HC Deb 27 June 1967 vol 749 cc317-22

Where the Treasury is satisfied that—

  1. (a) expenditure in respect of an asset consists of the payment of sums under a contract entered into on a date not later that 16th January 1966, and
  2. 318
  3. (b) the asset was brought into use at the earliest practicable date, being after 16th January 1968,
then subsection (1) of section 35 of the Finance Act 1966 shall not affect the application of any of the enactments specified in Part IV of Schedule 13 to that Act, to that expenditure.—[Mr. Iain Macleod.]

Brought up, and read the First time.

Mr. Iain Macleod

I beg to move, That the Clause be read a Second time.

The new Clause arises out of Section 35 of the Finance Act 1966, which provided that investment allowances on capital expenditure would be discontinued unless, first, the contract was entered into before 17th January, 1966, and, second, the asset in question was brought into use before 17th January, 1968, thereby giving a two-year period. The Bill was originally drafted to give a period of nine months, but in debates in Committee it was pointed out and accepted by the Treasury Bench that nine months was certainly too short; there was general agreement that a longer period should be provided for.

In a letter, of which he probably has a copy, the Chief Secretary on 3rd March, wrote to Mr. Brilliant, of Britannia Airways, laying down the objective of the extension of the time limit: We therefore decided to make a substantial extension of the time limit so as to make it long enough to enable, so far as could be judged, all assets genuinely contracted for in the normal course of trading before 17th January 1966 to be completed and brought into use. The right hon. Gentleman then explained that two years was the period most frequently mentioned in Committee and the period upon which the Government had decided, and added: A delay in delivery of over two years is, I think, very exceptional and we have no evidence, apart from this case, that the limit is proving too short. That is accurate, as far as it goes, and I also have no evidence beyond the case which is the basis for the new Clause.

The complication is that the Chief Secretary has said that hard cases make bad laws. Although there is no doubt—he will not dispute this—that, in this case, a genuine contract has been genuinely entered into and planned to be delivered as early as possible, it still falls out with the scope of Section 35 of the 1966 Act.

There may well be other cases concerning aircraft, because the Clause would particularly catch orders for aircraft purchase. The reason is that, when an airline buys an aircraft which is technologically advanced, it will normally have to wait about three or four years from the commitment to the delivery. Whereas one can buy or order an aircraft like the Boeing 707 or the BAC111 with a lead time of approximately one year, if one goes in for more advanced types like the Boeing 737 or 747 or the BAC211, there is a lead time which may extend into three or four years. This is clearly not the fault of those who order, but the limitation of two years in Section 35 of last year's Finance Act catches them.

In this case, Britannia Airways ordered Boeing 737s, I think, in October, 1965, for delivery at the earliest date, and the key words in the new Clause are, of course, "earliest practicable date". But the earliest practicable date turns out to be—for the reasons I have given, this is not surprising with an advanced aircraft—April-July, 1968. Therefore, in effect although not in intention, the Clause which was passed a year ago discriminates against the purchase of advanced aircraft.

I gather that the Treasury's anxiety is that there must be a time limit so that people who peer into the future and guess—accurately, in this case—the line which might be taken by the Government's investment incentives should not benefit unduly from long-term contracts which they might enter into for the supply of assets which would, perhaps, not rank for grant under the new arrangement. But that, also, is taken care of by the new Clause, which says that the asset must be brought into use at the earlest practicable date, so there is no question of someone trying to forestall the provisions of the 1966 Act.

It is only in the sort of case—I know of no other—in which a genuine order was made for a particularly sophisticated type of aircraft before January, 1966, and, therefore, applies on that score, and for which delivery has been requested at the earliest posible moment, which turns out to be beyond the two years allowed, which would not qualify under Section 35.

Bearing in mind that I can give only this one illustration, I would not advise my hon. Friends to divide on this issue. The Chief Secretary will know whether or not, in former years, this was a wide- spread complaint. However, I am sure that the Opposition spokesmen and Treasury officials would have heard of other cases, had they existed, through attempts to put them right. Even if this be the only case, it is worth bringing before the House to see whether there is some way—I admit that the new Clause may not be perfectly worded, or that it should be limited to advanced technological aircraft—of meeting this point. I have given evidence to show that, in these circumstances, Section 35 of the 1966 Act has resulted in something that the House of Commons did not intend a year ago.

6.30 p.m.

Mr. Diamond

The right hon. Member for Enfield, West (Mr. Iain Macleod) moved the new Clause with extreme reasonableness and made the background to it absolutely clear. The original proposal was a nine months' extension and many representations were made in Committee, as the Government wanted, on last year's Finance Act, but not one representation or proposal was made for a period longer than two years. There were several for a period shorter than two years, but the Government decided that it would be safer to go for the longest period which could reasonably be argued, and we settled on two years.

There are at least two good reasons for having a time limit, even beyond the fact that if one is moving over to a new system one must cut off the old one to avoid the two running side by side. One reason is the case mentioned by the right hon. Gentleman; of foreseeing the future and providing for it in that way. The other reason is to consider whether, by similarity foreseeing the future, one could provide for a series of circumstances in which, say, one contract entered into before the relevant date, could be covered almost permanently for future deliveries coming at various intervals.

There are, therefore, good reasons for having a limitation, and we must look at any special cases against that general background. Other than the one case to which the right hon. Gentleman referred—I do not have the correspondence, but I remember it well; I am obliged to the right hon. Gentleman for having mentioned this matter to me earlier—we have had no other cases at all. I confirm that. Prior to the right hon. Gentleman saying that he had this particular case in mind, I had been minded to say, in reply—and, in any case, I will say it—that after the two-year period has expired—and it does not expire until 1968; two years from the relevant date of the new system starting—I intend to see which cases, how many of them and what kind of cases, if any, have proved some sort of hardship and have been caught by the two-year rule. I still say that, and I wish to make this clear.

If it turns out that this still remains the only case where there is a feeling that the two-year period has been too short, then the House must accept—and I am not disputing that these are genuine circumstances—that, as against that one case, one must protect the Revenue from a variety of other cases. It is difficult to legislate for one aeroplane delivery. While I do not wish to mislead the right hon. Gentleman—remembering that in Committee we said that we would consider everything brought to our attention; and on Report we are certainly producing the goods—if it turns out that this is still the only case, I would not then look at it with anything like the same sympathy as if it were one of several cases, which, in such circumstances, we would obviously be more inclined to meet.

However, I affirm that this is, to the best of my knoweldge, a perfectly genuine case and I am grateful to the right hon. Gentleman for having raised the matter.

I hope that he will feel that the best way of treating the issue at present is to see what representations we receive after the two-year period has expired, which will be in mid-January, 1968. We will then see whether it would be appropriate to make any alteration, if there were a serious case for it to be made, in the next Finance Bill. I must again point out, however, that I would not look on this matter with such great sympathy if it turned out to be the only case, as it is at present, on which we received representations.

Mr. Iain Macleod

I am grateful to the Chief Secretary for his reply. We are obviously agreed about the facts in this case and I was glad to hear him say that he accepts that this is an absolutely genuine one. I could not reasonably ask more than that he should, when the time expires early in January next, look at the whole matter again to see if other cases have been harshly treated by the provision which we passed a year ago. In the circumstances, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.