HL Deb 29 February 1972 vol 328 cc932-6

2.48 p.m.

LORD BALOGH

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government how they justify the claim that they have increased the stimulus to investment especially in development areas (Lords Hansard, cols. 171–3, February 16); and whether they will provide a comparison of the benefit on a discounted cash flow basis of the old and new system of grants and tax allowances respectively.]

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, as I explained in the speech to which the noble Lord refers, the Government have introduced a comprehensive range of measures to stimulate the economy, including that of the development areas, and hence to provide the conditions favourable to profitable investment. As regards the second part of the Question, the noble Lord will be aware of the various analyses in published articles. In the Government's view, these are on too narrow a basis to be useful in relation to the matters raised in the first part of the Question.

LORD BALOGH

My Lords, I thank the noble Lord for this very ingenious Answer which anticipated my first supplementary question. I should very much like to ask him how there can be any difference of opinion about figures which show that in the case of productive investment the old system was 89 per cent. better than the new system, in cash terms? Moreover, is the Minister aware that not only was the old system 89 per cent. better than the new system but also that firms could apply who now are debarred because they do not have any profits?

LORD DRUMALBYN

My Lords, I think the noble Lord's supplementary question refers to the differentials in development areas. It is true that the old system contained a greater regional differentiation than the new system for certain types of plant. I am suggesting to your Lordships that it is misguided to concentrate solely on this single aspect of the Government's policies without considering others: for example, the increased building grants; the expenditure on the infrastructure; the reduction in taxation and bank rate, and all the rest of it.

LORD BALOGH

My Lords, is the noble Lord aware of the fact that this system was one of the most helpful? Does he not consider that the policy with regard to regional premiums and other measures facilitating investment will be revived just as the grant system to lame ducks was revived yesterday by the noble Lord's enterprising colleague who, like a chameleon, can change not only his skin but his colour?

LORD DRUMALBYN

My Lords, I do not think I can venture into the noble Lord's similies. The whole House will appreciate that the best incentive to investment is a high degree of confidence among businessmen that there will be a good demand for their products from which a reasonable profit can be earned. This is the objective of the Government's policy.

LORD BALOGH

My Lords, lastly may I ask the Minister whether he considers that even if there is confidence that confidence may lead businessmen not to the development areas but into the congested areas if there are no incentives given to the development areas? Has he considered the problems of the development areas not only in this country, but also in the Common Market into which he wants to rush? Has he noted that in all countries this grave problem has to be tackled by special incentives of the type which the late Government gave?

LORD DRUMALBYN

My Lords, I cannot agree with the noble Lord that there are no incentives to development in development areas. I understood that was what he said. As I said in my speech, all experience shows that the basis for a flow of investment into the development areas is a sound economy in the country as a whole. As to the E.E.C., it simply is not the case that the change from grants to allowances is in conflict with E.E.C. policies. Individual E.E.C. countries adopt a variety of incentive policies, including both grants and allowances, and the E.E.C.'s incentive policy is based on the principle, which we entirely support, of avoiding expensive competitive bidding between member countries for mobile investment.

LORD BROWN

My Lords, would the noble Lord agree that the engineering industries, which are the most important part of our export industries, have been severely hit by the change from investment grants to investment allowances, simply because they are suffering acute losses due to the rapid rate of wage inflation and have therefore no profits against which to make use of investment allowances?

LORD DRUMALBYN

No, my Lords, I would not agree with that. The indications are that both profits and liquidity have been increased.

LORD WYNNE-JONES

My Lords, is the noble Lord wishing to convey to us that the real hope for the development areas is the hope of a change of Government?

LORD DRUMALBYN

Emphatically no, my Lords.

LORD LEATHERLAND

My Lords, may I ask a non-political question? Would the noble Lord agree that one of the reasons for the slackness of industrial investment by British firms is the fact that they are hoping to set up their factories in the Common Market areas where they will employ German, French, Belgian and Dutch labour rather than invest in their own country where they would be employing British labour?

LORD DRUMALBYN

My Lords, we have no evidence of that. If the noble Lord has some evidence I should he glad to know of it. The main point is that at the moment it is the aim of the Government to stimulate liquidity and profits.

LORD LEATHERLAND

My Lords, if the noble Lord will look at the financial papers, every day he will read of scores of British firms which are setting up factories in the Common Market.

LORD DRUMALBYN

My Lords, this has been so for some time; they have been encouraged to expand abroad and when it is more convenient for them to set up their factories abroad than to export from this country, that is one way of improving our invisible earnings. The fact remains that at the moment there is spare capacity in this country, and that would appear to be the greatest reason why we are not getting the investment that we hoped for.

LORD LEATHERLAND

My Lords, would not the noble Lord think it better to employ a million British workers than a million Germans, Belgians and Dutch?

LORD DRUMALBYN

My Lords, this has been a problem throughout our development in the Commonwealth and elsewhere. Circumstances can arise when we cannot export from this country and, in consequence, the only sensible course is to invest in the country which previously imported our goods.