HC Deb 18 July 1979 vol 970 cc1855-69

'(1) Chapter 1 of Part 1 of the Capital Allowances Act 1968 shall apply in relation to qualifying retail premises as if they were an industrial building or structure.

(2) "Qualifying retail premises" means any shop which is in a building or buildings of a permanent nature and is being used for the purposes of trade as defined under Class 1 of the Schedule to the Town and Country (Use Classes) Order 1972.

(3) Any question as to whether premises comply with the requirements in subsection (2) above at any time in the person's chargeable period shall be determined:

  1. (a) if the premises have been in use for the purposes of the trade carried on by that person or by such a lessee as is mentioned in section 1(3) of the said Act of 1968 throughout the twelve month period ending with the last day of the chargeable period, by reference to those twelve months; or
  2. (b) if the premises were first used as aforesaid on a date after the beginning of those twelve months, by reference to the twelve months beginning with that date
but retail premises shall not by virtue of this subsection be treated as complying with those requirements at any time after it has ceased to be so used.

(4) For the purposes of this section—

  1. (a) there shall be treated as included in qualifying retail premises any building which is provided by the person carrying on the shop for the welfare of workers employed in the shop and is in use for that purpose; and
  2. (b) where a shop is carried on by an individual, whether alone or in partnership, there shall be treated as excluded from qualifying retail premises any accommodation which is normally used as a dwelling by that person or by any member of his family or household.'.—[Mr. Graham Page.]

Brought up, and read the First time.

Mr. Graham Page

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

The clause seeks to end the discrimination in taxation allowances between expenditure in providing buildings for making the products of industry—manufacturing, processing trades and so on—and expenditure in providing buildings for selling the products of industry. There is that discrimination in our tax law.

I declare an interest because I am a director of a company which on occasion builds shops. However, I have no personal interest other than a small remuneration as a director.

In 1946, capital allowances were granted to those who produced industrial buildings. That was an incentive for manufacturing development given immediately after the war. The idea that the manufacture of goods is virtuous but the selling of them is sinful has permeated our tax law ever since, and was embodied in the Capital Allowances Act 1968.

There is no case in equity for treating factories as more deserving of tax concessions than are shops. The pattern of employment has changed considerably since 1946. I have figures for 1946 showing 6½ million people employed in manufacturing and 2½ million in the service industries. The current figure in manufacturing is the same—6½ million—but 7½ million are employed in the service industries. The service industries now provide even more employment than the manufacturing industries. They also provide more unemployment, if I may put it that way, because when one looks at the qualifications or the trades of the unemployed who are seking jobs one finds that more are seeking jobs in the service industries than in the manufacturing industries. Nowhere is that so marked as in my constituency on Merseyside. There has been a considerable loss of manufacturing industry there—for example, in textiles. My constituency contains docks, and the number of dockers has been reduced from about 18,000 to about 6,000. Manufacturing and industrial jobs have declined and over the years employment in service industries has increased.

7 p.m.

The capital allowances that are made available to factories but are denied to shops are set out in the Capital Allowances Act 1968. These are the allowances which already apply to industrial buildings and which I wish to have applied to shop buildings. There is an initial 50 per cent. allowance on capital expenditure incurred in the cost of constructing a factory. There is then an annual allowance of 4 per cent. of the cost of construction until that and the 50 per cent. initial allowance are equal to the cost of construction. Effectively, therefore, the manufacturing investor gets full depreciation on his capital expenditure while the retail shop investor gets none.

There is a precedent for permitting buildings other than industrial buildings to qualify for capital allowances. Hotels fairly recently were included in the capital allowance provisions. That is a significant factor in my argument for shops being given the same concession. The concession to hotels was made in recognition of the hotel industry's contribution to the United Kingdom balance of payments by catering for the tourist trade.

It is worth considering, however, the contribution by retail shops to that trade. I have been given figures which show that shopping represents 25 per cent. of what we earn from foreign visitors and that 31 per cent. of what the visitors spend is spent in the shops. Shops take nearly £1 billion from foreign tourists every year. If there is justification for granting this concession to hotels, there is all the more reason for it to be granted to the retail trade.

I have mentioned the changing pattern of employment since 1946, but there has also been a change in the pattern of shopping. It may come as a shock to some hon. Members, as it did to me when I read it, that the first supermarket—a shop of 10,000 sq. ft.—appeared in 1956. Of course, we are now into the phase of hypermarkets and hyper hypermarkets. There is a great advantage in terms of cost effectiveness with the large unit. Surveys and research have shown that on average goods are retailed very much more cheaply in the large unit than in the corner shop.

I am not saying that the corner shop can be dispensed with—far from it. However, large units deserve to be encouraged because they to some extent control inflation and provide a cheap source of purchases for the ordinary household. However, their very success makes it necessary for us to assist if we can the rehabilitation of the high street shop. It needs modernising and it needs encouragement to be modernised. A tax concession on capital expenditure would be of immense value in providing new shops and in reviving the high streets of our large cities.

I am thinking particularly in terms of our inner city centres. Frequently the areas outside the cities have been developed without the provision of proper facilities for those who are required to live there. That means that shops have not been built. Therefore, without those shops and without the revival of the shops in the city centres, substantial inconvenience is caused to the public in many areas.

A concession of this sort might be a key factor in the revival of city centres. It could very well encourage to go ahead those who might otherwise hold back from developing those centres which so much require development at present.

Here is a tax concession which could perhaps replace some of the subsidies which have had to be withdrawn, which could encourage the development of larger units to provide cheaper goods, and which could encourage the redevelopment of the high street and the development of the corner shop. Great advantage could flow from it.

Mr. Tim Sainsbury (Hove)

I wish to support my right hon. Friend the Member for Crosby (Mr. Page) and at the same time to declare an interest as a director and shareholder of a retailing concern, the name of which I shall not mention.

There are a number of reasons why we should not discourage investment in new retail premises. I say "discourage" because the absence of the allowance that my right hon. Friend proposes is a discouragement when one compares investment in retailing facilities with investment in industry and in hotels, to which my right hon. Friend referred and which recently were given a 20 per cent. allowance.

Industry has had this allowance for a long time. Hotels were given it partly because of the opportunity they provide to gain foreign currency earnings. As my right hon. Friend said, retailing also plays a major role in the important and growing tourist industry. That is the first of my reasons for supporting the new clause.

My second reason concerns the benefit that accrues to the consumer from the existence of more efficient retail premises. My right hon. Friend suggested that the first supermarkets did not appear until 1956. Although that was the year in which I became a full-time retailer, it was not the year in which the first supermarkets appeared. They had appeared by the early 1950s, and I believe that one of the co-operative societies claimed to have developed a supermarket in the late 1940s. The definition of a supermarket then was 2,000 sq. ft., but it is now normally 400 sq. metres, or 4,400 sq. ft.

Mr. Graham Page

I was taking the size of 10,000 sq ft to describe the first supermarket to be produced. That was in 1956.

Mr. Sainsbury

I noted the figure given by my right hon. Friend. That is an oversized definition of a supermarket. There are many efficient stores which are smaller than that. I stress that all studies show that large modern stores are very efficient in a variety of ways. They have brought major benefits to the consumer, not only in the form of lower prices which derive from more efficient retailing but in the form of a more attractive environment and a better display and the wider range of goods that the consumer now expects to see.

Those areas which most noticeably lack the modern retail facilities are some of the inner city areas that are most in need of rehabilitation. In those areas we find that the cost of construction tends to be high. Therefore, anything that can be done to encourage the provision in those areas of the retail facilities that provide employment and a focus for a more attractive environment should command support.

Further reasons for supporting the clause are the benefits of safety, better working environment, and better hygiene that can be derived for both consumer and employee in modern retail premises. I should like to emphasise to my hon. and learned Friend the Minister of State that the absence of an allowance for retail facilities can distort investment decisions, because it is no longer true that there is a simple division between production and distribution. There are a number of functions that can be carried out at the place of manufacture, at the wholesale warehouse, or at the point of distribution. In the food industry, processing, packing and pricing can be carried out at any one of those locations. If there is a considerable allowance for the provision of new buildings in industrial premises and a total absence of allowance to do so in retail premises, we run the risk of distorting the investment decision, perhaps against the efficient operation of the economy. That might also lead to a withdrawal of employment opportunities from urban areas where they are most required.

I remind the Minister that the former Chancellor, in a letter dated 14 June 1977 to Lord Godber, said that he accepted in principle that commercial buildings should receive capital allowances. He pleaded at that time, as my hon. and learned Friend has just pleaded in respect of the previous new clause, that the cost of doing so was prohibitive.

I suggest to my right hon. Friend the Member for Crosby that he is going a long way in suggesting that the whole of the industrial allowance should go to retail premises rather than perhaps the lesser allowance that goes to hotels as a first stage. I appreciate that even that carries a cost burden.

I hope that the Minister will confirm that he continues to accept in principle the proposal for commercial buildings and in particular retail premises which has been supported over the years by a very large number of inquiries. With his expertise the Minister is even more familiar with those inquiries than I.

I refer the Minister to the Millard Tucker report, the Royal Commission report on taxation and profits, the committee on taxation treatment of trading profits, and more recently the Sandilands committee report. All those reports supported the principle behind the new clause tabled by my right hon. Friend the Member for Crosby.

I hope that my hon. and learned Friend can confirm that at least the principle is still accepted. When financial circumstances are a little easier, in view of the distortion of investment decisions that can result I hope that the retail trade, which has a very valuable role in employment and the regeneration of inner city areas, can look forward with some hope of obtaining the allowances which industry and hotels receive.

7.15 p.m.

Mr. John Townend (Bridlington)

I declare that I am a director of a retail concern.

I am speaking in support of the clause of my right hon. Friend the Member for Crosby (Mr. Page), but not on the basis that it is a necessary concession to the retail trade or on the basis of efficiency. I speak as a chartered accountant on a matter of principle. Any capital expenditure undertaken for the purpose of trade should be written off against profits over the life of those assets.

I do not request that retail premises should have the same allowances as industrial premises or hotels, but in equity it is logical that the principle should be accepted. The allowance should be about 2 per cent. to 3 per cent. per annum. That would enable the capital expenditure on retail premises to be written off against taxed profits over the life of those assets.

Mr. Sainsbury

Does my hon. Friend, as a chartered accountant, agree that that approach to the problem is reinforced by the new requirements for providing depreciation on buildings on freehold sites, which apply under the standard accounting procedure?

Mr. Townend

I accept that. If that were accepted the cost would not be nearly as prohibitive as the cost of accepting the clause. Even if the Minister is not prepared to accept the clause, I hope that he will accept the principle that moneys and capital expenditure spent on assets for the retail trade should be able to be written off, over the lifetime of those assets, against taxation. I make that plea on the ground of equity.

Mr. Adley

I have had a number of conversations with my hon. Friend the Member for Hove (Mr. Sainsbury) about the social value of supermarkets. It would be out of order to discuss whether they provide benefits to the consumer or destroy the attractive environment that was provided by the smaller shops.

My right hon. Friend the Member for Crosby (Mr. Page) highlighted an important matter that has been debated too infrequently in the House—the effect of the change in the face of Britain which the increase in service industries and the decrease in manufacturing industries has brought about in the last 25 years. It is generally assumed in the House that that is something that must be bemoaned. Many seem still to live in the great Victorian era when it was believed that unless one got one's hands dirty one was not doing an honest job of work. There is an educational task to be carried out which could start in the House by impressing upon the Treasury Bench the importance of the service sector of the economy in relation to the manufacturing sector.

I declare an interest in the hotel industry. I have for many years been the European marketing director of Commonwealth Holiday Inns of Canada, and I serve as a member of the national council of the British Hotels, Restaurants and Caterers Association. With that experience I cannot support the new clause because my right hon. Friend based it on the action taken last year in relation to hotels. The main reason why the Government succumbed last year to persistent pressure over many years to classify hotels as industrial buildings for capital allowances was that they were convinced that the job creation and foreign currency earning aspects of the hotel industry had a part to play in generating economic growth, health and welfare.

Until last year's Budget Britain was the only country in the EEC in which hotels were not classified as industrial buildings. One of my reasons for being unable to accept the new clause is that in subsection (4)(b) my right hon. Friend seeks specifically to exclude from capital allowances any accommodation which is normally used as a dwelling". One of the great growth sectors should be the small hotel and guest house sector. It seems that my right hon. Friend has not fully considered the results that the new clause might have by inserting the provision to which I have referred.

If my right hon. Friend wishes to give to shops the treatment that hotels received last year, he has only to talk to local authorities. If authorities were asked whether they would rather have a new hotel or a new supermarket in the interests of the community, I have no doubt what the answer would be, from Land's End to John o' Groats.

I do not want to do the Government's job for them. Presumably we have a British Tourist Authority because successive Governments have decided that it is in the national interest to seek to generate income from overseas tourists. The authority is, of course, funded by the taxpayer. To my knowledge, there is no suggestion that we should have a British retail authority funded by the taxpayer to generate retailing income.

It is worth referring to a recent document issued by the British Tourist Authority, which states: The existence of tourism, a minor part of all leisure activity but a major contributor in terms of wealth creation, employment and environmental conservation, conveys options for a community. However, the options in most cases are those of influencing growth, realising potential and minimising conflicts and costs. There can be no options which seek to turn back the clock to an age in which personal mobility was limited to a privileged minority. I imagine that the previous Government had some of those generalised considerations in mind when they reached their decision in the previous Budget.

My right hon. Friend and my hon. Friend the Member for Hove both argue that tourists spend a great deal of money in our shops. However, the whole object of the British Tourist Authority is to get the tourists here. That is what the authority is for. That is why last year the Government created the new arrangements for hotels. If we fail to get tourists here in the first place, they will not spend their money on accommodation and they will not spend it in our shops and in all the other directions in which we know tourists spend money. One overseas visitor spends as much as eight British holidaymakers in our shops.

I do not normally see it as my duty to act as a spokesman for the Government, but I feel that in this instance I am being consistent. I hope that my hon. and learned Friend, who has heard me make speeches on this subject over the years, will give me credit for that.

I am sorry that the right hon. Member for Llanelli (Mr. Davies) has left the Chamber. It may be that he has left us because I told him that I would issue paeans of praise of him. Perhaps he thought that that would embarrass him. Last year the right hon. Gentleman and the right hon. Member for Heywood and Royton (Mr. Barnett) listened and responded to representations, and there are many who are grateful for that. Although the 20 per cent. rate that was produced last year, in contradistinction to the 50 per cent. rate for manufacturing industry, has not yet had a satisfactory incentive effect on investment, that was presumably the Government's objective.

We should be more prepared to differentiate between grants, loans and tax incentives. Tax incentives are produced to encourage investment. Her Majesty's Government benefit when tax incentives are produced only when the investor invests. The Treasury should be prepared to recognise that merely because one is advocating a certain tax incentive one should not be classified as someone who is recommending vast and indiscriminate handouts of taxpayers' money.

Mr. Peter Rees

My right hon. Friend the Member for Crosby (Mr. Page) has vast experience of Finance Bill debates. Over the years, I have been happy and privileged to support, with varying degrees of success, the various amendments and new clauses that he has introduced. I am sorry that on this occasion I am unable to go all the way with him. I shall endeavour to explain why.

My right hon. Friend said that there is discrimination against a range of buildings as the present system of capital allowances affords relief only for industrial buildings as defined. It is a fairly technical definition. There is a smaller measure of relief which, dare I say it, was a triumph for my hon. Friend the Member for Christchurch and Lymington (Mr. Adley). That relief was introduced last year for hotels. Again, that is a rather narrowly defined definition.

My right hon. Friend has so drawn the new clause that he has left in a measure of discrimination. I understand the reason that led him to do that. For example, his new clause would not afford capital allowances for buildings from which insurance, banking and very various other service industries are conducted. I am not attempting to inject a moral note. I do not regard industry and manufacturing, however defined, to be virtuous and other forms of commercial activity to be less virtuous—"that way madness lies". It would be impossible to draw distinctions that I should feel able to defend with any degree of confidence from the Dispatch Box. So often distinctions depend upon history, and history is to be ignored at our peril.

In arguing against the clause, I am certainly not resting my argument on moral grounds.

I recognise the powerful argument that my right hon. Friend advances about city centres. That will no doubt find a sympathetic echo from my right hon. Friend the Secretary of State for the Environment. The argument of my right hon. Friend the Member for Crosby was taken up by my hon. Friend the Member for Christchurch and Lymington. In these debates I am grateful for support from whatever quarter, but I am particularly grateful to my hon. Friend. He and I have taken an interest in fiscal matters relating to hotels and a wider range of buildings over many years.

As a general proposition, the Government prefer a system of tax relief to a system of subsidies. There may be areas at the margin where subsidies are more appropriate, but I have stated our policy in general terms. I do not think that I need open out the debate any further.

The expertise of my hon. Friend the Member for Hove (Mr. Sainsbury) is well recognised. He hardly finds it necessary, I believe, to declare his interest as it is so well known. I do not wish to debate with him the merits of the supermarket as against those of the corner shop. We recognise the benefit to the consumer of the most efficient form of retailing available, whether that is the large organisation or the small corner shop. Both forms of retailing have their advantages in a geographical and social context. I know where my hon. Friend's sympathies lie, but I shall not open out the debate to discuss those matters with him.

My hon. Friend referred to a letter written by the previous Chancellor of the Exchequer to my right hon. and noble Friend Lord Godber. The previous Chancellor accepted the principle that capital allowances should be afforded to all commercial buildings. That argument was taken a little further by my hon. Friend for Bridlington (Mr. Townend). I was interested to hear his contribution. He said that all capital expenditure should be written off for tax purposes over the years. I see the force of the argument. This is the point to which we are led inexorably, and perhaps not unattractively, by this kind of new clause.

7.30 p.m.

I come to the case that I must deploy against the new clause. I agree that, in essence, it is the most unattractive case—apart from that which rests on administrative convenience—that any Treasury Minister can advance. It is the pure question of cost. The best estimate that I have been able to find of the cost of the new clause is that it would rise in a full year to about £230 million a year. If all commercial buildings were to attract capital allowances, in the first year it would cost about £350 million. In a full year—it might take a period of years to reach this figure—it would cost between £1,250 and £1,500 million.

Mr. John Townend

Does my hon. and learned Friend agree that if the allowance were made on a straight-line basis over the lifetime of the assets—say, 2 per cent. to 3 per cent. a year—the cost would be much lower?

Mr. Rees

Of course. I am not saying that there are no other ways in which we could build safeguards. Eventually, if we adopted the allowances at present conceded in industry, the cost of allowing a write-off of all capital expenditure—I do not have the exact figure—would be of still greater magnitude.

Mr. Adley

Did my hon. and learned Friend say, on the costs he produced, that there was no shortage of evidence that large store companies were not building stores as a result of the present tax regime? Therefore, is he producing figures because he knows that those firms will continue to build stores because the present tax regime is suitable? What we must do is to look at industries such as the hotel industry, where new hotels are not being built because the tax regime is opposed to them. Should not a fine differentiation be drawn between the figures that he gave on the assumption that things would go on as they are anyway and the assumption that the hotel situation was totally different as the investment simply was not taking place?

Mr. Rees

My hon. Friend has made a close study of these matters. I refer to the point made by my hon. Friend the Member for Hove. The existence of these allowances distorts investment. Business men rightly and astutely angle their investment to get the best return. That means to what extent they can take up the capital allowances or other reliefs that are available. However, I take the point.

We are eventually led to the point about which my hon. Friend the Member for Bridlington argued so persuasively. Should we perhaps give reliefs for all capital expenditure? There is a powerful case for that. That opens up the whole question of how far we should erode the base for corporation tax or income tax under case 1 and case 2 of schedule D. Should we go for a narrower base at higher rates or for fewer reliefs and lower rates? That is a slightly wider issue than is presented in the new clause.

I come back to the focal and perhaps not unattractive argument that the cost of this modest proposal would nevertheless be considerable. I am sure that my right hon. Friend wishes us to debate the principle. I hope that he will not press the clause to a Division. Against the background of which this Finance Bill has been constructed, £230 million is a considerable sum. If we are led on to consider the wider aspects touched on by my other hon. Friends, we should have to recast our ideas about corporation tax and the taxation of business profits generally.

We are contemplating a review of corporation tax. That is an important issue. The question of how far we perpetuate our existing system of allowances and reliefs is a central issue. We shall pick up the point made by my right hon. Friend the Member for Crosby in moving the new clause. I hope that against that background, and recognising that we have had an extremely useful debate on the principles involved, he will withdraw the new clause.

Mr. Graham Page

I am grateful to my hon. and learned Friend for the information he gave us on, for example, the cost of accepting a new clause of this kind. We must take that carefully into account.

I do not begrudge the commercial of my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) on behalf of hotels. I was not trying to knock hotels. Therefore, I ask him not to knock my new clause. He may wish to propose amendments to the new clause to preserve the rights of hotels. However, his commercial for the hotels had nothing to do with the case that I put forward on behalf of the retail industry.

The figure of £230 million a year as the cost of the new clause was a little lower than I thought it would be. I knew that it would prove expensive, but one always puts the asking price high.

In moving the new clause, I indicated that it would have a great value geographically in city centres. We might say that we ought not to grant the whole of the concession but only a percentage such as is granted in the case of hotels. When my hon. and learned Friend considers the matter, I hope that he will take that point into account. It would be extremely useful in some areas, especially the city centres, when an allowance might be less than the 100 per cent. of the industrial building allowance.

I am grateful to my hon. and learned Friend for the information he gave us and for the way in which he received the new clause. I hope that we shall return to the same principle, if not in detail, at a later stage.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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