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Mr. Tim Smith (Beaconsfield): It is my recollection that not so long ago the Opposition argued for enhanced capital allowances--indeed, a possible return to 100 per cent. first-year allowances. I certainly remember that in 1984, when we moved to a lower rate of income tax and lower capital allowances, there was opposition from the Labour party. Is it now the Opposition's policy to pursue what I would consider to be a more sensible approach, which is to follow accounting depreciation?
Mr. Darling: I suppose it was predictable that the hon. Gentleman would not be able to resist departing from a serious matter to make rather a silly point. If he cares to write, I shall look into what happened in 1984. I was not a Member of this place at the time and I do not remember what happened that year.
Successive Governments have accepted that capital allowances can be justified provided that there is a relationship between the cost of the allowance and the gain. That is the intention, which we want to support. It has always been the position that the Government of the day must review the working of allowances to ensure that they are cost effective and are achieving what was intended initially. Successive Governments have supported that principle.
It is clear that the level and rate of allowances will vary from time to time. I repeat, however, what I said at the outset of my remarks. I do not know whether the hon. Member for Beaconsfield (Mr. Smith) was listening at the time. I said that there is much to be said for ensuring that allowances do not distort investment decisions, and that there should in general be an alignment between what is normal accounting practice, normal business practice and the provisions of the appropriate Finance Act. There is no difference between us on that. Having established that principle--we do not need to waste time arguing the point--I shall deal with a number of points, some of which may interest the hon. Member for Beaconsfield, who tabled amendment No. 11, because he is on to the same point.
What immediately strikes anyone reading this provision is that although the intention is that the law will follow established accounting practice, that does not,
I understand, happen. Let me give an example. The aeroplane manufacturing industry has drawn the Government's attention, and certainly our attention, to the fact that although aircraft are an asset and are capable of lasting more than 25 years, and therefore are caught by the provisions of the Bill, many operators in the United Kingdom do not use their aircraft for anything like 25 years; they sell them after 15 years. Therefore, they believe that they are discriminated against. Perhaps they have a point.
I can understand the Government's view that lines have to be drawn somewhere, but considering that railway rolling stock is exempt, I just wonder what the Government's rationale is. Although aeroplanes are caught by the provisions of the Bill, it is arguable that a great deal of an aeroplane that is still flying 25 years after its original manufacture may not be 25 years old, because parts will have been replaced during its working life. The same cannot be said of a railway carriage, a large part of which is the same railway carriage as left the workshop many years earlier.
Perhaps there is something of which we are not aware that has led the Government to exempt railways but to include aeroplanes. It will be interesting to hear from the Financial Secretary the Government's thinking on that point. If there is a rational explanation, I am sure that we will all accept it. Aeroplane manufacturers are concerned that they will be discriminated against. Perhaps I should return to one or two of those points later. It would be helpful to know why railways have been exempted.
I understand why ships have been exempted, because every year in Committee and in the proceedings relating to the Finance Bill we debate shipbuilding, and hon. Members on both sides of the House have been sympathetic to the plight of British shipbuilders. It will be interesting, however, to know why the Government want to exempt railways. Some people have unkindly suggested that it is a favour to those who have acquired the privatised railways, that they need these incentives to make ends meet, or perhaps they were promised this during the privatisation process. We are not all cynical, however, and it may be wrong to suggest such things, but it is difficult to see why so many other people have been included whereas railways have been exempted.
I notice in the explanatory memorandum that the Government issue to all members of the Committee that the rules will apply, in the words of the memorandum,
In regard to what is said in the memorandum, the terms and language of schedule 13 are vague. I understand that of necessity it may not be possible to have the precise language that one might like, but bearing in mind the fact that investment decisions may well turn on the allowances that are available, it would be helpful if the Minister could say what he believes the words "invest heavily" actually mean. Presumably an aircraft manufacturer, for example, will almost exclusively invest in assets that have a long life. What do we say to someone who makes the components of an aircraft that might or might not last 25 years? I do not know. Some parts may well last that long; others will not. That is clearly of some importance.
The same is true of the oil industry. It has been put to me by people involved in the oil industry that many of the decisions as to whether to invest in a new field are highly marginal. There are many considerations, of which capital allowances are only one, but it could be the critical factor. Some of the plant that is required will last more than 25 years; some will not. It will be helpful--I cannot find this in the schedule--to know in precise terms what the Government have in mind, and the definition of the assets that are to be caught.
In view of what I said at the beginning of my speech, I should point out that I am not arguing that allowances should be granted indiscriminately when they may not always be justified; but there seems to be an anomaly in both the scope and the definition of the clause and schedule. Although the stated intention is to align accounting practice with the practice of the law, many individuals will find that their practice still bears no relation to the new law. We should not enact a measure that would distort decisions.
Aeroplanes are, by definition, very mobile. Unlike power stations or water pipelines, they do not have to be in this country. It has been said--although such threats should always be taken with a pinch of salt--that some operators might decamp and set up abroad in order to avoid these provisions and, in a global economy, we must of course be very aware of the tax competition issues that may arise.
I dare say that the Minister will have an answer to all those points, but it would help the Committee--and, perhaps more important, those who will have to put the measures into practice--to know what the Government intend, and how they propose to deal with the anomalies to which I have referred.
Some operators and owners, such as the utilities, have assets which, on any view, are likely to last for more than 25 years. In the case of others, such as the telecommunications industry, it is a moot point: there could be considerable argument about how long modern telecommunications equipment is supposed to last. Those who listened to the "Today" programme this morning will have heard an argument about the erection of telecommunications beacons in a park in Yorkshire. It was argued that they would last only another five years, but they are clearly capable of lasting for 25 or 30 years.
"only to companies that invest heavily in long life assets."
The memorandum does not, obviously, have the force of law, but what Ministers say can be of help in interpreting what Parliament means, which brings me to my second point.
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