Below is the text of Mr Major’s response on Industrial Investment held on 18th January 1990 in the House of Commons.
Mr. John Greenway To ask the Chancellor of the Exchequer what assessment he has made of the prospects for industrial investment over the next 12 months.
Mr. Major The Industry Act 1971 forecast published with the Autumn Statement projected total business investment to grow by 9¼ per cent, in 1989 and 4½ per cent, in 1990. This follows growth of 30 per cent, in real terms between 1986 and 1988.
Mr. Greenway Has my right hon. Friend noted the results of a survey of leading industrialists published this week which described the fear of a recession as a myth based on a misconception? It rejected the gloomier predictions of the effect of high interest rates on industry. In his forthcoming Budget, will my right hon. Friend the Chancellor give priority to measures that will keep up the momentum of increased investment seen under the Government? Will he target the small independent business sector as one deserving of particular help through investment-related taxation reform?
Mr. Major I have noted the survey to which my hon. Friend refers and he characterises it accurately. He will know that I cannot anticipate the Budget. However, I can draw to his attention the fact that the small business sector is still growing substantially, with a rate of VAT registrations of more than 1,300 a week during the past year.
Mr. Robert Sheldon But manufacturing industry will clearly be damaged by the high level of interest rates, even if they remain as they are and do not increase. Is the Chancellor of the Exchequer aware that something must be done for manufacturing industry? One problem that it faces is that the capital allowances militate against investment – a rate of 25 per cent, capital allowances in the first year is not realistic. Manufacturing industries cannot retrieve 75 per cent, of the cost of that investment at the end of the first year and, therefore, the allowances are an investment disincentive. Will the Chancellor replace them with a proper investment incentive, as existed pre-1979?
Mr. Major The right hon. Gentleman will be aware of the reforms in corporate taxation introduced by my right hon. Friend the Member for Blaby (Mr. Lawson) in 1984. They made significant changes, not least a dramatic reduction in the prime rate of corporation tax. The vast majority of capital investment in manufacturing in recent years has come out of retained profits, at present taxed at a much lower rate. There will be a slowdown in capital investment in manufacturing, but there will be continued growth. There has been a considerable record growth in recent years.
Mr. Ian Taylor Does my right hon. Friend agree that one factor in the continued good news about business investment is that Britain has managed to increase labour productivity and keep down unit costs of labour? If the position were to change – given the irresponsibility of certain unions backed by the Labour party – the climate for business investment might decline. In the internal market of the European Community businesses could switch their investment criteria elsewhere which would largely be the result of the unions’ failure to appreciate the position.
Mr. Major My hon. Friend is entirely right. Productivity is vital, not only to maintain competitiveness and present profitability, but to open up the opportunity of future investment to create future jobs and prosperity.
Mr. John Garrett What are the figures for manufacturing disinvestment? Bankruptcies rose – by 40 per cent, last year. In the city that I represent, 400 jobs were lost in a liquidation which the management attributed directly to the Government’s level of interest rates. How many more victims will there be of the Government’s use of interest rates as the sole means of controlling the economy?
Mr. Major The hon. Gentleman picks a strange day to make that charge. He does so on the very day unemployment and employment figures show that more people in this country are in work than ever before.
Mr. Sumberg Is my right hon. Friend aware that the north-west of England is present enjoying an economic boom, with increased investment and reduced unemployment? Does he agree that the Government have laid to rest for ever the idea of a north-south divide?
Mr. Major I agree with my hon. Friend. Between 1980 and 1988, investment growth in the whole economy grew at the rate of 4½ per cent, per year. Between 1970 and 1980, the rate of growth was not 4½ per cent, annually but 0.4 per cent.