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Delegated Legislation Committee Debates

Draft Financial Assistance for Industry (Increase of Limit) Order 2003

Fourth Standing Committee on Delegated Legislation

Wednesday 5 March 2003

[Mr. David Taylor in the Chair]

Draft Financial Assistance for Industry (Increase of Limit) Order 2003

2.30 pm

The Minister for Employment Relations, Industry and the Regions (Alan Johnson): I beg to move,

    That the Committee has considered the draft Financial Assistance for Industry (Increase of Limit) Order 2003.

Thank you, Mr. Taylor. It is a great pleasure to serve under your chairmanship for the first time.

Before the Government can incur expenditure, there must be an appropriate power. Section 8 of the Industrial Development Act 1982 provides the legislative basis for a number of measures that give financial assistance to industry. Such support is subject to a statutory limit, and the order's purpose is to increase the cumulative limit on financial assistance that may be provided under section 8. Assistance that uses section 8 as the legislative basis has always been subject to a statutory limit—that dates back to the Industry Act 1972. When calculating the cumulative spend under section 8, account must be taken of all expenditure since then.

The 1972 Act put the limit at £150 million, which was reset by the Industry (Amendment) Act 1976 at £600 million. The limit was raised to £1.9 billion by the Industry Act 1982, which was consolidated by the Industrial Development Act 1982. The 1982 Act allows the £1.9 billion limit to be increased four times by up to £200 million, each time by affirmative order, with Treasury consent.

When the limit was raised for the third time in January 2002 to £2.5 billion, I told the Committee that it could be increased only once more. Beyond that, primary legislation would be needed to amend the 1982 Act, which is why the Government introduced the Industrial Development (Financial Assistance) Bill on 18 November 2002. The Bill received its Second Reading on 24 February and will be debated in Committee on 13 March. I do not propose to spend too much time repeating the arguments that I made last week.

The Bill will amend section 8(5) of the Industrial Development Act 1982 by retaining the structure of tranches while replacing the numerical ceilings with new, higher ones 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. Before the Bill completes its passage through Parliament, it will be necessary to make a final order under existing legislation. The order before us represents the fourth time that parliamentary approval to increase the limit has been sought, and it will increase that limit to £2.7 billion.

The order is compatible with the United Kingdom's obligations in relation to rights under the European

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convention on human rights, as defined in section 1 of the Human Rights Act 1998. Unlike section 7 of the 1982 Act, which allows financial assistance to be offered in the assisted areas of the UK, section 8 is much broader and gives wide discretion to provide financial assistance to industry if, in the opinion of the Secretary of State, it is likely to benefit the UK economy or some part of it, it is in the national interest and assistance cannot be provided in any other way.

The legislation is drafted to permit other Secretaries of State to use the section 8 power. Following devolution, Ministers in the devolved Administrations are also able to use section 8 powers to fund their activities. If they do so, their expenditure counts towards the cumulative limit.

The order, which will be made under section 8(5) of the 1982 Act, is required because the statutory limit of £2.5 billion is likely to be reached towards the end of the current financial year. At the end of March 2002, the cumulative expenditure for all section 8 schemes since 1972 was almost £2.35 billion and the forecast for the current financial year is that a further £167 million will be used.

Expenditure has increased in recent years because of the number of initiatives that the Government have introduced to improve the competitiveness of our economy and to help with the consequences of industries in transition. For example, the UK coal operating aid scheme, which was introduced in 2000 to help the coal industry through a period of transition, will account for almost £170 million by the end of the current financial year. Most recently, section 8 has been used for the urban post office reinvention programme, which the House debated on 15 October 2002. That will account for £210 million of the section 8 headroom over the next four years.

Section 8 is also used to enable the Government to make payments to redundant steelworkers through the iron and steel employees readaptation benefits scheme as well as to support redundancy payments arising from the closure of UK Coal's Selby complex—subject to Commission clearance—and the sudden and catastrophic flooding of Longannet colliery, which was the last deep mine in Scotland.

Of the 15 schemes that use section 8 as their legislative basis, eight are administered by the Small Business Service. With the exception of the small firms loan guarantee scheme, all the schemes were introduced by the Government as part of a series of measures to bridge the funding gap faced by small businesses. The remaining seven are the UK high technology fund, regional venture capital funds, the early growth funding programme, the enterprise grant scheme, the business incubation fund and two elements of the phoenix fund—support for community development finance institutions and the Government's investment in a community development venture capital fund. A small part of the assistance offered through the Rover taskforce programme uses the section 8 power. That funding helps businesses in the west midlands to modernise and diversify.

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The National Assembly for Wales uses section 8 to operate two schemes: the regional innovation grants and the Assembly investment grants. The Assembly funds those initiatives, but the expenditure counts towards the cumulative section 8 limit.

Together, those schemes have accounted for the increase in section 8 expenditure and, without an increase in the limit, their legislative basis would be exceeded, rendering further use of the power by Ministers unlawful. The draft order will increase the limit to £2.7 billion and provide legislative cover until the Bill receives Royal Assent. I commend the order to the Committee.

2.37 pm

Mr. Henry Bellingham (North-West Norfolk): The Opposition support the order, and I am grateful to the Minister for setting out the details succinctly and comprehensively.

We debated the Bill at great length on 24 February. As the Minister explained, there has to be new primary legislation because the fourth tranche, under the order, will run out in the near future. Will he tell the Committee when the £200 million limit expires? The third tranche was debated in 2002. When will that money run out? He did not make that crystal clear. As I understand it, the £200 million that we are debating could run on for a number of months. When the Bill, which will shortly be debated in Committee, receives Royal Assent, the new ceiling will be in place. That new ceiling will go up from £1.9 billion to £3.7 billion and be subject to new increased tranches of £600 million, rather than £200 million. It would be helpful if the Minister gave us exact timings relating to the two tranches under the current legislation.

Many schemes dealt with under section 8 are worthy and excellent, but the Opposition have doubts about some of them and think that they need some tweaking and improvement. There is something that worries me. Under the legislation, the Department of Trade and Industry publishes an annual report, and I see that there is a copy of last year's under the Minister's glasses. The report is published in June, and is dated for the year ending 31 March. After last Monday's debate—I made this point on Second Reading—we are being asked to scrutinise the order and to authorise additional money, but, without an update report, we are flying blind to some extent.

As the Minister pointed out, there has been a substantial increase in the money provided under section 8. He mentioned the coalfield operating scheme and the urban post office reinvention scheme, which are the two big ones at £170 million and £210 million respectively. It would make a lot of sense if he wrote to Committee members with a brief update on the different schemes, unless a way can be found—we made the suggestion on 24 February—to bring forward the annual report. If the report is for the year ending 31 March, it would not be asking too much to have it brought forward to the time of the Budget so that Committee members who follow the subject carefully have further information to hand, in tandem with today's and last week's scrutiny.

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I want the Minister to clarify one other point. We debated on Second Reading the new primary legislation that will soon be discussed in Committee, and I asked him whether the small firms loan guarantee scheme could be extended to other sectors of the economy. For example, sectors such as banking, education, medical and health services, motor vehicle repair, retail and transport are not included. I am very keen, as are my hon. Friends, for more women entrepreneurs to come forward, and some of those sectors, such as medical and health services, veterinary services, education and banking, finance and associated services, are attractive to them.

The Minister with responsibility for small firms, replying to a debate we had on small businesses earlier this week, said that there will be an extension of the categories under the small firms loan guarantee scheme, but I have not seen any DTI press release on that. I would have thought that it was very good news that needed to be flagged up.

We think that the loan guarantee scheme is excellent, and I know that the Lib Dems agree. It helps to achieve the Government's goal of introducing more people to the small business sector and encourages wealth creation. It has been too restrictive, however, so I hope that widening it and opening it up has a significant beneficial impact. Through those few questions and remarks, the Opposition give their support to what the Government are doing, although we want further information on those points.

2.43 pm


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