§ 3.38 p.m.
§ LORD WALSTON
My Lords, I beg to move this Order which appears in my name on the Order Paper. Although the noble Earl, Lord Ferrers, was kind enough to say that in dealing with agriculture I was on familiar ground, I say frankly and without hesitation that this matter is somewhat less familiar to me. However, I do not think that this is a particularly controversial or difficult Order, and I am sure that your Lordships will agree to it with the same willingness and grace with which you agreed to the previous one.
This Order gives effect to the decision announced by my right honourable friend, the President of the Board of Trade on December 1 to effect a temporary increase in the rates of investment grant. Part I of the Industrial Development Act 1966 enables the Board of Trade to make grants to firms in respect of approved capital investment in certain broad classes of assets. The eligible assets include plant or machinery used in qualifying industrial processes such as manufacturing, mining and quarrying, construction and ship repair, scientific research equipment, computers, hovercraft, ships and mining works. The standard rate of grant laid down in the Act is 20 per cent., but machinery or plant, mining works and some special categories of computers qualify for 40 per cent. grants, if they are for use in development areas.
Section 7 of the Act does, however, provide power to vary the rates of grant by Order. We all recognise the importance to industry of having a firm basis for long-term investment plans. People can plan effectively only if they have security and know within reason what the future holds for them. I want to make 1059 it perfectly clear that it remains our intention that the rates in the Act, 20 per cent. and 40 per cent., should be the long term rates for the investment grants scheme. But I think your Lordships will agree that the provision in the Act for varying the rates gives a very useful flexibility when some extra stimulus to investment is required.
The present Order has been made under that power and it came into effect on December 30 last. Its effect is very simple. It provides that in so far as expenditure on eligible assets is incurred between January 1, 1967, and December 31, 1968, the rate of grant will be increased by an extra 5 per cent. This means that expenditure which—under the standard provisions in the Act—would have qualified for 20 per cent. will qualify for 25 per cent., and that expenditure that is related to use in development areas and under previous Regulations would have qualified for 40 per cent. will now qualify for 45 per cent.
The 25 per cent. rate will apply to all eligible ships and hovercraft, to most computers, and to machinery and plant and mining works for use outside development areas. It will also apply to machinery or plant which is provided for short-term hiring in the construction industry, wherever it may be located, whether inside or outside a development area. The 45 per cent. rate will apply to other machinery or plant, to mining works and to certain computers which are either integrated with other qualifying machinery or used primarily on scientific research, when any of these assets are for use in development areas. There are no changes in the definition of eligible assets; they remain precisely as laid down in the Act.
In order to attract the higher rates of grant, expenditure on eligible assets must be incurred between January 1, 1967, and December 31, 1968. The Act provides thatexpenditure shall be treated as incurred at the time when the sums of which it consists become payable".This definition, I am told, is very familiar to accountants because it occurs in the Income Tax Acts, and therefore it should present no problems. The Board 1060 of Trade have had discussions with the professional accountancy bodies on this subject and guidance to industry has been issued in the booklet on investment grants published at the end of November.
My Lords, while I should be perfectly willing to explain, if it were wished, just how various kinds of expenditure are treated, this is perhaps going into rather more technical detail than is desirable on this occasion. The broad effect will be that the higher rates of grant will apply in the main to assets delivered or installed during the two-year period. Where an asset is bought under arrangements providing for a series of payments—such as a hire purchase agreement, for example—then the higher rates will apply to those instalments which fall due within the two years in question. The Confederation of British Industry has warmly welcomed the Government's decision to increase grants over the next two years. The National Economic Development Council has also expressed the view that this action represented an important step in promoting the objectives agreed at the National Productivity Conference last September.
My Lords, it is not possible here and now to judge what the precise effect of the Order will be. The Board of Trade have recently announced the results of their latest inquiry into industry's investment intentions. This inquiry was carried out from mid-November onwards and the replies received suggest that firms were then expecting a fall in manufacturing investment of about 10 per cent. in 1967 as compared with 1966. But I want to make two points about that forecast. First, some of the firms had already sent in their replies to the questionnaire before the increase in investment grants was announced and it is probable that many of those who replied after the announcement had been made had not had time to reconsider their investment plans. And secondly, the latest actual figures of investment that we have—which cover the first nine months of 1966—show virtually no downward movement in manufacturing investment.
I know perfectly well that there are many factors that influence a business when it is deciding what its investment programme should be, and that Government action, although of importance, is 1061 by no means the sole factor in helping it to arrive at what it considers to be the right decision. Many of these factors are not under our immediate control in any way. Our object in providing these higher grants is to encourage firms to use the present opportunity to expand and modernise their plant. What in effect is happening is that the Government are prepared to take a larger part of the risk—in development areas a risk which amounts to very nearly half of the total amount. I hope and believe that firms will take advantage of the increased grants for the next two years, and will place their orders now and go ahead now with the plans for development and investment which they may be contemplating. I beg to move that the Order be now approved.
§ Moved, That the Industrial Development (Variation of Rate of Grant) Order 1966 be approved.—(Lord Walston.)
§ 3.47 p.m.
§ LORD DRUMALBYN
My Lords, the noble Lord, Lord Walston, started by disclaiming the same degree of authority in talking on this matter—in talking about hardware (shall I say?)—as he had on the previous Motion, which dealt with what I might call software. But the noble Lord has certainly discharged his duty to move this Motion in a quite exemplary fashion, and I not only congratulate him on that but welcome him warmly to the functions that he has now assumed.
We have no intention, of course, of opposing this Order, but I think it is only right for me to say that we do not find it very easy to be enthusiastic about giving more money to this investment, whether it is economic or not. But this is a matter that we discussed on the Bill, and we need not pursue it further now. There is no doubt that those eligible for the increased grant will be glad to get it and, as the noble Lord said, the C.B.I. have endorsed it. At the same time, those not eligible will regret still more than they already do the denial to them of investment allowance of which they have been deprived.
The one criticism I would make of what the noble Lord has said is that he certainly has not demonstrated that the extra stimulus is needed. If he were adhering to the view that there was going to be a 10 per cent. decrease in invest- 1062 ment, then that point of view might have been sustained. But apparently there is a different point of view now, and to that extent there is no indication that extra stimulus is needed. I may say that, according to the figures given by the noble Lord, Lord Shepherd, when he made the original announcement, this will cost £60 million a year for two years, and £120 million is not a small amount of money to be talking about. I, for my part, should have thought it unlikely to influence to any great extent decisions to invest, particularly in development areas where the increase of grant is to be only l2½ percent. It would have been more logical, I suggest, to have made the grant 50 per cent. in development areas instead of 45 per cent., thus keeping the 2 to 1 ratio, as it is to be 25 per cent. in other parts of the country.
It may be that towards the end of the two years' period during which the Order is to remain in force there will be a tendency to acquire new machinery and plant sooner than would otherwise have been done, in order to take advantage of the higher level of grant while it still lasts; but by then, of course, it may be no longer appropriate to give this kind of stimulus. On the other hand, in the case of plant which takes a long time to design, manufacture and produce, it may encourage manufacturers to place orders in the near future.
At this point I think I should say it is significant that one set of producers who are now as much in need of orders as anybody—that is to say, the iron and steel plant manufacturers—are unable at present to get orders because the Government has disrupted the flow of orders by steel nationalisation. In consequence they are in danger of losing engineers and craftsmen whom they will have great difficulty in replacing when the flow of orders is renewed. This is a matter which merits the urgent attention of the Government, and I should like to ask the noble Lord whether the position is affected in any way by this Order. The point is that Schedule 2 of the Industrial Development Act lists those bodies which are not to be entitled to the investment grants, and so far, of course, the National Steel Corporation is not on that list. Perhaps the noble Lord will be able to tell us about that. I would 1063 ask him to consider this aspect of the matter. Here is an industry which is seriously in need of investment at the present time, and yet one suspects it is precisely an industry which is not covered by this Order, which is designed to stimulate investment.
The grants, we are told, are unlikely to be paid for 18 months from the time when expenditure is actually incurred, and I think the noble Lord, Lord Shackleton, confirmed this yesterday in the course of his speech. In fact, the additional 5 per cent. grant in development areas will scarcely cover the interest on the money which investors in plant and machinery will have to stand out of during this 18 months. When the noble Lord, Lord Shepherd, announced this increase in grant from December 1, I asked whether the Government would consider paying interest on the gants which they are under a statutory obligation to pay, to cover this period. I suppose I should be duly grateful that, in effect, it is just what they are doing that is the effect of this 5 per cent. increase—but only for two years. One can only hope that by the time the two years have elapsed, the period between the time when the entitlement to grant arises and the time when it is paid will have been greatly diminished.
As to the principle of varying the rate of grant from time to time, as the noble Lord said, there is provision for this in the Act; but the noble Lord will be aware that the committee which advises the Ministry of Technology on methods of counteracting the cyclical nature of demand for machine tools recommended against such variation, on the grounds that manufacturers would be inclined to hold off placing orders in expectation of an increase in grant at the onset of a recession, the very time when it would be desirable to maintain the flow of orders. Of course, it can be argued that the rate of grant can be manipulated so as to counteract the cyclical tendency of orders. The fact is, however, that, taking this into consideration, this expert committee advised against manipulation. Bearing in mind what the noble Lord has said, that on his information there is no downward tendency in investment at the present time, it thus becomes a little more difficult to justify the Order. Perhaps 1064 he will have a word to say about this in reply. My Lords, in short, while no doubt industry will be glad to have additional assistance, it is by no means certain that the country will get value for the £120 million which this Order is estimated to cost over two years.
§ 3.56 p.m.
§ VISCOUNT ECCLES
My Lords, before the noble Lord replies, may I just ask him a question? As I understand the pattern of dealing with our present economic situation, when we come to reflate it is to be done through investment, through more Government spending and through exports. What I want to ask the noble Lord is this. It appears to quite a number of us that at the present time we have excess capacity in a large number of very important industries. We can make much more steel than there is a demand for; we can make many more motor cars than there is a demand for; we can make more artificial fibres than there is a demand for. I will not weary the House, but I could go on through some important industries—the chemical industry for instance. If that is so, are the Government really right in relying upon stimulating more investment, when the demand for the products we can produce with our existing capacity does not appear to be there?
Of course, the Government may answer, "We expect a huge volume of exports". I hope we shall get more exports, but I can hardly believe that in the present situation of world trade exports could go up by more than a few per cent. We are then left with Government expenditure. If that is the way they intend to reflate, by spending more money through the taxes, in my humble opinion it will be counterproductive; they will burden industry more and the results in the end will be negatived. I should like to know, in connection with this Order, what the reflation policy is.
§ 3.58 p.m.
§ LORD WALSTON
My Lords, I will first answer very briefly the noble Viscount, Lord Eccles. It seems there is at least one difference between him and me, and that is that I have more trust in the good sense of private enterprise and the business skill of the managers of our industries than he has. 1065 I do not for a moment believe that any worthwhile management of a firm will go in for a policy of reinvestment when they already have plant which is not being used, simply because they get a 20 per cent., or a 25 per cent. or a 45 per cent. grant from the Government. I think good business sense will prevail. I believe there are certain firms—not those he has mentioned, but many others—who could very well expand, for the benefit of our export industry in particular, but who are held up because of financial difficulties. There is a degree of uncertainty: "Shall we do it or shall we not do it?". This extra impetus will make them feel that it is a good business proposition to make a further investment. It is that type of business we are hoping to get at.
Coming now to the points of the noble Lord, Lord Drumalbyn, may I thank him first for his opening remarks and now try to answer some of his questions? So far as the iron and steel plant industry is concerned, I know as well as he does that there is now an excess of capacity and that they are looking hard for work. I hope that they will increasingly direct their attention—I know they have done so in the past, and I give them full credit for it—to overseas markets, and make even greater effort than they are making at the present time, which is considerable, to gain export orders. I personally have just returned from a tour of Latin America, and I know there is great possibility there. I hope some of the firms who are competing out there will in fact get the orders. That is the sort of thing we want. So far as our iron and steel industry is concerned, there is no change alt the moment from the position as it was when my noble friend answered the noble Lord's question. The matter is continuously under consideration, and no doubt a decision will be taken in the reasonably near future.
The noble Lord mentioned the 18-month period of delay in payment. That is the initial period that is being taken, but there are hopes, confident hopes, that that period will be shortened and that in due course there will be no more than a six-month delay in making payments. When that will come about will depend on 1066 a variety of factors, but I should not like the noble Lord or others to gain the impression that there will continuously be an 18-month delay all the way through.
I must confess that I was somewhat puzzled by the thinking behind the noble Lord's general remarks. He queried whether this extra stimulus is in fact needed—is it worth doing at all?—and he mentioned the Technical Committee which has suggested that no variation in rates is needed. Whether that means that the present rates are sufficient incentive or that no incentive of any kind is needed, I am not certain; but all this seems very much at variance with what a good many noble Lords, particularly on the other side of the House, said yesterday in our most interesting debate about the need for incentives to higher management. After all, will higher management work harder in its own job and play less golf or take shorter holidays because there is a 5 percent. reduction in surtax, but not invest the company's money because there is a 5 per cent. increase in grant for it? I do not think noble Lords can have it both ways. Either these marginal movements up and down are an incentive or they are completely irrelevant and we need not bother about them at all.
In this particular case, so far as investment is concerned, I think it is far more effective than the matters we were discussing yesterday. I personally am of the opinion, as are the Government, that initiative of this kind is a sufficient corrective to what may be a levelling off or a decline in our investment. We are not certain. Statistics are unreliable; forecasts cannot be regarded as the writ of the Gospel. But they give indications, and the indications are that our national investments, so far from rising, which is what we want, is levelling off or declining. That position we want to correct by a slight touch on the accelerator, and we consider this 5 per cent. increase is sufficient to do it. I would thank the noble Lord—in spite of his criticisms, which I know he feels bound to make—for his general support for this Order, and for what I take to be his general agreement to it.
§ On Question, Motion agreed to.