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24 Feb 2003 : Column 49—continued
Mr. Lansley: I appreciate that the Minister is not announcing any new schemes under section 8 today, but
the explanatory notes to the Bill specifically refer to the urban post office network reinvention programme, which costs approximately £450 million. Am I correct that that money has not yet been spent and that, for three years, it creates a much higher rate of expenditure under section 8 than in the recent past?
Alan Johnson: The hon. Gentleman is right. The money, which Parliament authorised in November, has not yet been spent.
When assistance under section 8 is regarded as state aid, it must be compatible with European Community state aid rules. The European Commission will need to be notified of and approve any new scheme under section 8 that constitutes state aid before it can be introduced. However, if one of the block exemptions covers it, simpler notification procedures can be adopted and the aid can be granted immediately. The Commission has been informed of our intention to raise the limits.
The Small Business Service, which was established in April 2000 to meet the needs of small businesses, administers eight of the current assistance schemes. The Government acknowledge that there were weaknesses in the market's provision of finance to small and medium-sized businesses. The SBS was established partly to ensure that Government support programmes for small firms dealt with their needs at all stages of their development and helped to bridge the funding gap that many companies face. One of the main SBS programmes is the enterprise fund that was announced in the competitiveness White Paper in 1998. It aims to stimulate more finance for small businesses and tackle marked weaknesses in the provision of the finance.
Four elements of the enterprise fund use section 8 as their legislative basis. First, the small firms loan guarantee scheme, which was set up in 1981, is the oldest section 8 scheme. It offers guarantees on loans to small firms with viable business proposals that are unable to obtain conventional finance because they lack assets as security against the loan. By providing a guarantee against default, the scheme encourages lenders to lend when they would not otherwise do so.
Secondly, regional venture capital funds were established to tackle the equity gap experienced by SMEs that seek investment of up to £500,000.
Thirdly, the UK high technology fund was set up to encourage institutions to invest in early-stage, high-technology businesses and to increase the amount of finance available for investment in technology-based businesses.
Fourthly, the early growth funding initiative seeks to stimulate small amounts of risk capital for start-ups and growing businesses that are usually too risky for the banks or too small for venture capital. The first of those, the London seed capital fund, was formally launched in December 2002. The Small Business Service also administers the enterprise grant scheme, which is a discretionary scheme for SMEs in areas of special need. Enterprise grants are given to businesses to finance capital investment projects.
Another main SBS activity is the Phoenix fund to promote entrepreneurship among disadvantaged groups. Two elements of the Phoenix fund use section 8. The first is support for community development finance
institutions, which are organisations that lend to enterprises that the banks consider too risky. The second is the Government's investment, in parallel with private sector investors, in the bridges fund, which is a community development venture capital fund that makes equity investments in growing businesses in disadvantaged communities that tend to be overlooked by established venture capital funds. There is also the business incubation fund, which helps to improve the chances of survival and growth of start-ups and early-stage SMEs through increasing availability and access to business incubation.Section 8 has also been used for schemes that address the needs of particular industrial sectors. The UK coal operating aid scheme, which was set up to help the coal industry through a period of transition, closed at the end of December. It was established to prevent the premature closure of viable mines owing to short-term market problems. The Government are in negotiation with the European Commission over our intention to use section 8 to support redundancy payments arising from the closure of UK Coal's Selby complex. Section 8 was also used last year to support supplementary redundancy payments to those who lost their jobs following the sudden and catastrophic flooding of Longannet colliery, which was the last deep coal mine in Scotland.
Section 8 is also used to enable the Government to make payments to redundant steelworkers through the iron and steel employees readaptation benefits scheme. Most recently, section 8 has been used for the urban post office reinvention programme, which the hon. Member for South Cambridgeshire (Mr. Lansley) mentioned, to enable the Post Office to carry out its programme to restructure the urban post office network, and to ensure that sub-postmasters whose offices close are adequately compensated for the loss of value of their business, and that those who remain can benefit from investment grants. The House debated and approved that funding on 15 October 2002.
Part of the assistance offered through the Rover taskforce programme uses the section 8 power. The funding is to enable the regional development agency, Advantage West Midlands, working with business link operators, to help businesses in the region to modernise and diversify.
Section 8 is also used by the National Assembly for Wales to operate that country's regional innovation grants scheme and the Assembly's investment grant scheme. Those initiatives are funded by the Assembly, but the expenditure counts towards the cumulative section 8 limit.
Those are the 15 current schemes under section 8.
Mr. Michael Weir (Angus): I note what the Minister said about funding from the National Assembly for Wales. Is it additional funding that is made available to devolved Administrations for these schemes or does it come out of their existing block grant, even though it counts towards the cumulative total under the Act?
Alan Johnson: No, it comes out of the settlement for the Welsh Assembly. Unlike English schemes, the schemes in Wales do not require Treasury approval and they count towards the cumulative total.
Having gone through the 15 schemes, I am aware that only three years ago, during the debate in Standing Committee on the second order, we estimated that replacement legislation would not be needed until 2010. In true confession mode, I shall try to pre-empt any comments from Opposition Members about the increase in the number of financial assistance to industry schemes set up using the section 8 power, and the acceleration in section 8 expenditure over the last three years. This issue should be considered against the DTI's total spend on business support, which has remained at around £1 billion per annum in recent years.
A fundamental change is taking place in the DTI's business support activities. The Secretary of State unveiled a complete overhaul of the DTI's business support programmes in November, following a comprehensive review. The problem that we identified—initiative overload—was partly symptomatic of enthusiasm in the DTI for assisting business. The purpose of the review is to channel that energy in a more strategic direction. Businesses said that they were confused by the plethora of DTI schemes, and found them difficult to understand and access. The aim of the review is to sort out the muddle, cut out inefficiency and focus on our strategic priority, which is to drive up UK productivity.
Mr. Lansley: When the Secretary of State appeared before the Trade and Industry Committee on 29 October, she said that there were 183 schemes within the DTI's ambit, and that she proposed a major simplification of those schemes. As far as I am aware, the Select Committee has not been told the outcome, although the Secretary of State said that it would happen "certainly by Christmas". It did not happen by Christmas, and we have seen nothing since. Perhaps the Minister can enlighten us on when we will see something.
Alan Johnson: It did not happen by Christmas because it took longer than we had thought to do a thorough job. We are hoping to launch this stage of business support simplification in April, and I am sure that the Select Committee will be among the first to know about it.
To ensure that DTI business support is both strategically targeted and simple for business to access and use, all existing schemes are being closed. New business support offerings, some of which will incorporate the best elements of existing schemes, will be produced under a new mechanism approved by the business support review, and will focus on the drivers of improved productivity. We are not cutting the amount that we spend on business support, but we will greatly reduce the number of business support products that we offer. The new approach will ensure that funds are allocated to activities that offer the best value for money.
Mr. Fallon: I am grateful to the Minister for giving way yet again. I certainly support the streamlining that
the Secretary of State announced, of which the Minister is now giving more details. I understand that an American business woman, Mrs. Fields Wicker-Miurin, will chair the new investment committee that will make all the decisions on the various support schemes. Will they include some of the schemes covered by section 8?
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