HC Deb 01 July 1966 vol 730 cc342-6W
Mr. Patrick Jenkin

asked the President of the Board of Trade (1) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in new plant for use in a qualifying industrial process made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a non-development district pre-change, but in a development area post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wanstead and Woodford relating to this matter;

(2) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in new plant for use in a qualifying industrial process made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a non-development district, pre-change, and in a non-development area, post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wan-stead and Woodford relating to this matter;

(3) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in a new plant for use in a qualifying industrial process made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a development district, pre-change, and in a development area, post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wanstead and Woodford relating to this matter.

Mr. Jay

These figures are based as nearly as practicable upon the assumptions suggested in the hon. Member's correspondence. They are calculated on the following basis:

  1. (i) The investments are made by a United Kingdom company.
  2. (ii) The profits before depreciation attributable to the investment are in all cases nil in the year of investment (year 1), £250 in years 2, 3 and 4, £200 in years 5, 6 and 7, £100 in years 8 and 9 and £50 in year 10.
  3. (iii) The figures for "pre-change" take account of 30 per cent. investment allowance and are calculated throughout the life of the investment at a rate of income tax of 7s. 9d. in the £ and profits tax of 15 per cent. (For the Answer related to investment in a development district, pre-change, a 10 per cent. grant and "free depreciation" are taken into account; in the two Answers related to non-development districts, pre-change, there is a 10 per cent. initial allowance.)
  4. (iv) The figures for "post-change" are based on Corporation Tax of 40 per cent. and incorporate investment grants. Schedule F tax on distributions is 8s. 3d. in the £. The rate of distributions assumed is that which, with income tax at 8s. 3d. in the £, profits tax at 15 per cent. and Corporation Tax at 40 per cent., produces the same total tax liability under income tax/profits tax and under Corporation Tax/Schedule F. This rate of distribution works out at 39. 39 per cent. of the profits on which Corporation Tax is to be charged.
  5. (v) It has been assumed that the Company would have earned sufficient taxable profits to take full advantage of all available tax allowances at the earliest permissible date. This involves assuming the existence of profits other than the return on the investments. The figures state the net present worth of the investments as the difference between the discounted cash flow from these "other profits" alone, and the 344 discounted cash flow resulting from both investments and these other profits.
  6. (vi) The plant is assumed to be retained for ten years and then scrapped, and the annual allowances for tax purposes, calculated on the reducing balance, are 15 per cent.
  7. (vii) Grants are received twelve months after the date of expenditure.
  8. (viii) The rate of discount is 7] per cent.

The information, respectively, is as follows:

  • £1,098 and £1,148.
  • £1,098 and £1,039.
  • £1,232 and £1,148.

Mr. Patrick Jenkin

asked the President of the Board of Trade (1) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in a new general purpose goods vehicle made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a non-development district pre-change, but in a development area post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wanstead and Woodford relating to this matter;

(2) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in a new general purpose goods vehicle made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a non-development district, pre-change, and in a non-development area, post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wanstead and Woodford relating to this matter;

(3) whether he will publish in the OFFICIAL REPORT figures comparing the net present worth of a discounted cash flow return over 10 years of an investment of £1,000 in a new general purpose goods vehicle made in 1964–65, pre-change, and a similar investment made in 1966–67, post-change, in a development district, pre-change, and in a development area post-change, making the assumptions, to be set out in his reply, contained in correspondence from the hon. Member for Wanstead and Woodford relating to this matter.

Mr. Jay

These figures are based as nearly as practicable upon the assumptions suggested by the hon. Member. They are calculated on the following basis:—

  1. (i) The investments are made by a United Kingdom Company.
  2. (ii) The profits before depreciation attributable to the investment (year 1), £250 in years 2, 3 and 4, £200 in years 5, 6 and 7, £100 in years 8 and 9 and £50 in year 10.
  3. (iii) The figures for "pre-change" take account of 30 per cent. investment allowance and 10 per cent. initial allowance and are calculated throughout the life of the investment at a rate of income tax of 7s. 9d. in the £ and profits tax of 15 per cent.
  4. (iv) The figures for "post-change" are based on Corporation Tax of 40 per cent. Initial allowance is 30 per cent. Schedule F tax on distributions is 8s. 3d. in the £. The rate of distributions assumed is that which (with income tax at 8s. 3d. in the £, profits tax at 15 per cent. and Corporation Tax at 40 per cent.) produces the same total tax liability under income tax/profits tax and under Corporation Tax/Schedule F. This rate of distribution works out at 39. 39 per cent. of the profits on which Corporation Tax is to be charged.
  5. (v) It has been assumed that the company would have earned sufficient taxable profits to take full advantage of all available tax allowances at the earliest permissible date. This involves assuming the existence of profits other than the return on the investments. The figures state the net present worth of the investments as the difference between the discounted cash flow from these "other profits" alone, and the discounted cash flow resulting from both the investments and these other profits.
  6. (vi) The vehicles are assumed to be retained for ten years and then scrapped, and the annual allowances for tax purposes, calculated on the reducing balance, are 25 per cent.
  7. (vii) The rate of discount is 7½ per cent.

The information is as follows:—

£1,133 and £1,007 in each case.