HC Deb 01 March 1966 vol 725 cc278-9W
Mr. Lubbock

asked the President of the Board of Trade if he will circulate in the OFFICIAL REPORT a revised version of Table 2, page 7, of the National Economic Development Council's booklet, "Investment Appraisal", showing the after tax net cash flow under the new investment grant proposals, the discounted value of the cash flow for each year, and the total discounted value for the 17 years, assuming Corporation Tax to be at the rate of 35 per cent. and 40 per cent., respectively.

Mr. Jay

Revision of material contained in the booklet to which the hon. Member refers would be a matter for the National Economic Development Council. The Government have, however, made some calculations of the benefits of the new system of investment incentives on the two assumptions about the rate of Corporation Tax suggested by the hon.

CASH RECOVERIES ON £100 INVESTED IN NEW PLANT OR MACHINERY ELIGIBLE FOR GRANT UNDER THE NEW SCHEME OF INVESTMENT GRANTS, AS COMPARED WITH THE SYSTEM OF INVESTMENT ALLOWANCES, WHEN THE SCHEME IS IN FULL OPERATION
Cash Recoveries not discounted Cash Recoveries discounted at 7% p.a.
(i) (ii) (iii) (iv)
Within 18 months Subsequently Total Total
A. ASSUMING CORPORATION TAX AT A RATE OF 35%
£ £ £ £
(1) Investment Allowance System
(a) National rates 19.25 26.25 45.50 34.49
(b) In Development Districts 50.95 — 50.95 46.63
(2) Investment Grants System
(a) National rates 24.20 23.80 48.00 38.62
(b) In Areas 43.15 17.85 61.00 53.13
B. ASSUMING CORPORATION TAX AT A RATE OF 40%
£ £ £ £
(1) Investment Allowance System
(a) National rates 22.00 30.00 52.00 39.43
(b) In Development Districts 56.80 — 56.80 51.92
(2) Investment Grants System
(a) National rates 24.80 27.20 52.00 41.38
(b) In Development Areas 43.60 20.40 64.00 55.20

Notes on Table:

  1. (i) For the purpose of calculating annual allowances, it has been assumed that the plant or machinery is retained for 10 years and that the annual allowance for tax purposes is 15% on the reducing balance.
  2. (ii) It has been assumed that the firm would have earned sufficient taxable profits to take full advantage of tax allowances at the earliest possible date.
  3. (iii) In column (iv), total cash recoveries have been discounted back to the time of the investment expenditure.
  4. (iv) In setting out the benefits in Development Districts under the former system, allowance has been made for free depreciation and for a 10% standard grant under the Local Employment Acts.