HC Deb 24 January 1985 vol 71 cc1120-1
8. Mr. Fallon

asked the Chancellor of the Exchequer whether he will estimate the effect on jobs of the changes in corporation tax arising out of his 1984 Budget.

Mr. Ian Stewart

Precise estimates are not possible, but removing distortions against the employment of labour is bound to be helpful to jobs.

Mr. Fallon

Will my hon. Friend confirm that these changes have been applauded by British industry? Will he take further steps to ensure that investment decisions by industry are increasingly taken on commercial and not fiscal grounds?

Mr. Stewart

My hon. Friend is correct. The changes in the 1984 Budget in corporation tax, including the reduction in the cost of employing labour and the abolition of the national insurance surcharge, have made the balance between the choice of employing labour or using machinery much more even and have removed major distortions in the system. The corporation tax and capital allowances changes are designed to induce the best allocation of resources in the economy. That is their main objective.

Mr. Wainwright

Is the Economic Secretary aware that, unless the Government quickly upgrade their new system of annual capital allowances for depreciation, many firms will simply not have the necessary resources after tax to provide the jobs they could otherwise provide? Will the hon. Gentleman take steps, therefore, to bring these allowances a little closer to the reality of industrial obsolescence?

Mr. Stewart

I believe that the new allowance system that we have introduced has been widely welcomed by industry because it has been coupled with a sharp reduction in the rates of corporation tax. The hon. Gentleman referred to a lack of resources for investment, but I believe that profitable and successful companies will find that, at a lower tax rate, they will have an even greater incentive to invest for the future.