§ Mr. George Thomasasked the Secretary of State for Trade and Industry what financial benefit will a firm starting up in a special development area and spending £50,000 on capital equipment receive during its first 12 months, assuming that it makes no profit in that settling-in period, under the system of investment grants prevailing before 27th October, 1970 and under the system of investment allowances, respectively.
§ Mr. Anthony GrantThe precise benefits will depend on the particular circumstances of the case. Under the old system a firm in a special development area might have received during its first 12 months an investment grant of 40 per cent. in respect of eligible plant and machinery, a grant of up to 35 per cent. on new industrial buildings and possibly other assistance under the Local Employment Acts.
Under the new system the firm might receive a grant of up to 45 per cent. on new industrial buildings and the possibility of greater assistance under the Local Employment Acts. But as investment grants, for example, are paid with a delay of about nine to twelve months, it is probable that a lot of the grant 514W payable on the first year's expenditure would not be received in the first year.
In subsequent years, in addition to grant, the firm might under the old system have received the benefit of a 30 per cent, initial allowance on plant and machinery ineligible for investment grants and 40 per cent. initial allowance on industrial buildings. Under the new system it might receive the benefit of free depreciation (on a wider range of assets than was eligible for grant), or improved allowances on plant and machinery, and it will continue to attract a 40 per cent. initial allowance on industrial buildings.
Under both systems the benefit of grants is felt somewhat earlier than the tax savings through capital allowances, but under the new system firms will pay less tax on profits earned on existing as well as new investment.