HC Deb 10 June 1975 vol 893 cc317-37

Question proposed, That the Clause stand part of the Bill.

Mr. David Howell

We on the Opposition side of the Committee are not going to oppose the inclusion of this clause in the Bill. Obviously, we welcome the continuation of the relief to firms which is contained in the Clause, as far as it goes. We now have an opportunity, at this very critical time, for the Committee to hear the Government's thinking, and their view on the profitability of industry and the investment situation. Of course, it hardly needs me to say that the investment situation is extremely serious, and is getting very much worse. That alone emphasises the fact that if any relief is going in the Bill it should be very much welcomed.

There is now a really desperate need for the kind of reliefs which are partially generated by the clause. If, before yesterday, anybody had doubted that fact, his doubt would have been removed by the extremely serious and very worryng forecasts issued by the Department of Industry about the likely trend of investment in the coming year. The survey which was carried out by the Department of Industry appears to warn of the worst situation ever in the manufacturing sector for which, hitherto, the maximum reduction forecast since the survey began in 1965 had been 10 per cent., when 15 per cent. is now expected. This is vastly different from the forecast of 8 per cent. which the Department of Industry had made for manufacturing.

In a way the situation is even more serious than is implied by the figures I have given. The survey also covered distribution and certain parts of the service sector. There, too, the forecast for the drop in investment this year was 5 per cent., but the new forecast seems to indicate that the figure will be 10 per cent. That is particularly worrying. I have always believed that the great emphasis which Department of Industry circles place on the longer term decline in manufacturing investment did not take into account the fact that in distribution and services investment had held up quite well, and that employment in these areas had been growing and was expected to grow over the next five years according to Department of Employment predictions.

It seems that the Secretary of State for Industry, in banging the big drum on manufacturing investment, has overlooked the enormous contribution which the service sector makes to a modern economy and the enormous contribution which services like insurance and banking make to our overseas earnings. I think they generate, in gross terms, three-eighths of our total overseas earnings so that in the longer term one hopes that the strength of the distribution and service sector will be maintained and that the worries of the Secretary of State for Industry over manufacturing will be belied. In the short term, however, the figures from the Department certainly show a very nasty drop in investment, not only in manufacturing but in distribution.

If we move from forecasts to what has already happened, we see that the figures for the first quarter show that already in 1975 capital investment has been falling at what would be an annual rate of 6 per cent. in manufacturing and 11 per cent. in distribution. No one need have any doubts that the situation is bad, that it is getting worse, and that it is worse than Ministers foresaw or asserted when we adopted this measure of relief for stock appreciation last January and in the last Finance Bill.

This brings me to my first worry about the clause. Do Ministers realise that even in bringing forward this admittedly radical change—we shall come in a moment to the question whether or not it is permanent—how serious the situation is? If they say that they do, our difficulty in believing them lies in the tone and the attitude of the Chief Secretary and others in past debates on stock appreciation relief. When we were discussing this matter in Standing Committee in January the Chief Secretary told us several times that he thought that the Government had gone "pretty far" and had not been unreasonable. He said: We are providing many hundreds of millions of pounds for companies", and when we expressed certain worries he went on to tell us that we shall very soon be coming to the spring measures which will take into account all that has been said"—[Official Report, Standing Committee A, 29th January 1975; cc. 417 and 418.] The words "all that has been said" included the very serious doubts whether the Government realised the extreme seriousness of the position of industry vis-à-vis its collapsing profitability and the appalling consequences which would follow for investment. Our first worry, therefore, is whether, in spite of having brought forward their measure last year and again in a sightly altered form later, Ministers realise what a critical situation is developing on the investment front. Nothing can make the position more stark or put it more clearly than the figures issued yesterday.

If one wants reinforcement about what has gone wrong and the desperate need for measures of this kind an interesting publication called "Finance for investment" from the National Economic Development Office spells out the appalling arithmetic in stark terms. I call the Chief Secretary's attention to it—although no doubt he has studied it very carefully—because it contains some serious home truths for his Department as well as for the Department of Industry.

Pages 63 and 64 spell out the situation which must have first brought home to Treasury Ministers how urgently they needed to bring in stock appreciation relief. The report shows all too clearly how, in a régime of a combination of high marginal tax rates and enormous discrepancies between measured profits and operating cash flows, and in a year of accelerating inflation the taxing of corporate profits on the accruals basis of accounting can cause a situation in which internally generated cash flows are completely taxed away. The report goes on to observe what we have seen to be true that Once businessmen begin to perceive the fact that in an era of accelerating inflation all positive returns may be taxed away, because the effect of the accruals method of accounting on the measurement of assessable profits for tax purposes, they may be reluctant to invest at all That is what is happening. One needs to look no further than this report to find the answer to the worries of the Secretary of State for Industry about investment in manufacturing. It says that as a result of the accelerating and now appallingly high rates of inflation, profitability is disappearing, and in the light of the greater inflation and other uncertainties it becomes impossible to devise investments which will be profitable and can therefore justify the assignment of funds for investment in the first place.

There is much more in this document from NEDO which tells us the same story, and it all adds up to the very urgent need for measures both of the kind in the clause and others, and, over and above that, the removal of uncertainty to revive investment in this country before it goes completely through the floor. That is the background against which we now examine the clause, and few hon. Members have any illusions about the seriousness of the situation.

As to the nature of the relief, obviously later, in Standing Committee, we shall be going into some of the technical details in the schedule, but it is important for us to examine the precise nature of the relief brought forward in the Bill and establish what it is. The first question is whether it is sufficient in view of the very strong indications about what the Government would come forward with in the spring Finance Bill.

7.30 p.m.

In January, the Chief Secretary said What will be done in the second and later years the House of Commons will have an opportunity to decide when we have the spring Finance Bill. He went on to say that If we start using some of the relief which would otherwise have been available for certain companies this year"— he is talking about the last financial year— and allow it to be carried forward, it will get very confused with the relief, which may be different—we do not yet know what it will be—which we propose to introduce in the spring Finance Bill."—[Official Report, 21st January 1975; Vol. 884, c. 1253.] We certainly hoped that we would get on to new ground this year and move away from the rough and ready approach which is inherent in the present stock appreciation relief.

When the spring Finance Bill was introduced we learned that the changes were not going to be so very great. To be precise, the changes are that, as the Chancellor had promised, the relief is to be extended to unincorporated businesses and the companies which did not qualify for the relief last autumn, and that the formula will be used to cover stock increases over the two years rather than one only.

Furthermore, there was an additional soupçon. In his Budget Statement the Chancellor proposed that there should be, in his words, a separate and further deduction from taxable profits equivalent to 5 per cent. of the amount of the stock relief itself."—[Official Report, 15th April 1975; Vol. 890, c. 302.] Elsewhere the Chancellor described that as a generous bonus.

So that is the new element, and, of course, it is merely an addition to the continuation of the rough and ready scheme.

That is all very well as far as it goes, but what is desperately needed by industry now—the Chancellor made this point himself the other night—is some certainty about the new tax system and the new opportunities available, and the calculations on which they can decide how to identify investments which are going to produce a positive return with the present rate of inflation, present inflationary prospects and present interest rates. Therefore it is of critical importance for this debate this evening to establish the status of this relief now. Is it just a deferral again, this time not just for one year but for two years? The Inland Revenue Press handout of 15th April, after the Budget, said that the object of these measures was to give relief for stock increases covering a two-year period. Is it that, or is it permanent?

There is one aspect of something which the Chief Secretary said on Second Reading of the Finance Bill which I should like to go over, because in a way it makes that question even more difficult to answer. He said: We have ensured that there will be 5 per cent. of stock relief extra for small companies, professional people and traders. Of course, he was referring to something I have already mentioned that the Chancellor had announced in the Budget speech. He went on: That will not be a deferral of tax; it will be a full relief."—[OFFICIAL REPORT, 8th May, 1975; Vol. 891, c. 1748.] I should like the Chief Secretary to make it absolutely clear that he is merely referring there to that 5 per cent. of relief to which the companies would be entitled had those companies been the ones that qualified in the autumn; that that is the full relief he is talking about, and that he is not referring there to the overall stock appreciation relief. I wish he were, because I think there is a great need to establish that this is a permanent arrangement. There is still doubt about it. I know that the Chief Secretary will point to what he said in January—that if inflation did not take a major turn downwards but stayed at one level there would be no question of any clawback of the relief, and the position would remain as it was, but the legal position and the position defined by the Inland Revenue is that it is now a two-year relief, and at the end of two years, unless something else comes along, as we hope it will, it will be automatically clawed back.

So we do need to know, in this Committee tonight—and we need to know, very precisely, as also does industry—exactly what the next step in this particular saga is going to be. I know the Chief Secretary's difficulties about the Sandilands Report, and waiting for further views and ideas following that, but the more precise he can be the greater service he will be doing to us, to the Chancellor, to his Government and to this country at large in removing some of the jittery uncertainty that still pervades industry even after the very encouraging referendum result last Thursday.

We should like to know as precisely as the Chief Secretary can tell us what the next step is. If he can say that this is now a permanent arrangement or that the rough and ready system of last year and this year will provide a permanent arrangement which will be no less favourable, if he can say that that is, in the Chancellor's words, a bankable assurance—although I am not sure how much weight can be placed on that, but at any rate say it in very definite terms—it will be of great assistance to British industry in general. We and industry must know where we stand very quickly before we see even worse figures than those from the Department of Industry yesterday.

It will also be helpful for us to have the latest information on the Sandilands Report. When is it going to reach us? Has the Treasury got it yet? What is the time scale in which the Chief Secretary sees further comments and views and further legislation resulting from the Sandilands Report coming along? It will be useful to know all that, but the most important thing we must establish tonight is that despite our inability so far to move on from the rough and ready system of last year to something a bit more permanent, as we had hoped, in the spring Finance Bill, we now have a definite and assured prospect of reliefs no less favourable going into the future, during this era of high inflation, in order to make it possible to reach investment decisions of a kind which are now becoming very nearly impossible. We should therefore like to hear these things from the Chief Secretary on this clause.

Mr. Peter Hordern (Horsham and Crawley)

I should like to follow my hon. Friend the Member for Guildford (Mr. Howell) in what he said so cogently and well on the position of companies, because the Government have changed their policy very much in the course of one year. A year ago the Government were proposing to put a surcharge on ACT. They said then that companies liquidity was in a good state. Since then they have altered that view and I think that the course of inflation has brought upon the Government a full realisation of the difficulties in which companies now find themselves.

There is, unfortunately, no relief yet in sight, because inflation is still proceeding just as fast as it was a few months ago. According to the latest figures, it is even escalating. Of course, we do not know what will happen to commodity prices. It is certain that Government expenditure is still increasing very rapidly and so is the need to finance it through the borrowing requirement. Whatever the Chief Secretary may tell us—and I hope he will be able to tell us what the borrowing requirement is—it is quite clear that this is one feature that will keep inflation and the underlying rate of inflation growing the whole time.

These are not the only problems that face companies, as well as individuals in trade and industry, in the country at large. As my hon. Friend the Member for Guildford said quite rightly, it is not just that companies face difficulties in their investment programmes. We have all seen the latest figures from the Department of Industry about investment. It is also the problems that face them in financing their own stock, which are, of course, relieved by this stock appreciation provision, and even in deciding what their dividend policy should be. There is another factor, too, because as long as inflation proceeds, so long also will the real yield of corporation tax decline. That is becoming a very difficult matter already. If inflation proceeds at its present level, the stock appreciation provisions themselves will absorb the greater part of company so-called profits before tax.

I think this point has still to be generally recognised—and it does not appear to be recognised by the Government. The fact is that even if we get to the complete elimination of taxes and dividends, companies can still be left with a financial deficit in times of inflation. Stock appreciation is not matched, unfortunately, by a corresponding cash inflow. That is the position in which companies find themselves at present.

I understand that the latest financial statistics show that the effective rates of corporation tax after deduction of stock appreciation have escalated almost threefold. That is another way of saying that eventually we shall find ourselves on a zero corporation tax. That would mean that the whole of the private sector of profits had been eliminated and thus its taxable capacity exhausted. That is what will happen if inflation proceeds at its present level.

I know that the Chief Secretary will want to tell the Committee something about the Government's proposals for extending the stock appreciation relief. Industry needs to know where it stands. We can no longer listen to the excuse that we are waiting to hear what the Sandilands Report will produce. We are all waiting for that, but I do not think that it will be particularly good news to industry when it comes. I think I am right in recollecting that among the Sandilands Committee's terms of reference was a request for a recommendation in the light of no loss being made by the Inland Revenue. If there is to be any provision for inflation by the Sandilands Committee it must mean that those who have benefited through inflation will be paying a higher rate of tax. So there is no comfort to be drawn from the reflections of the Sandilands Committee.

We have seen recently some of the problems of companies. Not long ago the board of Coats Paton, a large public company, declared its final dividend but said that it would pay no dividend at all. It did that because the element of stock appreciation effectively wiped out its chargeable profit and, therefore, if it had paid a dividend it would at the same time have had to pay the ACT element. In not paying the dividend it saved itself the ACT charge. If that is the position for Coats Paton—which is a major British company on which many poor and elderly people depend for their income because historically it is a high yielding stock—and if it abolishes its dividend because of fear and concern about the weight of corporation tax, how much will that process be repeated with other companies? Have the Government considered where the process might lead, and have pension funds and insurance companies considered the effect of this course? It could be very damaging.

I hope, therefore, that the Chief Secretary will not rest content with the provision of stock appreciation relief, valuable and helpful though that is, but will realise that it is essential to curb the course of inflation and that that is the Government's main responsibility. He can do that, as I have said before, by checking the growth of public expenditure.

One other matter which the Government could deal with is the profit level of companies. So long as companies are restricted, not just in their investment, but in the levels of profit they can make by profit control, price control and margin control, so long will those companies remain uncertain about their future trading pattern. It is essential for the Government to realise now that it is necessary to transfer more out of consumption into investment, and the best way of doing that is to allow companies to be free of price control and margin control. The sooner that process happens the better. I do not think that would necessarily result in higher prices for manufactured and other goods. Competition would see to that. That is a comparatively easy and straightforward action that the Government could take, one which would be wholly beneficial to the economy as a whole, and I hope that the Government will also consider that aspect.

The impact of inflation on companies is so serious that it affects not just their stocks and their capacity to invest—which has already been badly damaged—but also the taxable yield, with which the Government should be concerned for the sake of the revenue and, more important, for the sake of the prospects of dividends for shareholders. We have already seen one serious example of a major British company declining to pay any dividend. If that happens, pension funds, insurance companies and other beneficiaries will find themselves in a serious position. The main responsibility rests with the Government, who should bring forward their proposals to deal with the Sandilands Report when it comes and, above all, accept their responsibilities for controlling inflation. That remains the main responsibility of the Government and it is one with which the Government have been very slow to deal.

[Mr. ARTHUR JONES in the Chair]

7.45 p.m.

Mr. Cope

This is not the measure that we were originally promised at this time of the year. It is an extension of a crude method of inflation accounting. Ministers have admitted throughout the debates that it is crude, and they have acknowledged it to be temporary. 'The Committee should approve the clause only if it is clear that it is an interim measure and a step towards more sophisticated methods of inflation accounting.

We want to know when we shall see the Sandilands Report and, more important, when we shall get action on it. At present, it is still true—and the clause goes some way towards remedying it—that tax is being levied on phoney profits, particularly with taxation at its present level. They are profits which are phoney not only in regard to stock—which is taken care of almost entirely by this relief—but also in regard to other forms of assets which a company holds and which influence its stock level.

It is difficult to finance a company's activities in this time of fierce inflation. Even just to keep going is extremely expensive. One has only to go into a shop and look round the shelves to see what it would have cost to put the same goods on the shelves a year ago and what it costs now. The difference is the extra capital required by that business which it has to find from the bank or from its own resources but which it cannot possibly find out of profits. The difference is the extra resources it needs to finance that stock and to keep going. But what we do not see on looking around the shelves is the extra money required to finance debtors and all the other parts of the business which are less visible. This measure goes some way to help with stock but it does not touch on the other parts of the business, and for that help we have to wait and wait again for the Treasury to get to the point of making firm proposals.

To those difficulties are added the difficulties of uncertainty. There is enough uncertainty in business decisions these days not to have the added uncertainty of the tax régime being changed, as it will be in this respect, with no one knowing how it will be changed.

At the same time, I do not want the Chief Secretary to go away with the impression that speed is all that matters as we approach the major reforms which will follow Sandilands and which we hope will give this type of relief. If it is to be fair, the reform is likely to be complex and it should not, therefore, be rushed into when the time comes. On the contrary, I should like it to be studied by a Select Committee in the more elaborate procedures which are used now and which are perhaps more appropriate than consideration in Committee of the whole House or in Standing Committee upstairs. It should not be rushed into but it should not be prepared behind closed doors. We need to start to end the uncertainty instead of just drifting on and missing one deadline after another. That is what seems to be happening at the moment.

There are some points on the relief which, no doubt, we shall discuss in greater detail when we come to Schedule 9 in Standing Committee, but I hope that the Chief Secretary will give an indication at least that the Government will be willing to consider points of detail. It is all very well having a rough and ready relief for a year, but here is a rough and ready relief for a second year. If it is to be continued there should be some willingness to try to improve it in Standing Committee.

In the first place, I think it important that we should introduce an option element so that taxpayers need not claim either the whole relief or no relief. At present that is the position. That is important to a number of different types of taxpayer—for example, certain taxpayers with overseas tax liabilities. But it is also very important to professionals and other tax payers who are involved in income tax which enters into this relief this year for the first time, the relief having previously applied only to corporation tax.

There is another point which arises from the position of those businesses which have been introduced for the first time this year—namely, the question of the allowance that was made to compensate them for the fact that they were not given the relief a year ago. This allowance was always promised and it consists, as has been pointed out, of an additional 5 per cent. But 5 per cent, is a meagre rate of interest to receive on stock relief of this kind in these days. That is also a point to which we shall no doubt return in Standing Committee.

There is one basic point which is vital and on which we need to be reassured this evening, as my hon. Friend the Member for Guildford (Mr. Howell) has said—namely, clawback, and the question whether this relief will be replaced by a relief which will ensure that there is not a mere postponement of tax but a perma- nent relief. That applies to all the relief and not merely to the 5 per cent. That point is of additional importance now that income tax payers are brought into the relief for the first time. If it is a mere postponement, or if there is a danger of a mere postponement, many income tax payers will wonder whether they should take the relief for fear of bunching their income into subsequent years. They may well decide not to take the relief for that reason. However, if they have a reasonable assurance from the Chief Secretary, which I hope we shall have this evening, they will not have that fear before them.

This relief started as a rough and ready measure. It is drifting, as did income tax, from being a temporary measure to becoming a permanent measure. We hope that it will not become as permanent as income tax. We hope that it will be replaced by a more sophisticated measure. We would like to know very much when that more sophisticated measure will be introduced.

Mr. Cecil Parkinson (Hertfordshire, South)

I shall briefly endorse some of the remarks which have been made by my hon. Friends on the clause. We had a series of debates earlier this year—it seems like a decade ago instead of a few months—and at the time the Chief Secretary got away with a great deal by the use of his apparently limitless charm and by his admission that this was a rough and ready relief. The right hon. Gentleman accepted all our criticisms, suggestions and advice. He told us that he would like to make the relief better but that it was only a short-term measure. The right hon. Gentleman's claim that it was a rough, ready and immediate measure was the answer to most of our questions.

At that time my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) and I raised with the right hon. Gentleman the point that my hon. Friend the Member for Guildford (Mr. Howell) has mentioned tonight—namely, that many companies would be deterred from making the claim until they knew whether they were to face a clawback at a higher rate than the relief they had received.

In reply to the brief debate that we had on that issue, the Chief Secretary said that he could not give us a copper-bottomed guarantee but that he could give us a bankable assurance that the relief would run on. Many people drew the conclusion that they could expect something to be embodied in legislation which would assure them that in future they would never have more clawed back than the relief they had actually obtained. It is said in a letter dated 12th May from the company whose letter I quoted earlier this year that once again we are in an uncertain situation. The Chancellor has admitted that he seriously considered raising corporation tax in the Budget. The Chancellor did not do so, but even now that company could face the prospect of having the relief clawed back at 52 per cent., having received relief of only 46 per cent.

I am saying to the Chief Secretary that this rough and ready device, which we all accepted and which has been useful to many companies, will cause many uncertainties if it is to continue for any lengthy period. I serve notice on the right hon. Gentleman that in Standing Committee I shall he moving a number of amendments which will have roughly the same intentions behind them as those amendments that we moved on the Floor of the House, and that this time we shall not accept that the measure is rough and ready as an excuse for not having the necessary refinements.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

I found the reaction of the hon. Member for Guildford (Mr. Howell) to the clause somewhat strange. If he can be as churlish and as miserable as he was in accepting the clause, I shudder to think what his reaction might be if he were to oppose it. However, I take it that despite his worries he welcomes the clause. I am obliged to him for that.

I shall deal with the various points that have been raised, but I think that it is generally recognised that the clause provides, as we promised, substantial relief not just for the bigger companies, or companies with stocks to the value of £25,000 or more, but for small traders, partnerships, professional firms and the rest. It is a very substantial relief. It means that the total relief over the two years—not all of it will be able to be used in the two years and some of it will have to be carried over—will be, as I said on Second Reading, £3,795 million. In 1975–76 it will be £1,300 million.

8.0 p.m.

Statistics are often quoted about levels of corporation tax, and the rest, compared with other countries. In practice in this country we have high levels of capital allowances and first year reliefs of 100 per cent. That does not apply in many countries, We now have substantial relief on stock. The true level of income tax is now very much lower than it was previously. I accept the point made by the hon. Member for Horsham (Mr. Hordern). The problem for everybody is the rate of inflation. At present we have to deal with the situation as it is and see how we can help companies and small businesses by providing them with some relief for the situation that now exists.

It is fair to point out that the relief we have given recognises the acute liquidity problems which are faced at the present time by businesses of all kinds. It is recognised by most business men that the stock relief is of substantial benefit to them in current circumstances. I am aware of the problem of uncertainty and I shall come to that point a little later.

The hon. Member for Guildford referred to his concern—a concern which I share—about the level of industrial investment. Everybody is concerned at the figures, which indicate a decline in investment. However, in fairness, it is right to say that last year was a good one for growth of industrial investment. It might also be pointed out that the previous couple of years were bad in this respect, although not as bad as has been said. Equally, it is fair to say that not all investment is necessarily good. I agree with the hon. Member for Guildford that sometimes investment in the service and distribution industries is as good as, if not better than, certain types of manufacturing investment and certainly as important. I would not necessarily say that we want to encourage only manufacturing industry, for we want both.

From the liquidity standpoint, this stock relief, which gives £1,300 million of additional liquidity to companies, small businesses, and also to the self-employed, will at least deal with one aspect of the problem. However, I do not think that is the reason why companies are not investing. The reason is that they fear that the extra goods which they will produce from that investment may not be sold. This is a problem that always exists and it is the reason why people do not invest. Even when we gave 40 per cent. investment grant, companies were still not investing. Companies must feel that the investment is worth while and that they will be able to sell the goods produced.

I hope that the result of the referendum will be helpful in improving confidence in industry and in making it see the continuing opportunities for sales in the Community. But industry will want to see an upturn in trade at home and abroad. There is every sign that there will be an upturn in world trade. Therefore, we can expect to see a return of confidence. We have ensured that there will be an improvement in liquidity. The two together should ensure some improvement in investment.

I turn to some points related to the clause. I was asked about the additional 5 per cent. bonus on stock relief. The hon. Member for Guildford asked whether that relief—which, it has been said, is not a deferral but a full relief—applies to the rest. It does not apply to the rest, but applies only to the 5 per cent. bonus given because were were unable initially to provide the relief for those firms with stocks of less than £25,000. This was an additional benefit and we felt it right to give it as a full benefit rather than a deferral.

I turn to the central problem which has been referred to by most speakers in this brief debate—the fact that we have been unable to come to the more refined and sophisticated form of stock relief that we wanted to see. The hon. Member for Gloucestershire, South (Mr. Cope) made my case for me. He appeared to argue that because the Sandilands Report was likely to be complex we should not rush into anything. Indeed, he suggested that we should have a Select Committee to consider that report once we get it. But if we had had that report when preparing the Budget, and if we had followed the hon. Gentleman's recommendation, we could not have used that report for any relief in the Budget.

I agree that the area of inflation accounting is complex. There have been many reports on this subject. The Institute of Chartered Accountants has issued a number of documents on the topic. I do not yet know what the Sandilands Committee will say. I hope that the report will be available shortly, although I cannot say when. I hope that it will be available in time for the occasion when we consider the next form of relief.

I recognise that the first year's relief is a rough and ready form of relief. I also recognise the concern felt by all kinds of industry that the additional relief will affect individual traders in payment of income tax. Therefore, they will be concerned with whether they should take the relief. I am aware of the problems of uncertainty, but we wanted to do something rather than look for yet another refinement.

I hope that it will be recognised that to have a full relief rather than a deferral would be to go much too far. It would mean that a company or business would obtain substantial relief for a short period of time, and that if the company were to go out of business and realise the full value of the stock, it would pay no tax whatever on that profit stock. That cannot be right.

I come to the concern expressed by many people about the permanency of the type of scheme to deal with stock relief. I cannot do better than to repeat what I said on an earlier occasion because I want to reassure industry on this matter. Now that the basis of stock valuation has been altered, it is extremely unlikely that it will be possible to go back to the old system of cost or market value. That would create a difficult situation for industry. That is why the Inland Revenue, before any such system existed, was keen to ensure that the stock was valued on the same basis for opening and closing periods—otherwise the whole basis of the profits can be changed. One realises the difficulties. To the extent that we cannot go back to the old system, some form of stock relief will be permanent. That is inevitable as long as inflation persists. Clearly, if inflation declined the situation would change.

I regret that I cannot help the Committee. I do not have the Sandilands Report. The Committee would want me to take account of its recommendations before devising a new form of stock relief. That must be reasonable. Therefore I very much hope that the assurance I have given will be of some benefit to industry. Every company will have to take advice from its accountants and other advisers whether it should claim the relief. It is clear that in the great majority of cases the relief will be claimed, because the indication we have is that it will reduce the tax yield by £1,300 million. I assume that the majority of companies will take advantage of this relief.

Mr. Peter Rees

Will the Chief Secretary say whether he will look kindly on an amendment, which the Opposition might be tempted to table in Committee, to allow a company to claim only part of the relief? As I understand the position, the companies must claim all or none. Perhaps the Chief Secretary will look with favour on an amendment on those lines.

Mr. Barnett

I intended to deal with a number of details raised by the hon. Member for Gloucestershire, South. These arise on the schedule. I have taken careful note of the points made by the hon. and learned Member for Dover and Deal (Mr. Rees) and by the hon. Member for Gloucestershire, South. I shall give them serious consideration when we come to the schedule. I am sure that the Committee would not expect me to go further than that now. I recognise that these are points of substantial detail and shall give them serious consideration.

A number of hon. Gentlemen raised the problem of inflation. This point was made by the hon. Member for Guildford and the hon. Member for Horsham and Crawley. I would have preferred, as would they, not to deal with this question by means of stock relief and not to experience the present level of inflation. It does not mean that because we are dealing with inflation accounting through stock relief in this way we do not also have to deal with the problem of inflation.

Even though we are giving relief to companies' stocks from the effects of inflation, that does not solve problems caused by inflation which are faced by companies. I refer to the problems of what will happen to sales and costs during next year or during the weeks and months immediately ahead. I am aware of those problems faced by companies. Apart from the relief given to companies, small businesses, the self-employed, partnerships and others, we are determined to ensure that the rate of inflation is brought down. That is a wider area than that of Clause 49. I would not wish to stray into it too much now. I have no doubt that we shall have many opportunities to debate the rate of inflation, investment, and many other areas of the economy on numerous occasions in the next few weeks and months.

I express my gratitude for the acceptance of this clause by the hon. Member for Guildford, even if it was not as happy as I should have liked to see from him. That is perhaps too much to expect. Nevertheless I am grateful that he is prepared to accept the clause.

8.15 p.m.

Mr. David Howell

Although this is a debate on the Question, "That the clause stand part of the Bill," I hope that the Chief Secretary will not mind if I make one or two final comments on what he has said about this clause. I am sorry if he thought that my approach to this matter was churlish.

The Chief Secretary must realise that the Opposition accept that the Treasury Ministers have tried extremely hard in appallingly difficult circumstances to keep the ship afloat. The Opposition understand his exasperation with us and, no doubt, with some of his senior colleagues. As long as the Conservative Party is in opposition—I hope that that will not be for very long—it is our duty to press him to try harder. We are bound to do that in the light of the fact, which he cannot deny, that the results, in terms of the revival of business confidence and improved liquidity, and the revival of investment, are, alas for us all, still very poor.

I hope that his assurance tonight will be of benefit to industry. I hesitate to repeat it because I shall read his words in the Official Report. He said something to the effect that it was extremely unlikely that we should go back to the traditional forms of accounting for stock appreciation. That is an indication of possibly a slight advance on the previous position.

We leave the Government in no doubt about the central and urgent importance of the matter we are discussing. The question for many firms over the next few weeks is whether they dare tie up funds in long-term investment which may be called upon suddenly to be returned to the tax man. Are the firms dealing with a deferral or a permanent adjustment which they can make in calculating their long-term investment projects. The country must know that very soon, if we are to reverse or check this catastrophic investment decline.

I leave the last word with the Report of the National Economic Development Council, which says on page 64 that there can be no question of alleviating the problem with once and for all taxation concessions in respect of stock appreciation, which I take to mean—indeed the report says as much in later stages—that the problem is far more serious, far deeper and more urgent than anything which can be met by this stock appreciation relief. If I sound churlish, that is the way I sound when I am worried. I am now worried about British industry and our present economic situation. We are all worried. I am afraid that our welcome for this clause is bound in the present circumstances to be reserved.

Question put and agreed to.

Clause 49 ordered to stand part of the Bill.

Forward to