Clause 60. — (Double Taxation Relief, and Overseas Trade Corporations.)

Part of the debate – in the House of Commons at 12:00 am on 16 June 1965.

Alert me about debates like this

Photo of Bernard Braine Bernard Braine , Essex South East 12:00, 16 June 1965

The hon. Gentleman is correct in one respect. If one takes the global figures, the picture is nothing like as, encouraging as if one takes particular companies. There is a lot to be said for the view expressed by the hon. Member for Birkenhead. We ought to be taking time out to find out the facts. This is what I complain about in the Chancellor's proposals. He is acting with a lack of knowledge of the facts.

We know at least two things. A little earlier my hon. Friend the Member for Cheadle (Mr. Shepherd) quoted a figure. He said that 23 per cent. of American manufactured exports were purchased by the subsidiaries of American companies abroad. The Federation of British Industries carried out an investigation into this matter. It questioned 40 to 50 leading British companies and last month published its report which showed that there is in fact a close association between capital and goods in the case of many firms.

I do not want to detain the Committee for very much longer. I could quote from examples which I have, and I am willing to provide the details to the Chancellor. I am willing to provide examples showing how particular companies have increased their investment overseas, and how this has been followed by substantial exports.

I grant that it is difficult to be precise. I grant that the Chancellor's concessions in regard to the transitional relief will give more time to assess the matter, but I think that the arguments which the hon. Member for Birkenhead and the Chief Secretary have adduced to show how poor is the return on overseas investments in relation to domestic investment have been shown to be faulty.

I suppose that one of the best authorities on this subject is Professor John Dunning of Reading University. He has done more work on this subject than anybody else in the Kingdom, and during the last few days he has written this: In the period 1958–62 the private rates of return on home and overseas investment (i.e. profits less tax as a proportion of net assets) were about equal; both averaged out at slightly less than 8 per cent. On the other hand the average social rate of return on home investment (profits before tax as a proportion of net assets) was 13·8 per cent., and that on overseas investment the same as the private rate of return. The implication of this difference is that had the resources invested overseas by companies (other than those in oil and insurance) in the period 1958–62 been invested at home and similarly distributed as the existing capital stock, the community would he better off today by some £60 million per annum … Broadly that supports the kind of argument that was being adduced by the Chancellor, but Professor Dunning then says: … as they stand, these figures can give a misleading impression and can be variously interpreted. He then gives his reasons for saying that. I suspect that this is what the Chancellor did not take into account and I hope that he will be able to tell us whether I am wrong, and whether Professor Dunning is wrong. The reasons are as follows: First, the profits data recorded by U.K. companies at home are those obtained from the consolidated accounts of U.K. public companies, which themselves include the profits earned from overseas operations. … Secondly, the royalties and fees paid by foreign subsidiaries and associates for services rendered by investing companies are not included in the overseas earnings figures."— That is what I have been complaining about during this debate— When these are taken into account they reduce the differential between home and overseas social and private rates of return. … Thirdly, included in the domestic profits are the earnings of foreign-owned companies in this country. Fourthly, and working in the opposite direction to the three factors mentioned above, the profitability ratios of U.K. companies overseas take no account of the tax which has to be paid to the U.K. Exchequer on remitted profits equal to the differential between the U.K. rate of tax and the local foreign tax. Professor Dunning concludes by saying: The purpose of this article has been to show that the case for or against curbing foreign investment is not proven. That is the answer to the hon. Gentleman.