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24 Feb 2003 : Column 46—continued
Madam Deputy Speaker: I have had no indication from any Minister that they wish to make a statement to the House, but I am sure that a note will have been made of the right hon. Gentleman's comments.
Orders of the Day
Industrial Development (Financial Assistance) Bill
Madam Deputy Speaker (Sylvia Heal): I inform the House that Mr. Speaker has selected for discussion the amendment in the name of the Leader of the Opposition.
4.54 pm
The Minister for Employment Relations, Industry and the Regions (Alan Johnson): I beg to move, That the Bill be now read a Second time.
The purpose of the Bill is to increase the cumulative limit on financial assistance that may be provided under section 8 of the Industrial Development Act 1982. A useful starting point would be to explain what the section 8 power is and what it can be used for. Section 7 of the 1982 Act allows financial assistance to be offered in the assisted areas of the UK if it is likely to provide, maintain or safeguard employment. Section 8 has much broader scope and provides the legislative basis for financial assistance, both inside and outside the assisted areas. It gives wide discretion to provide financial assistance to industry if, in the opinion of the Secretary of State, it is
- "likely to benefit the economy of the United Kingdom, or of any part or area of the United Kingdom".
The precise purposes for which assistance may be offered are set out in section 7(2) of the 1982 Act. They include promoting the development, modernisation or efficiency of an industry; the creation, expansion or sustaining of productive capacity in an industry; promoting the reconstruction, reorganisation or conversion of an industry; encouraging the growth of an industry; and encouraging the arrangements for ensuring an orderly contraction of an industry. The legislation is drafted in such a way as to permit other Secretaries of State, as well as the Secretary of State for Trade and Industry, to use the section 8 power. Following devolution, Ministers in the devolved Administrations are also able to use the powers of section 8 to fund their own activities. If they do so, their expenditure counts towards the cumulative limit.
Assistance using section 8 as the legislative basis has been subject to a statutory limit since the Industry Act 1972. In calculating the cumulative spend under section 8, it is necessary to take account of all expenditure since then. More than 60 measures of financial assistance to industry have been established using the section 8 power since 1972. Of those, 15 are currently open, which I will return to shortly. The 1972 Act contained a limit of £150 million on section 8 expenditure, but provided for that limit to be raised by a sum not exceeding £100 million on not more than four occasions, by order made with the consent of the Treasury. The Act stated that an order should be contained in a statutory instrument and that a draft order should be approved by a Commons resolution. The limit was reset by the
Industry (Amendment) Act 1976 to £600 million, with provision for up to four increases, by order, of up to £250 million each.The Industry Act 1982, which the Industrial Development Act 1982 consolidated, raised the ceiling to £1.9 billion. The system of affirmative orders was retained and section 8(5) of the Industrial Development Act 1982 allows the limit to be increased four times by up to £200 million on each occasion. This provides for a maximum ceiling of £2.7 billion. The Government have sought parliamentary approval to increase the limit on three occasions to date, most recently in January 2002. The current limit is £2.5 billion. As this is likely to be reached by the end of the current financial year, a fourth and final order under existing legislation is needed before the Bill completes its passage through Parliament. A draft order raising the limit to £2.7 billion was laid in the House on 30 January and will be debated in Committee next week.
At the end of March 2002, the cumulative expenditure for all section 8 schemes since 1972 was almost £2.35 billion. For the current financial year, the forecast is that a further £167 million will be spent, with a further £208 million for the financial year 2003–04. Based on current levels of spend, the maximum amount allowable under existing legislation—£2.7 billion—is expected to be reached early next year.
It may be helpful if I explain what contributes to the cumulative limit. The 1982 Act states that the aggregate of sums paid, plus liabilities under any guarantees given, less any sum received by way of repayment of a loan or of sums paid to meet a guarantee, count towards the cumulative limit.
Mr. Andrew Lansley (South Cambridgeshire): Before the Minister moves on to the schemes that fall within section 8 expenditure, I am interested in the build-up of total commitments. I may have missed something, but I looked in vain in annual reports on the Industrial Development Act 1982 for a cumulative total, building up year on year, of section 8 expenditure. Can the Minister give some indication of the pace at which those commitments have built up over the past five years in comparison with the preceding years?
Alan Johnson: I shall come to that in due course when I explain how we have had to come back to the well, so to speak, to replenish stocks. I am surprised that that information has not been in the annual reports—it should have been.
This small Bill of just two clauses is essential to enable the section 8 power to continue to be used by the Department of Trade and Industry, other Departments and the devolved Administrations to give financial assistance to industry. Without an increase in the limit, the legislative basis for the various schemes set up using section 8 would be exceeded when the absolute limit of £2.7 billion is reached, rendering unlawful Ministers' further use of that power. The Bill raises the financial ceiling in section 8(5) of the Industrial Development Act 1982. It retains the structure of tranches in the existing legislation but replaces the numerical ceilings with new, higher ones.
Clause 1 replaces section 8(5) of the 1982 Act by increasing the initial ceiling from £1.9 billion to £3.7 billion and the subsequent four tranches from up
to £200 million to up to £600 million each. Clause 2 gives the short title of the Bill. The other provisions of section 8 remain unaltered.
Mr. Michael Fallon (Sevenoaks): The Minister seems rather coy about what he is actually doing. Will he confirm the arithmetic? Is his position that he inherited a total ceiling of £2.1 billion when the Government took office because the cap had been increased once, and that he now proposes to increase the total ceiling available to £6.1 billion—in other words, trebling it?
Alan Johnson: For the sake of clarity, the financial ceiling that has existed since 1982 is £1.9 billion. I believe that we had been to the well twice for £200 million by the time we came into government in 1997. We went back to the well again last year, so we have been three times and there is one more time left. We have reached a situation whereby we have spent £2.5 billion and there is another £200 million left. We are now suggesting, 20 years after the 1982 Act, that we replenish the stocks. While maintaining the four tranches, we want to increase the ceiling on those tranches—as, indeed, did the previous Government in 1982—to £6.1 billion.
There are no plans to change the threshold at which individual offers of assistance under section 8 are subject to the approval of the House of Commons. That threshold, fixed by section 8(8), remains at £10 million. The aim of subsection (8) is to give Parliament the opportunity to consider larger cases of assistance to industry. As there have only been a couple of occasions in recent years on which that has been required, there seems to be no reason to raise the threshold at this time.
The new limits in the Bill were chosen to provide more regular parliamentary consideration of the section 8 power. If we consider existing legislation, 14 years elapsed before the first order was needed, and there were subsequently only four years, two years and one year between orders. Based on the average spend forecast for the next four years of £185 million per annum, the new initial ceiling is expected to last for approximately six years before the first order is needed. Increases through affirmative order will be required every three years after that until the new ultimate limit of £6.1 billion is reached. On that basis, the proposed new limits are expected to provide legislative cover to enable assistance under section 8 to continue for almost 20 years.
Section 8 is an enabling power. The Bill provides the statutory authority to continue expenditure on measures that have already been announced and enables the introduction of new measures as appropriate. However, I am not announcing new measures today. The Bill has no regulatory impact on business and a copy of the regulatory impact assessment was placed in the Library today.
Section 8 is not the only legislative base on which to enable financial assistance to be offered to industry. Section 5 of the Science and Technology Act 1965 and other sections of the 1982 Act also provide for that. Section 7 of the 1982 Act provides for the regional selective assistance scheme, the main regional policy instrument. Some industrial sectors such as aerospace are covered by specific legislation.
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