Investment Incentives and Industrial Reorganisation Corporation

Part of the debate – in the House of Commons at 12:00 am on 15 February 1966.

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Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale 12:00, 15 February 1966

That is an extraordinary statement coming from the right hon. Member, from a Government who have increased taxation on companies. This is incredible. What we are concerned with here—as the First Secretary purported to say in his opening speech—is the question of investment incentives. The incentive to invest which the right hon. Gentleman is trying to provide is a financial one. However, the blunt fact is that if one considers what happens in terms of hard cash, the financial incentive is less than it was under the system which the Government inherited.

I will go on from there. Consider, for example, those industries where the investment allowance is withdrawn but where, in their wisdom, right hon. Gentlemen opposite have not even seen fit to substitute an investment grant. This is of immense importance to the development districts. Consider, for example, the construction industries. In 1964, those industries spent £55 million on plant and £40 million on vehicles. It is obvious that the size of the capital allowances for these industries is of crucial importance, and, certainly, hitherto the First Secretary has recognised the importance of a high level of investment in those industries.

In this connection, I will quote two passages from the First Secretary's National Plan and then explain what the right hon. Gentleman is now proposing. The National Plan stated: It is clear that it will not be easy for the construction industries to meet the rise in demand expected up to 1970. Success in rising output will depend upon the continuing rise in productivity… The National Plan also stated: Greater productivity— in the construction industries— requires greater investment in plant, machinery and buildings". I will tell the First Secretary what he is doing. I again take the example of £1,000. For every £1,000 spent—for example, on a builders' crane or similar plant—in 1964, the cash benefit of the allowances then in force amounted to £296. Under the right hon. Gentleman's proposals the cash benefit will fall to £180, a cut of £116, for every £1,000 of investment. Is that what the right hon. Gentleman has set out to achieve? It should be realised that for the construction industries there is no extra tax benefit whatever in the development areas.

We are told in the opening paragraph of the White Paper that one of the purposes of the change is to strengthen the balance of payments. So let me quote another paragraph from the National Plan: Improvements in transport will be important factors in achieving greater industrial efficiency, increasing exports and improving the balance of payments in other ways". What is the right hon. Gentleman now proposing? If the proposals in this White Paper are implemented, the actual cash benefit in the first year of purchase of a goods vehicle costing £2,000 will be £259 less than in 1964—and, here again, I repeat that in each succeeding year the cash benefit will be less than it would have been under the old system.

Can anyone seriously pretend that this extra burden on the transport industry will not, in due course, be passed on in the form of higher charges and higher prices—and, of course, this is bound ultimately to have an effect, perhaps only marginally, on our export prices? Even in the case of buses, precisely the same policy is proposed. For example, the first year cash benefit on a double decker bus—which, I am told, costs about £6,500)—which was £2,271 in 1964 will now be cut to £1,430. Where now are all those heartrending pleas we used to hear from hon. Gentlemen opposite for a better deal for the travelling public in the rural areas? And what of the repeated requests which were made by the hon. Gentlemen opposite, supported in the Lobbies in our debates on Finance Bills, for special taxation incentives in the development districts for the distributive trades, service industries and hotels? Year after year we had it. Year after year hon. Members opposite voted in favour of those things.

I looked up the last debate we had on the Finance Bill of 1964 and I felt that the argument was put most succinctly and persuasively by the hon. Member for Glasgow, Craigton (Mr. Millan), now a member of the Government. He said: There was a time when the Government poured scorn on any suggestion from this side of the Committee that, when one considered the dispersal of employment and the imbalance of employment opportunities in different parts of the country, office development was extremely important—in some ways just as important as industrial development. It is certainly becoming increasingly important as a higher percentage of the employed population become employed, not in production but in distribution and commerce."—[OFFICIAL REPORT, 10th June, 1964; Vol. 696, c. 517.] The hon. Gentleman must now be disillusioned, because not only have the Government not extended the capital allowances to shops, offices and hotels in the development districts—for which the Labour Party repeatedly voted when in oposition—but are now actually proposing in this White Paper to withdraw both investment allowances and free depreciation from all development districts in respect of hotel equipment, despite the fact that, as the right hon. Gentleman will admit, the tourist industry is one of our biggest dollar earners.

The Government are proposing to withdraw the same allowances in development districts from all office equipment except computers, and from all the equipment in shops which previously qualified. If the purpose of the Government is to encourage investment, to increase productivity and so save manpower, which, I thought, was the burden of the right hon. Gentleman's opening remarks, does he not realise that to save manpower in a service industry and make it available to productive industry is just as laudable as to save manpower in productive industry itself?

My fifth and final point on the first White Paper is the implication for regional development. I do not believe that there is any difference between the two sides of the House as to the objectives. The object of my right hon. and hon. Friends was clearly stated by my right hon. Friend the Leader of the Opposition last year, when he said: Our philosophy can be described in the three purposes we set ourselves: first, to develop the resources of a region while maintaining its own characteristics; second, to secure a more even spread of the economy over the whole country in order to enable it to operate at a higher level without strain in any particular area; third, to create a way of life appropriate to each region so that those born there would prefer to work and live there rather than emigrate, and others would be prepared to go there with their families, build up their businesses, and spend their lives there. I do not suppose that the First Secretary or anyone else would now quarrel with those aims. The differences between us concern the best methods.

My right hon. Friends here developed the concept of growth points or growth areas. As far as we can see, this concept has now been abandoned by the Government. The right hon. Gentleman did not say so in terms, but it seems to be the consequence of what the Government are doing. The Times certainly commented very adversely on these proposals, pointing out: Once again, the crutch is to be substituted for the encouraging hand. I have no doubt that in due course—I hope—we shall have a full debate on regional development, so I shall now content myself with saying only this. Whatever may be the merits of the extension from development districts to development areas, it is the fact that the discriminatory incentive to industry to move to development districts has been reduced. On top of that, the Government have decided to abandon in development districts both investment allowances and free depreciation, and have also decided not to provide even investment grants for a whole variety of service industries. Those two decisions, taken together, must hit the development districts.

If I deal more shortly with the White Paper proposing an Industrial Reorganisation Corporation than I have the first White Paper, I do so for two reasons: first, because there is not in this White Paper the detail which is set out in the other; and, secondly, because it is in much more general terms—and from the speech we have had from the right hon. Gentleman this afternoon we have certainly learnt little more about the proposals the Government have in mind. But there are seven facts about this proposed new Government venture into industry which we do know, and I should like very briefly to remind the House what they are. If the First Secretary does not agree, I hope that he will intervene.

First, the nation is to provide this new State Corporation with £150 million— £10 for every family in the land—and it is specifically stated that this is only the first tranche. Power is to be taken to invest more money when the £150 million has been used up. Is that correct? This is what is stated in the White Paper.

The second known fact is that the new State Corporation will be able to invest Exchequer money at will in any existing industrial company in Britain.

Third, the new Corporation will have power to set up businesses to undertake new projects.

Fourth, if the new State Corporation is involved with existing companies in a merger then, unlike every other manufacturing enterprise in the country, the merger will have total exemption from any investigation by the Monopolies Commission.

Fifth, although the White Paper refers to the new Corporation as being able to acquire a stake in the ownership of industry and there is to be power to take up equity holdings, the First Secretary admitted in the House on 25th January, first, that power will be taken to acquire majority equity holdings in businesses either existing or new and, second, that there will be nothing to prevent the Corporation from retaining that majority shareholding.

Sixth, although this proposal is of the utmost significance to British industry, the First Secretary never saw fit to consult the Confederation of British Industry. I was astonished that three times during his remarks this afternoon on the new Corporation the right hon. Gentleman had the audacity to refer to what was said by the Director-General of the C.B.I. Has he not even taken the trouble to find out what the Confederation thinks about this? Does he never read the newspapers? If not, I will remind him.

Last Thursday, The Times, in an article under "Industrial Notes", said: Reorganisation Body Upsets C.B.I.Time has only served to accentuate the Confederation of British Industry's misgivings about the proposed Industrial Reorganisation Corporation since the Government's intentions were disclosed in a White Paper last month. Had the C.B.I. been permitted an advance sight of the scheme representations against it would certainly have been made before publication. The article goes on: The confederation's economic committee is now preparing a strong case against the I.R.C. idea. Perhaps the right hon. Gentleman will now tell us why he chose on three occasions to quote what had been said by the Director-General of the C.B.I. in favour of this particular scheme. Perhaps he will tell us that. Was he trying to give the impression that the Confederation was in favour of it, or was he not?