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Session 1999-2000
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Delegated Legislation Committee Debates

Financial Assistance for Industry

Eighth Standing Committee on Delegated Legislation

Thursday 16 March 2000

[Mr. Bill O'Brien in the Chair]

Financial Assistance for Industry

4.30 pm

The Minister of State for Trade (Mr. Richard Caborn): I beg to move,

    That the Committee has considered the draft Financial Assistance for Industry (Increase of Limit) Order 2000.

The intention of the order is simply to increase the cumulative limit on the financial assistance that may be provided under section 8 of the Industrial Development Act 1982. That is necessary because the current statutory limit of 2.1 billion is being approached, and might be reached by this June or July. If the limit is not increased, the legislative basis for a number of schemes that provide financial assistance to industry will be exceeded. Section 8 enables the Government to provide financial assistance to industry for a range of specified purposes. We may do so if we consider that such assistance will benefit all or part of the UK's economy, is in the national interest, and cannot appropriately be provided in any other way.

The purposes for which assistance may be offered are set out in full in the 1982 Act. Section 8 is an enabling power, and in practice there are several different ways in which it can be, and has been, used. Existing schemes that were set up with section 8 as their legislative basis include the small firms loan guarantee scheme--and other elements of the enterprise fund--and support to the British Film Commission.

The giving of section 8 assistance has always been subject to a statutory limit. The Industry Act 1972 placed the original limit at 150 million. Up to 1981, further legislation, including similar orders, raised the limit on a number of occasions. The Industrial Development Act 1982 reset the limit at 1.9 billion, and section 8(5) provides that the limit may be increased four times by order, given Treasury consent. Each increase may not exceed 200 million. The order is the second time since the passing of the 1982 Act that the Government have needed to seek parliamentary approval to increase the limit. A similar order came into force on 29 February 1996 to increase the limit from the level that was set in the 1982 Act to 2.1 billion.

Five schemes or programmes based on section 8 are in operation. First, the enterprise fund is aimed at stimulating debt and equity finance for small firms that are ready to grow. The main elements of the fund are as follows. The small firms loan guarantee scheme, which was launched in 1981, offers guarantees on loans to small firms with viable business proposals that are unable to obtain conventional finance because they lack assets to offer as security against a loan. By providing a guarantee against default, the scheme encourages lenders to lend where they would not otherwise do so. Two elements of the fund--the UK high technology fund, which will support early stage, high-technology businesses, and regional venture capital funds, which will specialise in the provision of small-scale equity to firms with growth potential--are not yet in operation, but will be implemented during 2000.

Secondly, the enterprise grant scheme is a new discretionary scheme for small and medium-sized enterprises in areas of the English regions that suffer above-average unemployment. In July 1999, my right hon. Friend the Secretary of State for Trade and Industry announced a funding package of 45 million over three years. That will complement the new assistance that is available under the enterprise fund.

Thirdly, the shipbuilding intervention fund provides aid to UK shipbuilding yards to help them to secure new building or conversion orders, thereby safeguarding jobs. The fund is due to end on 31 December 2000.

Fourthly, regional innovation grants in Wales are available to small firms in Wales for innovation projects. This scheme is administered by the National Assembly for Wales.

Finally, section 8 is also the legislative basis for the assistance that my right hon. Friend the Secretary of State for Culture, Media and Sport offers to the British Film Commission to increase Britain's share of the global film and television production market by attracting overseas film and television productions to this country.

A number of schemes that are now closed will still involve expenditure in future. The exchange risk guarantee scheme expenditure ceases at the end of the current financial year. The final residual payments for regional innovation grants in England will be made in the next financial year, as will payments for regional investment grants in England. Finally, payments under the RSA transitional arrangements, which resulted from the changes to the assisted areas map in 1993, when some areas lost their assisted area status, will be completed in the financial year 2000-01.

I want to deal now with the expenditure level reached so far, when we expect the present limit to expire--hence the need for the order--and how long we expect the increased limit to last.

If we take the cumulative figures for all section 8 schemes from 1972 onwards, we find that at the end of March 1999 2.042 billion had been used. Based on our forecasts for each scheme, by the end of March 2000, 2,086 billion will have been used. For 2000-01, our forecast for expenditure and commitments is that a further 86 million will be used. The present 2.1 billion limit would therefore be reached, and possibly passed, later this year, perhaps in June or July.

The draft order will increase the limit to 2.3 billion, which we believe will provide legislative cover to continue offering assistance for a further three to four years. After that, the limit may be increased twice in a similar way and, after that, 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 a need to provide industry with the sort of assistance available under the current schemes will arise from time to time. They therefore require the means to do so, of which the order would be a part.

4.37 pm

Mr. Richard Page (South-West Hertfordshire): As the Minister said, we are now bumping up the present cumulative limit of 1,900 million. This will be the second opportunity to raise it by a further 200,000, with the chance of two further increases in the future.

I remember vividly that the first increase was moved on 13 February by the then Under-Secretary in the DTI, the Member for Amber Valley. I thought that he put the position very eloquently, as the Minister did just now. It is not word for word the same, but it saves the civil servants and the officials having to create a brand new speech from scratch. Unfortunately, in May 1997 my then hon. Friend was given a little more time with his family. I supported the move that he proposed, which was also warmly welcomed by the Labour party spokesman. I very much welcome the fact that this amount of money will be made available for this type of scheme.

I hope that the Minister will not mind if I raise one or two points. I was involved for 10 years or more on the Public Accounts Committee, so I am always interested in value for money. It is so easy to throw large sums at various enterprises, and at the end one has no money and no enterprise, so the Government have a responsibility to ensure that the money is correctly spent.

As the Minister said, the order covers five schemes, the first of which is the enterprise fund loan, which now includes the small firms loan guarantee scheme. You will remember, Mr. O'Brien, as I do, that I was one of those responsible for the introduction of the loan guarantee scheme in 1981. I know that I do not look that old, but I am. The scheme was a disaster when it started, as the banks pushed all their dodgy loans into it, and the guarantee had to be paid out when the dodgy loans and companies went down. The scheme is now much better controlled and, when I left it, it was doing a reasonable job. However, concern existed about the accumulation of debt and possible losses. Will the Minister provide a thumb-nail sketch of how the loan guarantee scheme is performing? How many loans have been made? What is the average loan? How many are at risk, and how much had to be written off?

The Minister made a quick mention of the enterprise grant scheme, and commented, in passing, that it was additional to the various enterprise schemes. Additional moneys were made available to British Coal when various collieries were closed, and to British Steel when steel plants were closed? The money assisted relocation and training, and generally mitigated the impact of such a substantial blow to the community. I shall not talk about shipbuilding, because that is another issue. Such financial assistance is not suitable to support the shipbuilding industry. Huge amounts of money can be swallowed up. We are considering small, targeted amounts of money--rifle shots--whereas shipbuilding needs rocket shells.

As for the annual grants to the British Film Commission, I have to smile. I remember all the luvvies piling into No. 10 after May 1997--

Mr. Caborn: Smiling.

Mr. Page: Yes, all over their faces. They came with open wallets, but they were empty, and they were hoping to come away with money. I would be grateful to know how much success there has been. On the edge of my constituency, great efforts were made to expand the Leavesden complex. There was a brief, exciting flurry, but now there are great doubts about what it will do for British film activity, or whether it will attract people from abroad to make films.

Why are the regional innovation grants in Wales still included in this area of financial assistance? Given the existence of the Assembly, could it not be funded from the Welsh side? The assistance goes to firms with no more than 50 employees throughout Wales, and there must be consultation with the Welsh. Is the Department of Trade and Industry involved, or does it merely allocate money to companies that are suggested by the Welsh Assembly? Is the DTI simply a paymaster?

I am in favour of the scheme, as long as the money is properly targeted. In about 45 seconds, the Minister will undoubtedly assure me that every penny has been well spent, and that the scheme is going from strength to strength.

4.44 pm


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