HC Deb 10 July 1997 vol 297 cc1068-70
15. Mr. Breed

To ask the Chancellor of the Exchequer if he will make a statement on his proposals for fiscal incentives for investment in business research and development. [6193]

Mrs. Liddell

The 2 per cent. cut in corporation tax announced in the Budget, combined with the abolition of tax credits for pension funds, provides a better environment for long-term investment, including investment in research and development.

Mr. Breed

Does the Economic Secretary accept that perhaps even more of companies' Funds should be invested in research and development? Does she also agree that further incentives, by way of providing allowances against additional corporation tax, might be a better use of tax receipts?

Mrs. Liddell

The hon. Gentleman asks a sensible and interesting question, but I shall refer him to the statement that my right hon. Friend the Chancellor made on the Budget. The purpose of reducing corporation tax and abolishing tax credits for pension funds was specifically to ensure that companies could take their own decisions on research and development by retaining more of their profits.

If the hon. Gentleman cares to check the most recent figures for research and development—those of 1995—he will find that there was a 2 per cent. drop in research and development in the United Kingdom. I believe—and the Government believe—that companies that are able to invest more of their own retained profits have a much greater opportunity to invest them in research and development.

Mr. Nicholas Winterton

I warmly welcome the Government's Budget decision to improve capital allowances—something for which I have been campaigning for a great many years. But does not the hon. Lady accept that the increase in interest rates—they will have gone up three times in seven weeks under the new Government—will be counterproductive, particularly to manufacturing industry, which will not he able to invest and may well start making people redundant when it faces increased competition because of the value of the pound?

Mrs. Liddell

I am surprised that the hon. Gentleman should make that point as it allows me to return to the Dispatch Box and say that if the previous Chancellor of the Exchequer had been prepared to accept the advice of the Governor of the Bank of England, action would have been taken on interest rates at an appropriate time. It was the complete failure of the previous Chancellor to have the courage to accept the advice of the governor that has created a number of interest rate rises in recent months.

Rev. Martin Smyth

While I welcome the Government's response, does the Economic Secretary agree that good firms will seek to invest in research and development—some have been following the foresight plan—but that the Treasury does not seem to be fulfilling its side of the bargain? Is it not important that the Treasury should do so? Is this not a problem of old-fashioned interpretation—with more money being invested in pure research, but not enough in applied research?

Mrs. Liddell

I am interested in the hon. Gentleman's point; indeed, I shall return to the point that I made earlier. One reason why the Government cut corporation tax was that the Treasury believes that more money should be invested by companies in accordance with their own priorities. The Treasury does not believe that companies should be forced into having to make dividend payments that might not be in line with their best interests in future. I acknowledge the importance of research and development—particularly in Northern Ireland and in my country, Scotland, especially for high-tech, small companies. It is important that we create a climate in which companies feel free to make those investments without extraneous pressures on them.