§ The President of the Board of Trade (Mr. Douglas Jay)
With permission, Mr. Speaker, I should like to make a statement about investment grants.
Since the National Productivity Conference in September the Government have been considering whether it is necessary to give some additional stimulus to industrial investment during the period immediately ahead. We have discussed this question with representatives of industry in the light of recent surveys of investment intentions, which suggested that there was likely to be a fall in private industrial investment next year.
We have now decided to effect a temporary increase in the rates of investment grant payable by the Board of Trade under Part I of the Industrial Development Act, 1966. The standard rate in respect of eligible capital expenditure incurred between 1st January, 1967, and 31st December, 1968, will be increased from 20 per cent. to 25 per cent. and the rate for development areas from 40 per cent. to 45 per cent.
These higher rates will apply to eligible plant and machinery used by manufacturing, extractive and construction industries; and also to mining works, scientific research equipment and certain 638 computers. The rate for ships, hovercraft and most computers, which is at present 20 per cent. throughout the country, will be correspondingly increased to 25 per cent.
Under the Act, expenditure is regarded as having been incurred when the sums of which it consists became payable. This is explained in more detail in the booklet I have recently issued for industry. I should emphasise, however, that the mere placing of a contract within the two-year period will not in itself attract the higher rates of grant on expenditure under the contract. Such expenditure will qualify for the higher rate only in so far as it is incurred before the end of 1968.
There will be no change in the coverage or other features of the investment grants scheme. Claims made during 1967 in respect of expenditure incurred during 1966 will only qualify for the existing rates of grant of 20 per cent. or 40 per cent. The booklet on investment grants which I published earlier this week describes the details of the scheme and makes clear that the standard long-term rates will be 40 per cent. in the development areas and 20 per cent. in the rest of the country.
The necessary order under Section 7 of the Industrial Development Act will be brought before Parliament as soon as possible.
We also intend to speed up the payment of claims as soon as we have had sufficient experience next year to judge what is practicable.
My right hon. Friends the Minister of Agriculture, Fisheries and Food and the Secretary of State for Scotland will be making corresponding arrangements for increased grants for agriculture and fishing vessels.
§ Mr. Barber
I would like to put three questions to the right hon. Gentleman.
First, bearing in mind that the Board of Trade's forecast for next year is that industrial investment will fall by 7 to 8 per cent., what is the revised figure as a result of these proposals?
Secondly, is the right hon. Gentleman aware that while we welcome a stimulus to industrial investment, there are very real dangers in panic measures to switch incentives on and off at very short intervals, which makes a mockery of industrial planning?
639 Thirdly, is the right hon. Gentleman aware that, however welcome this announcement may be, the Government are only tinkering with the prevailing gloom and that the answer is to restore confidence to industry and to do so by pursuing policies which foster free enterprise?
§ Mr. Jay
As to an estimate of the effect of the change, the right hon. Gentleman must know that it cannot be put in statistical terms. We believe, however, that this will be a real stimulus. We want it to encourage immediate private industrial investment in the period immediately ahead. I am not sure whether the right hon. Gentleman meant to suggest that this is some sort of panic measure which should not be adopted now. If that is not what he meant, I do not quite know what he implied.
§ Mr. Jay
I am glad to hear explicitly from the right hon. Gentleman that he welcomes it.
We have been urged by representatives of industry to take action of this kind at the present time.
The third point raised by the right hon. Gentleman could well be debated in the debate which is just about to be resumed.
§ Mr. Wyatt
Is my right hon. Friend aware that while the measure is good in itself, it has not been the fact that people do not get enough allowances or investment grant which is preventing them from putting in new machinery and equipment, but rather the fear that as long as the Government go on with the absurd credit squeeze they will not be able to make any profit out of their machinery and equipment? Does not my right hon. Friend realise that it is quite absurd that even if he were to give the stuff away people would not put it in if they could not make a profit out of it?
§ Mr. Bessell
May I ask the President of the Board of Trade whether he is 640 aware that my right hon. and hon. Friends welcome this announcement and that, however modest the increase may be, it will, nevertheless, be of great benefit to industry?
I should like to ask two specific questions. First, is the hight hon. Gentleman satisfied that the amount provided by the increase will replace the shortfall which is expected from private investment? Secondly, does the reference to mining include the cost of exploratory investigation as well as equipment for mining?
§ Mr. Jay
The answer to the hon. Gentleman's second question is that it includes in it exactly the detailed sense which was explained in the course of the debates on the Bill and as is also explained in the booklet which has been published this week. As to whether we consider that this proposal will be enough, we certainly believe that it will have a material effect on industrial investment if industry, as we hope, takes full advantage of it.
§ Mr. Sheldon
Is my right hon. Friend aware that the majority of Members of the House will certainly welcome the increase in investment grants, which has come at a particularly needful time? Will my right hon. Friend inform the House whether consideration has been given to the bringing forward of the payment of these investment grants in the light of the present economic situation, when so many of our progressive companies are finding themselves short of capital for these purposes?
§ Mr. Jay
There is a misconception here. Whether one proceeds by investment allowances or investment grants, the sums are made available to industry a considerable time after the plant is installed. The benefits of investment allowances are being afforded by the Exchequer this year and are accruing to industry this year. It is when they run out, in the middle of next year, that the grants will begin to be paid. As I said in my statement, we mean to pay them as soon as experience shows it to be practicable.
§ Mr. Dean
Is the right hon. Gentleman aware that there will be disappointment that his statement contains nothing about the proposed loan scheme for the hotel industry, in view of the difficulty 641 that the industry is facing following the abolition of the investment allowances? Can he say when he proposes to make a statement on that scheme?
§ Mr. Macdonald
In the discussions with industry, to which my right hon. Friend referred, was the view expressed that alterations and amendments to the rate of grant, however beneficial in themselves, can have a deleterious effect by creating uncertainty in the mind of industry? If that view was expressed, how much attention was paid to it?
§ Mr. G. Campbell
Is the President of the Board of Trade aware that, because the increase is applied to certain investment in manufacturing, extractive and construction industries, it will not much help large areas of Scotland, where most of the employment is provided in other fields? A 45 per cent. grant is of no use to a firm which is not eligible for grant, but which has lost the investment allowances that it enjoyed previously.
§ Several Hon. Members rose——