INTEREST RATE SUBSIDIES FOR SMEs
(21320)
9824/00
COM(00) 376
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Fifth Report from the Commission on the implementation of the Decision on the provision of Community interest rate subsidies on loans for small and medium-sized enterprises extended by the European Investment Bank under its temporary lending facility (the SME facility).
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| Legal base: |
— |
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| Document originated:
| 22 June 2000 |
| Forwarded to the Council:
| 22 June 2000 |
| Deposited in Parliament:
| 11 July 2000 |
| Department: |
HM Treasury |
| Basis of consideration:
| EM of 19 July 2000 |
| Previous Committee Report:
| None; but see paragraph 5.2 below
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| 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
5.1 In 1993, the Copenhagen European Council
invited the European Investment Bank (EIB) to lend 1 billion euro
to strengthen the competitiveness of small and medium-sized enterprises
(SMEs). Loans would be accompanied by interest rate subsidies
at the rate of 2% per year for five years, with the cost being
met from the Community Budget.
5.2 In response to a request from the European
Parliament, the Court of Auditors reported on the management and
effectiveness of the facility for subsidised interest. On 14 June
2000, we reported[12]
on the Court of Auditors' report (Special Report No. 6/2000).
The Court found a number of administrative deficiencies. More
importantly, it also called into question whether the subsidy
rate was sufficient to have affected investment decisions, most
of which it believed would have happened anyway; and it found
no good evidence that the subsidies generated additional employment.
5.3 We noted that, following an earlier
report of the Court of Auditors (Special Report No. 3/99)[13],
on the management and control of interest rate subsidies in a
range of Community schemes, ECOFIN had asked the Commission to
conduct a full review of the rationale for interest rate subsidies.
We left Special Report No. 6/2000 uncleared so that we could consider
it again when we had a report of the review requested by ECOFIN.
The document
5.4 The document on which we now report
is the fifth report by the Commission on the scheme for subsidised
loans for SMEs — the subject of the Court of Auditors Report
No. 6/2000. The wider review of interest rate subsidy schemes
requested by ECOFIN is not yet finished. The rules of the scheme
are complex but essentially provided a subsidy of up to 3000 euro
per new job. The subsidies paid under the scheme stopped by the
end of 1997. The report states that by then 53,789 jobs had been
created and subsidies of 92.3 million euro paid. 15,985 jobs were
in the UK. The average subsidy per job was 1716 euro, and the
number of jobs created exceeded by nearly 12% the planned total,
as indicated by the applicants for loans. The Commission says
this higher figure suggests that "overall improving economic
conditions played an important rôle in the increased investment
and job creation", but the results were significantly different
across Member States (for example, in Spain only 76% of planned
jobs materialised). In the UK the subsidy per job was 1241 euro
and in Germany 2487 euro, indicating more labour-intensive investments
in the UK. The report shows that the average total subsidy received
by beneficiary firms was 21,300 euro, or 2.4% of the capital cost
of the average investment made. It concludes that the subsidy
alone could not have been enough to justify the creation of additional
permanent jobs, rather it should be seen as one amongst other
factors. It notes that, although when the scheme was proposed,
economic growth was historically poor and unemployment high, by
the time the scheme was being implemented — from 1994 onwards
— European economies were growing again. It points to some
administrative lessons learnt that could inform the design of
any similar scheme in future — for example, to prevent self-certification
of job creation exaggerating the number of jobs created and to
prevent abuses leading to excessive subsidies in some cases. However,
overall, the Commission regards the scheme as a success, notwithstanding
the Court of Auditors' criticisms (to which this report does not
refer in detail).
The Government's view
5.5 In her Explanatory Memorandum of 19
July 2000, the Economic Secretary to the Treasury (Miss Melanie
Johnson) argues that the Commission's report, read in conjunction
with the Court of Auditors' Report, strengthens the need for the
wider review requested by ECOFIN on the rationale for interest
rate subsidies.
Conclusion
5.6 The Commission's report seems to
us to present a very favourable view of this scheme, whilst accepting
some of the detailed administrative weaknesses identified by the
Court. So we are surprised that the Minister argues that it strengthens
the need for the wider review requested by ECOFIN. It does not
deal directly and substantively with the Court of Auditors' concerns
that most of the investments and job creations might have happened
anyway. We are not in a position to reach a view about that, at
least without the benefit of knowing what the forthcoming report
for ECOFIN may say. With that in mind, we leave this document
uncleared, so that we can return to it, along with the Court of
Auditors' Report No. 6/2000, when we scrutinise the report for
ECOFIN in the autumn.
12 (21250) 8309/00; see HC 23-xxi (1999-2000), paragraph
2. Back
13 (20368)
10121/99; see HC 34-xxix (1998-99), paragraph 15 (27 October 1999). Back
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