HC Deb 10 July 1972 vol 840 cc1336-46

'The Capital Allowances Act 1968 shall be read and have effect as if—

(1) in subsection (1) of section 7 thereof there were included the following paragraph: — (j) for the purposes of an hotel restaurant or catering business and

(2) in subsection (3) of section 7 thereof the word 'hotel' wherever it appears were omitted, and the words 'retail shop' shall not include a restaurant or catering business" '.—[Mr. Rees-Davies.]

Brought up, and read the First time.

Mr. Rees-Davies

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

The purpose of the Clause is to include as an industrial building or structure under the provisions of the Capital Allowances Act, 1968, the hotel and catering industry. It is a Clause of immense importance, of overriding importance, to the hotel and catering industry, and one which will not only arise this year but will clearly become of great importance next year.

I say that for a number of reasons. For many years, ever since I have been in the House of Commons, contrary to what we believe is right, the hotel and catering industry has been treated as though it were a shop or an office. It has been treated, if I may say so, as an ordinary club or business, and has not been regarded as being properly constituted as an industry. I have never been able to understand why this is so, and I propose to advert briefly tonight to some of the arguments advanced in Committee by my hon. Friend the Chief Secretary to the Treasury in dealing with certain of the fundamental arguments.

Anyone who knows this industry today recognises that an hotel is purpose built, a restaurant is purpose built, a factory is purpose built, but, in a way, a retail shop or office may not necessarily be purpose built. Consequently, the need for a general relief to my mind seems clear. Recognising that it is unlikely that I shall at this hour achieve the financial purpose of the Clause, I am quite frankly putting forward my arguments to ensure that they are fully mulled over and appreciated for the real drive in this field next year.

I do that for two reasons. First, I want to draw attention tonight at once to the position that obtains in every other Common Market country, and in the United States of America, because in every single instance there is given the type of allowance that we today seek in this country; that is to say, neither any Common Market country, nor the United States of America treats the tourist industry as a mere shop. It is not a shop. It is an industry.

Let me start at once by saying that in the United States of America the industrial allowances on a straight line basis are assessed on the life of the building, subject to an agreement, over a period of 25 years at 4 per cent. per annum. It is similarly dealt with in most other countries. For example, in Holland it is dealt with on a straight line basis of 2 per cent. over 50 years or, alternatively, negotiable on a reducible balance at a higher rate of 10 per cent., the depreciation being calculated on the cost and the reducing balance being calculated on the cost less depreciation.

Belgium is very much the same as Holland. In the case of Belgium it has 5 per cent. on the straight line basis over 20 years, with a reducing balance rate of 12½ per cent. Spain makes provisions which are immensely favourable in many ways with regard to the cost of the actual buildings that are provided for hotels, but it also provides for depreciation on a straight line basis of 3 per cent. on 33¼ years. Italy gives immense advantages, but they depend very much on the area in which the building is taking place and very special provisions apply if the buildings are in the south of Italy or in mountain areas. In West Germany, on the straight line basis, it is 2 per cent. with, again, various particular allowances. In Sweden it is 2½ per cent. and in Denmark it is 4 per cent. Those are all on a 10-year basis thereafter with regard to depreciation.

Therefore I think we can establish the case which I ask the Treasury to look at very carefully over the next year and to recognise that when we enter the Common Market, unless we are prepared to accept the case which I propound tonight we shall find ourselves on a very different competitive basis from that of any other country in the Common Market or the United States of America.

I turn to what has been done here by successive Governments. The Labour Government are entitled to say that they did something in this direction. They introduced the Development of Tourism Act. They thought they would have under it grants totalling only about £10 million to £11 million, but so successful were their proposals for grant and loans that in grants alone over £50million has been provided for over 60,000 bedrooms. That means that we have now a substantial stock of what I call the better class of room. But it does not mean that we have been able to achieve what no doubt the Labour Government intended to achieve—that is, the provision of reasonably priced accommodation in many parts of the country; nor were they able to deal with the vital question of the modernisation of the smaller hotels and boarding houses in places such as Blackpool, Bournemouth, Torquay, Brighton, Hove and the Isle of Thanet.

In the Isle of Thanet, only two hotels were able to take advantage of these provisions. This was because under the Labour Government one could not without great difficulty borrow money from the banks. The interest rates were so high that the smaller boarding houses did not have the money to be able to secure the provision of loans and therefore to get the grants available. We are thus left with a tourist industry with a great many first-class bedrooms which have had the advantage of grants and loans to the tune of about £50 million but which has not the modernisation that is required.

In order to secure the modernisation and development of the industry, we need to take further steps, for the provisions under the1968 Act began in 1971 and are to be phased out by 31st March, 1973. This means that the Treasury must make preparations to ensure that alternative facilities take over which will be much more beneficial to what I call the lower end of the business in order to ensure that there is structure depreciation and obsolescence relief in respect of gradual depreciation and run-down of hotels.

What we want to achieve is the development of the hotel and catering industry to the highest standard so that it can compete. This country has never been able to compete in such provision. It is becoming very difficult to fill the 93,000 vacancies for waiters, barmen and others in the industry by our own people. The result is a great shortage of those required to service the industry. Young people want to enter an industry that is not out-dated. Those trained in the well-known and first-class Thanet Technical College, for example, want to go into establishments which are purpose-built, where they can see the prospects of a first-class career.

The industry is not in the same situation as offices and shops. A hotel may become out of date and require extensive modernisation. I know that I will be supported in this argument by my hon. Friend the Member for Bristol, North-East (Mr. Adley), who has declared his interest as a director of Holiday Inns. Can one imagine Holiday Inns, or Grand Metropolitan Hotels, or Trust House-Forte or any of the other smaller modern groups regarding themselves as being committed to other than purpose-built hotels and the facilities which go with them? The same applies, of course, to caterers. Unless the Government allow building depreciation relief before assessment to tax in order that the hotels can finance their replacement when they become obsolescent, we shall have in the future the same situation as we have had in the past.

11.30 p.m.

We want to ensure a continuation of the stimulation which the Government have done much to achieve. They have done a great deal last year and this year and it would be mean not to give them credit for it. They have secured the abolition of SET and they have done a great deal about corporation and income tax. They have improved capital allowances. Next year this industry will have to carry VAT, as will everyone else. When this happens they will find themselves subject to a tax which will apply to Europe as it applies to this country, but without the benefit of the advantages which Europe gives to its hotel industry. It recognises the great need to continue with the development of tourism.

We know that this year for the first time, we topped the 7 million mark for tourists and when we continue to have a large inflow of tourists from all over the world we must make sure that we do not turn this redevelopment away from our shores. British hotel companies with enterprises in the United States, Belgium, Holland, France or Spain not only receive the equivalent of industrial building allowances they also receive, as we now provide, for example in Ulster, special allowances over a period of years which enable them to amortise their buildings so that it costs them virtually nothing. This is particularly true in Italy.

Tourism is not merely a major export earner; hotels are also the principal link in this chain. With our entry to the European Economic Community they will become even more important. Earlier today the Minister dealt with the question of fire precaution allowances. He was unable to meet that case. I venture to point out that this comes under this case in due course. It would be part of the capital allowances which will attract relief, if the Government are able to say that this is something which should be treated as an industry. I hope I am right—I do not claim to be an expert—in saying that any money expended in a factory on fire precautions would attract that kind of benefit.

I know of practically no case which has been more widely supported. It has been supported by a very able report by the Hotel and Catering Economic Development Council. The report by Cooper Brothers and Co. on hotel investments reinforced its conclusions. The Council report said that unless a greater incentive was given to invest in this class of hotel—and it was referring not to the Max Josephs of this world but to the smaller people—then the high capital cost of making an investment, both of construction and borrowing, would be a main cause of the low profitability of investment. It went on: The EDC considered a number of alternative ways in which incentive to invest might be provided by the Government, amongst which was extending to hotels the investment assistance at present given to industrial establishments. It can be argued that returns on hotel investment are low because the taxation system discriminates against hotel investment. We examined the effect of the rate of return on investment if the assistance at present given to industrial establishments were extended to hotels. This solution would involve the extending of industrial building allowances to hotel buildings. The implementation of this measure would materially increase the rate of return on capital involved.

More recently, they have made another investment study and they support that view.

It seems to me, therefore, that a case has been made. The Government are entitled to say that they have done a great deal in the past year for this industry and that a great deal has been done to encourage it generally and therefore, it may be that they feel that they need to go no further this year. I would, however, ask for an assurance from the Minister that this matter will be looked at very carefully and, in particular, that the situation in countries overseas will be carefully analysed.

I hope that having carried out that analysis, and bearing in mind the views of Neddy, of the British Tourist Authority and, indeed, of the Millard Tucker Report as long ago as 1951, the Government will come to the conclusion that it is time next year to implement the view not merely of the industry but of all those who have closely examined this problem and to see that we receive at least a reasonable measure of industrial building allowances in accordance with the lines suggested in the new Clause by myself and a very large number of my hon. Friends.

Mr. Patrick Jenkin

My hon. Friend the Member for Isle of Thanet (Mr. Rees-Davies) has developed in his customarily powerful way a case which I and the House know is very near to his heart. I listened with great care to all he said about the tourist industry and its importance and the need for the Government and the country to encourage its development. Speaking as a Treasury Minister, with particular regard to the importance of the industry for the balance of payments, I endorse a great deal of what he said.

Tourism—in which I include not only the provision of accommodation and catering but also transport, entertainment and the retail sales we make to tourists—has been a growing invisible export in recent years. In 1971 the United Kingdom had over 7 million visitors from abroad, a 5 per cent. increase on the previous year, and they spent £491 million, an increase of 13 per cent. over 1970. That left us with a balance of payments surplus on the travel account of £53 million, the highest figure ever recorded. If one adds in the fares paid to carriers, the surplus rises to £84 million. By any standards these are substantial figures. They represent a considerable advantage to our economy and he would be a very rash Treasury Minister who failed to take account of them.

As I think my hon. Friend recognises the great value of the tourist industry to the economy is appreciated by the Government, as it has been by their predecessors, in a variety of ways. My hon. Friend has referred to the reductions in taxation, the promise of the abolition of SET, the reductions in corporation tax and income tax and the improved capital allowances.

The actual figures of cash support for the industry in the current year may be of interest to the House. In 1972–73 the Government are giving to the tourist authorities £6,150,000 in the form of grants in aid. There are projects in the development areas amounting to £1 million and grants and loans under the Hotel Development Incentives Scheme, to which my hon. Friend referred, are this year costing the Exchequer over £17 million There are, in addition, the sums being paidvia the Development Commission and the Highlands and Islands Development Board of about £1,177,000. The total comes to almost £25½ million in direct aid of one sort or another to the tourist industry.

If the new Clause were to be accepted, we estimate—inevitably this must be something of a "guestimate"—that the cost would be about £15million a year to the Exchequer. Therefore, the degree of assistance which would be provided by a capital allowance of the sort my hon. Friend seeks is rather less in the current year than the amount of Government aid being given to the industry. I do not need, perhaps, to go into any greater detail of what form this aid takes. I have given the outline figures. I think that I have said enough for the House to recognise that it is very substantial.

The hotel incentive scheme—I shall return to this shortly—far exceeded any of the estimates given at the time because, as was said in an earlier debate this evening, a number of large and powerful companies saw the opportunity to meet a substantial part of the cost of building new hotels, mainly in London it is fair to say, at the public expense and there has been a great and wholly unprecedented boom in the building of large first-class hotels.

My hon. Friend made the point very well when he said that under the Act there had been the provision of some 60,000 additional rooms. But the case he is making is that in addition to all the cash assistance which has been given under the various Acts to the British tourist industry, there should be capital allowances on the same basis as allowances are available, and have been since 1945, for factories and other industrial structures.

That is an argument we have heard on a number of occasions; it is none the worse for that. It is an argument to which I referred in Standing Committee when we discussed a new Clause about football stadia. It was an argument we heard earlier today in relation to the constructional work required under the Fire Precautions Act, 1971.

At the risk of boring the House, I briefly repeat the reasons why successive Governments have not felt able to extend the industrial buildings and structures capital allowances to commercial buildings. Firstly, many commercial buildings do not depreciate as rapidly or as inevitably as do industrial buildings or structures; indeed, many of them appreciate in value. Secondly, once one moved the line of demarcation from factories and industrial buildings of that sort to take in some commercial buildings—whether they be hotels or hotels and restaurants, or whether one extended them to football stadia and other buildings to which the public have access—in a tax system that has to apply as fairly as possible to the whole range of activities in this country, in practice it would be impracticable to hold the line at any intermediate point.

Whatever one might say when such an allowance was introduced, the pressure would be inexorable and it would be almost inevitable that it would be acceded to and that one would move the whole way to giving capital allowances to all commercial buildings. The cost of that, as I have said, would be likely to amount in time to between £250 million and £300 million a year, requiring, in order to pay for it, an increase of about one-sixth in the rate of corporation tax; increasing, shall we say, from50 per cent. to 60 per cent. the illustrative rate for the reform of corporation tax next year. I do not believe that that is a prospect which the House would welcome with enthusiasm, whatever be its interest and concern for the tourist industry. If we could confine it to the tourist industry, at a cost of £15 million, this would by itself be supportable. But all experience shows that once one seeks to draw the demarcation at a different point, there is almost no point at which it could stop.

11.45 p.m.

Mr. Rees-Davies

I take my hon. Friend's point that there have been these special advantages to the extent of about £23 million to which he has adverted, but those are non-recurrent to a large degree. I am not asking for success this year. Would I be right in my assessment that this would be non-recurrent to quite a large degree so that next year, if he were to grant this estimated £15 million, he would be no worse off revenue-wise than this year? If we can find a definition, as there was in the Development of Tourism Act, confining this to hotels and drawing a tight line, we could surely contain his second argument which is that the definitory line is so loose that it would open the door too wide.

Mr. Jenkin

I take the point. I think that next year there will still be substantial sums paid under the Hotel Development Incentive Scheme. The buildings had to be started by last year and, I think, finished by next year. Quite a lot of money will be paid in arrears, and I suspect that they will still amount to considerable sums in 1973–74.

With regard to my hon. Friend's second point, I do not think the question is one so much of seeking to define the buildings to which the particular allowances which he seeks would extend. The problem would be to seek to defend that line against the arguments—and they would be powerful arguments—which would be advanced by other industries which have perhaps foreign exchange earnings comparable with those of tourism. Some of the insurance, banking and other industries of this sort, which also occupy commercial buildings which do not qualify for capital allowances, also could point to their value to the economy. This is the difficulty that I see.

Although one can understand that the tourist industry—and my hon. Friend rightly used the word "industry"; it is now recognised as an industry—has a special claim for concessions from the Chancellor, it would be very difficult to defend this against the many other industries which would feel, with some justification, that they would have an equal claim. This is the case on which I principally rest my advice to the House not to accept my hon. Friend's Clause. Indeed, he indicated that he was laying down a marker for next year.

There is one other argument to which I should address myself. It was put to the Government mainly by the British Tourist Authority, and it is based upon this tremendous upsurge in the provision of hotel accommodation which has taken place as a result of the Hotel Development Incentive Scheme. The argument was that unless the industry is helped by capital allowances it will not be able adequately to utilise the extra accommodation which the scheme has provided. This is a somewhat odd argument because it means that so enthusiastic were the industry to jump in and take advantage of the Hotel Development Incentive Scheme that by their own admission they have made a substantial over-investment and a substantial over-production of the kind of accommodation which has been created as a result, and that they can therefore expect to make themselves pay only if their cash flows are improved by the provision of a capital allowance.

That is not an argument which Treasury Ministers can be expected to regard with much enthusiasm. The argument might well be addressed mainly to the extent to which the development scheme exceeded its original intentions. As my hon. Friend rightly said, the big firms took the maximum advantage of it. Not much of the advantage has gone to the regions and to the small individually owned hotels, restaurants and so on which might have expected to benefit. I cannot regard it as an argument by itself to support the proposal for capital allowances.

I must advise the House that, in common with our predecessors, and their predecessors, we do not feel able at the present juncture to contemplate extending the industrial capital allowance outside the field to which it already applies. This is in no way to decry the importance of the tourist industry or to seek to deny that the Government have a great interest in its health and the prosperity which it brings to this country. But my hon. Friend is seeking to extend an industrial allowance to buildings which are, by their very nature, non-industrial, which are commercial buildings, and this is something which the tax system at present does not embrace and which, as I say, Governments of all parties have felt unable to adopt.

My hon. Friend has indicated that he does not propose to press the new Clause tonight. We shall, of course, study his arguments with care. He advances them with great authority, and he backs them up with figures, referring also to the little Neddy Report. We shall study carefully what he said, but, in saying that. I should not like to be taken to be holding out any prospect that we may feel able to go along the road he has indicated for us.

Mr. Rees-Davies

I thank my hon. Friend for all he said in his usual very able and lucid way. I beg to ask leave to withdraw the Motion.

Motion, and Clause, by leave, withdrawn.

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