Clause 33. — (Increase of Investmeni Allowances.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 21st May 1963.

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Photo of Mr Hervey Rhodes Mr Hervey Rhodes , Ashton-under-Lyne 12:00 am, 21st May 1963

Many things have been said about discrimination in investment and I hope that the Economic Secretary will take the opportunity to clarify some of the points which have been made Some of the statements made today have been most interesting, because they have made it clear that it is impossible to pre-diet, that it is a bad thing to predict, whether an industry will be important to the economy in a few years' time.

This change has been going on throughout the industrial revolution. There have always been predictions, and the wisest and cleverest people of the day have been proved right in a few years as a result of their astuteness. During this century we have had the tremendous examples of Germany and Japan predicting what lay ahead. Germany predicted the change from one type of industry to another, and as a result made a powerful and sustained revival after being completely devastated. Germany changed from light to heavy industry. It is interesting to note that light industry, on which that country had been engaged, and from which it gained considerable experience, formed a high proportion of the world's trade at the beginning of the century, but since then there has been a steady change from light to heavy industry among the industrial nations of the world.

The question is asked: what made Japan decide to make transistors? We work on a different basis from Japan in the way in which we order our affairs. It is impossible to predict what they are going to do. The whole question is tied up with a national programme which is aiming more and more at getting a larger share in the industries which are expanding in world trade. They are not very interested in those industries in which they have a share of the world's trade, but which are not expanding.

The point that we are discussing this afternoon impinges to some extent on this question of discrimination and the planning of our industries. I should like to deal, first, with the importance of investment allowances, because the effectiveness of these allowances has been argued at great length by the financial pundits and others during the last year. The history of investment allowances is somewhat chequered. One might almost say that it is Exchequered, because it seems to fit into the stock remedies for improving the economic situation, together with relaxations of credit, Purchase Tax cuts, the lowering of hire-purchase deposits, and all the conventional army of Treasury devices.

My hon. Friend the Member for Glasgow, Craigton (Mr. Millan) outlined the history of investment allowances, and I need not go over it. What my hon. Friend sad proves conclusively that the Treasury regards investment allowances as an adjunct to the other facets of our monetary and fiscal policy. My opinion is that the advantages to be gained by industrialists are limited and should be considered by them and the Treasury in terms of what effect they have, first, on the use of less floor space to produce more, and, secondly, in industries where world trade is increasing, and in areas of chronic unemployment where extraordinary measures are necessary, what effect they have on improving the situation.

5.15 p.m.

Investment allowances on their own will not provoke expansion. Time and again we have been told by the Chancellor of the Exchequer, in first-class speeches both in the House and in the country, what we need to do. The Chancellor has been seeking to increase the confidence of businessmen in the economy. Different people put forward different arguments about how confidence can be restored. It is said that the directors of public companies can play their part by increasing dividends so that the Stock Exchange has a little more confidence that things will improve.

It is said that the Chancellor of the Exchequer, the Prime Minister, or somebody equally important, should draw attention to the Gallup poll to show that there is less risk of a Labour Government corning into office. It is said that the Chancellor of the day should be prepared to take risks with the balance of payments position. But all this has to happen before there is sufficient momentum in the economy to create the necessary confidence in the manufacturing industries to lead to increased investment in them.

If we are right in assuming that investment allowances are directed at manufacturing industry, as the Economic Secretary suggested when he belittled the argument of my hon. Friend the Member for Westhoughton (Mr. J. T. Price), we must remember that before there can be any improvement in the economy, manufacturing industries have to expand. When we think in terms of the 4 per cent. growth which has been suggested by N.E.D.C., we include a number of factors which do nothing to help the expansion of our economy. Such factors as education, health, and the building industry come into the picture. Con- fidence in the economy is usually highest at the peak of a boom period when manufacturers have the confidence to invest, but, as we saw in 1960–61, the investment very often takes place too late, and at too high a rate. That happened in the steel industry. Whatever explanation one may give for what went wrong, we know now that the investment in the steel industry during 1959, 1960, and 1961, was far too high.

If the boom is a big one, like that of 1960 and 1961, this over-investment can have extremely serious consequences later, because the manufacturer does not invest to get a better return for the floor space he is using, but uses it to cash in on the boom by manufacturing more of the product he is already producing.

There should be discrimination in favour of steadiness in the application of investment allowances. If there is not steadiness in application, how will the developers and the engineers make their proper contribution towards doing more on the same floor space? Unless we accept it as a principle that we must do more on the same floor space we shall not succeed in marching abreast of the times. Whatever comes afterwards—whether we have to make allowances for redundancy, or bring in programmes to deal with it—something will have to be done once the principle has been accepted that investment for growth really means doing more than was done before on the same floor space.

My hon. Friend the Member for Craigton was right in saying that much of the investment going into British industry in 1960 and 1961 never paid off in terms of profitability. If I were an investor and studied the markets in order to make my living out of Stock Exchange transactions I would avoid the type of firm which made bad investments in 1961, on whatever ground. The Economic Secretary would probably agree with me. Years have passed, but those firms are still saddled with the same sort of machines, bought from makers who were making them to the same pattern in the last boom. Unless we can get out of a continual pattern of boom and trough we shall never succeed in doing what we want to do, namely, to ensure a sustained growth that will carry British industry forward.

If we regard investment merely as shovelling capacity into the factories we are doing no more than the Georgians of the 1920s in digging holes, as my hon. Friend the Member for Ashfield (Mr. Warbey) said, or the Brazilians in burning coffee—simply making way for another type of machine. What we need is a planned idea, with more inquiries being made, and a steady determination to do something about trends. I hope that the Economic Secretary will explain what he meant about the impossibility of predicting. The great weakness of our economy is the lack of consistency in our investment in manufacturing industries. We must review the question of capital allowances, investment allowances, and the like. This is all tied up with the necessity to have courage in predicting what lines our economy will take.

I want to refer to what has already been said about the impossibility of predicting. The hon. Member for Barry (Mr. Gower) asked how it was that the Italian industry could predict in such a way that it is now the biggest exporter of boots and shoes. My answer is that the Italians knew when they started on this process, just as Lord Marks knew that he would be able to sell in the way that he is now doing. Unless we get down to the problem of the future programming of our industries, using the sort of discrimination mentioned by my hon. Friend the Member for Ashfield, we shall never succeed in our endeavours. We must be able to estimate the trends in industry so that we can ally our industries to movements in world commodities, and can cut down production of those manufactures which are either declining or which could be produced better by under-developed countries.

Japan has already decided that in respect of those manufactures of which she has a large share of world trade, but where the demand for those manufactures is declining, investment shall be discouraged.