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Draft Financial Assistance For Industry (Increase of Limit) Order 2007

The Committee consisted of the following Members:

Chairman: Mrs. Joan Humble
Ainger, Nick (Carmarthen, West and South Pembrokeshire) (Lab)
Baron, Mr. John (Billericay) (Con)
Burt, Lorely (Solihull) (LD)
Byers, Mr. Stephen (North Tyneside) (Lab)
Campbell, Mr. Ronnie (Blyth Valley) (Lab)
Cousins, Jim (Newcastle upon Tyne, Central) (Lab)
Cruddas, Jon (Dagenham) (Lab)
Gardiner, Barry (Brent, North) (Lab)
Gerrard, Mr. Neil (Walthamstow) (Lab)
Hendry, Charles (Wealden) (Con)
Howard, Mr. Michael (Folkestone and Hythe) (Con)
McFadden, Mr. Pat (Minister for Employment Relations and Postal Affairs)
McGovern, Mr. Jim (Dundee, West) (Lab)
Öpik, Lembit (Montgomeryshire) (LD)
Seabeck, Alison (Plymouth, Devonport) (Lab)
Spink, Bob (Castle Point) (Con)
Spring, Mr. Richard (West Suffolk) (Con)
David Weir, Committee Clerk
† attended the Committee

Sixth Delegated Legislation Committee

Tuesday 17 July 2007

[Mrs. Joan Humble in the Chair]

Draft Financial Assistance For Industry (Increase of Limit) Order 2007

4.30 pm
The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): I beg to move,
That the Committee has considered the draft Financial Assistance For Industry (Increase of Limit) Order 2007.
The order concerns an increase in the financial ceiling for the exercising of powers under the Industrial Development Act 1982. Section 8 of that Act contains the Government’s principal power to give financial assistance to industry when such assistance is not exclusively within an assisted area.
For the avoidance of doubt, I would like to make it clear at the beginning of the debate that increasing the section 8 financial ceiling does not in itself authorise any extra expenditure. Hon. Members might know that we need to raise the financial ceiling, mainly because of the Government’s announced funding for the Post Office. However, financial assistance to industry in respect of any one project, such as the proposed payment to the Post Office, cannot exceed £10 million unless it has been authorised by a resolution of the House of Commons. Therefore, we have laid a measure specifically relating to the proposed Post Office payments. That will be subject to separate consideration by the House, but not today.
I shall explain how the financial ceiling works and why the Government want the order to be agreed. The ceiling provides a limit on total cumulated expenditure under section 8 of the 1982 Act. The Act contained a limit of £1.9 billion and a provision to increase that limit by order, and with the consent of the Treasury, by a sum not exceeding £200 million on not more than four occasions. By 2003, the four uplifts had been exercised, so the Act was amended to replace the original initial ceiling of £1.9 billion with a new ceiling of £3.7 billion, and the maximum amount by which the initial ceiling could be raised with each of the four uplifts was increased from £200 million to £600 million.
Since the Act was amended in 2003, the financial ceiling has not been raised. However, there is today only £440 million of headroom left under the ceiling, which is not large enough to accommodate recent spending proposals, including the Government’s plans to support the Post Office change programme. We have thus tabled the order to increase the section 8 financial ceiling, but, as I have stressed, increasing the ceiling does not authorise expenditure. This is simply a legal vehicle for the provision of financial assistance to industry outside assisted areas. We have laid a measure specifically relating to the proposed Post Office payments, which will be considered by the House on another day.
4.33 pm
Charles Hendry (Wealden) (Con): It is a pleasure to serve under your chairmanship, Mrs. Humble.
I thank the Minister for setting out the position with such clarity. I imagine that his speech was wheeled out by his predecessors on the four previous occasions when increases were required. Perhaps his winding-up speech will be similar to those in previous debates.
Broadly, we welcome what the Minister has announced, and we are happy with the direction in which the Government are moving. However, I have a number of questions, particularly about the regularity with which the fund has had to be increased. The first increase of £200 million was made in 1996. A further £200 million was required in 2000 and again in 2002 and 2003. Since then, the fund has increased by £1 billion, so it is rising by £250 million a year. We are now told that an additional £600 million is needed.
Can the Minister give any further explanation of what factors have led to the rapidly expanding size of the fund, and a bit more detail about the sort of schemes that he wants to help? What proposed big schemes does he have in mind? Could he give the Committee—not today, but in writing, so that we have it on record—a comprehensive breakdown of the schemes that have been supported to date? Very significant amounts have been spent in this way.
We think that the money has overwhelmingly been valuably spent, but it would be useful to have a precise understanding of what schemes have been helped, and in what way. Can the Minister give us a regional breakdown so that we will know which parts of the country have benefited most? Will he let us know what he believes the impact on employment has been? We understand that he cannot be absolutely precise about that, but an approximate figure of how many jobs he believes have been either created or saved would be useful for our understanding of how the Government’s priorities have been working. Can he also give us some explanation of what types of businesses have been helped the most?
Will the Minister tell us how this scheme compares with other such schemes that are operating elsewhere in the European Union? Will he clarify how the scheme operates under European Union funding guidelines? Will he say whether such schemes in other countries are comparatively similar in size, given the size of their economies, or whether they are smaller or larger, so that we can have a better understanding of the way in which support has been given through the scheme?
I understand that the Minister will not have comprehensive answers to my questions today, but we would be grateful if he would respond to them by writing to members of the Committee. In general, we understand why the Government are seeking to make this increase, and we support them in doing so.
4.36 pm
Lorely Burt (Solihull) (LD): I welcome you, Mrs. Humble, to your chairmanship of what I believe might be a short yet very important debate.
Schemes such as the small firms loan guarantee scheme are very welcome and have provided a great deal of help for small firms. In my area of the west midlands, the Rover taskforce accrued £7 million from the fund, although questions have been asked about how effectively that £7 million has been spent.
If I may elaborate on what the hon. Member for Wealden said, I am sure that all hon. Members would appreciate and find useful a little more information regarding accountability and transparency, such as about the criteria that are used whenever money is requested from a fund. We would also like some information on exactly how the spending has been broken down. I asked the Library about that, admittedly at short notice, but it was not able to provide me with a shopping list of exactly where it had all gone.
Most importantly, there should be a review of post-implementation success. For example, there were a number of queries about whether the money for Rover was effectively spent. Can the Minister reassure me that time, energy and resources are allocated following implementation to ensure that the money has been spent effectively and that any lessons learned as a result of problems that have been encountered are used to make things better in the future?
The Minister’s predecessor, the right hon. Member for Barking (Margaret Hodge), initiated a Government consultation: the simplifying business report. Will the Minister comment on how he feels that that will have an impact on the requirement for such funding in the future? It seems that the amount of money allocated has risen exponentially over the past few years. As guardians of the public purse, we are all concerned about authorising an additional £600 million for the total fund today. When does the Minister envisage that the next tranche will be due?
4.40 pm
Mr. McFadden: The hon. Member for Wealden asked several questions about increases in the fund and what it is used for, so it might help the Committee if I go over some of its uses. It is intended to benefit the UK economy or any part or area of the UK. It is to be used in the national interest and when assistance cannot appropriately be provided in any other way. It can be used for the promotion or modernisation of an industry, for addressing an industry’s efficiency, for expanding or sustaining productive capacity, or for the reconstruction, reorganisation or conversion of an industry. It can also be used to encourage the growth of an industry, or, indeed, arrangements for ensuring an industry’s orderly contraction.
I was asked about the rate of increase. This is the first time that we have increased the ceiling since 2003, so it has not gone up exponentially. As I explained, we need to increase it now to fund our commitments to the Post Office, including covering some of the losses in the network and paying sub-postmasters who are leaving under the change programme. Other uses of the fund over the years have been the UK Coal operating aid scheme, the small firms loan guarantee scheme and regional venture capital funds.
The hon. Member for Solihull mentioned the effectiveness of the funds for Rover. The whole governmental and regional effort after Rover’s closure has been a success story. Some 6,000 job losses were announced, yet I understand that only about 200 of those people are still out of work two years on. Most have found employment or training, or another productive activity. I do not claim that that is all due to the fund, but there has been a success story as part of the overall efforts of the Government and locally.
The hon. Member for Wealden asked for figures on jobs. I hope that the Rover example helps him somewhat, but there are others. I might write to him about that.
Lorely Burt: I do not want to dwell on Rover, but I dispute the Minister’s comment that only 200 of the people affected are without jobs. A large proportion of people have not found jobs at a similar level or pay rate to what they had before. There have been a number of problems. Has there been a specific post-implementation analysis of the cost-effectiveness of the different ways in which money was spent to help those workers and to generate additional business in the west midlands to help them to obtain jobs, or become self-employed?
Mr. McFadden: The regional development agency has done a lot of work on that, and it would argue that the figure of 200 is correct. People’s salaries will always change when they change jobs—some will go up and some will not. Let me stress that we are discussing not a scheme, as such, but a legal vehicle for expenditure for different purposes across Government. A specific reason why we want to raise the amount is to do with the Post Office, but there are other purposes for it across Government. I do not see this as a honey pot; the money will have various uses. I reiterate that this is the first time that we have had to increase the fund for some years. It is for a specific use, which I am sure will be supported across the House, given the value of the post office network to the country.
Question put and agreed to.
Committee rose at fifteen minutes to Five o’clock.

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