INVESTMENT INCENTIVES AND INDUSTRIAL REORGANISATION CORPORATION

HC Deb 15 February 1966 vol 724 cc1119-257

3.46 p.m.

The First Secretary of State and Secretary of State for Economic Affairs (Mr. George Brown)

I beg to move, That this House approves the proposals in Command Papers Nos. 2874 and 2889. May I say, first, to the hon. Lady the Member for Wallsend, who is so hurriedly leaving us, that in moving this Motion I hope to show that at least life is not going on the same in the economic field.

Dame Irene Ward (Tynemouth)

On a point of order. I hesitate to interrupt the right hon. Gentleman, but I happen to be the Member for Tynemouth.

Mr. Brown

I gather that the hon. Lady is still leaving us.

The Government are fundamentally concerned to achieve social justice in our society. [Laughter.]

Mr. Speaker

Order. I hope that the moment never comes when the Chair has to ration the applause and laughter of the House, but I think that we might now get on with the serious debate.

Mr. Brown

I was saying that the Government are fundamentally concerned to achieve social justice in our society, and recognise that the pre-condition for the necessary changes in our society today is the advance of British industry. That is why we have an overwhelming identity of interest with industry which is rationalised, modernised and, therefore, more efficient and organised for faster growth.

The changes necessary to achieve this require competition and co-operation, competition to produce change and cooperation among Government, management and the unions so that all those whose lives and livelihoods will be affected by change have confidence that in this industrial revolution people matter and that provision has been made for their education, retraining, redeployment and retirement. These considerations, in two words, efficiency plus humanity, are fundamental to our approach to the economic problems of the country and our policies are geared to their attainment.

When they are not simply nagging, as nearly always they are, right hon. Gentlemen opposite talk about the importance of incentives. There is certainly no more important incentive for the growth of our country than the incentive to industry to invest in modern productive plant. The system of incentives which we inherited was based on the indiscriminate use of investment allowances.

As my right hon. Friend the Chancellor explained in his Budget speech last April, we cannot feel that the system gave an effective stimulus to the kind of investment that we need to fulfil the objectives of the National Plan. So we put in hand a thorough-going review, with lots of consultation with interested parties, from whom we received a great deal of help. In that review we covered a wide range of alternative methods to the system which had not been working as well as was needed. The conclusions we reached after this wide-ranging consultation are set out in the White Paper which we are debating today.

We have introduced three fundamental changes. First, the form of incentive differs from the past. It is now to be made by way of cash grants instead of investment allowances. Secondly, the new scheme will concentrate Government assistance on those sectors of the economy which are the most important for the balance of payments. Thirdly, it involves a radical change in our approach to the problem of regions with underused resources. The old system of allowances was too uncertain and too slow, and for many firms it was too difficult to calculate the effects. Cash grants will be more certain and much more readily intelligible to the works manager and the engineer and not just to the accountant and tax experts.

When the scheme is in full operation the effect will be felt more quickly than the old allowances. Tax allowances depend on the level of profit and the rate of tax in future years. We expect firms investing in new plant to make profits. We do not want to encourage unprofitable investment. But there can be a great deal of uncertainty about just when the profit will be big enough to absorb the tax allowances. This means, as I think all businessmen will recognise, that investment decisions are much more difficult. This acts as a brake on innovation. This is especially true for new firms or firms setting up in a new area. It is also true that even medium to fairly large-sized firms often lack the sophisticated accounting techniques which are necessary to take full account of investment allowances when making their investment decisions. These are the firms which can raise their efficiency and compete more effectively in world markets.

The new system involves a deliberate discrimination in favour of certain sectors of industry. This does not mean that the Government wish to discourage investment leading to greater efficiency in those sectors which will not qualify for the grants. All decisions, whether in politics or business are made on an assessment of priorities. The House would agree that the overriding need is to increase efficiency in manufacturing industry because that is the area which has to face direct competition in international trade, and which exports about 25 per cent. of its output.

It is not simply a matter of exports. Our manufacturers have also to meet much more effectively than they have been doing in some cases, foreign competition in the home market. In the study of imported manufactures made by the National Economic Development Council, it was shown very clearly how the shortages of capacity in manufacturing industry had led to these big increases in imports. We all know that expansion can very easily involve a great and difficult increase in imports unless one can meet this competition much more effectively.

The spur to investment, which we believe will be given by the new system, will help to overcome this situation. It will also provide a powerful instrument for implementing our regional policies. From the beginning of our period in office we have made it clear that we are determined to achieve a more balanced distribution of economic growth and prosperity throughout the whole of the United Kingdom. The regional imbalance which we inherited, despite the efforts made by the right hon. Gentleman the Leader of the Opposition and his right hon. and learned Friend the Member for St. Marylebone (Mr. Hogg)—which I do not minimise—is one of the most inefficient and unjust results of the operation of those free market forces to which right hon. Gentlemen on the benches opposite often seem to be so attached.

It is inefficient because it means that resources are left idle in some parts of the country, while in others the pressures are so acute that costs become difficult to control. It is unjust, because it deprives people in many of our older industrial regions of the opportunity to live as rewarding a life as their fellow countrymen in more favoured areas.

Colonel Sir Harwood Harrison (Eye)

The right hon. Gentleman was rather critical of manufacturers. Would he not also agree that we need greater efficiency in the distributive trades thereby releasing more men for our factories?

Mr. Brown

If the hon. Gentleman will wait, I am coming to that point. It will be easier if I am allowed to set the stall up.

We have already taken a series of interim measures to deal with this regional problem within the scope of the limited powers which were available to us. Those powers were designed to cope with pockets of high unemployment. Our new proposals will enable us to tackle positively the underlying problem of structural imbalance between the slow and fast growing regions. Narrowly defined development regions which were based on unemployment alone and took no account of wider economic and social considerations will go.

In their place we are designating five broad development areas covering almost all of Scotland and Wales, the whole of the northern region and most of Cornwall and North Devon and a wider area based on Merseyside. In these areas manufacturing firms will qualify for investment grants at double the national rate. The procedure for obtaining grants will be simpler as they will not depend on the provision of extra employment. There is now a clear, certain and powerful stimulus to the modernisation and growth of industry throughout the development areas.

The discriminatory aspects of this scheme, which I have not hidden, have been criticised, and are criticised in the Amendment which hon. and right hon. Gentlemen intend to move. I understand the basis of the criticism. Any scheme which discriminates in favour of certain sectors is bound to be criticised by those which are left out. I would suggest that it was a complete lack of discrimination in the old system which was one of its outstanding weaknesses.

I accept that the construction, transport and other service industries provide the infrastructure for manufacturing industry and thus contribute indirectly to the balance of payments. And a part of the output of the service industries also contributes directly, in the short run, to invisible earnings. But it is on manufacturers that we rely directly and immediately for our balance of trade. It is they who have to compete internationally, both in export markets and, with imports, in the home market.

As I have said, British manufacturers export a quarter of their total production. May I say to those who sometimes fall into the trap of denigrating the effort because they want to bring out our problems that that level of exports is the third highest in the world. If they succeed, we all succeed. If they fail, we all fail. They are the pace-setters. We cannot have a strong service industry, a strong banking system, above all, a strong currency, on a weak manufacturing base. But if we have a strong manufacturing base—maintaining our share of world manufacturing investment—and a strong balance of trade, then there will be a strong and steady demand for the service industries and, despite the lower investment incentive, they will, in fact, be better off than they would be with stagnant or declining demand.

Let us be realistic. We must either have higher taxes to pay for the wider spread of investment grants, or we must spread them much thinner and run the risk that they will not be enough where they matter most. The Government have decided to concentrate the grants where they will make the most immediate and decisive impact in maintaining and improving Britain's share of world trade. I am sure that this is right.

I now turn to the second half of the Motion, which asks the House to approve the White Paper on the Industrial Reorganisation Corporation. The Motion links these two major new initiatives by the Government because they are complementary parts of our policy to modernise Britain and eradicate the underlying weaknesses in our economy.

It is just as important to ensure that the structure and organisation of industry can make the most efficient use of our resources as it is to stimulate a higher level of investment in key sectors of our economy. Few now doubt that changes in the structure and organisation of British industry are urgently needed. I was encouraged to see that Mr. John Davies, the Director-General of the Confederation of British Industry, speaking at the Electrical Contractors Trade Association dinner about a week ago, put the point very forcefully. Hon. Members opposite may be particularly interested to be reminded of what he said: To a very large extent we have an industrial structure geared to a situation which no longer exists and ill-attuned to the industrial world in which we live. We must move towards company structures capable of competing in research and development, in scale of production, in market coverage and in financial strength. Not, as heretofore, on a local plane—to a large degree not even on a national plane—but on an international one. This is what we are getting at. Too many firms in this country are content to go on working at a scale and with methods which simply do not measure up to the needs of international competition today.

In the years ahead we shall be facing growing competition from highly integrated international groups, based on the United States and the Common Market. In many sectors of industry the typical British company cannot command the resources or achieve the economies of scale which are essential if competition of that kind is to be met successfully.

Even at the present time far too much of our export effort depends on relatively few firms which are really equipped to provide the range of marketing expertise and service which international trade demands. In 1963, over a quarter of our total sales abroad were made by just 35 firms.

The question we have to face is how we can bring about a faster pace of change and reorganisation in British industry. Here again, I find myself in agreement with the Director-General of the C.B.I. In the speech from which I have already quoted he went on to say: Concentration will not be brought about by wishing it were so, nor by exhortations or curses; nor will it be brought about by compulsion". To which I would add: it is practical help that is required.

Of course, I accept that in some sectors of industry enterprising industrialists have brought about radical reorganisation in recent years, and that financial institutions—merchant banks and others—have given valuable assistance in carrying through the necessary mergers and regroupings. But in too many sectors of industry the impetus to change and rationalise is missing. And when initiative is lacking on the industrial side there is little that the financial institutions can do to bring about reorganisation. By and large, merchant banks, issuing houses, and the rest act only when they receive instructions to do so from clients. Those who believe that market forces alone will bring about the necessary structural changes in industry at the pace required are simply deluding themselves.

This is why we have decided to set up the Industrial Reorganisation Corporation, whose main function will be to increase the pace of rationalisation. Under the leadership of Sir Frank Kearton—who has as good a knowledge of the problems as anyone in industry today—it will act as a "ginger group", constantly seeking out opportunities for mergers and regroupings which will benefit the national economy. It will operate on strictly economic and industrial criteria, and not on those of the purely financial takeover bidder, or of the holding company whose aim is to diversify its interests rather than concentrate and rationalise.

The Corporation's job will be to take the initiative, to get reorganisation moving and to try to remove any obstacles in its path. I will not pretend that it will be an easy job—resistance to change is deep-rooted and will not easily be overcome. But given the co-operation of progressive people in industry and the City—this we already have—I am confident that the Corporation will succeed.

Of course, some members of the party opposite, including the right hon. Member for Altrincham and Sale (Mr. Barber), have greeted the Corporation with the usual denunciation that they apply willy-nilly to everything we do. They have an obsession that any step which the Government take to improve the working of the mixed economy is a subtly-disguised move towards further nationalisation. And then they have the effrontery to accuse us of being doctrinaire.

Let me make it quite clear once again—this time, I would hope, once and for all—that the Industrial Reorganisation Corporation will have no compulsory powers whatsoever. But its job is to bring the changes about. [HON. MEMBERS: "How?"] In the sort of ways that the Director-General of the C.B.I. was talking about. But let me go on and explain it further, if I may.

The White Paper makes it clear that the Corporation will seek the fullest cooperation from existing institutions. Having brought the parties together, it will often be able to leave the carrying through of the regrouping entirely to the companies concerned and their advisers.

Mr. Anthony Barber (Altrincham and Sale)

Will the right hon. Gentleman help on one point? He has three times referred to the Director-General of the C.B.I. in connection with this new institution. Will he tell the House whether the Director-General is in favour of it or not?

Mr. Brown

I have not the slightest idea. All I know is that he has been consulted throughout and that what he said in that speech is extremely relevant to what we are doing. [An HON. MEMBER: "Is it fair to drag him in?"] What he said is relevant to what we are trying to carry out. If he does not think that it is the right way, it is for him to say, and not for me. It is addressed to the problems and remedies that he raised. It is a perfectly fair thing to say.

May I repeat what I have said, because I want the right hon. Gentleman to get it very clear? The White Paper makes it clear that the Corporation will seek the fullest co-operation from existing institutions. Having brought the parties together, it will often be able to leave the carrying-through of the regrouping entirely to the companies concerned and their advisers. But in many cases the Corporation will need to be able to do more. It will need to back its judgment of the prospects of the new groupings which it is initiating by providing them with financial backing from its own resources. This is likely to be the case, particularly when the benefits of rationalisation may only be fully realised in the long-term. The Corporation will be able to take a longer view than the market is in the habit of doing. It will be able to provide finance, either in the form of a loan or by taking up equity in the new groupings.

Hon. Members opposite have made a considerable fuss about this power to take up equity. They evidently think that it is perfectly proper for the Government or a public corporation to make finance available to private industry, which, of course, comes from the taxpayer as long as the taxpayer does not get a share in the profits which arise from that investment.

Right hon. and hon. Gentlemen opposite have a "heads I win, tails you lose" mentality. They overlook that it is common practice in industry for any institution which is putting its money at risk in a venture to be given an opportunity to take a stake in the ownership, so that it gets a fair reward when success is achieved. In this respect, at least, the analogy between the Corporation and a merchant bank is an exact one. I am not prepared to accept that the Corporation should be able to make finance available, but not to take reasonable steps to protect its investment.

But I must make it clear, especially for the benefit of the right hon. Gentleman, that the Corporation is not being set up to provide cheap money for those who could quite well raise it on the market. It will certainly not be willing to featherbed the inefficient. Where new groupings can raise money on the market to finance amalgamations or expansions, they will still be expected to do so. Where the market is unable or unwilling to provide all the capital required, the Corporation will normally expect to receive a commercial rate of return on the money it makes available.

In all its activities the Corporation will act as a responsible commercial body. It will not support any venture unless it is satisfied that it will lead to a better use of resources and has good prospects of achieving viability. Taking its operations as a whole, the Corporation will aim to make a surplus big enough to service its loans, provide for reserves, and pay a dividend on its Exchequer dividend capital.

The Corporation will be able to draw up to £150 million from the Exchequer and most of this will take the form of fixed-interest loans on which the interest rate will certainly not be less than that which the Government pay on their borrowing from the market. But the Corporation will also be able to draw part of its funds in the form of Exchequer dividend capital. This will be the equivalent of the Corporation's equity capital and the return which the Government receives, as sole shareholder, will depend on the profitability of the Corporation's activities.

Clearly, it will be several years before the Corporation can be expected to earn big profits. But when the benefits of rationalisation schemes have been fully secured, the Corporation will be able to sell its stake in new groupings. It will normally wish to reinvest its capital and thereby help on further rationalisation. Some part of its profits will of course be put to reserve, but, in consultation with the Government, the remainder will be used to pay the Exchequer—and thereby the taxpayer—a dividend on the equity capital.

I do not want, and I do not intend, to put the Corporation under an obligation to sell its stake in successful ventures at the earliest possible, or indeed necessarily, at any other moment. In the management of its investments, as in all other aspects of its business, the Corporation will not be subject to day-to-day control by the Government. If Sir Frank Kearton and his colleagues on the Board feel that there are good commercial reasons for continuing to hold equities in a new grouping, they will be free to do so. But the Corporation would not be fulfilling the functions for which it is being set up if it ceased to be a dynamic ginger group, and we have no intention that it should act as a general holding company or as an investment trust.

I have dealt at some length with the way in which the Corporation will carry out its task of stimulating rationalisation and reorganisation. But the White Paper says that the Corporation may also need to provide capital for new projects or expansions of special importance to the economy". I will briefly explain what the Government have in mind here, if only to set at rest the minds of hon. Members opposite who have tried to use these words to prove that the Corporation is part of a secret plot to destroy the private sector of our economy. In fact, they know perfectly well that from time to time projects crop up which should be developed in the national interest, but which, for one reason or another, the market is not prepared to finance.

Some, like the Hovercraft, involve the exploitation of a new invention, and they can be, and have been, backed by the National Research Development Corporation. But others, for example the pulp and paper mill at Fort William, are outside the proper scope of the N.R.D.C. In the past it has nearly always been necessary for separate legislation to be passed when a case of this kind has arisen. That is a time-consuming process and often time is of great importance with projects of this kind. In future, as a result of the establishment of the Corporation, it will be possible to finance projects of this kind—economically and financially sound projects—as well as socially desirable projects—through the Corporation.

Mr. Geoffrey Hirst (Shipley) rose—

Mr. Brown

Perhaps the hon. Gentleman will allow me to complete what I am saying, and then I will give way.

Let me make it quite clear. The Government accept—and I should like the right hon. Gentleman to hear this, because I think that it will help him—that the mixed economy will be the normal pattern for as far ahead as we should now be planning. We also believe that the Government must do everything in their power to make the mixed economy work in the interests of the community as a whole.

It is equally clear that the boundary between the public and private sectors of a mixed economy is not a static one. It will change from time to time, but the Corporation has nothing basically to do with the decisions which we may, and undoubtedly will, take from time to time about this boundary. I give way to the hon. Member now.

Mr. Hirst

In relation to these additional duties, can the right hon. Gentleman make clear the exact difference between the functions of this body and those Government-inspired institutions in the City of which he knows, which exist to carry out that function?

Mr. Brown

They get capital from different sources. Either the hon. Gentleman has not followed what I have been saying, which, I imagine, is my fault and not his, or he does not know how those institutions work.

Mr. Hirst

I do.

Mr. Brown

They are lenders of finance. They are not the initiators of reorganisation and reconstruction schemes. The Corporation has a totally different fundamental reason for existing, and is not in any way in competition with them. Indeed, some of the work of the Corporation could be financed from the resources of those institutions.

Mr. Stanley R. McMaster (Belfast, East) rose—

Mr. Stanley Orme (Salford, West)

Will my right hon. Friend give way for a moment?

Mr. Brown

I give way to my hon. Friend.

Mr. McMaster

Can the right hon. Gentleman say—

Mr. Speaker

Order. The right hon. Gentleman has the right to decide to whom he gives way.

Mr. Orme

When my right hon. Friend spoke about the boundary between the public and private sectors he said that this would remain the same for a number of years. Surely he does not mean that this is not to change?

Mr. Brown

That shows how difficult it sometimes is in the House. I wondered how hon. Gentlemen opposite had lived for half an hour without getting the giggles. [Laughter.] Now they have them. I said the opposite of what my hon. Friend thought I said. I said that we accept the mixed economy, but that the boundary between public and private enterprise will change. What I went on to say—[Interruption.]

Mr. Speaker

Order.

Mr. Brown

If the right hon. Gentleman had been listening to what I said earlier, he would have heard me deal with that point. I am dealing with another one now. We shall listen with interest to him later in the day, and I am sure that his speech will be all the better if he contains himself now.

What I want to make clear—and I shall repeat the words which I used—is that the Corporation will have nothing basically to do with the decisions which may be made in the House from time to time about where the boundary between public and private enterprise should be.

Mr. McMaster

Will the Corporation's activities extend to Northern Ireland? What part, if any, of the £150 million is to be spent on buying shares in the aircraft industry?

Mr. Brown

On the second question, I think that I had better get the organisation constructed and set up before we decide how it is to operate in that kind of detail. The answer to the first question is that I am sure it will, but I should like to check that.

The purpose of these proposals is to put British industry in a stronger position. Does the hon. Member for Henley (Mr. Hay) wish to intervene?

Mr. John Hay (Henley)

I am astonished that the right hon. Gentleman does not know whether this will apply to Northern Ireland.

Mr. Brown

If the hon. Gentleman was not in such a hurry, we would understand that I was paying Northern Ireland the courtesy of finding out whether we have got this agreed with them. The answer is "Yes", but, unlike the party opposite, which has 12 tame hacks from Northern Ireland—[Interruption.]

Mr. Quintin Hogg (St. Marylebone)

On a point of order. I distinctly heard the right hon. Gentleman refer to 12 of my hon. Friends as tame hacks. Is it in order so to refer to hon. Members of this House?

Mr. Speaker

Order. It was most difficult for me to hear the point of order, which I expected would come the moment I heard what was said. I think that the remark was a metaphor within the rules of the House.

Mr. Brown

Further to that point of order. If it will help, I will withdraw the word "tame", Sir.

Mr. Hogg

On a point of order. If the word "tame" is withdrawn, is it not worse? May I ask you to rule that hon. Members on both sides of the House should be treated with reasonable courtesy? [Interruption.]

Mr. Speaker

Order. I hope that right hon. and hon. Members on both sides of the House will treat each other with reasonable courtesy. The Chair, like every right hon. and hon. Member, welcomes the cut and thrust of debate, but has no liking for mere knockabout in debate.

Mr. Brown rose—

Hon. Members

Withdraw.

Mr. Brown

I was saying that the only reason—

Mr. McMaster

On a point of order. Mr. Speaker, may I, as one of the Ulster Unionist Members who has opposed both Governments when he thought proper, ask you to reconsider your Ruling? I feel greatly offended at being referred to as a hack, and I should like the right hon. Gentleman to withdraw that remark.

Mr. Speaker

Hon. Members in this Chamber hear many things said by other hon. Members which must hurt them and give offence, but as long as the expression used is not out of order the hon. Member must find a political opportunity of expressing what I know are his feelings about this.

Mr. Brown

I was trying to say that I hesitated for a moment because I did not want to announce in the House what I knew to be true unless I had found out whether it was convenient for the Northern Ireland Government, and I used what I thought were conventional words to make that clear to the House. I was paying that courtesy to the Northern Ireland Government.

The purpose of the proposals—

Mr. George Forrest (Mid-Ulster)

On a point of order. Is the right hon. Gentleman referring to the Northern Ireland Government as a party of hacks?

Mr. Speaker

What is the point of order?

Mr. Forrest

I should like to know why the right hon. Gentleman continually refers to the 12 Members from Northern Ireland as hacks.

Mr. Speaker

Order. The hon. Member must resume his seat. He has asked the Chair why the right hon. Gentleman used the expression that he did. It is not for the Chair to give reasons for this. This is something which the hon. Member must take up in the usual political way with the right hon. Gentleman who said it.

Mr. Brown

I was bringing what I had to say to a conclusion by telling the House that the purpose of the proposals which we are debating today is to put industry in a stronger position to face the challenge of international competition in a rapidly changing world. These proposals are based, not on dogma, but on a practical understanding of the realities of our economic position and the state of industry. With these measures we aim to bring the good up to the level of the best, which I believe forward-looking people at all levels in industry expect from a modern Government.

I am confident that with their cooperation the country will secure the benefits in terms of improved industrial performance for which we and they are working, and I invite the House to support us in this important effort.

Sir John Rodgers (Sevenoaks)

I should like clarification on one point. When he was talking about the new Corporation and its relationship to the City finance organisations set up by previous Governments the right hon. Gentleman referred to the hundreds of millions of pounds available to spend. Will this new Corporation have available for this purpose not only the £150 million but funds which it can draw from the other corporations?

Mr. Brown

The hon. Gentleman has it exactly wrong. What I said was that many groupings which the new Corporation may be able to influence and bring about might be financed wholly from private sources. Alternatively, it would be possible for them to be financed from those institutions—the F.I.C. and the others—which, in turn, raise their funds from private sources, with Government backing. Thirdly, they might be financed wholly from the new Corporation's funds.

I was trying to make the point that when the Corporation brings about measures of reconstruction, rationalisation and reorganisation it does not follow that the subsequent financing need necessarily be done from the Corporation's funds.

4.31 p.m.

Mr. Anthony Barber (Altrincham and Sale)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: while welcoming practical encouragement of profitable investment, declines to approve the proposals in Command Paper No. 2874 on Investment Incentives which discriminate against the construction, transport and service industries, which will lessen the incentive for industry to move to development districts, and which will be operated on a discriminatory basis; and declines to accept Command Paper No. 2889 on the Industrial Reorganisation Corporation". The Government have chosen to debate together the proposals contained in these two White Papers. To the extent that they are both concerned with the Government's industrial policy, that is not unreasonable, but if we are to consider the policy as a whole we should bring in a variety of other matters. In passing, the right hon. Gentleman referred to education, retraining and retirement. He could also have referred to the penalty on the distribution of profits imposed by the last Finance Act, with its inhibiting effect on the free flow of capital to the new and thrusting industries.

The right hon. Gentleman could also have referred to the overall increase in company taxation which has diminished the funds which would otherwise have been available for reinvestment in industry, and also to the toughest credit squeeze since the end of the war, which has resulted in the last published Index of Industrial Production being actually lower that it was in January, 1965.

All these factors, and those to which the right hon. Gentleman referred, are relevant to the two White Papers, but, since I understand that we are to have a general debate on economic policy in the near future, I will do my best, as the right hon. Gentleman did, to confine my remarks to the proposals contained in the two White Papers. The most convenient course is to consider them separately, again as he did, and I take them in the same order.

I start with the White Paper on Investment Incentives. It may be for the convenience of the House to say that on this White Paper I want to make my remarks under five heads: first, the uncertainty which has clouded the whole question of investment incentives since the last General Election; secondly, the administrative consequences of the new proposals; thirdly, the principles involved; fourthly, the actual practical consequence for industry, in terms of hard cash—to which the right hon. Gentleman never referred—and, finally, the regional implications.

First, as to the uncertainty engendered by the joint effort of the First Secretary and the Chancellor of the Exchequer, I would remind the House of the sequence of events. Within weeks of taking office the Chancellor announced that he proposed to introduce a Corporation Tax. At that stage neither he nor the Inland Revenue had worked out the practical consequences of their proposals in terms of industrial investment. Industries asked the Chancellor what effect the Corporation Tax would have on investment allowances, and were told to wait another four months until the Budget, in April.

When the Budget came, we learnt the worst. In the face of all the pre-election talk about added incentives for industrial investment, I am sure that the right hon. Gentleman will agree—and if he does not I hope that he will deny it now—that the only practical consequence of the type of Corporation Tax which he selected was to cut the value of the investment allowances by one-third—

The Chancellor of the Exchequer (Mr. James Callaghan) indicated dissent.

Mr. Barber

If the right hon. Gentleman denies that, will he tell us what was the practical effect, in terms of hard cash? I will give way willingly. The answer is that it has had an effect, and I will tell him what it meant. It meant a cut in the value of investment allowances of £100 million. If the right hon. Gentleman disagrees, why does not he get up and say what was the financial effect?

Mr. Callaghan

I will tell the right hon. Gentleman why I do not get up. It is because we went over this ground time after time on the Finance Bill, for many weary days and nights. He never accepted the arguments that we put forward, and I am sure that he will not accept them this afternoon.

Mr. Barber

If the right hon. Gentleman would say what the financial consequence of these proposals was I would believe him when he says he disagrees with the figure that I have given.

Not content with reducing the incentive to industrial investment, he went on to say that during the forthcoming year he would look into the whole question again and consult industry. Some consultation he has had with industry! The Confederation of British Industry set in motion the most extensive and exhaustive survey of investment incentives ever carried out in this country. Those who replied to the questionnaire sent out by the C.B.I. account for 50 per cent. of the gross fixed investment in our manufacturing industry, and the order of preference for investment incentives was: first, free depreciation; secondly, the existing system of capital allowances; and, thirdly, a system of cash grants. Does he quarrel with that?

The President of the Board of Trade (Mr. Douglas Jay)

If the right hon. Gentleman is quoting from this document he should point out that the questionnaire proposed a cash grant of 15 per cent., and we are now proposing 20 per cent.

Mr. Barber

That is true, but I am sure that the right hon. Gentleman will not deny that as a result of the answers to the questionnaire the Federation came to the conclusion that industry preferred, first, free depreciation—which for reasons which the Chancellor has given could not be accepted by the Government, owing to the cost involved—secondly, the existing system of capital allowances, and only thirdly a system of cash grants. In other words, the right hon. Gentleman has ignored the Federation's advice and has chosen the system which was bottom of the list.

Then the First Secretary has the arrogance to say, on the B.B.C.: This new method is favoured by the leading and the most forward-looking people in industry. This I actually know. It is significant that he was speaking on the Light Programme at the time. All I can say is that it is little wonder that The Times commented, a few days later, that A new wave of disillusion with the Government has spread through British industry. Margot Naylor, in the Observer, summed up the right hon. Gentleman's proposals in these words: The truth is that the Government's so-called incentive proposals bear all the signs of a cockshy—and a compromise cockshy at that. If they reach the Statute Book in their present form I shall be surprised. They are certainly a dusty answer to people who thought that Mr. Callaghan meant business when he talked three weeks ago of 'new plans to encourage industrial investment for expansion and modernisation', and that Mr. Brown was sincere when he said that 'investment lies at the heart of the Plan'. Even now these proposals are half-baked. In his opening remarks the right hon. Gentleman did not even deign to explain the position in relation to agriculture. Does he even know? I do not believe that he does. In the White Paper, one finds that a decision has been taken to withdraw the investment allowances, but nothing, not even the system of cash grants proposed for the rest of industry, has been put in their place. All we are told is that details will be announced as soon as possible. Meanwhile, the farmers are not given a clue as to what is to happen about incentives for them.

What has been the consequence of the Government's indecision since the Chancellor of the Exchequer, in November, 1964, first threw doubt on the investment incentives which he had inherited from the previous Government? What has the right hon. Gentleman and his colleagues achieved? I should like to quote from the progress report of the First Secretary's own Department for last month. I hope that the First Secretary will do me the courtesy of listening to me and to my arguments as I did to him. Perhaps he would like to comment on this. The reality of the situation and the consequences are here.

This is what the Department of Economic Affairs said: The volume of private industry's investment which had been rising strongly for two years seems to have levelled off in the second half of 1965 in the manufacturing sector and to be declining slightly in the distributive and service trades. This is what the Government have achieved. So much for the National Plan.

I turn now to the second objection which I mentioned at the outset, the difficulties of administration. At present, the system of investment allowances is administered by the Inland Revenue. In industry, an accountant who produces a company's figures for the Inland Revenue also, as a by-product, provides the necessary information about capital expenditure which qualifies for the investment allowance. Furthermore, of course, the mechanism of agreement with the Inland Revenue is a simple one, and the procedure which they follow is well-established.

Now, the Government propose to abandon the whole of this system and to substitute a new one which industry does not want. But what really takes the cake is that, although the new system of Corporation Tax and cash grants, as compared with the old system of company taxation and investment allowances, will involve the payment of millions of pounds less to industry, the President of the Board of Trade has admitted that he will need more than 1,000 extra civil servants to administer the scheme and that the extra administration will cost the taxpayer an additional £2 million a year. I repeat that all this swollen bureaucracy is in pursuit of a scheme which industry does not want.

Of course, for every additional civil servant at the Board of Trade, there will be at least one extra man in industry engaged entirely in non-productive work. As the Confederation of British Industry has said: Industry had better prepare itself for a spate of form-filling. It certainly had.

In other words, to implement proposals which are designed to save labour, the Government are presenting the nation with the most labour-intensive scheme which they could possibly have devised. None of this extra administrative work is the fault of the President of the Board of Trade or of the Board of Trade itself: it is inherent in the Government's proposals. There will, for example, be interminable arguments about where a qualifying manufacturing process ends and where distribution begins—something which the right hon. Gentleman did not even deign to touch upon, although it has been referred to, in one article after another, as one of the great difficulties of his scheme.

It is true that one outstanding advantage of the scheme is held out. That is the proposal to make payment within six months, whereas, as is pointed out in paragraph 15, I think, of the White Paper, the benefit of investment allowances is not felt for about 18 months. This, of course, is what the First Secretary told us today. But why did he not go on to say that, after having had our appetite whetted, if we read on to paragraph 25, we find it stated there that the time of repayment will initially be set at 18 months, and that it will be reduced not when the bureaucracy is ready and able to do so, but only …as soon as the economic situation permits."? We have heard that one before.

I turn next to a remarkable principle of the system of cash grants, which apparently is not a mere by-product of the scheme, but part of the right hon. Gentleman's design. This is the Government's deliberate intention to pay investment grants regardless of profitability. The philosophy is summed up in one sentence in the White Paper: Investment involves risks, and grants reduce risks in a way in which an allowance dependent on the success of the investment does not. In other words, it does not matter how reckless investment is—the company may never make a profit and it may never pay a penny of tax—but now, under the new scheme, it can always rely on a hand-out from the Board of Trade. There is, in future, to be no distinction whatever between the efficient who earn profits and the inefficient who do not. They all get the grants.

I must say that this proposal is a pretty rich one, coming from the Chancellor of the Exchequer, who, during the last Finance Bill, complained that the system of investment allowances could, in certain circumstances, cause money to be paid to companies who had not paid tax in the first place. This was his complaint again and again.

Of course, it is true, as the White Paper points out, that grants, unlike investment allowances, can provide help for new enterprises which have not yet begun to earn profits. But in that sort of case, the investment allowances accrue and would be taken into account in due course when the company began to earn profits. Certainly, most go-ahead compaines in that category, if they were any good, would not be held back by the present system.

But even granting that a few companies would forge ahead more rapidly with cash grants, which was the First Secretary's argument, surely one has to balance that against the undoubted disadvantage of divorcing the grants from profitability. The danger is, of course, that the Government will be providing hand-outs for those enterprises which are simply not efficient enough to benefit from tax allowances. What the Government are doing in this respect is once again to undermine the normal commercial disciplines which is entirely in line with the whole philosophy behind the Corporation Tax.

I now want to turn to the fourth and, perhaps, most important heading which I mentioned. That is the actual effect of the new proposals for particular industries in terms of hard cash. It is a remarkable thing that the First Secretary, in all that he said, did not have the courage to give one single example of the way in which this works out in practice—not one. It has been left to others—to commentators, for example—to do this. I will now give him one or two examples and if he does not agree with me, perhaps he will get up and say so. These proposals follow the review of investment incentives which the Chancellor announced last April at the same time as he announced the details of the Corporation Tax. They are, as he has said, part of a comprehensive change from the system of company taxation which this Government inherited from the Conservative Administration.

What I propose to do, therefore, is to compare, in terms of cash, the value of the capital allowances which operated during the last year of the Conservative Government, with the value of the allowances and grants now proposed under the system of Corporation Tax. I shall assume Corporation Tax at a rate of 40 per cent., because, as the right hon. Gentleman will doubtless agree, the higher the rate of tax, the greater the value of the capital allowances. I am, therefore, taking the most favourable figures from the Government's point of view.

The comparison between the old system and the new in terms of hard cash reveals what I can only describe as a confidence trick. But it will not succeed, because not all the loquacious bonhomie of the First Secretary can smother the actual financial consequences for individual businessmen when they come to work out their own figures. I will give a number of examples, all of which are typical.

Consider, first, £1,000 spent on manufacturing plant or machinery which qualifies for a 15 per cent. annual allowance; for example, electric motors, lathes, electric plant and machinery, and so on. The expenditure of £1,000 on any of these items during the last fiscal year for which we were responsible, say, in 1964, qualified for an investment allowance of 30 per cent., an initial allowance of 10 per cent. and annual allowances of 15 per cent. In other words, that £1,000 of expenditure qualified in the first year for tax relief on £550, and that worked out at an actual cash benefit to the company of £296.

Under the new scheme of Corporation Tax and the investment grants now proposed, the investment allowance is scrapped. There will be no initial allowance where the new grant is paid and the manufacturer will be entitled to only the new grant at 20 per cent. and to an annual allowance of 15 per cent. on £800. The result will be a cash benefit in the first year of £248 compared with £296 for the same expenditure in 1964.

Mr. Jay rose—

Mr. Barber

That represents a cut of £48 on every £1,000 spent—£48,000 per £1 million of capital investment. And, of course, the cash benefit in each succeeding year will be less than it would have been under the old system.

Mr. Jay

The right hon. Gentleman has given the figures for the first year. Will he now give the figures for the whole life of the plant?

Mr. Barber

I have just done that. If the right hon. Gentleman denies that what I say will be the position, I hope that he will rise and say so immediately. I said that not only is the cash benefit less in the first year, but that in each succeeding year it will be less. If the right hon. Gentleman doubts this—and I have had this checked independently by two accountants—I trust that he will say so now. Is there any year over the whole life of the plant when he believes that the cash benefit under the new system will be more than it was under the old system in 1964?

Mr. Jay

Yes, in a great many cases, over the whole life of the plant, but I will give the details later.

Mr. Joel Barnett (Heywood and Royston)

Would the right hon. Member for Altrincham and Sale (Mr. Barber) compare the position of the company which purchased a piece of plant under the old system and then under the new system from the retained profits point of view to see whether those profits would have been more or less than they will be under the new system?

Mr. Barber

We are here considering a document entitled "Investment Incentives". If the hon. Gentleman wants to discuss the position of a particular company and the whole tax complex now compared with what it was, that is another matter. I am pointing out, on the question of the incentment to a company to invest, that the blunt effect is that the incentment now is less than it was in 1964.

I will give another example. If one considers plant and machinery qualifying for an annual allowance of 20 per cent.—for example, precision plant and machinery which wears out more quickly than the other plant I mentioned—one sees that the difference between 1964 and the new system is a cut in the first year of cash benefit amounting to £58 10s. on every £1,000 of capital investment, and I repeat that the cash benefit in each succeeding year will again be less than it would have been under the old system.

In the light of these figures, how can any member of the Government claim that the system which the Government are now proposing will provide for the average manufacturer a greater financial incentive to invest than the system which hon. Gentlemen opposite inherited from the Conservative Government?

Mr. George Brown

Does the right hon. Gentleman see where his argument is taking him? His argument is not directed to the issue of whether the cash grants are better than investment allowances. He is saying that it is better to take more of the profits in the form of taxation in order that one can give some more of it back.

Mr. Barber

That is an extraordinary statement coming from the right hon. Member, from a Government who have increased taxation on companies. This is incredible. What we are concerned with here—as the First Secretary purported to say in his opening speech—is the question of investment incentives. The incentive to invest which the right hon. Gentleman is trying to provide is a financial one. However, the blunt fact is that if one considers what happens in terms of hard cash, the financial incentive is less than it was under the system which the Government inherited.

I will go on from there. Consider, for example, those industries where the investment allowance is withdrawn but where, in their wisdom, right hon. Gentlemen opposite have not even seen fit to substitute an investment grant. This is of immense importance to the development districts. Consider, for example, the construction industries. In 1964, those industries spent £55 million on plant and £40 million on vehicles. It is obvious that the size of the capital allowances for these industries is of crucial importance, and, certainly, hitherto the First Secretary has recognised the importance of a high level of investment in those industries.

In this connection, I will quote two passages from the First Secretary's National Plan and then explain what the right hon. Gentleman is now proposing. The National Plan stated: It is clear that it will not be easy for the construction industries to meet the rise in demand expected up to 1970. Success in rising output will depend upon the continuing rise in productivity… The National Plan also stated: Greater productivity— in the construction industries— requires greater investment in plant, machinery and buildings". I will tell the First Secretary what he is doing. I again take the example of £1,000. For every £1,000 spent—for example, on a builders' crane or similar plant—in 1964, the cash benefit of the allowances then in force amounted to £296. Under the right hon. Gentleman's proposals the cash benefit will fall to £180, a cut of £116, for every £1,000 of investment. Is that what the right hon. Gentleman has set out to achieve? It should be realised that for the construction industries there is no extra tax benefit whatever in the development areas.

We are told in the opening paragraph of the White Paper that one of the purposes of the change is to strengthen the balance of payments. So let me quote another paragraph from the National Plan: Improvements in transport will be important factors in achieving greater industrial efficiency, increasing exports and improving the balance of payments in other ways". What is the right hon. Gentleman now proposing? If the proposals in this White Paper are implemented, the actual cash benefit in the first year of purchase of a goods vehicle costing £2,000 will be £259 less than in 1964—and, here again, I repeat that in each succeeding year the cash benefit will be less than it would have been under the old system.

Can anyone seriously pretend that this extra burden on the transport industry will not, in due course, be passed on in the form of higher charges and higher prices—and, of course, this is bound ultimately to have an effect, perhaps only marginally, on our export prices? Even in the case of buses, precisely the same policy is proposed. For example, the first year cash benefit on a double decker bus—which, I am told, costs about £6,500)—which was £2,271 in 1964 will now be cut to £1,430. Where now are all those heartrending pleas we used to hear from hon. Gentlemen opposite for a better deal for the travelling public in the rural areas? And what of the repeated requests which were made by the hon. Gentlemen opposite, supported in the Lobbies in our debates on Finance Bills, for special taxation incentives in the development districts for the distributive trades, service industries and hotels? Year after year we had it. Year after year hon. Members opposite voted in favour of those things.

I looked up the last debate we had on the Finance Bill of 1964 and I felt that the argument was put most succinctly and persuasively by the hon. Member for Glasgow, Craigton (Mr. Millan), now a member of the Government. He said: There was a time when the Government poured scorn on any suggestion from this side of the Committee that, when one considered the dispersal of employment and the imbalance of employment opportunities in different parts of the country, office development was extremely important—in some ways just as important as industrial development. It is certainly becoming increasingly important as a higher percentage of the employed population become employed, not in production but in distribution and commerce."—[OFFICIAL REPORT, 10th June, 1964; Vol. 696, c. 517.] The hon. Gentleman must now be disillusioned, because not only have the Government not extended the capital allowances to shops, offices and hotels in the development districts—for which the Labour Party repeatedly voted when in oposition—but are now actually proposing in this White Paper to withdraw both investment allowances and free depreciation from all development districts in respect of hotel equipment, despite the fact that, as the right hon. Gentleman will admit, the tourist industry is one of our biggest dollar earners.

The Government are proposing to withdraw the same allowances in development districts from all office equipment except computers, and from all the equipment in shops which previously qualified. If the purpose of the Government is to encourage investment, to increase productivity and so save manpower, which, I thought, was the burden of the right hon. Gentleman's opening remarks, does he not realise that to save manpower in a service industry and make it available to productive industry is just as laudable as to save manpower in productive industry itself?

My fifth and final point on the first White Paper is the implication for regional development. I do not believe that there is any difference between the two sides of the House as to the objectives. The object of my right hon. and hon. Friends was clearly stated by my right hon. Friend the Leader of the Opposition last year, when he said: Our philosophy can be described in the three purposes we set ourselves: first, to develop the resources of a region while maintaining its own characteristics; second, to secure a more even spread of the economy over the whole country in order to enable it to operate at a higher level without strain in any particular area; third, to create a way of life appropriate to each region so that those born there would prefer to work and live there rather than emigrate, and others would be prepared to go there with their families, build up their businesses, and spend their lives there. I do not suppose that the First Secretary or anyone else would now quarrel with those aims. The differences between us concern the best methods.

My right hon. Friends here developed the concept of growth points or growth areas. As far as we can see, this concept has now been abandoned by the Government. The right hon. Gentleman did not say so in terms, but it seems to be the consequence of what the Government are doing. The Times certainly commented very adversely on these proposals, pointing out: Once again, the crutch is to be substituted for the encouraging hand. I have no doubt that in due course—I hope—we shall have a full debate on regional development, so I shall now content myself with saying only this. Whatever may be the merits of the extension from development districts to development areas, it is the fact that the discriminatory incentive to industry to move to development districts has been reduced. On top of that, the Government have decided to abandon in development districts both investment allowances and free depreciation, and have also decided not to provide even investment grants for a whole variety of service industries. Those two decisions, taken together, must hit the development districts.

If I deal more shortly with the White Paper proposing an Industrial Reorganisation Corporation than I have the first White Paper, I do so for two reasons: first, because there is not in this White Paper the detail which is set out in the other; and, secondly, because it is in much more general terms—and from the speech we have had from the right hon. Gentleman this afternoon we have certainly learnt little more about the proposals the Government have in mind. But there are seven facts about this proposed new Government venture into industry which we do know, and I should like very briefly to remind the House what they are. If the First Secretary does not agree, I hope that he will intervene.

First, the nation is to provide this new State Corporation with £150 million— £10 for every family in the land—and it is specifically stated that this is only the first tranche. Power is to be taken to invest more money when the £150 million has been used up. Is that correct? This is what is stated in the White Paper.

The second known fact is that the new State Corporation will be able to invest Exchequer money at will in any existing industrial company in Britain.

Third, the new Corporation will have power to set up businesses to undertake new projects.

Fourth, if the new State Corporation is involved with existing companies in a merger then, unlike every other manufacturing enterprise in the country, the merger will have total exemption from any investigation by the Monopolies Commission.

Fifth, although the White Paper refers to the new Corporation as being able to acquire a stake in the ownership of industry and there is to be power to take up equity holdings, the First Secretary admitted in the House on 25th January, first, that power will be taken to acquire majority equity holdings in businesses either existing or new and, second, that there will be nothing to prevent the Corporation from retaining that majority shareholding.

Sixth, although this proposal is of the utmost significance to British industry, the First Secretary never saw fit to consult the Confederation of British Industry. I was astonished that three times during his remarks this afternoon on the new Corporation the right hon. Gentleman had the audacity to refer to what was said by the Director-General of the C.B.I. Has he not even taken the trouble to find out what the Confederation thinks about this? Does he never read the newspapers? If not, I will remind him.

Last Thursday, The Times, in an article under "Industrial Notes", said: Reorganisation Body Upsets C.B.I. Time has only served to accentuate the Confederation of British Industry's misgivings about the proposed Industrial Reorganisation Corporation since the Government's intentions were disclosed in a White Paper last month. Had the C.B.I. been permitted an advance sight of the scheme representations against it would certainly have been made before publication. The article goes on: The confederation's economic committee is now preparing a strong case against the I.R.C. idea. Perhaps the right hon. Gentleman will now tell us why he chose on three occasions to quote what had been said by the Director-General of the C.B.I. in favour of this particular scheme. Perhaps he will tell us that. Was he trying to give the impression that the Confederation was in favour of it, or was he not?

Mr. George Brown

I think that the right hon. Gentleman is being a little silly. I quoted the Director-General of the C.B.I.—whom I know very well and for whom I have the highest regard—because what he said was relevant to the argument I was making and to the decisions we had taken. The Director-General of the C.B.I. is, of course, entitled to his own views as to whether this wholly meets it. I can tell the right hon. Gentleman that he is making an awful mistake going up this road, because he refutes what I have said is true: that many of the most distinguished, forward-looking and progressive members of the C.B.I. are in favour of the scheme. And I may remind the right hon. Gentleman that the Chairman is Sir Frank Kearton, who is a very prominent member of the Confederation.

Mr. Barber

If the right hon. Gentleman now wants to shy away from what he said—[HON. MEMBERS: "No."] Oh, yes. The First Secretary tried to give the impression that the Confederation of British Industry was in support of the venture. If he wants to get on that tack by saying that Sir Frank Kearton is in favour of the scheme, are we on this side to say that Sir Paul Chambers—a prominent industralist—and every member of his board is against it?

The seventh point which we know about this organisation is this. It is not without significance that the proposals in this White Paper are dead in line with the proposals for extension of public ownership in "Signposts for the Sixties", under the title of "The Capitalist Begging Bowl", and that the first mentioned Minister with whom it is said that the new State Corporation will operate is the Minister of Technology. The right hon. Gentleman went out of his way again to say that we on these benches and anyone else need not be at all suspicious about the proposals in this White Paper. But as Mr. Aneurin Bevan once said: Why gaze into the crystal when you can read the book? Let me remind the House what the Minister of Technology, the one Minister mentioned in the White Paper—apart from the Minister of Public Building and Works in connection with the construction industries—said, not in the dim distant past, but less than six months before he joined the Government. He said: There is no reason at all why public ownership should not be put into the new and modern industries right from the word 'go'. It should also be obvious that some of the industries in which the greatest progress has to be made and where the greatest investment has to be put in, will not develop properly unless they are in public hands. Is that still the view of the right hon. Gentleman; is it indeed the policy of the Government? On a matter of this kind when we are considering a White Paper which seeks to give these powers, we are entitled to know the answer.

We are entitled to know the answer because the powers that it is proposed to give this new State Corporation are such as to enable it to extend public ownership precisely on the lines advocated by the Minister of Technology. I remind the House that, apart from the reference to the Ministry of Public Building and Works, the only Ministry mentioned for co-operation with the new State Corporation is the Ministry of Technology.

Hon. and right hon. Members opposite may object to my quoting from what the Minister of Technology said six months before he joined the Cabinet, but I remind the First Secretary—if he will give attention, because I want to direct a question to him in case he is bored by what is being said by his right hon. Friend—of what the Minister of Technology said in the House of Commons six months after he joined the Cabinet. He was asked by my hon. Friend the Member for Brentford and Chiswick (Mr. Dudley Smith): In view of what the right hon. Gentleman has seen, has he abandoned the idea of State-owned machine tool industries? The Minister replied: Certainly not. I said that we would undertake a study and take such steps as are appropriate. On the same day my hon. Friend the Member for Worcester (Mr. Peter Walker) asked: The right hon. Gentleman has now been Minister for six months. Will he confirm that during that six months he has come across no section which he wishes to put into public ownership? The Minister replied in these words: I have come across a number which I would like to bring into public ownership. That answers the question directed to me."—[OFFICIAL REPORT, 27th April, 1965; Vol. 711, cc. 194, 197.] It certainly does, and the terms of this White Paper give power to do exactly what the right hon. Gentleman said he wants to do.

The Minister of Technology is at least straightforward. I ask the First Secretary whether he will be equally straightforward and tell the House now whether he disagrees with his right hon. Friend. I am putting a question to the First Secretary. I listened to him with courtesy; he might perhaps do the same to me. I am asking him whether he disagrees with his right hon. Friend the Minister of Technology, who is the one other Minister of significance named in this White Paper to co-operate with this body. Does the First Secretary agree or disagree with him? [HON. MEMBHRS: "Answer."] The House can draw its own conclusion. There is only one conclusion to be drawn from the right hon. Gentleman's silence.

What the Government should now be doing is to pursue policies which stimulate competitive enterprise, not stifle it; to implement the proposals of my right hon. Friend for rooting out restrictive practices which are inhibiting competition, which were mentioned in the White Paper published at the time when he was Secretary of State for Industry, Trade and Regional Development, and to extend the scope of the Companies Bill by implementing far more of the Jenkins Committee Report which aimed at making the economy more responsive to public pressures. Instead, we are presented with two White Papers which aim to use the fiscal system by discriminating against particular industries and empower the State to invest at will in the equity of British industry.

Mr. George Brown rose—

Mr. Barber

No. The right hon. Gentleman would not answer my other point. He can allow his right hon. Friend to deal with this point in his reply. I will give way to him willingly if he will answer my question first.

Mr. George Brown

The right hon. Member is acting in a very silly little way. What he has just said shows that he has not either got hold of what I said this afternoon or of what the White Paper does. He may have chosen to disbelieve what I said. I do not think he did that, for he does not normally behave in that way. This Corporation is not a way for the State to take power, as he suggested, to invest at will in British industry. I was very careful to say that that is not so. The White Paper makes it clear that the Corporation will not have the power to do so.

As to his previous point, I did not answer the right hon. Member because what he said my right hon. Friend said—I have not checked it, but I take his word for it—has nothing to do with this Corporation. This Corporation will not have powers compulsorily to nationalise industry. I answered this this afternoon in my speech. It will have no compulsory powers at all. The right hon. Member is right bang off the beam.

Mr. Barber

I have never suggested that the powers of the Corporation are compulsorily to nationalise, but it can invest at will. The right hon. Gentleman and I have powers to invest at will in any company if we buy the shares. The Corporation, according to the White Paper, also has power to buy the shares.

In reply to the latter part of the right hon. Gentleman's answer, I think it a little discreditable that when I asked a specific question and gave way on the understanding that he would answer it, the right hon. Gentleman did not do so. I asked a specific question and he rose on the understanding that he would answer it. I ask again, does the First Secretary disagree with the Minister of Technology?

Mr. George Brown

The right hon. Member is not acting in accordance with the standards of this House. [HON. MEMBERS: "Oh."] He is acting in accordance with the standards of debate of hon. Members opposite. I heard what he said about what my right hon. Friend said. I do not know more about it than that and I should need to check it in its context. The answer is that, if my right hon. Friend said what it was said he said, that is no—[Interruption.] Oh, do not play that sort of game. For goodness' sake let us try to conduct the debate on a level of the importance of the subject whichever way go the merits.

Let us assume for a moment that I accept the whole context. For the reasons I gave, and which the right hon. Member either will not or cannot accept, it would still be totally irrelevant to the issue that we are discussing today.

Mr. Barber

I will pursue it no further. It is apparent to the whole House that the right hon. Gentleman will not answer the question.

Both these measures are a recognition that this Government do not believe in either the free enterprise system or, more particularly, in the working of a market economy. This is not the way to foster industrial modernisation. This is Socialism masquerading as modernisation and we on this side of the House reject it.

5.20 p.m.

Mr. Harold Lever (Manchester, Cheetham)

I ought to say at the outset that, if I give way to anybody, I shall not attempt to lay down conditions as to what they should say when I have given way. I may appreciate or be disappointed by the use made of any intervention of this kind, but I regard it as a breach of the procedure of the House for anybody to attempt to lay down conditions for giving way to interventions.

There are two White Papers before the House. I begin by saying that the more important one on Investment Incentives is not one on which I propose to offer detailed comment. That may afford some relief to those of my colleagues who are anxious to speak. I wish only to say that the old system of investment incentive was not one that I loved. I thought that it ought to be altered. I thought that a greater degree of selectiveness ought to be introduced. I must confess that I have not yet studied the terms and details of these proposals and their consequences to an extent sufficient to enable me to express that uncritical affection which would be attractive if I could sincerely offer it to the House. At this point I hope that the House will excuse me if I make no comments upon the White Paper on Investment Incentives, because I should like more time to study its consequences in detail. I shall confine what I hope will be my brief remarks to the question of the I.R.C.

The right hon. Member for Altrincham and Sale (Mr. Barber) was clearly wrong in attempting to make us believe, other than as a debating point, that my right hon. Friend the First Secretary of State and Secretary of State for Economic Affairs seriously wanted to mislead the House into supposing that Mr. Davies or the C.B.I. had an affectionate interest in this new and yet unborn child—the I.R.C. Clearly not. The whole world knows that the C.B.I. is rather against this idea and against giving it a trial. What my right hon. Friend was doing was quoting in detailed support of his own thought processes the ideas of the C.B.I. and of Mr. John Davies that accorded with the thinking which led him to produce this White Paper.

It is very difficult for all of us to assess this Corporation, because it is not in being and the Statute which is to create it has not been laid in detail before the House. So we are all a little in the dark. I shall, however, make some general observations. I am open to criticism if I express undue or unqualified enthusiasm for the child which has not yet appeared. Equally, the Opposition are in the difficulty that in estimating the Corporation's consequences they must wait and see the details of the Corporation and also of the way in which it will work.

Naturally, the putative father will express a certain degree of uncritical enthusiasm as to the child's prospects. Naturally, he supposes that it will be a flourishing infant and a great success. Perhaps it will be so. The question is whether the idea is fundamentally a sound one which should be given a trial. I have come to the conclusion that it undoubtedly is. There is undoubtedly a need for a specialist body of this kind which ought to be tried on a significant scale, carefully staffed, and carefully watched to see its progress. It is not true to assert that at present the ground is covered by existing financial organisations. There is no organisation in the City or elsewhere in the country with adequate financial resources that specialises in merger and innovation as this new body will do.

Far from this representing a threat to existing financial organisations, I suggest that it will be of great advantage to many of the merchant batiks and existing organisations to know that they can work in co-operation with this new body, amply endowed with Government funds and able to take a longer view of some of these mergers and innovations than existing financial organisations can This is particularly important in the export field. Whatever may be said about the desirability of scale in industry—some people uncritically assume that scale and merger are always desirable, but this is not so—scale is certainly desirable in the export trade. In the export trade it is virtually impossible to be a significant exporter unless one is part of a large organisation. All the records show that it is the large firms that disproportionately contribute to our export trade. Therefore, merger is all important if we are very keen to get our export trade going at a higher level.

I welcome the idea of a specialist organisation. I do not feel that the ground is adequately covered by existing organisations. I emphasise what I was glad to hear the First Secretary emphasise, namely, that it is co-operation with existing financial corporations which is to be looked to, not competition or displacement. In particular, I suggest that there is a gap in financial arrangements at present in this area. Merchant banks will provide a great deal of short-term and bridging finance for a suitable merger. Joint stock banks, too, will provide a good deal of short-term finance for that purpose. Long-term finance in the form of debentures, fixed interest investment or even equity investment, can be often obtained from insurance companies and like institutions. But medium-term finance is rather lacking in this field. The banker or finance house that will put up a substantial sum of money and leave it there for between 5 and 15 years is rather difficult to find. Long-term finance on a big-scale is available. Short-term finance on a reasonable proposition is pretty easily available. But the man who is not able to get long-term finance, and who does not want to be under the constant stress of an immediately callable overdraft to finance his innovation or merger, has not really got an adequate supply of funds.

A specialist body of this kind with ample funds will meet a very real need. I venture to suggest that the Opposition would be foolish if they were to commit themselves to the view that industry and finance will oppose this proposition, because when this Corporation comes into being the Opposition will be surprised to find that industry and finance, particularly the alert and flexible merchant bankers in London, will be inclined to recognise that the new organisation can be of real use and will provide an avenue for cooperation for the existing institutions.

The argument that this is nationalisation by the back door is a non-starter. I hope that I shall be forgiven some general remarks about the mixed economy. There are those on both sides of the House who like to pretend that that we have not got one, and in so pretending they are determined to make the worst of both worlds. I start, as it is fairer so to do, with my own side of the House. Some of my hon. Friends think that we are running a Socialist economy and that the free enterprise or profit-making side of industry is there on sufferance, but that it should work with great enthusiasm and should expand and be efficient, although we hate it and do not want it to play any permanent or semi-permanent part in the life of the country. This is an impossible attitude. All that it achieves is to get the worst of both worlds. If the view is taken that private enterprise should not run an area of the economy, then take it over, but do not leave that area in private hands, being run on a profit system, and being insulted or treated with continuing hostility.

Equally, on the other side, there are people who think that private enterprise and the profit-making system are ex hypothesi virtuous and that anything which is publicly owned is disastrous, inevitably wasteful and to be deplored. That view is just as destructive and is just as likely to produce the worst of both worlds as the other idea which I have stated. It is only on some such astonishingly reactionary view of things that the right hon. Gentleman tried to argue that the amount of money involved in what is, on the face of it, intended to be a constructive, realistic operation was no less than £10 for every family in the country, that is, rather less than the average spent by every family in this country in the betting shops and casinos which proliferated under Conservative rule. I confess that I would rather see it spent experimentally in this direction than see it spent in that way.

The trouble with right hon. and hon. Members opposite in this interregnum is that they are actually becoming a good Opposition. They have a natural talent for the rôle, and my belief is that this natural talent will be recognised by the people of this country, and we can all hope to derive benefit from it. I am not saying this only facetiously, though I cannot contend that it is one of the more profound and solemn points of my speech. Right hon. and hon. Members opposite are by nature of a critical and negative disposition, which is entirely suited to opposition, whereas my right hon. Friends are of a creative, inventive and innovatory disposition, which is ideally suited to government in the kind of circumstances in which we find ourselves. I am sure that it has not been lost on the British people that constructive, inventive and innovatory government such as we have needs constant checking and critical attention of the kind we have had an example of today, in part, from the Opposition. Long may it continue.

On the other hand, I want the Opposition to improve. At the moment, they strike me as being rather like the manufacturers of an inferior electric lamp who, when they find that it is not selling too well, begin to wonder whether they really ought to have given up making gas mantles. The right hon. Member for Wolverhampton, South-West (Mr. Powell) always tells them that this was a fatal error on their part, that their public image is as gas mantle manufacturers, and that woe and disaster are bound to overtake them as a result of forsaking that noble Victorian rôle. The right hon. Member for Altrincham and Sale, on the other hand, is by nature an electric lamp manufacturer. He must argue his case not in terms of the gas mantle but in terms of the electric lamp.

I submit that the people of this country are little interested in the theological disputations about the boundary lines of equity ownership in Government hands or in private hands. The country expects the Government to use all flexible and undoctrinaire methods to get the country on its feet, to make it pay its way and to increase prosperity.

It has not been altogether realised that, since the war, the Government have, rightly, increasingly taken responsibility, even under Conservative Administrations, for the central economic direction of the country. This involved a great responsibility. Of course, some have been inclined to say, every time the Government intervene, that this is in some way a threat to democracy. I leave this thought with the House. The greatest threat to democracy lies in failing in our economic tasks. The overthrow of democracy in the years before the war, in the collapse of the Weimar Republic and so on, came precisely because people were afraid to take the bold and courageous steps necessary to make an economic success of their affairs, while all the time keeping their eye on political success.

We must make a political success of our affairs and an economic success of our affairs. Far from being a threat to our democratic hopes, the Government's action gives an absolutely firm basis for success, without which we cannot hope to perpetuate and extend the prosperity and free system which we enjoy in this country.

5.33 p.m.

Mr. J. Grimond (Orkney and Shetland)

We are discussing two White Papers and, naturally, we shall have to wait to see the detailed proposals under these White Papers when they arrive. All we can do today is express a view about the aims of the White Papers and reserve our judgment, as the hon. Member for Manchester, Cheetham (Mr. Harold Lever) said, on the particular proposals which are brought in to achieve these aims.

We cannot conduct this discussion very usefully if we treat it simply as a sort of ping-pong match between complete laissez-faire capitalism, on the one hand, and Socialism, on the other. In many ways, my party would like to attain to a more extreme form of competition in some parts of the economy. But we know very well that the economy must run as a partnership and that a large sector will remain in public control of some sort.

The debate today should be, first, about how we are to make the whole economy more efficient, and, second, about how we are to establish criteria for judging that part of the economy in which the market does not apply. It has been most noticeable over the past five or six years that the only people to nationalise a firm in this country have been the Conservatives. It is not the supporters of the Labour Party who are pressing the Government to intervene at the moment; it is Messrs. John Brown, it is Fairfields, it is the big industrial companies who are, at the same time, said to be the spearhead of extreme competition. But they are not saying, "Send us to the wall. Shoot us with competition, and get us out of the way". Far from it. They are saying to the First Secretary of State, "Please come in. Put Government money into our enterprises. Save us, save us". This is not to say whether one is in favour of these things or against them. Those are the facts of economic life in this country.

The cries of free enterprise are extremely muted. There is no great passion for competition among the joint stock banks, for example. They are not anxious to stay open longer, one against the other, in order to compete. The discount houses, one of the directors of which is one of the chief exponents of free enterprise, are not clamouring for free competition and free entry into the discount market on all occasions.

Mr. Harold Lever

When one of the joint stock banks undertook the floatation of a debenture not long ago, some merchant banks, such are the restrictive practices, very foolishly thought that that was their area and protested against it.

Mr. Grimond

I am much obliged to the hon. Gentleman. We may complain about the plumbers' union and all that, but the restrictive practices in force in many ancient citadels of free competition would, I am sure, arouse envy among the most reactionary trade unionists.

What this country must do is get more productivity, and what emerged from the recent television programme was that this is a very difficult idea to get across. We must give full credit to the First Secretary of State for trying to get it across. If there are plenty of Government public relations officers at his disposal, the right hon. Gentleman should put them on to finding new methods, even some new language, for getting this idea across.

In the forefront of the battle for higher productivity stand the Government. We cannot get away from that. They have to show the lead and there are various things which they can do. First, they can step up efficiency within the Government itself. This is relevant to today's debate because one subject of discussion is whether we should have yet another corporation, the I.R.C. In my view, one area calling for modernisation is the whole machinery of Government as well as of the industries under their direct control. I do not believe that more Royal Commissions, more corporations and more committees are the answer to this problem. Indeed, they are an evasion of it.

I was impressed by the First Secretary's speech because it seemed to me, first, that, contrary to what was said from this side of the House he deliberately avoided antagonising the free sectors of the market and, second, he came out firmly with the view that a great deal of the economy must run on the profit motive. He did not use those words, but he accepted the thinking behind them. At the same time, he made clear that the boundaries between the public sector and the private sector are shifting and, no doubt, shifting in each direction.

We want from the Government more clear statements of the way they see the economy run. The sooner they tell us their ideas for the relationship of that public sector and what is called the private sector of the economy, the better it will be. They should not scruple to give their own ideas about how their own Ministries and functions should be comducted. I do not believe that a radical Government should need Lord Fulton, excellent man though he is, to tell them what they ought to think about the Civil Service. This relegation of more and more decisions to ad hoc committees is one of the signs of the very amateurism which dogs the efficiency of this country.

Nor, in my view, is the number of Ministries and the growing size of the Civil Service a sign of dynamic Government. Just the reverse. It is a sign of the failure to fix priorities and to get the fat off the Government service in the way the First Secretary of State wants to get it off the free enterprise part of the economy. To a large extent, it is a sign of failure to devise means of giving direction to the central impetus of the Government and to methods of stopping waste.

Too often in this country the conventional wisdom is simply to leave unreformed existing machinery that is not working and set up a new committee or a new department. We have seen what is happening in local government. New committees are being superimposed on old committees. New Royal Commissions are being set up before the Reports of old Royal Commissions have been acted upon. More and more, this country and the Government are beginning to look like some ancient city, amid the ruins of which one can trace buildings of different ages, one piled on top of another, all higgledy-piggledy, with never an attempt to rationalise the structure and bring it up to date in one move.

Another very important factor is more investment. But it is not sufficient to have more investment. What is also important is what one does with it. It may well be that much investment has been wasted. Nevertheless, the figures of investment in Britain compared with those of other countries are disturbing and have a general lesson for us.

In 1963, the total of 16 per cent. of our national product went to capital formation—an increase of 3 per cent. over 1953. In West Germany, the 1963 figure was 25 per cent.—an increase of 6 per cent. over 1953; in France it was 20 per cent. and in Japan 33 per cent., representing an increase of 16 per cent. over 1953. There is a general lesson in those figures that this country does not invest enough, considering the responsibilities that it has in the world and the need to modernise its industry.

In so far as the aim of the First Secretary of State in these new proposals is to increase investment, he should be supported. It is true that the United States does not invest a very much bigger proportion of its national product than we do, but of course it has a much bigger accumulation of capital. Furthermore, it is notorious that every American worker has far more power at his disposal than has the British worker.

I do not know whether up-to-date figures are available, but in 1962 every American worker had 12½ h.p. behind him. The comparable figure in this country was between 4 and 5 h.p. We have to bring ourselves up in the scale of investment in machinery if we are to compete and, having invested, we must use it. One of the problems of our economy is that, having put in machinery, we often do not use it to the full.

Thus, we on this bench do not object to the aims of the White Paper but there are questions to be answered and when the detailed proposals come out we hope that some of the details at any rate can be altered. Certainly there was some evidence, for instance, in the booklet "Investment Appraisal", issued by the N.E.D.C., that the old investment allowances and initial allowances were having an insufficient effect on investment decisions by business men. Yet it seems doubtful whether many firms will gain substantially from the new method. I hope that we shall have the figures explained to us because, on the face of it, it seems that many firms will be worse off. It also appears that the old allowances were devalued rather casually as a side-wind from the Finance Act and that had Corporation Tax not been introduced, or had it been introduced in a different form, probably these allowances would have been continued.

What is the thinking behind the new grants? Are they intended to compensate firms for the losses under the Finance Act or to go further? In certain respects the grants will have to be increased. In considering the value of the direct grants, an article in the Financial Times on 19th January, followed by correspondence on 21st January, threw considerable doubt on whether the new system of grants would be of equal benefit to most firms with the old. I believe that they should be and that if we want to achieve the right hon. Gentleman's objective we must ensure that that is so.

In turning to the limitations, I want to repeat a question. Tourism is surely of direct assistance to the balance of payments. It therefore seems strange that it is excluded—at least the tools of tourism are excluded—from these grants. Further, I understand that vehicles and equipment and aircraft are also excluded. Surely export industries depend a great deal upon the efficiency of vehicles, equipment and aircraft. Certainly, the efficiency, for example, of the aircraft industry and a ready sale at home may be the basis of an export industry. We should have an explanation about the exceptions made to the grants system.

I must say that it is a rather old-fashioned idea for a Government keen on modernisation to hold that there is something intrinsically better about manufacturing than about services. It is not wholly true. Manufacturing is not the only form of activity entering into exports. In all the sophisticated economies, services are taking up more and more of the national effort and surely this is a tendency that we have to accept. I believe we need more explanation about why services, vehicles and, indeed, the tourist industry are excluded.

Then there is the question of the old development districts which apparently are to lose their advantages as development areas are to take their place. I take it that paragraph 19 of the White Paper, which says that other forms of assistance will continue, refers to the new development areas and that the old development districts are to lose the discrimination in their favour.

Mr. George Brown

One does not want to mislead people outside the House. The right hon. Gentleman is right to the extent that a small area—an old development district—within one of the new, larger development areas will not continue to get the unique provision which the rest of the area in which it was situated did not get. It was becoming clear, particularly in Scotland, that we could not act effectively in this way unless we set out to repopulate and, in some cases, to redevelop, in order to bring about economic prosperity and a good social life, much wider areas. We are trying to bring the wider areas up to the level aimed for in the case of the old development districts.

Mr. Grimond

I appreciate that, but parallel measures will have to be brought in, otherwise some of the old areas will suffer.

I want to deal with the time and method of payment. I understand that it is hoped that the new grants will be paid within six months. This will be of considerable help to industry. Furthermore, it will be a more simple system. Does this mean that the Board of Trade does not envisage examining each application with any greater care? We have not heard about the way in which certain classes of production are to be excluded. We should be grateful to hear a little more as to the sort of discrimination that the Board of Trade will have to use.

Has the Board of Trade considered the case for making the grants negotiable and able to be claimed, so to speak, by the supplier of machinery? The right hon. Gentleman is aware of the scheme. It would mean that the buyer would buy free of the grant, and the seller would be entitled to dispose of the claim, which then would become negotiable, to pass from hand to hand. Many people in industry, impressed by the need for quicker payment of grants, believe that this would be the simplest way. No doubt the Government have examined it. What was the result?

In considering the proposed Industrial Reorganisation Corporation, most people would agree with many of the objectives set out in the White Paper. A great deal will depend on the personnel of the Corporation and how they envisage their task. I believe that too much stress has been put on the provision of finance. I was interested to hear what the hon. Member for Cheetham said about the gap in medium-term finance, but the right hon. Gentleman seemed to envisage a gap in long-term finance. Surely the most important job of the Corporation will be to find, pick out and isolate those areas of the economy which are lagging. Then there may be all sorts of remedies for their poor performance. Finance may be only one of the many reasons why such areas of the economy are lagging behind.

In support of the proposal I would quote the remarks of Sir Denning Pearson in his Fawley Lecture when he said that for some time he had held the view that the small size of units in parts of our industry was one of our greatest handicaps, both in endeavours to increase our general engineering exports and to improve productivity.

A similar comment is made by Richard Fry in The Guardian of this morning. Although I have deep respect for Richard Fry, as for all who write in that great paper, he has not generally been regarded as a Left-wing economist, but he sums up the matter by saying: the proposal to fill some of the gaps by intelligent intervention is a good deal better than the alternative of leaving well alone. Of course, it is possible to do more harm than good by intervention, but I would have thought that there was a gap and that it was rather a gap of finding out what was wrong with certain parts of the economy and that finance might be one of several remedies which should be applied.

I should like to ask a little further why it is not possible to expand the functions of the F.C.I. or the I.C.F.C. for instance, to cover the gap in so far as it is a financial gap. I accept that they cannot as constituted but I am averse to the piling up of committees, but if the F.C.I. and the I.C.F.C. are not covering the gap adequately, why should they not be merged with the new Corporation? Should we not then save some manpower which is very valuable and experienced, and also, make for a more efficient job?

I have one further word of warning. Of late, many of the mergers which are taking place seem to be designed to get round the findings of the Restrictive Practices Court. Where price agreements and so on have been held to be against the public interest, there has been a tendency for the firms engaged to merge. This Corporation should have power to stop mergers—or rather, as it will not have power to stop anything, I hope that it will be able to recommend against mergers as well as in favour of them, and that the Monopolies Commission will still be the ultimate determining factor in the public interest if mergers do not seem to be in accordance with it.

I want to conclude with a few remarks about the next stage of regional development. More than ever it is necessary for the proper management of our economy to try to iron out the discrepancy between the constantly high demand for labour and the over-used resources of the South-East and the lower demand for labour and under-used resources in other parts of the country. Liberals, of course, believe that the Government have not gone far enough in striking at the root cause of this imbalance, which we believe to be the centralisation of power, and all the top jobs which go with power, in and around London.

Therefore, we would like the new Corporation to be set up on a regional basis and, just as the merchant banks are now setting up regional offices, we believe that the Corporation should operate regional offices and not carry on all its business in the centre of London. As one of its tasks is to be to assist regional development, let it go to the regions to do its task. We also feel that the Government should allow greater participation by the people of the regions in running their own affairs.

The whole new course charted by these investment allowances of the I.R.C. will surely require a new look at the present policies towards regionalism. For instance, if mergers are effectively encouraged and nothing else is done, there is a very good chance that there will be an even greater concentration of head offices, research departments and high level employment in London. Anyone coming from Scotland or Wales or the North will confirm that very often when provincial firms are merged the head office moves to London. This concentration of high level employment is one of the most serious aspects of the problem, and I hope that steps will be taken to counteract it.

I suggest that the Government should balance these proposals with a more vigorous policy for raising the services in areas to which they want employment to move, or where they want to hold population. Housing, schools and roads policies should all have the emphasis on development areas. It is mentioned in the papers this morning that some firms going to Scotland claim to have been misled about the amount of labour available. I have often tried to draw attention to the root of this difficulty. The unemployment statistics in Scotland sometimes show that gross unemployment is very high, but even so they conceal depopulation. One of the main problems is to find jobs for school-leavers. Secondly, they conceal a great scatter of unemployment of people who find it difficult to move from one home district to another.

Further, they conceal a lack of variety of employment. Whether we like it or not, people want to have a variety of employment. In some districts which were entirely dependent on agriculture, or whatever it happened to be, many boys and girls coming from school simply would not stay in the district. All sorts of things like training and superior services and deliberate attempts through the I.R.C. to set up particular firms to work new industries—it is to have the power to do that—in particular areas where there is a gross lack of variety of employment are needed, and I would like those things to be done in parallel with the aims set out in these White Papers.

I hope that the I.R.C. will not become obsessed with the idea that only big businesses are worth encouraging, although I fully agree that they make a big contribution in the export trade. For instance, would it not be worth considering whether small businesses employing small numbers of people should not be deliberately directed away from the big urban areas, where they now tend to concentrate, into the smaller towns to which they are particularly suitable? Along with the proposals in the White Papers we want all sorts of other parallel action.

I return to where I started—that the House is asked to approve the general principle of these Measures, but that there are obviously many detailed questions to which hon. Members would like answers and that there are criticisms to be made of the White Papers Nevertheless, I would have thought that this was an attempt to attack two of the principal faults of our economy—first, its lack of productivity and, secondly, its regional imbalance, and in so far as the White Papers are an attempt to attack those two faults, they deserve support.

5.57 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

I was very pleased to hear the general support of the right hon. Member for Orkney and Shetland (Mr. Grimond) for the investment incentives. In particular, I noted that he was worried about the comparisons between the old allowances and the new grants, but I hope that he is not too influenced by the peculiar comparisons which were made by the Opposition Front Bench between the old allowances and the new grants. It is not sufficient to relate the old and the new systems of incentives just to the tax rate. On this basis, the higher the tax rate the higher the allowance would be, and when the tax rate approached 100 per cent. the allowance would be at its maximum. This is not a very useful conclusion. In fact, the calculations are much more complex and retentions have to be taken into consideration.

In considering investment incentives, the Royal Commission on the Taxation of Profits and Income on page 127 of its Report said: the whole justification…lies in its service to the economic welfare of the State. Most would agree with that criterion. I would add the further purpose that investment incentives should assist the modernisation of industry. Investment incentives should be judged therefore not by whether they offend some peculiar principle of neutrality of Government economic decisions as enunciated by the right hon. Member for Wolverhampton, South West (Mr. Powell), but by whether modernisation is assisted and the amount of obsolescence reduced. About the modernisation of British industry there can be no neutrality.

A complete survey of obsolescence in industry was carried out by the ninth American Machinist Inventory for 1963. This was the largest project of its kind, and it showed the percentage of machine tools in American industry more than ten years old. It made comparisons with previous years. The results were rather surprising. In 1925 44 per cent. of the total number of machine tools in use were over ten years old. In 1953 that had risen to 55 per cent., while in 1963 the figure was 64 per cent. Whatever qualifications one may make about these figures—and they are very detailed and comprehensive—the tendency towards an increasing obsolescence is an unavoidable conclusion. Comparable results for this country, although less thorough than this report, show an even greater degree of increasing obsolescence. The conclusion from this is either that the replacement of the 64 per cent. of machine tools over ten years old is not necessary or that it is necessary but because of the lack of funds, or foresight, or for some other reason, replacement is not made.

The first possibility, that a ten-year-old machine is not an economic liability, certainly applies in a number of cases—the odd bench grinder in the corner is little proof of the inefficiency of an organisation. Cases such as this are few. Few generally would question that advances in the reliability of new machine tools as well as their development pay for themselves very rapidly. New incentives are needed, and the kind of incentives required are those which are readily calculable, most certain in their effects, and which depend much less on anticipating the future changes in taxation and allowances. This we have in the new system of investment grants, which also permits the greater discrimination which I favour. Page 130 of the Report of the Royal Commission on The Taxation of Profits and Income gives the following quotation, which shows the way ahead: On the whole we think that there is a better method of obtaining more sensitive discrimination than is provided for by the present form of the investment allowance. That would be to sub-divide the present very broad categories of favoured investment and to introduce a range of different rates within those sub-divisions. I should like to move a little further in this direction, while appreciating the distance which we are being asked to go. But discrimination does not please everyone. The right hon. Gentleman the Member for Wolverhampton, South-West is reported in The Times on 28th January of this year as saying: Once a political authority decided that one expenditure or investment was economically good or better than others a great divide in human affairs had been crossed.

Mr. John Biffen (Oswestry)

Hear, hear.

Mr. Sheldon

I notice that the hon. Member says "hear, hear". Was the right hon. Gentleman saying that it was right that investment incentives were the same for machine tools as fur coats for actresses, for gaming machines as well as for computers? If we have crossed a great divide many of us would say, "And about time, too".

There are those—and the hon. Gentleman the Member for Oswestry (Mr. Biffen) is obviously one of them—who would have the Government provide only the framework within which industry is free to operate to its own and to the nation's good. I am never sure when I hear this what precisely is meant by a framework. If industry is not investing sufficiently, if industry is not modernising adequately, if industry is not providing sufficient growth, then the Government have the right and the duty to intervene. In a modern world these are the functions of Government, and only a weak and hesitant administration would deny it.

Like many others, I am unhappy about the lack of grant for modernisation of other parts of industry. This offends against the principle which I have declared, that investment incentives are to encourage modernisation. After this first priority of modernisation comes also the need to increase capacity. One of the great barriers to growth has been the limitations upon capacity. It is right that incentives which will encourage modernisation as well as increase capacity should be the first choice for such investment incentives, although it is a pity that investment grants for modernisation are limited. Given the need for limitation, the choice has been made correctly.

It is sad that hon. Members opposite have seen fit to follow their supporters in the Institute of Directors and Aims of Industry and make a political issue of the modernisation of our industry. I prefer to rely on the comments of large numbers of industrialists who appreciate the measures which the Government have taken, understand their purposes and welcome their consequences.

The reason why I welcome the White Paper on the Industrial Reorganisation Corporation is largely because of my attitude to last year's Monopolies and Mergers Act. This Act gave powers against monopolies not operating in the public interest, gave powers against mergers not operating in the public interest, but did nothing to encourage those mergers which were in the public interest. This was a power which I wanted to see and which, because of this White Paper, we shall soon have. We shall now have the power to do as well as to forbid.

I am one who welcomes the closer drawing together between Government and industry, and I believe that this is a movement proceeding irrespective of the Government in power. Some of us are impressed with the record of growth in those countries where industry and Government operate much more closely together than they do here. There have been some doubts about the benefits obtained from the economies of scale in all instances. One of the most important benefits that merging industries can obtain is the use they make of increasing and advancing technology. Plant and machinery can usually be built with a larger throughput and rapid decline of unit costs. In very many types of manufacture there are no real technological limits to the economies of size. The real limitations to size are the information barriers within the organisation. There is a chain in the passing of decisions from management to shop floor and another chain passing information from the shop floor to managers. Where these chains are numerous and tenuous, management may not always have sufficient knowledge of the various situations which it controls.

The barrier of information is the great limiting factor of size. In the past five to 10 years there has been a revolution in the way information has been conveyed. Punched cards, computers, managerial control techniques are some of the most rapidly extending branches of industrial development and few would care to put a limit on the ultimate achievements of these techniques. This growth of information techniques is finally removing the barriers to size with immense consequences to the structure of the industrial organisation.

Throughout industry we hear of appeals for dynamism. No one knows how to create a dynamic organisation. But there is an association between a growth industry and dynamism. This excitement that comes from constant change as well as the natural hopes and fears of promotion and success are the very essence of such dynamism.

In an expanding industry all of this is quite natural. In a stable industry, the stability is due to its slow growth and the products or the services it offers. It grows slowly in a way related to the growth of the economy as a whole. But even stable industries can change their production techniques by enlarging the scope of the individual units and accepting a new technology.

The connection between merging and subsequent concentration of activities is essential. To merge does nothing in itself, but mergers to co-ordinate productive processes, mergers to make use of new technologies based on size, mergers to use new control and information systems, mergers so that inefficient parts of productive plant can be shed in order to concentrate on others, mergers that can give to executives the stimulus of being in a rapidly-changing, technologically advancing industry, these mergers are valuable and exciting.

The two White Papers we are discussing involve the modernisation and development of industry and they go to the very heart of the industrial problems facing us today. I believe that it is to the Government's credit that they have brought them forward.

6.10 p.m.

Sir John Eden (Bournemouth, West)

The first thing which is wrong about Command Paper 2874 is its title. There is precious little "incentive" about the proposals in it. The second thing which is wrong is the manner in which it was presented to the country. A fanfare of trumpets announced its arrival. This was all part of the gigantic "Operation Hoodwink" which appears to have been mounted by the Government to make people believe that they are bringing about a dynamic change in British industry as a result of these and a host of other measures which they have brought before the country.

I regret very much that there will be little additional incentive to invest as a result of the proposal in Command Paper 2874. I regret even more that there is therefore little likelihood that there will be additional investment as a result of it. Although some firms, I well recognise, will be better off as a result of these proposals, and although some industries have been singled out for special attention, the fact remains that unless they go to development areas the bulk of them will not be better off. In fact, they will find very little incentive in these proposals.

It has taken a considerable amount of research and effort to work out the sums. This is the third point which I dislike about the White Paper. It adds to and extends the confusion on this front for which the Government have been responsible from the moment that they took office. A further period of doubt and uncertainty will inevitably lead to further delay in investment plans. This surely cannot have been the Government's purpose, but regrettably this is the result of the manner in which their proposals have been presented to the country and of the details which they have brought together in this Command Paper.

Turning for my illustration purposes to the other White Paper before us, Command Paper 2889, the opening paragraph of it calls for a fundamental improvement in the balance of payments and goes on to describe the need for new initiatives to meet world competition. It states: The new system of incentives…will provide a powerful stimulus to modernisation and investment in key sectors of the economy… This is written in a paragraph which is prefaced with a reference to the balance of payments situation.

One would assume that a definition of the key sectors of the economy was those sectors which contributed substantially to improving the balance of payments position. Such a sector is the tourist industry. Yet it is this industry which is deliberately omitted from the proposals to encourage investment. Far from being just omitted, it is singled out for specially adverse attention by the removal of the investment grants on its equipment, on the tools of its trade.

The National Plan—that document which right hon. and hon. Members opposite love to regard as their bible, their source of all quotations—draws attention to the fact that in 1964 the tourist industry earned £120 million in foreign currency. Last year about 2 million visitors came to this country and passed through the industry's hands. It accounted for earnings as great as £81 million in dollars. It is a sizeable industry, with 600,000 employees. It is not an industry which any Government should shrug off. It is not an industry which the Governments of other countries do shrug off. They pay a great deal of attention to the tourist industry and to the contribution which it can make to their balance of payments situation. Other Governments go out of their way to help the tourist industry whereas the Government of this country go out of their way to handicap it. This is a most extraordinary proposition in a White Paper labelled "incentive". Where is the incentive to one of the key sectors of industry, except an incentive to go abroad and to take its trade elsewhere?

The Government have handicapped the tourist industry in other ways. Right hon. and hon. Members opposite would do well to note that everybody engaged in this industry sees the White Paper as a further step in a series of measures which appear to have been designed deliberately to make life more onerous and difficult for those engaged in the tourist trade. Entertainment allowances are a case in point. Building licences have been imposed by the Government. There is the removal of the grant on equipment to which I have referred.

Why have the Government been taking steps to harm this industry? I suspect that there may be something in the fact that right hon. and hon. Members opposite associate the tourist industry with the luxury trade. They regard it as something to be disapproved of and frowned upon. They do not like the idea of big hotels and people spending lots of money in them. Is the key to this matter to be found in the Queen's Speech of last November? Is it to be found in the Government's proposals to extend the trading activities of the nationalised industries? Are we to have fewer independently-owned and privately-operated hotels and more State-run hostels? Is this the Government's aim and objective? If so, let them spell it out.

Right hon. and hon. Members opposite should pay much more serious attention to the representations of the tourist industry. I ask the Minister of State, who is to wind up the debate, to tell the House something of what took place between the representatives of the industry and the President of the Board of Trade. What answer did the President of the Board of Trade give to the representations of the hotel and tourist industry, and what steps will the Government take to make good the omission from the White Paper on investment incentives to ensure that the hotel and tourist industry is stimulated towards modernisation and to improve the service to its customers so that it can be placed in an even better position than it is to assist the country in solving its balance of payments problem?

Turning to the second White Paper announcing the intention of the Government to set up the Industrial Organisation Corporation, I have straight away, as I have on previous occasions when the subject has been discussed, to declare an interest to the House. For the past three and a half years or so I have been a director of a company dealing with mergers and amalgamations and with nothing else. Over that time, I have come to recognise the need for mergers and amalgamations and, more than that, the need for companies such as the one in which I am particularly engaged.

For obvious reasons, I do not wish to indulge in any form of special pleading at all, but in any one year my company investigates several hundred merger situations, which gives it some insight into the requirements of purchasing and acquiring companies and also into the attitude of mind both of those who are seeking to acquire and those who are being acquired or resisting acquisition.

I will not further describe the activities of my own company, except to say that the definition of our operations can be found on page 2 of the White Paper where, in paragraph 5, it says: …there is no organisation whose special function is to search for opportunities to promote rationalisation schemes which could yield substantial benefits to the national economy. I will content myself with saying that I know of at least one such organisation in this country—and there are more of them—which exists for that specific purpose. It does not solely act on the instructions of its clients. It seeks out special situations which it believes will assist national requirements as well as the individual needs of the companies concerned.

Therefore, we have become increasingly aware of the need for mergers, and it appears that there is far too great a fragmentation in British industry generally. There are too many small companies, and it has not yet penetrated many of them that perhaps the best way to grow from small to medium size or even to secure their positions whilst still retaining the smallness in dimensions, and, therefore, some degree of personalised participation in the operations of their own companies, is by joining with other organisations.

I very much welcome the change in official attitudes generally towards the need for mergers and amalgamations which has come about in the last few years. I well remember, as no doubt will many other hon. Members, debates in the past when the atmosphere was quite different from what it is today and when the mere mention of the word "merger" was immediately greeted with hoots and howls, mainly from the Labour benches, of "Take-over bid". Indeed, the right hon. Gentleman the First Secretary still talks about the "take-over boys" in damaging terms. He also spoke about holding companies in rather critical terms, and I shall say a word about them in a moment.

What one must welcome particularly is the change in attitude which has taken place and which now recognises the contribution which can come about as a result of the broadening of the base of our company structure. Many mergers have been taking place in the past few years, and almost every day in one's newspaper one finds some kind of merger being discussed. One is glad to note that the financial Press is extremely interested in mergers of all types. There are large numbers of them going on every year, and they are increasing steadily. But I will agree with the second paragraph of the White Paper where it says: the pace and scale of change do not yet match the needs of the national economy. Before we can find the solution, or promote the remedy for it, if we agree with the proposition that the pace and scale of change do not match the requirements of the economy, it must be explained why that is so. There are a number of reasons, some of which have been touched upon. It is not that people engaged in manufacturing industry are villains deliberately trying to keep things small. We are not necessarily more stupid in this country than people in the United States of America. I think very much the reverse. We have a natural talent which we have been putting to remarkably good use. With our limited resources, we have nevertheless got a very substantial gross national product which has largely come about from the application of our own ingenuity, talents and skills. We are an adventurous nation. We are an outward-looking race, and it is wrong for us to get ourselves into the habit of self-denigration to the point where we believe that the failure to match the requirements with the pace of change is due to any inbuilt weaknesses in our characters.

It has occurred for largely historical reasons. Our company structure has grown up largely as a result of individual family operations, and the family operations are inevitably personalised to a high degree to the members of the family. When the members of the family die off, the company either goes out of existence or it is bought up and salvaged. That has been the pattern in the past. Gradually, that is giving way to new methods, and the families themselves are trying increasingly to secure the future of their own companies and therefore the security of those who have worked in those companies by joining them with others of the same type.

Another reason why it has been a slow development in this country is because there are many people who are unaware of the opportunities that they can give to their own companies' activities by broadening the scales of their operations.

What all of us in the House must be concerned to see is that any mergers which take place, or any mergers which are encouraged, by whatever type of organisation or corporation they are encouraged, lead to a greater employment of the capital invested. That has been part of the difficulty with which we are now confronted. There are far too many companies whose assets are being left undeveloped, the managements of which do not appear to realise the vast potential on which they are sitting. Many who do realise it do not, regrettably, wish to move very far or fast because they are much more secure and cosy where they are at the moment. The reason for it is quite clear. The higher the level of taxation, the less will there be any incentive at all for people to lift themselves out of a cosy limited situation or circumstance in which they now find themselves and probe into new situations. Right hon. and hon. Gentlemen opposite must recognise that fact.

The other point that I would make about the criteria on which we should judge these proposals is that the mergers should have some clear chance of leading to a more profitable operation, so that we shall have some reasonable security and return on the capital invested.

The Government have proposed the Industrial Reorganisation Corporation with the big claim in paragraph 5 of the White Paper that it will fill a gap. The new Corporation is to initiate and sponsor desirable regroupings, particularly where opportunities have been missed. Is there a gap to be filled? If there is, what is the nature of it? Is it a financial gap? From the little that we learned from the First Secretary, that would not appear to be the case. It cannot be a financial gap, because, where the proposals are sound, there is no difficulty now in financing them. If the merger proposals are sound, the money is available from existing institutions.

There is a gap—and here I agree with the hon. Member for Manchester, Cheetham (Mr. Harold Lever)—where the situation is aggravated or complicated by certain circumstances where there is a need—as there is in one industry well known to me—to bring together into two or three larger groupings the many smaller units into which the industry is now subdivided. But many of the smaller units are not very successful trading concerns, and the amount of money needed to be invested over a long period, with little prospect of any immediate return, is such that it is not easy to get the money in the normal course of market operations, and I think that here there is a gap.

But that is a financial gap—and I want to emphasise this—which could perhaps be met, as has been suggested by the right hon. Gentleman the Leader of the Liberal Party, by extending some of the existing institutions such as F.C.I. and I.C.F.C. If it is a question of providing money on reasonable terms to cover a long-term situation which is complex and difficult, why not use these existing institutions? Why not extend their powers and their operations to cover this requirement? If this is the gap to be filled, why is it necessary to create a new institution, the I.R.C.?

If it is not just to provide money, what is the purpose of the I.R.C.? The answer appears to have been touched on by the First Secretary this afternoon. He said that its purpose is to initiate merger schemes and to seek out situations. Apparently this is what the I.R.C. will do. How will it do it? What staff will it have to assist it? What facilities will it have at its disposal to enable it to seek out these special situations? How will it find the situations which will lead to the sort of merger schemes which it, and it alone, should initiate, and which cannot be initiated by any of the existing institutions?

Incidentally, what will be the administrative cost of this machine? I thought that the First Secretary did not approve of questions being asked of him on this point. He did not seem to like the critical nature of my right hon. Friend's opening speech. But the right hon. Gentleman has only himself to blame, for he has brought in a White Paper which is so vague and generalised in its terms that one is bound to require much more information before being able to accept it. This is one reason why I shall vote against these proposals. I do not think that we have enough information about what the Government have in mind, and what their intentions really are.

How will the I.R.C. go about getting the information which it must have? What information will it demand from companies? Or will it wait for the passing of the Companies Act before it can do this? I emphasise these points, because, as the hon. Member for Cheetham, and others, know, successful mergers are not merely a question of marrying balance sheets. The success of a merger, perhaps after long and protracted negotiations, depends on bringing together not only the products of the two companies but the personalities engaged in the firms. The latter is the more difficult of the two, and requires the greatest amount of tact and sensitivity to bring about. Is this where the I.R.C., a publicly-financed institution, will be best suited to help? If it is, I should like to hear more about how the Government think it will be able to achieve this.

Mr. Harold Lever

Cannot the hon. Gentleman envisage a situation—one among many—where a merchant bank is acting for one party to a proposed merger, and another merchant bank is acting for the other party to it, and they come together with the I.R.C. to organise and arrange the financing of the merger, in which case the I.R.C. could play a constructive and impartial rôle as between the parties to the proposed merger?

Sir J. Eden

I can envisage such a situation, but that is not the rô1e which the right hon. Gentleman has in mind for the I.R.C. If it is going to be a sort of honest broker between parties who have come together and have agreed in principle that a merger is desirable, that is another situation, but nothing in what the right hon. Gentleman said, or in the White Paper itself, indicates that that is the purpose of the I.R.C. It will initiate merger schemes. In some curious way, which is not known to me or to other hon. Members, or even to the hon. Member for Cheetham, the I.R.C. is going to bring together parties who have not themselves thought a merger to be desirable. If this is so, I should like to hear more about it, and to know more about how the I.R.C. will operate.

The right hon. Gentleman made it clear that the I.R.C. will have no compulsory powers. I welcome that, but what worries me is how the Corporation will achieve its objectives. What will happen if a company chairman says, "No thanks, we do not agree with you. I do not get on with so-and-so, and I am not going to accept your proposals?" I think that the right hon. Gentleman should recognise that we are justified in having a considerable amount of suspicion when he says that this is all going to be done on a voluntary basis, and that no compulsory powers will be given to the Corporation.

The right hon. Gentleman must realise that he said much the same sort of thing about the incomes policy, and we are beginning to wonder when the element of compulsion will be introduced there. We on these benches are therefore justified in wondering when his "dynamic ginger group", as he called it, will become a compulsory element in the economy of this country.

If the I.R.C. is not to be a holding company, which is what the right hon. Gentleman said, why is it necessary for it to have a share in the equity of the companies which it helps to finance? What is the need for this? Is not there some other way of bringing this about? Is it not possible instead to have some form of redeemable preference stock? Why is the I.R.C. requiring power to purchase the equity of a company?

If the Government have chosen the I.R.I. as their model for the I.R.C., perhaps I might point out that the I.R.I., which is a holding company in Italy, does one useful thing: it successfully insulates business activities from the predatory and inquisitorial activities of politicians and the Government. I do not believe that the I.R.C. will do this, and thus it will differ from the I.R.I. The I.R.C. is not to be a holding company, yet it is to have the power to hold equity shares, and it is not to be a body wholly independent from the Government machine.

Over what period will the equity holding be required? Will the Minister make it quite clear that a provision will be written into the Bill imposing a limitation both upon the extent of the holding in any one company and on the length of time by which the holding will take place? Will there be some reference to the criteria which will have to be satisfied before the I.R.C. will divest itself of its holding? These limitations must be written into the Bill.

To what extent, if at all, will the I.R.C. be answerable to Parliament? Will it be answerable only through the right hon. Gentleman's Department? Do I understand that there is no direct relationship between the Board of Trade and the I.R.C.? It seems curious if this is so, because the I.R.C. will apparently have power to circumvent the investigations of the Monopolies Commission although the President of the Board of Trade is anxious to submit to the Monopolies Commission those merger situations which it regards as suspect in terms of the national interest.

Mr. George Brown

I have already announced to the House that Ministerial responsibility will be accepted by the Department of Economic Affairs, as the Government are now organised, for reasons which seem to us to be better. A number of other departmental interests are concerned, and not merely the Board of Trade.

On the question of mergers, the same rules will apply. The Board of Trade will be responsible for deciding whether or not mergers should be referred to the Commission. This will apply in the case of any proposals put forward by this body, as it applies at the moment. Obviously, however, in practice Ministers will discuss these points before that stage is reached.

Sir J. Eden

Will the right hon. Gentleman say what is the limitation, if any—

Mr. Speaker

Order. I hope that the hon. Member will not invite another intervention. Many hon. Members wish to speak in the debate, and interventions prolong speeches.

Sir J. Eden

I am sorry, Mr. Speaker. I will not invite the right hon. Gentleman to intervene again. I conclude by emphasising that the general approach to this question is obviously one with which hon. Members on this side of the House have a great deal of sympathy, but a degree of suspicion on our part arises from the fact that the present Government are bringing forward these proposals. This suspicion is fully justified by their past actions and by the manner in which they have appeared deliberately to go out of their way to make life more complex and more difficult for business. If they had manifested less hostility to business, less hostility would be manifested from these benches towards any proposals emanating from them which give them increasing power of direction over every facet of our industrial and commercial life.

Mr. Speaker

Many hon. Members wish to speak. I hope that those who are fortunate enough to catch my eye will remember their colleagues who will be trying to catch it later.

6.43 p.m.

Dr. Jeremy Bray (Middlesbrough, West)

The hon. Member for Bournemouth, West (Sir J. Eden) seems to be participating in a general bursting out of moderation all over, rather like the giant panda in the London Zoo which, although it has ideological objections to the panda in Moscow, has recognised that some sort of modus vivendi is necessary if its race is to survive. I do not know whether the hon. Member has read the Motion. He tells us that he will tonight vote to decline to accept the White Paper on the Industrial Reorganisation Corporation. When he was speaking, it sounded to me as though he wanted to know more about the I.R.C., finding it a rather fascinating proposal. I agree that there are many industries to which it should devote its attention. The White Paper lists some of the considerations—scale, research, modern equipment, marketing organisation, inadequacies of management, and so on. But we all know the kind of company involved and what it looks like on the ground.

It is not intrinsically bad. Possibly it is doing quite well, both at home and in export markets. But it simply does not have a profit margin which will enable it to modernise, invest, acquire management, services and afford the overheads. In its present scale of business, and its uncertainty of business—which is more important—it cannot undertake these things. Everybody has been hesitant to name companies, but a good example is to be found in the chemical plant manufacturing industry. In it we have a number of firms which are not bad. They are in the capital range between £20 million and £50 million, but none is able to maintain a steady volume of work in order to afford management services, modern design methods and stockholding, or the size of order books which are necessary to compete with overseas chemical plant manufacturers, on the scale on which they are operating.

I would be delighted to fight the next election on the suggestion that the first attentions of the I.R.C. should be directed to bringing together some of the worthwhile firms in my part of the country which, I am sure, would gain immensely in strength by being brought together. I hope that the operations of the I.R.C. will not be secret. I do not see how they can be. There has been a suggestion that if we start buying up shares in private we can possibly get them more cheaply before takeover rumours start spreading. On the other hand, the advantages of the emergence of the proposals on the lines suggested in the White Paper—through the E.D.C.'s and suggestions from industry, the City and Government Departments, inevitably presuppose an openness of discussion in which I hope the House will feel able to partake in urging on the attentions of the I.R.C. certain parts of industry with which individual members are familiar.

I particularly welcome the statement that the I.R.C. will pay special attention to management needs of new groupings. The hon. Member for Bournemouth, West mentioned this. I am sure that to regard the work of the I.R.C. as merely a financial operation would be a gross mistake. In its attention to management needs the general approach of the I.R.C. is immensely important. It should appear as a streamlined, efficient, humane body in its handling both of employees of companies in which it is operating and also of the directors.

A code of practice is needed in relation to the protection of employees, covering redundancy schemes, and paying attention to the needs of employment in the areas in which the I.R.C. is operating, together with the contribution which the proposed company reorganisation can make to the desired pattern of industrial development elsewhere in the country.

I am sure that the right hon. Member for Orkney and Shetland (Mr. Grimond) carried the House with him in emphasising the responsibility of the I.R.C. in connection with the regional development pattern. But in its humanity the I.R.C. should not be reluctant to push people off boards if it feels it is necessary. It should not be vindictive, but it should certainly be firm. I hope that the I.R.C. will create a new mobility in management, opening up the prospect for far more professional management people to acquire a higher level of responsibilities; and also for management and individuals from abroad to be brought into British industry. There is a great deal which we can learn from many American companies. I have not the least objection to American participation in particular parts of industry which they know well and where they can assist the transition to a higher state of technology and company organisation, at least over a period of years and possibly under management contracts.

Among these sources from which management is to be brought together, I hope that the Civil Service will not be forgotten. The right hon. Member for Orkney and Shetland had a very good point in deploring the proliferation of committees and the dividing up of responsibilities of government and possibly a certain shuffling off. The First Secretary gave some reassurance assurance here when he mentioned that, before any substantial merger took place under the ministrations of the I.R.C., Ministers would have discussed the matter and, therefore, the matter would have been considered within the departmental machines. This is excellent.

One asks, why have a corporation at all? Why not have this as a section of a Government department? This is not a bureaucratic problem, because there would have to be a separate organisation anyway, but the question is whether it should be within or outside a Government Department. We here come against the code of practice for British public life, that, the moment anyone has to exercise any discretion, this cannot be exercised within a Government Department. There people either spend their time making the rules or following them, but people who are actually given considerable freedom to act without the guidance of rules and to follow a rather broadly defined path have to act under a cloak of at least a quasi-independent corporation. I hope that we shall get away from this concept, but this is a wider development of Government and, meanwhile, we are inevitably faced with the position of a semi-independent corporation.

This brings me to the investment incentives, where this becomes a major factor. I could not possibly dissent in any respect from the general considerations put by the First Secretary—the need to stimulate investment, the inadequacy of investment, the lack of purposeful direction of that investment in our economy are well substantiated. But I think that we would be foolish on this side of the House to disguise from ourselves too much the point which will, I am sure, be pressed on the other side of the House—when the Bill goes into Committee—that there is a substantial effect on the cash return to a company considering an investment project under the new incentives as compared with the old.

I will not burden the House with detailed comparisons, but I have here four pages of comparisons which a company accountant was good enough to draw up for me on a full discounted cash flow basis. Once again, I am sorry to note that we have had no mention of this kind of assessment from either Front Bench, but I trust that we shall do better when we are further on with these considerations, and I am delighted to hear the Board of Trade holding out hopes on this matter.

On discrimination between—

Mr. Eric Lubbock (Orpington)

Would it not have been helpful if we had had a comparison on a discounted cash flow basis in the White Paper itself?

Dr. Bray

I would agree with that entirely, but for one consideration which has been made earlier, about the fiendish complexity of assessments in this respect. Any comparisons in this regard are complex and confused, because what we are doing is comparing the old system, which was a confused and complex one, with what is—I am sure hon. Members will agree in principle—a simpler system. To compare a complex with a simple system is inevitably a complicated matter. I would prefer to get over this procedural difficulty by the House being able to consider this question in a Select Committee where we could interrogate experts from the Inland Revenue and the Treasury, and from private sources as well, so that we could fully consider the matter.

Mr. Patrick Jenkin (Wanstead and Woodford)

Has the hon. Member carried out the calculation of the example project given in the investment appraisal document prepared by the N.E.D.C. on both the old and the new bases? If he has, would he not agree that that project shows, using the most sophisticated D.C.F. methods, the advantage to the firm concerned is substantially less on the new basis?

Dr. Bray

I would not dissent from that, and it is an interesting comparison to make; my comparisons, I am afraid, are on a different basis.

I would freely accept that the cash return to the firm in deciding whether or not it undertakes a new investment project is less under the present scheme than it was under the rates as they stood in 1964, but I would add, "so what?". Here the evaluation depends on the direction on which we are seeking to move. My first question in this respect is, why discriminate between capital and operating? With the far faster depreciation rates which one has to use in industry today, with increased obsolescence and the uncertain life of products, the distinction is becoming increasingly artificial.

I spent the greater part of my industrial life 60 per cent. operating and 40 per cent. capital, like a previous Member of this House, who was part mortal and part fairy. The lunches which were sometimes given to trade union officials were treated as operating expenses, although the lunches to journalists were treated as capital expenses.

I believe that all this is fully appreciated and understood by the operating management of industry today which finds the greatest difficulty in making these distinctions. The distinctions have to be made, however, for accounting and tax purposes. Therefore, it was only natural, in my view, for the C.B.I. to plump for free depreciation as the only reasonable basis, in the long term, for assessing capital allowances and incentives and so on. But this was an utterly unrealistic choice for the C.B.I. to offer its members without posing the question, "How would you manage the transition? How would you manage the year or two when you were not collecting any company taxation at all because future investment allowances were wiping out taxable income?" The only way in which you can manage it is to increase the basic rates of tax in the transitional years, while moving over to free depreciation basis.

I would like to hear hon. Members opposite say whether they accept the desirability of increasing the basic rates of tax in order to move to this, perhaps, ultimately desirable state. I would be ready to see a higher rate of tax for the transition to make this move possible. However, taking a realistic view of the position today, one knows that we shall have to work with diminished investment incentives of the type which we have now, which I do not see as a permanent feature, but moving on in due course to operating on a free depreciation basis.

I would hope to see developments in the selectivity of the investment incentives. I do not dissent from the initial selection made of plant and machinery in manufacturing industry. The points which the hon. Member for Bornemouth, West made about the tourist industry are understandable, as are the points of those who have spoken about the service industries and transport. But we are faced with the inescapable problem of the balance of payments, and we must operate as close as we can get to the balance of payments, which is overwhelmingly a matter of operating on the efficiency of manufacturing industry in the short term.

I hope that these points about the necessity for efficiency and for proper investment over the whole range of economic activity will be granted and provided for in the long run, but I hope that the actual cash investment incentives will become more precise and, therefore, lighter in their total volume and more sharply angled at the points where they are most needed, making possible a reduction in the total cost of the scheme.

To be selective at all we need a new machine—an increase in the bureaucracy, to put it one way—with the one thousand or more civil servants about whom the right hon. Member for Altrincham and Sale (Mr. Barber) spoke. But to be selective on a crude division is about as difficult as being selective on a finer division. Once we have the machinery to be selective on this relatively crude division I hope it will not be long before this, in turn, will develop to selectivity on a finer basis.

One possible criterion which we might have had was that which I have understood from the Press the Ministry of Technology was interested in; encouraging the use of advance designs of machine tools and engineering equipment generally. Let us by all means have some of this type of selectivity introduced, but I sense that we are, at least in part, frustrated from moving in this direction because we are operating Government policy on the two levels about which I have spoken—the rule-makers in the Treasury, Board of Trade and elsewhere, on the one hand, and the rule appliers, the thousand or more civil servants who deal with the operations of firms, on the other. If we could blur this distinction and introduce a finer criterion to operate by, I am sure that the system would be practicable in administrative terms.

If we had this move towards almost dismantling the system of investment allowances and moving towards a system of free depreciation, by becoming more highly selective—more discretionary in the operation of the rules by civil servants—we could take a certain attitude to the measures which are now before us and there may be directions in which they could be modified in the legislation which is to come before the House.

I will give an example concerning the treatment of computers. There has been a great deal of interest in the suggestions for the encouragement of technologically advanced methods in industry. It seems strange therefore that a computer which is used for production planning in a development district carries only a 20 per cent. investment grant whereas an ordinary run of the mill machine tool carries a 40 per cent. grant in the same workshop. I should have thought that to increase the investment grant on computers from 20 per cent. to say 40 per cent. would begin to have some effect on the readiness with which firms would use computers and that it would at the same time remove what seems to me to be an unfortunate disincentive to use computers in the areas where we hope industrial development and modernisation will go ahead at the fastest rate.

7.3 p.m.

Mr. Geoffrey Hirst (Shipley)

I trust that my hon. Friend the Member for Bournemouth, West (Sir J. Eden) will forgive me if I subscribe to the proposition that no speech from the back benches should, in any circumstances, occupy more than 15 minutes of the time of the House. I intend to abide by that proposition. When the hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) achieves that, with time to spare, no hon. Member need be ashamed of such an endeavour.

I regret that the right hon. Gentleman the First Secretary is not in his place, because I have certain things to tell him. He was with us earlier, and I recall that when we were debating the last Finance Bill I complained that he did not spend sufficient time in the Chamber. After his speech today, I will not again grumble about his absence. However, I would have liked him to have been here to listen to my remarks, because I must take him severely to task.

As my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) made abundantly clear, it is a fact, without a shadow of a doubt, that the First Secretary used extracts from speeches made by the Director-General of the C.B.I. purposely and intentionally to support the right hon. Gentleman's argument that the White Papers before us were documents he supported—although the right hon. Gentleman had not taken the trouble to check his facts.

I do not think that this is a disclosure to the House, but for between 25 and 30 years I was a member of various regional councils, economic committees and other bodies of the F.B.I. I am still a member of a committee of the C.B.I. and I therefore know something of what C.B.I. thinks on this subject. I am not, however, in a position to announce precisely the view which the C.B.I. takes on this issue, remembering that its findings have not yet been published. But I can say with considerable authority—because I am on the Economic Policy Committee of the C.B.I.—that the First Secretary had no grounds whatever for making the statements he did. Had the right hon. Gentleman bothered to check his facts—and considering the position he holds it would have been decidedly prudent of him to have checked them—he would have seen that he should not have used such a dirty trick—[Interruption.]—to support the statements he made. The right hon. Gentleman is not here, but it is well known in the House that I am always prepared to say to a man's face what I say in his absence.

I recall the Finance Bill debates we had last year and the remarks of the right hon. Gentleman the Chancellor of the Exchequer. It is interesting to note that in April the right hon. Gentleman said: It is, of course, true as a piece of arithmetic that the lowering of the rate of any tax does in the one sense reduce the value of any relief given from that tax."—[OFFICIAL REPORT, 6th April, 1965, Vol. 710, c. 256–7.] I sometimes wonder what the business people generally now think about that statement of the right hon. Gentleman. Not only is it not a matter of arithmetic, but the right hon. Gentleman has not given any relief at all to many quarters of industry. It would have been reasonable for him to have said at the time that he had certain ideas in mind—that is, if he had the slightest idea of what he would do later on. Half the trouble with the present Government is that they do not know what they will do next.

I followed the thoughtful speech of the hon. Member for Middlesbrough, West (Dr. Bray), although I did not agree with all of it. One of the great troubles about his argument concerning the amount of taxation needed in order to switch to a free depreciation basis is that the Government, because of their foolishness in this and other matters, have left themselves absolutely no room in which to operate. They have imposed rollicking taxes worth hundreds of millions of £s and they have left themselves no room to take other action. They have not taken note of the basic needs of industry, and these shocking White Papers do not deal with those needs.

No Member of the Government seems to appreciate what this subject is all about. They cannot explain how their new proposals will work, and nobody really believes that this is in any way a scheme for giving investment incentives. It is grossly inefficient to produce a document which will benefit firms irrespective of whether they make a profit or a loss. The Government have not begun to think in terms of what a free enterprise system means. Many years ago the late Aneurin Bevan said to me, when I was criticising his party, "You know, Geoffrey, you must appreciate just what is wrong with my party. They only believe in half-way Socialism. You must either have full-blooded Socialism or a private enterprise system. I support one, you support the other, but my party supports neither". That is roughly where the party opposite stands today.

I apologise to hon. Members for speaking quickly, but I intend to keep my promise to take 15 minutes at the most to make my contribution.

Consider the way the Government are divorcing the company from its shareholders. I recall complaining about that during an earlier financial debate. First, profits are favoured over dividends, and now investments are favoured over profits. The only redeeming feature—although it cannot be called even that—is the promise that the Government will speed up the giving of investment incentives. I can only forecast my strong conviction that we will have a fresh horde of civil servants and a monumental waste in Whitehall as well as in industry. I regret to say that this will be a ghastly waste of everyone's time. Are hon. Gentlemen opposite not aware that delay by itself depreciates the value of what is pushed out in the form of incentives?

This whole exercise shows that not for the first time the Government will not learn by their mistakes. Should they not have learned by now? They must realise that a planner's paradise can be something like hell on earth if the Government constantly make mistakes in the name of assisting industry. I am not convinced that the element of discrimination between development and other areas, on the one hand, and other sections of business, on the other, makes any sense at all. It certainly does not fit into any consultations with which I have been involved, and I cannot believe that the consultations which do take place—and I have heard a lot of them—are in the least satisfactory.

I cannot help observing that the trades and services which make the biggest demands on manpower—remembering that manpower is our scarcest asset—are completely left out of the Government's new ideas. Those are the very concerns which should be encouraged to install labour-saving machinery, yet they are the concerns which are excluded. Equally, it appears unwise to discourage the existing trend to mechanisation in the construction industry.

My hon. Friend the Member for Bournemouth, West has drawn attention to the utter stupidity of giving no incentive at all to the hotel, catering and tourist industries, industries which have a remarkable degree of growth in earning foreign convertible currency. It is just as we forecast in the Finance Bill debates—the Government have swallowed the planners' delight without measuring the consequences. They embarked in the Budget on disturbing taxation changes, and they are now drawn into dubious methods of getting out of the consequences of their former folly.

The other White Paper deals with the Industrial Reorganisation Corporation. I have had just a little experience in this field, as for some years I was director of a house that dealt in a modest way with amalgamations. I have also recently taken some trouble to consult other people, and their experience has been the same as mine, which is, broadly speaking, that at no time—unless the Government put on a credit squeeze—can we think of an instance where a worth-while merger or amalgamation cannot take place because of lack of money. The ordinary market can provide the money.

If the argument is that the Government are putting on a squeeze, where is the sense of their economic policy if they are to dole out money on Treasury bills—manufactured currency—because the markets cannot do it? If that is the idea, it does not make sense either. It all smacks of some degree of intention of gradually getting control of a greater part of private industry.

I do not think that the agency's work will go as far as the Government make out. The market firms concerned go out round the country. When I was in the northern office in Manchester it was my job to contact people in the business world to see whether they would enter into various arrangements. The idea in the White Paper that the merchant banker sits in his office smoking his pipe and waiting for people to come to him to make a merger is nonsense. He must use every reasonable means to try to find out businesses that want to amalgamate.

The agency work should be separated from the provision of finance. Whenever possible, the market should be used in preference to this organisation. That has been slightly promised, and I see no reason why it should not always be the case. If Treasury funds are used, it must be at the full interest rates. We have heard that there will be no compulsion, but will there be no pressure, no Government use of buying power and talking over of the type that has gone on before? I refer to the sort of framework in which the F.B.I. got tied up with the declaration of intention. That paper was not available for all to see; it had to be handed back after being signed in front of the Press. And industry is now finding itself being obligated in ways never imagined.

We have not had an assurance that this £150 million will be the ceiling. Does anyone here imagine that we shall sit comfortably by and accept Government assurances? If there is to be another £150 million, bang go the Government assurances that they are not trying to creep in and gradually control private industry. No one will wear that for a minute in this House, so we must have strong assurances, because I want to be as practicable as possible in order to save what can be saved from the confusion and muddle.

I hope that industry will see that in this case its best advantage is to try to avoid having to deal with this organisation and, instead, discover organisations in the City that can do this sort of thing in the ordinary way, using market value and money that already exists. Then we shall not be faced with this dangerous game with this organisation, with perhaps the likelihood of its printing Treasury money to cover its, manifestations.

7.15 p.m.

Mr. Edmund Dell (Birkenhead)

To anyone who wishes to get the economy moving and developing rather faster, it is very depressing when hon. Members opposite who claim to have influence in the affairs of the C.B.I. make the sort of speech we have just heard from the hon. Member for Shipley (Mr. Hirst), which is nothing but another call to industry not to co-operate with the Government in managing the country's affairs. It is certainly true that, whatever Government may be in power, if there is to be no such co-operation we shall all suffer. The hon. Gentleman's attitude now, and on previous occasions, can only be disastrous for the country's economic future, and I only hope that the C.B.I. will pay as little attention to his speech as I am sure the Government will.

One of the most important questions we have to ask about the country's economy is: why is investment so low? The right hon. Member for Orkney and Shetland (Mr. Grimond) gave figures illustrating how low our investment is relative to the situation in other countries. For many years now we have had a system of investment incentives—introduced very largely under the previous Administration—as good as any that has existed anywhere in Europe, yet the increase in the percentage of the gross national product going to investment has been very small.

We must seek the reasons for this, if they can be discovered, and see how far the Government's proposals meet the requirements of the situation. Unfortunately, the reasons for the low rate of investment are not well understood. I suggest that there are three reasons. They may not, in fact, be reasons but symptoms, but to me they appear to be reasons, and I want to consider how far the Government's proposals in the two White Papers go to meet the problem.

The first reason that emerges again and again in conversations with industrialists is the continual economic stop-go, the lack of confidence in future development, the lack of certainty of being able to sell all one produces if one does invest. All this is tied up with the balance of payments. Many economists write this argument down, but I think that it is a substantial factor in the minds of many industrialists considering investment projects.

Here the Industrial Reorganisation Corporation and the proposed system of investment grants are likely to assist in regard to what is the basis of the stop-go problem—the unsatisfactory state of the balance of payments. Investment for export has a higher element of risk than investment devoted to supplying, consumption in this country. I think the system of investment grants by increasing the profitability of an investment will make a contribution—a small, but significant and important one.

The second reason for the low rate of investment in this country was suggested recently by Professor Bruce Williams of Manchester University in the C.B.I. magazine British Industry as being a scarcity of investment proposals. During investigations that he and Professor Carter had carried out in British industry they had found this scarcity of ideas for new investment.

Here, I think, there are two requirements: first, additional scientific research by those companies that do not now sufficiently engage in it, and, secondly—and very much more important—far more market research, especially market research relating to overseas markets; market research abroad. Then we could have far more export-orientated or export-induced investment. This is primarily a management question, not a question with which I think the two White Papers will assist. Here one is confronted with the whole quality of British management.

The third reason which seems to be seriously affecting the level of investment in this country is a fear of risk-taking among British industrialists, a fear of risk-taking particularly in relation to exports and a fear of making the sort of investments which will produce exports and which rely for their profitability on exports. Here the proposals in the two White Papers will assist. I think a system of grants directed to manufacturing industry will assist because the risk of any export-orientated investment will be smaller and the investment which is proposed will appear more worthwhile in itself.

The proposal of the Industrial Reorganisation Corporation is important in this respect because, as my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) suggested, nothing is more important for promoting the development of exports by this country than increasing the size of the industrial organisations engaging in exports. Exports are undoubtedly assisted by having large companies which are capable of running proper overseas organisations to sell their products.

In these ways these two proposals the Government are making are directed to the important question of why the investment level in this country continues to be so low despite the investment incentive system we have had in the past. I must confess that I do not believe that the effect will be dramatic, but, nevertheless, I certainly think that in so far as proposals of this sort can make a contribution to this problem these will do so.

I wish to refer to certain of the remarks made by the right hon. Member for Altrincham and Sale (Mr. Barber) when attacking the proposals which the Government have brought forward. He referred to start with to the C.B.I. review and posed a suggestion that British industrialists were against the proposals regarding investment grants which the Government have brought forward. I think the review which the C.B.I. did is interesting, but I interpret it as leading to conclusions directly opposed to those which the right hon. Member suggested.

First, more than 50 per cent. of those approached did not answer the inquiry. It is a pity that one has to learn that fact from the Press because it is not included in the documents which the C.B.I. published on the review. Secondly, leaving aside the proposal of free depreciation—which is accepted I believe by the C.B.I. as impracticable at the moment—the real conclusion on this matter is given on page 8 of the document, where it says: On this basis of a single transferable vote…"— that is, among the less than 50 per cent. of those who did reply— a straight choice between the existing system and a 15 per cent. cash grant would leave the former In first place with 53 per cent. of the respondents' votes against 47 per cent. in favour of a cash grant In fact they are comparing the existing system as against a 15 per cent. cash grant, when what we have is a 20 per cent., and in development areas 40 per cent. Who can possibly say on the basis of this report that British industry is against these proposals, especially taking into account the fact that more than 50 per cent. of those approached did not reply and that it is those who were approached and did not reply who are among the most important people with whom we are trying to deal?

Mr. Barber

Although I do not challenge what the hon. Member said, perhaps he will take account of the fact that it is stated under the heading of "coverage" that the respondents accounted for close on 50 per cent. of gross fixed investment in manufacturing industry in the United Kingdom over the period 1956–1964. This is of real significance. I do not want to intervene for too long, but I wonder if the hon. Member will read out the next four following lines from the passage he read? I am not suggesting that he deliberately did not go on with the quotation, but I think it relevant to what he was saying.

Mr. Dell

I agree that those lines are certainly relevant to what I was saying. I accept the fact that the coverage of this document represents, as the C.B.I. says, 50 per cent. of gross fixed investment. The point is that more than 50 per cent. did not reply and among those who did reply the margin in favour of the existing system was very small compared with those in favour of the 15 per cent. grant. In regard to the four lines to which the right hon. Member referred, the figures on which that conclusion is based are not given.

We have the 53 per cent. against 47 per cent. and the fact is that we are talking about a 20 per cent. grant and 40 per cent. grant in development areas, not 15 per cent. It is extremely questionable whether on the basis of these figures one can come to the conclusion that British industry is against these proposals. I would guess that now they know a great deal more about what the Government propose they will favour the proposals rather more strongly than right hon. Members opposite have suggested.

Mr. Peter Emery (Reading)

I am sorry to interrupt the hon. Member but this is a very relevant point and I am certain that he would not want to mislead the House. The points which the hon. Member says have a bearing are in my view terribly relevant, because the document says: Respondents whose investment decisions are sensitive to investment appraisal—and these are growing in number with increasing sophistication of investment appraisal—show a strong preference for the existing system of capital allowances over the three systems of incentives. This is relevant. While I accept the figures the hon. Member for Birkenhead (Mr. Dell) has given, I am certain that he would not want to hide that fact.

Mr. Dell

I quite accept that, but the whole point of the new system is that we want to bring within the sphere of investment grant and incentives those firms which are not sensitive to investment appraisal. It is precisely those firms which we want to influence. If the hon. Member for Reading (Mr. Peter Emery) will look at page 3 of the document, he will find that even now only 45 per cent. of large investors use D.C.F.-type calculations even for very large expansion items—in other words, 55 per cent. do not. It also says on the third page that only 34 per cent. use it for replacement items, so 66 per cent. do not. What the hon. Member said confirms what I said.

The right hon. Member for Altrincham and Sale dealt with the principles involved and threw a dramatic charge across to the Government by saying that the Government do not believe in the market economy. The right hon. Members does not believe in the market economy either. Anyone who believes in the market economy would not have a system of investment incentives because a system of investment incentives distorts the market economy for very good reasons of economic planning. The argument which the right hon. Member tried to use in the course of encouraging his own side instead of criticising the proposals of the Government was the sort of argument from which I should have thought this debate does not benefit, unless he is now stating on behalf of the Opposition that the Opposition now accepts the views of the right hon. Member for Wolverhampton, South-West (Mr. Powell).

The right hon. Gentleman accused us of abandoning the profitability test, but the old system of investment incentives also reduces the significance of the profitability test in any proposal for investment that an industrialist is considering. This new proposal does not eliminate the profitability test. Industrialists will still put their money into any investment and will still be very likely to consider whether their money will make a profit. The profitability test remains, and remains to an important extent, but this proposal has the effect of encouraging risk taking, and that is the most important result we can expect from it.

Many criticisms have been made about the regional implications of these proposals. I am very glad to see my hon. Friend the Member for Stockton-on-Tees (Mr. William Rodgers) in his place on the Front Bench, because if there is one field in which the Government have taken beneficial action it is in dealing with the regional problem, as is evidenced, for example, by the fact that unemployment in my own constituency has decreased by nearly one-half since the Labour Government took office.

The trouble is that increasingly and to an unfortunate extent the debate between the Government and certain sections of British industry, fortunately by no means the majority of British industry, is dominated by doctrinaire attitudes on the other side of the House—not on our side. Both the Economist, which is not a paper which has been recently favourable to the Government, and the Financial Times have said that this proposal of the Industrial Reorganisation Corporation has merit if it is properly administered, yet some hon. Members opposite can see no advantage in it. The Chairman of I.C.I. has made ridiculous doctrinaire statements on the subject. The representative of the C.B.I. has evidently now left the Chamber, but the Confederation in an editorial in its magazine British Industry on 7th January of this year made this quite extraordinary statement, which I think must be a record in doctrinaire statements on this subject: If private enterprise believes fervently in private enterprise, as indeed it ought, then it should oppose both Plowden and Fairfield as a matter of principle no matter what the circumstances might be. I emphasise: No matter what the circumstances might be. I challenge hon. Members opposite to produce a statement more doctrinaire than that.

The fact of the matter is that, if our economy is to develop faster than has been our experience in the past, there must be co-operation between Government and industry. The C.B.I. in its official statements goes contrary to much new thinking amongst industrialists, who realise, on the basis of experience in this country and elsewhere, the importance of co-operation between government and industry. The Government must be responsible for the central economic direction of the country. I regard these two White Papers as valuable steps in the right direction.

7.33 p.m.

Sir Fitzroy Maclean (Bute and North Ayrshire)

I do not propose to follow the hon. Member for Birkenhead (Mr. Dell) into all the intricacies of his very interesting speech. I will just take him up on the question of who is doctrinaire and who is not. Any hon. Gentleman, especially an hon. Gentleman who sits below the Gangway, as he does, should be careful about calling us doctrinaire, because he is a member of a party which has nationalisation for nationalisation's sake written into its constitution.

Much has been made of the simplicity of the Government proposals. The hon. Member for Middlesbrough, West (Dr. Bray) touched on this. Simplicity is not everything. I was glad that the hon. Member for Middlesbrough, West referred also to selectivity. This is something which the White Paper on Investment Incentives badly lacks. I was glad that my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) pointed out that the new grants are to be paid regardless of profitability. I do not think that anything that the hon. Member for Birkenhead said refuted my right hon. Friend's arguments. There is no doubt that a grant paid as these grants are to be paid does not impose the same check on profitability as a tax remission.

It seems as though we shall pay the price of simplicity. Simplicity is always a very expensive luxury, for people with simple tastes are always those with the most expensive tastes. We shall pay for this alleged simplicity in a plethora of new civil servants.

Another sign of simplicity, I suppose, is the judgment of Solomon which cuts industry in half according to whether it is manufacturing or extractive, on the one hand, or a service industry, on the other. That, as I hope to show, can be very unfair and also very destructive of the alleged purposes of the White Paper.

Speaking as a Scottish Member, I share the dismay of Edinburgh Members, including, I have no doubt, the hon. Member for Edinburgh, Leith (Mr. Hoy), whom I am glad to see in his place on the Front Bench, and of local authorities, for that matter, because they have made their attitude quite clear, at the exclusion of Scotland's capital from the new development areas. We shall be told that the reason for this is full employment; but is it possible to talk about full employment in the Edinburgh area when there is depopulation on the scale that exists in the Borders barely a score of miles away? Is it really logical to spend £6 million of the taxpayers' money on Leith Docks but at the same time to discourage industrial expansion in the area? The Government show signs of reconsidering their attitude towards Europe. If we go into Europe, Leith Docks may be very important indeed as an international port. The Government would do well to bear this consideration in mind.

Another disappointment for Scottish Members, although it is by no means the only one, will without doubt be the Government's treatment of the tourist industry. All hon. Members on both sides are agreed about the importance of this industry, not only to Scotland, but to the United Kingdom as a whole. I thought that we were all agreed as to the need for bigger and better and more hotels. The tourist industry employs at the moment over 600,000 people. On no less authority than that of the National Plan, we are told that it earned £120 million in foreign currency in 1964 It is one of the country's main earners and main savers of foreign currency. This is quite apart from the innumerable indirect benefits which the industry brings to whatever area it is situated in. The tourist industry is a tremendous consumer of goods of all kinds.

My hon. Friend the Member for Bournemouth, West (Sir J. Eden) said something about 2 million tourists coming to England every year. I do not know how many tourists come to England, but I know that about 5 million come to Scotland. Whether some of them by-pass England on the way or whether 3 million of them escape from England to Scotland I am not sure, but the fact remains that we have so far had in Scotland a flourishing tourist industry and one which deserves to be encouraged.

The tourist industry in other countries, the competitor of British tourism, receives substantial report from Governments in the way of subsidies, grants, tax remissions, cheap credit and so forth. I have long urged successive Governments, not beginning with this one, to do more for British tourism. I should say here that not only do I represent a constituency where tourism is of paramount importance but I own a small hotel, a village inn, and I approach these problems, therefore, from a strictly practical point of view. I cannot say that either under this Government or under the last my representations met with great success.

Far from receiving any special assistance from the Government, the hotel industry is excluded from some of the assistance which the rest of industry has hitherto managed to get. There is no initial investment allowance on hotel buildings, while this is allowed on industrial buildings, in spite of the fact that hotel buildings are far more prone to obsolescence and to wear and tear than the average factory building.

Mr. Gordon Campbell (Moray and Nairn)

Hear, hear.

Sir Fitzroy Maclean

I am encouraged by hearing my hon. Friend's "Hear, hear". I hope that, when he is in office, he will bear the point in mind. I certainly shall.

That was the position hitherto, under the last Government. What have this Government done? First, they disallowed entertainment expenditure. This was one blow to the tourist industry. Second, they imposed building licences on hotels, while proclaiming the need for more hotels, but they did not at the same time impose building licences on factory buildings. Now, the hotel industry is to lose the one piece of assistance which it did have under the last Government. It is to lose the investment allowance on hotel equipment as opposed to buildings.

Being a service industry and having fallen on the wrong side of the judgment of Solomon, the hotel industry will not qualify for the new cash grants. Thus, it is to lose the one little bit of help it was getting, and it is to have nothing in its place. Is this the way to encourage building and the equipment of more hotels? Is it the way to modernise the tourist industry and attract more tourists? I ask the Minister to bear these considerations closely in mind.

I turn now to the effect of the Government's proposal on yet another so-called service industry which, as such, is excluded from the scope of the new grants. Here again, I declare an interest. I speak as President of the Relay Services Association of Great Britain, which represents about 150 companies engaged in providing television and radio reception by wired relay systems. I have already written to the right hon. Gentleman on this subject. Plans for the installation of relay networks and systems of this kind are essentially a long-term proposition. One is investing heavily in something which does not bring any return for a number of years, and, depending on the density of the population served by these systems, it may be as many as four to seven years before a firm even breaks even and has any hope of a reasonable return on capital. Clearly, this involves planning a very long way ahead. It calls for long-term contracts and long-term capital. It has involved, as hon. Members will understand, the reasonable assumption that there will be no radical or sudden withdrawal of various kinds of tax allowance.

It is for this reason that the White Paper proposal to withdraw investment allowances as from the quite arbitrary date of 17th January has come as such a shock to this particular industry. Taken together with the new Corporation Tax, it has at one blow not only falsified the plans of many relay companies and firms—some of them are quite small firms—for future capital development but it has falsified the whole basis of a lot of existing current contracts which were negotiated on the assumption that existing fiscal inducements would not be suddenly withdrawn. In short, not only has forward estimating been thrown out but, as often as not, the slender margins of profit on past deals will now disappear altogether.

It is quite natural and right that the Government should want to help manufacturing industries, even if they manufacture only bingo cards. But do they want at the same time to penalise—that is what they are doing—service activities such as the two I have mentioned, the hotel industry and the relay services?

I realise that there are some people who do not like either television or radio, but the general public does, on the whole, and they constitute a definite amenity for most people in this country. I cannot believe that anyone who accepts the need for television or radio reception will dispute that the relay companies do a good and useful job. For one thing, they provide improved reception. They provide reception where, otherwise, reception is not available for geographical or other reasons, and they help also to make our towns look better, or, at least, stop looking worse by, to some extent, preventing the proliferation of television masts and aerials. The practical and active interest which has been shown by local authorities all over the country, particularly by the new town corporations, in relay services is strong evidence of the need for such services and of the good work which they do.

There is one more point which perhaps would not occur to everybody but which is nevertheless relevant. It is worth recording that the relay companies also work in exporting. A number of the larger concerns have obtained contracts for installing systems of this kind overseas.

Surely the Government must accept that hotels are not so much luxuries as necessities and that they play an enormous part in bringing tourists and businessmen to this country. There is a need for a great many more and better hotels than we have at present.

Paragraph 26 of the White Paper on Investment Incentives states that the scheme for investment grants will not in general cover service activities. Perhaps I am being rather optimistic in seeing an indication, in those words "in general", that, when the time comes to draft legislation, the Government may be prepared to show themselves open-minded at any rate towards marginal and hard cases. I hope that, when the time comes, they will bear in mind the points I have made and consider whether they really want to penalise either of these industries and whether they could not make exceptions where called for.

7.52 p.m.

Mr. Peter Shore (Stepney)

As I want to be brief, I hope that the hon. Member for Bute and North Ayrshire (Sir F. Maclean) will not think me discourteous if I do not follow him. I want instead to come to what I consider to be the main point of the debate. The objectives of these two White Papers need to be clearly understood and discussed. As I see it, the purpose is to help rectify what most of us would agree are four major defects in British industry.

One of those defects, obviously, is that we have not invested enough over the years. The second is that the quality of our investment, whether one takes balance of payments criteria or social regional policy criteria, has not been of the kind we want. The third is that the structure of our industry is in need of very considerable change—just how much we do not know, because we have not studied the matter and have not the necessary information. But at least we know that major change is needed, and, of course, to some extent it is going on all the time.

The fourth defect is that we are failing in some ways to develop new activities of industry. We see opportunities created—many are pioneered to some extent in public research and development corporations—but there is not the follow-through to manufacturing industry. All these are defects in British industry to which these two White Papers are directed, and it is against these needs that we should judge the effectiveness of the White Papers.

First, I want to deal with whether or not the new system will help greatly to increase the level of investment in British industry. I am a sceptic about this, for a number of reasons, not least because I do not think that this is the decisive factor in influencing investment decisions of private industry. Indeed, I am not sure that we know what those decisive factors are. Anyway, I am certain that the best we can do here is to provide adequate incentives.

The right hon. Member for Altrincham and Sale (Mr. Barber) made a tremendous fuss about what he detected as differences in the cash value of the incentives under the new grants system and those under the old investment allowance system of the Conservative Government. But the marginal difference is, I suspect, extremely small. What he did not say and what he should have said was that the Conservative Government only introduced their system in 1963 and that it gave a very violent stimulus to industrial investment at that time.

There had never been anything like such incentives to British industry, certainly not since the war—and it was done deliberately to get industry out of the savage deflation into which it had been plunged by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) though his measures of 1961. I am sure that the new system will give the incentives that are required and that, whatever the calculations turn out to be, the results will be far better than anything we have had before, at any rate up to 1963.

Secondly, there is the quality of investment. This is fairly obvious. There is to be a 40 per cent. investment grant—double value—to a firm going to an area of high unemployment, into one of the new and extended development areas. Clearly the grants will make a big contribution there. Again, the attempt to be selective in terms of manufacturing industry and a certain amount of science-based industry is both acceptable and right. Therefore, I, too, wish we could develop more selective means to define where incentives should be given.

The third aim is to help change the structure of British industry. Mergers are going on, but there are mergers and mergers, and one of the best pieces in the White Paper on the I.R.C. is the fine distinction it draws between mergers and take-over bids which are helpful to industry and which lead to the strengthening of a firm and other changes which have only a financial effect.

Here we are introducing an entirely new piece of machinery. Obviously, its rôle has yet to be fully amplified, but there are many functions for the I.R.C. to perform. By setting it up, we should make it easier to finance new innovations to industry. My right hon. Friend mentioned one when he referred to making it easier to finance innovations and develop them through public enterprises in a way that will not constantly require returning to the House of Commons for permission to carry out essential commercial decisions which should be going on all the time.

One of the great weaknesses of the public sector has been its extraordinary rigidity. There have been lots of quite sensible things which the public corporations ought to have been employed to do but, owing to their rigid structures, it has proved difficult for them to do these things. That is why I personally welcome an all-purpose Corporation of this kind which will be able to act in a much more flexible way.

I conclude by agreeing that in their purpose both of these are interventionist White Papers. These are kind of policies which we would expect any Government seriously interested in planning to put forward. The interesting thing about this is that hon. Members opposite seem not yet to have realised that the free enterprise economy, to which they pay such lavish tribute and so much lip-service, has virtually ceased to exist and that we are no longer talking about allowing the market to sort things out and to allocate resources and sensibly do this and that. In many ways it would be very relaxing certainly for hon. Members if free enterprise did that. We would be very much less busy and not engaged so often in debates of this kind. However, that is not the case.

The greatest difference between the two sides of the House about planning is that although hon. Members opposite started it when they set up N.E.D.C. five years ago, they never put any life into it, whereas in the 16 months or so that we have been in office we have been trying to do something to make planning effective.

8.2 p.m.

Mr. Peter Hordern (Horsham)

I, too, would like to be brief and I hope that the hon. Member for Stepney (Mr. Shore) will forgive me if I do not comment on what he had to say. I wish to concentrate my remarks on the proposed Industrial Reorganisation Corporation, but I should like to refer very briefly to the new system of investment incentives.

The first claim for the new system of cash grants is that they are worth more to the recipient than the old form of allowance, because they are made more quickly and especially when new techniques of discounting cash flow are used. Those arguments are self evident if the amount of money paid out is the same, or nearly the same, but the test is whether the cost to the Exchequer is greater or less and nobody has attempted, least of all the Chancellor of the Exchequer, to show that the new system of cash grants in total will be more to the Exchequer than the old system. Otherwise the Chancellor would not have welcomed it with such a degree of friendliness as apparently is the case.

It is argued that the cash will be concentrated on industrial and mining machinery and that this will help our balance of payments position. This is an attractive argument, but it is not so sound as it appears, as my hon. Friends have demonstrated, for investment in the service industries is not confined to office curtains, which the White Paper mentions, but, far more important, includes office machinery, which the White Paper does not mention, and other articles which help to raise the general performance of the country. My hon. Friends have mentioned in particular the hotel industry which is a particularly largo foreign exchange earner. Thus, the new investment scheme is an attempt to be selective, but it does not pretend to be selective on the ground of efficiency, but on what the Government deem to be in the best interests of the country. This is the notable feature of both White Papers.

The merit of the old scheme of investment allowances was that the allowances were given only as against the tax which would otherwise have been paid on the profits which had been well and truly earned, but no such criterion can be advanced for the new system. Investment allowances represent only one part of this new equation for having made their diagnosis of the condition of the economy, the Government have not only decided to weigh cash grants directly in favour of those industries which can be considered to have some effect on the balance of payments position, but they have decided that a more positive form of intervention is necessary and that therefore the Industrial Reorganisation Corporation should be set up.

In this respect the Government seem to be trying to emulate the man who broke the bank at Monte Carlo. Their schemes become ever more fanciful. The Government have tried to solve the country's problems by applying the surcharge and by changing the whole basis of company taxation and by talking about a prices and incomes policy. Up to now, none of those schemes has worked and we are now being asked for another £150 million for a new scheme which the Government have borrowed direct from Italy. Not only will the new scheme not hit the jackpot, but it is likely to cost the taxpayer considerably more than £150 million.

This scheme, which is not only irrelevant to the country's problems, but bound to be extremely damaging, is based on an entirely erroneous conception of our economic predicament. In its diagnosis, the White Paper says in paragraph 4 that there is no evidence that we can rely on market forces alone to produce the necessary structural changes which the base requires. That may be so, but there is plenty of evidence that misplaced structural change can cause considerable structural damage, and that is what is all too likely to happen.

The White Paper says in paragraph 5 that the merchant banks and issuing houses carry through a great many mergers every year but in general can act only if their clients request. That is an unworthy and totally inaccurate remark and anybody who knows how modern merchant banking methods are practised would appreciate that that was a somewhat old-fashioned notion of the practices of merchant banks. I think that that is generally recognised.

The White Paper says that some of the industries most in need of rationalisation have an in-built tendency to stay as they are. That is perfectly true, but the forces of the market cannot be blamed for this situation, because they have not been allowed to work. The quickest way to get results is to allow the market forces to work properly and to abolish the surcharge and reduce tariffs. I regret to say that that is much too realistic and unpopular an action for the present Government to take.

The First Secretary is often unfairly blamed for the spectacular failure of the Government's prices and incomes policy, although I must confess that I have not noticed that it has got him down very much, and of the National Plan. These matters in which he is engaged are comparatively small compared with the obvious concept which he has had in mind the whole time which is to be an actual entrepreneur himself. I often think that he feels himself to be a captain of industry manqué and now this new Corporation will implement what he has wanted to be all his life.

I must say in all seriousness to the right hon. Gentleman that he has made no case whatever for the establishment of the Corporation. The White Paper says that one of its objectives is to be to encourage mergers. Why, then, is there a provision in the recent Monopolies Act that all mergers involving a company with more than £5 million in assets should be referred to the Commission? I remember that my right hon. and hon. Friends fought this Clause through all the Bill's stages, as did several hon. Members opposite. It appeared to us to be a fatuous concept at the time and now the Government have recognised that by producing proposals allegedly for the purpose of encouraging mergers, although there is the earlier provision to stultify and discourage mergers.

Mr. Sheldon

Some of us feel that this provision fills a gap left by the Monopolies and Mergers Act.

Mr. Hordern

I agree that the right hon. Gentleman is now trying to say that the new proposals have some specific purpose, which is to make up for the great mistake perpetrated in the first place. However, I will not pursue that too much.

How can the Government claim to be in a better position to know whether a merger would be beneficial? What are the criteria to be used? I have never thought that the Government have sought to use economic efficiency as a criterion. One hon. Member opposite said that the economy would work more flexibly, but precisely what are the criteria which the Government will use in activating the Corporation?

Are we now to have a series of shotgun marriages? Does the right hon. Gentleman not realise that the best way to get mergers is to make life much more difficult for those companies to stay in their present condition, by creating tariffs and reducing the surcharge, and not to encourage them to make profits by cutting taxation? This is our solution. I do not think that the First Secretary is interested in getting an efficient economy. I say this on the basis of the reasons set out in the White Paper for introducing this Corporation and on the evidence of the Italian I.R.I. There has been talk in the Press about a visit of hon. Gentlement opposite, about 11 in number, who went to Italy last October. The I.R.I. started in 1933 because the Italian economy had completely broken down. It was necessary, if there was to be any activity at all, that this Corporation should be brought into being.

On the other hand, we have too much economic activity of the wrong kind. The I.R.I. owns five shipyards, all of which are losing money and the Italian Government's stake of about £212 million shows less than 1 per cent. return on the capital employed. If the Government managed to achieve that on their proposals I shall be very surprised. The Italian corporation runs a cotton mill in Naples without the smallest expectation of making money. It has recently built a steel works at Taranto, hundreds of miles from the nearest markets.

Mr. Alfred Morris (Manchester, Wythenshawe)

The hon. Gentleman refers to the steel mill at Taranto. Is he aware that the investment by I.R.I. in Southern Italy has been a major factor in the development of that region? Is he further aware that he is being somewhat derisory about the achievements of I.R.I. as he said that it began in 1933 because of the breakdown of the Italian banking system. It is a much different organisation today and it has done a major job in developing the South. What does he have to say about the Autostrada del Sol?

Mr. Horden

There are many questions which the hon. Gentleman has asked which are important. He has referred to the steel works at Taranto, in helping the problem of unemployment in the South. We have no particular problem of unemployment; if anything, rather the reverse. The Government have to make up their mind what is the purpose of this Corporation. Is it to act in a social way or is it, as I understand the avowed objective to be, to act in an economic way to get the best out of the economy?

The Minister of State, Department of Economic Affairs (Mr. Austen Albu)

The hon. Gentleman wrote his speech before the White Paper was published and before my right hon. Friend made his statement, because he said that the Corporation has no resemblance at all to the I.R.I.

Mr. Horden

I do not accept the hon. Gentleman's remarks and I do not wish to go into too much argument at this stage. One arguable point in this White Paper is the necessity that the Government have tried to adduce for this Corporation—the lack of finance from existing organisations. I do not want to cover too much of the ground of the I.C.F.C. and the F.C.I., but I should like to refer briefly to the Report of the Radcliffe Commission in 1959 which sought to find the holes in the provision of finance, and made several useful alternative suggestions. One suggestion was that term loans, as carried on in banking practice in the United States, should be encouraged here.

I see no reason why this system should not be adopted. The gap which exists is the provision of finance for what one could term real risk investment. Here the Radcliffe Report had a particularly novel and useful suggestion in proposing the formation of the Industrial Guarantee Corporation which would be solely providing insurance against risk. This might have been given far more attention and would have fulfilled the avowed objectives of this White Paper very much better. By virtue of the surcharge and the failure of the incomes policy and credit squeeze the Government have succeeded in stratifying the economy. We are withdrawing more and more from the mainstream of world trade, and the Government are trying to wrap up the economy in a cocoon by raising tariff barriers and acting as a feather bed of last resort, if even in these competitive conditions, some firms find themselves in difficulty.

This is not a policy which can last if we are ever to try to compete in world markets. The First Secretary must not sit back and consider that his work is done because he happens to make a few friends of some industrialists. The time to sit back is when we can say that British goods can compete on equal terms with those from other countries in a free market. The evidence is that he is going the wrong way about this.

8.15 p.m.

Mr. Joel Barnett (Heywood and Royton)

I have listened carefully to the speeches from the opposite benches and I have failed to detect one constructive point. The speech of the right hon. Member for Altrincham and Sale (Mr. Barber) was shocking for a debate of this sort, dealing with the economic situation. There is only one criterion in considering the two measures we have before us—whether they improve or hinder the increased growth of the economy and improve the efficiency of industry. There is no other way of looking at them. I am sure that the public is absolutely sick of hearing the party political points that we have had from the benches opposite.

o matter how brilliantly or devastingly they make such points, what the public wants to hear are constructive comments. It has had enough of what has been said or what has been done in the past. It wants action now, and it is these measures that we have to consider. All the talk and the votes will cut no ice when the Opposition seek to be as negative in their criticism as they have been. The reason behind it all is the confusion of right hon. and hon. Gentlemen opposite, the confusion that exists because of the basic underlying hatred of Government intervention. This is the real crux of the matter and it is causing the confusion of right hon. and hon. Gentlemen opposite, particularly in this debate.

On the the one hand, they do not like the I.R.C. because it is Government intervention in the private sector. It interferes with the free flow of the market. On the other hand, they want bigger incentives. It is this double think, this confusion of thought that makes them look rather foolish. If they followed the example set by the right hon. Member for Wolverhampton, South-West (Mr. Powell) they would at least look as if they had an alternative case. As it is, they are merely making themselves look foolish. Take investment incentives first of all. I willingly concede that on a purely arithmetical basis, comparing a situation now with that before Corporation Tax, the cost to a company buying a machine is higher. I accept that argument, in the arithmetical sense alone.

It is absurd to make that comparison in so narrow a sense. One must look at the picture as a whole. I should like to give an example. If a company ploughs back all its profits, buys plant costing £1 or £100,000 the balance retained in the company's reserves, after tax, is higher under the new scheme than under the situation existing before Corporation Tax. If any right hon. or hon. Gentleman wishes to dispute that I am quite willing to give way.

Mr. Patrick Jenkin

Can the hon. Gentleman tell the House what assumptions he is making about the company's distribution policy? Does he not recognise that the company has to provide profits for distribution?

Mr. Barnett

The hon. Gentleman was clearly not listening to me. I said in the example I gave that the company was ploughing back the whole of its profits. But to take it further and to take the example of that same company paying a dividend of up to 50 per cent. gross, and in some cases more of its profits after purchasing the plant, it would be left with a higher amount of retained profits than under the old system. There would be more left under the new system than there would have been under the old. If the hon. Gentleman wants the figures, I should be happy to give them to him.

Another argument put forward is that a lower cost to the Exchequer is involved and therefore that it is harmful to industry. Again, this is strictly true. There is a slightly lower cost to the Exchequer, because some classes of investment have been discriminated against. I am happy to see certain classes of investment discriminated against. I should have thought that there was every ground for giving encouragement to the purchase of a computer rather than to the purchase of a desk, or, as has been mentioned, a fur coat for an actress, or a bingo machine.

I must, however, say that it is equally unanswerable that there is a need to give the cash grant for the purchase of office machinery. The use of office machinery is very urgently needed to help modernise our offices. I should like to feel that we were considering giving the grant to the distributive trade and even to the tourist industry, for which there has been some special pleading, if we were catering for the hotel which dealt particularly with foreign visitors. But it is not easy to do this. Indeed, the only constructive comment which we have had from hon. Members opposite is a request for even bigger tax allowances by extending the amount for cash grants to more sections of industry.

We should like to do all these things, but my right hon. Friend the First Secretary of State made it clear that if we are to have some degree of priority we must deal first with the manufacturing industries. Therefore, while I favour the idea of cash grants and of selectivity, I hope it will be possible to put into the legislation a degree of flexibility which will allow us to bring in new assets and, indeed, new parts of the country quickly without having to introduce fresh legislation.

I should like to make a special plea for Lancashire here. I am delighted that at present there is no unemployment there, but we must not be over-optimistic. In this and other measures which the Government have been taking it is important that we should not only stop but help to reverse the drift to the South. One of the attractions of the White Papers before us and of other measures which have been taken is that we do not need to wait once a year for the blunderbuss of the Budget. I will grant to the right hon. Member for Enfield, West (Mr. Iain Macleod) his pleasure in being able to say, "There you are—another Budget". I would rather see half a dozen Budgets a year introduced than one Budget which did nothing but act as a blunderbuss with no opportunity of adjustment throughout the year.

It has been said that the cash grants will go to the inefficient and will encourage reskless and wastful spending. I find this a very strange argument. It assumes that an inefficient company will spend £1,000 in order to get back £200 one and a half years later. But, even assuming that inefficient companies would do this, there would be some little value from the new plant which they had purchased. The inefficient, who are not always the small firms, will find the cash grants most attractive, but the argument that it is wasteful and involves the spending of a net £800 instead of £1,000 when otherwise it would not be spent at all is rather odd.

I would have thought that to help the small companies would be particularly invaluable because they give the greatest possible margin for improvement. It is the least efficient companies which we want to help by use of the investment grant or to merge under the I.R.C. But to base an issue of principle on the simple statistical deduction of the argument put forward by the right hon. Member for Altrincham and Sale is to take an isolated view of a transaction and to give a completely distorted picture. It also ignores the fact that the old investment allowance was simply not understood as an incentive and is now replaced by a grant which is more easily understood and assessed.

I hope I have shown that, taking the picture as a whole, the investment grant is a great encouragement to industry. This is surely what we should be seeking rather than making party political points.

On the subject of the Industrial Reorganisation Corporation, I should have thought that there was no dispute between us about the need for mergers, acquisitions and further amalgamations. We agreed in the debate on the Monopolies and Mergers Bill that this was precisely what we wanted. It seems to me that we are back to the old argument of the free play of the economy or Government intervention.

The nationalisation argument is a red herring and is known to be such. If right hon. and hon. Members opposite want to read nationalisation into the White Paper we cannot stop them, but on any reasonable understanding of words this is clearly not the intention.

Mr. Biffen

Would the hon. Gentleman agree that the thought that there may be the implications of nationalisation in these proposals is not confined to right hon. and hon. Members on this side of the House? Has he read in the New Statesman the article by Michael Posner headed "Nationalisation: Italian Style"?

Mr. Barnett

We are debating not an article by Michael Posner but the White Paper. We are concerned not with what other people have been thinking or writing but with the facts in the White Paper and in the First Secretary of State's speech. I would say to my hon. Friends on the subject of public ownership that this is not the right instrument and it is not the purpose intended for the Corporation.

The £150 million which has been mentioned has tended to obscure the whole scheme. I accept that there is no shortage of money for worth-while mergers. My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) may be right in saying that we need money for medium term finance. I just do not know. But if the purpose is the rationalisation of industry—and this is what the money and the I.R.C. are for—the money would be available, assuming that it was a commercial proposition. This is perhaps the crux of the matter because if the Corporation lends when others will not, on what terms do we put in public money?

On the one hand, we have been told that competitive rates should be charged so as not to undercut private competitors such as the banks and other institutions. On the other hand, if full rates are charged for the risks involved, hon. Members opposite will no doubt ask that the matter should be reported to the Prices and Incomes Board. This illustrates the confused state of mind of hon. Members opposite. If I were lending in circumstances in which there was an unusually high degree of risk, I would want a reasonably well covered debenture and to charge a rate of interest depending on the cover. But equally I would want a little sugar. I would want an option to convert into equity, and I see no reason why the public Corporation should not do likewise. But I hope that it is not simply the intention that the Corporation should break even given one year with another or that its sole intention should be to make a profit, although, of course, where we are investing we should have a commercial return. But I hope that that is not the sole intention of the Corporation, otherwise comparison with the institutions' profits will become the sole criterion and the chairman will be constantly looking over his shoulder, to the detriment of the whole purpose of the exercise.

There is bound to be work of a non-profit nature. As my right hon. Friend the First Secretary said, it will do a great deal of work helping to bring companies together but, in the event, they may then obtain the money, if it can be so obtained, from a merchant bank or other institution. What happens then? Does I.R.C. charge as a merchant bank would charge for the work that it has done, despite not having lent any money at all, or will the administrative charge fall on the Corporation, so that we shall then have right hon. and hon. Gentleman opposite coming forward and saying, "There you are: it has made a loss".

The difference between I.R.C. and the merchant bank is not an unimportant one. A merchant bank has as its prime purpose the making of a profit for itself. I.R.C. has to make a profit for others, and I should have thought that right hon. and hon. Gentlemen opposite would have been delighted with that. But I want to see I.R.C. helping to take initiatives to make a profit for the nation, and it is those initiatives from the chairman and the staff of the Corporation which we are really going to need. Therefore we need men in the Corporation who will show a great deal of drive; and enterprise for, without it, the whole exercise will not be worth while.

I accept that I.R.C. and the new investment grants are not the answer to all our problems. I doubt if anyone has an all-embracing solution, and certainly right hon. and hon. Gentlemen opposite do not have an answer to all our problems. Even Sir Paul Chambers and Lord Beeching do not have all the answers to all of the problems. Indeed, perhaps when we have the Companies Bill on the Statute Book we will find that even I.C.I. does not have all the answers to some of its own problems.

I do not expect perfection from these two Measures. That may only be of marginal help, but those who honestly accept the need for Government intervention should welcome the two White Papers.

8.31 p.m.

Mr. N. R. Wylie (Edinburgh, Pentlands)

I intend to deal solely with a point relating to Edinburgh, and it is a matter which directly concerns hon. Members representing Edinburgh constituences, and few other Members.

While the whole of Scotland has been made a development area, there is one small enclave round Edinburgh which has been excluded from those provisions. The effect of that on industrial development in the city of Edinburgh will be disastrous in the view of many people of all shades of political opinion. It is not in any way comparable to the position of certain other cities and towns in England because of the larger sections in England which are excluded from the provisions relating to development areas. It is not in any way comparable to those part of Wales which are excluded from development areas. It is a unique provision which bears all the signs of being a token exclusion. If it is a token exclusion, it is one which is going to operate very harshly and severely on business and industrial development in Edinburgh.

I cannot understand the reasons for this unique provision. It is certainly not a question of overfull employment, because there are other areas of Scotland where the level of unemployment is just as low and in some cases lower than it is in Edinburgh. There is an area in North Fife, for example, where the level is lower, and in Galashiels and Hawick it is less than 1 per cent.; so it is not open for the Minister to say that Edinburgh is excluded because it has a level of unemployment of 1.6 per cent.

Even so, taking the level of unemployment in Edinburgh, I submit that that in itself is one of the reasons why Edinburgh ought to be included in the general development area, because the kind of industry which Edinburgh needs and with which Edinburgh can readily cope is precisely that capital intensive industry which makes small demands on limited labour resources.

Sir Harmar Nicholls (Peterborough)

My hon. and learned Friend makes a very important point about Edinburgh, but may I ask him if he gave notice to the Scottish Office that he was going to make it? I should have thought that a representative of the Scottish Office ought to be on the benches opposite to listen to it.

Mr. Wylie

In fairness to the Scottish Office, it knows about it. It has been brought to the attention both of the Scottish Office and the Board of Trade by representatives of all shades of political opinion in the city of Edinburgh.

Edinburgh has a low level of unemployment, and the kind of industry which it has been endeavouring to develop over the years, and has done so with unique success, is precisely the type of industry which is of a capital intensive nature, making limited demands on the limited labour resources of the city.

I make no apology for mentioning my own constituency, because it is in Pentlands that there is concentrated the most highly developed technologically advanced industry in this country, and certainly in Scotland. In the Sighthill district of my division there is a whole concentration of industries and firms which are typical of the capital intensive industries which will be heavily hit by these proposals.

What I am concerned about is not only that we shall not get any new industry like that—in a situation where only a few miles away one steps into a development area, why should an industrialist intending development along those lines come to this small part of Scotland which alone is excluded from the advantages of the development area incentive grant provisions—not only shall we not get any more of that type of industry, not only shall we not get development of our existing industries in the city, but I am afraid that we shall lose some of the highly developed capital intensive industries which we already have there.

I know what I am talking about because I have had discussions on this question in Edinburgh. I know of one firm which is contemplating a £2 million development in this area. This is precisely the kind of development which will be heavily hit by the provisions of this White Paper. If these provisions stand that development will not take place there. I hope that the Board of Trade and the Scottish Office will use commonsense in considering this and will keep Edinburgh in with the rest of Scotland if the whole of Scotland is to be a development area.

Mr. Barber

As there are English Ministers here, I should like to point out that there is an even worse example than that quoted by my hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Wylie). I am referring to Bridlington, which was a development district, but which has been cut out altogether, according to the map. It is not even in a development area. The people of Bridlington consider—and I believe this to be so—that this will have serious consequences for the industry and commerce there.

Mr. Wylie

I can understand that, but that is the converse of the case I am quoting. Edinburgh is put at this disadvantage, and it cannot afford to be put at a disadvantage of this gravity.

Finally, I must say a word about Leith, because I know that if my hon. Friend the Member for Edinburgh, North (Earl of Dalkeith) had had the good fortune to be able to take part in the debate he would have said something about it.

The case for Leith is incontrovertible. Only recently a massive public investment in Leith to the extent of £6 million has been agreed on as a result of long years of consideration by the Rochdale Committee, and it would make nonsense of that kind of investment if one could not at the same time develop the surrounding area to take advantage of the deep water facilities which the development of Leith Docks will provide. About 100 acres of land have been reclaimed for the specific purpose of enabling industrial development to take place in the vicinity of Leith Docks. If this White Paper excludes Edinburgh from the investment grant incentive provisions, that development will not take place. The Scottish Co-operative Wholesale Society has been intending to make a £2½ million development in the vicinity of Leith Docks, but it will not be able to do that if this kind of provision is allowed to stand. To my mind this is the negation of planning.

I am not making a political speech, because all the political parties in the Edinburgh Corporation have got together in the hope of inducing some change of view or change of heart on the part of the Government. I understand from a letter received by my hon. Friend the Member for Edinburgh, West (Mr. Stodart) that it is impossible to disentangle Leith from Edinburgh. I do not see why, but I should like to know whether the Government will consider excluding from the exclusion—if I might put it that way—the area controlled by the Leith Dock Commission, so that this vast public investment which has been promoted over the years will not be largely negatived.

I do not wish to take up any more time. I have spoken for about ten minutes on a matter which has affected only Edinburgh but about which members of all shades of political opinion on the Edinburgh Town Council, together with all industrial and commercial interests in Edinburgh, are deeply concerned and worried.

8.46 p.m.

Mr. A. E. P. Duffy (Colne Valley)

I can understand the feelings of the hon. and learned Member for Edinburgh, Pentlands (Mr. Wylie) about the exclusion of Edinburgh from the development area. Later I want to say a word about my region, from the same point of view. It may surprise some hon. Members, especially those who live in Yorkshire or have had some connection with Yorkshire, to know that there are some undesirable trends in Yorkshire which point to its being given less favourable treatment than is being given to other parts of the country which are not nearly so deserving. I sympathise with the hon. Member for Pentlands, but I shall not follow his argument.

I welcome the investment incentive scheme, and I intend to touch only upon the White Paper dealing with it. I welcome it, first, because although most investment intentions are encouraging, no one can believe that they will continue to be geared to a 4 per cent. growth rate when—and we must be quite honest about this—we are achieving only a 2½ per cent. growth rate.

Secondly, I am glad that we have published this White Paper because there are divided opinions on the subject of the desirability of such encouragement for investment. Economists disagree about most things, and there is as profound disagreement amongst them concerning the ratio between investment and growth as there is about almost any other contentious economic point.

The fact remains, as the right hon. Member for Orkney and Shetland (Mr. Grimond) said earlier, that we devote a smaller ratio of our national income to investment than does any other European nation. We are at the bottom of the growth league table. The ratio between investment and national income has been rising since the 1950s, although it has not yet paid off in terms of productivity. Only last month, in an interesting article in Lloyds Bank Review, a Mr. Angus Maddison pointed out that British industrial productivity is below that of any other Western European country north of the Alps. We come at the bottom, with 2.5 per cent. against 3.7 per cent. for Germany, 3.8 per cent. for Italy and 3.9 per cent. for France.

I am merely under-scoring the point made by the right hon. Member for Orkney and Shetland, although I am making a slightly different approach to it. I am providing the House with different information, although, like the right hon. Member for Orkney and Shetland I shall also mention Japan and make the point that the figure for Japan is 7.6 per cent.

If for no other reason the time is ripe for a fresh look at investment incentives, although there are many other reasons of a domestic nature. No one can say that the old system is no longer effective and we had practical arguments about this last spring, on the Finance Bill, when it was stated that the Exchequer was getting a poor return on its roughly £300 million expenditure.

I return to Mr. Maddison. It is significant that his article shows that in the period from 1955–64 the tax treatment of investment in the United Kingdom was no less favourable than that of all the Continental countries to which I have referred. I know that that is not the end of it and that the United States is much closer to us than to those other countries. One has to take this balanced view, but there are still grounds for dissatisfaction.

Mr. Maddison's is not the only work on this question, nor the only survey which points to the practice of all but the most financially sophisticated firms still judging an investment project by the likely gross return on its cost. Some people have implied, as I have done, that the old subsidy of £300 million a year was simply not producing the intended effect. There was undoubtedly a tendency, despite all the denials of some hon. Members opposite last spring, for the old investment allowances to be used more for the tax saving which they brought than for the modernisation they were expected to bring. Finally, although I do not expect this to impress hon. Gentlemen opposite, there was a need for a new system of incentives for investment, if only to bring them into line with the Corporation Tax.

What impresses me most of all about the investment incentives—in some senses, this reminds one of the Corporation Tax—is that this is a much more flexible system, which allows for changes in the timing of the impact of such incentives, which certainly provides for a change of location and also for a different approach to a different type of asset. I think that these changes are significant and are far reaching in their effects.

I have not heard the last three speeches, though I have heard all the others, and I felt that all the benefits which could flow from this new scheme have not been mentioned. There has been, rightly, some criticism of the scheme from the other side of the House, but against this, some of the benefits which are likely to accrue to business need to be stated.

In the first place—this has been said often enough, but cannot be overstated—because the new scheme involves cash grants, there is obviously a much better connection now between cause and effect. Second, such location is needed when so much evidence is available mat many businessmen, particularly among the smaller firms, find difficulty in understanding how tax allowances should be taken into account in trading, investment and pensions. It was said during discussion of the last Finance Bill, but it needs to be said again, that one cannot make this kind of arrangement too simple for some businessmen.

Third, many such small businessmen will no longer have to wait for profits before they begin recovering cash. Fourth, such cash grants are capable of concentration in key sectors of the economy. Fifth, the only firms which gain will be the fast-growing firms, whereas the investment needs may be outrunning the inflow of cash. Sixth, firms are more disposed to take risks for modernisation and especially in connection with exports. With today's trade figures, we are reminded also of the need to look again at the possibilities of import saving.

Finally under my heading of benefits, there is the need for more discrimination, which this scheme provides, between advanced machinery and the old standard type of machinery. Of course, objections could reasonably be lodged against the scheme and an obvious one is that which I have hinted at—that it allows discrimination.

I can understand hon. Gentlemen opposite being rather nervous at the possibility of discrimination being exercised by, say, the Board of Trade, certain people in Whitehall and Government Departments. However, they should realise that the old scheme was also discretionary. It offered a larger subsidy to some firms than to others and, as has been said, experience abroad suggests that if investment levels need to be sustained at a high and steady rate of growth, it is unlikely that that can be achieved without some direct financial encouragement from the State.

I will briefly consider some of the regional distortions, as the right hon. Gentleman the Leader of the Liberal Party described them. There are some undesirable anomalies in the scheme and I will consider them in connection with Yorkshire, which is not eligible for the full grant. Some hon. Members who know as much about Yorkshire as I do will no doubt remind me of the argument that Yorkshire should not be given preferential treatment because of its low rate of unemployment. It is because Yorkshire has such a low level of unemployment that it does not come in for special attention, let alone special treatment, these days.

The House should realise that Yorkshire's low level of unemployment is associated with its high level of migration. It lacks growth industries. Where such industries do exist in Yorkshire their rate of growth is less than the national average rate of growth. Yorkshire has the lowest percentage of employees in expanding industries anywhere in the United Kingdom, with the exception of Northern Ireland—19.4 per cent. compared with the national average of 21.8 per cent. Although Yorkshire may have only 8.3 per cent of its employees in the contracting industries—as opposed to 11 per cent. nationally—this is not sufficient to compensate for the lack of expanding industries.

I was not surprised to read an article in the Westminster Bank Review some time ago, written by two university dons, stating that the Yorkshire region had the lowest number of £5,000-a-year earners of any region in the country. The region lacks light engineering industries, in which the biggest expansion in employment is anticipated in the National Plan, and this state of affairs has been concealed for many years by the region's comparatively low level of unemployment.

Certain undesirable trends are beginning to break the surface. This concealment has influenced sucessive Governments, and rightly so, in their policies, whether in respect of I.D.C.s or preferential treatment—and that applies to this latest scheme for investment incentives. I urge the Government to note that they are likely to be under pressure from hon. Members who represent Yorkshire constituencies to persuade them to look more closely at the position of Yorkshire in relation to special treatment. The Government may not think that Yorkshire deserves special treatment in the scheme before us, but if certain trends continue we will ask for this special treatment in similar schemes which are introduced in future.

8.54 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

I will try to compress into six minutes a speech which is the first I have been able to deliver in the House for eight months. This will take some doing.

The theme behind both White Papers—the assumption on which they are based—is that business men who are short of money with which to do what they ought to do, either in investing or merging, will, given more money, invest more and merge more. It is that assumption which I completely challenge. The investment grant, as I have always held the investment allowance, only marginally induces people to do what they would otherwise do in any case. They regard it as a sort of bonus and, in the same way, I do not believe that there is any material shortage of money for the purpose of bridging a merger or for any of those other purposes. Indeed, in the latter case, it may do harm, because it does not tackle what is the major fault of British industry today.

That trouble is not lack of finance capital, except very much in the exceptional cases to which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) referred. The trouble is a sort of lethargy from top to bottom; a sort of fatty degeneration, not due to lack of money but to too much taxation, and to too much kindliness in regard to sacking a lot of overmanned staff that should be thinned down. Public money should only be spent if it is directly linked to curing that trouble, and not spread about—whether 20 per cent. or 40 per cent.—all over the country in giving bonuses to people of whom 80 per cent. or 90 per cent. will in any case invest.

I contrast with this very free-handed method of spreading public money about the way in which public money was strongly and specifically linked to the thinning down of the cotton industry under the last Administration. It was a condition for the grant of public money that the equipment should be renewed, that there should be direct physical investment for higher productivity, and, as a natural consequence of that, that the labour force should be reduced, because the cotton industry was overmanned. As a direct consequence of that policy—and I am not totally anti-interventionist, as I think that what I am saying shows—the cotton industry today is producing more, and more cheaply, and is employing far fewer people than before that operation was undertaken. I see nothing wrong in a repetition of that operation, but these vague disposals of public money without any sort of guarantee where or how they are going seem to be totally contrary to the economic doctrine on either side of the House. It therefore requires a good deal of justification.

In the promotion of mergers, about which some hon. Members opposite have been particularly anxious, it seems to me that we are getting in danger of worshipping size, again for its own sake. When the President of the Board of Trade was sitting on these benches, he spoke in very different tones. I do not have time to quote his speech in 1962, but he then very strongly attacked the size, for example, of A.E.C. and G.E.C.; they were too big. Now, of course, the theme of the other side is that British industry is not big enough—it cannot instal computers, it has not the export facilities, and so on, and we must make it bigger. All I say is that if we artificially create greater size, we may get more computers installed and have a better export organisation but we will lose one great sanction against overmanning which, as I have said, I regard as the real fatty degeneration of British industry today.

There is no doubt, and this aspect was touched on by one or two hon. Members opposite speaking from below the Gangway, that as soon as we get organisations too big there is a lot of concealed underemployment, and a lot more restrictive practice than occurs in the smaller firms employing fewer people. I believe that everyone would accept that statement. Therefore, what we may gain on our computers and our export facilities, we have to be very careful we do not lose on the real trouble with British industry, which is that there is in a great many areas a great deal too much underemployment.

I undertook to sit down at 9 o'clock, and I shall do so. It seems to me that the case for the spending of public money to this degree has not been made out. I do not regard these two White Papers as a sinister Socialist plot, but I do not think that they will in any way remedy what is the real trouble that we all face today.

9.0 p.m.

Mr. Iain Macleod (Enfield, West)

It is, of course, by the wish of the Government and not of the Opposition that we are debating these two White Papers together. It would have been much better if we could have discussed them separately. The debate was opened by the First Secretary of State and Secretary of State for Economic Affairs in a speech which was remarkably uniformative and, in at least one aspect, an extremely unhappy speech.

I start by talking about the Industrial Reorganisation Corporation because we argue against the Investment Incentives White Paper in our reasoned Amendment. Our attitude towards the Industrial Reorganisation Corporation is that of the preacher about sin—we are against it. We do not think it is the Government's business; we do not think the Government do it very well; we do not think the Government should do it at all.

Before I launch into some more detailed criticisms of the I.R.C., I should like to make it clear, because these things are not always reported outside as they are said in the House, that anything I say is in no sense directed against Sir Frank Kearton. The only attractive part about the I.R.C. is that the First Secretary has persuaded Sir Frank Kearton to take the chair. He is a man of very great ability, and he will understand, as we do inside the House, that our criticisms are in no way personal or directed against him.

This White Paper is a short one, it is vague, and it might be deliberately vague. Certainly, in my view, it is one which is riddled with fallacies. Because I always like saying things to people's faces, perhaps I may be allowed to repeat half a sentence I said before the First Secretary came in. I said that his speech was uninformative, which is a matter for debate. I also said that in one respect I thought it was unhappy. What I was referring to—I do not want to hammer the point—is that although it may well be that there are rules of procedure which bring the words within our Parliamentary to and fro of debate, I am bound to say that I do not think he would wish his reference to my hon. Friends from Ulster to stand uncorrected on the pages of HANSARD.

Mr. George Brown

I am grateful to the right hon. Member, and I am sorry that I was a wee bit late coming in. We have many to-ings and fro-ings across the House. If anyone on either side feels affronted by what I said, holding my views as I do, may I say this? We are all hon. Members of this House and we address each other that way. I would wish our arrangements to stay that way. I simply say to anybody who feels affronted by what I said that that certainly was not my intention.

Mr. Macleod

Very well. I am grateful and accept that.

I have said that the Industrial Reorganisation Corporation White Paper is riddled with fallacies. Perhaps I can demonstrate some of them. First, there is the fallacy to which my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) referred in an admirable speech—over-concentrated it might have been—the fallacy of the economics of scale. We last had this in detail in this House on the famous occasion which the First Secretary will well remember of the steel debate, when at the end of the debate on the White Paper the First Secretary gave the startling news that if anyone came to talk to him he would listen. This so took aback two of his hon. Friends that they decided to vote for the White Paper on that assurance. In fact, how true is this argument about the need for economies of scale? How true is it that companies outside the United States, which is a very different example, are so much smaller? I have here the figures for industrial companies outside the United States—the largest 50, the largest 100, the largest 200. Of the largest 100, 29 are in Britain, 19—the next—are in Germany, 14 are in Japan, 12 are in France, 6 are in Canada, and 7 are in Italy. The figures for the largest 200 are much the same.

Therefore, to put it mildly, it is possible to exaggerate the point that economies of scale have not been achieved in this country. What I think the Government constantly fail to hoist aboard is that the whole point is not so much economy of scale. The true need for this country is a larger industrial base. When we can have a straightforward and clear announcement of the Government's intention in relation to the Common Market, this and many other proposals will be much more arguable than they are at present.

I turn to the fascinating sentence at the end of paragraph 7 of the White Paper on the Industrial Reorganisation Corporation: It"— that is, the Corporation— will not support ventures which have no prospect of achieving eventual viability. With respect, that is exactly like a newspaper announcing that in future its racing correspondents will only tip winners. It would sell a lot of papers on that basis, but I think the truth would catch up with it fairly soon.

I do not know which merchant bank is concerned, but Anthony Bambridge in an article in the Observer on 30th January said this: One of Britain's biggest merchant banks investigated 51 possible merger situations last year. Only 14 came off. Therefore, 37 out of 51 did not achieve completion. As nobody attacks the brilliance of the enterprise of our merchant banks, and as I think that most people would agree that the best prospects in the future will continue to go there, it follows that the failure rate of this Corporation, which will have a brilliant man at its head—I paid a tribute to Sir Frank Kearton when the First Secretary of State was not here; he will be able to read it in HANSARD—and a part-time chairman and a board which has not been announced, will be higher still.

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) argued the question whether there was a gap or whether there was not. I wholly disagree with the hon. Gentleman's argument that one group of companies, perhaps supported by a merchant bank, and another group of companies supported by another merchant bank might jointly come to the I.R.C. The one thing which is quite certain is that, if that situation arises, it might fail because of a clash of personalities, or it might fail because of some management difficulties. It will never fail on account of finance. There is no difficulty at all about this. If hon. Members doubt this, let them read the last debate on economic affairs in the House of Lords a day or two ago, where they will find the most eloquent and weighty evidence of this.

The next question is whether the market has in fact failed to bring about desirable mergers. The whole of the Government's case is based on this. The burden of proof is on the Government. The Government say that the market has so failed. This is their argument for the White Paper. I should like to call an interesting witness in this matter. The House will remember that in 1955 the National Institute of Economic and Social Research identified 512 British companies with assets of over £ 2½ million. This became a matter of some political discussion, because the Conservative Central Office published virtually the same list, with the suggestion, right or wrong, that the Labour Party had some sinister designs upon them.

I read these words from this extremely interesting document: It is therefore interesting to see, after nine years, how many of these companies have now lost their independence, not through nationalisation, but by take-overs and mergers. The astonishing result is that since 1955 112 of the 'independent' companies, whose assets totalled £945.7 million, have become subsidiaries of others, a reduction of 22 per cent. This document is published by the Labour Party research department in its information series. Thus, the argument of the Government is that there is such a gap. The argument of Transport House—I must say that the evidence on the figures supports it—is that there is not. No doubt, the President of the Board of Trade will be able to deal with the point.

The next point on the special matters to which I wish to direct the attention of the House is the curious position in relation to the Monopolies and Mergers Act, 1965, and paragraph 11 of the White Paper. The President of the Board of Trade will tell me whether I have this right or not. I think I have. The position is that, if Sir Frank Kearton, as Chairman of Courtaulds, arranges a merger, he is subject to the ordinary law of the land. But if Sir Frank Kearton, as Chairman of the I.R.C., arranges a merger, he is above the law.

Mr. George Brown

No.

Mr. Macleod

Well, it is not inquired into under the Monopolies and Mergers Act, 1965. That is the situation as laid down in the White Paper.

The President of the Board of Trade (Mr. Douglas Jay)

No. There is no statutory exemption for mergers which may be carried out by the I.R.C. There will be consultation with the Board of Trade to decide whether or not there shall be reference to the Monopolies Commission.

Mr. Macleod

With respect, that is not quite what the White Paper says. The words in paragraph 11 are: As the Government made clear when the Act was introduced, it is no part of its purpose to hold back mergers which are desirable in the national interest. Arrangements will therefore be made, so that companies participating in the Corporation's schemes can be certain"— note that word— before schemes are completed, that the resulting mergers will not be referred to the Monopolies Commission. Following that, I think that it would be right to knock the last nail into the coffin of the strange episode in the First Secretary of State's speech. The right hon. Gentleman will remember that on three occasions, twice with direct quotations, he quoted from the recent speech by Mr. John Davies. The point has been dealt with already, in his usual trenchant way, by my hon. Friend the Member for Shipley (Mr. Hirst). But I have since obtained the text of the address which Mr. John Davies gave, and there is something I wish to put on the record. It is quite right that he went into an analysis of some of the difficulties. I dare say that we would not much disagree on that, event across the Floor of the House, but it is for the House to decide what sort of impression the First Secretary of State chose to give.

I shall take a simpler course. I shall read from that speech Mr. John Davies' conclusions: I believe that the proper instrument to procure this great change is the trade association system. I believe that only there, where businessmen over generations have been accustomed to meet and exchange views on their interests in an atmosphere of comprehension and expertise, can be the seed by sown of union and concentration. One could not have anything more different from the impression which the First Secretary of State gave the House this afternoon.

I return now to the White Paper and the comment already made on the links made with the Ministry of Technology with respect to the hon. Member for Cheetham, I do not believe that this is accidental. I do not see the right hon. Gentleman the Minister of Technology in his place, but the whole of this White Paper has the sort of endearing naivety which the House has come to associate with him.

The Minister of Technology is, we know, an enthusiast for this White Paper. The First Secretary of State need not laugh about that. It is the first thing that the Minister of Technology has been enthusiastic about for a long time. What worries me is not that the Minister of Technology is an enthusiast but that he is an enthusiastic Socialist and is on record over and over again as believing in—I was going to say the perfectly reputable view, but we will let that pass—the point of view that nationalisation should be widely extended over the whole of British industry. But Sir Frank Kearton is also an industrial adviser to the Ministry of Technology—is he not?

Mr. Albu

Yes.

Mr. Macleod

The First Secretary is disagreeing but I prefer to have it from the Minister of State.

Mr. George Brown

The right hon. Gentleman is going below his normal standard. What does he mean by saying that I was disagreeing? I was not showing disagreement.

Mr. Macleod

In this House when we move our head from side to side we are disagreeing. If we move it up and down, that is agreeing.

I note all the assurances that the First Secretary of State has given but my right Friend the Member for Bournemouth, West (Sir J. Eden) made a valid and excellent point when he said that the drift to compulsion has been there throughout the months and, indeed, now the years, of the prices and incomes policy as represented by the First Secretary of State. We note the right hon. Gentleman's assurances, and I even go so far as to say that he himself believes in them. But that is one of the things that worries me about the present situation. Perhaps I may quote the end of a limerick— It wasn't the words which frightened the birds But the horrible double entendre. There can no doubt that the attitude of industry and of all commentators to "Irc"—which is the proper name for this Corporation—is the one that we share on this side of the House.

Now I turn to the White Paper on Investment Incentives. The Amendment spells out the objections to it and my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) outlined some of them this afternoon. I understand the argument, in which hon. Members on both sides took part, about the relative value of these incentives to industry and we will wait and see if it is possible for the President of the Board of Trade to prove, if he can, that all the accountants, businessmen, commentators and politicians are wrong and that in some extraordinary way these incentives are of more value than those which existed before.

We are in a position of having to do something about this situation, because one of the results of the Corporation Tax—an almost accidental result—was to devalue tax allowances for capital expenditure. The tax allowances we left from the Conservative Administration were, certainly for the first year, the best in the world. There can be no question of that. The Chancellor of the Exchequer said that he wanted to look at the whole question and after months of delay and uncertainty this White Paper has been produced.

The response to it has varied from the critical, to the hostile, to the abusive. Perhaps I can illustrate this from the headlines in the three "quality"—as they are called—Sunday newspapers immediately after the White Paper was published. The Observer referred to "The investment muddle". The Sunday Telegraph headline read, "Feather beds for feather brains". The Sunday Times said that there were two reactions to the new incentives—first, shock, and, secondly, growing alarm at the uncertainties and administrative problems—and I want to return to this, particularly as the President of the Board of Trade is to reply to the debate.

The First Secretary, of course, is undaunted by this. To his credit, he always is. The First Secretary lives in a sort of private dreamworld in which all the "goodies" are on his side and all the "baddies" are against him. I shall quote the hon. Gentleman's exact words, for having heard him personally on the radio I immediately sent for a transcript. At seven o'clock on the evening on which the report came out, which was the 17th, he was asked about the views of the Association of British Chambers of Commerce and he said that the most forward-looking people in industry— this I actually know"— were with him. There is very little evidence of that. He went on to say—and these are the words to which I wish to draw attention— But of course, the A.B.C.C. is like any other body, it has to represent at the end of the day not only all its members but its least forward-looking members. I am not therefore surprised that they feel they have to say that". If the right hon. Gentleman meets any criticism, not only does he brush it aside, but he casts aspersions on the motives of those who criticise him. He does that to hon. Members on this side of the House over and over again. When we are in honest disagreement with him, we are not saboteurs any more than he is and we are no less patriotic than he is. We are carrying out what we believe to be our ordinary responsibility in this matter and he knows perfectly well that bodies such as the National Chamber of Trade and many others have put forward hostile views.

Mr. George Brown

The N.U.R.?

Mr. Macleod

I am talking about national groups of employers, because the investment incentives are mainly concerned with the employer's side of industry.

My right hon. Friend the Member for Altrincham and Sale mentioned that the C.B.I. had put this idea a long way third in its list of preferences, although it was perfectly fair for the President of the Board of Trade to say that that was on the basis of a 15 per cent. cash grant. Even so, it showed a preference for free depreciation or the existing system, and as free depreciation is part of the existing system the gap between these two is so wide that the Government cannot possibly plead that in aid.

I want now to come to the subject of administrative delays. We now know from an answer which the President of the Board of Trade gave earlier that for this purpose alone he is taking on 1,100 more staff at a cost of £2 million a year in order to pay out to industry £100 million less. Those are the economics of Bedlam. The right hon. Gentleman has a vast Department, a curate's egg Department, as we know, but those who work in the development districts find it much more difficult to settle arguments with the Board of Trade than with the Inland Revenue. There can be no argument about this and I quote from the Sunday Times of 23rd January: 'Our experience of getting grants out of the Board of Trade is one long quibble after another' was one engineering company finance director's complaint. 'We know where we are with the Inland Revenue, but at the Board of Trade you deal with lower grade people who are forever asking to see your drawings and checking tiny details'. Anybody who has studied these White Papers can be quite certain that the grounds for demarcation arguments about pieces of equipment are virtually endless.

I turn to the special examples mentioned in the Amendment and first to building and construction. Building and construction is not only a domestic, but an international business. In the year ending 31st March last, British constructors carried out work to the value of £160 million in 81 countries and at home the building and construction industry naturally provides much of the infrastructure for growth. The National Plan looks for an increase in construction of more than 30 per cent. by 1970 without any substantial increase in the labour force. There must be some increased investment in plant and vehicles, and therefore treatment of these industries in this White Paper is wholly illogical.

On the question of transport, the processes of Government thought are again almost impossible to follow. Is not road haulage part of the production line of this country? Does it not carry the vast majority, something like 80 per cent., of the freight tonnage within this country? On what basis can one dismiss this vast industry in paragraph 31 and equate it, as presumably one does, in paragraph 14, with curtains, cutlery and television sets for rental?

No one has answered or attempted to answer the case made, from both sides of the House, more powerfully I think from this side, for tourism and hotels. On the basis of Sir Geoffrey Crowther's letter in The Times on 8th February, the hotels earned £120 million in foreign currency in 1964 and tourism as a whole earned £308 million. They are the largest single dollar earners in the country and the prejudice against the service and labour intensive industries is absolutely impossible to justify. In the affluent society, and here I agree with the Leader of the Liberal Party, there is bound to be an explosive growth in service industries. It is here that one could save labour with modern equipment.

Paragraph 2 of the White Paper indicates how one can save labour in other places, but it does not indicate how labour saving could be made in this direction, which is the most fruitful of all. It overlooks the possibility of labour saving in these expanding service industries by the use of new techniques. If I understood the speech of the Leader of the Liberal Party correctly, he offered his support, and I suppose his votes tonight, to the Government on these two White Papers. While he is going through the Lobby I can offer him, if he has not read it, an article in the Scotsman on 9th February, 1966, when John Graham shows in a series of tables the changing situation since the Labour Government took office in October, 1964. Mr. Graham shows that in every case businesses will receive less Government assistance in meeting the cost of new machinery, whether the assistance is in the form of tax relief or a tax grant. Anyone who knows anything at all about Scotland, particularly about the Highlands, knows that the two keys there are transport and tourism. If the Leader of the Liberal Party takes his support into the Government Lobby tonight he will be showing Scotland that Liberals are not fit to represent Highland constituencies.

Mr. Grimond

Would the right hon. Gentleman try the Western Isles again?

Mr. Macleod

Mr. Cameron will win the Western Isles next time. I am grateful to the right hon. Gentleman for making it clear that I do know something about the Highlands. Because of time I do not want to go into the details of the change of treatment—and it is a very important subject—of the development areas. It is deplorable that the concept of the growth points has been abandoned. As an article in The Times said, it is deplorable that the crutch has been substituted for the encouraging hand.

The position is quite clear. Anyone who represents a constituency in the development districts, and I am talking about the existing districts, knows perfectly well that the wider one spreads this concept the less money there is available and the less inducement there is to the development districts. We reject both White Papers and we reject the Socialist thinking lying behind them. Months of delay and uncertainty have led up to them—months of delay and uncertainty since the very first mention of Corporation Tax. All that the First Secretary has produced at the end of it have been two blind mice, and we hope to cut their throats tonight.

9.30 p.m.

The President of the Board of Trade (Mr. Douglas Jay)

After the speech of the right hon. Member for Enfield, West (Mr. Iain Macleod), which was in such marked contrast to the constructive speech of the Leader of the Liberal Party, I think that the House might like to know what the Government's proposals really are.

One main purpose of the investment incentives White Paper, and the Bill which will follow, is to strengthen and intensify our development area powers and to replace the Local Employment Act, which expires, in any case, in March, 1967. We are determined to overcome the handicap which the nation has suffered so long of under-employed areas at one end of the country and congested areas at the other. This is as important for economic as for social reasons. We shall never get full production until we have full use of economic resources.

The new legislation will intensify the changes of policy already made in the last year. We have already achieved much more in arresting the drift to the South-East than some hon. Members seem to realise. I promised in the debate on the Address in November, 1964, both to check the uncontrolled office boom in London, which was at the root of so much congestion, and, by the use of industrial development certificates, to secure a major shift in the balance of industrial development between regions. Since the right hon. Gentleman accused us of being uninformative, I will give him and the House some information.

This objective, which we always claimed could be achieved, has already in great measure been achieved. The share of the national total of I.D.C. approvals in terms of square feet going to underemployed regions of Scotland, Wales, the North and North-West went up from an average of 39 per cent. in the five years 1960–64 to 50 per cent. in 1965. Those regions contain only about one-third of the population of Great Britain. At the same time, the share going to the three congested regions of London and the South-East, Eastern and Midlands fell from 40 to 30 per cent. That is an outstanding shift in the right direction, and it shows what can be done.

The progress made in the regions themselves has been even more dramatic. Because of the great affection of the right hon. Member for Enfield, West for Scotland, I will give the Scottish figures first. In Scotland, new factory approvals went up from 6 million square feet in 1964 to 11 million square feet in 1965—a rise of over 80 per cent., which will obviously gladden the heart of the right hon. Gentleman. Incidentally, this was a rise from 10 to 18 per cent. of the national total in one year. In Wales there was a rise in terms of square feet approved of 50 per cent. Northern Ireland, which has come in for some comment today, also had the best year for industrial development for many years. Negotiations completed in 1965 provided for projects with over 40 per cent. more new jobs in industry in Northern Ireland than the average of the three preceding years. In addition, by deciding to site the new nuclear reactor at Dounreay, the Government have shown that they are locating their own enterprises in these areas as well as asking private firms to do the same.

To ensure, in addition, that a fair share of the new enterprises and employment goes to the districts where surplus manpower exists, the Board of Trade has launched two new programmes of advance Government-owned factories since October, 1964. These include 55 new factories, 32 of them in coalmining areas. Of the 55, already 16 are being built and tenants have been found for five. Construction of another 11 will start shortly and sites have been selected and are being purchased for all but one of the remainder. We shall launch a further and third programme as soon as it proves necessary. I do not know whether hon. Gentlemen realise that there are now nearly 260,000 people employed in Board of Trade factories in these areas and that, of 56.7 million square feet of factory space that we own, less than half of one per cent. is unoccupied at the moment. In all, a further 2½ million square feet is in the course of construction. Heaven knows where the people of Scotland and other areas would have been without these factories, which are as good an argument for public ownership as they are for a really active distribution of industry policy.

We have also extended widely in the past year the existing development districts so as to cover all coalmining areas with serious closure problems. The development districts now include all the main industrial areas of South Wales, the North-East Coast, Scotland and Cumberland. All existing Local Employment Act powers and benefits are now in force in these wider areas in advance of the still further extensions of the areas proposed in the White Paper.

The enlargement of the development areas that we have already made is enabling us both to use the existing industrial estates for proper development and to proceed with new ones. Publicly-owned industrial estates, I believe, will prove to be one of the most successful instruments for the development of these areas. The previous Government did great harm to development in South Wales, in particular by chopping it up into separate development districts and excluding every one of the four major Government-owned industrial estates from the districts, thus checking and hampering their growth. We have already put them all back, and proper development will now go forward.

Mr. Donald Box (Cardiff, North)

Will the right hon. Gentleman explain, after all the details that he has given us, why unemployment has risen consistently in Wales in the last few months?

Mr. Jay

I am going to come to the unemployment figures in a moment. They rose until a short time ago for the very reason that I have just mentioned, that so many of the areas had been de-scheduled by the previous Government. We shall also stop the sale of publicly-owned factories and land carried out by the previous Government, unless there is some very special reason.

We also propose to establish at Llantrisant a major new group site in easy travelling distance from the Rhondda and other coal valleys, which I hope will grow in time into a major new estate. Other large-scale new estates are now being constructed at Bellshill in the Lanarkshire coalfield and on South Teeside. We are also acquiring land at Falkirk, at Cummock (Ayrshire) and at Brandon and Byshottles (Durham) for industrial development. At Kirkby, near Liverpool, with the help of the Liverpool Corporation we are purchasing a 100-acre site which will be developed as a major new industrial estate for Merseyside as quickly as the necessary planning arrangements can be made.

Thanks to all these efforts and new developments, unemployment is falling in nearly all these once under-developed areas, and I am now going to give the hon. Member for Cardiff, North (Mr. Box) the figures about which he was asking. Because we deliberately excluded development districts for the postponement of capital schemes last summer, this recovery has actually occurred in a period of general restraint which in all previous cases brought higher unemployment to them.

In the development districts in Scotland, unemployment has dropped between January, 1965, and January, 1966, from 4.2 per cent. to 3.6 per cent., in the North-East from 3.3 per cent. to 2.8 per cent. and in Merseyside from 3.5 per cent. to 2.6 per cent., the latter being the lowest January figure for many years on Merseyside. In the development districts in Wales, the fall was from 4.7 per cent. to 3.8 per cent.

Mr. Michael Noble (Argyll)

I appreciate the care with which the right hon. Gentleman has given those figures to the House, but they are not very relevant to the debate. Can the right hon. Gentleman explain to the House why, when this White Paper came out, the Chairman of the Highland Development Board said that it would make his task very much more difficult? This is the problem which we are debating today.

Mr. Jay

If the right hon. Gentleman thinks that employment and unemployment are irrelevant to this debate he has a weird conception of things. I assure him that the whole area in which the Highland Development Board operates will be a development area under these proposals.

I have also recently discussed the pit closure problem in detail on the spot both in Scotland and in Wales to ensure that where we have not done enough yet to bring in new employment, further development will be encouraged.

This much we have achieved already, and without new statutory powers. We now mean to do even better if the House approves of the more ambitious policy and wider powers enshrined in this White Paper and in the proposed new legislation. I am confident that if the efforts of the last 15 months are pushed relentlessly forward on this front for another five years, and the new powers we propose are granted, the old evil of depressed or under-employed areas in this country can be overcome for good and all.

We now propose still larger and more continuous development areas. This has been consistently urged by all of us on this side of the House ever since the previous Government broke up the old continuous areas by the Local Employment Act, and all practical experience has proved us right. We cannot do this job properly, or make any sense of industrial or any other kind of development, if the development areas are broken up into dots and stripes. It was utterly absurd, for instance, to exclude all four industrial estates in South Wales from the development districts.

We now propose also a much wider criterion for the scheduling of the areas. The legislation will ensure that migration, depopulation, and all other such relevant factors will be weighed in the balance, as well as unemployment—and I hope that that will be acceptable to the right hon. Gentleman—but we must be careful, nevertheless, to see that the question of employment and unemployment remain one of the main criteria, since the full employment of our economic resources must stand as the main justification for the whole of this policy. The wider choice of areas is also likely to mean a greater discretion for the Board of Trade to use I.D.C.s so as to ensure that the neediest districts within the development areas are not bypassed, and that large industrial schemes are located where the manpower exists.

The new investment grant of 40 per cent. for plant and machinery in the new development areas will, I believe, prove a powerful incentive, and will overcome any disinclination which firms may have to develop these areas. When right hon. Gentlemen opposite argue that the new incentive will be less effective than the old in the developing areas, they will find that this is certainly not the view taken by people outside the areas, nor, indeed, by a number of industrialists either. This 40 per cent. grant will be paid to the firm on replacement machinery as well as expansion and new projects, whether or not the effect of the investment is to provide employment.

The building grant in the development areas will naturally continue to depend on proof of substantial new employment, and there will be a discretion to make a grant of 35 per cent., instead of 25 per cent., where a firm shows that it has incurred special expenses in making a move. In the normal case a firm developing in these areas will receive more help in terms of discounted cash flow than under the old system, and the margin of advantage to the development area firm will be greater than it was either under the Corporation Tax system of the past year, or under the previous Income Tax and Profits Tax system.

In arguing their Amendment, and in their speeches this afternoon—in particular the right hon. Member for Altrincham and Sale (Mr. Barber)—in seeking to show that the development areas will get less advantage than under the previous Government, right hon. Gentlemen opposite have forgotten four vital points in the argument. First, that it is discounted cash flow which counts in these matters nowadays; secondly, that even on a cash recovery basis we must take the whole life of the plant and not the first year; thirdly, that these grants—and the right hon. Gentleman did not seem to have noticed this at all—apply to replacement, which the old Board of Trade grant did not and, fourthly, that the new grants will quickly assist firms starting up new ventures and not yet making profits—which was not true either of free depreciation or the investment allowance.

Therefore, whether one looks at the question on the basis of the total cash recoveries over the life of the asset or at the discounted value of these recoveries, the margin of incentive to invest in a development area will be greater under the new scheme than before. This is true—it is rather complicated, unfortunately—even if we assume that a firm was able to get the maximum benefit out of the old system, earned sufficient profits to take the full value of both the investment allowance and free depreciation straightaway, and that all its plant and machinery was eligible for free depreciation and for the 10 per cent. grant. It is also true even compared with the pre-Corporation Tax system.

As to the non-development area firms, the truth is that a firm which gets a 20 per cent. grant will get the same total cash recovery as it would under the old system, even if the Corporation Tax is set at the 40 per cent. rate selected as a hypothesis by the right hon. Gentleman this afternoon, and on a discounted cash basis the new system shows a positive advantage over the old.

The right hon. Gentleman's calculations outside the development areas neglected the fact that Corporation Tax reduced the tax paid by a firm on retained profits and, secondly, that the benefits to be received will accrue earlier under the new system than under the old. In addition to all this, the total sums paid out to industry as a whole under the new system over the first three years will be rather greater than under the old sysem. Therefore, it must be obvious to the House that firms throughout industry will get more.

Mr. Patrick Jenkin

We assume, therefore, that the right hon. Gentleman disagrees with the statement made by his hon. Friend the Member for Middlesbrough, West (Dr. Bray)—made in response to an intervention from me—accepting absolutely that using the most modern techniques, and discounting cash flow, the overall position was not as good under the new investment grant as under the old.

Mr. Jay

I shall have to know the particulars of the case to which the hon. Member is referring before I can say whether or not I agree. I stand by what I have said this evening. I have expounded a general principle and have not dealt with individual cases, which depend on many things, such as the rate of profit.

Although, in our view, the new system of incentives will for these reasons be powerful, we must not fall into the error of supposing that firms cannot carry on without this special assistance. It is not long since there was no investment allowance at all, and not much longer since there was no initial allowance either. These new grants are special incentives to selective investment, and not necessities for industrial survival. The service industries in development areas which do not qualify for the investment grant for machinery will nevertheless qualify both for the building grant of 25 per cent. or 35 per cent. and for the initial allowance, now raised from 10 per cent. to 30 per cent. These are substantial benefits, and it is absurd to argue that because the service industries have not been given all the same incentives as manufacturing industries, they are being somehow penalised.

The right hon. Member for Altrincham and Sale was also wrong in supposing that offices and hotels in development districts enjoyed free depreciation. Throughout this policy we have deliberately set out to be selective, because we want to see public money spent to the best purpose and not wasted.

First the scheme is selective between areas. I find it hard to believe that the party opposite will vote against that principle, since Parliament has now approved selective development areas for the past 21 years. Second, we are being selective between types of equipment. We are deliberately applying these incentives to industrial plant and machinery and not to cups and saucers in the canteen or furniture in the office, for which investment allowance was given under the previous Government. I am certain that it was wasteful and foolish of them to give investment allowance for those items.

Third, we are being selective between industries. Here, I agree, we have to decide what we want to achieve. Is our aim just some formal fair shares between different businesses or is it the greatest encouragement possible to industrial progress and exports and the achievement of a balance of payments surplus? We have given an additional incentive in this scheme to manufacturing and extractive industry, not because we think that manufacturing and extractive industry, not because we think that manufacturing has some superior merit or virtue over services or distribution. That would be an absurd view. We have selected manufacture in this way because manufacture and extraction contribute a higher proportion of their output to exports or import saving than do the service trades.

About 25 per cent. of the output of manufacturing industry is exported today, whereas less than 10 per cent., of for instance, the hotel industry's earnings are in foreign exchange. That does not mean that the hotel industry's earnings are other than highly important. Of course they are important. But it means that we can get a quicker benefit to the balance of payments by concentrating these incentives now on the main exporting and import-saving industries. This decision is based on the conviction, which I am certain is correct, that the first aim of the Government today must be to rescue this country from the state of international insolvency in which right hon. Gentlemen opposite left it.

In those three senses, we shall discriminate, but we shall not discriminate between firms on any other grounds in the grants for plant and machinery. These will be automatic if the firm and process qualify and we are confident that, after the initial period, these grants can be paid in less time and with fewer formalities than were inevitable with the Local Employment Act grants because—I think the right hon. Gentleman did not realise this—the special criteria affecting employment were attached to those grants but will not be attached to these in future. The Board of Trade—

Mr. Timothy Kitson (Richmond, Yorks)

Would not the right hon. Gentleman agree that the agricultural industry can help our balance of payments position? Will he tell us where that industry stands on this?

Mr. Jay

There will be an equivalent scheme to be administered by the Minister of Agriculture for the agricultural industry.

The Board of Trade is now working out, in consultation with the C.B.I., the best way of making the administration of these grants as speedy and efficient as we can. I hope, also, that it will be possible to locate some of the offices of the Board of Trade operating this scheme in development areas, or, at any rate, a good distance from London.

In our view, the certainty and simplicity of these direct grants will prove a greater incentive to modernisation than the uncertain and not easily calculated investment allowance. The new grants will not depend on future rates of profit or taxation and will thus assist a new and pioneering venture as well as an established firm. There is all too much evidence that many firms were uninfluenced by the investment allowance. In the C.B.I.'s inquiry, which the right hon. Member for Altrincham and Sale, quoted a high ratio of firms answering—24 per cent.—although they would naturally have preferred free depreciation, which would have been much too costly, opted for cash grants even at the level of 15 per cent., whereas we are introducing 20 per cent.

Industry has repeatedly asked for more certain and speedy payments and we have decided in this scheme to give them. It must be better to concentrate these payments on plant and machinery than to spread them over carpets, cutlery, curtains, cups and saucers and so on. Nevertheless, all the non-qualifying forms of equipment will receive the initial allowance, raised from 10 per cent. to 30 per cent. and on any sensible view that seems adequate and reasonable.

In all this, however, I do not believe that we shall have done all that a Government can do and need to do to promote industrial advance, in the development areas or outside, if we are content with investment grants and our existing powers. We need some public body, such as almost every other country has, to supply equity as well as loan capital. B.O.T.A.C. has done extremely valuable work in the development districts, but its work is confined to helping projects providing employment in development districts and has hitherto been confined also to fixed interest lending.

The previous Government—and hon. Gentlemen opposite seem to forget this—found in a whole series of cases that they had to improvise special methods of lending public money to private industry—for example, the Fort William paper and pulp mill and the Ravenscraig and Newport strip mill. We have found the same in the case of Fairfields—which, I gather hon. Gentlemen opposite would have allowed to close down despite its modern equipment and full order book.

That, together with the need for reorganisation in many industries, is the case for the new I.R.C. If it were the case that the I.C.F.C. and the F.C.I. were sufficient, the previous Government would never have had to think up special schemes in such cases as the Fort William mill and the others I have mentioned—not to mention the cotton industry, which required a special Act of Parliament and the outlay of public money largely by grants and not even loans.

The purpose of the I.R.C. will be to assist and encourage industry. I have found that there are plenty of candidates coming forward for B.O.T.A.C., which will, of course, continue its work in the development areas. And if this were not to assist industry it is hardly likely that Sir Frank Kearton would have agreed to act as Chairman.

When the Second Reading of the Distribution of Industry Bill was debated in the House in 1945 a number of Conservatives opposed it. If hon. Gentlemen opposite vote against the White Paper tonight they will be voting against the continuation or the improvement of the Local Government Act powers. They will be voting for the extinction of the present powers, because they expire by their own legislation next year unless replaced. I do not believe that the people of Scotland, Wales, the North and West will thank hon. Gentlemen opposite for that and, therefore, I ask the House to approve the wider powers which we now propose as being essential to the prosperity of these regions and to the economic progress of the whole nation.

Question put, That the words proposed to be left out stand part of the Question:

The House divided: Ayes 298, Noes 279.

Division No. 26.]	AYES	[9.59 p.m.
Abse, Leo	Floud, Bernard	McBride, Neil
Albu, Austen	Foley, Maurice	McCann, J.
Allaun, Frank (Salford, E.)	Foot, Sir Dingle (Ipswich)	MacColl, James
Alldritt, Walter	Foot, Michael (Ebbw Vale)	MacDermot, Niall
Allen, Scholefield (Crews)	Ford, Ben	McGuire, Michael
Armstrong, Ernest	Fraser, Rt. Hn. Tom (Hamilton)	McInnes, James
Atkinson, Norman	Freeson, Reginald	McKay, Mrs. Margaret
Bacon, Rt. Hn. Alice	Galpern, Sir Myer	Mackenzie, Alasdair (Ross & Crom'ty)
Bagier, Gordon A. T.	Garrett, W. E.	Mackenzie, Gregor (Ruthergien)
Barnett, Joel	Garrow, Alex	Mackio, John (Enfield, E.)
Baxter, William	Ginsburg, David	McLeavy, Frank
Beaney, Alan	Gourlay, Harry	MacMillan, Malcolm
Bellenger, Rt. Hn. F. J.	Greenwood, Rt. Hn. Anthony	McNamara, Kevin
Bence, Cyril	Gregory, Arnold	Mahon, Peter (Preston, S.)
Benn, Rt. Hn. Anthony Wedgwood	Grey, Charles	Mahon, Simon (Bootle)
Bennett, J. (Glasgow, Bridgeton)	Griffiths, David (Rother Valley)	Mallalieu, E. L. (Brigg)
Bessell, Peter	Griffiths, Rt. Hn. James (Llanelly)	Mallalieu, J. P. W. (Huddersfield, E.)
Binns, John	Griffiths, Will (M'Chester, Exchange)	Manuel, Archie
Bishop, E. S.	Grimond, Rt. Hn. J.	Mapp, Charles
Blackburn, F.	Gunter, Rt. Hn. R. J.	Marsh, Richard
Blenkinsop, Arthur	Hale, Leslie	Mason, Roy
Boardman H.	Hamilton, James (Bothwell)	Mayhew, Christopher
Boston, Terence	Hamilton, William (West Fife)	Mellish, Robert
Bottomley, Rt. Hn. Arthur	Hamling, William (Woolwich, W.)	Mendel son, J. J.
Bowden, Rt. Hn. H. W. (Leics, S. W.)	Hannan, William	Mikardo, Ian
Boyden, James	Harper, Joseph	Millan, Bruce
Braddock, Mrs. E. M.	Harrison, Walter (Wakefield)	Miller, Dr. M. S.
Bray, Dr. Jeremy	Hattersley, Roy	Milne, Edward (Blyth)
Broughton, Dr. A. D. D.	Hazell, Bert	Molloy, William
Brown, Rt. Hn. George (Belper)	Healey, Rt. Hn. Denis	Monslow, Walter
Brown, Hugh D. (Glasgow, Provan)	Heffer, Eric S.	Morris, Alfred (Wythenshawe)
Brown, R. W. (Shoreditch & Fbury)	Herbison, Rt. Hn. Margaret	Morris, Charles (Openshaw)
Buchan, Norman (Renfrewshire, W.)	Hobden, Dennis (Brighton, K'town)	Morris, John (Aberavon)
Buchanan, Richard	Holman, Percy	Mulley, Rt. Hn. Frederick(SheffieldPk)
Butler, Herbert (Hackney, C.)	Hooson, H. E.	Murray, Albert
Butler, Mrs. Joyce (Wood Green)	Horner, John	Neal, Harold
Callaghan, Rt. Hn. James	Houghton, Rt. Hn. Douglas	Newens, Stan
Carmichael, Neil	Howarth, Harry (Wellingborough)	Noel-Baker, Francis (Swindon)
Carter-Jones, Lewis	Howarth, Robert L. (Bolton, E.)	Noel-Baker, Rt. Hn. Philip(Derby, S.)
Castle, Rt. Hn. Barbara	Howell, Denis (Small Heath)	Norwood, Christopher
Chapman, Donald	Howie, W.	Oakes, Gordon
Coleman, Donald	Hoy, James	Ogden, Eric
Conlan, Bernard	Hughes, Cledwyn (Anglesey)	O'Malley, Brian
Corbet, Mrs. Freda	Hughes, Hector (Aberdeen, N.)	Oram, Albert E. (E. Ham, S.)
Cousins, Rt. Hn. Frank	Hunter, Adam (Dunfermline)	Orbach, Maurice
Craddock, George (Bradford, S.)	Hunter, A. E. (Feltham)	Orme, Stanley
Crawshaw, Richard	Hynd, H. (Accrington)	Oswald, Thomas
Cronin, John	Hynd, John (Attercliffe)	Owen, Will
Crosland, Rt. Hn. Anthony	Jackson, Colin	Padley, Walter
Cullen, Mrs. Alice	Janner, Sir Barnett	Page, Derek (King's Lynn)
Dalyell, Tam	Jay, Rt. Hn. Douglas	Paget, R. T.
Darling, George	Jeger, George (Goole)	Palmer, Arthur
Davies, G. Elfed (Rhondda, E.)	Jeger, Mrs. Lena (H'b'n & St.P'cras, S.)	Pannell, Rt. Hn. Charles
Davies, Harold (Leek)	Jenkins, Hugh (Putney)	Pargiter, G. A.
Davies, Ifor (Gower)	Jenkins, Rt. Hn. Roy (Stechford)	Park, Trevor (Derbyshire, S. E.)
Davies, S. O (Merthyr)	Johnson, Carol (Lewisham, S.)	Parker, John
de Freitas, Sir Geoffrey	Johnson, James (K'ston-on-Hull, W.)	Pavitt, Laurence
Delargy, Hugh	Johnston, Russell (Inverness)	Pearson, Arthur (Pontypridd)
Dell, Edmund	Jones, Dan (Burnley)	Peart, Rt. Hn. Fred
Diamond, Rt. Hn. John	Jones, Rt. Hn. Sir Elwyn(W. Ham, S.)	Pentland, Norman
Doig, Peter	Jones, J. Idwal (Wrexham)	Perry, Ernest G.
Donnelly, Desmond	Jones, T. W. (Merioneth)	Popplewell, Ernest
Driberg, Tom	Kelley, Richard	Prentice, R. E.
Duffy, Dr. A. E, P.	Kenyon, Clifford	Price, J. T. (Westhoughton)
Dunn, James A.	Kerr, Mrs. Anne (R'ter & Chatham)	Probert, Arthur
Dunnett, Jack	Kerr, Dr. David (W'worth, Central)	Pursey, Cmdr. Harry
Edelman, Maurice	Leadbitter, Ted	Randall, Harry
Edwards, Rt. Hn. Nets (Caerphilly)	Ledger, Ron	Rankin, John
Edwards, Robert (Bilston)	Lee, Rt. Hn. Frederick (Newton)	Redhead, Edward
Ennals, David	Lee, Miss Jennie (Cannock)	Rees, Merlyn
Ensor, David	Lever, Harold (Cheetham)	Reynolds, G. W.
Evans, Albert (Islington, S. W.)	Lever, L. M. (Ardwick)	Rhodes, Geoffrey
Evans, Ioan (Birmingham, Yardley)	Lewis, Arthur (West Ham, N.)	Richard, Ivor
Fernyhough, E.	Lewis, Ron (Carlisle)	Roberts, Albert (Normanton)
Finch, Harold (Bedwellty)	Lipton, Marcus	Roberts, Goronwy (Caernarvon)
Fitch, Alan (Wigan)	Lomas, Kenneth	Robertson, John (Paisley)
Fletcher, Sir Eric (Islington, E.)	Loughlin, Charles	Robinson, Rt. Hn. K.(St. Pancras, N.)
Fletcher, Ted (Darlington)	Lubbock, Eric	Rodgers, William (Stockton)
Fletcher, Raymond (Ilkeston)	Mabon, Dr. J. Dickson	Rogers, George (Kensington, N.)
Rose, Paul B.	Stones, William	Weitzman, David
Ross, Rt. Hn. William	Strauss, Rt. Hn. G. R. (Vauxhall)	Wellbeloved, James
Rowland, Christopher	Stross, Sir Barnett(Stoke-on-Trent, C.)	Wells, William (Walsall, N.)
Sheldon, Robert	Summerskill, Hn. Dr. Shirley	White, Mrs. Eirene
Shin well, Rt. Hn. E.	Swain, Thomas	Whitlock, William
Shore, Peter (Stepney)	Swingler, Stephen	Wigg, Rt. Hn. George
Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)	Symonds, J. B.	Wilkins, W. A.
Short, Mrs. Renée (W'hampton, N. E.)	Taverne, Dick	Willey, Rt. Hn. Frederick
Silkin, John (Deptford)	Taylor, Bernard (Mansfield)	Williams, Alan (Swansea, W.)
Silkin, S. C. (Camberwell, Dulwich)	Thomas, Iorwerth (Rhondda, W.)	Williams, Mrs. Shirley (Hitchin)
Silverman, Sydney (Nelson)	Thomson, George (Dundee, E.)	Williams, W. T. (Warrington)
Skeffington, Arthur	Thornton, Ernest	Willis, George (Edinburgh, E.)
Slater, Mrs. Harriet (Stoke, N.)	Thorpe, Jeremy	Wilson, Rt. Hn. Harold (Huyton)
Slater, Joseph (Sedgefield)	Tuck, Raphael	Wilson, William (Coventry, S.)
Small, William	Urwin, T. W.	Woodburn, Rt. Hn. A.
Snow, Julian	Varley, Eric G.	Woof, Robert
Soskice, Rt. Hn. Sir Frank	Wainwright, Edwin	Wyatt, Woodrow
Spriggs, Leslie	Walker, Harold (Doncaster)	Yates, Victor (Ladywood)
Steel, David (Roxburgh)	Wallace, George	Zilliacus, K.
Steele, Thomas (Dunbartonshire, W.)	Warbey, William
Stonehouse, John	Watkins, Tudor	TELLERS FOR THE AYES:
		Mr. Sydney Irving and Mr. Lawson.
NOES
Agnew, Commander Sir Peter	Currie, G. B. H.	Heald, Rt. Hn. Sir Lionel
Alison, Michael (Barkston Ash)	Dalkeith, Earl of	Heath, Rt. Hn. Edward
Allan, Robert (Paddington, S.)	Dance, James	Hendry, Forbes
Allason, James (Hemel Hempstead)	Davies, Dr. Wyndham (Perry Barr)	Higgins, Terence L.
Amery, Rt. Hn. Julian	d'Avigdor-Goldsmid, Sir Henry	Hiley, Joseph
Anstruther-Gray, Rt. Hn. Sir W.	Dean, Paul	Hill, J. E. B. (S. Norfolk)
Astor, John	Deedes, Rt. Hon. W. F.	Hirst, Geoffrey
Atkins, Humphrey	Digby, Simon Wingfield	Hobson, Rt. Hn. Sir John
Awdry, Daniel	Dodds-Parker, Douglas	Hogg, Rt. Hn. Quintin
Baker, W. H. K.	Doughty, Charles	Hopkins, Alan
Barber, Rt. Hn. Anthony	Drayson, G. B.	Hordern, Peter
Barlow, Sir John	du Cann, Rt. Hn. Edward	Hornby, Richard
Beamish, Col. Sir Tufton	Eden, Sir John	Hornsby-Smith, Rt. Hn. Dame P.
Bennett, Sir Frederic (Torquay)	Elliot, Capt. Walter (Carshalton)	Howard, Hn. G. R. (St. Ives)
Berkeley, Humphry	Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Howe, Geoffrey (Bebington)
Berry, Hn. Anthony	Emery, Peter	Hunt, John (Bromley)
Biffen, John	Errington, Sir Eric	Hutchison, Michael Clark
Biggs-Davison, John	Eyre, Reginald	Irvine, Bryant Godman (Rye)
Bingham, R. M.	Farr, John	Jenkin, Patrick (Woodford)
Birch, Rt. Hn. Nigel	Fell, Anthony	Johnson Smith, G. (East Grinstead)
Black, Sir Cyril	Fisher, Nigel	Jones, Arthur (Northants, S.)
Blaker, Peter	Fletcher-Cooke, Charles (Darwen)	Jopling, Michael
Bossom, Sir Clive	Fletcher-Cooke, Sir John (S'pton)	Joseph, Rt. Hn. Sir Keith
Box, Donald	Forrest, George	Kaberry, Sir Donald
Braine, Bernard	Foster, Sir John	Kerby, Capt. Henry
Brinton, Sir Tatton	Fraser, Rt. Hn. Hugh(St'fford & Stone)	Kerr, Sir Hamilton (Cambridge)
Bromley-Davenport, Lt.-Col. Sir Walter	Fraser, Ian (Plymouth, Sutton)	Kershaw, Anthony
Brooke, Rt. Hn. Henry	Gammans, Lady	Kiffedder, James A.
Brown, Sir Edward (Bath)	Gardner, Edward	Kimball, Marcus
Bruce-Gardyne, J.	Gibson-Watt, David	King, Evelyn (Dorset, S.)
Bryan, Paul	Giles, Rear-Admiral Morgan	Kirk, Peter
Buchanan-Smith, Alick	Gilmour, Ian (Norfolk, Central)	Kitson, Timothy
Buck, Antony	Gilmour, Sir John (East Fife)	Lagden, Godfrey
Bullus, Sir Eric	Glover, Sir Douglas	Lambton, Viscount
Burden, F. A.	Glyn, Sir Richard	Lancaster, Col. C. G.
Buxton, Ronald	Godber, Rt. Hn. J. B.	Langford-Holt, Sir John
Campbell, Gordon	Goodhart, Philip	Legge-Bourke, Sir Harry
Carlisle, Mark	Goodhew, Victor	Lewis, Kenneth (Rutland)
Carr, Rt. Hn. Robert	Gower, Raymond	Litchfield, Capt. John
Cary, Sir Robert	Grant, Anthony	Lloyd, Rt. Hn. Geoffrey(Sut'nC'dfield)
Channon, H. P. G.	Grant-Ferris, R.	Lloyd, Ian (P'tsm'th, Langstone)
Chataway, Christopher	Gresham Cooke, R.	Longbottom, Charles
Chichester-Clark, R.	Grieve, Percy	Longden, Gilbert
Clark, Henry (Antrim, N.)	Griffiths, Eldon (Bury St. Edmunds)	Loveys, W. H.
Clark, William (Nottingham, S.)	Griffiths, Peter (Smethwick)	Lucas, Sir Jocelyn
Clarke, Brig. Terence(Portsmth, W.)	Gurden, Harold	McAdden, Sir Stephen
Cole, Norman	Hall, John (Wycombe)	MacArthur, Ian
Cooke, Robert	Hall-Davis, A. G. F.	Maclean, Sir Fitzroy
Cooper, A. E.	Hamilton, Marquess of (Fermanagh)	Macleod, Rt. Hn. Iain
Cooper-Key, Sir Neill	Hamilton, M. (Salisbury)	McMaster, Stanley
Cordle, John	Harris, Frederic (Croydon, N. W.)	McNair-Wilson, Patrick
Corfield, F. V.	Harris, Reader (Heston)	Maddan, Martin
Costain, A. P.	Harrison, Brian (Maldon)	Maginnis, John E.
Courtney, Cdr. Anthony	Harrison, Col. Sir Harwood (Eye)	Maitland, Sir John
Craddock, Sir Beresford (Spelthorne)	Harvey, Sir Arthur Vere (Macclesf'd)	Marples, Rt. Hn. Ernest
Crawley, Aidan	Harvey, John (Walthamstow, E.)	Marten, Neil
Crosthwaite-Eyre, Col. Sir Oliver	Harvie Anderson, Miss	Mathew, Robert
Crowder, F. P.	Hastings, Stephen	Maude, Angus
Cunningham, Sir Knox	Hawkins, Paul	Maudling, Rt. Hn. Reginald
Curran, Charles	Hay, John	Mawby, Ray
Maxwell-Hyslop, R. J.	Quennell, Miss J. M.	Thatcher, Mrs. Margaret
Maydon, Lt. Cmdr. S. L. C.	Ramsden, Rt. Hn. James	Thomas, Sir Leslie (Canterbury)
Meyer, Sir Anthony	Rawlinson, Rt. Hn. Sir Peter	Thomas, Rt. Hn. Peter (Conway)
Mills, Peter (Torrington)	Redmayne, Rt. Hn. Sir Martin	Thompson, Sir Richard (Croydon, S.)
Mills, Stratton (Belfast, N.)	Rees-Davies, W. R.	Thorneycroft, Rt. Hn. Peter
Miscampbell, Norman	Renton, Rt. Hn. Sir David	Tiley, Arthur (Bradford, W.)
Mitchell, David	Ridsdale, Julian	Turton, Rt. Hn. R. H.
Monro, Hector	Roberts, Sir Peter (Heeley)	Tweedsmuir, Lady
More, Jasper	Robson Brown, Sir William	van Straubenzee, W. R.
Morgan, W. G.	Rodgers, Sir John (Sevenoaks)	Vaughan-Morgan, Rt. Hn. Sir John
Morrison, Charles (Devizes)	Roots, William	Vickers, Dame Joan
Mott-Radclyffe, Sir Charles	Royle, Anthony	Walder, David (High Peak)
Munro-Lucas-Tooth, Sir Hugh	St. John-Stevas, Norman	Walker, Peter (Worcester)
Murton, Oscar	Scott-Hopkins, James	Walker-Smith, Rt. Hn. Sir Derek
Neave, Airey	Sharples, Richard	Wall, Patrick
Nicholls, Sir Harmar	Shepherd, William	Walters, Dennis
Nicholson, Sir Godfrey	Sinclair, Sir George	Ward, Dame Irene
Noble, Rt. Hn. Michael	Smith, Dudley (Br'ntf'd & Chiswick)	Weatherill, Bernard
Nugent, Rt. Hn. Sir Richard	Smith, John	Webster, David
Onslow, Cranley	Smyth, Rt. Hn. Brig. Sir John	Wells, John (Maidstone)
Orr, Capt. L. P. S.	Soames, Rt. Hn. Christopher	Whitelaw, William
Orr-Ewing, Sir Ian	Spearman, Sir Alexander	Williams, Sir Rolf Dudley (Exeter)
Osborn, John (Hallam)	Stainton, Keith	Wilson, Geoffrey (Truro)
Page, John (Harrow, W.)	Stanley, Hn. Richard	Wise, A. R.
Page, R. Graham (Crosby)	Stodart, Anthony	Wolrige-Gordon, Patrick
Pearson, Sir Frank (Clitheroe)	Stoddart-Scott, Col. Sir Malcolm	Wood, Rt. Hn. Richard
Peel, John	Studholme, Sir Henry	Woodhouse, Hn. Christopher
Percival, Ian	Summers, Sir Spencer	Woodnutt, Mark
Peyton, John	Talbot, John E.	Wylie, N. R.
Pickthorn, Rt. Hn. Sir Kenneth	Taylor, Sir Charles (Eastbourne)	Yates, William (The Wrekin)
Pounder, Rafton	Taylor, Edward M. (G'gow, Cathcart)	Younger, Hn. George
Powell, Rt. Hn. J. Enoch	Taylor, Frank (Moss Side)
Price, David (Eastleigh)	Teeling, Sir William	TELLERS FOR THE NOES:
Prior, J. M. L.	Temple, John M.	Mr. McLaren and Mr. Pym.

Main Question put:—

The house divided: Ayes 293, Noes 279.

Division No. 27.]	AYES	[10.13 p.m.
Abse, Leo	Craddock, George (Bradford, S.)	Carrow, A.
Albu, Austen	Crawshaw, Richard	Ginsburg, David
Allaun, Frank (Salford, E.)	Cronin, John	Gourlay, Harry
Aldritt, Walter	Crosland, Rt. Hn. Anthony	Greenwood, Rt. Hn. Anthony
Armstrong, Ernest	Cullen, Mrs. Alice	Gregory, Arnold
Atkinson, Norman	Dalyell, Tam	Grey, Charles
Bacon, Rt. Hn. Alice	Darling, George	Griffiths, David (Rother Valley)
Bagier, Gordon A. T.	Davies, G. Elfed (Rhondda, E.)	Griffiths, Rt. Hn. James (Llanelly)
Barnett, Joel	Davies, Harold (Leek)	Griffiths, Will (M'chester, Exchange)
Baxter, William	Davies, Ifor (Gower)	Grimond, Rt. Hn. J.
Beaney, Alan	Davies, S. O. (Merthyr)	Gunter, Rt. Hn. R. J.
Bellenger, Rt. Hn. F. J.	de Freitas, Sir Geoffrey	Hale, Leslie
Bence, Cyril	Delargy, Hugh	Hamilton, James (Bothwell)
Benn, Rt. Hn. Anthony Wedgwood	Dell, Edmund	Hamilton, William (West Fife)
Bennett, J. (Glasgow, Bridgeton)	Diamond, Rt. Hn. John	Hamling, William (Woolwich, W.)
Bessell, Peter	Doig, Peter	Hannan, William
Binns, John	Donnelly, Desmond	Harper, Joseph
Bishop, E. S.	Driberg, Tom	Harrison, Walter (Wakefield)
Blackburn, F.	Duffy, Dr. A. E. P.	Hattersley, Roy
Blenkinsop, Arthur	Dunn, James A.	Hazell, Bert
Boardman, H.	Dunnett, Jack	Healey, Rt. Hn. Denis
Boston, Terence	Edelman, Maurice	Heffer, Eric S.
Bottomley, Rt. Hn. Arthur	Edwards, Rt. Hn. Ness (Caerphilly)	Harbison, Rt. Hn. Margaret
Bowden, Rt. Hn. H. W. (Leics. S. W.)	Edwards, Robert (Bilston)	Hobden, Dennis (Brighton, K'town)
Boyden, James	Ennals, David	Holman, Percy
Braddock, Mrs. E. M.	Ensor, David	Horner, John
Bray, Dr. Jeremy	Evans, Albert (Islington, S. W.)	Houghton, Rt. Hn. Douglas
Broughton, Dr. A. D. D.	Evans, Ioan (Birmingham, Yardley)	Howarth, Harry (Wellingborough)
Brown, Rt. Hon. George (Belper)	Fernyhough, E.	Howarth, Robert L. (Bolton, E.)
Brown, Hugh D. (Glasgow, Provan)	Finch, Harold (Bedwellty)	Howell, Denis (Small Heath)
Brown, R. W. (Shoreditch & F'bury)	Fitch, Alan (Wigan)	Howie, w.
Buchan, Norman (Renfrewshire, W.)	Fletcher, Sir Eric (Islington, E.)	Hoy, James
Buchanan, Richard	Fletcher, Ted (Darlington)	Hughes, Cledwyn (Anglesey)
Butler, Herbert (Hackney, C.)	Fletcher, Raymond (Ilkeston)	Hughes, Hector (Aberdeen, N)
Butler, Mrs. Joyce (Wood Green)	Floud, Bernard	Hunter, Adam (Dunfermline)
Callaghan, Rt. Hn. James	Foley, Maurice	Hunter, A. E. (Feltham)
Carmichael, Neil	Foot, Sir Dingle (Ipswich)	Hynd, H. (Accrington)
Carter-Jones, Lewis	Foot, Michael (Ebbw Vale)	Hynd, John (Attercliffe)
Castle, Rt. Hn. Barbara	Ford, Ben	Jackson, Colin
Chapman, Donald	Fraser, Rt. Hn. Tom (Hamilton)	Janner, Sir Barnett
Coleman, Donald	Freeson, Reginald	Jay, Rt Hn. Douglas
Conlan, Bernard	Galpern, Sir Myer	Jeger, George (Goole)
Cousins, Rt. Hn. Frank	Garrett, W. E.	Jeger, Mrs. Lena (H'h'n&St.P'cras S.)
Jenkins, Hugh (Putney)	Morris, Alfred (Wythenshawe)	Silkin, John (Deptford)
Jenkins, Rt. Hn. Roy (Stechford)	Morris, Charles (Openshaw)	Silkin, S. C. (Camberwell, Dulwich)
Johnson, Carol (Lewisham, S.)	Morris, John (Aberavon)	Silverman, Sydney (Nelson)
Johnson, James (K'ston-on-Hull, W.)	Mulley, Rt. Hn. Fredertck (Sheffield Pk)	Skeffington, Arthur
Johnston, Russell (Inverness)	Murray, Albert	Slater, Mrs. Harriet (Stoke, N.)
Jones, Dan (Burnley)	Neal, Harold	Slater, Joseph (Sedgefield)
Jones, Rt. Hn. Sir Elwyn(W. Ham, S.)	Newens, Stan	Small, William
Jones, J. Idwal (Wrexham)	Noel-Baker, Francis (Swindon)	Snow, Julian
Jones, T. W. (Merioneth)	Noel-Baker, Rt. Hn. Philip(Derbyb, S.)	Soskice, Rt. Hn. Sir Frank
Kelley, Richard	Norwood, Christopher	Spriggs, Lesile
Kenyon, Clifford	Oakes, Gordon	Steele, Thomas (Dunbartonshire, W.)
Kerr, Mrs. Anne (R'ter & Chatham)	Ogden, Eric	Stonehouse, John
Kerr, Dr. David (W'worth, Central)	O'Malley, Brian	Stones, William
Leadbitter, Ted	Oram, Albert E. (E. Ham, S.)	Strauss, Rt. Hn. G. R. (Vauxhall)
Ledger, Ron	Orbach, Maurice	Stross, Sir Barnett(Stoke-on-Trent, C.)
Lee, Rt. Hon. Frederick (Newton)	Orme, Stanley	Summerskill, Hn. Dr. Shirley
Lee, Miss Jennie (Cannock)	Oswald, Thomas	Swain, Thomas
Lever, Harold (Cheetham)	Owen, Will	Swingler, Stephen
Lever, L. M. (Ardwick)	Padley, Walter	Symonds, J. B.
Lewis, Arthur (West Ham N.)	Page, Derek (King's Lynn)	Taverne, Dick
Lewis, Ron (Carlisle)	Paget, R. T.	Taylor, Bernard (Mansfield)
Lipton, Marcus	Palmer, Arthur	Thomas, Iorwerth (Rhondda, W.)
Lomas, Kenneth	Pannell, Rt. Hn. Charles	Thomson, George (Dundee, E.)
Loughlin, Charles	Pargiter, G. A.	Thornton, Ernest
Lubbock, Eric	Park, Trevor (Derbyshire, S.E.)	Thorpe, Jeremy
Mabon, Dr. J. Dickson	Parker, John	Tuck, Raphael
McBride, Neil	Pavitt, Laurence	Urwin, T. W.
McCann, J.	Pearson, Arthur (Pontypridd)	Varley, Eric G.
MacColl, James	Peart, Rt. Hn. Fred	Wainwright, Edwin
MacDermot, Niall	Pentland, Norman	Walker, Harold (Doncaster)
McGuire, Michael	Perry, Ernest G.	Wallace, George
McInnes, James	Popplewell, Ernest	Warbey, William
McKay, Mrs. Margaret	Prentice, R. E.	Watkins, Tudor
Mackenzie, Alasdair (Ross & Crom'ty)	Price, J. T. (Westhoughton)	Weitzman, David
Mackenzie, Gregor (Rutherglen)	Probert, Arthur	Wellbeloved, James
Mackie, John (Enfield, E.)	Pursey, Cmdr. Harry	Wells, William (Walsall, N.)
McLeavy, Frank	Randall, Harry	White, Mrs. Eirene
MacMillan, Malcolm	Rankin, John	Whitlock, William
McNamara, Kevin	Redhead, Edward	Wigg, Rt. Hn. George
Mahon, Peter (Preston, S.)	Rees, Merlyn	Wilkins, W. A.
Mahon, Simon (Bootle)	Reynolds, G. W.	Willey, Rt. Hn. Frederick
Mallalieu, E. L. (Brigg)	Rhodes, Geoffrey	Williams, Alan (Swansea, W.)
Mallalieu, J. P. W. (Huddersfield, E.)	Richard, Ivor	Williams, Mrs. Shirley (Hitchin)
Manuel, Archie	Roberts, Albert (Normanton)	Williams, W. T. (Warrington)
Mapp, Charles	Roberts, Goronwy (Caernarvon)	Willis, George (Edinburgh, E.)
Marsh, Richard	Robertson, John (Paisley)	Wilson, Rt. Hn. Harold (Huyton)
Mason, Roy	Robinson, Rt. Hn. K.(St. Pancras, N.)	Wilson, William (Coventry, S.)
Mayhew, Christopher	Rodgers, William (Stockton)	Woodburn, Rt. Hn. A.
Mellish, Robert	Rogers, George (Kensington, N.)	Woof, Robert
Mendelson, J. J.	Rose, Paul B.	Wyatt, Woodrow
Mikardo, Ian	Ross, Rt. Hn. William	Yates, Victor (Ladywood)
Millan, Bruce	Rowland, Christopher	Zilliacus, K.
Miller, Dr. M. S.	Sheldon, Robert
Milne, Edward (Blyth)	Shore, Peter (Stepney)
Molloy, William	Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)	TELLERS FOR THE AYES:
Monslow, Walter	Short, Mrs. Renée (W'hampton, N. E.)	Mr. Sydney Irving and Mr. Lawson
NOES
Agnew, Commander Sir Peter	Bromley-Davenport, Lt.-Col. Sir Walter	Costain, A. P.
Alison, Michael (Barkston Ash)	Brooke, Rt. Hn. Henry	Courtney, Cdr. Anthony
Allan, Robert (Paddington, S.)	Brown, Sir Edward (Bath)	Craddock, Sir Beresford (Spelthorne)
Allason, James (Hemel Hempstead)	Bruce-Gardyne, J.	Crawley, Aidan
Amery, Rt. Hn. Julian	Bryan, Paul	Crosthwaite-Eyre, Col. Sir Oliver
Anstruther-Gray, Rt. Hn. Sir W.	Buchanan-Smith, Alick	Crowder, F. P.
Astor, John	Buck, Antony	Cunningham, Sir Knox
Atkins, Humphrey	Bullus, Sir Eric	Curran, Charles
Awdry, Daniel	Burden, F. A.	Currie, G. B. H.
Baker, W. H. K.	Buxton, Ronald	Dalkeith, Earl of
Barber, Rt. Hn. Anthony	Campbell, Gordon	Dance, James
Barlow, Sir John	Carlisle, Mark	Davies, Dr. Wyndham (Perry Barr)
Beamish, Col. Sir Tufton	Carr, Rt. Hn. Robert	d'Avigdor-Goldsmid, Sir Henry
Bennett, Sir Frederic (Torquay)	Cary, Sir Robert	Dean, Paul
Berkeley, Humphrey	Channon, H. P. G.	Deedes, Rt. Hn. W. F.
Berry, Hn. Anthony	Chataway, Christopher	Digby, Simon Wingfield
Biffen, John	Chichester-Clark, R.	Dodds-Parker, Douglas
Biggs-Davison, John	Clark, Henry (Antrim, N.)	Doughty, Charles
Bingham, R. M.	Clark, William (Nottingham, S.)	Drayson, G. B.
Birch, Rt. Hn. Nigel	Clarke, Brig. Terence (Portsmth, W.)	du Cann, Rt. Hn. Edward
Black, Sir Cyril	Cole, Norman	Eden, Sir John
Blaker, Peter	Cooke, Robert	Elliot, Capt. Walter (Carshalton)
Bossom, Hn. Clive	Cooper, A. E.	Elliott, R. W. (N'c'tle-upon-Tyne, N.)
Box, Donald	Cooper-Key, Sir Neill	Emery, Peter
Brains, Bernard	Cordle, John	Errington, Sir Eric
Brinton, Sir Tatton	Corfield, F. V.	Eyre, Reginald
Farr, John	Kershaw, Anthony	Quennell, Miss J. M.
Fell, Anthony	Kilfedder, James A.	Ramsden, Rt. Hn. James
Fisher, Nigel	Kimball, Marcus	Rawlinson, Rt. Hn. Sir Peter
Fletcher-Cooke, Charles (Darwen)	King, Evelyn (Dorset, S.)	Redmayne, Rt. Hn. Sir Martin
Fletcher-Cooke, Sir John (S'pton)	Kirk, Peter	Rees-Davies, W. R.
Forrest, George	Kitson, Timothy	Renton, Rt. Hn. Sir David
Foster, Sir John	Lagden, Godfrey	Ridsdale, Julian
Fraser, Rt. Hn. Hugh (St'ffOrd & Stone)	Lambton, Viscount	Roberts, Sir Peter (Heeley)
Fraser, Ian (Plymouth, Sutton)	Lancaster, Col. C. G.	Robson Brown, Sir William
Gammant, Lady	Langford-Holt, Sir John	Rodgers, Sir John (Sevenoaks)
Gardner, Edward	Legge-Bourke, Sir Harry	Roots, William
Gibson-Watt, David	Lewis, Kenneth (Rutland)	Royle, Anthony
Giles, Rear-Admiral Morgan	Litchfield, Capt. John	St. John-Stevas, Norman
Gilmour, Ian (Norfolk, Central)	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)	Scott-Hopkins, James
Gilmour, Sir John (East Fife)	Lloyd, Ian (P'tsm'th, Langstone)	Sharples, Richard
Glover, Sir Douglas	Longbottom, Charles	Shepherd, William
Glyn, Sir Richard	Longden, Gilbert	Sinclair, Sir George
Godber, Rt. Hn. J. B.	Loveys, Walter H.	Smith, Dudley (Br'ntf'd & Chiswick)
Goodhart, Philip	Lucas, Sir Jocelyn	Smith, John
Goodhew, Victor	McAdden, Sir Stephen	Smyth, Rt. Hn. Brig. Sir John
Gower, Raymond	MacArthur, Ian	Soames, Rt. Hn. Christopher
Grant, Anthony	Maclean, Sir Fitzroy	Spearman, Sir Alexander
Grant-Ferris, R.	Macleod, Rt Hn. Iain	Stainton, Keith
Gresham Cooke, R.	McMaster, Stanley	Stanley, Hn. Richard
Grieve, Percy	McNair-Wilson, Patrick	Stodart, Anthony
Griffiths, Eldon (Bury St. Edmunds)	Maddan, Martin	Stoddart-Scott, Col. Sir Malcolm
Griffiths, Peter (Smethwick)	Maginnls, John E.	Studholme, Sir Henry
Gurden, Harold	Maitland, Sir John	Summers, Sir Spencer
Hall, John (Wycombe)	Marples, Rt. Hn. Ernest	Talbot, John E.
Hall-Davis, A. G. F.	Marten, Neil	Taylor, Sir Charles (Eastbourne)
Hamilton, Marquess of (Fermanagh)	Mathew, Robert	Taylor, Edward M. (G'gow, Cathcart)
Hamilton, M. (Salisbury)	Maude, Angus	Taylor, Frank (Moss Side)
Harris, Frederic (Croydon, N. W.)	Maudling, Rt. Hn. Reginald	Teeling, Sir William
Harris, Reader (Heston)	Mawby, Ray	Temple, John M.
Harrison, Brian (Maldon)	Maxwell-Hyslop, R. J.	Thatcher, Mrs. Margaret
Harrison, Col. Sir Harwood (Eye)	Maydon, Lt.-Comdr. S. L. C.	Thomas, Sir Leslie (Canterbury)
Harvey, Sir Arthur Vere (Macclesf'd)	Meyer, Sir Anthony	Thomas, Rt. Hn. Peter (Conway)
Harvey, John (Walthamstow, E.)	Mills, Peter (Torrington)	Thompson, Sir Richard (Croydon, S.)
Harvie Anderson, Miss	Mills, Stratton (Belfast, N.)	Thorneycroft, Rt. Hn. Peter
Hastings, Stephen	Miscampbell, Norman	Tiley, Arthur (Bradford, W.)
Hawkins, Paul	Mitchell, David	Turton, Rt. Hn. R. H.
Hay, John	Monro, Hector	Tweedsmuir, Lady
Heald, Rt. Hn. Sir Lionel	More, Jasper	van Straubenzee, W. R.
Heath, Rt. Hn. Edward	Morgan, W. G.	Vaughan-Morgan, Rt. Hn. Sir John
Hendry, Forbes	Morrison, Charles (Devizes)	Vickers, Dame Joan
Higgins, Terence L.	Mott-Radclyffe, Sir Charles	Walder, David (High Peak)
Hiley, Joseph	Munro-Lucas-Tooth, Sir Hugh	Walker, Peter (Worcester)
Hill, J. E. B. (S. Norfolk)	Murton, Oscar	Walker-Smith, Rt. Hn. Sir Derek
Hirst, Geoffrey	Neave, Alrey	Wall, Patrick
Hobson, Rt. Hn. Sir John	Nicholls, Sir Harmar	Walters, Dennis
Hogg, Rt. Hn. Qlintin	Nicholson, Sir Godfrey	Ward, Dame Irene
Hopkins, Alan	Noble, Rt. Hn. Michael	Weatherill, Bernard
Hordern, Peter	Nugent, Rt. Hn. Sir Richard	Webster, David
Hornby, Richard	Onslow, Cranley	Wells, John (Maidstone)
Hornsby-Smith, Rt. Hn. Dame P.	Orr, Capt. L. P. S.	Whitelaw, William
Howard, Hn. G. R. (St. Ives)	Orr-Ewing, Sir Ian	Williams, Sir Rolf Dudley (Exeter)
Howe, Geoffrey (Bebington)	Osborn, John (Hallam)	Wilson, Geoffrey (Truro)
Hunt, John (Bromley)	Page, John (Harrow, W.)	Wise, A. R.
Hutchison, Michael Clark	Page, R. Graham (Crosby)	Wolrige-Gordon, Patrick
Irvine, Bryant Goodman (Rye)	Pearson, Sir Frank (Clitheroe)	Wood, Rt. Hn. Richard
Jenkin Patrick (Woodford)	Peel, John	Woodhouse, Hn. Christopher
Johnson Smith, G. (East Grinstead)	Percival, Ian	Woodnutt, Mark
Jones, Arthur (Northants, S.)	Peyton, John	Wylie, N. R.
Jopling, Michael	Pickthorn, Rt. Hn. Sir Kenneth	Yates, William (The Wrekin)
Joseph, Rt. Hn. Sir Keith	Pounder, Rafton	Younger, Hn. George
Kaberry, Sir Donald	Powell, Rt. Hn. J. Enoch
Kerby, Capt. Henry	Price, David (Eastleigh)	TELLERS FOR THE NOES:
Kerr, Sir Hamilton (Cambridge)	Prior, J. M. L.	Mr. McLaren and Mr. Pym.

Resolved,

That this House approves the proposals in Command Papers Nos. 2874 and 2889.