HC Deb 03 November 1970 vol 805 cc828-9
8. Mr. Barnett

asked the Chancellor of the Exchequer what financial incentives he is proposing to increase industrial investment; and if he will make a statement.

Mr. Barber

I announced on 27th October the Government's intention to place investment grants with a new system of depreciation allowances. The details are set out in the White Paper "Investment Incentives" (Cmnd. 4516).

Mr. Barnett

Will the right hon. Gentleman confirm that in real money terms there is a direct cut in financial incentives to companies? What research did he carry out which led him to the conclusion that this cut would increase industrial investment?

Mr. Barber

As the hon. Gentleman knows, and as he would be the first to admit, the simple fact is that the system of investment grants has not worked. Since investment grants were introduced in 1966 there has been a slower increase in investment in real terms than in the previous four years. The figures for the net effect on companies of the proposals which I laid before the House last week and of the reduction in corporation tax are set out in the table to the White Paper.

Mr. Blenkinsop

Can the right hon. Gentleman explain how small and newly-started firms will be helped by the depreciation allowances?

Mr. Barber

We do not believe in a system like the old investment grants system whereby assistance was given in the form of investment grants which was not related in any way to profitability.

Mr. Hordern

Does my right hon. Friend agree that as manufacturing investment increased by only 8 per cent. in the last four years the cash grant system cannot be considered to have been particularly effective but was extraordinarily wasteful?

Mr. Barber

My hon. Friend is absolutely right.

Mr. Tinn

Will the right hon. Gentleman comment on the statement by the Director of the North-East Development Council that under the new scheme firms in development areas will lose approximately 10 per cent.?

Mr. Barber

In money terms, the regional differential which exists under the totality of the proposals—[HON. MEMBERS: "Answer."] I am answering. The regional differential, which is the result of the totality of the proposals I announced, will be as valuable in money terms as was the previous differential, but we believe that it will be far more effective.

Mr. Michael Shaw

Will my right hon. Friend accept from me that the reaction which I have had from industry in the North-East shows that his proposals have been very well received and are regarded most favourably?

Mr. Barber

I am grateful to my hon. Friend. I believe that to be the case and that they will be far more effective. In any event, we shall have an opportunity to debate these matters tomorrow and the following day.

Mr. Dell

Why does not the right hon. Gentleman answer the question of my hon. Friend the Member for Heywood and Royton (Mr. Barnett)? What research did he carry out into the effect of his new incentive scheme on our major exporting industries?

Mr. Barber

I looked at the facts of the situation. I looked at what had happened before the system of investment grants was introduced, at what had happened during the four years when we had investment grants, what were the likely consequences of continuing with investment grants and of going over to the system of depreciation allowances which I announced or, alternatively, a system of investment allowances. A great deal of work was done before the decision was taken.