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     In this scheme the rate of profit on new investment in the year of investment would not be affected by taxation. Assume that an investor requires a rate of return of 10 per cent p.a. to induce him to invest £ 100. If this investment yields at least £ 10 per annum he will embark on it. Now an annual tax of, say, 10 per cent will reduce his expected annual gross profit to £ 9, and the investment would not be carried out. But in this scheme by investing £ 100 he would get a £ 10 reduction in tax. The cost of investment would therefore be only £ 90 and the expected profit net of tax (£ 9 out of £ 90) is still 10 per cent. It is true that tax liabilities would be greater in subsequent years if no new investment occurred then, than they would have been had the allowance been spread. But the way to avoid this is to continue to invest.
     One difficulty of such a scheme would be the need to distinguish between real and purely financial, and between new and second-hand, investments. One would not want to exclude all financial investments because this would be an undesirable discrimination against joint-stock companies. On the other hand, one would want to exclude financial investments which are merely transfers of paper assets. A way round this difficulty may be found in a careful classification by an authoritative body of securities which would qualify for exemption. The purchase of second-hand equipment, though not new investment itself, may give rise to it indirectly. Since smaller firms depend on it more than larger ones, provisions which would disqualify it from tax exemption would discriminate against the former. (Firms renting their equipment would also not benefit).
     The scheme outlined above would leave both the incentive and the ability to invest unimpaired by tax. It would be equivalent to a 100 per cent initial allowance.
     All methods of accelerated depreciation benefit primarily growing firms. Since productivity increases are highly correlated with production increases in manufacturing industry, this is probably what is wanted. Nevertheless, productivity-raising investment may also be wanted in industries where output is not expanding or, possibly, where it should be contracted. Instead of accelerated depreciation, investment subsidies to the installation of specified assets should be used there.
     There still remains a problem for new firms and firms whose income falls short of capital expenditure, even in growing industries.