I am well aware of the activities of the "Stop-go Peer", but few people will give very great praise to either the antics of Lord Hailsham in trying to inaugurate a regional policy or to the consequences of that policy, especially compared with the concrete and identifiable results achieved under the conscious development area assistance policies practised in recent years under Labour in the North-West, Wales, the North-East, Scotland and elsewhere. If the hon. Gentleman really believes that Tory policies have been successful, he cannot base that belief on recent election results.

The T.U.C.'s 1971 Economic Review contains a lengthy section on investment policies. The Congress reckons that the £100 million differential that existed under Labour between the depressed and prosperous areas will be replaced through the investment allowance system to provide a differential of about £75 million in aid to Development Areas. In practice, the estimate of £75 million is likely to be a maximum figure, since it must be based on optimistic profitability estimates. Profitability of enterprise in Development Areas is likely to be less initially than the national average, particularly for new firms. At worst—I am not supposing that this will happen—the differential could be nil, for if the Government base the differential mainly on the creation of profit, it is conceivable, especially in the current economic climate, that few firms in the regions will be able to make the sort of profits that will qualify them for the incentive allowances which the Government are proposing.

The closing of this margin between the prosperous and depressed regions could mean the throttling of economies like Wales and Scotland, which are dependent to a large extent on the injection of discriminatory assistance. It could put Wales and the other development areas out of the current technological revolution, and that would be a disaster not only for the workers and businessmen of Wales but for the British economy, for a dead Wales or a stagnating Scotland would be a direct encumbrance on the already over-congested other regions.

Not only will the change in the system of assistance to the regions bring a reduction of investment in the regions, it will have a disincentive effect on investment generally, something which those even outside the regions should note. The T.U.C. reckon—and I have no reason to doubt its estimate—that by 1974–75 the incentive to investment will be reduced by £150 million nationally, and to anybody who has studied any sort of economics the reasons for this will be obvious. Karl Marx was probably the first to put his finger on it, and certainly John Maynard Keynes did so when, in his general theory, he said that in a mature economy the lack of opportunity for fresh investment meant a lowering of the propensity to invest.

There is, therefore, a great argument in favour of giving major investment assistance in a mature economy—as much, if not more so, in a mature than in an under-devesloped economy. By neglecting this truth, the Tories have shown themselves prepared to do a back-dive, way back to the days before Keynes influenced economic thinking throughout the world.

For new and expanding industries in the regions, the gearing of incentives directly to profit levels will be a positive disincentive to development. Already they are asking why and how they should develop. The removal of Government assistance with cash will have dire consequences for many firms in these areas. In an economy which is already under-invested, which is not sufficiently capital intensive and which has over the years shown itself to lag behind its major industrial competitors in capital investment terms, it is clear that the Bill will have a major disincentive effect on capital intensive firms to invest.

I have heard hon. Gentlemen opposide declare that they intend to provide labour-intensive industry in the regions. As the representative of a South Wales Constituency with one in ten men unemployed, I would welcome labour-intensive industry in my area. If anyone can draw my attention to a thriving, modern, high technology industry which can offer guarantees of security for the future and which is labour-intensive, we should be glad to have it. But everyone knows that no such industry exists. The future belongs to capital-intensive industry. There is no reason why Wales or the other regions—but for some peculiar quirk of Tory philosophy—should be denied capital-intensive industry. But under the Bill, denied they will be, because there is a disincentive.

Turning from the general principles, a very illuminating document has been published by the economic panel of the Welsh Council, entitled "Investment Incentives". At the earliest possible date, recognising the difficulties that this new scheme will present to Wales, the Welsh Council produced a worthy document, for which I applaud it on the subject of the changeover from investment grants to investment allowances.

This is an interesting description of what the change will mean. It is a practical document, and I quote from it. The panel says this: The value of the new incentives depends on the circumstances of the individual firm. We should not be surprised that it depends upon the fortunate circumstances of an individual firm whether it will benefit under the Bill. It will not be the first time in the history of British regional economic policy that we have been prepared to award assistance only to firms which are completely redoubtable, so safe, secure and assured of a future that they do not need the money which the Government are prepared to offer in one form or another. But what one wonders at is the fact that the Government are now prepared to return to the system where they are to award money only to the safest possible firms. That is like confining discretionary building grants to Buckingham Palace and the Hilton Hotel. In our regional development, there is no point in confining assistance to industries which do not need it.

I come to matters of detail. The Welsh Council considered the position of different firms. The report says that a firm with … a profit-making base against which reliefs can be set, and the differential advantage to a firm deciding to locate a unit within a development area as opposed to outside a development area can be materially improved if there is a large element of building expenditure. That is a very substantial "if". Again, … in the case of a subsidiary of an overseas group, the fact that profitability within two years from the commencement of a project … focuses attention on the rent-free period and the new increased rates of building grants. "Focuses attention" in the same way, I suppose, as Dr. Johnson tells us that death concentrates the mind. The change- over from investment grants to investment allowances, I suppose, in the same way focuses attention of the firm on its position. A company moving to a development area and transferring plant and machinery will have a higher ratio of new investment in buildings and will benefit from the increase in the rate of building grant. But this applies only to firms transferring plant and machinery. We are very glad to have them.

Two matters arise. First, how many firms transfer their plant and machinery? Second, in an economy renowned throughout the world for harbouring ancient machinery, is it really a laudable comment on the nature and conduct of our economic affairs to say that here is a Government positively encouraging the retention of out-of-date machinery by its regional policies? Another interesting point—because it is native, home-grown development that people in Wales and Scotland want; firms which put down roots—is that the panel goes on to say: A new firm commencing production in a development area is likely to have a lower capacity to borrow and a reduced cash flow in the earlier years. The home-grown firms will, during the period of this Administration and under this Bill, become almost a thing of the past. The document goes on to several different kinds of firms, but of each one the best it can say about the Government's policies is that their effect will be of dubious value to the Welsh economy, with which the report is concerned, and the worse it can say is that they will be of absolutely no value. In many ways, the findings coincide with those of the O.E.C.D. report on inflation published in December, a report which asks for more assistance for the regions, as a deflationary measure if nothing else, and a report which the Government have completely ignored.

More than ever before, under any kind of regional development policy, it appears that the regions are depending to a greater extent upon the buoyancy, the affluence and the security of the whole national economy. We can draw no comfort from that, because a Government who have presided over an increase in unemployment to 814,000 can hardly qualify for the title of "Growth Men of the Year"; neither can a Government who acknowledge that we have a liquidity crisis throughout the whole business economy enjoy any confidence in the regions when they produce legislation which will mean less cash available for regional development. The Government's cafeteria economics—the Budget, the hit-or-miss reflationary measures, cuts in corporation tax and income tax—will be a total failure as a method of shaking out industry and bring job security to the regions.

In the main, cuts in corporation tax and S.E.T. will be a little cash bounty that firms expected to pay but will not have to pay. The seed corn will be gobbled up either in the form of rising prices or by being distributed in the form of extra dividends—which I suspect will happen—neither of which will be any good to the regions.

In his opening remarks, the Minister talked about the balance being one of Exchequer loss and corporate gain. Yet again, as another piece of legislation comes before the House, we see an even more insidious reward being paid to the people who financed the Tory assault on power last June. They can simultaneously fulfil their so called promises, to cut taxation and public expenditure, but for the big boys, the firms which make large profits and those who dictate economic movement in our economy, there is an under-the-counter return in the form of tax reductions. This is not only an insidious policy; in economic terms, it is ridiculous. Sooner or later, the Government will have to revert to the policy which we followed before.