Capital Allowances

New Clause 9 – in the House of Commons at 7:45 pm on 15th July 1991.

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'In section 24 of the Capital Allowances Act 1990, for subsections (2)(a)(i) and (ii) there is substituted "33⅓ per cent. of the qualifying expenditure per annum.".'.—[Mr. David Shaw.]

Brought up, and read the First time.

Photo of Mr David Shaw Mr David Shaw , Dover

I beg to move, That the clause be read a Second time.—[Interruption.]

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Hon. Members who are leaving the Chamber should do so quietly so that the hon. Member can be heard.

Photo of Mr David Shaw Mr David Shaw , Dover

I thank you, Madam Deputy Speaker, and the hon. Member for Ashfield (Mr. Haynes) who has assisted in quietening the Chamber.

New clause 9 would change the rate of corporation tax allowance from a current writing down allowance of 25 per cent. on a reducing balance to a one third per annum allowance on a straight line basis. That would mean that all fixed assets purchased by business would be written off over a three-year period instead of the current arrangement whereby the writing down allowance goes on virtually for ever if the asset remains in the business.

The proposal would help in particular the shipping industry, which was the subject of another amendment, manufacturing industry, farming and small businesses, all of which in one way or another depend on purchasing capital items. As the proposal is worded, it would not be a subsidy to investment. The old allowance of 100 per cent. in the first year was recognised as a subsidy for certain types of investment, although in the case of shipping there was a strong argument that it would not be a subsidy. Certainly, a one third per annum allowance would not be a subsidy for investment.

The new clause is necessary because it would be an incentive to invest in the United Kingdom. We have a problem, because although we are competitive internationally in the rate of corporation tax, we are no longer competitive in the writing down allowances that are given for investment in British industry. The basis on which I rely for that statement is a research paper produced by the Federal Reserve bank of New York. It completed a considerable piece of work on comparisons between the United Kingdom, Japan, Germany and the United States of America. We were immensely competitive in capital allowances until the changes in the mid-1980s. Since then we have become less competitive. It is necessary to restore that position.

One may be tempted to ask why we are uncompetitive in capital allowances. It is because of a ridiculous attitude in the Inland Revenue that goes back some years. I spent some time as an auditor in the 1970s trying to understand this. It is a strange attitude. In the United States of America the capital allowance regime works on the principle that, whatever the company decides should be its accounting depreciation rate, the Internal Revenue Service will go along with it. In some companies that means that the tax allowances are up front nearer to the time when the investment is made, and in other companies they are deferred. Industry has the option of determining its own allowances according to the conditions within the business. Any company in this country would probably enjoy that sort of tax regime and the Government should consider it, because it fits in with the free market philosophy. If a company is writing off its investments at a certain rate, surely the tax system should also accept that rate.

Photo of Mr Richard Page Mr Richard Page , South West Hertfordshire 8:15 pm, 15th July 1991

My hon. Friend's remarks are extremely interesting, but I have been concerned for some years about a particular point. The Government, rightly, reduced corporation tax on the argument that that would give more money to industry to invest as it thought fit. At the same time, we have the lowest percentage of investment in manufacturing industry among the G7 countries. We vie with the United States of America for the lowest figures and we are considerably behind Japan, Germany and France. How can we overcome that without some form of direct tax incentive to make sure that people invest?

Photo of Mr David Shaw Mr David Shaw , Dover

I agree with my hon. Friend and he makes a strong point. International comparisons for investment are not favourable, although they are favourable for the corporation tax rate. It is certainly necessary, when we consider that the United Kingdom has been going through a recession and is, I hope, in the first stages of coming out of it, to look at how we can encourage businesses to invest, not only to bring us out of the recession more quickly, but, funnily enough, to prevent inflation from recurring. If we do not invest, we will not have additional capacity. If there is a shortage of capacity, inflation will return. It is necessary, in coming out of a recession, especially one induced to prevent inflation, to encourage more investment. There are several reasons why it is appropriate to change the capital allowances rate. My argument is that a one third, one third, one third principle would be a highly desirable change.

One must also consider the cash-flow cost of investment, which is incurred on day one. The current tax regime defers tax allowances for that investment over many years. It goes too far into the future to act as an incentive for the industries that need to be helped.

My proposal would cost nothing in terms of tax revenue. Ultimately the tax would be repayable to the Treasury. The only cost to the Treasury would be that of tax deferral as a certain amount of tax would be deferred into the future. There are various estimates of how much that interest cost will be. For the shipping industry the estimate is thought to be only about £30 million or £40 million if there were 100 per cent. allowances in year one.

Photo of Dr John Marek Dr John Marek , Wrexham

The hon. Gentleman must remember that some years ago his Administration reduced the rate of corporation tax and that as a quid pro quo there was a much more stringent policy on capital allowances. Does he believe that that policy was wrong? If not, how much revenue would be forgone by the Treasury as a result of his proposal, for which I have some sympathy? One cannot consider the proposal in isolation.

Photo of Mr David Shaw Mr David Shaw , Dover

I can assure the hon. Gentleman that I have never believed that the Government's changes to capital allowances and the corporation tax rate were wrong in principle, but, having had time to study how capital allowances are operating relative to the corporation tax rate, I think that the change, although right in principle, went too far in practice. We need a straight line basis for writing off capital allowances. That is what my proposal would achieve.

As I understand it, the proposal would cost nothing. I am not proposing that industry should be given any tax subsidies; nor am I proposing any hand-outs for industry. I am proposing a deferral of the tax being collected on the basis that in any case British industry must pay 100 per cent. of the cost of the investment up front.

British industry is already paying out in terms of the effect on its cash flow. I ask the Government to help British industry to overcome its investment problems by accepting that it should have a deferral on its cash flow receipts. At the moment, British industry has a cash flow problem when it invests because it must pay that money up front.

I should like to draw attention to the way in which the new clause would help shipping—the subject of another new clause that was not selected. If the Government are averse, as suggested in Committee, to 100 per cent. capital allowances for shipping, they should seriously consider the benefits that would accrue from my new clause by accepting a one third, one third, one third write-off for tax allowances on British shipping. Although the new clause would apply to all British industry, it would provide a significant benefit for British shipping.

The Government have been through two wars—the Falklands and the Gulf. It should be apparent to everyone that the defence needs of our country are greatly assisted by the merchant fleet and the many people who serve in it who are prepared to support our Navy in one form or another. It is apparent that we must maintain a considerable defence requirement. It has been suggested that that should be achieved through a private subsidy to assist the maintenance of certain types of ships. I do not believe that that would be sensible, as it would encourage the shipping industry to invest in a particular type of ship which is solely suited to military purposes or has a heavy bias towards military purposes. It would be more appropriate to have a tax allowance to ensure that for most of the time we could use normal merchant ships, which could be adapted for defence needs.

Shipping also contributes some £5 billion per annum to our balance of payments. It is a highly successful business, although in recent years the British merchant marine fleet has been forced to contract. That has been caused by factors that are often beyond Government control, such as the UNCTAD—the United Nations conference on trade and development—code. That code means that our shipping must compete with foreign shipping lines which are encouraged by those countries involved in the trade between the nations subject to that code. The opportunities for outsiders to trade with those countries has been severely limited in recent years as a result of the UNCTAD code.

The average age of the United Kingdom fleet is 14 years, which is older than the world average. In addition to that, 75 per cent. of the United Kingdom's shipping fleet will need to be replaced by 2000. Therefore, it is necessary to consider the means by which the British fleet will be able to replace its ships in the next few years. It is important that some form of capital allowance changes are made. My new clause would greatly help the shipping industry, as well as the rest of British industry.

The international competition in shipping and shipping allowances means that the United Kingdom is unfavourably placed in relation to Norway, Denmark and Germany, where it is possible to have limited partnerships. It is also unfavourably placed in relation to Denmark, Finland, France, Germany, Italy and Sweden where the capital allowances are 25 per cent. or better. My new clause proposes a one third, one third, one third principle which would bring the United Kingdom's shipping industry into a favourable position relative to those countries. Greece has no corporation tax on shipping. Therefore, it is necessary to consider capital allowances and the way in which individual industries are handicapped on the international market.

My new clause was discussed briefly in Committee and the argument used against it and the new clause on shipping was that 90 per cent. of tax reliefs are obtainable in seven to eight years. I put it to the Minister that that period is too long. Anyone who has done any form of discounted cash flow calculations will know that, after seven or eight years, £1 then is worth only 50p today. Therefore, the tax relief has changed from the days when 100 per cent. capital allowance existed and when £1 of relief was available on day one. In some cases £1 of tax relief is worth only 50p. The shipping industry and British industry in general would benefit from a change to a one third, one third, one third regime.

I was disappointed that the argument in Committee was not based on the serious effect on British industry of the current tax regime, which results in a cash flow disadvantage. The new clause is desirable, because failure to take action and to implement a better capital allowance regime will probably delay recovery from the recession. It will cause disadvantages to those United Kingdom companies that trade on the international market and to those companies in the United Kingdom that face international competitors. At the moment, companies must borrow much more money than they might otherwise in order to make capital investment.

If 100 per cent. allowances obtained, more of the investment costs could he drawn from a company's resources rather than from borrowed finance. Even if a one third, one third, one third allowance existed, British industry would not have to borrow so much and therefore its cash flow position would be healthier.

Photo of Mr Edward Garrett Mr Edward Garrett , Wallsend

If ever there were two industries that have been casualties of the ideological warfare that has taken place in this Chamber during my time in it they are the shipping and shipbuilding industries.

We now have just three major yards left in the United Kingdom that could build ships of the type that are required as a result of the depreciation of our merchant fleet. The hon. Member for Dover (Mr. Shaw) is right to say that the average age of the British fleet is 14 years. As a ship gets older the insurance rates increase.

I shall not detain the House for long, but I believe that the new clause is an opportunity for the Government to redeem themselves and their interest in the shipbuilding industry. It is a fact that we are now down to just over 900 ships registered under the British flag, which is extremely unsatisfactory.

The hon. Member for Dover also referred to the Falklands and Gulf wars. Those wars proved that we had to pay enormous charter rates. We were held to ransom by allegedly neutral or friendly countries when we had to charter ships to get our equipment and manpower to the correct place at the correct time.

Swan Hunter, the shipbuilding yard in my constituency, built the Atlantic Conveyor. Basically it is an air-support ship, but it does an enormous amount of work trading the oceans carrying containers.

The new clause presents an opportunity for the Treasury and the Ministry of Defence to get together to ascertain whether it is possible for them to provide support for British shipping through a proposal that would ultimately give additional finance to the British shipbuilding industry. To that end, I warmly support the new clause.

Photo of Mr Martin Redmond Mr Martin Redmond , Don Valley 8:30 pm, 15th July 1991

I support this sensible amendment and, if the Government have any common sense. they too will support it. Not to do so would be stupid and irresponsible. I have often criticised Government policy and I hope that the Government will apply common sense on this occasion.

May I speak briefly about the effect that the amendment will have on shipping? If we allow shipping to decline, jobs will be lost throughout the country. We would then be unable to defend our national interests and that would not be patriotic.

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman is straying too far away from capital allowances. If he would keep his remarks more general, he would stay in order.

Photo of Mr Martin Redmond Mr Martin Redmond , Don Valley

I shall certainly seek your guidance on that, Madam Deputy Speaker. The amendment mentions a 30 per cent. capital allowance. If that allowance is not applicable to the shipping industry, it affects that and other aspects of productivity. Although it is applicable throughout industry, I wish to emphasise the impact that it would have on shipping. I am well aware that Mr. Speaker declined to accept an amendment on the shipping aspect—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. That is why I shall not allow a debate on shipping.

Photo of Mr Martin Redmond Mr Martin Redmond , Don Valley

And rightly so, Madam Deputy Speaker.

Unless the Government take the necessary steps to bring about a change and accept this sensible amendment, the country will run into trouble. Our competitors abroad are not inhibited by protection of their national interests. Allowances for all industries, including shipping, will enhance the country's economic future. If the Minister says that he is prepared to accept the clause, I shall congratulate him on his common sense. I regret that the Government operate market forces, which are fine except when the national interest is at stake. If the Government were to accept the same philosophy as Japan, America, Germany and other countries throughout the world, we would at least be in with a chance to compete on the same terms as those countries that seek to demean the British people. I do not know why the Government should seek to shy away from taking a step that would help to build up the British fleet.

Reference has already been made to the impact of the Falklands and the Gulf wars because of lack of investment. The clause would enable British ship owners to make investments that would bring about improvements in that industry. One of the consequences of the Government's lack of help to industry is that companies tend to try to reduce their losses. If the Government were interested in uplifting the British economy, I am confident that they would accept this sensible amendment but, I regret, I do not see the Minister having that little bit of common sense.

I do not normally support amendments tabled by Conservative Members, for a variety of reasons that I shall not go into. However, because our national interest is at stake, I feel that the whole House should support this new clause. I hope that the House will divide to ensure that people stand up to be counted so that industry knows precisely where it can lay the blame.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I, too, support the new clause. After 12 years of Tory Government it is refreshing to have a Conservative Member introduce a new clause, albeit modest, that will provide some support for British industry. He may have got there by the route of shipping—I do not object to that—but the new clause relates to all plant and machinery. The manufacturing industry uses far more plant and machinery than the service industry, the financial sector or the property industry. As the hon.

Member for Dover (Mr. Shaw) said, in the long term the Inland Revenue will not lose any money. However, because it thinks only in annual terms, it feels that it may lose money. The cash flow of the manufacturing industry may be slightly improved and, as the hon. Gentleman rightly said, there will be a reduction in the reliance on borrowing which has been the scourge of British industry, and the service, financial and manufacturing industries are now paying the price.

The hon. Member for Dover also asked why we do not adopt the American system if a company wishes, for accounting purposes, to set off its depreciation against its profits in year one or year two. Why not allow the same for investment allowances? I suspect that the Inland Revenue does not like that suggestion. I remember years ago when Trafalgar House bought P & O, and I suspect that it did so for investment allowances. [Interruption.] I am sorry, the company that it bought was Cunard. I knew that it was a shipping and building company. Perhaps the Inland Revenue does not like the idea because it presents opportunities for avoidance. However, the new clause seeks simply to bring forward relief if a company so wishes. The Chief Secretary may argue against the amendment but I do not see what he can say against it. He may argue that it will cost more money in the first year, but he cannot be sure that it will because he does not know how the companies will react.

I shall not introduce the EC into the debate because you would rule me out of order, Madam Deputy Speaker. National taxation and investment allowances may soon be the only way in which the House can support the manufacturing industry. We have read about the problems that the French are having with subsidies to their computer industry and there are EC regulations in that respect. However, in this area of taxation—probably the last one left to us—we are still able to assist our manufacturing or any other industry by providing allowances.

I hope that my hon. Friends on the Opposition Front Bench will support the new clause. I do not want to berate the hon. Member for Dover—I am happy that he proposed the new clause—but it is a slight admission that the blanket reduction in corporation tax, covering all industries, whether they invested in plant and machinery or not, helps service and financial sectors more than the manufacturing sector. Perhaps that blanket reduction in corporation tax was not entirely wise.

The Opposition do not want to support manufacturing industry because they like dark, satanic mills and do not like the service sector. However, while, we do not have a common currency, to pay its way in the world the United Kingdom has to sell its goods abroad for foreign currency. The service industry and the financial sector in the main do not provide the revenue that we need to pay our way in the world. That is why the Opposition want to provide some modest assistance, and I think from what he has said that the hon. Member for Dover agrees with that.

I would have thought that, in this new age and with the new world order emerging from No. 10 Downing street—which is different from the order that we have had during the past 12 years—the Government would want to help manufacturing industry a little. The Government would be wise to do so because that is the only way that we, as a country, will balance our books.

I am sure that the Chief Secretary has a large "no" written by the Inland Revenue on his brief, but he should throw away his brief. I am sure that he would love to do so, especially with his public expenditure brief, which he does not have with him at present. Despite the fact that the Chief Secretary's constituency is Putney, where there are few manufacturing industries, he should take the larger view of the subject, compliment the hon. Member for Dover on his splendid new clause and accept it.

Photo of Mr Robert Banks Mr Robert Banks , Harrogate

I had not intended to speak in the debate. I have previously given my support to the shipbuilding industry, especially the merchant fleet, and felt that my hon. Friend the Member for Dover (Mr. Shaw) could do with some support from other Conservative Members. As I listened to Opposition speeches some doubts were sown in my mind as to whether I was on the right course. However, I realise that I would be straying from the realms of order if I were to talk too much about merchant shipping.

There comes a period in every industry's history when it needs some stimulus and help from Government. The measure, modest though it is, would be of considerable help, particularly to the merchant fleet. As our defence commitments are being reduced—which is a matter for great joy—and as our forces are being cut back, nothing could be more important than having British ships on the world's oceans. The Merchant Navy has one of the greatest histories and reputations in the world for the way in which it carries out its duties. I believe that a measure of help is particularly appropriate now because of the aging fleet, as was described by my hon. Friend the Member for Dover. Therefore, I hope that my right hon. and learned Friend the Chief Secretary will be able to say something tonight that will help the merchant fleet.

Photo of Dr John Marek Dr John Marek , Wrexham 8:45 pm, 15th July 1991

I am amazed that the hon. Member for Dover (Mr. Shaw) can table such an amendment because it was only a few months ago that I remember him as being so far to the right that, if we had a wall chart with a spectrum of people from the left of the Conservative party and the right of the Conservative party, he would be off the chart on the right. He was more Thatcherite than the right hon. Member for Finchley (Mrs. Thatcher). Clearly, he has been on the road to Damascus. I wonder why he was on that road. I do not think that I should dwell on that matter for too long but leave it to hon. Members to make up their own minds.

I shall make two succinct points. First, we as a country will not survive unless industry prospers and manufactures. For that to happen, there is no doubt that industry must invest. Secondly, it is absolutely vital for us to have a shipping industry and help must be given to allow ships to be built in British shipyards, ships to be flagged with the British flag and ships to retain British crews.

The new clause would go some way towards fulfilling both those aims. I do not completely accept the seductive and good speech of my right hon. Friend the Member for Llanelli (Mr. Davies). He was partly right, but we need a package of measures to achieve all the ends, not just one clause alone. Therefore, I wish to suspend judgment and make the plea that more must be done for industry to invest. We must safeguard our British fleet, but I wonder whether the new clause would be appropriately targeted. How much would it cost to implement the new clause and how well would it be targeted?

Photo of Mr David Mellor Mr David Mellor , Putney

First, I thank all those who have participated in the debate, not only for the eloquence of their speeches, but for the brevity and discipline with which they made them. I appreciate that and shall seek to emulate it. The points that have been raised are important and I am certainly more than willing to give an account of myself at the Dispatch Box, although the right hon. Member for Llanelli (Mr. Davies) will be sad to know that I am as attached to my brief as Linus is to his blanket.

It was a particular pleasure to hear the hon. Member for Wallsend (Mr. Garrett); I hope I shall not embarrass him too much if I say that he is one of my favourite Members of Parliament. I understand why he said what he did because, in his lifetime, he has seen tremendous changes in a great industry. I assure him that we are well aware of what that means. The difficulty—as I shall seek to demonstrate—is that well-intentioned arrangements designed to deal with the problems do not and will not necessarily do so, and we must be fairly rigorous in our analysis of what is proposed.

My hon. Friend the Member for Dover (Mr. Shaw) acknowledged that the Government took a conscious decision in 1984 to alter the rules on capital allowances and move from a 100 per cent. first-year system to one allowing investments to be written off over seven to eight years—a provision that is still generous as most pieces of equipment last for longer than that. We have heard much about the shipping industry—rightly so as it is important. I know that many hon. Members feel strongly about it. I do not want to stray out of order, but it is worth considering that most ships have an average life of 15 to 20 years, so the capital allowance system, even as it exists, is not ungenerous, particularly when one considers that there are special rules to deal with the depreciation of short-life assets.

In 1984, a decision was taken to move to the new system. There was a striking quid pro quo for that change in the dramatic cut in corporation tax from 52 to 35 per cent., which the Budget proposes to reduce further to 33 per cent., thereby restoring this country's claim to have one of the keenest corporation tax rates in the world.

We must not underestimate the tremendous benefits that have come from that change. In the last three years of the 1980s there was an increase in investment of more than 40 per cent. I shall not recount all the statistics and weary the House with them tonight, but they all show that Britain's exceptionally good performance in the 1980s made it the country of choice for the investment of a. large amount of money from key industrial overseas countries, with one third of Japanese investment world wide coming to the United Kingdom, two thirds of American inward investment coming into the European Community and a European Community total of inward investment from outside of almost 40 per cent. That is well ahead of countries such as France which has 14 per cent. and West Germany which has 2 per cent. That was a tremendous boom in investment. Even with the recognition in the Budget statement that investment will fall this year, it will still be about 58 per cent. more than it was at the beginning of the last decade. In constant money terms, business investment has risen from £35 billion at the end of the 1970s to £55 billion or £56 billion at the end of the 1980s. That is a tremendous increase.

Against that background there would have to be a striking and compelling case for moving back to capital allowances. To do that would be enormously expensive. I do not criticise my hon. Friend the Member for Dover for not having access to figures. I would not have them either were it not for the service provided by the Inland Revenue.

The hon. Member for Wrexham (Dr. Marek) asked about cost. For the reasons given by the right hon. Member for Llanelli from his experience as a Treasury Minister I can give only an estimate. The Inland Revenue's best estimate for 1992–93—bearing in mind that in the new clause the enhanced rate of allowances would apply not only to new investment but to unrelieved past expenditure—is £2·15 billion; for 1993–94, £1·95 billion; for 1994–95, £1·6 billion; for 1995–96, £1·4 billion; and for 1996–97 £1·25 billion. That is a total of about £8·5 billion over five years. The right hon. Member for Llanelli suggested that I should throw away my brief. To do so would be an expensive chuck.

I do not want to stray out of order, but I should like to deal briefly with shipping. The new clause would not necessarily help British shipbuilding because capital allowances are available wherever ships are built and cannot be restricted by European Community and other rules to the United Kingdom. One hundred per cent. capital allowances would open a whole range of potentially attractive dodges. For example, a bank in Britain could buy a ship made in Japan, obtain the allowances, and lease the ship to a company in Korea or Taiwan where it would compete with British ships. I am anxious to look after the best interests of the British merchant marine, but this is not a guaranteed way to help. There were 100 per cent. capital allowances in the decade from the mid-1970s to the mid-1980s and the British merchant fleet shrank from 32 million tonnes to 13 million tonnes. That statistic straddles two Governments, so it is not partisan.

Where we can help we do and we have. For example, important changes were made in 1985 to the rules on writing down allowances, and in 1986 the business expansion scheme was extended to include ship chartering. Clause 44 of the Bill makes further changes to the tax arrangements for British seamen, increasing the number who can qualify to pay no tax as a result of being out of the jurisdiction for the qualifying period of the year. That is an attempt to make it more economical to employ British seamen.

Undoubtedly, some issues on the United Kingdom register need to be addressed because any ship that benefited from the capital allowances scheme proposed by my hon. Friend the Member for Dover would not have to be given a British flag but could be flagged out. Therefore, the problems of flagging out need to be addressed separately. They are being addressed, and the report of a technical working party is being carefully studied. An important defence issue is being addressed by Ministers and in due course more can be said about it.

Photo of Mr Den Dover Mr Den Dover , Chorley

Will the Minister confirm that the reduction from the 1970s to the 1980s in the British fleet from 30 million tonnes to 13 million tonnes owed more to flagging out than to the availability of capital allowances?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. We are straying far from the point, as I know the Minister appreciates.

Photo of Mr David Mellor Mr David Mellor , Putney

I do, and I am grateful for your guidance, Madam Deputy Speaker.

Photo of Mr David Mellor Mr David Mellor , Putney

The hon. Gentleman is not as appealing as you, Madam Deputy Speaker, but provided that he allows me to stay in order I shall give way to him.

Photo of Nick Brown Nick Brown Shadow Spokesperson (Treasury)

I shall not debate whether I am as appealing as you, Madam Deputy Speaker, because there is absolutely no contest. I found beguiling the Chief Secretary's point about ships taken up from trade. That is an important issue because it affects the merchant fleet. May we expect a statement on the issue before the House rises or will we have to wait until the autumn?

Photo of Mr David Mellor Mr David Mellor , Putney

The hon. Gentleman refers to defence. The matter is being considered and a statement will be made when a proper conclusion is reached. I cannot say whether that will be before the House rises but I wanted hon. Members to know that the defence issue, which is unrelated to these fiscal matters, has the serious attention of Ministers.

I am sorry to give my hon. Friend the Member for Dover a somewhat dusty answer. It is important for these Matters to be ventilated, but in moving to a low corporation tax regime and away from capital allowances we are, in the longer term, doing the business man a great favour. We have allowed him to retain the resources to make his own investment decisions rather than distorting matters by a system of capital allowances. Under our regime it is the quality of the investment that matters and not the amount, which is the case under a regime based on capital allowances. Having properly ventilated the matter, I hope that my hon. Friend will agree to withdraw his new clause.

Photo of Mr David Shaw Mr David Shaw , Dover

It is often said in the House that short debates are among the best, and this debate has given the issue a wide airing. I regret that I did not have access to Treasury counsel in drafting my new clause, but such is the problem of the Back Bencher in drafting detailed amendments. I would certainly have intended it to be only for new investment to assist industry at a time of recession. Therefore, I accept that the cost would probably be much higher than the clause intends.

The Chief Secretary produced figures to show a cost of £8 billion. He should be careful to separate the interest costs in terms of tax deferred from the actual cost of tax, because in the long term there is no loss of tax revenue. I notice that he stopped his example at year five. Had he gone on to year 10, the cost must be significantly reduced, and reducing towards zero.

However, I accept that the new clause as drafted is not perfect. When the economy is such that the Treasury counts every pound carefully, putting my new clause to the vote would be inappropriate. Therefore, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.