First Year Allowances: Machinery and Plant

Orders of the Day — Finance (No. 2) Bill – in the House of Commons at 8:45 pm on 12th May 1993.

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Photo of Mr Giles Shaw Mr Giles Shaw , Pudsey 8:45 pm, 12th May 1993

I beg to move amendment No. 37, page 84, line 15, leave out 'subsection', and insert 'subsections'.

Photo of Mr John McWilliam Mr John McWilliam , Blaydon

With this, it will be convenient to discuss amendment No. 38, in page 84, line 23, at end insert— '(3C) This section applies to so much of any expenditure as is incurred by a person carrying on a trade, on the provision of a ship.".'. May I remind the Committee, because it is a Committee, that charity is finished with and that the Chair resumes normal service? Hon. Members must speak to the amendments before the Committee.

Photo of Mr Giles Shaw Mr Giles Shaw , Pudsey

The amendment is not unworthy. On the contrary, those who have taken an interest in the extremely gloomy and prolonged decline in the British marine fleet and the shipping industry are bringing the issue correctly to the centre of the Government's policy making, which is the Budget. I am glad that my hon. Friend the Financial Secretary is in his place because these issues must be addressed carefully, urgently and in a constructive and effective way.

It is common knowledge in the Committee that the decline in the shipping industry has been profound. The purpose of tabling the amendment was, first, that the industry is in a parlous position and requires specific action. Secondly, it is to increase capital allowances to 100 per cent. so that there may be some encouragement for the building and replacement of ships. Thirdly, through my hon. Friend the Financial Secretary, I point out to the Government and particularly the Department of Trade and Industry that time is fast running out, and that unless the Government act in fairly short order it will be too late to make any constructive and long-lasting change to the irreparable decline.

As to the shipping industry itself, the United Kingdom maritime fleet is No. 33 on the world list. That of itself is a miserable statement. I understand that on the latest register there are only 425 vessels, with a gross registered tonnage of only 3.4 million tonnes. The decline has been steady, protracted and virtually unerring in ratio, so that one can reasonably plot that by 2010 the British shipping industry will have disappeared. It was because of that order of magnitude of decline that we decided to table the amendment. It is essential that action is taken now. That is particularly so when the demand for shipping is growing at 4 per cent. per annum. One cannot complain that there is not a market in which to compete and a need for good, efficient and effective shipping.

The need for a British shipping industry has been firmly established; no words of mine are needed to add to the good causes which we should now pray in aid. It is essential for a trading nation to have an effective shipping and marine industry. It is essential for an international trading nation to have it on a scale that allows international competition to be met. It is essential for a nation that has significant overseas committments and has had the capacity in recent times to require logistic support for defence needs to maintain that capacity.

The second area of need relates to the fact that the British marine shipping industry and ships are now aging rapidly. The average age of British ships is about 16 years. With that increased life comes not only the need to repair and restore, but increased inefficiency. Modern technology being what it is, it is now posible to find engines which are much more effective, run on less fuel, provide more power and are more mobile and useful in every possible way. So with the decline and ageing come higher costs through inefficient operating levels. Thus it is that, according to the Chamber of Shipping, it is a requirement that some three quarters of the British fleet be replaced by the year 2000. The need is established in fairly clear terms.

The requirement of replacment brings with it a consequential benefit for British shipbuilders. I need hardly remind my hon. Friend the Financial Secretary, on a day which has seen a question and answer on the subject of Swan Hunter, of the vital importance of providing for increased orders for shipbuilders. Certainly, at least half the orders required to modernise the fleet up to the standards required will be placed with British suppliers.

Having set out the need and the background of decline, let me come to the specifics. What should be done? My hon. Friend the Financial Secretary will note that the amendment deals with capital allowance—a well-accepted system, widely practised and clearly a Government favourite, because in the Budget there is increased provision for capital allowance for industrial investment. There is no doubt that this is, in the Government's view, a satisfactory mechanism through which to deal with investment, and investment in the industry is certainly required.

It therefore does not seem illogical that, if there is an industry that needs special care and attention—not charity, but special care and attention—the instrument of capital allowance is a reasonable one to select. That is the purpose of the amendment. The Government are committed to produce, through this Budget, a budget for industry. The British shipping industry, which is surely within that compass, also requires special care and attention.

Over the years, the Government have been extremely generous in providing a wide range of assistances—if I can use that word—to various industries. If businesses come from outside this country, grants are available if they locate in certain places. Regional grants are available in some areas and in areas of decline substantial grants are available through various measures introduced by the Government and applied through the Treasury or the Department of the Environment. Regional aid, relocation grants and development grants come into this. There is the Urban Development Corporation, for example, introduced to provide special initiatives using Government funds to help establish new industries.

There are also enterprise zones, introduced, as I recall it, to provide a zone in which there would be significant tax relief for the establishment of certain industries. On the grand scale, this Government, as many predecessors on both sides of the Committee would agree, have been hugely supportive of agriculture and of major public industries, into which the coal industry assuredly fits, with the massive support that it has enjoyed over the years in connection with its indebtedness.

So there is no shortage of information that leads us to believe that the Government have looked at industrial problems and used taxpayers' money to help relieve them.

It is against that background, therefore, that I claim that the amendment is relevant to the kind of policy that the Government should be adopting at this time for the industries which they select. If there is to be a significant improvement in the profile for British shipping, it is vital that the Government find the appropriate mechanism to ensure just that.

One idea that the industry has is the creation of a maritime enterprise zone in which a scheme would be provided which might be attractive to my hon. Friend because it would be ring-fenced. He often finds that simple additions of aid or altering the tax allowance on the capital grant is difficult to operate. The maritime enterprise zone, however, would be unique to the needs of British shipping and could provide a formula worth looking at and applying.

If, through the capital investment proposal that we lay before the Committee or the maritime zone, there were a significant improvement in the industry's prospects, what benefit would that bring? The answer is significant economic return. There is little doubt that the amendment, if applied, could, according to the Chamber of Shipping, stabilise the position of the fleet within five years. And, if it were accompanied by investment over a period of time in new and more effective and competitive ships, the fleet could be stabilised in five years and the average age could probably be reduced from 16 to 10 years. Over 10 years, perhaps, the fleet could be increased by some 40 per cent. by volume.

All this would bring huge benefits to our economy. Overseas trading and earnings and the international commitment to shipping which this country has for generations established would grow and with them the marine engineering industries and many related industries would flourish.

The case is made out for taking some action to assist the industry at a point at which it would appear to be entering a phase of decline that will be terminal unless action is taken.

Photo of Joan Walley Joan Walley Shadow Spokesperson (Transport)

Does the hon. Gentleman agree with the estimate of the British Chamber of Shipping that unless the Government take urgent action there will be no merchant fleet left by the time of the next general election?

Photo of Mr Giles Shaw Mr Giles Shaw , Pudsey

Had the hon. Lady heard my opening remarks, she would have heard me say that by the year 2000 the merchant fleet will have declined to virtually nothing.

Ideally, I hope that my hon. Friend the Minister will accept the amendment for action now as it would be consistent with the mechanism of the investment allowance and the measures in the Budget for industrial investment in general. If my hon. Friend is not so minded, I press him to consider the matter and, with the agreement of the industry, work out a plan which, in his eyes, will be effective to do the job, because it has to be done.

If simple allowances are not satisfactory, we must come back to the House with a scheme that will provide for recovery, refurbishment and reinvestment to produce a greater, more competitive and more efficient maritime service than that which we presently enjoy.

The clause is of real and crucial importance to the industry, which does not in its own right require any charitable treatment, but which is a quintessential industry. It is one of the few industries that one can isolate and say that an island nation demands an adequate, properly staffed and efficient merchant marine.

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Photo of John Hutton John Hutton , Barrow and Furness

I support the amendments because they will help the shipping industry and the shipbuilding industry. I should like to concentrate on their possible impact on the shipbuilding industry.

The economic arguments in favour of the amendments are convincing and the hon. Member for Pudsey (Sir G. Shaw) put them effectively. He referred to many strong economic and commercial arguments in favour of the clauses, and I shall not detain the Committee by repeating them.

I was not in the Chamber at the beginning of the hon. Gentleman's speech, and I apologise for that, but I assume that he has also made the strategic case for increasing the size of the United Kingdom merchant fleet, which has a significant role in commercial activities and in the security and defence of the nation.

The hon. Gentleman spoke about the significance of the shipping industry to the commercial health of the nation. The Committee should be aware of the major contribution that the industry has made over many years. However, in the past five or six years the situation has become extremely serious. The number of United Kingdom registered ships has halved in the past seven years and our merchant fleet now ranks 33rd in the world, behind countries such as Cyprus and the Bahamas, as hon. Members will be surprised to discover. That is serious for Britain's strategic place as a maritime nation that relies heavily on the activities of its merchant fleet.

I want to mention the importance of these measures to the health of Britain's shipbuilding industry. In the past few days, there has been a major threat to one of the finest shipyards in the country. It is incumbent on the Government to take a strategic overview of Britain's shipbuilding industry.

The hon. Member for Pudsey drew attention to the importance of renewing Britain's merchant fleet. I speak for all my hon. Friends when I say that that is an urgent imperative.

It is no longer an option for the Government to do nothing about what is happening to our maritime industry. As a country we depend on our maritime industry, in particular the British shipbuilding industry, which has been decimated in the past three years by the Government's failure to consider the importance of those industries to the health or the nation.

I find it depressing when Conservative Members, although there are not many present tonight, talk about the shipbuilding industry as representing yesterday's technology. That is a completely bogus contention. I invite any Conservative Member who wants to experience at first hand the strength of the technological base of Britain's shipbuilding industry to come to my constituency and see the investment that has been made in the shipyard in Barrow and the quality of the engineering work that is carried out.

There is evidence of that high-quality work in every shipyard in the country, on the Clyde and on the Tyne. If hon. Members want to see the quality of the work on the Tyne, they had better get there quickly, because the decisions that the Government have taken have left the shipbuilding workers on the Tyne cruelly exposed to a decimating future of unemployment.

I should like a sign that Conservative Members will show some imagination, which is rather a lot to expect from some of them, about the growing scale of the problem faced by many shipbuilding workers who have served the nation incredibly well over many years and deserve better.

The shipbuilding industry, in particular, looks to the Government to give some indication that they are aware not only of the contribution that the industry has made in the past, but of the contribution that it can and should be allowed to make in the future. The merchant fleet lies at the core of the argument. We accept that the volume of naval work will inevitably decline, but the same cannot be said of our Merchant Navy.

Although we face stiff competition from the far east and the Pacific rim—with which we need to deal—we should not simply throw up our hands and say that we can make no decision to help the British shipbuilding industry to survive into the next century. We can make such decisions, but we must recognise that inaction is not an option: failure to act would decimate employment opportunities all over the country.

The hon. Member for Pudsey spoke of the importance of the merchant fleet, and rightly drew our attention to the increasing age of that fleet. The average age of British merchant vessels is now over 16 years. The need for replacements is urgent, and the best way of providing them is to place orders with British shipyards. Perhaps the most excellent contribution that our British shipyards can make is in the design and building of clever, high-tech cargo vessels—vessels that will be needed in the future to carry specialised products around the world. The hon. Member for Pudsey mentioned the expectation that world trade will continue to increase. We need to ensure that British shipbuilding, and the British shipping industry, can contribute to and share in that increase.

I urge the Committee to support the amendment, on which I hope we shall be able to vote. We need to test the backing of the Committee not only for the future of Britain's shipping industry—which has made a strong contribution to the commercial health of the nation over many decades—but for the desperate need to alleviate the chronic mass unemployment that now affects many shipbuilding communities.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I spent the first seven years of my working life in the shipping industry, and qualified as a member of the Institute of Chartered Shipbrokers. At that time, the British shipping industry was at the forefront of world trade in terms of both liner trade and tramp shipping. Since then, there have been massive technological changes in the form of roll-on/roll-off ships, the development of container vessels and so forth; but—alas —there has also been a huge decline in the size of the British register and the scale of British shipowning.

I believe that, at an early stage, British ship owners were too confident of their own abilities. They thought that they could compete regardless of whether other countries' owners were receiving huge subsidies from their Governments. That went on for some time, and the British register declined. By the time British ship owners had realised that they could not win such an unfair contest, it had become difficult to obtain Government support.

Across the world—here I differ somewhat from the hon. Member for Barrow and Furness (Mr. Hutton)—Governments subsidised shipbuilding rather than ensuring that they had competitive shipowners. The result was massive over capacity, with ships being mothballed and —in some cases—being built and then never going to sea before finally being scrapped. The balance between shipowning and shipbuilding has been unfair and wrong—although, as the hon. Gentleman pointed out, the amendment would help both to some extent.

My right hon. Friend the Chancellor of the Exchequer is very keen on talking about level playing fields. It should be recognised that some playing fields are very difficult to level; that certainly applies to international subsidies, especially shipowning subsidies. The Chamber of Shipping has made it clear that it is behind the Government in seeking to get rid of subsidies across the board; meanwhile, however, something must be done to help those involved. That is the reason for the amendment on which my hon. Friend the Member for Pudsey (Sir G. Shaw) has expounded so eloquently.

The fact is that, when it comes to level playing fields, the Chancellor has already conceded that there are some situations in which it is necessary to have special help, as exemplified by enterprise zones and the 100 per cent. investment allowance which, in essence, is what my hon. Friend the Member for Pudsey argues ought to be extended to the shipping industry. So there is no great point of principle here which has not already been conceded by the Treasury.

There is, however, as I know from my own experience, always some danger, as far as the Treasury is concerned, that this will open the floodgates and that further appeals of this sort will be made. The Treasury will ask whether it is possible to ring-fence the particular thing for which hon. Members are putting forward a case. It is clear to me that the shipping industry is more an international market than any other that one can think of and that it is different from petroleum refining or the chemical industry which, we are told, would immediately apply for this kind of grant.

It is particularly appropriate that my hon. Friend should have moved the amendment in the way that he did, because much of the problem with shipping is that one must invest in a very large lump of equipment at one go and this makes it difficult to raise the necessary amount of money in one go. That is why it is so much easier to do so if one has a front-end-loaded investment allowance.

It is not necessary for me to go into the importance of invisible earnings, but despite their importance they too have been declining, particularly with regard to the insurance industry, for example, and to the role of the City generally. Much of the strength of the City, however, has always been based on the fact that we have been a major shipping nation, so this measure will help not only the shipping industry but also the position of London as an international centre.

Photo of Mr Cyril Townsend Mr Cyril Townsend , Bexleyheath

I have listened to my right hon. Friend's comments with interest and in total agreement. He has covered the strategic aspects of shipping. Can he find time to say a word about the important defence implications? We are an island nation with responsibilities worldwide and we rely on having our own merchant fleet to carry out some of those responsibilities.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

My hon. Friend is absolutely right. This matter has been debated in the House on a number of occasions and it is exemplified particularly by national defence, which is very important, so I agree very much with what he says.

Turning to the question of cost, there seems to be considerable confusion about the figures. The effect of this amendment is entirely to work through cash flow. The cost to the Government will simply be the cost of financing the reduction of the tax revenues in the early years until such time as the tax revenues increase in the later years of the asset's life. There is no grant as such—merely a cash flow problem—and the cost of financing that cash flow in the intervening time. That profile is very desirable in some ways in the first years because we are at present in a deep recession and the need for raising revenue will increase as the recession ends and the economy is eventually in danger of overheating.

Over the kind of time scale that we are talking of in this amendment, that pattern of cash flow could be quite appropriate. Eventually, if the level of investment is maintained, the cash flow reaches equilibrium and one would not see any great variation over time.

The crucial point, therefore, is what the cost is, and this is where I have some trouble. I have discussed the matter with my hon. Friend the Economic Secretary and, more briefly, with the Chancellor. The figures that they are bandying around of the cost of the amendment seem to be far in excess of those that the Chamber of Shipping is estimating. We must take the question of costs into account and it is very important that we should sort out this contradiction and, if necessary, return to the matter on Report so that we can go into it in greater depth.

These figures still seem unresolved, but my understanding from the Chamber of Shipping is that the average cost for each year of investment over, say, five years is likely to be £20 million or £30 million. That is not at all unrealistic for the Treasury, given the benefits which are likely to accrue. As I have already said, it is effectively what is the discounted cash flow, the net present value of the interest forgone over the period when the tax will work its way through. It is not, of course, on the whole of the investment, because we already have an investment allowance of 25 per cent., as I understand it. It is the difference between 25 per cent. and 100 per cent.

9.15 pm

I hope that my hon. Friend the Economic Secretary will either accept the figures that the Chamber of Shipping has put forward, which I believe to be correct, or give a very clear undertaking that he is prepared to reconcile them and discuss the matter in much greater depth with a view to accepting the proposals made once this point has been sorted out. But, of course, I am talking of the gross cost.

The net cost to the Exchequer is likely over time to be much less, because we have here an investment in new ships. The British register is getting very old. It is inefficient in comparison with newer vessels. Consequently, if it changes from old vessels to new, that in itself, with no change in the level of demand worldwide, is likely to increase the profitability of the companies concerned and in turn the revenue that the Treasury derives. Therefore, there is a net increase in the revenue that the Treasury is likely to get over time with regard to this series of assets.

I understand that, if the register goes on declining at the present rate, it will disappear altogether by 2010. But the ships on the British register may disappear even by the time of the next general election, which we hope is a long way off. Therefore, this is something that cannot be deferred indefinitely, even if some time is needed to sort out the precise figures and exactly what needs to be done, because it is abundantly clear that something needs to be done with regard to the British shipping industry.

I believe that the proposals the industry puts forward to limit this arrangement for, say, a five-year period while negotiations on reducing unfair competition worldwide can continue are in essence very moderate. The cost anyway depends only on there actually being investments, except in a very trivial amount; it is only if the companies invest that there is any deferment, even, of taxation.

Surely more investment is fundamentally what we need. Certainly, for the balance of payments it is very important. As the economy recovers, the balance of payments will clearly become an increasing rather than a diminishing problem.

For all those reasons, I hope that my hon. Friend the Economic Secretary can give a sympathetic response. I believe that I am right in saying that in the past he has made some speeches not dissimilar from the one that I am now delivering, and therefore it is not unreasonable to hope that we shall receive a sympathetic response from him this evening and that at the very least we shall return to this matter very soon—as soon as we can sort out the figures. I believe that the Chamber's figures are right and that the case for the amendments and assistance for the industry is very strong.

Photo of Nick Harvey Nick Harvey Shadow Spokesperson (Transport)

I shall speak briefly in support of the amendment, which was moved strongly by the hon. Member for Pudsey (Sir G. Shaw), who told us that the scale of decline of the British shipping industry was such that we were now 33rd in the world. The right hon. Member for Worthing (Sir T. Higgins) recalled a time when we were first and foremost in the world. Even as recently as 13 years ago we ranked fourth in the world, so the decline has been very speedy.

Over the same period, the shipping industry's contribution to the balance of payments has halved. The Chamber of Shipping has said that in the past two years over 17 companies have crewed out, flagged out or folded.

I underline the comments about the need for the Government to act urgently now. Whatever the precise date of the ultimate collapse—whether by the next general election, by the year 2000 or even by the year 2010—there is clearly a desperate worry which is closing in on us quickly. We can all agree that thousands of jobs would go, that there would be an implication for the balance of payments and that there would be knock-on effect on the shipbuilding industry and on many other industries. The hon. Member for Barrow and Furness (Mr. Hutton) spoke with an obvious constituency interest in the future of shipbuilding. On a very much smaller scale, I have constituents who cross the River Torridge to work at the Appledore shipyard.

The relative decline in the British shipping industry must have something to do with the unequal tax treatment of the shipping industry in various countries. I echo the words of the right hon. Member for Worthing (Sir T. Higgins). The Liberal Democrats would like there to be a concentration on getting other countries to remove the advantages that they are giving. However, we must be realistic. That process will take time. Even within the European Community, decision-making is slow, and we must remember that many of the key players are not members of the European Community.

We must be realistic about the time that the process will take, and we must see the matter in the context of the urgency of our problem. In the meantime, it is essential for the Government to do someting about the problem. If they act too late, the whole industry will be gone. It must be appropriate for the Government to intervene. When other countries have done so, their shipping industries have responded and have improved—America and Japan being two of the most recent examples.

I have no way of knowing whether the Government's estimates of what the proposal would cost are right, or whether the estimates by the Chamber of Shipping are more likely to be right. We must cost the proposals and the benefits that would accrue from them. We have already heard that the shipping industry internationally is expanding.

In the context of the widespread concern in the industry and among the public about the practice of flags of convenience, especially in the wake of the Braer disaster, the shipping industry in Britain must be in a strong position, with its reputation for being modern, efficient and safe. It needs the aid that the amendment offers to take advantage of that opportunity. The fleet could easily double if it was given such assistance. Whatever the cost, there would surely be a long-term gain, even to the Revenue.

As has been said, the Government recognise various areas as needing special help, one example being regional enterprise initiatives. The right hon. Member for Worthing was right to point out that the enormous outlay on the purchase of a ship which must be made in the first year should be addressed through capital allowances at the same time, rather than being forced to be written off over nine years, as is the present arrangement. The Government may wonder whether they can afford to accept the amendment. I simply ask whether they can afford not to. The impact on industry would be immediate and dramatic. In five years, the average age of the fleet could have halved. Earnings would have increased, employment would have expanded and the Government would have benefited through an improved contribution to the balance of payments.

The right hon. Member for Worthing was too modest in his anticipation of what the proposal might mean in terms of tax revenue. If we forecast far enough forward, we can see that it would bring a gain to the Revenue and that it would also make a contribution to our defence capability, as other hon. Members have said. The amendment is well measured and I have pleasure in pledging my colleagues' support for it.

Photo of Nigel Waterson Nigel Waterson , Eastbourne

I am delighted to have the opportunity to speak in support of the amendments. I declare an interest as a solicitor who has practised for many years in maritime matters. In my time as a maritime lawyer, I have witnessed a steady decline in the British merchant fleet and in its position in the world. Other colleagues, notably my hon. Friend the Member for Pudsey (Sir G. Shaw) and my right hon. Friend the Member for Worthing (Sir T. Higgins), have eloquently explained the importance of British shipping to this country. The industry contributes £2.3 billion net a year. It employs about 20,000 seafarers and a further 30,000 ashore.

It is important to have this debate again this year because, as has been explained with great detail and eloquence, it will be unnecessary and academic in a few years' time because the British merchant fleet will no longer exist. If one takes a straight line extrapolation, at its present rate of attrition, the fleet will effectively have disappeared by the year 2010.

The shipping industry is emphatically not a smokestack industry that is simply looking for handouts. We have already heard at some length about the level playing field difficulty, which applies to this industry more than most others, and the extent to which other countries, including some notable shipping nations in the European Community, provide favourable but unfair fiscal regimes for their ship owners and operators. As my right hon. Friend the Member for Worthing said, my hon. Friend the Economic Secretary is not unsympathetic to the British shipping and shipbuilding industry. If my hon. Friend feels that the amendments do not achieve the purpose for which they are intended, the Chamber of Shipping and other groups representing the British shipping industry will be more than happy to continue discussing other options.

The 40 per cent. first-year allowance is welcomed, but it is not enough. We must do everything that we can to give our shipowners the sort of competitive edge that other countries have given their shipowners. The intent of the amendments has been explained, as one might expect, with great skill by a former Treasury Minister, my right hon. Friend the Member for Worthing. He said that the benefits could end up as more or less self-financing and the real net cost for each year of investment would range between possibly £20 million and £30 million.

If there is a genuine difference of opinion between Treasury officials and Chamber of Shipping officials about those figures, let them continue the discussion and debate. Naturally, the figures are based on certain assumptions. Essentially, they expect the current level of ordering—about 34 ships—to double. That also takes into account another possible amendment to the Budget relating to roll-over relief, but I will not refer to that amendment in this debate.

There are many arguments why the British merchant fleet needs help. We have heard the important arguments about the balance of payments and the strategic and defence issues. I shall concentrate on only one argument on which I can speak with considerable personal knowledge—the contribution of related activities to shipping, especially in the City of London.

Apart from the contribution made by British shipping in carrying not only our goods but those of other nations across the seas, the other activities to which I refer earn a further £1.5 billion net for the balance of payments. In the City of London, we take care of more than half the world's marine insurance, protection and indemnity coverage, chartering and cargo broking, ship finance and management, arbitration, law and consultancy services, the classification societies and so on.

Recently, we have had debates in the House about the importance of the commercial court in London in terms of attracting litigants from abroad. A substantial part of the business of that court derives from London's reputation as the prime maritime centre in the world. I know from personal experience that other centres, such as New York, Piraeus and so on, cannot come close to challenging the pre-eminence of London in this field.

One of the most dramatic statistics is that the number of British seafarers is shrinking alarmingly—there may be only 5,000 active officers by the year 2000. We need 1,300 new officer cadet entrants a year, yet we took only 343 in 1992. That means that fewer and fewer in due course will come ashore either to pass on their expertise to others or to enter the support and service sectors that I have described.

In other words, inevitably the shrinking of our national fleet will sooner or later have a knock-on effect on other important parts of the economy. How can we remain a leading maritime and financial centre when we are no longer truly a significant maritime nation? To take one example, how can we expect to influence the new international rules drawn up to combat the possibility of another Braer disaster around our shores if we are no longer a major player in the maritime world?

I urge my hon. Friend the Economic Secretary to continue a dialogue with the British shipping industry and seize the unprecedented opportunity of two Budgets in one year to put the matter right—if not today, later this year.

Photo of Geoff Hoon Geoff Hoon , Ashfield 9:30 pm, 12th May 1993

I support amendments Nos. 37 and 38, to which my name is attached. The amendments are designed to encourage the purchase of new ships by allowing those who order ships to take advantage of 100 per cent. capital allowances. I believe that the amendments can help to stimulate a much-needed renewal and expansion of the British maritime fleet, perhaps to the extent that the present level of ordering of about 34 new ships each year could be doubled.

The right hon. Member for Worthing (Sir T. Higgins) talked about the costs to the Revenue. It is obviously right that we should concentrate on that to some extent. I shall return to the figures that he mentioned later. It might assist the Economic Secretary in assessing the likely cost of the measures to the Revenue if he worked with the figure that I suggested—which the hon. Member for Eastbourne (Mr. Waterson) also suggested. An assumption that the measure might double the ordering of ships—another 30-odd ships each year—is a reasonable basis on which the Economic Secretary might calculate the cost to the Revenue.

The hon. Member for Pudsey (Sir G. Shaw) set out in some detail the arguments for amendments Nos. 37 and 38. I shall endeavour to avoid repeating the statistics that have been set out clearly already. I might try to add one or two of my own.

It is clear that there has been an inexorable decline in both the United Kingdom-registered and United Kingdom-owned fleet. The figure that I find significant is that, in 1975, we had about 9 per cent. of the world total. That figure had declined by 1991 to a mere 1 per cent. Clearly, if that decline continues at that rate, the alarming conclusions which others have reached this evening that the fleet will disappear fairly quickly is inevitable.

The disappearance of the British merchant fleet was well discussed in a report by the Transport Select Committee as long ago as 1987. It set out several arguments for maintaining a United Kingdom-registered fleet, which follow on from the various speeches that have been made this evening.

The Select Committee talked about the impact on trade of a serious reduction in the fleet. It talked about the danger in both defence and economic terms of being entirely dependent on others to move the United Kingdom's imports and exports. That matter was referred to in an intervention. It has not so far been discussed in detail in the debate, but we should have regard to it.

The Select Committee referred also to the contribution made by shipping to the balance of payments. The Chamber of Shipping estimates that British shipping contributes some £4 billion gross to the United Kingdom's foreign earnings and £2.4 billion net. It comments that British shipping underpins the City maritime services, which earn more than £1.2 billion net abroad. That, obviously, was the observation made by the hon. Member for Eastbourne (Mr. Waterson).

The figures for the balance of payments are a matter of great concern to the Committee at this stage in our deliberations. Clearly, we are looking at the Chancellor's proposals against the background of a serious balance of payments difficulty. If, in the context of these measures, we can improve that situation, even if it is a modest improvement, surely it should be welcomed.

Without repeating the various statistics that have already been given about the decline in the maritime fleet, it might be worth asking why that decline has taken place when other countries seem to have been able to stabilise their fleets and, in some cases, to increase them

All our major European competitors appear to have been able to establish attractive fiscal regimes that have encouraged investment in shipping. That is certainly the case in Denmark, Germany, Greece, Norway and Sweden. There has been a judicious use of tax incentives—not grants but a favourable fiscal environment, by means of which those countries have been able to reverse the decline in size of their fleets.

Not only have they been able to reverse the decline in size of the fleets—the numbers of ships—but, more importantly, with regard to the present problems of the United Kingdom maritime fleet, they have significantly improved the aid profile of their fleets. That is crucial where new technology is increasingly used, particularly to reduce operating costs for shipping.

It has been clearly said that one of the key problems faced by owners in the United Kingdom is that, as they are competing in a world market with higher technology vessels, they are caught in a situation in which their high operating costs and consequentially relatively low revenue means that they are, in effect, forced either to sell or to scrap their existing ships. The idea of the amendments is clearly to allow those fleets to be developed, to purchase new ships, so that we can more effectively compete in what is clearly a vigorous and competitive world market.

I said that I would return to the question of costs, which has already been covered in some detail by the right hon. Member for Worthing. I simply want to endorse the figures that he gave. The Chamber of Shipping has suggested that the scheme might cost about £70 million gross in the first year. Obviously, the cost of the scheme will depend on how successful it is, but if the net costs that the Chamber of Shipping has set out are between £20 million and £30 million a year, it is difficult to see how the Government can resist such a sensible approach for the United Kingdom shipping fleet.

When we are considering those costs, I invite the Economic Secretary to the Treasury and the Government to put on the scales the benefits to the Revenue that are likely to arise from the economic advantages that the country will derive from a renewed and expanded British maritime fleet. Clearly, if we have a more competitive fleet —that is the argument—a fleet that is newer, more effective and based on the use of high technology, it will contribute higher tax revenues to the Exchequer. It would be a consequential benefit to our balance of payments.

My hon. Friend the Member for Barrow and Furness (Mr. Hutton) talked about the prospect of increased orders for ships and maritime equipment within the United Kingdom, and that clearly would be a consequence of the proposals. In addition, the hon. Member for Eastbourne talked about strengthening the United Kingdom's maritime services, particularly in the City of London. For all those reasons, we should support amendments Nos. 37 and 38 as a significant contribution to Britain's economic well-being.

Photo of Mr Mark Wolfson Mr Mark Wolfson , Sevenoaks

I am grateful for this opportunity to make a brief contribution to the debate, which could not be described as anything other than thoroughly thoughtful and measured. I hope that my right hon. and hon. Friends on the Treasury Bench will take into account the concern, interest and determination of the Committee for a change in present policies.

When I last spoke on the issue in July, the debate focused on the defence implications of the decline in the British merchant fleet. As part of the justification for these amendments, hon. Members have already made that point. Nevertheless, I want to emphasise it again.

We are coming very close to the time when our defence strategy could be gravely at risk due to our inability to sealift our forces to where they are required in the world, because we do not have British flag vessels for that purpose. This argument has gone on for more than a decade.

My hon. Friend the Member for Pudsey (Sir G. Shaw) asked for a sympathetic reaction to the amendment from those who sit on the Treasury Bench. I, too, ask for a sympathetic reaction. I have little sympathy For the Government's position because of their inaction on this issue, despite repeated warnings from many hon. Members for many years about the dangers of the inexorable decline of the British merchant fleet.

I shall not re-emphasise how dangerous that decline is, other than to make the point that 10 years ago, on the eve of the Falklands war, the British flag fleet was 10 times larger that it is today. There has therefore been a dramatic drop over a decade. It must not continue. If it is not to continue, we need a change of policy. I am giving away no secrets when I say that the recently retired First Sea Lord has flagged up, as other senior naval officers have done over many years, the dangers, from the defence aspect, of allowing the decline to continue.

On that aspect, and as justification for the amendment, which we support, my view is that this is a classic case of pass the parcel between different Departments of State. The Ministry of Defence is concerned about the sealift issue. That was confirmed last summer by the Minister of State for Defence Procurement. The Department of Transport is the sponsor Department for the industry, and the key to any resolution of the issue is the Treasury. It is Treasury Ministers whom I have firmly in my sights tonight. They hold the key to the resolution of this problem. They are friendly sights, but they are quite beady.

My right hon. Friend the Prime Minister has made it clear that part of our policy for recovery is to give a higher profile to manufacturing industry. That is the Prime Minister's commitment, but action has to follow words. Many other hon. Members suggested that this amendment would also have a beneficial effect on the shipbuilding industry, but in a thoroughly sensible way. It would not, as happened in the past, result in over-capacity. That point was made by my right hon. Friend the Member for Worthing (Sir T. Higgins).

I emphasise, too, the key importance of what was said by my hon. Friend the Member for Eastbourne (Mr. Waterson) about the effect on invisibles that the rundown of the merchant fleet will have. As he said —I could not make this point more strongly in support of his argument —we cannot expect to maintain a viable City-linked, City-based shipping service if we do not have a shipping industry: the two go together. Many people who are involved in shipping in the City are effective in their jobs because they have seagoing experience, and we cannot have one without the other.

I want to be brief, and I do not want to labour points that have already been made. I emphasise to my hon. Friend the Economic Secretary that I am looking for a commitment from him on a minimum of three things: first, that the Treasury is at last seized of the need to arrest the decline in the British merchant fleet; secondly, that he will give further consideration to the arguments that have been deployed tonight, and that we shall return to the issue on report; thirdly, that he and my right hon. Friend the Chancellor will meet representatives of the industry to discuss these issues between now and Report. That is what I look for; it is the minimum that can give me satisfaction as I speak in support of the amendment so clearly moved by my hon. Friend the Member for Pudsey.

Photo of Mr David Shaw Mr David Shaw , Dover 9:45 pm, 12th May 1993

I begin by congratulating my hon. Friend the Member for Eastbourne (Mr. Waterson) on, I believe, his maiden shipping debate speech. Hon. Members who advocate the cause of British shipping welcome his joining our debates and the expertise and experience of the shipping industry that he will bring to bear on the issue.

I have, as many hon. Members will know, a strong constituency interest, and over the years my name has been attached to a number of amendments similar to this one. Indeed, I have had the honour of moving amendments to previous Finance Bills, and I advanced the case in an Adjournment debate last year.

The United Kingdom shipping industry is of much importance to this country; we cannot let it deline. Its recent decline accelerated under the previous Labour Government. We all recall Labour's subsidies for Polish ships and its support for the United Nations Conference on Trade and Development code, which resulted in the British shipping industry not getting its fair share of the market. We also recall the Labour Government of 1974–79 trading with socialist countries that subsidised their shipbuilders. Indeed, my right hon. Friend the Member for Worthing (Sir T. Higgins) spoke of the socialist countries that had subsidised their shipping and shipbuilding industries.

The Government and the Conservative party saved the United Kingdom's car industry. We transformed the car industry, which was in terminal decline under Labour. Why cannot we now tackle the shipping industry? We rescued and rebuilt the car industry, and the time has come to rebuild British shipping.

Many jobs are at stake—not only the direct jobs on the ships and, in my constituency, on the ferries, but jobs in ports, in legal services, in ship brokers, in insurance, the lawyers, accountants and all the many other jobs that are directly and indirectly dependent on the industry. The Government could use this issue to show that they intend to tackle unemployment in London and the south-east. Unemployment in London is high compared with the rest of the country, and many of the jobs involved in the shipping industry are based in London and the south-east.

The amendment may call for 100 per cent. allowances, and the Government may be nervous that 100 per cent. would be excessive, but the answer is that surely we should go for some improvement on the present 25 per cent. writing-down allowance. The purpose of the amendment is to draw attention to the plight of the industry. Hon. Members have already mentioned the age of the fleet, and that problem is getting worse. If nothing is done, there will be a significant reduction in the size of the fleet.

The Government have always had to recognise that there is a problem with the balance of payments if we have fixed exchange rates. We may now have floating exchange rates, but we still have a significant import bill, and shipping could play a major part in reducing the effect of those imports on our balance of payments. The importance of defence, and the fact that we still need a good merchant marine for defence purposes, have also been mentioned.

Why must we change capital allowances above all else? I have answered that question before and I shall answer it again. The Treasury must read the report of the Federal Reserve Bank of New York following the 1988 changes to capital allowances, which makes it clear that the United Kingdom is most competitive in many areas—that is why we get foreign investment here—but that capital allowances are the one factor on which we are not competitive.

The shift in capital allowances went too far in the wrong direction, and it is now necessary to reverse it. In his autumn statement, the Chancellor did reverse it, but for one year only. The shipping industry needs that change to be made permanent.

As my right hon. Friend the Member for Worthing (Sir. T. Higgins) said earlier, a ship represents enormous capital expenditure which, compared with expenditure in other industries, is out of all proportion in terms of the revenue earned. A ship is a very expensive item. The new ferries that P and O has introduced in my constituency cost nearly £100 million apiece. If we are to invest in such shipping and to create the jobs that result, we must recognise that the capital costs and the capital risks, that a businessman is asked to take are enormous.

We must recognise that the cash expenditure and the tax allowances are out of synchronisation. The cash expenditure is incurred on day one, whereas the tax allowances can take ten or twenty years to come into play. Even after four or five years there are significant tax allowances that are still not available. We must bring about a much fairer position—

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Is my hon. Friend asking us to subsidise the shipping industry?

Photo of Mr David Shaw Mr David Shaw , Dover

We are not asking for subsidies. What I ask for is not a subsidy; it would simply bring the risk/reward ratio into line with what it should be. I shall show my hon. Friend the graph and the statistics, and the report of the Federal Reserve Board of New York, and he will see that there would be no subsidy. Risk and reward would simply be brought back into better balance.

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford

Let my hon. Friend admit to the Committee that he is asking for competitive subsidy for the shipping industry. That is what he is arguing for; let him be honest about it. That is not the right way in which to conduct a shipping industry in this world. Surely he must admit that?

Photo of Mr David Shaw Mr David Shaw , Dover

I reject that suggestion. If I insisted that a 100 per cent. allowance was the only solution, perhaps such a measure might reach a point at which it amounted to a subsidy, but I do not believe that that is the only solution. I ask only that it be recognised that the shipping industry has to invest more money in capital risk, recovery of which probably takes a longer time than recovery in any other industry, and that the ratio of labour costs to capital costs is vastly different.

Because there is a different risk/reward ratio, it must be accepted that there should be different tax treatment. One hundred per cent. of labour costs are written off in the year in which they are incurred; it is only capital costs in the industry that are written off over a long period.

As has already been said, when we compare the United Kingdom with the rest of Europe, we realise that there is not a level playing field in the shipping industry. I accept that we are in danger of having to go down the subsidy route because other nations are subsidising their industries out of all proportion to what is required. That is why I say that it may be necessary to have a 100 per cent. allowance for a short term so that we may have a level playing field where we can compete with the rest of Europe.

I should prefer an allowance structure that reflects the risk/reward ratio. I do not believe that, in the long term, it will be necessary to go to 100 per cent. However, we need more than the 25 per cent. writing down allowance, which does not reflect the risk/reward ratio. The report of the Federal Reserve Board makes it clear that it does not work.

I know that the Government are listening to this case as, within the past month, I took representatives of the Chamber of Shipping to see the Secretary of State for Employment. My right hon. Friend was immensely sympathetic. She listened to the problems and is making sure that her civil servants work with the shipping industry to see if a solution is possible.

I have asked for a meeting with the Chancellor. I hope that the Economic Secretary is aware of my request, that he can confirm that the meeting is to take place in the near future, and that he will attend. Such a meeting is necessary. We must put across the case for the shipping industry, and action must be taken. I hope that my hon. Friend will confirm that he is on line to take in the information that we want to bring to him. I look forward to his comments, and I commend the amendment to the Committee.

Photo of Nick Brown Nick Brown Shadow Deputy Leader of the House of Commons

We have had an excellent and very well informed debate on the British shipping industry and on the two amendments that Conservative Members have tabled. The case had been made in very similar terms by the Liberal party, the Conservative party and the parliamentary Labour party. Assistance for the British shipping industry would help our balance of payments. It would improve our invisible earnings and increase tax revenues. Hon. Members have stressed the unique trading position of British shipping as an industrial sector. It trades internationally and operates in a very competitive and highly vulnerable market.

We have heard about the steady decline of the British fleet. My hon. Friend the Member for Ashfield (Mr. Hoon) drew attention to the report of the Select Committee on Transport, which says that the decline in the British fleet is damaging trade. Hon. Members taking part in this debate have pointed out the importance to the Ministry of Defence of ships taken up from trade. Such ships were, of course, available at the time of the Falklands conflict, but if they were needed today they would not be available.

The scale of the problem facing the country today is shown by the fact that, of the approximately 19,000 people serving in the merchant marine, about 8,500 are officers. It takes four to 10 years to train a Merchant Navy officer. The average of officers is rising. This is a feature not of stagnation in the industry but of quite dramatic decline. It has important implications for the long-term future of the industry and for the future defence of the country.

The hon. Member for Pudsey (Sir G. Shaw) knows something about these issues. As a Minister in the Department of Trade and Industry, he dealt with them. He has said that the decline could be terminal by the year 2000. In the Select Committee, estimates have varied, but only by 10 years either way. There is not much of the industry left. The case for doing something now to help it is overwhelming.

I represent a community that has long-standing connections with the shipping and shipbuilding industries. Indeed, South Shields and North Shields have provided both ships and seamen for centuries. Sadly, their association with those industries has paralleled the industries themselves in their decline. Every hon. Member representing a shipbuilding community will remember how, at the time of the Falklands war, their constituents worked all the hours they possibly could to defend the interests of their country. That was in 1982. Some of those shipyard workers even went to sea with the fleet and served in this conflict. What happened to them? When they returned to this country, most of them were made redundant. A similar fate has befallen merchant seamen. There has been a steady decline.

10 pm

As my hon. Friend the Member for Barrow and Furness (Mr. Hutton) pointed out, the quality of engineering work, and the computerisation and high technology aspects of the shipbuilding industry are often misunderstood. Nevertheless, they are important.

Enormous efforts have been made in the shipbuilding industrial sector, yet yesterday the Government effectively closed Swan Hunter on Tyneside. There are no orders, no work and no future for it. There was a management buy-out in 1986. Probably it is impossible for management buy-outs to compete with companies like GEC and VSEL in the industrial sector. Certainly it is impossible for them to compete with the Government in the form of Harland and Wolff.

I remind the House of the bewilderment, the bitterness and the anger felt on Tyneside because of what has happened to its shipbuilding industry. It is also right to assert that the Government should do something now to help, not our shipbuilding industry because that has gone, but the shipping and shipbuilding industry which could be helped by the amendments. The Government should accept the amendments, or there should be a vote.

In the past, we have been sceptical about 100 per cent. capital allowances, because we have been worried about the artificial manipulaton of losses and the offsetting of losses against other obligations to the Exchequer. Those issues are dealt with elsewhere in the Bill, so we need not have quite the same fear.

Conservative Members have hinted at discussions with the Treasury team. Some want discussions before returning to the matter on Report; others want discussions before returning to it perhaps in November. Discussions are likely to be protracted, in view of the attitude of the Chancellor of the Exchequer to such amendments.

If we want to concentrate the Government's mind on the amendments, the way to do so is to insert them into the Bill as an aide memoire. If the Government have better suggestions, they tan put them before the House on Report. We could then consider their suggestions on their merits and compare them with the amendments, which I urge my right hon. and hon. Friends to support.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

May I start by congratulating my hon. Friend the Member for Pudsey (Sir G. Shaw) on the able way in which he moved the amendment and on the compelling and thoughtful debate that has ensued? There is no doubt about the strength of feeling on both sides of the Committee about the importance of the British merchant fleet, and of sustaining it for the future and recognising the serious difficulties and problems through which it has sailed in recent years. Tonight I am charged with the difficult responsibility—[Interruption.]

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. The Chair is having great difficulty in hearing the Minister. If we could have a little quiet, it would be helpful.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I am charged with the difficult responsibility of recognising and sympathising with those real concerns, but also of setting out clearly to the Committee the primacy of dealing with the state of public finances which underlies the Budget strategy. I shall return to that in a moment. I shall also deal briefly with the contributions of all hon. Members, but I wish first to put on record a few statements about this important issue which has become something of a hardy annual in Finance Bill debates.

The amendment would introduce one leg of the industry's proposals, namely, 100 per cent. first year allowances for money spent on ships. We previously made it clear that we recognised the important contribution which shipping makes to the economy and the central role which industry can be called upon to play —[Interruption.]

The First Deputy Chairman:

Order. I have just appealed for Members to give the Chair and the Committee an opportunity to listen to what the Minister is saying. If Members beyond the Bar want to have discussions, will they please leave the Chamber?

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

The Government have, over successive years, done things to help the British Merchant Navy. They are doing things in this Budget and they have an open mind for the future, as and when the opportunity arises, to continue to sustain and help the industry. Let me set out the facts.

Since 1979 we have introduced a number of measures, including some on the tax front, to help the industry. First, in 1985 we brought forward the point at which allowances for machinery and plant could be claimed by businesses. Since then, shipping companies have consequently been able to claim relief for new ships from the date when the money was spent rather than from the time when the vessel is brought into use. This is particularly valuable to ships which take time to build.

Secondly, we have specifically helped shipping companies by giving greater flexibility in the use of writing down allowances. Before 1985, allowances for new ships could be postponed and taken in later years whenever it suited the shipowner to do so. In 1985, following representations from the shipping industry, we extended this important concession to cover purchases of second-hand ships. No other industry receives such concessions.

Thirdly, we have twice loosened the requirements which seafarers must meet to be able to claim exemption from United Kingdom tax. They need now spend only six months abroad to qualify for this concession—an arrangement which is more generous than that enjoyed by any other United Kingdom citizen working overseas.

Fourthly, on corporation tax, we have greatly reduced the rates of tax on company profits, from 52 per cent. in 1984 to 33 per cent. We have also introduced very generous arrangements enabling the carrying back of profits to be set against losses over the previous three years.

As for non-tax measures, we have put in place a succession of changes aimed at helping shipping businesses to compete internationally: grants towards the cost of merchant officer training; the funding of the Merchant Navy reserve; and financial assistance with the cost of transporting British crews to and from distant waters. As the Committee will know, next week a very important Bill —the Merchant Shipping (Registration) Bill—will come before the House of Lords which will substantially complete the implementation of the measures agreed by the 1990 joint Government-industry working party.

That list demonstrates the help that we have given to all businesses, and the additional further assistance that we have given to shipping. What we have not been prepared to do is to give concessions at an unjustified level. This amendment, clearly in our view, is just such a measure. There are a number of reasons which I must enunciate for saying that. The arguments so ably presented by my hon. friends deserve the response of the Government, and I will seek to put the Government's arguments.

First, the Government argue that the amendment would be very expensive, costing, on the Chamber of Shipping's own figures, between £80 million and more than £100 million each year in terms of tax revenue forgone—and this of course would fall in the years when finances were at their tightest and taxes generally were having to be raised.

Secondly, the extent to which it would achieve the industry's objective of stimulating increased levels of investment is highly questionable. It is worth remembering that when 100 per cent. first year capital allowances were previously available for investment in shipping, between 1970 and 1984, they did nothing to prevent a significant decline in the size of the United Kingdom merchant fleet—from 32.2 million gross registered tonnes in 1975 to 13.3 million in 1985.

Since our changes to the business tax regime in 1984, we have seen an increase in investment in ships by United Kingdom-owned companies. It is very important to appreciate that. We hear a great deal about the rundown of the British merchant fleet, but on the money side the fact is that in 1988 investment in the shipping fleet was some £45 million, but it rose to £402 million in 1991. This suggests that the remedy for the industry's difficulties must lie outside the fundamental changes to the tax treatment which the industry is seeking.

Thirdly, the amendment would do nothing to stop flagging out. That is because tax allowances are tied to ownership and not to registration, so there would be nothing to stop United Kingdom companies taking the subsidy and continuing to operate the ships from offshore registers. Moreover, such a measure would clearly run counter to the thrust of general tax policy.

Tax breaks for shipping alone would distort the market and resources would be diverted from inherently more profitable investment, which, taking the economy as a whole, might not be a sensible use of the limited financial resources available.

Other countries may choose to subsidise their shipping industries, although it has to be said that none of those countries does so to the extent of giving 100 per cent. first year allowances for capital investment. Our priorities are to ensure that the tax system is fair, that it provides a favourable climate for all businesses to operate in, and that profitable investment is properly rewarded.

Even under the current system, the United Kingdom has a particularly generous system of capital allowances. When the first year allowance for machinery and plant reverts to 25 per cent. in November, expenditure can be written off for tax purposes over seven to eight years, and will still be significantly higher than the rate of economic depreciation for most business assets, particularly for ships, which generally last for much longer than the tax system allows.

The industry, therefore, is already getting a particularly good deal from the present system, and the tax it pays on its profits is the lowest in Europe; it is also lower than that in Japan and the United States.

I turn briefly but specifically to the contributions of my hon. Friends. My hon. Friend the Member for Pudsey said that time is of the essence. He and my hon. Friend the Member for Bexleyheath (Mr. Townsend) stressed the defence implications and the importance of the shipbuilding industry, a point emotionally and justifiably made by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) on behalf of his constituency and the official Opposition.

The hon. Member for Barrow and Furness (Mr. Hutton) called for a strategic overview. I acknowledge the importance of the industry in his constituency, which I know well, and point out the help that is available through the home shipbuilding credit guarantee scheme and the shipbuilding intervention fund to assist the industry.

The hon. Gentleman and the House should acknowledge that there are three related but quite separate issues: the shipbuilding industry, the shipowning industry, and the British register of shipping.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

On a point of order, Mr. Lofthouse. It is utterly impossible to hear a word that is being said.

The First Deputy Chairman:

Order. I have appealed to the Committee twice to give the Minister the opportunity to be heard. My appeal appears to have fallen on deaf ears. Once again I appeal to all hon. Members, especially beyond the Bar. If they want to talk, they should leave the Chamber. Those on both Front Benches are not setting a great example.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I am anxious to address with expedition but with courtesy the points raised by those who contributed to this important debate.

My right hon. Friend the Member for Worthing (Sir T. Higgins) rightly referred to the high initial capital cost of ships. We have a generous system of writing down tax allowances, especially with the 40 per cent. enhanced tax allowance introduced in the clause. It will enable people to claim back more than 60 per cent. over two years and, in any case, the writing down allowance of some 25 per cent. is much faster than the rate of depreciation of the real value of the ships.

With regard to the difficulties that my right hon. Friend and others flagged up about differences between the computations of the Chamber of Shipping and the Government, our assessments of the yields forgone and the cost of the measures are based on the figures presented by the Chamber of Shipping which suggested to us that the net cost per annum would be about £30 million to £45 million a year over five years. That is on a net basis. taking account of the guesstimate assessment of income that would accrue from the investments that were made discounted back to a present value basis. If that is not done, the yield cost rises to between £80 and £115 million a year. I believe that the Chamber of Shipping would agree those figures.

The measure adds up to a significant cost, about £380 million over and above the £700 million relief which the Government are providing.

I am the Treasury Minister whose prime responsibility is to sell gilt-edged securities and raise funding through the Department of National Savings. Given the size of this year's PSBR, I have a big enough job on my hands without adding to it significantly. We are providing some £700 million of relief; an additional cost of some £380 million over the next five years would be difficult to sustain.

The hon. Member for North Devon (Mr. Harvey) said that we must act. Like others, he spoke of foreign competition and the balance of payments. I acknowledge that the balance of payments, and the gross inflows of money that have been so important to us in the past, provide the basis of one of the most persuasive arguments in favour of the amendment.

10.15 pm

My hon. Friend the Member for Eastbourne (Mr. Waterson) spoke of the shipping industry's importance to the economy, reminding us that some 30,000 people were indirectly employed in it. He and others pointed to its association with professional industries in the United Kingdom; but they, too, rely not only on indirect capital allowances to the British merchant fleet, but on the health and vibrancy of the British economy—on low tax rates and sensible management. They rely on Government to provide a climate in which they can prosper and attract professional business from all over the world.

The hon. Member for Ashfield (Mr. Hoon) also spoke of international competition. He asked why the British fleet had declined. I can provide no better reference than the speech of my hon. Friend the Member for Dover, who cited some of the reasons for that decline.

My hon. Friend the Member for Sevenoaks (Mr. Wolfson) said that the country's defence strategy would be gravely at risk unless we acted now by providing enhanced capital allowances to help the industry. As was pointed out during a debate in July in which my hon. Friend took part, Operation Granby in the Gulf was extremely successful: we were able voluntarily to charter some 109 foreign vessels, and only five United Kingdom vessels. My hon. Friend the Minister of State for Defence Procurement has made it clear on behalf of the Government that we can mount such operations, that we have been successful, and that we believe that, if necessary, we could do so again.

My hon. Friend said that, nevertheless, the industry had declined over 10 years, and that that must not be allowed to continue; and he asked me for a commitment that I would listen. I hope I have shown that I have done that. He also asked me for a commitment that I would be prepared to speak to the Chamber of Shipping about the matter in the immediate future. I am more than happy to extend such an invitation, and to meet the Chamber of Shipping.

It is not for me to determine what issues come up on Report, but I am more than willing to concede that it is my responsibility to listen, learn and pay attention to consultations, as I have done during the debate.

For all those reasons and more, I urge all my hon. Friends to understand that we must concentrate on tackling the state of our public finances to ensure that the deficit is tackled without hindrance to recovery. We cannot do that if, in clause after clause, we add to the amount that we must borrow: that is to put off until tomorrow problems with which we must deal today. Although we may not be able to go as far as some would like in helping the industry today, we have a creditable record.

Photo of Mr Giles Shaw Mr Giles Shaw , Pudsey

I have listened carefully to the speech of my hon. Friend the Economic Secretary. He has agreed to meet the industry. Will he agree to examine the question of the maritime enterprise zone and other measures to see whether they are acceptable? Provided that he discusses a wide range of issues with the industry, the meeting will be helpful. That is what the industry wants.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I shall be more than happy to entertain any suggestions and ideas that are presented. The Treasury's doors are open. I must point out, however, that, according to our estimates, the three elements of the maritime enterprise zone package would cost between £300 million and £500 million, of which the 100 per cent. allowance would be by far the largest part. It would be quite improper to raise hopes. I must be straight with the Committee, but I will listen to sensible proposals. There may be other times and possibilities. Certainly I give the undertaking that my hon. Friend seeks.

Photo of Mr Giles Shaw Mr Giles Shaw , Pudsey

I am glad that my hon. Friend recognises that this issue is of extreme importance and one that requires extreme care, good listening and good discussion. In view of the urgency of the matter, I hope that he will agree to do that quickly. If it is possible to make a further statement on Report, or to bring further proposals before the Committee, I hope that he will so do.

In view of these assurances, I beg to ask leave to withdraw the amendment.—[Interruption.]

The First Deputy Chairman:

No.

Question put, That the amendment be made:—

The Committee divided: Ayes 244, Noes 279.

Division No. 267][10.20 pm
AYES
Abbott, Ms DianeAllen, Graham
Adams, Mrs IreneAlton, David
Ainger, NickAnderson, Donald (Swansea E)
Ainsworth, Robert (Cov'try NE)Armstrong, Hilary
Ashdown, Rt Hon PaddyGilbert, Rt Hon Dr John
Ashton, JoeGodsiff, Roger
Austin-Walker, JohnGolding, Mrs Llin
Barnes, HarryGordon, Mildred
Barron, KevinGould, Bryan
Battle, JohnGraham, Thomas
Bayley, HughGrant, Bernie (Tottenham)
Beggs, RoyGriffiths, Nigel (Edinburgh S)
Beith, Rt Hon A. J.Griffiths, Win (Bridgend)
Bell, StuartGrocott, Bruce
Benn, Rt Hon TonyGunnell, John
Benton, JoeHain, Peter
Bermingham, GeraldHall, Mike
Berry, Dr. RogerHanson, David
Betts, CliveHarman, Ms Harriet
Blair, TonyHarvey, Nick
Blunkett. DavidHenderson, Doug
Boateng, PaulHeppell, John
Boyce, JimmyHill, Keith (Streatham)
Boyes, RolandHinchliffe, David
Bradley, KeithHoey, Kate
Bray, Dr JeremyHogg, Norman (Cumbernauld)
Brown, Gordon (Dunfermline E)Home Robertson, John
Brown, N.(N'c'tle upon Tyne E)Hood, Jimmy
Bruce, Malcolm (Gordon)Hoon, Geoffrey
Burden, RichardHowarth, George (Knowsley N)
Byers, StephenHowells, Dr. Kim (Pontypridd)
Callaghan, JimHoyle, Doug
Campbell, Mrs Anne (C'bridge)Hughes, Kevin (Doncaster N)
Campbell, Menzies (Fife NE)Hughes, Simon (Southwark)
Campbell, Ronnie (Blyth V)Hutton, John
Campbell-Savours, D. N.Illsley, Eric
Canavan, DennisJackson, Glenda (H'stead)
Cann, JamieJackson, Helen (Shef'ld, H)
Carlile, Alexander (Montgomry)Jamieson, David
Chisholm, MalcolmJanner, Greville
Clark, Dr David (South Shields)Jones, Ieuan Wyn (Ynys Môn)
Clarke, Eric (Midlothian)Jones, Jon Owen (Cardiff C)
Clarke, Tom (Monklands W)Jones, Lynne (B'ham S O)
Clelland, DavidJones, Martyn (Clwyd, SW)
Clwyd, Mrs AnnJowell, Tessa
Cohen, HarryKaufman, Rt Hon Gerald
Cook, Frank (Stockton N)Keen, Alan
Cook, Robin (Livingston)Kennedy, Jane (Lpool Brdgn)
Corbett, RobinKhabra, Piara S.
Corston, Ms JeanKilfoyle, Peter
Cousins, JimLeighton, Ron
Cryer, BobLestor, Joan (Eccles)
Cunningham, Jim (Covy SE)Lewis, Terry
Cunningham, Rt Hon Dr JohnLivingstone, Ken
Dafis, CynogLloyd, Tony (Stretford)
Darling, AlistairLlwyd, Elfyn
Davidson, IanLynne, Ms Liz
Davies, Bryan (Oldham C'tral)McAllion, John
Davies, Rt Hon Denzil (Llanelli)McAvoy, Thomas
Denham, JohnMcCartney, Ian
Dewar, DonaldMacdonald, Calum
Dixon, DonMcFall, John
Dobson, FrankMcKelvey, William
Donohoe, Brian H.McLeish, Henry
Dowd, JimMaclennan, Robert
Dunwoody, Mrs GwynethMcMaster, Gordon
Eagle, Ms AngelaMadden, Max
Eastham, KenMahon, Alice
Enright, DerekMandelson, Peter
Etherington, BillMarek, Dr John
Ewing, Mrs MargaretMarshall, David (Shettleston)
Fatchett, DerekMarshall, Jim (Leicester, S)
Field, Frank (Birkenhead)Martin, Michael J.(Springburn)
Fisher, MarkMartlew, Eric
Flynn, PaulMaxton, John
Foster, Rt Hon DerekMeacher, Michael
Foster, Don (Bath)Meale, Alan
Foulkes, GeorgeMichael, Alun
Fraser, JohnMichie, Bill (Sheffield Heeley)
Fyfe, MariaMilburn, Alan
Gapes, MikeMiller, Andrew
Garrett, JohnMitchell, Austin (Gt Grimsby)
George, BruceMorgan, Rhodri
Gerrard, NeilMorley, Elliot
Morris, Rt Hon A.(Wy'nshawe)Skinner, Dennis
Morris, Estelle (B'ham Yardley)Smith, Andrew (Oxford E)
Morris, Rt Hon J.(Aberavon)Smith, C.(Isl'ton S & F'sbury)
Mowlam, MarjorieSmith, Llew (Blaenau Gwent)
Mullin, ChrisSoley, Clive
Murphy, PaulSpearing, Nigel
Oakes, Rt Hon GordonSteel, Rt Hon Sir David
O'Brien, Michael (N W'kshire)Steinberg, Gerry
O'Hara, EdwardStott, Roger
Olner, WilliamStrang, Dr. Gavin
O'Neill, MartinStraw, Jack
Parry, RobertTaylor, Mrs Ann (Dewsbury)
Pendry, TomTaylor, Rt Hon John D.(Strgfd)
Pickthall, ColinTaylor, Matthew (Truro)
Pike, Peter L.Tipping, Paddy
Powell, Ray (Ogmore)Trimble, David
Prentice, Ms Bridget (Lew'm E)Turner, Dennis
Prentice, Gordon (Pendle)Vaz, Keith
Prescott, JohnWalker, Rt Hon Sir Harold
Primarolo, DawnWallace, James
Purchase, KenWalley, Joan
Quin, Ms JoyceWardell, Gareth (Gower)
Radice, GilesWareing, Robert N
Raynsford, NickWatson, Mike
Reid, Dr JohnWicks, Malcolm
Rendel, DavidWigley, Dafydd
Robertson, George (Hamilton)Williams, Rt Hon Alan (Sw'n W)
Robinson, Geoffrey (Co'try NW)Williams, Alan W (Carmarthen)
Roche, Mrs. BarbaraWilson, Brian
Rogers, AllanWinnick, David
Rooker, JeffWise, Audrey
Rowlands, TedWolfson, Mark
Ruddock, JoanWorthington, Tony
Salmond, AlexWray, Jimmy
Sedgemore, BrianWright, Dr Tony
Sheerman, BarryYoung, David (Bolton SE)
Sheldon, Rt Hon Robert
Shore, Rt Hon PeterTellers for the Ayes:
Short, ClareMr. John Spellar and Mr. Andrew Mackinlay.
Simpson, Alan
NOES
Ainsworth, Peter (East Surrey)Butcher, John
Aitken, JonathanButler, Peter
Alison, Rt Hon Michael (Selby)Carlisle, John (Luton North)
Allason, Rupert (Torbay)Carrington, Matthew
Amess, DavidCarttiss, Michael
Ancram, MichaelCash, William
Arbuthnot, JamesChannon, Rt Hon Paul
Arnold, Jacques (Gravesham)Churchill, Mr
Arnold, Sir Thomas (Hazel Grv)Clappison, James
Ashby, DavidClark, Dr Michael (Rochford)
Aspinwall, JackClifton-Brown, Geoffrey
Atkinson, Peter (Hexham)Coe, Sebastian
Baldry, TonyCongdon, David
Banks, Matthew (Southport)Conway, Derek
Bates, MichaelCoombs, Anthony (Wyre For'st)
Batiste, SpencerCoombs, Simon (Swindon)
Bellingham, HenryCope, Rt Hon Sir John
Bendall, VivianCouchman, James
Beresford, Sir PaulCran. James
Biffen, Rt Hon JohnCurrie, Mrs Edwina (S D'by'ire)
Blackburn, Dr John G.Curry, David (Skipton & Ripon)
Body, Sir RichardDavies, Quentin (Stamford)
Bonsor, Sir NicholasDavis, David (Boothferry)
Booth, HartleyDay, Stephen
Boswell, TimDeva, Nirj Joseph
Bottomley, Peter (Eltham)Devlin, Tim
Bottomley, Rt Hon VirginiaDickens, Geoffrey
Bowis, JohnDicks, Terry
Boyson, Rt Hon Sir RhodesDorrell, Stephen
Brandreth, GylesDover, Den
Brazier, JulianDuncan, Alan
Bright, GrahamDuncan-Smith, Iain
Brooke, Rt Hon PeterDunn, Bob
Brown, M.(Brigg & Cl'thorpes)Dykes, Hugh
Browning, Mrs. AngelaEggar, Tim
Bruce, Ian (S Dorset)Elletson, Harold
Burns, SimonEmery, Rt Hon Sir Peter
Burt, AlistairEvans, David (Welwyn Hatfield)
Evans, Jonathan (Brecon)Hughes Robert G.(Harrow W)
Evans, Nigel (Ribble Valley)Hunter, Andrew
Evans, Roger (Monmouth)Hurd, Rt Hon Douglas
Evennett, DavidJack, Michael
Faber, DavidJackson, Robert (Wantage)
Fabricant, MichaelJenkin, Bernard
Field, Barry (Isle of Wight)Jessel, Toby
Fishburn, DudleyJohnson Smith, Sir Geoffrey
Forman, NigelJones, Gwilym (Cardiff N)
Forth, EricJones, Robert B.(W Hertfdshr)
Fowler, Rt Hon Sir NormanJopling, Rt Hon Michael
Fox, Dr Liam (Woodspring)Kellett-Bowman, Dame Elaine
Fox, Sir Marcus (Shipley)Key, Robert
Freeman, RogerKing, Rt Hon Tom
French, DouglasKirkhope, Timothy
Fry, PeterKnapman, Roger
Gale, RogerKnight, Mrs Angela (Erewash)
Gardiner, Sir GeorgeKnight, Greg (Derby N)
Garel-Jones, Rt Hon TristanKnight, Dame Jill (Bir'm E'st'n)
Garnier, EdwardKnox, David
Gill, ChristopherLait, Mrs Jacqui
Gillan, CherylLamont, Rt Hon Norman
Goodlad, Rt Hon AlastairLawrence, Sir Ivan
Goodson-Wickes, Dr CharlesLegg, Barry
Gorman, Mrs TeresaLennox-Boyd, Mark
Gorst, JohnLester, Jim (Broxtowe)
Greenway, Harry (Ealing N)Lidington, David
Greenway, John (Ryedale)Lightbown, David
Griffiths, Peter (Portsmouth, N)Lilley, Rt Hon Peter
Grylls, Sir MichaelLloyd, Peter (Fareham)
Gummer, Rt Hon John SelwynLord, Michael
Hague, WilliamLuff, Peter
Hamilton, Rt Hon Archie (Epsom)Lyell, Rt Hon Sir Nicholas
Hannam, Sir JohnMacGregor, Rt Hon John
Hargreaves, AndrewMacKay, Andrew
Harris, DavidMaclean, David
Haselhurst, AlanMcLoughlin, Patrick
Hawkins, NickMcNair-Wilson, Sir Patrick
Hawksley, WarrenMadel, David
Hayes, JerryMaitland, Lady Olga
Heald, OliverMalone, Gerald
Heath, Rt Hon Sir EdwardMans, Keith
Heathcoat-Amory, DavidMarland, Paul
Hendry, CharlesMarlow, Tony
Heseltine, Rt Hon MichaelMarshall, John (Hendon S)
Hicks, RobertMarshall, Sir Michael (Arundel)
Hill, James (Southampton Test)Martin, David (Portsmouth S)
Hogg, Rt Hon Douglas (G'tham)Mawhinney, Dr Brian
Horam, JohnMayhew, Rt Hon Sir Patrick
Hordern, Rt Hon Sir PeterMellor, Rt Hon David
Howard, Rt Hon MichaelMerchant, Piers
Howarth, Alan (Strat'rd-on-A)Milligan, Stephen
Howell, Rt Hon David (G'dford)Mitchell, Andrew (Gedling)
Moate, Sir RogerSpring, Richard
Montgomery, Sir FergusSproat, Iain
Moss, MalcolmSquire, Robin (Hornchurch)
Needham, RichardStanley, Rt Hon Sir John
Nelson, AnthonySteen, Anthony
Neubert, Sir MichaelStephen, Michael
Newton, Rt Hon TonyStern, Michael
Nicholls, PatrickStreeter, Gary
Nicholson, David (Taunton)Sumberg, David
Nicholson, Emma (Devon West)Sweeney, Walter
Norris, SteveSykes, John
Onslow, Rt Hon Sir CranleyTapsell, Sir Peter
Oppenheim, PhillipTaylor, Ian (Esher)
Ottaway, RichardTaylor, John M.(Solihull)
Page, RichardTaylor, Sir Teddy (Southend, E)
Paice, JamesTemple-Morris, Peter
Patnick, IrvineThomason, Roy
Patten, Rt Hon JohnThompson, Patrick (Norwich N)
Pattie, Rt Hon Sir GeoffreyThornton, Sir Malcolm
Pawsey, JamesThurnham, Peter
Peacock, Mrs ElizabethTracey, Richard
Pickles, EricTredinnick, David
Porter, David (Waveney)Trend, Michael
Portillo, Rt Hon MichaelTwinn, Dr Ian
Powell, William (Corby)Vaughan, Sir Gerard
Redwood, JohnViggers, Peter
Renton, Rt Hon TimWaldegrave, Rt Hon William
Richards, RodWalden, George
Riddick, GrahamWaller, Gary
Rifkind, Rt Hon. MalcolmWardle, Charles (Bexhill)
Robathan, AndrewWaterson, Nigel
Roberts, Rt Hon Sir WynWatts, John
Robinson, Mark (Somerton)Wells, Bowen
Roe, Mrs Marion (Broxbourne)Wheeler, Rt Hon Sir John
Rowe, Andrew (Mid Kent)Whitney, Ray
Rumbold, Rt Hon Dame AngelaWhittingdale, John
Ryder, Rt Hon RichardWiddecombe, Ann
Sackville, TomWiggin, Sir Jerry
Sainsbury, Rt Hon TimWilkinson, John
Scott, Rt Hon NicholasWilletts, David
Shephard, Rt Hon GillianWilshire, David
Shepherd, Colin (Hereford)Winterton, Mrs Ann (Congleton)
Shepherd, Richard (Aldridge)Winterton, Nicholas (Macc'f'ld)
Shersby, MichaelWood, Timothy
Sims, RogerYeo, Tim
Skeet, Sir TrevorYoung, Sir George (Acton)
Smith, Tim (Beaconsfield)
Soames, NicholasTellers for the Noes:
Spicer, Sir James (W Dorset)Mr. Sydney Chapman and Mr. Nicholas Baker.
Spicer, Michael (S Worcs)
Spink, Dr Robert

Question accordingly negatived.

Photo of Nick Brown Nick Brown Shadow Deputy Leader of the House of Commons

I beg to move amendment No. 53, in page 84, line 20, leave out "1993" and insert "1994".

It was our original intention to construct this debate in such a way as to allow us to have a general debate on general allowances and perhaps accommodate the debate on shipping as well. However, there was so much interest in the shipping allowances—the Chancellor has taken a deep, long and sustained interest in this matter—that we thought it right to have the debate in the manner which we have done. Many Labour Members wish to debate the matter covered by this amendment—that is, a general debate about capital allowances. Equally, Conservative Members are eager to take part in this debate, and I am sure that there will be an equivalent number of Labour Members. It is good that the Chancellor is here to listen to a debate on what is left of our nation's manufacturing base.

The parameters for the debate are well known to every Member of Parliament who represents a constituency with large manufacturing interests. Indeed, I represented such a constituency until yesterday, although I am not sure that that will be the case next week. The decline in economic growth for 10 consecutive quarters has taken its toll. Throughout that period, we have managed to have a balance of payments deficit. We have had a balance of payments deficit even in recession. The deficit now acts as a constraint on recovery. In 10 of the past 13 years since 1979, net investment in new machinery has taken place at less than the rate at which old machinery has been scrapped. Until 1982, the United Kingdom enjoyed trade surpluses in manufactured goods. Since 1983, we have suffered deficits in the same area. Since 1979, two out of every five jobs in manufacturing industry have disappeared, and the Government's response has been feeble in the extreme.

It is the Labour party's contention that some certainty of intervention is required from the Government. Our amendment, as well as being a vehicle for debate, is modest. It simply seeks to extend the time period for the concessions contained in the Bill. That is not a concept that the Chancellor will find difficult—indeed, he has applied the same concept to many other areas of taxation in the Budget.

The amendment is modest, but it will provide some certainty for those who would like to rely on the concessions. I commend it to the Committee.

Photo of Mr Gary Waller Mr Gary Waller , Keighley

The short-term encouragement of investment in plant and equipment which was provided by the Chancellor's announcement on capital allowances last year was welcome. There are good grounds for believing that it has contributed to the recovery which has clearly begun in manufacturing industry. However, we need a longer-term programme to encourage investment in the United Kingdom, especially investment by small and medium-sized enterprises which are rightly described as crucial to our economic success.

I shall make a brief declaration of interest. My constituency has not only a great deal of manufacturing industry but a number of machine tool companies and I am an adviser to the Machine Tool Technologies Association. It goes without saying that the machine tool industry would like to see a major improvement in capital investment in the United Kingdom. However, it does not seek specific support directed at its own sector. Rather, it looks to the Government to develop fiscal policies which encourage more smaller companies to invest in the type of equipment which will provide tomorrow's growth.

It is often pointed out that a significant proportion of the largest companies in Europe are located in the United Kingdom. A major proportion of the work force here is employed by those companies. But at the same time relatively few small and medium-sized enterprises develop to become manufacturing giants in their own right. It seems likely that one factor which holds them back is a marked reluctance to invest in high technology modern equipment compared with many of their overseas competitors.

I suggest that that is regrettable, not only because of the opportunity forgone to generate additional employment opportunities, but because smaller companies are particularly important in driving forward innovation. The most modern advanced equipment is often expensive. I believe that we need a strategic policy to help small and medium-sized companies to re-equip and put themselves at the leading edge of technology. That is what the Japanese and others who have enjoyed considerable success have done in the past. It is not called intervention, but it is a policy which encourages investment. It is directed specifically towards smaller firms, which happen to be those which are often placed at a disadvantage because they are more vulnerable than many of their customers and suppliers in matters such as cash flow and because they are reluctant to take risks which might leave them at the mercy of their bankers.

Although Japan, like other countries, has suffered in the recession, it is notable that in recent years Japanese companies have invested twice as much as many others in capital equipment. If we are to get on the same track, we need to follow suit. The Confederation of British Industry national manufacturing council has said that Britain needs to double its level of investment in capital equipment by the end of the decade in order to match our industrial competitors.

In terms of investment, the United Kingdom has remained bottom of the G7 countries and low down among the Organisation for Economic Co-operation and Development countries. In Europe, German economic performance has been particularly notable in recent years. The National Institute of Economic and Social Research has identified low levels of investment in capital as a major deficiency among British firms compared with their German counterparts.

A choice between more generous capital allowances and higher corporation tax is often put. My experience is that, offered that choice, a substantial proportion of companies would be willing to pay a higher rate of corporation tax, provided that it was combined with more positive allowances to encourage investment.

The debate has provided an opportunity to air the issue. I suggest that we need a more focused incentive to investment than the amendment implies. Capital allowances should be more generous than those which currently exist, but they should bring special benefits to smaller and medium-sized enterprises. Above all, they should he targeted to bring about the investment in the type of high technology which is more widely available to some of Britain's most successful competitors and which is becoming increasingly essential. I hope that my right hon. and hon. Friends will therefore consider the need for an appropriate strategy.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury)

There are broadly two views about corporation tax allowances and the rate of corporation tax and the hon. Member for Keighley (Mr. Waller) has just advanced one of them. The Chancellor has embraced both of them during the past two years. One view is that we should try to keep the corporation tax rate down and, therefore, not grant a wide range of capital allowances. The other is that capital allowances for investment are more likely to bring about investment and that many business men—I know that this is true—would be willing to accept such a trade-off. They would risk a higher rate of corporation tax, or at least no further reduction, if they could get higher investment allowances.

Those who favour allowances include those who believe that those allowances should be selective or targeted. The hon. Member for Keighley advanced that view. The Labour party has advanced that view from time to time by seeking a restriction to manufacturing industry. It is one thing to target certain things which seem to be for the general good and should be the subject of allowances, such as environmental improvements; it is another to draw a broad distinction between manufacturing industry and services. That cannot reasonably be done. It does not make sense. I say that despite wishing to see British manufacturing industry revived. To impose an artificial division between manufacturing and services would not help British industry.

10.45 pm

In the aftermath of the recession the Government were forced to look for a way to stimulate the economy, and so departed from their previous strong line against more generous capital allowances. In doing so, they probably reflected the views of many business men. Certainly in the consultations that I have had recently with business men, the majority have argued for the allowance route rather than the lower corporation tax route.

If one tells business men to bear in mind the fact that Britain has lower corporation tax than Germany, they say, "Yes, but look at the use that German manufacturers are able to make of their investment allowances, the level of investment and the quality of German manufacturing plant compared with ours". That is a persuasive argument. It leads one to consider the merits of the amendment, which argues for extending the time scale.

Perhaps we can have a sort of Newbury extension to the capital allowances in the light of the fact that there is clearly greater public dissatisfaction over the recession than the Government first allowed. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) said that the Chancellor had readily taken up the concept of extending the time scale into other aspects of tax policy. He carries it also into his view of his job. He is extending the time scale of that as much as he possibly can against all those who are trying to get rid of him.

There probably would be merit in extending the time scale. The Government may have in mind the fact that a cut-off date is sometimes in itself a useful way of stimulating investment, as Lord Howe found out when he was Chancellor. But industry is looking for longer-term encouragement.

Despite my belief that we do not want to get to the point where the Government are choosing what is industry's best investment, trying to run industry and having such a complex system of investment allowances that they are pretending to know better than industry what is a sensible investment, we must listen, particularly in the face of all the signs of the decline of our manufacturing industry, to the pleas of manufacturers for investment allowances.

There was a case for the Government's decision in the Budget to go back on their previous rather hard line on the issue and there may be a case for keeping it going a bit longer.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

When I spoke recently with local business men and with Coventry and Warwickshire CBI at its annual meeting with local Members of Parliament, two issues emerged that were central to their decision to invest in manufacturing. The first was the need for better incentives, particularly capital allowances, over the longer term to encourage manufacturing investment. The second was the need to have confidence in the Chancellor's management of the economy so that they could have confidence that the Government knew what they were doing and had some sort of long-term strategy which would allow them to invest in their industry. The Budget and the Bill provide neither of those.

My constituency and my region have been hard hit by the recession. In north Warwickshire, unemployment has risen by 135 per cent. since the Prime Minister took office. Federal Express, Burlingtons and Coventry pit have all closed. Daw Mill pit has sought to make redundant 587 men, half its work force. In the west midlands as a whole, manufacturing industry has been devastated. In the past couple of months 640 jobs were lost at Rolls-Royce in Coventry, 100 jobs at British Rail in Walsall, 75 at Courtaulds in Coventry, 227 at Leyland DAF and 160 at Sandwell Contract Services. The list goes on.

Once, local people in the west midlands were proud to see "Made in the west midlands" on products. Unfortunately, that is now all too rare. Britain's manufacturing heartland now has 42 people chasing every job. Indeed, "Made in Britain" is not only on fewer products these days, but more products are imported into Britain having been made in Hong Kong, the United States, France or Taiwan, than we export with "Made in Britain" on them.

Manufacturing investment fell by 13 per cent. between 1989 and 1991. In 1992 it fell by 2 per cent. and it is expected to grow only marginally this year. The decline in manufacturing industry, resulting from the lack of a clear industrial strategy, is the major cause of our balance of trade problems.

Manufacturing activity is now barely above the levels of 1979, while our performance relative to most of our competitors has seen Britain slipping further behind. Many business men see the Conservative attitude to manufacturing investment as that expressed by a recent Chancellor of the Exchequer, who said: I am at a loss to understand the selective importance attached…to the manufacturing sector."—[Official Report, 9 February 1984; Vol. 53, c. 1009.] The present Chancellor's recent conversion to the need to give some support to manufacturing industry is an example of too little, too late. The damage has been done. Determined action is needed for recovery and the Bill does not provide that action.

Manufacturing is a key sector of the economy, because it is the engine of growth and the purveyor of technical progress. As a nation, two thirds of our earnings from foreign currency come from manufactured goods. With the decline in North sea oil, the manufacturing sector is the essential ingredient for solving the balance of payments problem. Failure to support manufacturing investment in the 1980s has resulted in a trade deficit in the middle of a recession for the first time in post-war history. Import penetration is growing. As recovery comes, imports are likely to increase, making the deficit even worse.

If we are to avoid a balance of payments crisis and a collapse of the pound, we must begin to act. Labour's call to extend capital allowances is an important element in an overall package. It recognises the need to boost manufacturing as recovery takes place. Business men know that the Government's deferred tax increases, planned for next year, will hit demand at the very time that they expected to invest more in order to create recovery. They will be concerned about too great a commitment of their companies' finances and resources at the very time when the recovery, such as it is, may be damaged by the Government's deferred tax increases.

It seems that this is the first recovery in history where action has been taken to damp it down before it has really got started. Business men need greater encouragement over the longer term to invest, both now and over the next few years, to ensure that British manufacturing industry can recover and create the goods to meet any new demand that may be created in Britain, rather than allowing that demand to suck in imports. That is why capital allowances are so important.

Capital allowances, however, must be seen as only part of an overall strategy for manufacturing industry. That strategy must include improving the skills of our current work force and improving the education of our young people, our future work force. We must create a highly educated, highly skilled new work force that is able to adapt to the changing demands of business and the international economy.

One set of figures is interesting in this connection—that 27 per cent. of British workers have technical qualifications, whereas 53 per cent. in Germany, 57 per cent. in the Netherlands and 40 per cent. in France have technical qualifications. If we do not increase our skills, we shall be unable to compete on quality. If we cannot compete on the quality of our products, we shall be forced to drive down wages and overheads so as to be able to compete on price. We do not want to see British salaries and working conditions decline to third-world levels. Until Ministers remove the low-skill shackles from workers, Britain will not have a long-term competitive future.

Other key needs include improved infrastructure, particularly the transport infrastructure. We also need to target high technology and high-growth new businesses, with tax allowances for new investment. We need, too, financial institutions that look to the long term, that invest in the long term and that small business men can rely upon to see them through the troughs of recession. It is the lack of a clear industrial strategy to complement capital allowances that is missing in Government policy.

At the moment, business men cannot see any strategy in place. That brings us back to the central issue that business men in my area have relayed to me—a lack of confidence. Business men need a Government who have direction and leadership. The current Chancellor does not inspire confidence in his judgment. He was the Chancellor who hallucinated about the green shoots that were not there and who promised no devaluation, no leaving the exchange rate mechanism, no VAT rises and no tax rises. How can the country have confidence in the economic judgment of a Chancellor who changes his policies so readily, so quickly and so easily? The Chancellor explained away his U-turns—his S-bends—by saying during the last election campaign that he had no plans to raise taxes: he did not foresee the problems or the length of the recession.

Even if that were entirely true, does not the Chancellor see that that undermines the confidence of business men in his judgment about how the country and the economy should develop? We have a Chancellor whose judgment is unsound and a Prime Minister who took us into the ERM at too high an exchange rate. That suggests that both men at the helm of Britain's economy are quite capable of taking us on to the rocks. Business men know that the judgment of the Chancellor is unsound and that the Budget will do nothing to restore confidence.

Business men know that, if there is any recovery, it will be, in a sense, by accident rather than as a result of the success of Government policy. Britain is now in a more competitive position because of its withdrawal from the ERM, and that withdrawal was a failure of Government policy. Therefore, any possible recovery will be the result not of success of a policy that was pursued over a long period but of the Government's failure to follow their stated policy. In pursuing that policy, which was initiated by the current Prime Minister, more than 10 per cent. of the work force lost their jobs.

Britain needs a long-term policy aimed at full employment, supply side policies directed at skills, infrastructure and investment in plant and machinery. That is needed particularly to boost our manufacturing exports to tackle the balance of payments deficit. Without such policies, the United Kingdom economy cannot increase its productive capacity, competitiveness or growth and unemployed people in my constituency will not find the jobs that they so very much need.

Photo of Mrs Anne Campbell Mrs Anne Campbell , Cambridge

I do not intend to detain the House very long, but I want to deal with the appalling results of the Government's lack of an industrial strategy in the past 14 years.

The Government's strategy has been based on one simple numerical indicator—getting down inflation. As a result of their rather bungled attempts to reduce inflation we have lost a huge part of our manufacturing industry.

Manufacturing's share has fallen by 6 or 7 per cent. of GDP since 1979. I am sure that, in time-honoured fashion, the Minister will say that it has fallen in other countries and that it is due to the world recession, increased productivity and so on, but it has fallen by only 3 per cent. in Germany and by only 2 per cent. in France. Those figures are not comparable with Britain's huge deficit.

The Government should have looked carefully at the industrial strategy that the Labour party proposed before the last election. By the end of this Parliament, they will have come round to our view, and probably will adopt many of our ideas.

We said that more investment should be made in capital equipment, in training and education and especially in industrial research and development. Such investment is sadly lacking in this country. A comparison of capital spending per employee in other countries shows clearly what that lack of investment is doing. If we take the United Kingdom's base line as one, the United States and Germany spend about one and a half times as much. France spends 1.6 times as much per employee on capital equipment, and Japan 2.7 times as much. That is why they have better equipped factories, better motivated workers and better management.

11 pm

It is important to explain that, as my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) said, everything is linked, and the lack of training sometimes deters managers from introducing new machinery. It is true that the poor level of training of the average British worker means that in British factories it takes longer to train workers when new equipment is installed than it does in Germany or France. That is due not to an inherent lack of skill in British workers but to a lack of training, and it often makes it difficult for managers to install new machinery.

Incentives are therefore needed. It is right that the time limits should be extended, and I hope that Ministers will consider that idea carefully. We now have an enormous trade deficit in some extremely important goods, such as electrical goods, motor vehicles, textiles, footwear and clothing—all of which are categories in which Britain used to reign supreme, certainly in Europe and probably in the world.

It may seem curious that I, as the hon. Member of Parliament for Cambridge, should speak about manufacturing industry, although most of the companies in my constituency are small high-tech firms. However, several firms in my constituency supply machinery to larger manufacturing industries, and that is the cause of my concern. If the Government provided some incentive for firms to equip themselves better with plant and machinery, the businesses in my constituency would benefit, as they would supply the equipment.

Photo of Mr Roger Evans Mr Roger Evans , Monmouth

Does the hon. Lady accept that the logic of her argument would prejudice software houses in her constituency at the expense of the manufacturing industries to which she referred? What conceivable economic rationale could there be for doing that?

Photo of Mrs Anne Campbell Mrs Anne Campbell , Cambridge

That is a curious piece of logic, which I am at a loss to understand. Perhaps the hon. Gentleman would like to explain it to me in detail at some stage. Of course I do not accept that investment in manufacturing industry necessarily means that the Government have to do something crazy such as refraining from investing in the computer industry.

Firms in my constituency could supply equipment such as scanning electron microscopes—which few firms in the world make—television transmitters and industrial motor vehicles. We need a thriving manufacturing industry, and the amendment would help that industry, so I hope that Conservative Members will accept it.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

The brevity of this debate has been no reflection on its profundity. I have been fascinated by the varied in-depth contributions which have been made on the back of the thoughtful amendment moved by the hon. Member for Newcastle upon Tyne, East (Mr. Brown). I shall dispose of—or rather, deal with—the amendment by saying that it seeks to extend from one to two years the period over which allowances are available, which would have two important effects. First, it would increase the cost of the new relief by about £700 million over the next couple of years, at precisely the time when we can least afford it. The Committee will be aware that the increase in writing-down allowances provided for in the clause will already give rise to a yield cost of some £700 million over a couple of years, and the amendment would add a further £720 million in the period up to the year 1995–96.

Photo of Nick Brown Nick Brown Shadow Deputy Leader of the House of Commons

It would help the debate if the Economic Secretary could tell us how the figures are calculated.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

Of course, they have to be guestimates. We hope that they are accurate. It is inevitable that any assessment of the value of a written-down allowance relief has to be based on speculation as to the level of investment that will take place. We can gain some indication from trends—and we have, goodness knows, enough well-qualified people working in the Central Statistical Office and in the Treasury to come forward with a good idea. If it is different, I invite the hon. Gentleman to explain why it would be a lesser cost. Even if it were £200 million less, it would be a considerable addition on top of the substantial relief that the Government have already given.

Secondly, relaxing the time limit would severely weaken the incentive to bring investment forward. It is the case with all time-limited concessions that the peak of activity is concentrated in the period immediately before the measure is due to be withdrawn. Putting back the expiry date clearly defers the incentive to invest quickly before the relief runs out. For the medium term, our view remains that our policy of low rates of tax levied across a broad base is the right one for business. Once confidence is restored, special tax incentives should no longer be required. We therefore see no case for extending the period over which the allowances are to be made available on the basis of the amendment.

My hon. Friend the Member for Keighley (Mr. Waller) spoke about the importance of the machine tool industry. I was most interested in what he had to say. He called for a strategy of more generous capital allowances for small and medium-sized enterprises. That is precisely what we have sought to do in extending the allowance to 40 per cent. I should also mention that in another clause we are increasing the up-front allowance for industrial and agricultural buildings.

he right hon. Member for Berwick-upon-Tweed (Mr. Beith) welcomed the additional relief but called for more. Like my hon. Friend the Member for Keighley, he suggested that some people liked to pay lower corporation tax while others liked enhanced capital allowances. Depending on the circumstances of a firm, one or other will be to its advantage. It is not surprising that there are different views. Our judgment remains that which we made in the mid-80s—that it is better to have much lower levels of corporation tax on the stream of profit and income than to have the special selection and second guessing which belie capital allowance policy.

Photo of Mr Timothy Devlin Mr Timothy Devlin , Stockton South

Unlike some hon. Members who have spoken, I represent a manufacturing constituency. In all the factory visits that I make in the course of my rounds in Teesside, I have never heard any business suggest that it would be happier if corporation tax went up, even if there were an allowance. Firms which address me on the point want the allowance and the lower rate of tax. They do not want a higher rate of tax and an allowance. They are in favour of the Government's broad strategy of bringing corporation tax down and a little help as well. What has done far more than capital allowances to enhance investment in north-east industry has been Japanese inward investment into the region and the greater emphasis on quality and total quality management.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

My hon. Friend is a champion in the House for manufacturing industry in his constituency. He has proved yet again the importance that he attaches to those matters. His words speak for themselves.

The hon. Member for Warwickshire, North (Mr. O'Brien) spoke about recession in manufacturing industry in the midlands. He referred to the importance that he attaches to quality and competitiveness—something on which we agree entirely.

The hon. Member for Cambridge (Mrs. Campbell) spoke eloquently about the small, high technology firms in her constituency and also called for improved capital equipment incentives. We believe that an industrial strategy should rest not just on the delivery of low inflation and low interest rates, but crucially on their longevity. It is vital that we have a period of stability in which low interest rates and low inflation are sustained. If we can add low taxation and deregulation, and if we can build on the special help provided in the autumn statement and the Budget for the automotive industry, that should help many of the areas represented in this short debate.

For all these reasons, I hope that the Committee will agree that what we have brought forward is what the hon. Member for Islington, South and Finsbury (Mr. Smith) has moved for two successive years and called for on behalf of the Opposition. The Government have delivered that—to acclaim, I hope, from both sides of the Committee. It is an expensive relief, and we do not feel able to go further tonight.

Photo of Nick Brown Nick Brown Shadow Deputy Leader of the House of Commons

There is a very large audience—supporters of the Government party—here tonight for this important discussion and I know that they will welcome the fact that I have copious notes with which to reinforce the arguments already put in this debate. I know that they will also welcome the fact that I have with me a copy of the Labour party's new document, "Making Britain's Future" —a document which clearly would inform a debate on capital allowances. Given the distinguished nature of the audience, I think it would be right to read the whole document into the record. However, I will not.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 115 ordered to stand part of the Bill.

Bill (Clauses 42, 48, 52, 67, 115 and 183) reported, without amendment; to lie upon the Table.