motor cars. This must inevitably be an opinion. One simply cannot put a figure upon it. Whatever views my hon. Friend may have about the £2,000 and that must be a matter of judgment, the fact is that in deciding on that figure the incidence of Purchase Tax was fully taken into account by my right hon. Friend. Quite apart from that, I think that my hon. Friends will agree from what I have said that the proposals in the Amendment, which would cost £1½ million, would produce some strange anomalies which I cannot believe was their intention. With this in mind, I hope that they will not feel that they should press the Amendments.

Mr. Callaghan

May I ask the Economic Secretary a further question? He has said how much the concession would cost if it were made to his hon. Friends, but I thought it would be useful if he told us how much the taxpayer would save if the Amendment in the name of my hon. and learned Friend the Member for Crewe (Mr. Scholefield Allen) were accepted.

Mr. Barber

I could not give that figure offhand. It would be between £1½ million and £3 million—[HON. MEMEBERS: "More."]—I am sorry; it would be considerably more. Perhaps, Mr. Hynd, if you will allow me to do so, I may try to obtain the information and give it when we discuss the Motion. "That the Clause stand part of the Bill."

Mr. Callaghan

I should like to follow that point further. In some ways this debate has been the wrong way round. I was astonished to hear that the possible saving to the Revenue is £3 million in connection with this Clause. If that is so, I do not see how anyone can dispute that the Chancellor is right in what he is doing. Let us put it quite bluntly. The taxpayer has been contributing £3 million through the purchase of unnecessary Rolls-Royces—[HON. MEMBERS: "No."]—less a certain amount of Purchase Tax if fewer Rolls-Royces are sold, but neither the hon. Gentleman, the Chancellor, the hon. Member for Shipley (Mr. Hirst) nor myself knows whether any fewer will be sold. This is a pure matter of judgment. The Economic Secretary said so. The hon. Member may disagree with him, but I will not enter into that dispute. The Chancellor of the Exchequer told us that up to the moment the taxpayer has been contributing £3 million a year to purchase these Rolls-Royces—[HON. MEMBERS: "No."]—and every other car over £2,000; I accept the correction.

It is not merely the purchasers of Rolls-Royces who claim in respect of the tools of their trade. The members represented by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Charles A. Howell) also claim. When I had something to do with the Income Tax Department, which is many more years ago than I care to remember, engine drivers used to be given an allowance in respect of the tools of their trade, and to the best of my recollection they were given 10s. or £1 in respect of the watches which they had to carry.

Mr. Charles A. Howell

It was 10s.

Mr. Callaghan

My memory is not as bad as I thought. Let us suppose that an engine driver said to the Inland Revenue, "I am not content with one of these large tin watches. I shall claim in respect of a diamond-studded watch which cost me £75". Do hon. Members imagine that the Inland Revenue would have given him more than 10s. as allowance? Not on your life.

The debate will have been an eye-opener to many members of trade unions who claim every year in respect of the tools of their trade. In effect, what the people who are purchasing these Rolls-Royces are doing is equivalent to a carpenter saying, "I will claim in respect of a gold-plated saw and a diamond-studded chisel". There is no reason at all why the taxpayer should pay for this in the case of Rolls-Royces any more than he is willing to pay for the saw and the chisel. That seems to me to be the basis of the Chancellor's case. It is right and reasonable that under the Income Tax Act, we should allow a reasonable amount from the gross profits of any company or individual in respect of the tools of the trade. There is no reason at all, however, why we should pay for ostentation, prestige or luxury. If a man wishes for this, let him pay for it himself.

It seems to me that the debate started on entirely the wrong foot in discussing the difficulties of the Rolls-Royce Company. The debate should be about how much the taxpayer should contribute towards the necessary tools of the trade in respect of motor cars. Everyone has paid tribute to the Rolls-Royce Company, and there is no need to gild the lily. If there is a special case in respect of Rolls-Royce, it should be dealt with differently and not by giving a special concession in the Finance Act or the Income Tax Act, calling upon the taxpayer to pay something which is unjust and unnecessary.

My constituents would be astonished if they heard the degree of morality which has been displayed about this Amendment, particularly by the hon. Member for Shipley (Mr. Hirst). It reinforces a growing belief in the country that the only people who pay the amount of Income Tax which they ought to pay are those assessed on P.A.Y.E. and Schedule E and that any other tax paid is purely voluntary, depending on the degree of integrity of the person concerned.

I am glad to say that there are many people who were brought up in the tradition that it was a good thing to have a considerable degree of integrity about the payment of one's taxes. The hon. Member for Shipley made a disgraceful speech. He was not only condoning this; he was saying that it is the accepted practice of industry. Not only do they expect the Chancellor and the taxpayer to pay for ostentation and luxury but they also expect there to be a degree of fiddling—I use his own word—which was certainly unknown 20 or 30 years ago, and apparently his side of industry is quite ready to accept it. It was a disgraceful speech to make. The hon. Gentleman will not succeed in waving me down. If he wishes to interrupt, I will gladly give way to him.

9.30 p.m.

Mr. Hirst

I do wish to interrupt the hon. Gentleman. I never used the word "fiddling" in my speech. My speech was intended to be a personal attack on this proposal and the effect it will have on Rolls-Royce. That was my only point. The hon. Gentleman has no right to infer anything else.

Mr. Callaghan

I wish to withdraw The hon. Gentleman did not say "fiddle". He said "racket".

Mr. Hirst

Not in regard to cars.

Mr. Callaghan

The hon. Member did say that.

Mr. Hirst

I did not.

Mr. Callaghan

We shall see tomorrow what the word was. The hon. Gentleman may regret it now and may feel that he went too far in blurting out the truth.

Mr. Hirst


Mr. Callaghan

The hon. Gentleman does not feel that he went too far in blurting out the truth. In that case I do not see why he should disagree with me. There is a great deal of taxpaying among many members of the community today which is voluntary and outside Schedule E. I support the Chancellor in this. The country would be astonished to know that they have been contributing £3 million a year towards this wholly unnecessary expenditure. The Chancellor has done well so far. Next year he should go a great deal further in the matter of making firms pay for their cars than he has gone this year.

Mr. Ronald Bell

The only part of the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan) with which I agree was his statement that this was not, or ought not to be, primarily a debate about the situation of Rolls-Royce. It should be a debate about whether it is right to make this change in the tax law, due regard being paid to equity. I could not help feeling that he completely destroyed his case when he referred to the railwayman and his watch. He said that if an engine driver tried to claim for a gold watch the Revenue would sweep the claim aside and restrict him to 10s. That is exactly the point. In order to make out a claim for expenses, it must be shown that the expenses are solely and necessarily incurred for the purposes of the business. Because the engine driver would fail to show that a diamond studded watch was necessary for him to drive his engine efficiently, he would fail to substantiate his claim.

In exactly the same way, under the present law if a business man—I am not in that category myself—were to claim that a Rolls-Royce was a necessary expense solely incurred for the purposes of his business, the Revenue would be fully entitled to challenge it and say, "A modest car will serve the purposes of your business adequately. If you think we are wrong and that you need a Rolls-Royce, you can appeal to the General Commissioners".

Mr. Ross

Does the hon. Member appreciate the meaning of the Clause, which deals with capital allowances for machinery and plant and not business expenses?

Mr. Bell

The hon. Gentleman is debating the definition of "business", which strikes me as slightly detached from reality. We are talking about allowances for passenger motor cars. [HON. MEMBERS: "No."] All the time I have been sitting in the Committee the debate has been about allowances on Rolls-Royce motor cars.

Mr. Callaghan

Subsection (1) refers to Chapter II of Part X of the Act of 1952 (capital allowances for machinery and plant) That is what we are discussing. Because Rolls-Royces are wrongly treated as machinery and plant, we have got our selves into the position where the tax payer pays £3 million a year towards them.

Mr. Bell

I had realised that the hon. Member for Cardiff, South-East and some of his hon. Friends were a long way from the point when they made their speeches, but I never dreamed until that interruption how far away from the point they were.

Sir William, your predecessor in the Chair was very kind. The intention was that we should have a general debate upon these matters. That is why many things were allowed to be said. But the whole point at issue on the two sets of Amendments is simply whether £2,000 should be established as the limit for capital allowances on motor cars or whether it should be some other—and if so what—figure. That is what we are talking about, and that is what the hon. Member for Cardiff, South-East dealt with.

Under the present Income Tax law, if the taxpayer claiming for a more than £2,000 motor car has his claim disallowed as not being a proper business expense, he can go through the ordinary procedure of tax appeals. He can take his case to the High Court—and, indeed, to the House of Lords, if he so wishes. That is the present situation. He has to prove that a Rolls-Royce motor car is necessary for the earning of profits.

The hon. Member for Birmingham, Perry Barr (Mr. Charles A. Howell) said that in certain cases where prestige was essential to the success of the business he accepted that the purchase of a Rolls-Royce or a Bentley might be a proper business expense. If that is so, why should the taxpayer who is able to discharge the burden of proof placed on him by the Income Tax law of showing it to be a necessary expense be debarred from claiming it as an expense and, instead, be told that he must be taxed on it—

Mr. Callaghan

Because we are not a charity.

Mr. Bell

The hon. Gentleman says "Because we are not a charity", but what has this to do with charity? If expenses are necessarily incurred in the conduct of a business, if they have to be incurred, and are properly incurred, they are not part of the profits and should not be taxed. It is absolute tendentious political nonsense for the hon. Member for Cardiff, South-East to say that the taxpayer has been paying for these motor cars—

Mr. J. T. Price

Before the hon. Member follows this line of country any further, I would remind him that we on this side of the Committee are defending the Chancellor's action in seeking to put a brake on the racket. We are not attacking the Treasury Bench—we are defending it. The hon. Member for Buckinghamshire, South (Mr. Ronald Bell) is scratching in the wrong pen. We are defending the Chancellor. We are also complaining that he has not done enough, and are encouraging him to be more bold and forthright.

Mr. Bell

The hon. Member really fell a little below the standards which, during a long time in this House, I have come to expect—

Mr. Callaghan

If the hon. Gentleman cannot think of a better answer—

Mr. Bell

I cannot think of any answer that would be suitable to that intervention.

We are debating something that is serious in two ways, and this is where the effect on Rolls-Royce comes in. It is serious because we are doing something, not on grounds of equity but of prejudice. This step is ill-taken by the Chancellor, and should not have been taken. To some extent, it is playing to the gallery. We all know that there have been, and are, abuses in the computation and claiming of business expenses. There are abuses throughout human life, and there are abuses in this department of it. This, however, is not the logical reaction to those abuses.

The right reaction is for tax inspectors to disallow more claims which they think are inflated. Where they think that a Rolls-Royce or other car costing more than £2,000 is not appropriate to the circumstances of that business they should carry their objection through the courts. They should fight. This present reaction is an illogical one, and I regret that this proposal should have been made, because its effect on the Rolls-Royce Company will be more serious than my hon. Friend the Economic Secretary appeared to indicate.

I am aware of all the arguments about it being only the expense account market that will be affected, but I believe that the motor car division of the Rolls-Royce Company probably operates on no profit at all and is run largely as a prestige adjunct to the company's other profitable activities. Therefore, even if a half of the market is seriously affected, it will make all the difference in the world between carrying on that division of the company at a loss and not carrying it on at all.

It is for genuine reasons that I am adducing this argument, since I have no shares in the Rolls-Royce Company, I do not own a Rolls-Royce and I see no prospect of owning one. Since I have mentioned that this is not one of the major profitable activities of the company, it cannot be expected to go on manufacturing these cars at a loss and the Government cannot, in this case, expect to aid the export of these vehicles by knocking away a part of the home market.

I do not accept the wording of the Amendment in the name of my hon. Friend the Member for Twickenham (Mr. Gresham Cooke). As the Economic Secretary explained, there are grave defects and difficulties in the series of Amendments my hon. Friend proposes. It may be that my hon. Friend has put them forward as an expression of his point of view, to indicate the possible damage that may be caused to the motor car industry and the irrelevance and injustice of the remedy that is being proposed.

I urge the Chancellor to bear in mind the anxiety and dissatisfaction of some of his hon. Friends about this matter, who do not like this way of reacting to an abuse, the existence of which all hon. Members recognise. I hope, therefore, that he will decide to drop this proposal altogether.

Mr. Gresham Cooke

We have had a very full debate on my proposed Amendment to this Clause. The discussion has gone rather wider than I had anticipated. I think that every hon. Member who has spoken has paid tribute to the Rolls-Royce Company and I must point out that I moved the Amendment because I was rather fearful for the future of Rolls-Royce. The Economic Secretary, however, has taken a more optimistic view of that future than have I. I only hope that he is right. I beg to ask leave to withdraw the Amendment.

Hon. Members


Amendment negatived.

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

Mr. Jay

It is now appropriate for hon. Members to take a serious look at the matter of capital allowances for cars. I believe that the Chancellor has not gone nearly far enough in getting rid of this abuse. I suggest that what he really should do is to get rid of the initial allowance for passenger motor cars as soon as possible.

So far as passenger cars are used for business purposes—and some of them are—the ordinary depreciation allowance should apply. I invite the Chancellor to listen to the arguments I am endeavouring to put forward, because I have endeavoured to put them to six Chancellors in the last ten years and as soon as they seem to understand the subject they pass on and cease to be Chancellors.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

That includes the Leader of the Opposition.

Mr. Jay

Yes, it does.

The whole of this abuse arose when the initial allowance was introduced in 1946, and was intended to apply to plant and machinery. It was not the intention of the Chancellor at that time—and it was not, I think, realised outside the Inland Revenue—that this special initial allowance would be applied to passenger cars.

I expect that the Chancellor realises that, when the arguments at the end of the war were worked out and accepted for having a special allowance of this kind, what everybody had in mind were mechanised foundries, horizontal looms and the general re-equipment of British industry. However, because, according to the normal practice of the Inland Revenue, a car used for business purposes counts as plant and machinery, it happened, without anybody's very conscious decision, that cars used in this way began to enjoy the advantages not merely of the ordinary depreciation allowance, but of the special initial allowance intended as an assistance in the re-equipment of British industry.

9.45 p.m.

This has always been an anomaly and an abuse. It might not have mattered very much if it had been small in extent. The figure we have been given today of £3 million in respect of cars over this figure alone confirms the suggestion one often hears that the total revenue which the Exchequer is losing by applying the initial allowance to passenger cars is between £50 million and £60 million. Therefore, this rather abstruse point as a matter of argument really relates to a very substantial amount of revenue.

No doubt the Chancellor knows that the Inland Revenue has always used two arguments to oppose the suggestion that the initial allowance should no longer apply. The first has always been that, if the car is used for business purposes, it is equipment, tools of the trade, and no special argument to exclude it can be sustained. That argument, however, was abandoned by the present Home Secretary when, as Chancellor, he introduced the investment allowance and implicitly, if not explicitly, responded to the argument we had used in the three previous years, excluding passenger motor cars from the investment allowance. By doing that, he really admitted the principle that it is practicable to distinguish between other types of plant and machinery, on the one hand, and passenger motor cars, on the other.

The present Chancellor has reinforced the argument this year, because, by the very decision to which hon. Members object, to have a set limit of capital allowances for passenger cars but not for tools of the trade, he admits that it is perfectly possible to make the distinction. Therefore, I think that no one can seriously contend now that it is impossible to abolish the abuse because one cannot make a distinction between ordinary industrial plant and machinery and passenger cars used for business. We need hear no more about that.

In passing, I may say that the present Prime Minister's argument in favour of retaining the initial allowance was that the motor car industry at that time was going through a slump. I think that that was about 1954, when the right hon. Gentleman was Chancellor. He thought that there might be a good case for making a change, but the moment to do so was not when the industry was suffering a recession. No doubt, there is some force in that.

The argument of Lord Amory, the second argument which the Inland Revenue has used, was that, if one were to take away the advantage of the initial allowance from passenger cars altogether, it would hit particularly hard certain deserving classes of person who inevitably and genuinely use cars for their business. The type of people always referred to in this connection are doctors, midwives, district nurses in country areas, and so on. But for this reason that seems to me a weak argument. I do not think that Lord Amory, when using that argument, realised that, even if one ceased to apply the initial allowance to such cars, it would still apply, in so far as they were used for professional purposes, to the ordinary depreciation allowance.

I suggest to the Chancellor that the proper solution for passenger cars as opposed to other forms of plant and machinery is to take away the initial allowance and to apply the ordinary depreciation or wear-and-tear allowance in so far as they are genuinely used for business or professional purposes. That would be valid and it would admit what has always been true, namely, that the argument of 1945 and 1946 for having a special initial allowance, which is really an interest-free loan to the firm, in addition to the old depreciation allowance was relevant and valid for the special purpose of the re-equipment of plant and machinery in industry. We should now cease to apply this to motor cars. This would get rid of the abuse about which my hon. Friends have been, quite rightly, complaining.

I do not suggest that the Chancellor can do all this in a hurry or that he can do it this year. I agree with what he said about my right hon. Friend the Leader of the Opposition. This is an error which has been made by Chancellors of all parties since the war None of them has been willing to admit that it was an error, and the longer we have gone on, the more difficult it has been to get rid of the abuse. It appears that £50 to £70 million is involved. I ask the right hon. and learned Gentleman to consider this matter very carefully and to keep clearly in his mind the distinction—to do him credit, I am sure that it will be clearly in his mind—between the ordinary depreciation allowance, on the one hand and the special advantage of the initial allowance, on the other.

Mr. Ronald Bell

I agree with what the right hon. Gentleman has said about the initial allowance and going over to the depreciation allowance. It is a very good point. But why will that do away with the abuse? I do not follow it.

Mr. Jay

The hon. Gentleman realises that, because the initial allowance is, in effect, an interest-free loan to the firm, at any given time the firm is better off than if there had been no initial allowance. This was the whole purpose of the exercise. That is why the Treasury would lose a great deal of revenue. As my hon. Friends have rightly pointed out, it means that the car is being paid for, to a certain extent, at the expense of the taxpayer, That is precisely why there is an abuse. If we got rid of the initial allowance, it would correct the main abuse.

Sir E. Boyle

I am not sure how far I should be in order in following what the right hon. Member for Battersea, North (Mr. Jay) has said, but I will give him two brief replies to his remarks. [Interruption.] I do not propose to turn anything down. I will merely answer the right hon. Gentleman's remarks in two respects.

I do not think that anyone disputes that vehicles are not wholly satisfactorily classed either as consumer goods or investment goods. We recognise that. As the right hon. Gentleman has correctly said, an initial allowance is given in respect of oars, but not an investment allowance. Being an Oxford man, he will know that it is like the case of the ashes of Frederic Harrison, the positivist philosopher, which could be put, not in Wadham College Chapel, but in the Ante-Chapel. This may not at first sight seem absolutely logical.

The first answer that I would give to the right hon. Gentleman is that it is largely because we realise that vehicles are not easy to classify satisfactorily in either class that my right hon. Friend is taking powers in the Clause to limit the sum in respect of which capital allowances can be claimed. That is the whole basis of and case for this Clause.

Secondly, the right hon. Gentleman has attributed a slightly exaggerated importance to the question of the initial allowance on cars taken on its own merits. There would be little point in simply getting rid of the initial allowance on cars. If we were to do that, it would have little effect, because it would do no more than postpone the capital reliefs. I do not want to close any doors to the future, but I undertake that within the next few days I will send the right hon. Gentleman a fairly elementary table of figures, which will show him that this is so.

Approximately speaking, under our present system when an initial allowance is drawn for motor cars, within six years the value of the car is written down to about 10 per cent. of its initial value. If we did not have an initial allowance for cars, exactly the same thing would happen with our present capital allowances after about eight years. The right hon. Gentleman attributes too much significance to the point. Rather than pursue it further with him in argument on the Clause, however, the best thing I can do is to send him a table which will illustrate the point, so that there can at least be a two-way method of education on this subject. Otherwise, I do not think that there is anything I need add to the general case for the Clause which has not already been put by my hon. Friend the Economic Secretary in the debate on the preceding Amendment.

Mr. Jay

Would not the Financial Secretary agree that when the Government introduce at any time an initial allowance, whether on all plant or machinery or on vehicles, in the first year they lose a quite considerable amount of revenue and that this shows that at any given point, so far as the initial allowance is in existence, the taxpayer is better off and the Exchequer is worse off?

Sir E. Boyle

Certainly, I will consider that aspect. The right hon. Gentleman is justified in pointing out, as was often pointed out years ago in our debates on the initial allowance, that firms are buying new cars all the time and there is always a sum outstanding. I was merely making the point that it must be remembered that, in the case of cars, one could exaggerate the difference between having an initial allowance and not having an initial allowance.

Mr. W. F. Deedes (Ashford)

I wish to make only one small point. I have no desire to enter into the main argument, which has already been discussed. My right hon. and learned Friend the Chancellor of the Exchequer will appreciate that this is a subject on which strong feelings will be generated and on which they may continue to be expressed for some time. In that connection, I raise only one point, which to my right hon. and learned Friend may seem trifling although I hope that he will not so regard it.

It is important that as a consequence of the Clause regard should be paid to the future choice and use of cars at the disposal of the Government and members of the Government. I am wholly in favour of giving all the necessary facilities to Ministers and to everybody else associated with public business, and there should be no trifling about the price of a motor car being exactly above or below the £2,000 mark. I suggest, however, that this is an aspect of the Clause which might be given close attention and in which it is important to be over-scrupulous rather than under-scrupulous. I hope that that may be noticed in the right quarter in respect of what may happen to the Government pool of cars.

Mr. Selwyn Lloyd

I quite agree with what my hon. Friend has said.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 21 ordered to stand part of the Bill.