HC Deb 20 June 1961 vol 642 cc1395-416

(1) the initial allowance under Chapter II (Machinery and plant) of Plant X of the Income Tax Act, 1952, in respect of expenditure to which this section applies shall be equal to one-half of the expenditure, and accordingly in relation to such an allowance—

  1. (a) subsection (2) of section fifteen of the Finance Act, 1958 (which in relation to certain expenditure increased the rates of initial allowances under the said Chapter II from one-fifth to three-tenths), shall not apply;
  2. (b) subsection (1) of section two hundred and seventy-nine of the Income Tax Act, 1952, shall have effect with the substitution of the word "one-half" for the word "two-fifths";
  3. (c) sub-paragraph (2) of paragraph 3 of the Fourteenth Schedule to the Income Tax 1396 Act, 1952, shall have effect with the substitution in paragraph (d) and sub-paragraph (i) of the word "one-half" for the word "three-fifths". And in paragraph (b) of subsection (1) of section two hundred and eighty-two and paragraph (b) of subsection (1) of section two hundred and eighty-one of the Income Tax Act, 1952, for references to five-fourths there shall be substituted references to six-fourths.—[Mr. Wade.]

Brought up, and read the First time.

Mr. Wade

I beg to move, That the Clause be read a Second time.

The Deputy-Chairman

It may be convenient to discuss with this the new Clause—(Investment allowance for dry docks).

Mr. Wade

This Clause deals with the subject of capital allowances. This is a very important subject and I am sorry that it has to be debated at this late hour. Although I move it with brevity, it is not because I am unaware of the very great issues involved. The purpose of this new Clause is to increase the rate of depreciation allowed on industrial plant and machinery. The object is to stimulate a higher rate of productive investment, and I hope hon. Members will agree with that aim. Whether they agree with the precise means is another matter, but I hope that they will agree that it is an essential aim for this country.

As to the wording of the Clause, I admit that it is somewhat complex. That is in keeping with new Clauses to Finance Bills. If the wording is entirely correct that, I think, will be a minor miracle, but I hope that the spokesman of the Treasury Bench will consider this matter on its merits and not find fault with the wording of this Clause. I have mentioned the aim. The method of achieving it is, first, by raising the amount of initial allowance from 10 per cent. to 50 per cent. and, secondly, to increase the rate of accelerated depreciation. It is hoped that this would give firms a considerably greater incentive to buy new plant and machinery out of taxable profits.

The general idea is that capital allowances should be very substantial in the earlier years of the life of productive capital. Every incentive should be given to encourage the modernisation of plant and machinery. If this country is to compete in the export markets, and compete in economic growth, then firms must always be looking out for new plant and machinery. That is vital, whether Britain goes into the Common Market or stays out of it. There must always be this keenness to acquire the most up-to-date plant and machinery. As an aside, perhaps I may draw attention to the fact that, where new machinery is not available in this country and has therefore to be imported from overseas, it is anomalous that no claim can be made for exemption from import duty for that machinery if its value is less than £2,000. I will not pursue that point now, but by various means it is important that there should be a better rate of growth. I believe that the correct expression is "rate of growth of output related to average investment ratio".

I have a vast amount of material here, and could keep the Committee for half-an-hour in quoting statistics; but I will not do so. What I will quote is the Table for Average Investment Ratio and Growth of Output for the years 1950–58. Japan is at the top of the list, the Federal German Republic is second, and the United Kingdom is at the bottom. There are other statistics which compare Britain with most of the other western European countries, and it is disappointing when one sees those comparisons. There are various methods of dealing with depreciation in different countries, and some of the comparisons between this country and other European countries.

There are differences in treating the amount which can be claimable compared with the amount reserved in the actual accounts, and there seems to be something to be said for a closer relationship between what is allowed for tax purposes and what is actually allowed for in the accounts. Then, in some European countries, there is an allowance for inflation. Account is taken of replacement costs which, so far as I know, have never been taken into account in this country. In some European countries, there is allowance for the falling value of money. Replacement costs may be considerably in excess of the original sum expended and which has been written off. It is only right that comparisons should be made between Britain and her European competitors, particularly having regard to the unfavourable figures as to rate of growth when compared with some of our competitors.

Perhaps the most significant feature of all is the effect on this country of periodical economic crises which have led to changes every few years in the depreciation allowances, capital allowances, and so on, with the result that businessmen have found it very difficult to plan ahead or to rely with any certainty on the continuation of the allowances which have been made. I am informed that in Western Germany and Sweden the business community feels that it has the full support of the Government in this matter. It has not the same fear of constant changes due to economic crises.

The Clause is not merely a probing one. I hope that it will lead to action. It is, nevertheless, intended to enable the Government to make clear what they have in mind for the future. What is their long-term programme? I hope that it will prove to be on the lines indicated in the Clause. I said at the outset that I proposed to move the Motion with great brevity because of the late hour. I hope that we shall have a forthcoming answer at the conclusion of the debate.

Mr. Holt

I should like to add a few words to those of my hon. Friend the Member for Huddersfield, West (Mr. Wade). Every member of the Committee must feel extremely concerned about the present economic position. We are failing to export as much as we require, the pound is under great pressure, prices are rising, there is a whole stream of wage increases in the pipeline, and interest rates are rising. One way out is by a policy of restriction. It has been tried before and has failed. Another way out is by a carefully planned method of growth. So far this country has been remarkably unsuccessful in doing this.

It may be achieved in several ways. We do not pretend that increasing the depreciation allowances so that machinery can be quickly written off is the only method of getting growth. My hon. Friend the Member for Orkney and Shetland (Mr. Grimond), in a very excellent pamphlet called "Growth not Grandeur" which he wrote earlier this year, listed some of the other steps which had to be taken, such as a reduction in tariffs, making industry a great deal more competitive, etc.

One of the most important factors in obtaining growth is undoubtedly to increase the rate of investment. The most direct way in which the Government can do this is by increasing allowances in the way suggested in the Clause. I hope that we shall hear from the Government either that they are prepared to accept our method of doing this or, if not, that they have plans of a similar nature to be put into operation in this Bill. They have the opportunity to lay their plans before Parliament before we part with the Bill. The situation is extremely urgent. They should not miss the opportunity.

Mr. Jay

I welcome the fact that the Liberal Party is in favour of planned growth and is, I gather, against grandeur. We are now being asked, as we have been asked many times in recent years, to introduce a more favourable stimulating system of capital allowances in order to promote investment, secure higher productivity, facilitate modernisation, and so on. It was the Labour Government in 1945 who introduced initial allowances. We supported the investment allowance when the Conservative Government introduced it in 1954. We have constantly argued for greater industrial investment.

After the events of the last two years, particularly the last eighteen months, one is bound to carry the controversy a little further and ask for some explanation why in the last year we have had quite a lot of investment but almost no increase in production and at the end of the year we are told that our resources are overstrained.

2.30 a.m.

If we are to sacrifice revenue, as would happen under the Clause, to get investment, we want to achieve a purpose by the investment. The Economic Secretary will agree that one invests not merely for the fun of it—it is fairly expensive—but to get more productive capacity, to have capacity to produce more in the economy or, at least, to produce the same quantity at a lower cost.

The remarkable fact—and we should have some light on it before we can decide the issue—is that we have had a great deal of investment in the last year, that the industrial production index is only one point higher—the figure has been issued today—than fifteen months ago, and yet we have heard that the economy is fully employed and overstrained, and we were told by the Economic Secretary twelve hours ago that demand is pressing hard upon resources.

That is an extraordinary economic puzzle. If it is true that after considerable investment, not merely this year, but in the preceding two years, we have had virtually no increase in production and that the economy is fully employed and over-strained, there must be something seriously wrong with the economy after ten years of Tory Government. In his remarks eleven or twelve hours ago, the Economic Secretary did not fully appreciate this and certainly did not answer the point. I hope that before we decide to allocate more revenue for stimulating industrial investment, we shall be told a little more fully what is happening.

Since our debate on the initial allowance as applied to passenger cars a week ago, I have had an interesting letter from the Financial Secretary purporting to explain that the grant of an initial allowance for cars does not concede any revenue, in effect, from the Exchequer to the taxpayer. If that were so, the increase in the capital allowances now proposed would not involve any loss of revenue to the Treasury either. I feel, however, that the Economic Secretary will tell us that it would cost so many million. If he does, will he explain why that is true in this case whereas the withdrawal of the same allowances from passenger cars would not involve any loss of revenue to the Treasury?

Dame Irene Ward (Tynemouth)

It is always at a late hour of the night or an early hour of the morning that I seem to have the privilege of moving a new Clause relating to investment allowance for dry docks. I wish that sometimes fate would be kind and this important matter could be discussed at a more reasonable hour.

First, however, I must read my new Clause—(Investment allowance for dry docks)—so that it will be on the record. It states: An investment allowance made by virtue of subsection (2) of section sixteen of the Finance Act, 1954, as amended by section twenty-one of the Finance Act, 1959, in respect of expenditure incurred after the seventeenth day of April, nineteen hundred and sixty-one, on the construction, extension or modification of a dry dock in the United Kingdom shall be equal to two-fifths of the expenditure, instead of one-tenth. I beg to move this new Clause.

The Temporary Chairman (Sir Samuel Storey)

Order. The hon. Lady must not move it. She must discuss it with the other new Clause on which the Question is now before the Committee.

Dame Irene Ward

That is the procedure, Sir Samuel, that I am about to follow.

I hope that my hon. Friend the Economic Secretary will not take it rather hard from me that I am not so pleased to see that he will be replying to my new Clause. Those of my hon. Friends who are associated with me have been battling for this important proposal for many years. I used to think that it would take about ten years to win a battle, but I now think that it will take about twenty years.

I was somewhat disappointed to find that it is the Economic Secretary who is to reply because in the past the Chancellor has always replied. Indeed, on the last occasion, which I think was a couple of years ago, when I had the opportunity of moving a Clause very similar to this, the Chancellor was present and we had a wonderful interchange on the need for doing something to help owners of dry docks. I do not know, therefore, whether it is advantageous to have the Economic Secretary replying instead of the Chancellor, but perhaps on some occasion the Chancellor will give the Economic Secretary an opportunity to be agreeable to the Committee and accept one of the proposals that are made.

I do not propose to outline the whole of the detail in connection with this Clause because it has been said so often that one has got to try to find some additional reasons for suggesting that the proposal should be accepted. I am looking to the day when we have a Treasury Minister who has really got something to do with the sea and all that pertains to it. That would be a better background against which to set this important proposal.

When matters of this kind, which are very important to our shipbuilding, ship-repairing and shipping industries, are under discussion it might be easier to deploy one's case if one could discuss it with the Minister who is responsible. It is unfortunate that the responsible Minister for dealing with dry docks, the Minister of Transport, has always said to those of us who are interested in ship-repairing, dry docks, shipbuilding and so on that if only we would tell him what we want we should be likely to get it. He has always announced that it is really the fault of people—in this case the dry-dock owners—that they have never stated conclusively what they want, and that it is therefore impossible for him to help.

I have tried for some considerable time to persuade my right hon. Friend the Minister of Transport to tell me whether he had made a recommendation to the Chancellor of the Exchequer in favour of the Clause which I am discussing, in relation to the debate on another new Clause which is being initiated by the Liberal Party. Then we come up against the next snag, when the Minister of Transport says that it would be unconstitutional for him to tell me whether he had so recommended to the Chancellor.

Therefore, when the dry-dock owners state, through those Members of Parliament who are interested in dry docks, what they want in this Bill, I have not got the slightest idea whether or not we have got the support of the Minister of Transport. But I am assuming that we have his support, because he appointed what has become a Ministry of Transport advisory committee, which originally was an Admiralty advisory committee. The present chairman is Sir Lawrence Edwards who, I am glad to say, has just been honoured by Her Majesty for, I assume, his public work. Therefore, I also assume that his views would commend themselves to the Economic Secretary. He has done a considerable amount of work for dry docks and for all the other big interests in the ship-repairing, shipbuilding and shipping world.

Sir Lawrence Edwards, who is Chairman of the Ministry of Transport Dry Docks Committee, has supported wholeheartedly the arguments of the ship repairers. He considers that this industry is an intensely competitive industry. Ship-repairers in the United Kingdom are finding that their hands are tied compared with their Continental competitors. That is a statement by an official body of the Ministry of Transport in support of the principle embodied in the new Clause which we are now discussing. Therefore, I find it very difficult to believe that the Economic Secretary cannot support and accept the Clause which has the support of a Committee appointed by my right hon. Friend the Minister of Transport. My right hon. Friend is, of course, a senior Minister to the Economic Secretary who is to reply to this debate. I hope that I shall get a really clear answer when my hon. Friend replies, because it seems to me that this Government, which I try very hard to support, come out in favour of the well-known principle of divide and govern.

I do not quite know on which side the Economic Secretary is going to be tonight. It would be most extraordinary if he did not support the Treasury advisory committee set up by his right hon. Friend specially to advise him. Presumably, my right hon. Friend the Minister of Transport must at some stage in his career comment on what he thinks to the Economic Secretary, even if he cannot breathe it to his back bench hon. Friends. He surely must at some stage say whether he supports the views of his own committee. I think that the Minister of Transport would do that, although he does have some very peculiar ideas from time to time.

Having said that, I want to go one step further, because it seems to me that we have never really had a co-ordinated, overriding plan from any Minister of the Crown, whether it be the Chancellor of the Exchequer, the Economic Secretary, the Minister of Transport, or any other Minister, which is going to help ship-repairing, shipbuilding, shipping and the allied problems of this great industry.

Of course, one of the paints made by the ship-repairers and those interested in the construction of dry docks is that the Government have already accepted in the interests of merchant shipping that there should be a high rate of investment allowance. If the Government have accepted that for our merchant fleet, which is absolutely vital to a maritime nation such as ours and, indeed, to our survival, it is all the more extraordinary that for years and years we should have had to go on fighting in order to get it into the heads of the Treasury that ship-repairing and dry docks are a vital part of the whole of our shipbuilding, ship-repairing and shipping industry. They do not seem to be able to think very comprehensively. They think only about the merchant fleet, and they think that, if they do something for the merchant fleet, that is all that is necessary to give us a vigorous and a live and an up-to-date and progressive industry. I find that that is very disappointing.

2.45 a.m.

Having got as far as persuading the Government to give this unusual and high rate of investment allowance for the merchant shipping fleet, it seems to me to be a most extraordinary thing that in the ordinary course of events there is no flow of high rate of investment allowance for dry docks, without which, of course, we cannot have an up-to-date and well looked after fleet. It seems to me most peculiar.

The next thing I find very odd about it all is this, and it is also very disappointing when one has talks, as one does, of course, from time to time with the Chancellor of the Exchequer. Some of my hon. Friends and I went to see the Chancellor of the Exchequer about the whole principle embodied in my new Clause. I do not think the Economic Secretary was there, and I have not got that much confidence in the Treasury to be perfectly certain that the notes which were taken and the Government's views which were expressed and are now embodied in this new Clause have ever been handed on to the Economic Secretary. I do not think that co-ordination is exactly a strong point of either this Government or the Treasury. When we were seeing the Chancellor of the Exchequer he, looking for a lifeline, suddenly started talking about the Local Employment Act and the fact that dry docks can be helped by the Local Employment Act. He seemed to think that that was absolutely the last word.

The point is that we cannot just build dry docks where, under the Local Employment Act, it may be desired to build them. We have to have dry docks on a river; we have got to have dry docks in suitable places all over this island. The Local Employment Act does not really meet the case at all. Of course, those who represent the industry do not feel that that idea of the Chancellor is one which really commends itself in toto. Though one or two dry docks are bound to be provided under the Local Employment Act, it does not help one side of the Tyne, because, of course, the Local Employment Act divides the river. It is like the Government.

Sir E. Boyle

Would the hon. Lady repeat just that last sentence?

Dame Irene Ward

What I was saying was that if some of the dry docks were on the south bank of the Tyne they could get help under the Local Employment Act, but some on the north bank cannot be helped, and so all I am saying is that that Act divides the river. I think that my hon. Friend was rather late in coming in, when I said that I thought that the principle of this Government was to divide and govern. I am sorry that the hon. Gentleman cannot entirely follow my reasoning.

Mr. Jay

Is the hon. Lady aware that the Local Employment Act does provide that it can help a project in one place if that draws employment from somewhere else to which the Act applies, and, as she knows much better than I, there is a ferry between North Shields and South Shields?

Dame Irene Ward

I am delighted to have that guidance. I think I have made more speeches pointing that out to my Government than the right hon. Gentleman. I know that very well indeed. I do not know whether the right hon. Gentleman thinks he is making a very great point or whether he is trying to be kind to me.

I know that sometimes I make my case extremely badly, but on this occasion I am entitled to say that I know about the Local Employment Act because I have been trying to persuade Governments to help Tyneside almost before the right hon. Member for Battersea, North (Mr. Jay) was born. He probably thinks that the position of the Local Employment Act in relation to dry docks is just as peculiar as I think it is and therefore I am delighted to have his support. To reinforce his idea he mentioned the ferry, but perhaps he is not quite as up-to-date as he ought to be. In a few years' time there will be a tunnel there.

The Government have never got down to finding the best way to help our ship-repairers and the shipbuilding and shipping industries. That is our complaint. They have never got down to bringing out a co-ordinated plan. I have had to make my comments about the Local Employment Act to emphasise the point that I am trying to make, but it seems extraordinary. When we went to see the Chancellor everybody was delighted that he found the time to receive representatives of the ship-repairing industry and to discuss this important matter. I do not think that any Chancellor had received such a deputation before, or at least not for a long time. Deputations had been received by junior Ministers, but much as I like junior Ministers, I like also Ministers who are in the Cabinet and who can formulate policy. It is the policy that is wrong in this case.

It is most disconcerting that we cannot persuade the Government somehow or other that if we are to have an up-to-date fleet we must have the ship-repairing facilities for it. Our international competitors give their dry-dock owners far greater assistance by way of allowances and other help than we give ours. Questions are always being raised about the reasons why so much of our shipbuilding goes abroad. If we do not have the appropriate dry docks, ships will also be sent abroad to be repaired.

I want to emphasise the point which has been made before that this is a very difficult type of investment, because when a dry dock is built or a dock is modernised it is a very long time before there is a satisfactory return on capital, and sometimes dry docks have to be built on the basis of a very long-term view of the type of ships that will be constructed.

We know the case so well, but the real snag is that we cannot persuade the Government that dry docks are an integral part of this great industry. I do not think that I shall be popular if I go on much longer about this subject. I always listen with great interest to what Liberal Members have to say. I did not hear the beginning of the case made by the Liberal Party, because I had not imagined that I should have to speak at this hour of the morning on this important matter and I had to go out of the Chamber to collect my papers. I did not hear the opening remarks, but I did not think that the case put forward by the Liberal Party was a very powerful one.

The whole problem of investment is a most tremendous one. It is a great pity that the Chancellor could not be here. It would have been very helpful and encouraging if he had been able to be here to listen to this case. As I always like a row of Ministers, I should also have liked the Minister of Transport to be here; he does not seem to be very interested in this section of his Department if he cannot be here to listen to what is said.

Hon. Members

And the Secretary of State for Scotland.

Dame Irene Ward

I am not going to take on Scotland. All I will say is that Greenock has the benefit of the Local Employment Act. So if the Secretary of State were here he would say that he had to support the Act.

If we are discussing the spending of Government money, I have no doubt that the Economic Secretary will say that that is one of the reasons why he will not accept my Clause. I sometimes think that Government money could be spent in a better way. We might have modernised some existing dry docks. I am always extremely suspicious of Scotland. The Scots manage to get a very great deal because they have a Secretary of State for themselves. I do not like having a Minister who has so much to do that he cannot give his whole attention to one asset.

I hope that we may have a satisfactory answer from the Economic Secretary about the Clause which I am discussing but cannot move. If I really wanted to discuss the constitutional problem in this matter, what chance is there, if I cannot move it, of the Economic Secretary accepting the Clause? I certainly hope that for the future this great industry will receive more consideration from the Treasury than it has had in the past.

Mr. Barber

The new Clause moved by the hon. Member for Huddersfield, West (Mr. Wade) and that referred to by my hon. Friend the Member for Tynemouth (Dame Irene Ward) are concerned with capital allowances, but they raise very different considerations. I hope that my hon. Friend will not be offended if I delay dealing with her Clause till later on.

Dame Irene Ward

No, as long as my hon. Friend does deal with it.

Mr. Bather

The purpose of the new Clause which has been moved is to accelerate the writing off for tax purposes of capital expenditure on plant and machinery in two ways. The two ways were clearly explained by the hon. Gentleman, and I need not go over them again.

The hon. Gentleman said that he hoped that I would not criticise the wording of the Clause. I certainly have no intention of relying, in considering the Clause, on mere technical defects of drafting, but there are certain defects of substance which are so important that I must refer to them and which I cannot believe truly represent the intention of the hon. Gentleman and his colleagues.

For reasons connected with the statutory basis of computation of initial allowances where investment allowances are also given, the Clause as drafted would have the strange effect of giving less favourable allowances for the first year to new machinery and plant qualifying for the investment allowance than for second-hand machinery and ordinary motor cars which do not rank for the investment allowance.

3.0 a.m.

I could illustrate this by graphic examples but will only say that I assume the hon. Member and his colleagues in the Liberal Party would wish to give an initial allowance of 30 per cent. to plant ranking for investment allowance to bring the combined investment and initial allowance for new plant up to the 50 per cent. rate for initial allowances, which is the rate they propose for second-hand plant.

The effect of this Clause would be to permit the writing off for tax purposes in the first year, according to the life of the plant, of from nearly one-half of two-thirds of the cost of new plant, excluding motor cars; up to 85 per cent. of the cost of second-hand plant and 80 per cent. of the cost of new and second-hand motor cars. I would suggest to the Committee that this goes much too far. Furthermore, the cost is prohibitive. As the Clause is drafted, it would cost £80 million in this year and £110 million in 1962–63. If new plant were to be given an initial allowance of 30 per cent. as well as investment allowance of 20 per cent., as is no doubt intended, the first year cost would rise to £120 million and the second year cost to £170 million.

Mr. Jay

Do not these figures show that an increase in the initial allowance for motor cars would, in the initial years, cost the Exchequer a good deal of revenue? Does not this contradict a letter I had from the Financial Secretary to the Treasury on the cost of initial allowances?

Mr. Barber

I have not got that letter available, but it occurs to me that it may well be that for a single piece of plant the allowance for the whole life of the plant would be the same, but that does not apply in this particular case. Here, we are concerned with investment allowances and the interconnection of investment allowances, initial allowances and annual allowances. I can assure the right hon. Gentleman that the cost would be of the order I have given.

There is another aspect which the Labour Party may consider to be particularly relevant in view of their attitude to a previous Clause we considered. On other occasions when the rates of initial allowance or investment allowance have been increased, I am informed that the new rates have applied only to expenditure incurred after Budget day. In the absence of a date in this Clause, the alteration would apply to all assessments for this particular financial year. When trading profits are assessed in 1961–62 by reference to the normal procedure or basis, the effect of the Clause would be to give a retrospective stimulus to expenditure that has already been incurred.

I have already given a clear indication of the effect of this Clause in particular instances and I do not think it necessary to go over that ground again. I ought to refer to one point specifically raised by the hon. Member for Huddersfield, West and that concerned the way in which in this country British concerns depreciate their assets for tax purposes on the basis of the original cost and not on the replacement cost. This was also a point made in the Liberal Party pamphlet of which the hon. Member for Huddersfield, West sent me a copy some weeks ago. Here again, without going into details because this is not directly raised on this Clause, I should point out that the Royal Commission did consider this problem. I would only refer the Committee to Chapter 15 of its Final Report. The Commission certainly did not take the view put by the hon. Gentleman.

This year my right hon. and learned Friend has budgeted for a very considerable surplus above the line. This has involved a net increase of £68 millions in taxation. The reasons which prompted him need not be mentioned again at this stage, because they have been discussed on many occasions since 17th April, and I do not intend, unless the Committee wishes me to do so, to go over them again. But so far as this new Clause is concerned, the shape of the Budget is highly relevant in two important respects.

First, the hon. Member for Huddersfield, West rightly referred to the importance of long-term planning in industry, and the relevance of the capital allowance to that. In a year when my right hon. and learned Friend has made provision for a net increase in taxation, it will not have escaped the hon. Member's notice that it was deliberately decided to make no change in the system of capital allowances. It is true, as he said, that the future competitive position of the United Kingdom depends very considerably on the extent to which we have productive investment.

The right hon. Member for Battersea, North (Mr. Jay) referred to the figures of the level of production. He thought that these were somewhat odd, bearing in mind the considerable amount of investment which is going into productive industry at this time. It is sometimes forgotten that the investment in productive industry is only a prerequisite of success, and that it is just as important that those who, at all levels, operate new plant and machinery should do so efficiently and to the full. Nobody can pretend that our system of capital allowances is ungenerous. It is forecast by industry that this year investment in manufacturing industry will increase by some 30 per cent.

The second way in which the shape of the Budget is relevant to this new Clause is that, in a year when provision is made for a net increase in taxation of £68 millions, it cannot seriously be contended that the Chancellor should accept a Clause which would cost the Exchequer £80 million this year, on the face of it, or £120 million if new plant were to be treated on the same basis as second-hand plant, which is, I am sure, the intention of the hon. Member for Huddersfield, West. For these reasons, I cannot advise the Committee to accept the new Clause.

My hon. Friend the Member for Tynemouth asked me whose side I was on. I am always on her side, but it does not always follow that I can support her. She explained clearly the purpose of her new Clause, which is to increase the rate of investment allowance given on capital expenditure on the construction or enlargement of a dry dock, but for expenditure incurred after 17th April the rate will go up from 10 to 40 per cent. There will, in addition, be an initial allowance at the rate of 5 per cent.

The 40 per cent. is, as she pointed out, a special rate of investment allowance which is applicable to new ships. Under my right hon. and learned Friend's proposal, dry docks will be treated even more favourably than new ships, which do not qualify for any initial allowance. This is a particularly difficult matter which has been considered on many occasions over the last few years. As has been pointed out, my right hon. and learned Friend only a short time ago—in February, I think—discussed the matter with a deputation from the Dry Dock Owners and Repairers Central Council, and my hon. Friend the Member for Tynemouth, my hon. and gallant Friend the Member for Barkston Ash (Sir L. Ropner) and my hon. Friend the Member for Southampton, Test (Mr. J. Howard) were present on that occasion.

The hon. Lady asked why I was not there. The reason was that as the Chancellor had decided to see her I had to deputise for him at another engagement. I can assure here that I have read a full report of what transpired. In the light of that discussion my right hon. and learned Friend considered the matter again, and came to the conclusion that there are serious difficulties and objections to the course which has been proposed. My hon. Friend may consider that some of them are surmountable, but I know that she would not wish to burk them.

The first difficulty is that, in general, discrimination in taxation matters is not desirable. In the case that we are now considering it would mean discrimination in favour not merely of one industry but of one section of one industry—in other words, the dry-dock section of the shipping and shipbuilding industry. My hon. Friend referred quite fairly to the treatment of the shipping industry, and said she thought that the treatment in respect of dry docks, in relation to capital allowances, should logically follow the treatment of the shipping industry.

It is true that at present there is discrimination in favour of the shipping industry, which enjoys the unique advantage of a 40 per cent. investment allowance for new ships, which is now sought in respect of dry docks, but the Committee will probably agree that the special treatment of new ships has always been justified by the fact that the shipping industry has to face unique difficulties. The United Kingdom shipping industry has to compete with shipping operating virtually tax-free under flags of convenience, and it would be very difficult to confine the allowance proposed by my hon. Friend for dry docks to dry docks alone among all the assets used by ship-repairers and shipbuilders.

Most industries, and most sections of industries, can point to some unique feature which distinguishes them, and my hon. Friend the Financial Secretary can bear out the fact that a considerable number of genuine claims are made by industries or sections of industries on the ground that they are not doing well, or that their capital outlay does not give a very good return, and the return would be improved if some special tax relief were given, in the way described by my hon. Friend the Member for Tynemouth.

I appreciate the points put in support of the Clause, but it is also relevant to bear in mind that there is no evidence that the ship-repairing industry, on the whole, does not have quite a good return on its capital. I do not think that the Committee would wish me to go into detailed comparisons in relation to taxation in respect of dry docks in this country and dry docks in other countries—which was another matter referred to by my hon. Friend—but out of courtesy to her I would sum up the position by saying that while there may be differences between the dry docks of this country and those of other European countries, it cannot be said that there is such a striking contrast between the taxation position of the British dry-dock industry and that of other European maritime countries as there is between the British shipowner and the owners of the flag-of-convenience ships. Such differences as there are seem to reflect the general differences between the taxation systems rather than any special discrimination in favour of dry docks.

Indeed, if the Clause were accepted it would give the British dry-dock industry a discriminatory advantage quite unparalleled in any of the Western European countries. My right hon. and learned Friend has considered the matter most carefully in the light of what was said when my hon. Friend and her colleagues met him in February. I hope that the Committee—and my hon. Friend in particular—will appreciate that, for the various reasons I have given, my right hon. and learned Friend considers that the balance of argument is against the proposals made on behalf of the dry clocks, and that he cannot advise the Committee to accept the Clause.

3.15 a.m.

Mr. Grimond

Unlike the hon. Member for Tynemouth (Dame Irene Ward), I make no complaint about the representation of the Government on their Front Bench. I have a high regard for the members of the Front Bench who are there at present. In any case, I see no advantage in having more Ministers behaving like ostriches and burying their heads in the sand. That was the impression I had from the answer given to this new Clause.

I do not deny that the wording of the new Clause, as my hon. Friend the Member for Huddersfield, West (Mr. Wade) said, may be wrong, but the fault in the economy cannot be denied. We are investing too little. Only a quarter of our fixed investment has been in capital for industry. There may be other suggestions for dealing with this, but simply to rush the Bill through at this moment is surely hiding from the one central matter which is facing the country today. The only good reason for finishing this Committee stage tomorrow evening at seven o'clock is that if we do not get through it quickly we shall be overtaken by the next financial crisis. It is a race between getting this Bill on the Statute Book and the Government bringing in a second financial Measure to deal with the crisis which faces the country. That crisis is essentially because we are not investing enough and have not been investing enough in the last five or ten years.

Mr. H. Wilson

The urgency to which the hon. Member refers is not in any way diminished by the news which appeared on the tape two minutes ago saying that Canada has devalued the dollar.

Mr. Grimond

That is indeed serious news. It lends all the more urgency to the necessity of the Government facing the situation of the economy and trying to accelerate growth. I think it is generally agreed that that can be done only by increasing the amount we put to industrial investment. It is a remarkable feat of the Government, as I think the right hon. Member for Battersea, North (Mr. Jay) pointed out, that what they have in fact achieved is that they are on the verge of inflation again while attaining stagnation, something no other country in the Western world has done. Some countries have a fairly low rate of expansion, but they have achieved some stability. Others have a high rate of inflation and have achieved extra production. We, oddly enough, have achieved no extra production but are about to embark on a fresh bout of inflation.

Yet the Government say that they are not going to do anything about investment allowances and they are quite complacent about the amount the country is investing and satisfied with our showing against every other country in the world. In the face of the general situation and the news of which we have just been told, I cannot think that this is other than profoundly unsatisfactory.

Candidly, we do not intend to press this Clause to a Division, but we put on record that, like almost everyone else on this side of the Committee, we are wholly unconvinced by the attempted answer of the Government that nothing needs to be done, that the Budget is perfectly satisfactory and is meeting all the needs of the economy and that we can go to sleep for the rest of the year. No one outside the House believes that that is the case. We are faced with a situation visibly deteriorating day by day before our very eyes.

Mr. Loughlin

I had prepared some notes prior to the hon. Member for Orkney and Shetland (Mr. Grimond) speaking. They coincided to a large extent with what he said. It is fairly clear that the Government ought to get away from the complacent attitude they have adopted for so long in face of the fact that British industry is falling behind almost every industrial country in the world. I was very interested in the statement made by the Economic Secretary, but perhaps he would indicate precisely what he meant. It will be recalled that he answered some questions put to him by my right hon. Friend on the Front Bench in relation to the degree of increase which we have had in investment over the last fifteen years in particular. He said, and I took down his words very carefully, that it must be remembered that industry should operate new machinery as efficiently as before.

Is it the Government's case that the present situation in which we find ourselves is to be laid at the door of British industry? Are the Government saying that industry is responsible for the position? Is industry responsible for the position in which we find ourselves in the matter of competition with other nations? If that is not what the Government are saying, then what do they mean? Do the Government charge British industry with having fallen down on the job? If so, then industry should know where it stands.

Quite frankly, over the past two or three years the Government have shown an immense complacency with a situation which has been constantly deteriorating. If it is true that the wording of this Clause is not all that it should be, I do not think that that justifies the Government in the attitude which they are adopting. It is pretty obvious that there has not been an economist who has written in the last eighteen months who has not urged the Government to stimulate British industry and British investment, and it is pretty obvious that some further stimulation must be offered. Unless we are very careful, we shall be in a most serious crisis in a short time and it is not sufficient for any Government, from whatever side, to be so completely complacent when dealing with the future of the people of this country.

If the Chancellor cannot accept the precise wording of the Clause now before the Committee, then he should re-examine his attitude to this problem with a view to doing something to stave off what may be the worst crisis which this country has had since this Government came into power.

Question put and negatived.

The Temporary Chairman (Sir S. Storey)

The next new Clause selected is that in the name of the hon. Member for Litchfield and Tamworth (Mr. Snow)—(Sweets used for making wine vinegar).

Mr. H. Wilson

I think that I am right in saying that this will not be moved tonight. We may try to bring it forward at a later stage. Perhaps we may pass on to the next new Clause.

The Temporary Chairman

I am much obliged.