The argument about historic cost is a hoary old argument which we used to have on the Finance Bill year after year. It takes about half the second Report of the Royal Commission on Taxation. I think that I shall be out of order if I discuss historic costs on the question of investment allowances. It is relevant, perhaps, to the next two Clauses.
The hon. Member asked about firms which are subject to fashion changes. This does not seem to me to be a reason for a permanent need of these provisions. I am not talking about this year or next year, but it does not seem to me to be a reason why they should permanently be able to depreciate more than 100 per cent. of their equipment. Under the new suggestions in the next two Clauses our depreciation allowances are extremely generous by international standards, and it is not quite clear why as a permanent feature of our economy people should be able to write off more than 100 per cent. of what they have spent on their plant.
The last point which I want to make takes up an issue raised earlier from this side of the Committee. I hope that the Government do not regard these allowances as a kind of regulator, because they cannot possibly be a method of correcting fluctuations in investment or in the economy as a whole. They are much too uncertain for that. We do not know precisely what their exact effect will be. None of us can tell precisely. All sorts of other considerations are involved. But, even if they were not so unpredictable in their effect, there must be a time lag between announcing that investment allowances will be raised or lowered and actual investment spending on plant, equipment and buildings.
It seems to me quite wrong to suppose that we can use investment allowances as a kind of regulator to control fluctuations in the economy. Their real function should be to get investment as a permanent, long-term thing, at the sort of level we want. The allowances should ensure that investment stays at that level as a proportion of the national income to the point which the Government think right.
The last N.E.D.C. Report makes an extremely powerful point and pleads for far fewer changes in the allowances and much greater security. After all, we have had changes in 1954, 1956, 1959 and now in 1963—and this is far too often. The N.E.D.C. Report states in paragraph 17:
With frequent variations they"—
that is, the allowances—
lose much of their effect because a business planning its investment cannot be sure what
allowances will be in force when the expenditure is incurred".
It is absolutely essential that we should get a greater degree of security in the future for these allowances than we have had in the past.
My hon. Friends and I are certainly not opposed to the Clause. We believe that the Chancellor was right to do this in November, although we should have done it earlier—perhaps in the last Budget. Since it was not done, however, he was right to take the step, and most of my hon. Friends think that it represents a desirable method of stimulating investment, although we do not necessarily want it for the rest of time as a permanent feature of our taxation system.