Clause 35. — (Rates of Annual Allow Ances for Machinery and Plant.)

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 Anthony Barber Mr Anthony Barber , Doncaster 12:00 am, 21st May 1963

The issue raised by this Amendment is one of considerable importance. I shall not concern myself, any more than my hon. Friends have done, with the actual words, but rather with the object of the Amendment and the method referred to in it.

To reach a conclusion on a matter of this kind a number of factors have to be considered. We have to consider the principles which govern the encouragement of United Kingdom exports, the practice of other countries, our international obligations to which the mover of the Amendment referred, the views of British industry and also the equity of the proposals.

The proposals in this Amendment, put quite simply, is to give traders a special Income Tax and Profits Tax relief by reference to their overseas sales. Its avowed object, as my hon. Friend said, is to provide a fiscal incentive to export. That incentive would consist in doubling the amount of the annual allowances due for any year under Clause 35 in so far as the allowances were attributable to overseas sales on a turnover basis.

As I understood it, my hon. Friend's suggestion involves no more than advancing allowances which would, in any event, become due at some time, and for this reason he thought that it was unobjectionable. But one must face up to the fact that the whole object of the Amendment is to provide an incentive to export by means of improving the taxation position of traders to an extent which would be determined by reference to exports.

I will come back to this point, but I want to deal carefully with what my hon. Friend said to the effect that the method which he was suggesting was not objectionable from the point of view of our international obligations: Many times in the past we have considered the possibility of some change in the system of direct taxation with the object of providing additional incentives to export. In 1960, we considered partial relief from Profits Tax in relation to export turnover, and last year we considered the possibility of allowing traders a reduction from their Income Tax and Profits Tax of 1 per cent. of their export turnover. In both those cases, the Committee decided that it did not approve of the suggestions which had been put forward.

What of this new, and, if I may say so, ingenious idea put forward by a group of my hon. Friends? There are a number of aspects to consider. First, let me deal with the question of our international obligations which we have freely entered into with other countries. Under the G.A.T.T., certain practices are banned, including those banned under the O.E.E.C. Agreement of January, 1955. These included The remission calculated in relation to ex ports of direct taxes or social welfare charges on industrial or commercial enterprises. I have the exact words in front of me which appear in the Stockholm Convention, but I think that the Committee will take it from me that the words are somewhat similar to those referred to in the G.A.T.T. and I will not trouble the Committee with the details.

The whole question arises whether this is a remission of direct taxation, the words used in the G.A.T.T., and also in the Stockholm Convention, or whether it is, in the words of my hon. Friend, merely an anticipation or an acceleration of allowances. But as I have said, one cannot avoid the fact that this Amendment is concerned solely with direct taxation. Its purpose is to aid the export of United Kingdom goods and it provides a tax advantage. It certainly runs counter to the whole approach of the Government in this matter in the international discussions which we have had in recent years.

7.0 p.m.

The policy of Her Majesty's Government has been not to encourage any export subsidies or other artificial incentive, but to work for the elimination of such practices so far as we have found them in force in other countries. I think that all hon. Members will agree that we have pursued that policy with considerable success. Of our main European competitors, Western Germany allowed its export promotion laws to lapse at the end of 1955, and since then it has had no export tax incentive scheme. In France, the scheme for subsidies on exports was brought to an end in 1958.

There remains in France a provision which is somewhat similar to that proposed by my hon. Friend. This was referred to in a debate last year by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). He referred to it as an arrangement…which, in our view, would not come within the rules in relation to depreciation …".—[OFFICIAL REPORT, 30th May, 1962; Vol 660, c. 1505.] The French arrangement is ore by which traders who export more than 20 per cent, of their output have a better rate of depreciation for their plant and machinery. In addition to the ordinary rate, they receive a further annual allowance equal to 1½ times the normal rate multiplied by the fraction of export turnover: total turnover. But this extra allowance applies only where the straight line method of depreciation is in force, and it will disappear after 1964, when the reducing balance method of computing capital allowances will become obligatory.