§ The measures will, I am confident, be of great assistance to the development districts. But they are still not enough. I have, therefore, been looking at the question of using the tax system.
482§ The problems involved here, as I am sure the Committee is aware, are very serious, both in principle and in terms of administration. The integrity of our tax system depends very much upon its being fair to all concerned, and upon the avoidance of discrimination. Moreover, special regional rates of, say, Profits Tax or Purchase Tax are, on practical grounds, impossible.
§ Nevertheless, I have come to the conclusion that it is possible to introduce a system of special tax allowances for plant installed in areas of high unemployment. They will be available not only to incoming firms, but also to existing firms in these areas. They will, therefore, contribute to improving the industrial tone of the districts as a whole and I believe that this is the right way to tackle the problem.
§ The system I have chosen is one that will allow industrialists to write off their capital equipment at any rate they choose, a system which I will describe as "free depreciation". This is an entirely new departure. For the country as a whole the cost might well be prohibitive. If businessmen generally took advantage of such a provision to write off as much as possible of their new investment in the first year, the cost to the Revenue might run into many hundreds of millions of pounds. But where the areas of high unemployment are concerned, I think that it is right, as I have said in the past, to take risks that could not be justified if they were applied throughout the whole country.
§ I therefore propose to introduce in the areas of high unemployment this system of free depreciation for new plant and machinery.
§ The effect can be summarised in this way. The businessman making an investment in these qualifying areas can write off for tax purposes the expenditure he incurs after today on new plant and machinery at any rate he chooses. He need not, therefore, pay a penny piece of taxation until he has written off his entire investment in new plant and machinery, plus the 30 per cent. investment allowance. It seems to me that this should be a very formidable incentive indeed to investment in these districts.
§ Because it is so formidable, some special considerations arise. I shall have 483 to define both the limits of the plant involved and the areas involved very carefully. The scheme will only apply to new plant and machinery used in productive industry, not to that used in distributive trades or in services. It will not apply to mobile items, such as lorries that can be readily moved to another area. If plant and machinery which is allowed to qualify is moved elsewhere, then the extra allowances will have to be recouped.
§ The cost this year will be negligible, but it may be about £25 million next year and might rise to a maximum of £45 million in 1966–67.
§ For the areas, I propose to take the development districts in Great Britain, as they now stand, and the whole of Northern Ireland. The principle of "free depreciation" is not the same as that of the assistance under the Local Employment Act. One is to encourage the expansion and modernisation of plant by all industrial undertakings in or coming to the area; the other is to encourage specific projects to provide employment. I regard these principles not as overlapping, but as complementary.
§ It seems logical to use the same districts for "free depreciation" as for the Local Employment Act. When an area is scheduled as a development district, all industrial firms in the area will become eligible for "free depreciation"; and when the area ceases to be a development district new purchases of plant and machinery will no longer be eligible for "free depreciation".
§ I must emphasise that the combination of this tax incentive and the new standard benefits will provide great advantages for any firm in a development district or moving to one. The greater the assistance given to special districts, the greater will be the differentiation between those inside and those just outside the boundary. This is inevitable. But if the scheme is to succeed the boundaries must be clearly established and then firmly accepted, and I invite the co-operation of the Committee in meeting this necessary condition.
§ By this combination of new measures—the further public outlay on capital works, the new standard benefits to be announced in detail tomorrow, and this new, and I think revolutionary, principle of tax 484 Incentive—we are making a series of major moves to tackle the problem of local employment. The extent and nature of our decisions shows clearly our determination to solve this problem, and our appreciation of its importance, both for the society and for the economy of the country.