HC Deb 21 May 1963 vol 678 cc255-80
Mr. William Clark (Nottingham, South)

I beg to move, in page 31, line 34, at the end to add: (12) Any person may, at the end of any accounting year or period, furnish the Inland Revenue with a certificate from an authorised accountant, confirming the amount of turnover to the home market and the amount of turnover to overseas markets. (13) Total capital allowances computed under this section shall be divided into the same proportions that home sales bear to overseas sales, as certified under the preceding subsection. (14) That proportion of capital allowances which relates to overseas turnover shall be doubled for the year of assessment of the accounting year or period. The two main problems which we have in this country are productivity and export. There is a certain amount of slack in the economy. My right hon. Friend the Chancellor of the Exchequer has in this Budget introduced the free depreciation allowance, but I cannot develop that under this Amendment. That arises under a subsequent Clause. But if it is right to give an incentive to development districts by the free depreciation allowance to encourage industry to go to development areas, this is indicative that capital allowances can be used in a discriminatory way to assist industry.

What can we do for exports? If we can increase productivity by taking up the slack in the development districts by giving a free depreciation allowance, the same sort of medicine should be applied to exports. What I am trying to do by the Amendment is to relate overseas turnover, as a proportion of the total turnover of a business, to the capital allowances due to a firm. May I give a very simple example? If the turnover of a company is £1,000,000 a year, £500,000 of which is in the home market and £500,000 in the overseas market, and if, consequently, it exports 50 per cent. of its total turnover, capital allowances should be computed in the normal way. That capital allowance figure should then be divided in proportion to the turnover. In this hypo pothetical example, it would be £500 for the home market and £500 for the export market.

As my right hon. Friend will, I am sure, appreciate, what I am worried about is not the wording of the Amendment but the spirit of it. I am asking my right hon. Friend to increase the amount of capital allowances given to the export part of a business. In the example which I have given, this would mean an increase from £1,000 a year normally computed to £1,500 a year.

The Government have over the years done a certain amount to help exporters and industry generally. Apart from a reduction in taxation, which, despite what some hon. Members may think, has come about under a Conservative Administration, industry has been helped generally. Not only are there increased capital allowances in this Budget, but there have been others in previous Budgets. There is also the magnificent work done by the Export Credits Guarantee Department to help exporters. I think that it is fair to say that the E.C.G.D. provisions in this country are as good as those available to any of our competitors, wherever they may be in the world.

It should, however, be borne in mind that certain aspects of our economy have hit industry to a certain extent. I take the recent example of the rerating of industry. I do not propose to argue the merits or demerits of the rerating of industry, but here is a built-in subsidy to industry which must have an effect on our competitiveness abroad. There is also the recently introduced fuel tax. On the one hand, the Government have helped industry and exporters, but, on the other, industry and exporters have been penalised.

What I want to do is to give as much incentive to exporters as is possible. I am sure that every hon. Member agrees with this. My right hon. Friend the Chancellor of the Exchequer accepts the spirit of it in the sense that he has set up the Committee under Mr. Gordon Richardson. This Committee will presumably discuss the turnover tax and the tax which is run by France. I find that many people are mixing up Mr. Gordon Richardson and someone who bears a name very similar to his. I think that both these gentlemen ride horses. Gordon Richardson is trying to ride the export horse, but the whole trouble with industry in this country is that, while we are trying to do that, someone else is holding the reins. Someone else is keeping the spurs away from the horse.

6.45 p.m.

I suppose that the excuse will be made that this sort of discriminatory proposal which singles out exporters far an extra allowance is against our international obligations. It is about time that we in this country decided that, if any other country which is competing with us in overseas markets is benefiting from export incentives, whether it be by T.V.A. or some of the blatant subsidies enjoyed by many of our competitors abroad, it is wrong to say to our exporters, "We have to play the game, although these other people do not." If our allies din G.A.T.T. or in any other international organisation do not play the game and have free and fair competition, we must do something with our tax system to give our exporters the same incentive as our competitors.

If the G.A.T.T. excuse is put up that this is discriminatory—and it is indicative of the importance of this subject for this country that the Chancellor of the Exchequer is listening to this debate —surely one can argue that an increased capital allowance is not a subsidy to exporters. In fact, it is an accelerated allowance. It does not cost the Exchequer any more whether one writes off a piece of equipment over ten years or five years. I should have thought that through G.A.T.T., and particularly since certain talks are going on at the moment, we might point out to our overseas competitors that this is an accelerated allowance and that exporters who may get this allowance are not getting a subsidy.

I apologise for having spoken so long, but this export problem is extremely important. Unless we export, our standard of living cannot be maintained. If our competitors are getting an incentive, then our exporters should get the same incentive. I hope not only that Mr. Gordon Richardson and his Committee will look at this aspect, but that my right hon. Friend, with his ingenious mind, will see whether he can conceive a scheme whereby we can give an incentive to exports without violating any of our international agreements.

Mr. Geoffrey Hirst (Shipley)

I support the suggestion which my hon. Friend the Member for Nottingham, South (Mr. W. Clark) has made. My fairly long and, on the whole, friendly but not entirely painless experience of the Treasury leads me to believe that it may have some difficulty in accepting the Amendment. However, it is the spirit behind it which is important. I do not mind my right hon. Friend the Chancellor of the Exchequer refusing to jump all the hurdles as long as he indicates that he is at least prepared to go into training and to recognise that there is a need to do something in this matter.

I speak as one who has not been easily wedded to any form of export incentive. I was never very much in favour of it in any form. However, after careful study, I am now much more in favour of it, and I am glad that a Committee is going into this matter. I do not blame my right hon. Friend. If there is any complaint about the matter, it is that they have been too long about it. The Government ought to have been even ahead of us on the back benches in realising that we are dealing with a different situation.

My basic reason for supporting the Amendment—I am not in the least wedded to the words—is to get a principle accepted by the Committee and some recognition of its need implanted in our policy. I do, however, see that in the near future, if the priorities are to be right—and the priority of all priorities is growth in the economy—certain things inevitably follow. One of them is that our export trade must be increased.

It is a question of priority. If we say that to avoid a balance of payments crisis we shall do what we have often had to do before, lower the base of our productivity and our growth, we are going back to a policy which we have already found to be unsatisfactory. Therefore, the priorities must be right. If we are to accept the growth policy as the prime priority, everything has to be done to fit in with that.

The first thing is to avoid, if possible, any consequences of a growth policy through a balance of payments crisis by increasing our export trade. If that is the order of priorities, we have to do some new thinking. Many of the policies that we have had before, excellent and basically successful as they were, will not match up to the present situation and difficulties.

If other people are using certain methods to encourage trade in circumstances not always dissimilar to our own, we cannot afford to be third or even second in that race. I hope that my right hon. and hon. Friends will give this sort of consideration to this Amendment. As I say, I am not the supreme optimist. I have been here far too long to imagine that this Amendment will be accepted—that would be asking rather too much. What we would like in this Committee is to feel, once again—I think that there is an element of support running in this vein and we have already had it in other directions, as my hon. Friend has indicated—that the Government will be somewhat ahead of this sort of committee in this matter.

It is good, I think, to have this committee, long-delayed, as I think it is, in order to refresh our memories, because, although most of the knowledge is fairly well known, what is more important is that the country should see that the priorities will be put right in the context of world trade and competition today.

In putting them right we have to safeguard that policy by ensuring that we have the machinery to achieve it. On those grounds, I give my utmost support to my hon. Friend.

Mr. Gordon Matthews (Meriden)

I, too, want to support the Amendment. I think that it is essential that we should do something effective to help the export trade. There is one small point in which I disagree with my hon. Friend the Member for Nottingham, South (Mr. W. Clark). If a manufacturer disposes of his machinery before it has been fully written off, the fact that the depreciation has been accelerated would end up by the Exchequer paying more. I think that this is desirable as an earnest of the determination of the Exchequer to encourage manufacturers to replace their machinery very frequently so as to keep it completely up to date.

Mr. Barber

The issue raised by this Amendment is one of considerable importance. I shall not concern myself, any more than my hon. Friends have done, with the actual words, but rather with the object of the Amendment and the method referred to in it.

To reach a conclusion on a matter of this kind a number of factors have to be considered. We have to consider the principles which govern the encouragement of United Kingdom exports, the practice of other countries, our international obligations to which the mover of the Amendment referred, the views of British industry and also the equity of the proposals.

The proposals in this Amendment, put quite simply, is to give traders a special Income Tax and Profits Tax relief by reference to their overseas sales. Its avowed object, as my hon. Friend said, is to provide a fiscal incentive to export. That incentive would consist in doubling the amount of the annual allowances due for any year under Clause 35 in so far as the allowances were attributable to overseas sales on a turnover basis.

As I understood it, my hon. Friend's suggestion involves no more than advancing allowances which would, in any event, become due at some time, and for this reason he thought that it was unobjectionable. But one must face up to the fact that the whole object of the Amendment is to provide an incentive to export by means of improving the taxation position of traders to an extent which would be determined by reference to exports.

I will come back to this point, but I want to deal carefully with what my hon. Friend said to the effect that the method which he was suggesting was not objectionable from the point of view of our international obligations: Many times in the past we have considered the possibility of some change in the system of direct taxation with the object of providing additional incentives to export. In 1960, we considered partial relief from Profits Tax in relation to export turnover, and last year we considered the possibility of allowing traders a reduction from their Income Tax and Profits Tax of 1 per cent. of their export turnover. In both those cases, the Committee decided that it did not approve of the suggestions which had been put forward.

What of this new, and, if I may say so, ingenious idea put forward by a group of my hon. Friends? There are a number of aspects to consider. First, let me deal with the question of our international obligations which we have freely entered into with other countries. Under the G.A.T.T., certain practices are banned, including those banned under the O.E.E.C. Agreement of January, 1955. These included The remission calculated in relation to ex ports of direct taxes or social welfare charges on industrial or commercial enterprises. I have the exact words in front of me which appear in the Stockholm Convention, but I think that the Committee will take it from me that the words are somewhat similar to those referred to in the G.A.T.T. and I will not trouble the Committee with the details.

The whole question arises whether this is a remission of direct taxation, the words used in the G.A.T.T., and also in the Stockholm Convention, or whether it is, in the words of my hon. Friend, merely an anticipation or an acceleration of allowances. But as I have said, one cannot avoid the fact that this Amendment is concerned solely with direct taxation. Its purpose is to aid the export of United Kingdom goods and it provides a tax advantage. It certainly runs counter to the whole approach of the Government in this matter in the international discussions which we have had in recent years.

7.0 p.m.

The policy of Her Majesty's Government has been not to encourage any export subsidies or other artificial incentive, but to work for the elimination of such practices so far as we have found them in force in other countries. I think that all hon. Members will agree that we have pursued that policy with considerable success. Of our main European competitors, Western Germany allowed its export promotion laws to lapse at the end of 1955, and since then it has had no export tax incentive scheme. In France, the scheme for subsidies on exports was brought to an end in 1958.

There remains in France a provision which is somewhat similar to that proposed by my hon. Friend. This was referred to in a debate last year by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). He referred to it as an arrangement…which, in our view, would not come within the rules in relation to depreciation …".—[OFFICIAL REPORT, 30th May, 1962; Vol 660, c. 1505.] The French arrangement is ore by which traders who export more than 20 per cent, of their output have a better rate of depreciation for their plant and machinery. In addition to the ordinary rate, they receive a further annual allowance equal to 1½ times the normal rate multiplied by the fraction of export turnover: total turnover. But this extra allowance applies only where the straight line method of depreciation is in force, and it will disappear after 1964, when the reducing balance method of computing capital allowances will become obligatory.

Mr. J. T. Price

Can the hon. Gentleman say a word about the Italian practice?

Mr. Barber

I will deal with Italy in a moment, if the hon. Gentleman will give me a little time.

With this exception, which is soon to disappear, and the unimportant exceptions of the Irish Republic, Finland and Greece, no relief from direct taxes is given by any other European countries to help exporters. I will deal with one or two minor aspects briefly in a moment, including Italy.

A number of countries offer exporters rebates of direct taxes carried by goods which are exported, and these are unobjectional, like our own rebate of Purchase Tax, so long as the rebate does not exceed the tax payable.

It is also relevant to consider the attitude of industry to the type of proposal put forward by my hon. Friend. There are some individual industrialists who are attracted by the idea of tax advantages and incentives for exports. But the Federation of British Industries has consistently been opposed to direct tax incentives for exports. Its recent working party, under the chairmanship of Sir Archibald Forbes, considered proposals that exports or increased exports should be exempt from Profits Tax or give rise to some remission of taxation.

Mr. W. Clark

Would my hon. Friend make it clear that that report was issued over a year ago? I think he will find that the F.B.I. and industrialists generally are more and more coming round to the point of view that some incentives must be given to exporters.

Mr. Barber

I can only tell my hon. Friend in all honesty—after all, I meet, as I know he does, a considerable number of industrialists and members of the F.B.I.—that I know of no change in attitude and approach on the part of the F.B.I. on this matter. I will not trouble the Committee with the details, but the Forbes Report considered the question of accelerated depreciation for United Kingdom exporters but decided against it. Unless my hon. Friend knows of anything else which the F.B.I. has put out since then—this was an F.B.I. document —I think it fair to assume that the type of proposal which he has put forward would not be looked upon very favourably by the Federation.

Mr. Hirst

I do not think that I have any interest to declare, but I am a member of the Grand Council of the Federation of British Industries and of many of its committees and I am also connected with the Association of British Chambers of Commerce. Although an official document has been issued, and we must pay attention to it, I can assure my hon. Friend that the thinking in both bodies is very different at present.

Mr. Barber

No doubt we shall be hearing about that apart from the hints that we have been given by hon. Gentlemen. But there are other and, I believe, more cogent reasons against the proposal by my hon. Friend the Member for Nottingham, South.

I will not trouble the Committee with the somewhat arbitrary character of the relief which is proposed—it is inherent in it; it is not the fault of my hon. Friend—in the suggestion, except to say that one could not look behind the actual exporter to the manufacturer whose plant and machinery produce the goods. It would provide no relief in respect of invisible exports such as shipping. Furthermore, the trader might be involved in a trade which did not use much plant and machinery. I agree that these considerations, like the attitude of the industry, are relevant, but they are by no means conclusive.

I come to an aspect which I think should carry considerable weight. My hon. Friend the Member for Nottingham, South referred to the attitude of other countries. What is the practice of our principal European competitors in the matter of direct taxation? France has the special depreciation allowance somewhat similar to this to which I have referred, but that is soon to disappear. Italy, to which the hon. Member for Westhoughton (Mr. J. T. Price) referred, has two schemes under which exporters receive rebates of taxation. Both schemes—I have details of them—have been under attack in the Common Market, and the United Kingdom has taken them up with the Italians bilaterally. I have the details if the hon. Member would like me to go into them, but I do not wish to weary the Committee on a comparatively narrow point.

Mr. J. T. Price

The hon. Member has been good enough to reply to my point. I do not wish to prolong the debate, but I should like to point out that I happen to know that the taxation system in Italy is still a hang-over from the corporate State of Mussolini, and tax is paid on the wage bills collectively of all industries—tax ranging from 70 per cent. to 100 per cent.—and large sections of the industry are relieved of this in respect of export performance. Although the hon. Gentleman rightly says that the system has been under attack, it has persisted for more than twenty years.

Mr. Barber

I do not think that I would go quite as far as the hon. Gentleman has gone. All I can tell him is that the two exceptions in the case of Italy are under attack by the Common Market and that we ourselves have made representations. I want to give the hon. Member the rest of the answer on this point. The rest of the Common Market countries—Germany, Holland, Belgium and Luxembourg—offer no objectionable fiscal incentives for exporters. We have also to consider our E.F.T.A. friends. The position there is that, apart from Finland, our E.F.T.A. neighbours—Norway, Sweden, Switzerland, Denmark, Portugal and Austria—offer no objectionable fiscal incentives to exporters.

At the end of the day one comes to a matter which one must not brush aside, and that is our own self-interest—in other words, what is the broad interest of the United Kingdom? Let hon. Members ignore for a moment our obligations under the G.A.T.T. and to E.F.T.A. I appreciate that my hon. Friend may have a different view about whether or not the proposal falls foul of these obligations. Let hon. Members ignore for a moment what our principal European competitors are doing, and let them ignore the line that we have consistently taken in the past, because that certainly should not bind us in our future policy.

Quite apart from these considerations, would it be in the our own interest to provide for some form of relief from direct taxation, such relief being calculated by reference to export turnover? I doubt whether it would. If such relief proved to be effective—and that is certainly the objective of my hon. Friend—it surely would not be long before it was adopted by our competitors. In other words, the relative tax advantage to the United Kingdom exporter would, I believe, soon be lost.

Furthermore, if we were to introduce a scheme which, certainly in our opinion and in that of many other countries, ran counter to the principles for which we have so successfully worked in the past, some of our competitors would inevitably start to devise even bigger and better tax incentives for their own exporters, and I think that at the end of the day we should regret the initiative that we had taken. Surely the paramount consideration for our exporting industries must be to remain competitive. That will depend largely on the trend of our costs. I believe that it is on improved productivity and on a responsible and equitable approach to incomes that we must concentrate.

These are the factors which, in the main, will determine our success or failure. I am sure that the Committee is grateful to my hon. Friend for raising a matter of such importance as the question of tax relief to exporters. We have touched upon this matter in almost every debate on the Finance Acts which I can remember. Although this debate has been short, we are grateful for the opportunity to discuss the most important principles behind the Amendment. But in the light of what I have said—I hope that I have been frank and fair—I trust that my hon. Friend will not seek to press the Amendment.

Mr. Diamond

I echo the words of the Financial Secretary in expressing appreciation to the hon. Member for Nottingham, South (Mr. W. Clark) for providing this opportunity to discuss a matter which usually comes up each year. He introduced it in a way that, although the wording may not be quite all right, has allowed practical and worthy consideration. Having said that, however, I am bound to say to the hon. Member and his hon. Friends that, tempting though it always is for the Opposition to support at least six hon. Members opposite who clearly intend to vote against the Government, we must resist the temptation to support them and bring the Government down on this issue.

We take the view that the whole question of failure to achieve adequate and satisfactory targets for exports is part and parcel of the failure of the Government's economic policy which we have criticised on many occasions. This may be the appropriate time for a full-scale economic debate, and one can say that the failure is not, therefore, a matter which can be remedied purely by an alteration to the Finance Bill in order to give what amounts to a small fiscal incentive which, however one looked at it, would be somewhat unsatisfactory.

The Government take the view that the Amendment would be against our international obligations, and I agree. I am sure that if the hon. Member and his hon. Friends were also satisfied that this were so, they would wish to withdraw the Amendment. But it is unimportant whether this falls clearly within or without our international obligations. Even outside them, it would immediately evoke the last thing we want—a retaliatory tit-for-tat war whereby when we did one thing another Government did something else in retaliation. That would not help us.

The fact is that the rates of exports of Continental countries by and large are going up faster than ours. We have to meet them on their own ground. Perhaps one of the greatest arguments against any kind of pure fiscal inducement to exporting would be that it would divert attention from the main problem. It would be wholly wrong to think that giving a small incentive of this kind would mean that we could sit back and that everything would be all right. One only has to look at the way exports are growing faster on the Continent than here. Compare the figures of 10 years ago with the figures of today, and one will see that it is ludicrous to suggest that an explanation can be found in our comparative fiscal systems.

The explanation is to be found in a wholly different direction—the national attitudes towards exports. Every German manufacturer thinks first of exporting and secondly of the home market. British manufacturers, by and large, think first of the home market and only to a limited degree, and when considerably pushed, of exporting after that. One only has to bring German and British counterparts together for discussion to realise their different attitudes.

The British investor invests on the basis of satisfying the home market. The Continental investor invests on the basis of satisfying the home market plus some other market even if he does not know where he is to find it. A manufacturer there will produce not only for the home market but with exporting in the forefront of his mind.

Sir Peter Roberts (Sheffield, Heeley)

The hon. Gentleman is making an over-exaggerated case. I ask him to reconsider his sweeping statement about British industry.

Mr. Diamond

I said "by and large" That is fairly sweeping, and I appreciate what the hon. Gentleman says. I am most anxious not to use words which are not justified, but one has to take note of the facts, particularly as an Opposition, and the fact is that our performance in terms of export statistics—I am putting this as neutrally as possible—over the past 10 years has been very unsatisfactory indeed.

7.15 p.m.

What we are attending to now is how to improve the situation. It is no use running away from the facts and from the need to export. We must put our minds to exporting much more than we do, and it is no use seeking consolation in some minor fiscal adjustment. That would be doing less than our duty to the nation.

We have a duty to see to it that people more and more realise the need for exporting more and more, and that it must be done in terms of more production, better salesmanship—including, for instance, the ability to discuss a sale with a buyer in his own language—and competitiveness in quality and in price. We are competitive in price at the moment. But this very fact should indicate that other qualities are lacking if the most important one of price is by and large on our side at present and still our exporting is not good enough.

It is because it would, to a certain extent, divert attention from these all-important issues to a very much narrower point about fiscal inducements that I do not think one could be in favour of this Amendment unless very strong other arguments supported it. But the arguments so far are all the other way. First, this Amendment would be against our international obligations and, secondly, even if it were not, it would start retaliatory action.

As the Financial Secretary has said, this would be bound to cause dissatisfaction to all those in business who make an almost equal contribution but not such a direct contribution to exports. They could not be helped by this proposal because they would not have any direct turnover to overseas markets. It is not only those who have a turnover to overseas markets direct who help our exports. This proposal would have to go a great deal further. The Amendment is actually far too narrow purely from the point of view of helping anyone to improve our exports. I hope that the hon. Member will not press it.

Mr. Hirst

I realise that my hon. Friend the Member for Nottingham, South (Mr. W. Clark) will not want to press the Amendment but I want to answer one thing said by the hon. Member for Gloucester (Mr. Diamond). I get a little tired of this claim about retaliation. It seems that everything we do is subject to retaliation, but it should be remembered that other people do these things and it is absurd to suggest that we alone should never do anything to help our own people because something will happen in retaliation.

The fact is that we would not be leaders but only followers by giving our traders facilities which others in the world already have. The Government take a "holier than thou" attitude. Although, of course, my hon. Friend the Financial Secretary dealt with this subject pleasantly and lucidly, he made more or less the same speech I have heard on every occasion during the last two or three years. The only difference is that it is now a little more polished.

I do not see why we should always be cast in this role of showing to the world that we are determined to remain a virgin even if we live in a harem. I get rather tired of this argument and I feel that suggestions should not be ruled out on that ground. That is not an argument which should impress the Committee very much.

Whatever the demands that we should appreciate the needs of the economy, it is inevitable in commerce that there should be some form of fiscal incentive. If we are to get our priorities right, and I sincerely believe that the Government firmly intend to do so and I absolutely accept the Chancellor's policy in this respect, we have to think again. I am bitterly depressed in the light of that and in the light of the change of policy which the Financial Secretary announced —and there is no doubt that there is a change—that we are getting the same excuses for not taking action and that our traders at all times have to be at a disadvantage compared with traders in the rest of the world.

Mr. Barber

In view of what was said by the hon. Member for Gloucester (Mr. Diamond) about the extent to which British exporters try—and he thought that they should try harder and certainly some of them should—and tying that up with what my hon. Friend the Member for Shipley (Mr. Hirst) said about harems, perhaps I ought to tell the Committee that the other day I heard of a British exporter who had obviously tried very hard. As the result of his visit to Teheran, I am told, every harem in Teheran now has a British juke box.

Mr. Hirst

Somebody was not a virgin.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I had not intended to intervene in this debate, but when I heard my hon. Friend the Financial Secretary say with some unction that he remembered similar debates over the last few years I felt that we ought to remind him that these debates spring from one sole cause —the general feeling in the country that something should be done about fiscal incentives for exporters.

Mr. Barber

I think that my hon. Friend misunderstood me. The only reason I referred to what happened last year and the previous year was to contrast the proposal of my hon. Friend the Member for Nottingham, South (Mr. W. Clark), which, I said, was a new and ingenious proposal, with what had been proposed in previous debates.

Sir H. D. d'Ayigdor-Goldsmid

I am sure that the suggestion of my hon. Friend the Member for Nottingham, South (Mr. W. Clark) is extremely ingenious. If it had been on the same lines as the proposals of last year, it might not have been selected for debate, so it seems a useful peg for this debate, which is liable to be annual.

The hon. Member for Gloucester (Mr. Diamond) said that we had had a poor export performance over the last eleven years. The reason for that is obvious, but it is not one which he will accept. Our competitors went flat out for exports and gave the most extraordinary fiscal incentives to their exporters. I do not want to bore the Committee, but I know what the French Government did in this connection and the enormous premiums which it paid for the foreign exchange which its exporters earned. Naturally, in those years the French stole a large part of our markets and, having got into those markets, they have been able to remain there to a large extent.

My hon. Friend the Financial Secretary said that the French advantages to exporters were coining to an end. I am interested to hear that, because that was not the case last year or the year before. The French incentives have been in existence since the war, so that at a time when it was against the rulings of the G.A.T.T. for us to do anything about helping our exporters, it was apparently not against the rulings of the G.A.T.T. for the French to take this sort of action.

Those are simply the facts of life. I apologise for boring the Committee with the facts of life, but they have to be considered and we cannot shut our eyes to them. We are not living in a happy mercantilised age. It is too late to go back to Adam Smith. We have to fight this one and fight in a reasonable but determined way. I remind my hon. Friend the Financial Secretary that when he refers to the Forbes Report he should remember that it was brought out in the confident expectation that we were about to join the Common Market. That influenced thinking, if not directly, then certainly in the undertones.

For those reasons, I ask my hon. Friend to consider 1963 as a new year and not the same as 1962, 1961 and 1960. I believe that he was at the Box replying to these debates in all those years. His charm and agreeableness have been inherited from his colleagues who replied before him. But we are now facing a new situation which cannot be dismissed simply with arguments which might have been highly applicable when we were on the point of joining the Common Market, or when we were a great mercantile Power seeking only wider and ever wider expansion of free trade. That is not the case today.

Although the Amendment clearly does not meet the case, I hope that, on consideration, at a later stage, my hon. Friend will revise his reply. After all, when Mr. Gordon Richardson reports, my hon. Friend may have to do something quite different—we do not know—and I would not like to think that we will have to live with my hon. Friend's reply for a very long time.

Mr. J. T. Price

I hesitate to prolong the debate, but while I largely agree with the general observations of my hon. Friend the Member for Gloucester (Mr. Diamond), there are one or two footnotes which I feel constrained to add to what he said.

The first is that while as a matter of temperament and inclination I am disposed at all times to honour any agreement I enter into, whether personal, collective, or, as a British citizen, made by my own Government with some other country, I like to think that those agreements are being honoured by the other parties as well. The whole basis of confidence between individuals and all relationships in international activities is that it is unfair that some of the parties to agreements should not honour them. I am all in favour of the liberalisation of trade, to which the Financial Secretary referred, and I am all in favour of such adjustments in the G.A.T.T. as now appear to be in the course of negotiations at Geneva.

It is all right to have rules in a club to which one belongs, whether it is a social, sports or political club. But we like to think that the rules apply equally to all members of the club. Unfortunately, in so many international relationships the clubs to which we belong have no effective way of enforcing the rules, and some of the abuses which the Financial Secretary has admitted have been causing a good deal of anxiety.

Until we can get a responsible and reliable referee who will impartially decide and bring about peace and amity among the nations, we are in the situation of having no redress, because there are no sanctions to ensure that our share of the bargain is granted. Do not let any hon. Member believe that I am in favour of breaking agreements. On the contrary, I am all in favour of honouring agreements to the letter, but I want agreements to be honoured by both sides.

We are all interested in encouraging a great expansion of our export trade which is so rapidly falling behind that of other nations. We all pay lip-service to it and in the House of Commons we quarrel not so much about the desirability of having a greater expansion of our exports as about the methods of bringing that about. The hon. Member for Nottingham, South (Mr. W. Clark) has made a proposal to encourage the export trade. The Financial Secretary drove through it with a horse and cart in the usual way of those briefed by the Treasury. He did it in a most genial manner. We complain not of his manner, but of the substance of his remarks.

The hon. Gentleman said that if we took certain steps we should face retaliation, but I ask him to consider the implications of that remark. Unfortunately, we are now engaged in the arms race. Is it suggested that the Minister of Defence might say that we must sink all our battleships and abandon all our weapons and Armed Forces because, if we go on building them, someone will retaliate?

7.30 p.m.

We must have these fiscal defences for the trade of the country, in the same way as we have physical defences. I would be the happiest man in the Committee if we could slow down the terrible arms race, but we do not abandon our armaments and defences, for the simple reason that the other fellow will not abandon his. I do not think that there is a great deal in the argument that if we do certain things people will retaliate. If we are not getting a fair deal under international agreements, I would like to see those agreements renegotiated so that we get a fairer crack of the whip, or, alternatively, to take action to see that we get a fairer deal.

Mr. W. Clark

I am sure that everyone agrees that this debate has been worth while. The Amendment was tabled in this way simply to have the subject ventilated. I place great reliance on the findings of Mr. Richardson. We hope that it will not be long before they are made available, and that by the time the next Budget is brought in there will be no necessity for back bench Members on this side of the Committee to table Amendments similar to this one. We are nearly running out of our ingenuity in getting Amendments of this kind through the rules of order. I hope that Mr. Richardson will produce something fairly soon, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Crosland

I hope that I shall not be accused of wasting the time of the Committee, but I do not think that this Clause ought to go through with no debate on the major principle of the thing. This is a very important Clause. It increases, or rather accelerates, annual allowances to a very striking level indeed, and I think it requires a little comment, though certainly all I shall do is to ask the Financial Secretary one or two questions.

The hon. Gentleman may not be able to answer my first question on the spot, but perhaps he can give an answer at a later stage. After this rather striking acceleration of the annual allowances, can he give one or two figures to confirm the Chancellor's claim during his Budget speech, which I do not doubt, that allowances are now as generous as, or more generous than, those in almost any other major industrial country? Any international comparison with the new allowances would be extremely interesting.

My second question is to ask how on earth the Treasury calculates the likely cost of a concession of this kind? It is calculated that this acceleration of the annual allowances will cost £65 million in a full year. One wonders how the Treasury can calculate a figure like that. The fact is that none of us has any idea whether this kind of change in the annual allowances has an appreciable effect on investment decisions. There is no information by which one can judge what the effect of this change will be, and one would be curious to know how the Treasury statisticians come up with a precise figure of £65 million in a full year.

The reason why one is doubtful whether the figure can be very large, and whether this kind of acceleration of the allowances has any significant effect is, as the hon. Member for Nottingham, South (Mr. W. Clark) pointed out when moving the Amendment, that this kind of concession is not a permanent one. This is not in the category of investment allowances which have a powerful effect because they are a direct subsidy. In this case we are talking about money being paid out more quickly and which will come back later; and what the firm gains from this kind of acceleration is that it has simply a large revolving loan, or the use of more tax-free credit than it would otherwise receive.

If businessmen are rational—which I agree is a rather major assumption to make—this kind of concession should not have any significant influence on investment decisions. There may be a psychological effect, one does not know, but if a businessman acts purely rationally when he makes investment decisions, this kind of concession, unlike the investment allowances, is trivial, and I am surprised that the cost of this should be as high as it appears to be. The cost over a number of years will be zero, because the whole thing comes back in the end. It is simply a transfer between different years.

The other question is the one raised by my hon. Friend the Member for Glasgow, Craigton (Mr. Millan), whether, now that we have these generous annual allowances—much more generous than they were a few years ago—there is a sufficient case for maintaining the initial allowances as a completely separate thing. Initial allowances came in at a time when we had no investment allowances, and when annual allowances were very much less favourable than they are now, and with other changes, one wonders whether we need to go on with three separate allowances—investment allowances, initial allowances, and annual allowances. I should like a comment on that.

It is extraordinary how many people, both in industry and amongst the economists and accountants, would like a situation in which the firm decides on its rate of depreciation—in other words, a system of free depreciation not merely in the development districts but all over the country. I am struck by the number of informed people who think that the most sensible way of dealing with this allowance is to allow the businessman to choose the number of years over which he will depreciate his machinery.

The businessman will be able to do this in development districts, and the question is whether this would be an intelligent system for the whole country. The Chancellor mentioned this in his Budget speech, and said that the argument against it was that the cost would be prohibitive, but he did not go into any detail. It is hard to see how the cost would be prohibitive when, in a sense, the cost is not real but is merely transferring things from one year to another. Given the volume of informed support for this method of depreciation, I should be grateful if we could have a word on this subject. We on this side of the Committee very much welcome the allowances, which I imagine are now amongst the most generous in the world.

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

On the Second Reading of the Finance Bill I raised a technical point on this Clause. Having declared my interest, I welcomed the Clause. My hon. Friend said that if I wrote giving him details he would reply, and I should like to express my appreciation to my hon. Friend for keeping his promise.

My first point was how, when purchasing second-hand plant, one could ascertain the date of original purchase, because obviously this would have a bearing on the initial allowances. My second point, which has been partly dealt with by my hon. Friend the Economic Secretary, and also by my hon. Friend the Financial Secretary, concerns plant which is being built and paid for over a period. The point has been made clear from earlier Clauses that the date when the amount is payable will be applicable for tax purposes, but there is a little confusion in this in that we are to have one piece of plant, say a digger or a dredger, on which 10 per cent. has been paid and 90 per cent. will rank for other allowances, but in a procedure of this sort there is generally retention money, so there will be the extraordinary situation that upon each piece of plant there will be literally three depreciation rates.

1 hope that my hon. Friend can clear up this point, otherwise our accountants will have a lot of homework to do to provide the right answer for the Treasury. With those few comments, I support the Clause.

Mr. Millan

One does not wish to complain in any way about this Clause because it does something which a number of us have pressed the Government to do before. It both rationalises the rates of depreciation to some extent, and accelerates the period of write-off, but I wish to raise one or two points about this.

First, I agree with my hon. Friend the Member for Grimsby (Mr. Crosland) that, in view of the very much more generous annual allowances, there is a case for looking again at the initial allowances. It would be a satisfactory method of cushioning the impact of this if the Government were simultaneously to abolish or reduce the initial allowances.

My second point also follows from what my hon. Friend the Member for Grimsby said about free depreciation. I want to add one word to that. The case for allowing firms free depreciation used to rest not on the kind of free depreciation which is now to be allowed in development districts under a subsequent Clause, because that is completely unrelated to what firms actually do in their own accounts. Previously the strongest case for free depreciation for individual firms—and the Chancellor has not taken up this point in his references to the subject—was to allow them to write off either what they were allowed under the general arrangements under the Income Tax Acts or, as an alternative, the sums that they were writing off in their own accounts the principle being that this would give encouragement to those firms which, as a matter of individual policy, wrote off their capital expenditure more quickly than did industry generally.

Under the Clause the new allowances will be very much more generous than the actual accounts practice of the majority of firms in British industry. The Income Tax allowances are now to run well ahead of their accounts practice. If we want to encourage people to think in terms of a shorter life for their capital assets, and to encourage them to replace plant more quickly, we must provide some incentive to those firms which write off more quickly than the others.

The trouble with this sort of provision —welcome as it is—is that it gives an advantage to everyone, and gives a bigger advantage to those firms with a conservative rather than a generous depreciation policy. I welcome the rationalisation that is being introduced, but I would have preferred the Chancellor to consider the question of free depreciation for individual firms, tying those free depreciation provisions to what firms wrote off in their commercial accounts. This is standard practice in a number of other countries, such as Sweden. I believe that that is a more pertinent approach, although it is a question of balance.

The Clause contains extremely generous depreciation provisions, and I hope that we shall take every opportunity to remind British businessmen of this fact. I get rather irritated at their complaining about the way in which our taxation system affects capital expenditure. Even without the improvements in this Finance Bill British industry, on the whole, is fairly well treated in the matter of capital expenditure. It is now to be very generously treated. I hope that it appreciates the fact, and that the rather carping criticism that we have been accustomed to hearing from company chairmen will now be heard rather less often. This is a convenient opportunity to make the point that businessmen are now given substantial opportunities. It is to be hoped that they will take advantage of them.

7.45 p.m.

Mr. du Cann

Once again, we have had a most interesting and valuable short debate on the Clause. I will do my best to answer the questions that have been put to me.

First, I can tell my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) that, in general, when the rate of investment allowances has been changed in the past there has been little practical difficulty, and we do not envisage practical difficulty to any substantial extent in this case. I am not saying that there will be none; I merely say that we do not expect a lot. Inevitably, when any change is made a line has to be drawn, and that creates certain difficulties. That simply cannot be helped.

The precise answer to the specific question that he asked, of which he was good enough to give me some notice—and I apologise to the hon. Member for Gloucester (Mr. Diamond) for not getting it right when I replied to him earlier—is simply that the sums payable after 5th November, 1962, would qualify for the better rates under the Clause, whereas the sums payable on or before 5th November would not so qualify. It exactly parallels the position in relation to the earlier Clause. The reason why I got it slightly wrong in my reply to the hon. Member for Gloucester was that I was trying to do two things at once. I was trying to be platitudinous and was trying to read my note as I did so—and I made a mess of both.

I want to answer the other questions in part by reference to the object of the changes which we are intending to effect. The object is, first, to provide an incentive to modernisation—as the hon. Member for Glasgow, Craigton (Mr. Milian) mentioned—and, secondly, to simplify the system by substituting a few simple rates for the present complicated arrangements. I am obliged for the understanding that, in general, the Clause meets with the approval of the Committee.

The hon. Member for Grimsby (Mr. Crosland) asked specifically whether I could quote the figures for other countries. I cannot do so "off the cuff"—once bitten, twice shy, as he will understand—but I will happily and willingly write to him at the conclusion of the debate and set out precisely the information that I have. If I can amplify it in any way I shall be delighted to do so.

The hon. Member also asked how the calculation of cost is made. It is estimated to be £3 million this year, £23 million in 1964–65, and £65 million in a full year, as he said. It is based on a projection of the present rate of investment. It is, therefore, patently an estimate. It is the most reasonable figure we can get in the circumstances but, as I admitted when I answered an earlier point of his on another Clause, the true effect of these provisions will be seen in the extent to which this cost increases, and is either less than or more than the quoted figure.

The hon. Member for Grimsby and the hon. Member for Craigton said a good deal about free depreciation. I admit that this is a most attractive idea. In this country it is an entirely new experiment, in the development districts, and it will be most interesting to see how it works out. It is right to point to the experience of Sweden, not that I am familiar with that experience in detail, except that I remember observing a report on the subject in the Economist.

The hon. Member for Grimsby "pulled our legs" very hard about the Economist. I would have been astonished if I found the Economist agreeing with everything that any Government did. My difficulty lies in finding out what it thinks should be done. Perhaps the hon. Gentleman does not have the same difficulty, but I believe that a lot of other people do, yet we still read it. But I seem to remember an article in the Economist to the effect that a system of free depreciation over the whole country had been found far too expensive to be maintained in Sweden.

It was because we were nervous about the cost, and wanted particularly to help the development districts, that we introduced this revolutionary principle simply for those districts. The hon. Member for Grimsby and the hon. Member for Craigton, went on to make the suggestion that we should not consider ourselves wedded for all time to the present system of allowances. Their views in that respect certainly command the attention which they will undoubtedly receive—especially the suggestion of the hon. Member for Craigton that some companies wrote off the cost of their machinery quickly and were keen to replace, while others were not so efficient, competent or forward-looking.

Those were wise words. I hope that they will have wide publicity, especially through the accountancy profession, to whom many commercial people rightly look for guidance in these matters. There is no excuse for not modernising. The hon. Member is quite right to make that point. This is one of the objects of the Clause, and I am glad to think that it apparently has the blessing of the Committee.

Question put and agreed to.

Clause ordered to stand part of the Bill.