PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

First Standing Committee on Delegated Legislation

DRAFT FINANCIAL ASSISTANCE FOR INDUSTRY (INCREASE ON LIMIT) ORDER 1996

Tuesday 13 February 1996

LONDON: HMSO

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1

The Committee consisted of the following Members:

Chairman: Sir David Knox

Baker, Mr. Nicholas (North Dorset)

Purchase, Mr. Ken (Wolverhampton, North-East)

Bell, Mr. Stuart (Middlesbrough)

Roberts, Sir Wyn (Conwy)

Boyson, Sir Rhodes (Brent, North)

Rowe, Mr. Andrew (Mid-Kent)

Butterfill, Mr. John (Bournemouth, West)

Squire, Ms Rachel (Dunfermline, West)

Eagle, Ms Angela (Wallasey)

Stephen, Mr. Michael (Shoreham)

Evennett, Mr. David (Erith and Crayford)

Stern, Mr. Michael (Bristol, North-West)

Harvey, Mr. Nick (North Devon)

Timms, Mr. Stephen (Newham, North-East)

Oppenheim, Mr. Phillip (Parliamentary Under-

Touhig, Mr. Don (Islwyn)

Secretary of State for Trade and Industry)

Vaz, Mr. Keith (Leicester, East)

Ottaway, Mr. Richard (Croydon, South)

Prentice, Mr. Gordon (Pendle)

F. J. Reid, Committee Clerk

2 3 First Standing Committee on Delegated Legislation Tuesday 13 February 1996

[SIR DAVID KNOX in the Chair]

Draft Financial Assistance for Industry (Increase on Limit) Order 1996

4.30 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Phillip Oppenheim): I beg to move, That the Committee has considered the draft Financial Assistance for Industry (Increase on Limit) Order 1996. It is clear from the order that its intention is simply to increase the cumulative limit on financial assistance that may be provided under section 8 of the Industrial Development Act 1982. The order is needed because the present statutory limit of £ 1.9 billion is being approached. It may be reached in mid-summer this year. Without an increase in the limit, the legislative basis for a number of schemes providing assistance will expire. At present, five schemes based on section 8 are in operation. The first is the small firms loan guarantee scheme—now by far the most actively used—which was launched in 1981 and is widely accepted as providing real help to small businesses. The second scheme, which is also useful, is for regional enterprise grants, which are offered towards small firms' investment and innovation projects. The third scheme is for annual payments to the British Film Commission; the fourth is the small company environmental and energy management assistance scheme; and the fifth is the transitional arrangement for commitments made to regional selective assistance cases in areas that lost assisted area status when the map was changed in 1993. There are also a number of schemes that are now closed but will still involve further expenditure in future years. I now turn briefly to the expenditure level reached so far within the section 8 financial limit, when we expect the present limit to expire—hence the need for the order—and how long we expect the increased limit to last. Section 8 (4) of the Industrial Development Act 1982 states that sums paid and liabilities fall within the section limit. The Committee will realise that, given the many individual loans guaranteed by the small firms loan guarantee scheme, liabilities are a significant feature of it. New guarantees are continually being issued, while old guarantees are either expiring or being called upon, so liabilities change constantly. During the 15 years for which the scheme has operated, it has become possible to make 4 reasonable forecasts of liabilities likely to default, and thus to give rise to expenditure. Future expenditure arising from present guarantees has clearly to be taken fully into account in assessing the cumulative position within the section 8 limit. Indeed, expenditure that will fall due under the loan guarantee scheme is likely to take up the largest part of the increase in the limit that the order will allow. Cumulative expenditure since the start of the loan guarantee scheme totalled more than £ 230 million in November 1995. The cumulative expenditure on all section 8 schemes from 1992 to the end of March 1995 was £ 1.812 billion. Based on our forecasts for each scheme—including the loan guarantee scheme—£ 1.875 billion will have been used by the end of March 1996. For 1996–97, our forecast is that a further £ 60 million to £ 65 million will be used for expenditure and commitments—the largest part, as I said, for the loan guarantee scheme. The present £ 1.9 billion limit will, therefore, probably be reached and passed later this summer. The order will increase the limit to £ 2.1 billion, which should provide legislative cover to continue offering assistance for a further two-and-a-half years. After that, the limit may be increased three times in a similar way; then, new primary legislation will be needed. I hope that I have made it clear that we have no plans to alter the present use of section 8 powers. The Government recognise that the need to give industry the sort of assistance available under the current schemes will arise from time to time, and we therefore require the means to do so, part of which the order will provide.

4.34 pm

Mr. Stuart Bell (Middlesbrough): It is nice to have you in the Chair, Sir David, and it is nice to be here on an evening in February, when the evenings are getting lighter by the day. Having collected my thoughts, I will respond to the Minister. We welcome his statement. We welcome the increase in the allocation and the emphasis on small firms, regional enterprise, the British Film Commission, the small company environmental scheme and regional selective cases. We have long supported efforts to assist the small and medium-sized business community and the concept of regional enterprise. Those in the film industry are always glad of any assistance. [Interruption.] My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) made a sedentary intervention. I did not catch it, but I am sure that he will make his own contribution in due course. Can the Minister tell us how the amounts of money available in the various categories compare with funding in our competitor countries'? Are we on a level playing field in our assistance to small firms and regional enterprises, given that we expect such 5 assistance to create more jobs in small and medium- sized enterprises—especially the latter? If the Minister cannot answer today, perhaps he could notify me later. Is the Minister satisfied that enough is being done for small firms through the loan guarantee scheme and that the scheme is working better than it did some years ago? Is he getting full co-operation from those that use and operate the scheme, such as banks? He mentioned the fact that we could raise the limit on three separate occasions during the year. Does he feel that we should encourage the small firms community and regional enterprise by doing so, or is he satisfied with the current level? We have always welcomed section 8 of the 1982 Act and the yearly increases in the limit. We welcome the increase of £ 200 million, to take it to £ 2.1 billion. Any further explanation over and above that that the Minister has already given would be welcome.

4.37 pm

Mr. Ken Purchase (Wolverhampton, North-East): I do not want to detain the Committee, but I must take the opportunity to question the Minister about his intentions and to examine some of the uses of the money in the immediate past. Will the Minister refer to the way in which organisations applying for European Union grant funding may sometimes take advantage of matching funds from the Government? I am not opposed to that, but I should like the Minister to say a word or two about it. If it is a complex and difficult matter, I am prepared to wait for an answer in writing. It is an important matter and it affects much economic development within local authorities. I want to highlight one or two problems in the excellent loan guarantee scheme. In my view, the scheme is the best by far of the many measures that the Government have taken to change the environment in which companies operate. I am anxious that the scheme should continue to serve the best interests of those who need its services. First, I should like to know—this is almost the easy question—what the level of failure has been. What funds have had to be written off as a result of loans not being repaid? Secondly, is the Minister aware that banks often complain that they do not want to take part in the loan guarantee scheme, because many companies that apply for grants want quite small amounts but the cost of setting up a loan guarantee scheme fund is the same, whether that fund is £ 10,000 or £ 50,000? Banks necessarily take the view that small loans, which are often required by smaller companies, are uneconomic to administer. Will the Minister deal with that issue? Will the Minister also tell us whether the industrial fund has been used in the new round of mergers that has taken place to produce the business links organisations that are becoming more numerous across the country? Does the fund constitute the underwriting of which the former President of the Board of Trade, Mr. Heseltine. spoke?

6

The Chairman: Order. Other than Chairmen, the hon. Gentleman must not refer to Members of the House by name.

Mr. Purchase: I apologise, Sir David. The former President of the Board of Trade—who I shall not name—referred to three-year funding for business links. Is the amount of assistance being increased for reasons partly associated with that? I do not oppose the increase, and I would be enthusiastic to see more intervention and more assistance given to industry through the fund when appropriate.

4.41 pm

Mr. Oppenheim: First, may I thank the hon. Member for Middlesbrough (Mr. Bell) for his typically constructive attitude towards the order? The question of whether there is a level playing field—to use an overworked phrase—with Europe is important. As the Committee will be aware, the Government are vigilant on that. We want any examples of other European Union member states giving unfair and illegal aid to be brought to our attention. In some recent cases—notably the Iberia case—we are taking as tough action as we can and we are urging the Commission to consider such cases. British industry has benefited enormously from the relatively hands-off approach that the Government have adopted in the past 12 or 13 years—British Airways is a classic example. We are determined, however, that other countries should not give any unfair or underhand advantage by providing subsidies that are illegal under European Union rules and there are some areas that concern us. If Labour Members have any information on such cases—particularly those that affect firms in their constituencies—the Department of Trade and Industry will be interested to hear of them. We will always take vigilant action. A second set of questions related to small firms. They were relevant and fair questions and I shall refer them to my hon. Friend the Minister for Small Business, Industry and Energy, who will provide a full response. If hon. Members want a further meeting, I shall be happy to arrange that and to be present. In particular, I shall bring to my hon. Friend's attention the points about setting-up costs for loan guarantees and whether the costs of setting up a small loan are disproportionate. The same applies to the question about European Union grants acting as matching funding for regional and national grants. The hon. Member for Wolverhampton, North-East (Mr. Purchase) asked whether we are likely to increase the limit. We think that it will be good for at least two and probably as long as two and a half years. There is scope within existing legislation to make three more increases prior to any further primary legislation being necessary. The hon. Member for Wolverhampton. North-East also asked whether business funding came out of a 7 particular package. Again, I shall refer that question to my hon. Friend the Minister for Small Business, Industry and Energy. That issue is primarily his responsibility, but he will give a full response. I shall make sure of that and, if necessary, set up a meeting to discuss that and any other areas of concern.

8

Question put and agreed to.

Resolved,

That the Committee has considered the draft Financial Assistance for Industry (Increase of Limit) Order 1996.

Committee rose at sixteen minutes to Five o 'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Knox, Sir David (Chairman)

Baker, Mr. Nicholas

Bell, Mr.

Boyson, Sir R.

Butterfill, Mr.

Evennett, Mr.

Oppenheim, Mr.

Ottaway, Mr.

Purchase, Mr.

Roberts, Sir W.

Rowe, mr.

Squire Rachel Ms

Stern, Mr.