INTEREST RATE SUBSIDIES
(21250)
8309/00
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Special Report No. 6/2000 of the Court of Auditors concerning the grant of interest subsidies on loans by the European Investment Bank to small and medium-sized enterprises, through its temporary lending facility.
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| Legal base:
| — |
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| Document originated:
| 28 February 2000 |
| Forwarded to the Council:
| 25 April 2000 |
| Deposited in Parliament:
| 25 May 2000 |
| Department: |
HM Treasury |
| Basis of consideration:
| EM of 7 June 2000 |
| Previous Committee Report:
| None |
| To be discussed in Council:
| No date known |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared; awaiting further information
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Background
2.1 The Copenhagen European Council in June
1993 invited the European Investment Bank (EIB) to lend 1 billion
euro to strengthen the competitiveness of small and medium-sized
enterprises (SMEs). This lending would be accompanied by interest
rate subsidies from the Community Budget which, under a Council
Decision of April 1994, would be at a rate of 2% per year for
five years. The subsidies were to be linked to job creation.
The document
2.2 The European Parliament asked the Court
of Auditors and the Commission to report on the management and
effectiveness of the facility for subsidised interest. This report
fulfils that request.
2.3 In her Explanatory Memorandum of 7 June
2000, the Economic Secretary to the Treasury (Miss Melanie Johnson)
says that:
"The report raises certain
issues concerning the recording of transactions between the Commission
and the European Investment Bank, which managed the interest rate
subsidies on behalf of the Commission. The Court was concerned
about the rules governing the recording of such payments where
there are long intervals between payment to the Bank and onward
disbursement to intermediary banks and SMEs.
"The report identifies some inherent weaknesses
in the management and control system for interest rate subsidies.
These include payment on submission of a declaration by interested
parties, entrusting management to banks, unclear eligibility criteria,
a lack of penalties for false declaration and a lack of checks
on recipients. In addition, equality of access for potential applicants
was restricted in certain areas.
"The Court found that some loans which attracted
subsidies under this facility were also subsidised from the European
Regional Development Fund. The report states that there is no
legal basis for combining subsidies from different sources for
the same loan.
"The report notes that in some cases subsidised
loans replaced other financing which had already been arranged
for projects which were at an advanced state of completion.
"The report states that the SMEs which benefited
from the subsidised loans were creating jobs but that it was impossible
to establish whether it was the subsidies which enabled those
jobs to be created.
"The Court found a lack of co-ordination with
other aid on offer at regional, national and Community level.
The Court also found that some intermediary banks integrated the
subsidies into their finance packages in such a way that their
customers were not aware that they were receiving a subsidy from
the Community budget.
"The report includes the Commission's reply
to the Court's findings. This stresses the political and economic
context of the scheme which had to be implemented urgently and
needed to create an environment conducive to job creation."
The Government's view
2.4 The Minister says:
"Information provided
in the report will be used to inform policy towards interest rate
subsidies.
"The is not the first report by the Court of
Auditors to be critical of interest rate subsidies. Following
a report last year[10]
on a range of interest rate subsidy schemes, ECOFIN asked the
Commission to conduct a full review of the rationale for interest
rate subsidies. This is expected to be completed this summer.
The Government will examine the report carefully and is likely
to be supportive of recommendations for reform."
Conclusion
2.5 This is a particularly critical report
by the Court of Auditors, finding fault with many aspects of this
scheme. Apart from the legal and administrative failings identified,
it appears that much of the investment would have happened whether
or not the subsidy was available and that linkages between the
subsidies and job creation cannot generally be demonstrated.
2.6 Taken as a whole, the report puts
a serious question mark over the utility and value for money of
this scheme. We are accordingly glad to see that last year ECOFIN
asked the Commission to conduct a full review of the rationale
for interest rate subsidies, including this scheme. We look forward
to seeing the outcome of that review and in the meantime we leave
this document uncleared so that we can consider it again when
we see the outcome of the Commission's review.
10 Special Report No. 3/99 of the Court of Auditors
on the management and control of interest rate subsidies by the
Commission: (20368) 10121/99; see HC 34-xxix (1998-99), paragraph
15 (27 October 1999). Back
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