Investment in the Development Districts of the United Kingdom: Tax and Discounted Cash Flow

Abstract

The United Kingdom, like most industrialised countries, has found that certain areas have failed to keep pace with the economic growth of the rest of the country. Occasioned by the changing pattern of industry (notably the decline of shipbuilding in the case of Merseyside, the North East, and Scotland or the inability of industry to take up the labour no longer needed in agriculture as in the case of Northern Ireland), the-result has been higher and more persistent levels of unemployment than the national average. The basic economic question has been whether to take jobs to people or vice versa. The Government has put the emphasis on taking jobs to people by giving specific incentives for industry to move into Areas (redesignated in 1960). Until 1963, the carrot and stick were in equal evidence. The stick was the need to obtain an Industrial Development Certificate from the Government before significant extensions could be undertaken, and these would often be refused for areas with high levels of employment. The carrot was multidimensional: the provision by the Government of low rental factories; help with the provision, training, and transfer costs of labour; and some limited provision of grants or loans with special interest and repayment terms. But in April, 1963, these positive incentives were greatly improved by the introduction of specified-percentage cash grants towards the cost of both buildings and plant and by giving the option of writing off plant very quickly for tax purposes, the so-called free (or rapid) depreciation. The grants are applied by the Board of Trade to Development Districts in Great Britain. The Northern Ireland Government has, for many years, had its own (larger) grants which still continue. The free depreciation