Capital Allowances (Hansard, 28 November 1996)

§ 6. Mr. Nicholas Winterton
To ask the Chancellor of the Exchequer if he will make a statement on capital allowances. [4861]

§ Mr. Jack
Our view is that the capital allowance system should be neutral so that it does not distort business decisions.

§ Mr. Winterton
I congratulate the Government on achieving sustainable growth with low inflation and low interest rates, but does my hon. Friend share my concern about the level of investment in industry? Although investment has increased, it has perhaps increased from an all-time low base. Does my hon. Friend agree that capital allowances are the most effective way of targeting fiscal incentives at successful companies? Will the Treasury review its current position?

§ Mr. Jack
I know my hon. Friend to be a passionate supporter of manufacturing industry in particular: he takes a keen interest in these matters. I believe that the best way in which to assist his cause and, indeed, that of the country is to have a successfully growing economy, and my right hon. and learned Friend the Chancellor has projected growth of 3½ per cent. in his Budget. We expect investment in industry, which has already risen by 6 per cent. this year, to rise by 10 per cent. next year. We do, of course, give capital allowances to industry, but the pay-off that they have for the current system is certainly Europe's most competitive main corporation tax regime.

§ Mr. Sheldon
In his Budget statement, the Chancellor of the Exchequer announced in principle that capital allowances should bear a relation to the life of the asset. That is something with which we should all agree, but it does not happen in the case of a number of high-tech projects. Will the Financial Secretary look into the position again, to ensure that every incentive is given to manufacturing industry when it invests in high-tech projects and that that relationship between the life of the asset and capital allowances is converted into some sort of reality?

§ Mr. Jack
The right hon. Gentleman will be aware that the Budget made no changes to the very generous tax reliefs in the context of scientific research allowances. That is particularly valuable to high-tech investment. As for long life assets, I am delighted to have the right hon. Gentleman's support.

§ Mr. David Shaw
Will my hon. Friend confirm that the changes to depreciation for tax purposes in respect 452 of long life assets are such that the utility companies will be paying about another £3 billion in tax over five years? As a consequence, they will have no money to pay for a windfall profits tax; but, more important, they will not be able to recover the adjustment in tax allowances that my hon. Friend is making from the price cap. People know that, under a Conservative Government, any extra taxes that the utility companies pay will not result in price increases, as they would under a Labour Government.

§ Mr. Jack
My hon. Friend is extremely astute. He is a darned sight more astute than many of the Opposition Members who have been pontificating on economic matters in the past 24 hours. His calculation rightly reflects the heavy investment to which the utilities are committed. We have made changes to bring the tax treatment of allowances on long life assets into line with accountancy practice. That affects all sections of industry.

§ Mr. Mike O'Brien
Will the Minister confirm that, although the Chancellor delivered the Budget with all the flair and panache of a second-hand car salesman selling a dodgy motor, what we saw when we looked under the bonnet was a tax-raising Budget? The Government have raised taxes for individuals 22 times in recent years. That has contributed to the pressure on all businesses, which has been added to by the Government's policies on capital allowances, and by the failure of their economic strategy. This is not a Government for business; they are a Government who undermine business.

§ Madam Speaker
Order. As far as I know, the Opposition Front-Bench spokesman did not ask a question, but I am sure that the Minister is capable of dealing with that.

§ Mr. Jack
I was shocked to find that the hon. Gentleman had finished. He sounds like a worn-out record. The Chancellor's Budget was good for business. The hon. Gentleman must have been asleep, or he would have heard the announcement in the Budget of measures that will address the concerns of small businesses about the uniform business rate. He would also have learnt that the economy will grow at 3½ per cent. next year, which is good for business. He would also have heard that investment in industry will rise by 10 per cent., and that our prospects for sales overseas have improved. All that and many more good things were what business wanted. The chairman of ICI welcomed the Budget, as did GKN and many business leaders.