HC Deb 20 January 1967 vol 739 cc924-30

3.56 p.m.

The Minister of State, Board of Trade (Mr. George Darling)

I beg to move, That the Industrial Development (Variation of Rate of Grant) Order 1966 (S.I., 1966, No. 1569), dated 14th December 1966, a copy of which was laid before this House on 19th December, be approved. I regret that the time factor compels us to bring the Order forward at this hour. It is exempted business, and I do not know what the weekend arrangements are, but I imagine that we could run on to Monday morning if any hon. Members wanted to take the debate on so long. However, I hope that as we shall have further opportunities to discuss the whole question of investment grants, industrial development and the rest, I need not be called upon to explain in great detail what the Order does. I know that the hon. Member for Worthing (Mr. Higgins) is fully aware of what it attempts to do.

It gives effect to the decision announced by my right hon. Friend the President of the Board of Trade on 1st December, 1966, to effect a temporary increase in the rates of investment grant. Part I of the Industrial Development Act, 1966. That enables the Board of Trade to make grants to firms in respect of approved capital investments in certain broad classes of assets, including plant or machinery, and in qualifying industrial processes such as manufacturing, mining and quarrying, construction and ship repair, or in scientific research, in computers, hovercraft ships and mining works. The standard rate of grant laid down in the Act is 20 per cent., but machinery or plant, mining works and some special categories of computers qualify for 40 per cent. if they are for use in development areas. It is the Government's intention that those should be the long-term rates for the investment grants scheme.

However, the Act provides power to vary the rates of grant by Order. While we intend to give industry a stable base for long-term investment plans, I think that it will be agreed that that provision in the Act gives a useful and very necessary flexibility when an extra stimulus to investment is required. The Order has therefore been made under that power, and it came into effect on 30th December. Its effect is simple. It provides that in so far as expenditure on eligible assets is incurred between 1st January 1967 and 31st December 1968, the rate of grant will be increased by an extra 5 per cent. Expenditure which under the standard provisions in the Act would have qualified for 20 per cent. will now qualify for 25 per cent. and expenditure related to use in development areas will qualify for 45 per cent. instead of 40 per cent.

On the arrangements for this I need only say that, to attract the higher rate of grant, expenditure on eligible assets must be incurred between the two dates I have mentioned—the beginning of 1967 and the end of 1968. The Act provides that expenditure shall be treated as incurred at the time when the sums of which it consists become payable. That means that it will be impossible for anyone buying on hire purchase goods and equipment that qualify for the grant to make arrangements to pay ahead, when the payment really became due before 1st January, 1967.

I think that I need say no more about the effect of the Order, although if any questions are asked, with permission I shall do my best to answer them. The decision taken by the Government to increase the rates of grant over the next two years has been warmly welcomed by industry. At the recent meeting of the Industrial Economic Development Council, at which I was present, it was recognised that this was a very important step in promoting the objectives put forward at the first National Productivity Conference which was held in September.

It is not possible to say here and now what the precise effect will be. Hon. Members may have seen the reports yesterday and today of the latest survey of investment intentions, carried out by the Board of Trade. This suggests that firms, at the time the questions were asked, in November and December, were expecting a fall of about 10 per cent. in their investment in 1967 compared with 1966. This is not quite as gloomy as some forecasts which we had about the time the questions were being asked, and in any case some of the firms had already sent in their returns before the increases in grants were announced and others have had very little time to alter their plans.

I agree that investment decisions depend on many factors apart from the level of Government assistance, and not all of them are under our immediate control, but the object in providing these higher grants is to give greater encouragement to firms to use the present opportunity to expand and modernise their plant. The Government, in effect, are sharing a larger part of the risk, in development areas almost half of it. The great advantage of the grant system is that the timing of the benefit does not depend upon future profits. We hope, and we have some confidence in believing, that firms will take full advantage of the increased grants and place their orders for plant and machinery now.

4.3 p.m.

Mr. Graham Page (Crosby)

I am sure that the contents of the Order are welcome to the House and to industry in general and that it is very necessary to provide this encouragement to investment at the present time.

It is not so much the content of the Order on which I wish to detain the House for a few moments as the timing and the form. It has become all too frequent for the Government to get Royal Assent to an Act and almost immediately to alter the Act by Order. We had this in the Prices and Incomes Act, when, on the very day of Royal Assent, a new Schedule was inserted in the Act by Order. We had the same thing in connection with building controls, when a vital figure in that Act was altered on the day that the Act took effect.

The present instance is not so bad, but nearly as bad. It is exactly four months to the day from this Act taking effect to the laying of the Order before the House. The Government ought to make up their mind what is the right rate when they pass a Bill of this sort. To alter the Act in this way may be very welcome to industry, but industrial people order their business in accordance with the statutes passed by the House and the Government ought to make up their mind to get the figure right at the start.

It is regrettable that the Order has had to come before the House before being considered by the Select Committee on Statutory Instruments. I have endeavoured to discover to what it applies. The right hon. Gentleman explained it very adequately, but I am not sure that he explained the Order itself or what it says or does. To what does the Order apply? Article I says that it is … in relation to any asset … As a passing note, I would point out that the Oxford Dictionary does not recognise the word "asset" in the singular. It only gives "assets".

The Explanatory Note to the Order refers to … certain expenditure on eligible business assets. In an effort to discover what was meant by "eligible business assets", I thought I would find out from the Act itself and turned to the interpretation Section.

I found that, in that Section, "asset" includes … any such works as are mentioned in Section 6 of this Act; and that "business" is defined as including … a trade or profession … but not certain other things, like the local authorities, development corporations or univerisities. So the interpretation Section is not very much good in explaining to what the Order applies.

The Order applies to the provisions of Part I of the Act. So I searched Part I to try and find where the word "asset" appears. It appears only in Section 4, dealing with hired assets. It is true that the interpretation Section—Section 13—applies the word "asset" to mining equipment under Section 6. But these are the only two Sections to which the word "asset" applies according to the Act itself. So we come back to the words of Article I. The Order refers to amounts payable under Part I of the Act … in relation to any asset to which … a provision under Part I applies. Neither the Order itself nor the Explanatory Note says what assets.

Does the Order apply to machinery and plant under Section 1 of the Act? But nowhere in the Act is machinery and plan called an asset. Does it apply to Section 2, to computers, or to Section 3, dealing with new hover vehicles, or to Section 5 dealing with ships? This is a loose phrase to use in the Order.

The Order is to apply to "any asset" when the Act itself does not use the word "asset" as comprehensive of Part I and to describe, in the Explanatory Note, the Order as applying to "eligible business assets" when there is no definition of that phrase anywhere is very misleading to those who have to look at the Order and interpret it.

4.8 p.m.

Mr. Terence L. Higgins (Worthing)

I shall not detain the House for more than a few moments. I entirely endorse the remarks made by my right hon. Friend the Member for Crosby (Mr. Graham Page). It is very worrying that the Government should constantly revise their legislation at very short notice without the House having had an opportunity to debate the changes made. The Prices and Incomes Act was perhaps the worst instance, but this one is also unsatisfactory.

It may be said that the changes made by the Instrument will be regarded with pleasure by industry, but both industry and we regard the change as too little, too late and based on wrong principles. Constant changing of the rate of investment grant means that the uncertainty of the business climate is increased, which is not the kind of climate in which we are likely to get sensible investment decisions or an increase in the overall level of investment. Investment allowances are not a legitimate tool of short run demand management, and it is undesirable that this kind of Measure should be introduced.

I do not propose now to go into the basic points of difference between the two sides of the House on this issue. They turn on points which were raised in debates on the Industrial Development Act and Clauses 33 and 34 of the last Finance Bill, but the change now being made is typical of the indecision and the last-minute actions of the Government on both this matter and matters of economic affairs generally.

We are opposed to the principle of this kind of grant because we believe that the investment allowances are preferable and that this kind of cash grant is really a counsel of despair suggesting that British business is not capable of working out what an investment allowance of the tax kind is actually worth. I should have thought that if a firm could not work it out, it was not the kind of firm which we wanted to encourage. Similarly we want to encourage profitable and not unprofitable firms and this kind of grant is not the way in which one is likely to do that.

Looking at today's Financial Times and the figures for unemployment in the region, one finds that in Scotland it is 4 per cent in the South-West 3½ per cent. and in Wales 4.3 per cent. and one realises what need there is to encourage investment in development districts. But at the same time the changes which the Order makes can only be regarded as pathetic, and this is true of investment in the country as a whole.

The right hon. Gentleman has referred to the forecasts of investment decreases. It is true that today's headline reads that the Board of Trade forecast a bigger fall in investment, about 10 per cent., which is not as great as the C.B.I. has forecast, but which, compared with the figure in the National Plan, gives the gravest cause for concern.

The dilemma of the present Government is that they cannot reinflate the economy by encouraging consumption, because that would simply get us back into an inflationary situation, and yet, unless they do that, they cannot hope to improve the market prospects for firms and encourage them to invest. They will certainly not do so in the present climate of opinion merely by trivial changes of the kind which we are now considering.

I want to turn to a technical point which is very important. What is crucial to the individual businessman reaching the kind of investment decision which the Order is supposed to influence, is the rate of return on capital and not the extent to which the grant reduces the amount of capital which he invests. I made this point to the Chancellor of the Exchequer in an intervention some months ago and he replied that I ought to put down a Question. I put down a Question, but it was answered by the Board of Trade, which was still talking about the absolute amount of capital and not the rate of return.

I hope that we shall have set out sensibly by the Board of Trade what the actual impact on the rate of return which a business receives is likely to be from measures such as this Order. The fact is that in a development district the Order will increase the amount of grant from 40 to 45 per cent., but the effect on the amount of capital is very small and the effect on the actual rate of return is even smaller. I therefore hope that we shall have an explanation from the right hon. Gentleman—not now, because it is a complicated arithmetical matter—if we put down another Question to enable businessmen to appraise what this Order will do for their investment decisions.

I do not want to delay the House further, but it is important that we should place on the record the fact that we think that the actions which the Government are taking in this respect in the present economic situation to encourage investment are absolutely pathetic and that we hope that they will take other measures based on sounder principles of the kind which we on this side of the House have advocated and that they will at least spell out the actual implications of the measures which they are now taking.

Question put and agreed to.


That the Industrial Development (Variation of Rate of Grant) Order 1966 (S.I., 1966, No. 1569), dated 14th December 1966, a copy of which was laid before this House on 19th December, be approved.