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7 Apr 2003 : Column 71—continued
Dr. Cable: There is an argument for counter-cyclical management, but that is not the argument that the Government have advanced.
Mr. Hopkins: It is my argument.
Dr. Cable: I realise that, but I am not sure that such legislation is necessary even if we have emergencies. A few weeks ago, we had the example of a major crisis in the British nuclear power industry. I was one of those who opposed the bail out, but, even without recourse to such legislation, the Government were able to take
legislation through Parliament within weeks and it was closely scrutinised, as it should have been. That, surely, is the way to deal with an emergency, rather than having open-ended facilities such as those in the Bill.There is also the question whether we should continue to see such industrial assistance as necessary. The hon. Member for South Cambridgeshire (Mr. Lansley) made those points today and has done so previously. The industrial development system was seen as important, particularly in the 1980s, because we had labour-intensive, highly concentrated industries such as coal, steel and shipbuilding with a real need for adjustment assistance, but they have largely gone—the process may have been brutal—and they will not recur. Such traditional industrial assistance has largely passed.
Industrial assistance was also seen as necessary because of specific market failures. We should particular examples where legislation has been used to disburse large sums of money. We must ask why we should assume that such market failures will continue indefinitely. One of the examples is the use of venture capital financing. In the past, a strong argument has been made that the British venture capital market was deficient, particularly at the smaller end. As I follow it, however, the venture capital institutions have advanced considerably. It is not at all clear whether, in the next 10 to 20 years, the same need will exist that exists today.
More importantly, there is the issue of banking. The small industry loan guarantee scheme, which was generally welcomed by all parties, arose from a specific analysis that the banking system was defective in providing loans to medium-sized business, and charged an excessive risk premium to them. After that assumption was made, the Government conducted a full analysis, in the form of the Cruikshank report, which addressed that specific failure. Some of us have been frustrated that the Government have not followed through the Cruikshank report's conclusions—I secured an Adjournment debate on the matter—and that they have still not addressed the issue of the payments regulator. None the less, I do not understand fully why we should assume that, for the next 10 to 20 years, there will be a deficiency in the ability of the banking sector to lend to small business, and why the scheme should continue indefinitely.
My third substantive point, which I made on Second Reading, and which I will repeat, is that to justify this level of commitment we need a more rigorous system of evaluating the expenditure that has already been made. I appreciate the Government response, and the Minister has been very courteous in following up the comments made on Second Reading, particularly with much detailed information on the small loan guarantee scheme. None the less, I sense in this whole area an absence of rigour in the way in which funding is evaluated. Little attempt has been made to establish what difference such assistance would make to companies, or, as the hon. Member for South Cambridgeshire put it, to examine the opportunity cost. The £3.4 billion could be spent on education and skills or on transport facilities, which could raise the productivity of British industry, and probably more so than spending through this Bill. Who will ask those questions, however, in relation to the rigorous evaluation needed to make a sensible assessment of the legislation?
I remain very doubtful about the Bill. I welcome the attempts to establish a greater degree of accountability, and I will therefore support the amendments if they are to put to the vote.
The Minister for Employment Relations, Industry and the Regions (Alan Johnson): I welcome the debate. This is a very small Bill, on which I did not expect to spend much time, but the time has been well spent. We have heard some very constructive comments and, as the hon. Member for Buckingham (Mr. Bercow) said, some history lessons. I was grateful to the hon. Member for South Cambridgeshire (Mr. Lansley) for taking me back, with names such as Chris Chataway and John Davies, to the days of flares and tank tops in the glam rock era of British parliamentary life of the 1970s.
The hon. Member for South Cambridgeshire said that the Bill had not received sufficient scrutiny. That is wrong: we have subjected it to a great deal of scrutiny. He departed from his normal eloquence by saying that it was not "examinated" properly, but I think that it was examinated properly. The amendments may be different, but our basic argument has been about whether the Government are being profligate with taxpayers' money in business support measures under section 8, whether we are seeking to avoid proper parliamentary accountability and whether we should be coming back more often for extra tranches of money. All those are covered in the amendments. As I explained in Committee, we want to strike a balance between retaining the concept of parliamentary control and bringing the limits in the Industrial Development Act 1982 up to date to take into account the growth in the economy since 1982, without making the process too burdensome for Parliament. The limits proposed in the Bill reflect that objective.
The hon. Gentleman said that the effect of the two amendments taken together would be to make three changes. I think that there is a fourth. He said rightly that they would set a new initial ceiling of £3,440 million—not too wildly dissimilar from ours of £3.7 billion—and I understand the logic of using £185 million, which is our forecast spend, to reach that figure. I will not therefore fall to the floor sobbing about that change, but we think that £3.7 billion is more sensible than £3.44 billion. He suggests six tranches of up to £200 million, whereas we propose higher tranches of £600 million—we rejected the Treasury proposal.
6.45 pm
There is one consequence, however, that he did not mention specifically: under the amendment, the legislation would expire about 10 years earlier than provided for by the limits in the Bill, and would halve the expected life of the new legislation. That is based on taking the average of the forecast spend for the four financial years, 2002–03 to 2005–06, and the assumption that the rate of spend of £185 million per year remains constant over subsequent years, once we have reached the current limit of £2.7 billion early next year.
We propose a longer-lasting piece of legislation, subject to periodic scrutiny by Parliament. We discussed in Committee how long Parliament had spent scrutinising the Bill. We made the point that, on average, parliamentary debates have taken place every
five years, and, on average, have lasted less than half an hour. The hon. Gentleman feels strongly about these issues, but all the evidence is that the amount of parliamentary scrutiny that we give to section 8 of the Industrial Development Act is about right. There is no evidence that not enough time is available for such parliamentary scrutiny.An estimated period of six years would seem appropriate for the initial limit to last, bearing in mind the scrutiny that we have just had in this place and another place. The effect of the limit proposed in the Bill would mean that we would return to the matter after six years, given that Parliament will have had opportunities for detailed scrutiny during its passage.
As I have explained, the hon. Gentleman was absolutely right—he may not have done his sums in advance, but he did them correctly—that we could have gone for a higher initial limit of £4.5 billion, but we chose not to do so. That is based on rolling forward the existing limit of £2.7 billion in real terms—using the famous 2.5 per cent. figure as a proxy for the long-term GDP deflator—for a 20-year period, which would have given a ceiling of £4.5 billion, and four subsequent tranches of up to £400 million. We have set a lower initial ceiling of £3.7 billion, however, and bigger tranches of up to £600 million each, resulting in the same ultimate ceiling of £6.1 billion.
Amendment No. 4 proposes that the tranche sizes remain at £200 million. As I argued in Committee, however, prices have more than doubled since 1982, increasing by a factor of 2.2. That would have the effect of almost annual parliamentary scrutiny of the use of section 8. After the first order, the three subsequent orders would be needed every 12 to 15 months. I accept that that is a difference between us, but we believe that that is not a proper use of Parliament's valuable time. It would be too restrictive to retain the tranche size at £200 million, and, significantly, to introduce a requirement that not more than one affirmative order in a 12-month period could be made, as amendment No. 4 proposes. That would mean that not more than £200 million could be spent in any 12-month period: in effect, a ceiling on the annual rate of spend, which would introduce a completely new concept into the Bill and, indeed, into the 1982 Act.
Forecast expenditure for the current uses of section 8 for the current financial year and the next, however, exceeds £200 million. In the financial year that has just started, we predict that we will need £208 million, and, in the following financial year, £221 million. In the financial year just gone, we budgeted for £160 million but used £130 million.
The amendment would have serious consequences. It would mean that the limit available to us would be exceeded by the schemes. Apart from some mild criticism about venture capital funds, all the evidence during all the scrutiny—we have had three orders since 1997—has not suggested huge controversy about the way we are spending the money. The amendment would prevent us from being able to do that.
There is no rational basis for saying that no more than £200 million should be spent in any one year. It is in the nature of schemes that expenditure fluctuates from year to year. The amendments would be unnecessarily burdensome for the House and could disrupt DTI
spending plans on longer-term business support such as the small firms loan guarantee scheme, which we expanded last week—we announced last November that we were expanding it. It could also disrupt the plans of other Departments and the devolved Administrations, who also use the facility of section 8. The Government's proposals represent a far better balance between scrutiny and efficiency.I pick up two important points made by hon. Members, including the hon. Member for North-West Norfolk (Mr. Bellingham). The first relates to an update of the business support review. My right hon. Friend the Secretary of State will be writing to members of the Select Committee on Trade and Industry and to all other hon. Members when we have finally worked out how it will operate. However, we closed 20 schemes last week. We will close 84 schemes by the end of this year. None of the section 8 schemes has been affected, apart from the expansion of the small firms loan guarantee scheme that I mentioned in Committee, which was widely welcomed, including by the hon. Member for North-West Norfolk. No other section 8 schemes have been affected by recent developments under the DTI business support review.
The second point that was raised—it has been raised before—was about venture capital and the fact that we have such a mature venture capital fund market. Hon. Members have asked whether we really need those schemes. The evidence, not least from the British Venture Capital Association, is that venture capital companies have moved relentlessly up the value-added chain and are now more involved in management buy-outs or management buy-ins. The latest BVCA report on investment activity in the UK shows that only 3 per cent. of total private equity investment was at the start-up stage in 2001 and only 8 per cent. in early-stage investments. In comparison, management buy-outs and management buy-ins accounted for 60 per cent. of the spend of venture capital funds. Organisation for Economic Co-operation and Development figures indicate that, despite having a much larger private equity industry in total, UK private equity investment in early-stage companies as a proportion of GDP is relatively low compared with other OECD countries.
Therefore, there is a need for the venture capital fund schemes that we have, although I have accepted, and I will say it again on Third Reading, that we need to report on the matter more fully and to give hon. Members the chance to see how schemes are faring, as we did in the KPMG report on the small firms loan guarantee scheme as recently as 1999. We need to do much more and I have accepted those points.
We believe that the Bill as currently structured offers the best basis for providing continued support for industry as well as accountability to Parliament. Therefore, I hope that the hon. Member for South Cambridgeshire will withdraw his amendment.
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