House of Commons Hansard Debates for 10 Jun 1992

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can blame them? The vast majority of capital gains tax is paid each year by a relatively small number of people selling out of firms that they have built up at considerable risk and sacrifice to themselves. They resent paying the Government nearly half the increase in the value of their companies.

In the past few years, we have seen the risks to which such companies expose themselves. Those small companies, which are started up with very little capital, are the life blood of the economy. I hope that the Chancellor will reconsider the impact of this complex and distorting tax in terms of discouraging risk-taking in this country.

Previous Conservative Chancellors have been proud to abolish a tax each year. The present Chancellor has continued that admirable tradition with the proposed abolition of the matches and mechanical lighters duty in this year's Finance Bill, but there are many other, more important taxes that I could suggest as candidates for abolition. I hope that the Government will continue to be both a tax-reforming Government and a tax-cutting Government.

Mr. A. J. Beith (Berwick-upon-Tweed) : I congratulate the hon. Member for Newbury (Mrs. Chaplin) on a cogent and well-delivered maiden speech. Her enthusiasm for Finance Bill Committee work will already have been noted by the Whips, and she has shown herself well suited to such work. If she does not want to serve on the Standing Committee, she would be well advised to say quite soon that she does not agree with the building society provisions and proposes to vote against them in Committee. I fear that that is her only hope of escaping service on the Committee now that she has shown herself so well prepared for it.

We all appreciated the hon. Lady's tribute to her predecessor, who was held in very high regard in this place and whose health and recovery were a matter of great concern to hon. Members. There grew up around the Christian fellowship in the House much prayer and support for Michael McNair-Wilson and his wife during that time, through which they both came with marvellous courage. Many in the House will remember that experience and it will be one of the ways in which they remember Michael affectionately, too.

The clause relating to corporation tax and small business has to be seen in its proper perspective, which is that a large number of small businesses do not pay any corporation tax because they are not making enough money to do so. Many of them are victims of the recession and are hanging on desperately, and although they may be worried about a number of matters-- about the uniform business rate and the impact that it had on them until this year's changes, about the VAT inspector and the burdens that he places upon them and about sorting out their employees' pay-as-you-earn-- corporation tax is certainly not top of their anxiety list.

One of the striking things about the tax is that most of it is paid by a relatively few companies. Some 3,500 firms--1 per cent. of the total paying corporation tax--paid 70 per cent. of the total yield of the tax, and seven firms paid 10 per cent. of that yield. Looked at another way, that means that 99 per cent. of firms paying corporation tax contribute only 30 per cent. of the yield. It follows that the administrative costs of collecting corporation tax from small businesses are relatively high, and those costs fall not just on the Government but on business. That is an

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argument for trying to keep small business out of the corporation tax net to a large extent, not by making it less profitable but by ensuring that the allowances and tax rates are conducive to the achievement of that end.

That is quite difficult. We cannot use the same allowance system as for personal taxation because if we did companies would simply subdivide themselves to maximise benefit from allowances. Although it is desirable to minimise the impact of corporation tax, we probably need to look to other instruments of small business taxation to give the help that the Minister seems to feel could be offered under the corporation tax provision.

The Minister cited the corporation tax rate as an example of the climate in which business operates. I understand his point, but other things will probably matter more to small businesses, one of which is obviously the uniform business rate. I welcome the changes to the uniform business rate, although we argued for going a little further than the Government. After his experiences in Bath, Mr. Chris Patten may, on reflection, be able to offer a little support for the change. The Bath experience is a good example of how the uniform business rate has hit large numbers of small businesses very hard in many parts of the country.

The tax burden on small business could be reduced in other ways and by a greater amount than through the proposals in clause 20. For example, if national insurance and income tax were integrated as systems, that would reduce the enormous administrative burden on business of running the two systems. The national insurance system imposes a kind of poll tax on business in the form of class 2 national insurance contributions which are a disincentive for the smallest businesses.

There are many opportunities for reforming the tax system to help the small business sector. Many of those opportunities lie in the administration of taxes that affect all small businesses. When judging whether the climate of taxation is as helpful to small businesses as it could be, I hope that Treasury Ministers will look far beyond corporation tax, welcome though that provision is. 4.30 pm

Mr. Dorrell : I welcome the maiden speech of my hon. Friend the Member for Newbury (Mrs. Chaplin). Hon. Members on both sides of the House will have welcomed what she said about Michael McNair-Wilson. She was entirely right to stress his courage, which was displayed on many ocasions in the Chamber, and his effective advocacy of his constituents' interests. As a former Health Minister responsible for the transplant programme, I had good reason to know what an effective advocate he was of the interests of kidney patients. I endorse everything that my hon. Friend the new Member for Newbury said about the effectivenesss, courage and personal niceness of Michael McNair-Wilson.

I have a particular link with Michael McNair-Wilson because he was my immediate predecessor as Parliamentary Private Secretary to Peter Walker.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Nicholas Soames) : And look where that got him.

Mr. Dorrell : Indeed, look where that got everyone.

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Michael McNair-Wilson showed me the ropes and taught me how to be a PPS from behind.

My hon. Friend the Member for Newbury stressed the importance of the racing industry, which is of great interest to my hon. Friend the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food. I have noted her point about the need to ensure that the VAT charge paid by the racing industry is measured against a test of competitiveness, as well as a test of fairness, against other industries operating in this country.

My hon. Friend the Member for Newbury also reminded us, as I tried to do earlier, that the tax regime on small companies plays a vital role in the development of an effective free enterprise economy. She reminded us of the old aphorism that great oaks from little acorns grow and that, if we do not have fertile ground for the development of small business, we will not have the new businesses that become big businesses, such as those that now operate in her constituency and employ her constituents.

The point made by my hon. Friend the Member for Newbury about inheritance tax and the link with capital gains tax is well taken. If one wants to build a large company from a small business start, the year-by-year profit tax regime must be congenial to the growth of the small business and the tax system, as a whole, must also be congenial to the growth of small business.

The hon. Member for Berwick-upon-Tweed (Mr. Beith) stressed that small company corporation tax is not the only part of the system that we must ensure is congenial to small business. I agree with that. A wide range of tax and other regulatory activities impinge on the activities of small business. We must ensure that all of them are as favourable as possible so that the ground is fertile for the growth of small business.

The hon. Member for Islington, South and Finsbury (Mr. Smith) asked about the link between small company corporation tax and the standard rate of income tax. As we develop our marginal rate policy at the bottom of the income tax scale, we will obviously need to review year by year how that impacts on small company corporation tax. But we have made it clear that it is our intention to reduce the standard rate of tax to 20 per cent. By implication and extension, we could therefore, on the basis of our record, assume that we would expect and hope to be able to do the same for small company corporation tax as well.

The hon. Gentleman argued for root-and-branch reform of the uniform business rate. It is not unfair to say that he did not sketch in enormous detail what he had in mind. It is difficult to react to proposals for root- and-branch reform without a slightly greater idea of it, fleshing out the grant strategy that he obviously has in his hidden agenda, but we shall seek to winkle it out to establish precisely what he has in mind.

The importance of ensuring that effective action is taken to encourage prompt payment and to discourage late payment of bills was addressed by my right hon. Friend the Chancellor in his Budget speech. We are addressing the matter through the Government's own contracts by ensuring that, when the Government sign a prime contract, we use that contractual mechanism to ensure that not only our own prime contractors but subcontractors pay their suppliers on time. We are addressing the matter also, as my right hon. Friend the Chancellor announced in the Budget, through

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a review of small claims recovery procedures to ensure that they are as effective, cheap, efficient and, perhaps most important, timely as possible.

The hon. Gentleman is on to a good point. We agree with him and we are taking action to ensure that words are turned into action.

Mr. Kenneth Purchase (Wolverhampton, North-East) : What instruction has been given to health authorities in regard to the average number of days for payment of debt ? When I served on a health authority, there was an implicit instruction to increase from 32 to 35 days the average time for discharging bills.

Mr. Dorrell : The policy of the national health service is very clear and has been laid out time and again in guidance to health authorities : health authorities should pay bills on time and should organise their affairs so that they have the resources to do that. Indeed, the Government backed up that policy with action during the previous public expenditure survey, when we provided £80 million to the national health service specifically to reduce the amounts outstanding by health authorities beyond the due date. We have not only made the guidance clear but provided real money to put health authorities in a position in which they can carry out that guidance. I commend the clause to the House.

Question put and agreed to.

Clause 20 ordered to stand part of the Bill.

Clause 19

Charge and rate of corporation tax for 1992

Mr. Chris Smith : I beg to move amendment No. 2, in page 12, line 46, at beginning insert (1)'.

The Chairman : With this it will be convenient to take amendment No. 4, in page 12, line 47, at end add--

(2) Where a company whose activities consist--

(i) wholly or mainly in the manufacture of finished goods, partly finished goods or materials, and

Mr. Smith : The purpose of the amendments is to provide enhanced first year capital allowances for investment in plant and machinery by manufacturing industry. The debate takes place against a background of continued manufacturing decline in this country. For 13 years, our manufacturing sector has been neglected by a Government obsessed with the purported virtues of market forces and blind to the needs of a crucial part of our national economy. The devastation began in 1980 and 1981, when we lost a quarter of our manufacturing capacity, but the recession that we are still living through has compounded the problem.

As a country which once prided itself on being the workshop of the world, since 1979 we have seen our manufacturing performance slip to the bottom of the international league. We have performed worst out of all the OECD countries on manufacturing performance in recent years. From 1974 to 1978, manufacturing accounted for nearly 30 per cent. of our GDP. Last year, it was less than 22 per cent. Manufacturing is not the be-all and end-all of our economy, of course--the service sector remains every bit as important-- but we ignore and neglect manufacturing at our peril. It is, and will always be, the principal internationally traded part of our economy. We

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make and sell goods or we falter. The choice is entirely clear. It is just a pity that that cannot be recognised so readily on the Conservative Benches.

In 1983, for the first time since the industrial revolution, Britain imported more manufactured goods than we exported. Ever since that day, throughout the windfall of North sea oil, throughout--indeed, perhaps because of--the Lawson boom, and throughout the subsequent impact of recession, we have continued to be in deficit. That is the manufacturing background against which the debate takes place. That is the legacy of the Government's time hitherto in office. If manufacturing output has performed poorly--we should remember that even the Government admit that it fell by 5.25 per cent. in 1991--the picture in manufacturing investment is even bleaker. In the past year, manufacturing investment fell by 11 per cent. At constant prices, there is less investment now than there was in 1979. What is worse, in every one of the eight years following 1979 there was less investment than there had been in 1979.

While competitor economies, especially in Europe and Japan, were increasing their investment performance, we reduced ours. That is no way to prepare our economy for the challenges of the single market. In the past two years, the picture has been similar. Only last week, the European Commission published comparative figures on investment performances in the various countries of the European Community. In terms of investment in equipment and looking at volume rather than merely value, they show a minus figure for investment in the United Kingdom in 1990--a decline of 3.8 per cent. The European average was a plus figure of 4.8 per cent.

In 1991, the picture was worse. There was a decline in the United Kingdom of 11.8 per cent. but a decline in the European average, which is sharply affected by the United Kingdom figure, of 0.5 per cent. The prediction for 1992 is a fall in the United Kingdom of 4 per cent. and a rise in the European average of 0.2 per cent. Those figures show clearly that, consistently in the past two years and into this year, we are performing substantially worse in manufacturing investment and equipment than the average--let alone the best--performers among our European partner countries. We were told by the Government in the Red Book published at the time of the Budget that the prospects for the rest of the year were for a further fall of 0.5 per cent. in overall investment.

Of course, we must note the Government's tendency to juggle with definitions of investment. At one moment, they will talk about overall investment in the economy, at the next moment they will talk about business investment, and at other times they will talk about manufacturing investment. As always, the Government carefully select their definitions to put the best possible gloss on their failures. However, even if we take the Government's favoured measure--overall investment--their prediction of a further decline of 0.5 per cent. this year is open to question. Let us consider the evidence. The Central Statistical Office published figures last Thursday predicting a 2 per cent. fall in the investment of British firms surveyed. There is no 0.5 per cent. there--a fall of 2 per cent. is predicted. The first quarter survey by the Association of British Chambers of Commerce showed a 3 per cent. negative figure for intentions to invest in manufacturing plant and machinery--down from the 2 per cent. negative figure in the fourth quarter survey last year. The independent

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averages compiled by the Treasury show a similar picture. The average of non-City, academic and institutional forecasts for the coming year shows an average decline of 1.5 per cent. in gross fixed investment. Only one out of the 12 institutions agrees with the Government that the fall is likely to be 0.5 per cent.

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According to 16 City firms surveyed in gathering independent forecasts, the picture there is even worse : they expect a decline of 2.3 per cent. in gross fixed investment. Out of 16, only two agree with the Government that the decline will be 0.5 per cent. or less. What of the Government's position? We read with interest in The Daily Telegraph yesterday--not the source least likely to be favourable to the Government--a report which said :

"The Treasury is to scrap its one per cent. growth forecast for 1992-93, following a poor first quarter and the absence of any evidence of any recovery since then the Treasury team has cut its growth forecast to under per cent."

If the growth forecast is being revised downwards, that obviously has immediate implications for output, unemployment, public sector finances, the public expenditure round and, most probably, investment levels.

We ought to be told in the clear light of day whether The Daily Telegraph report is correct. Have Treasury growth expectations been more than halved? What impact will that have and is it expected to have? I hope that the Financial Secretary will have the courage and decency to tell us when he replies to the debate.

Whichever way we look at it, the picture of manufacturing investment is far from healthy. It has fallen sharply in the past two years and is still falling. Our amendment seeks to reverse that decline. Investment is a crucial preparatory economic activity. If investment lags behind recovery and demand--worse still, if it does not respond to or predict a recovery in demand--the supply of goods will not be there, our dependence on imports will increase, and the imbalance between supply and demand will become even more severe. Investment in manufacturing industry is vital now if we are to achieve anything like a sustainable recovery in the years to come. Enhanced capital allowances such as those proposed in our amendment would help enormously in stimulating investment. Our amendment is carefully targeted. It is aimed at manufacturing industry in particular, and specifically at plant and machinery. It raises the first year allowance, for a period of one year only, from 25 per cent. to 40 per cent. It would provide a direct incentive to firms to bring forward investment decisions that might otherwise be postponed--sometimes indefinitely.

We know from the experience of 1984 to 1986 that capital allowances work. They are not perfect--no fiscal stimulus ever is--but they can help. That is why the Confederation of British Industry, the Engineering Employers Federation, and the Trades Union Congress called for enhanced allowances, and why business men throughout the country endorse precisely the proposal contained in our amendment. Tom O'Connor, chairman of the CBI's Small Firms Council, said last September :

"An increase in the rate of depreciation allowance for plant and machinery from the current 25 per cent. would

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provide a powerful and direct stimulus to small companies' investment. The economy would benefit : as growth increases so will revenues from business, in the form of corporation tax."

The only person who does not seem to agree with the need for enhanced allowances as a one-off stimulus for investment activity is the Chancellor of the Exchequer. He and his colleagues have consistently ruled out the case for capital allowances. They accuse us of dirigiste tendencies in advocating them, but that is total nonsense. Perhaps the Chancellor ought to consider the words of the President of the Board of Trade who in 1987, in an earlier incarnation, wrote an extremely interesting book, "Where There's a Will". It praises, in particular, the Japanese approach to the relationship between Government and industry. The right hon. Gentleman wrote that the Japanese

"have done the very thing which we pretend no government can do : they have targeted the world marketplace and, with a combination of domestic competition and taxpayer support, they have come to capture an increasingly large share of it. Do we really think our companies can win without the backing of our government when the consumer appetite in Britain is so eagerly fed by imports from a country whose economic and industrial effort is so single-mindedly directed?" That puts the case in a nutshell.

This country needs Government support of manufacturing industry in particular--especially in the form of fiscal stimulus of the kind that our amendment proposes. That cannot completely ensure effective and sustained recovery, but it would be a key part of the required package.

The Government's record on manufacturing investment is appalling. In real terms, the level is now lower than when the Tories took office in 1979. Britain is the only country in the Community to have suffered in that way. Worse still, the value of investment in our manufacturing industry is still falling. In the past year, it fell by a staggering 11 per cent., and Government figures published last week show that the decline is continuing.

Investment in plant and machinery is the seed corn of future wealth creation. Unless we invest now, we shall not produce goods, provide jobs, make sales, and achieve growth in the years ahead. That is especially true of manufacturing industry--yet the Tories have neglected and denigrated its importance for far too long. With our balance of payments deficit already starting to rise again, nothing is more crucial than providing a boost to manufacturing investment. Our amendment would achieve precisely that, and I commend it to the Committee.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney) : In one of the numerous speeches that have been made in the House on the Maastricht treaty in recent months, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) reminded us that the German economic miracle was not created by the Bundesbank but was the consequence of innovative industrial investment by German companies--and that, for all the changes that might occur in economic and monetary union and among the central banks, the ultimate test of an economy is whether it invests in manufacturing the products that consumers want. I have had the privilege of representing for more than 20 years a community that began the industrial revolution. It had iron and steel works in the 18th century, and holds to the traditional belief that manufacturing is a good thing. This country seems to have lost its appetite for making

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things, and now believes that there are other ways of sustaining the economies of communities such as mine. That has proved to be an illusion.

The Financial Secretary spoke of his pupillage under Mr. Peter Walker. We all had our pupillage under him. When he was Secretary of State for Wales, he was our new economic whiz kid for the best part of two years. He used to travel around boasting that the Principality supported more jobs in banking than in mining. I never understood the point he was making. Perhaps he was suggesting that it was a good thing that there were fewer jobs in mining, or that at least there were alternative jobs in banking. We did not understand why they could not be complementary. Why should it be thought that miners were competing for jobs with bankers? Nevertheless, that is the basis on which, for the past two or three years, we were sold an alternative economy.

It was suggested that the service sector would be our exciting new saviour, but in the past year or two we have started to see insecurity in the very sector that was supposed to provide our salvation. The recent threat of a takeover by Lloyds of the Midland created a wave of insecurity, and taught us how wrong it is to attempt to rebuild the economy of a community such as mine on the service sector.

It would be all right if that sector had brought to our communities the sophisticated information technology that characterises today's new-style, high-class financial services, but it has not done so. Instead, we have seen only a spate of DIY retailers--large sheds selling DIY goods of one kind or another. They are heavily dependent on the community's purchasing power, so other jobs must exist to create it if those new retail activities are to survive. However, cuts are occurring even in that sector in communities such as mine. The only modern inward investment in my community has come from the Japanese, who were attracted by successive Governments. The first to establish itself in my constituency did so under a Labour Government in the 1970s. The most recent new project was announced 12 months ago.

Inward investors require two things. First, they are looking for a work force trained in manufacturing. The real victims of the recession and the collapse of manufacturing investment in my community, apart from companies, have been the manufacturing training programmes and manufacturing training opportunities.

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Great public corporations, such as the British Steel Corporation and Hoover, offered great training opportunities to young people in my constituency, but, in the past decade, they have closed down their manufacturing training schools. National vocational qualifications and training and enterprise councils have not replaced the training infrastructure, which was an intrinsic part of the manufacturing communities that I represent.

Sadly, in communities like mine, we are training to obtain yesteryear's skills on yesteryear's machines. That is the real tragedy. Inward investors ask, "Where are the modern skills and a trained work force? Where are the work force who understand the concept of total quality management and understand a modern production line rather than the old-fashioned ones?" Because of the lack of manufacturing investment, people in my area are being trained on machines, and therefore for skills, that are

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already out of date. The problem is not only a lack of manufacturing investment, but the fact that that lack has led to the sacrifice of the training skills in our communities.

My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) has raised an important fundamental principle that is essential to the redevelopment of the economy in areas such as mine. As a result of inward investment, we desperately hope that the development of component making and the provision of services to new manufacturers will play a part in our manufacturing salvation. There have been some exciting success stories, such as Nissan in the north-east and Sony in Bridgend, where the resourcing of components has begun to create alternative manufacturing job opportunities in smaller companies.

I have been involved in prompting, cajoling, pleading with and begging the Welsh Development Agency and a succession of Secretaries of State to take the supply development initiative seriously. It would enable local companies to service, feed and deliver components to the occasional new company that we manage to attract to our areas. That is the way to increase the number of manufacturing jobs in our society. In the present climate, in which companies face cripplingly high interest rates, a lack of liquidity and the absence of proper manufacturing incentives, manufacturing supply development initiatives are simply dreams rather than practical propositions. The desperate need to create a new manufacturing training programme and the opportunity to develop supply development initiatives are dependent on a new spirit, attitude and set of incentives designed to assist manufacturing in communities such as mine.

Mr. Tim Smith (Beaconsfield) : I apologise to the hon. Member for Islington, South and Finsbury (Mr. Smith) because I was not present at the start of his speech. However, I listened carefully to the remainder of what he said.

Although the hon. Gentleman's amendments are well intentioned, they are misguided. They are well intentioned because everyone wants a strong manufacturing base and increased manufacturing investment in the United Kingdom. The question is whether it makes sense in tax terms to discriminate positively in favour of manufacturing and, by definition, against other forms of investment.

Labour Members have consistently had difficulty in coming to terms with the fact that, in an expanding economy, manufacturing, by definition, tends to constitute a smaller and smaller proportion of national output. In Britain, it constitutes about 25 per cent. of output, but in other economies it accounts for a much smaller proportion. That is a sign not of failure but of success. It is a sign of overall growth, because there is a finite limit to the demand for manufactured goods by consumers. Consumers with large disposable incomes have a greater propensity to spend on increased services, such as leisure, tourism, sport and other service products. Labour Members also find it difficult to appreciate that manufacturing businesses have tended to concentrate more and more on their core activities. For example, they may have carried out one particular function that was important but ancillary to the core business, in-house, but today they tend to contract out that service.

The successful American company, Mars, which is based in Slough, ran a large transport business, which was an integral part of its manufacturing business. A few years

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ago, it sold the transport business, through a management buy-out, to the people who ran it. Therefore, that is now a separate business and, for the purposes of the standard industrial classification, is now categorised as a service rather than as a manufacturing business. Nothing had actually changed, but Mars, like many other companies, had decided to concentrate on its core manufacturing activity and to contract out the important support services.

The hon. Member for Islington, South and Finsbury said that capital allowances work, and he cited the period from 1984 to 1986 to support his proposition. However, that proposition depends on what one means by capital allowances and what one means by work. The hon. Gentleman picked a strange period, because it came immediately after the Lawson reforms. The great advantage of, and the important element in, the Lawson reforms was that the standard rate of corporation tax was reduced from 52 to 35 per cent. Since then, the Treasury has further reduced the figure to 33 per cent., as we can see from clause 19.

Mr. Chris Smith : The reason I cited that period was that the Lawson reforms were announced in 1984, and they were introduced in 1986. In the intervening period, when the threat of the removal of capital allowances was hanging over British industry, manufacturing investment increased by 19.1 per cent. in 1984 and by 14.7 per cent. in 1985. It was clear that the existence of capital allowances, combined with the prospect of their removal, acted as a powerful incentive for investment to take place.

Mr. Tim Smith : The hon. Gentleman is almost right. The allowances were not announced in 1984 and introduced in 1986. There was a three-year transitional period, in which the rate of capital allowance was reduced by a percentage per annum. I think that the transitional period ran for three years, during which capital allowances were gradually phased out. I accept that, in that period, some investment was brought forward to take advantage of the higher rates of allowances.

When I worked in industry in the 1970s and a 100 per cent. capital allowance existed, there was no doubt that, at the end of the financial year, we carefully considered whether we could make any additional investment because the rate of allowance was so high. Such investment was made for the wrong reasons. It is quite wrong for any commercial decision to be taken for tax reasons.

If commercial decisions are taken for tax reasons and not on their commercial merits, taxation can distort decision making. That happened in the 1970s, when we had a high rate of corporation tax and high capital allowances. From my experience, I can tell the House that that is what happened. We should not focus on the quantity of investment only : we need to focus on its quality.

Mr. Clive Betts (Sheffield, Attercliffe) rose --

Mr. Smith : I shall give way in a moment.

Over the past 30 to 40 years, there was no shortage of investment in eastern European countries. The result of that investment is derelict and serves no useful purpose at all. The investment was totally and utterly useless, because it was not part of a market economy and the products produced were quite unsaleable.

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Mr. Betts : The hon. Gentleman seems to be saying that taxation distorts commercial decisions. Is the logic of that that there should not be any taxation in the commercial arena and that, far from changing allowances, there should be no allowances to encourage investment?

Mr. Smith : The object of taxation is to raise revenue for the Treasury. If we were in the fortunate position of some countries, such as some states in the middle east, we would not need taxation, which has no virtue of its own. There is a good intellectual case for not having corporation tax and for taxing only company profits that are in the hands of shareholders. That is rather wide of the debate, but it is an interesting argument against corporation tax. Any corporation tax is a burden on companies. The main source of investment in the United Kingdom is not borrowed money or shareholders' money, but retained profits. That is not widely understood. That forms the largest source of investment, and the larger the proportion of profit removed by the Treasury the smaller the proportion that remains for investment. That is why any sensible taxation system should be based on the lowest possible rate. That applies to income tax as much as to corporation tax, and there should be as few allowances as possible. That will lead to the fewest possible economic distortions.

Politicians always want to interfere in industry to try to achieve this, that or the other worthwhile objective. That did not work in the 1970s, and it would not work now.

Mr. Beith : The debate is a re-run of one that we had a year or 13 months ago when virtually the same amendment was tabled. Since then, I have not become any more convinced by the argument. I accept the analysis by the hon. Member for Islington, South and Finsbury (Mr. Smith) of the worrying state of investment in manufacturing and I share some of his general observations. However, that is some way from being convinced that the proposed method of operating the tax system would bring about the sensible investment that is required. That is a large assumption. To start with, one has to distinguish between manufacturing and services, and that is a difficult and unreal distinction.

It is not necessarily detrimental to a country to have more investment in services than in manufacturing. The line is arbitrary, and activities which some people might consider wholly undesirable are to be found in manufacturing while activities which would pass the highest test of acceptability to every Labour Member are found on the service side of the line.

There is no established correlation between the size of a country's manufacturing sector and its general economic performance. Manufacturing is desirable, but it is not an index of overall economic success. It is therefore difficult to justify a pro-manufacturing or pro-services stance. That has not been shown to be a direct route to overall economic success.

In assessing the amendment, we must consider whether investment decisions taken on the basis of this year's tax relief would be significantly different, and, if so, whether they would be significantly better. It is arguable that they might not be significantly different and that one year's tax relief is not enough to tip the balance on many major investment decisions. Would it indeed be right for that to tip the balance, and what are we discounting against that tax relief? How marginal was the investment decision, and

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what assumptions are made about future achievements for which one year's tax relief will pay? At best, it is a questionable proposition.

More effort must be directed to justifying the expenditure of large amounts, especially if the resources could be used to improve the system in other ways. I shall argue on a subsequent amendment that it might be better to give business the security of knowing that inflation would not erode the allowances that it enjoys under the tax system. That would enable it to predict with reasonable accuracy the relationship between the tax system, the company's financial position, and the value of its assets. No doubt the Minister will have estimated the cost of accepting the amendment.

In criticising the effectiveness of the proposal, and in saying that its effect, if any, might be to lead to bad investment decisions, I do not dissent from the expressed desire for greater investment--but the case is not proven that such measures will lead to good quality investment decisions in manufacturing.

5.15 pm

Mr. Jim Dowd (Lewisham, West) : I rise to speak for the first time in the Chamber. When I was preparing my speech I asked someone whose recollection of when he made his maiden speech is dim and distant about the sort of reception that I could expect. I was told that the Chamber has three types of people : those on the Front Benches who are present because they have to be ; those who have just spoken and who will stay for a decent interval before leaving ; and those who would be waiting for me to sit down so that they could speak. I shall therefore do what I can to keep my speech brief.

My first thanks go to the people of Lewisham, West and I pledge to work on their behalf. My constituency has had a habit--I use the past tense--of changing its representatives at fairly regular intervals. I am sure that it has outgrown that, however, and can look forward to some decades of uncharacteristic tranquillity. The constituency covers a fairly anonymous part of inner suburban London--Forest Hill, Catford and Sydenham. I am sure that not many Members are familiar with it because it is so far from a tube station and the paucity of black cabs means that journalists, in particular, regard it as an extreme adventure to go that far. In common with millions of people throughout the British Isles, however, the people of Forest Hill, Sydenham and Catford are decent, hard-working and industrious and judge their public representatives harshly. I shall be happy to rest on their future judgment.

The constituency has had a collection of representatives in the House. The father of the right hon. Member for City of London and Westminster, South (Mr. Brooke), who was in the Committee a short time ago, represented the constituency for a short time just after the war. John Maples was my immediate predecessor. Politically, he and I were about as opposed as it is possible to be on most things. In his maiden speech some nine years ago he called, rather inauspiciously, for the introduction of a poll tax. He even called it that at the time. He then spent some years learning to call it a community charge. In the world outside, one can always recognise Ministers or their predecessors because they are the only people who talk about the community charge--the rest of the world calls it the poll tax.

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As I have said, I did not get on with Mr. Maples politically. He strongly supported the abolition of the Inner London education authority, a blow which inflicted grievous damage on the education prospects not just of children but of almost the entire population of inner London. He opposed the establishment of a London-wide authority, the absence of which has damaged the prospects of London people. Despite our political differences, however, I found Mr. Maples helpful and courteous and I wish him well in whatever lies before him. I am led to believe that he is well thought of in certain circles in the Conservative party, so perhaps we shall see him somewhere else. I suspect that the people of Lewisham have taken permanent leave of him.

The hon. Member for New Forest (Sir P. McNair-Wilson) represented Lewisham, West for a couple of years back in the 1960s, as did the now Minister of Agriculture, Fisheries and Food.

Mr. Paul Boateng (Brent, South) : Did he?

Mr. Dowd : My hon. Friend should know that. I was reminded of the right hon. Gentleman's tenure of office in Lewisham only the other day when I heard a farmer being interviewed on the radio. The interview took place the day after the right hon. Gentleman returned from discussions in Brussels on the reform of the common agricultural policy. The farmer was making some fairly unenthusiastic comments about the Minister and at the same time there were strange noises in the background. In a broad west country accent, the farmer said, "No, that be not John Gummer--that be Crocus the pig." That was on "The World At One". The Minister is remembered in Lewisham, West. Perhaps my most illustrious predecessor was Christopher Price. He made a considerable mark and is well remembered for his efforts. He is well remembered, especially in these times, for the work that he did in what became known as the Confait case. It was one of the earliest exposures of poor practices in the administration of justice and in the processes of the Metropolitan police. Christopher Price was tenacious for many years. I believe that many hon. Members who have followed in his footsteps to some extent examined the way in which he pursued justice in the Confait case. They have gone on to reveal many of the sad but damning miscarriages of justice that we have seen in recent times.

That is a broad outline of Lewisham, West and of those who have represented the constituency in the past.

I am grateful to be able to speak in the debate because my background is in engineering, which is the largest element of manufacturing industry. I disagree with those who have said that the plight of manufacturing industry is a tribute to our success. I am reminded of the comment that if we have many more successes like this, we shall all be ruined. The economy has always relied on a strong manufacturing base and it will continue to do so for the foreseeable future. That being so, we need to do what we can to nurture manufacturing industry.

I accept that an enlightened taxation regime alone will not enable manufacturing industry to thrive and flourish. That alone will not make the difference between success and failure. I am certain, however, that such a regime provides a framework around which much can be achieved. Without a sympathetic, understanding and supportive industry, Britain will dissolve and enter into a

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