We have had an extremely interesting debate, both on the Amendment and on the Question, "That the Clause stand part of the Bill." It has included a rather personal interpretation of Labour Party policy towards industry from one of my hon. Friends and an exceptionally polemical party speech from the Economic Secretary. I hope that when he replies to this debate he will be rather more constructive than when he spoke before.
I do not know if the hon. Gentleman reads the advertisements published by his party in the newspapers. If he does, he will have observed that the policy of the party opposite is to take "a cool, clear look" at matters. I hope that he will take a cool, clear look at the whole question of investment allowances. I hope that he will not make such heavy weather of the question as he did on the subject of discrimination when he spoke earlier.
It seems that the key to the matter was expressed very clearly by my hon. Friend the Member for Glasgow, Craigton (Mr. Millan), who pointed out that in their very essence investment allowances must be discriminatory. They are not a tax remission which uniformly aids the profits of all firms and industries. Firms benefit solely to the extent that they spend money on investment. If one can imagine a firm spending nothing on investment that firm would gain nothing whatever. Over the years the present Conservative Government have operated a number of different rates of investment allowances and have discriminated, apparently with no difficulty or danger to their consciences, between plant and machinery on the one hand as opposed to industrial buildings on the other, and special rates for ships, for research and so on.
The principle of discrimination has been embodied in these allowances from the start. Quite apart from that, on the more general point the Economic Secretary cannot be allowed to put over the over-simplified line that any discrimination is a matter for arbitrary decision by Governments even if it is of a kind which can never be acceptable.
The fact is that in these days even a Conservative Government are so heavily involved with industry that they are bound to discriminate the whole of the time in their taxation policy, in their policy for subsidies, in hire-purchase controls and over the whole range of Purchase Tax. The Government are involved in discrimination between different industries, whatever we may say about investment allowances. One can say, further, that under this Government parts of their financial policy have involved not merely discrimination by the Government themselves between different industries but a deliberate attempt to make outside bodies discriminate between different industries.
For example, when the Capital Issues Committee existed it was instructed by the Government to give, or not to give, loans according to the national importance of different industries and according to how much they contributed to the balance of payments. In the days when Chancellors of the Exchequer used to exchange friendly letters with the chairmen of the banks asking for bank restraint, it was common for Conservative Chancellors to ask the bank chairmen to discriminate, in making advances, according to the national importance of an industry. This principle of discrimination has therefore long been accepted even by Conservative Chancellors of the Exchequer, and the Economic Secretary made unnecessarily heavy weather of it this afternoon.
This is apart from the fact quoted by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) that N.E.D.C. has recently accepted the possibility of new kinds of differentiation and has drawn attention to the fact that both the first Tucker Committee and the Radcliffe Commission approved the principle of discriminating between industries.
This is the only occasion each year on which we can look at the principle of investment allowances, and I therefore think it reasonable to ask one or two questions. I should be grateful if the Economic Secretary would reply to them. One question which we on this side of the Committee have to ask is whether from our point of view investment allowances are an equitable form of tax remission. As my hon. Friend the Member for Craigton pointed out, however we describe them—whether we talk about them as a subsidy to profits, which I do not think is an accurate description, or, more accurately, as a subsidy to investment—the fact is that the investment allowance by itself, or an increase in it such as we are considering under the Clause, means a reduction in the total amount of taxation which is being paid by industry.
There might be conditions in which we on this side of the Committee would be inclined to say that there was no case for reducing the total burden of taxation on profits. But I do not think that we should consider that a sufficient argument in principle against the investment allowances. We could quite easily correct that situation by increasing Profits Tax at the same time as we increased the investment allowances. It would be possible to maintain the total yield of corporate taxation at exactly the same level as before by increasing the investment allowances and at the same time increasing the Profits Tax, thus redistributing the burden of taxation between firms which were investing heavily and firms which were investing lightly. In that way we could dispose of the argument that there is always a danger of too much remission of corporate taxation.
The next question on which I hope the Economic Secretary will comment is how effective these allowances are for their declared purpose of stimulating investment. None of us can possibly know in detail. This is not the sort of thing we can ever calculate. One cannot isolate the effect of these allowances from all other considerations which determine investment decisions. It would be interesting to know whether the Government have a view about this. They have to make precise calculations as to the cost of the increased allowances, and it would be interesting to know their view on the effectiveness of these allowances.
For example, do they share the view often put forward that they influence the decisions of small businesses but have very little influence on the decisions of large businesses? Certainly in theory they should be an extremely powerful stimulus to investment. Twice at any rate over the last 10 years, both in 1954 and in 1959, either the institution of the allowances or, in the second case, their restitution preceded a very considerable investment boom. But would be interesting to have the Treasury view on the question of how effective they are.
The next question which it seems to me we must ask, and which my hon. Friend the Member for Craigton asked, is this: supposing they are effective, do we need as a permanent feature of our taxation system this almost artificial stimulus to investment? Here I should like to quote the Second Report of the National Economic Development Council. It is a good thing to quote this Report to the Economic Secretary because it may encourage him to reread it. That is a good thing if it encourages him to read the reference to the wealth tax which shows that N.E.D.C. has come out more strongly in favour of it than has my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan). I always like to encourage the Economic Secretary to go back to N.E.D.C. Report No. 2.
In paragraph 171 the Report refers to the question whether investment allowances are needed permanently. The Council says:
It is an open question whether special encouragements to investment are needed permanently as a long-term means of sustaining growth…".
I think that that is right, and I think that my hon. Friend the Member for Craigton will also agree that it is right. Let us suppose that we can jerk investment up to the proportion of the national income which seems to be right, and suppose that we can run the economy fairly hard and continuously and in a fairly stable way afterwards it would seem to me to be peculiar that we should need this special additional stimulus to investment. I think that we could then revert to the more normal situation in which people could write off 100 per cent. of the value of the plant but not write off 130 per cent, as they will be able to do under the Clause.
But, despite what we expect would be the long-run position, investment has been allowed to fall so far in recent
months that we need this increase in the allowances in order to jerk it back to the level which most of us would like to see. Nevertheless, from this point of view the Economic Secretary must answer the question: why was this decision delayed until November and not taken in the last Budget? After all, we knew at the time of the last Budget —many of us, including myself, mentioned it in our speeches on the last Budget—that private investment was about to fall. May I quote paragraph 32 of the Economic Report for this year? It reminds us, quite rightly, that a
survey of firms' intentions at the end of 1961 suggested that there might be little change in investment by manufacturing industry between 1961 as a whole and 1962 as a whole.
It added that
since manufacturing investment was rising during most of 1961, this forecast already implied"—
at the end of 1961—
some decline in investment between the beginning and end of 1962.
In this situation, why did the Chancellor's predecessor not take this action then instead of waiting until November? It seems to me an example of extraordinarily inept timing. In view of the point about timing, I think that we all agree that we now need these increased allowances in order to get investment to the level which we want to see.