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(1) Subsections (2) to (5) of section sixteen of the Finance Act, 1954 (which provide for giving investment allowances in respect of capital expenditure on certain new assets) shall apply to expenditure incurred after the commencement of this Act, being expenditure incurred on new assets in or exclusively for their use in a Commonwealth territory.
(2) In this section "a Commonwealth territory" means one of the Commonwealth territories, as defined in section thirty-six of the Finance Act. 1950, or Pakistan or Ceylon; and "expenditure incurred on new assets exclusively for their use in a Commonwealth territory" includes expenditure incurred in the provision, insurance, preservation, warehousing and transport of new assets in the United Kingdom and in their passage from the United Kingdom to the Commonwealth territory.— [Mr. Roy Jenkins.]
I beg to move, That Clause be read a Second time.
The Clause seeks to restore the investment allowances as they existed under the Finance Act, 1954, for overseas development provided that it is done in a Commonwealth country. The Clause was put down as an indication that although we could not accept Part IV of the Bill there were alternative means by which we should like to help certain forms of British companies operating overseas.
It was put down, before we came to debate Part IV, as an alternative to the Government's scheme. We are now, as is normal in the procedure of a Finance Bill, discussing the new Clause after Part IV has been passed, and we would not suggest that what is contained in the new Clause should be given on top of that which the Committee has decided should be given. Therefore, we are, in a sense, discussing something which is now, perhaps, more a symbol than a practical proposal. Were we in the position in which Part IV had not gone through, this is what we would very much have preferred to see done.
The reasons for preferring to see it done in this way are simple and straightforward. First of all, our Clause would confine the help given to companies operating in Commonwealth countries, and would not be extended to all sorts of overseas development provided the companies were resident in London. Secondly, it has always been the view on this side that when it is desirable to stimulate development, the investment allowance is the mechanism best fitted to achieve that in the most direct and economical way; that help would he given only to the extent that investment is actually carried out; that it is of all forms of taxation that which bears most directly upon the ability of the company to carry through schemes of expansion, and that it has, perhaps, less effect upon shareholders.
I do not quite know what the attitude of the Government is to overseas company concessions, but from the Bill as presented—and certainly from the series of speeches made by the Financial Secretary, both on Second Reading and in this Committee—we gathered that the intention was to confine this help as narrowly as possible, so that the overwhelming part of it went to the companies, as the developing organisations, and as little as possible seeped through to the shareholders. It is true that the Chancellor went so far as to say that he thought that anything that helped shareholders was a good thing, but, that apart, it does appear to be the case that here the intention is to give the least direct help to shareholders.
An investment allowance would, of course, do this far more neatly and accurately than would the form of the general concession contained in Part IV of the Bill. Therefore, we think that this scheme which we would have put forward as an alternative is indicative of the fact that we are not unwilling to help British companies operating overseas, and particularly in the Commonwealth, but that it could have been done more economically and accurately, and at least equally beneficially, by this alternative method.
The hon. Member for Stechford (Mr. Roy Jenkins) has said, quite rightly, that at this stage of the Bill this new Clause is, perhaps, a little academic, but it is, of course, very much a renewal of the argument we had on Clause 22. As far as stretching the investment allowances goes, my right hon. Friend the Chancellor made it clear in his Budget speech that he intended to give them only to shipping companies, and that they were, as he said, a unique step for a unique industry.
We had the hon. Member's approval when we resisted schemes for extending the initial allowances to the shipbuilding industry, and we did want to cut down the extension of the investment allowances. When we argued much the same case on Clause 22, we also said that one of our reasons was that, as far as we could do so, we wanted to avoid discriminatory taxation. The actual provisions in the Bill for overseas trade corporations will do a great deal to assist investment in the Commonwealth. That is one of the many objectives that will be attained, but that investment will be assisted by the fact that reserves can be built up out of earnings.
I was glad to note, during the course of this Bill, that several hon. Members opposite have pointed to the fact that the real difficulty is the shortage of funds to invest and not the opportunities to invest them. It might be dangerous to have the very strong stimulus to investment which this Clause would give at a time when our resources and foreign exchange balance do not encourage us to lend, or should not encourage us to lend, indiscriminately and very largely.
It certainly would be, on top of Part IV. It is very difficult to say, but it would be a very strong stimulus indeed, and the point about stimulus to investment in overseas trading corporations is that it depends upon their building up their earnings. The investment allowance is the strongest stimulus one can give to investment.
Another more technical argument against this is that it would have a rather curious result, because, under Paragraph 13, Section (1) (a) of the Fifth Schedule, the effect would be this: if one were winding up a company and the exempt trading income on the winding up became subject to Income Tax, any allowances granted under this Clause would be deducted from the exempt trading income before it was subjected to tax. Therefore, it would be giving a rather uncovenanted benefit to a company on a wind-up. But I do not press that argument.
On general principles, we think the Chancellor has gone as far as he can on investment allowances; we do not like the general theme of discrimination in this, and it would give too strong a stimulus.
Mr. H. Wilson:
Although the hour is late, we cannot let that speech go without some comment. I found it peculiarly disappointing. We have noticed throughout the proceedings of the Committee on the new Clauses, almost without exception, that every new Clause moved from the opposite side, if it has not been accepted, has been greeted with the promise that, at any rate, the Chancellor would consider it for next year. I think that the Treasury Bench Ministers have gone further than usual in that direction. All of us took it extremely seriously last year, when the then Chancellor promised to consider only about two proposals—one on pioneer industries tax concessions and the other on Entertainments Duty on the living theatre. But this year they have rather debased the currency and have promised to consider seriously any new Clause—when put forward by hon. Gentlemen behind them. That is one reason why the Minister's reply is unsatisfactory.
Another reason is that he does not seem to have perceived that this was put forward by us as an alternative to Part IV of the Bill. Of course, he can produce the argument that Part IV, having been accepted by the Committee, with this Clause on top an additional loss is caused to the revenue. But we put it forward as an alternative to the 29½ pages which we debated at breakneck speed on Part IV and the associated Schedules. This particular Clause does more than the whole of Part IV and, on the right hon. Gentleman's own admission, is a more vital contribution to Commonwealth develop- ment. We agree that if the Bill were to be written round this new Clause there might be one or two consequential changes to be made. The right hon. Gentleman mentioned the very difficult technical matter arising out of the Fifth Schedule, but if this new Clause were substituted for Part IV there would be no Fifth Schedule, and so it would not he necessary to make so many changes.
I have been a Member of this Committee for a very long time, but I have not heard of a new Clause being moved as an alternative to a Part of a Bill already accepted by the Committee. Both the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) and the hon. Gentleman the Member for Stechford (Mr. Roy Jenkins), who moved the new Clause, have made it clear they do not want the Committee to agree to it, and that it is only an alternative to provisions the Committee has already agreed to. In those circumstances, ought we to waste any further time on the new Clause?
The right hon. and learned Gentleman, with his Amendments, has occupied more of the time of the Committee on this Bill than any other Member in any other part of the Committee, so I hope he will not begrudge us this little Clause, even at this late hour. The Economic Secretary has already admitted that it would be more potent than the whole of Part IV. As the right hon. and learned Gentleman has been a Member of this Committee for a very long time, he may have noticed that there has been a big change in the proceedings on the Finance Bill this year, and that is the Government's willingness to consider every new Clause moved, and so I am not without hope that the right hon. Gentleman, on being convinced of the value of this new Clause, will withdraw Part IV on Report and substitute this new Clause for it.
The Economic Secretary admitted that this new Clause would make a very big contribution, whether Part IV was in the Bill or not, to Commonwealth development. I was distressed to learn from certain noises by certain Members opposite inside and outside the Conservative Party that apparently they do not think a proposal to increase investment in the Commonwealth an extremely important thing. I was surprised that Commonwealth supporters—ex-supporters of the Commonwealth, I suppose they must be—should no longer be as concerned with Commonwealth trade as they were at one time.
As my hon. Friend the Member for Stechford (Mr. Roy Jenkins) said, we are aiming to do two things, to do everything that in the mind of the Government is reasonable, and which inspires Part IV. but also to give a very special discrimination in favour of investment in the Commonwealth. The right hon. Gentleman said we ought to avoid whenever we can discriminatory taxation, discriminatory tax concessions, and so on. There was the special case of shipping —a unique remedy for a unique case, as he quoted the Chancellor on that. Yet the whole of Part IV is based on the doctrine of discriminatory taxation. It says there are two taxpayers, one of whom earns money at home. and he shall pay a higher rate of tax, and another earning money abroad, and he shall pay a lower rate of tax. So discrimination is introduced as one of the basic policies of this Finance Bill.
I say there is an urgent need for more development in the Commonwealth. Of course, as the right hon. Gentleman said quite fairly, and as has been said many times on this side of the Committee, talk of investment, whether in the Commonwealth or elsewhere, is meaningless unless policy in this country makes it possible to create surpluses for investment. I should have thought that it did not need arguing that there ought to be more discrimination in favour of investment in the Commonwealth. Under this Government there has been a most dangerous tendency for the dollar sours, of supply to increase year by year.
It was the declared policy of the Labour Government to reduce dependence on the dollar area as a source of supply, and to increase dependence on Commonwealth sources. It was not only declared, but achieved. Between 1948 and 1952 imports from the sterling area into this country went up by 25 per cent., while imports from the dollar area were cut by 6 per cent. From 1953 to 1956, under the regime of hon. Members opposite, imports from the sterling area have fallen by 2 per cent., and imports from the dollar area have risen by 30 per cent. That is the result of deliberate policy. This week there was the announcement of a further liberalisation of imports from the dollar area.
This does seem to suggest to us an urgent need for a reversal of this policy. We want more capital investment in the Commonwealth encouraged. That is the purpose of this New Clause. As I have said outside this House—and I am sure hon. Members opposite, if they search their hearts, will agree—if this Government had pursued more trade with the Commonwealth with one-tenth of the energy put into the European Free Trade Area, our economic position could be very different. This new Clause is directly designed to that end. I am very disappointed that the Economic Secretary not only rejects it this year, but does not even say that he will ask the Chancellor to consider it for next year.