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These notes refer to the Industry and Exports (Financial Support) Bill as introduced in the House of Commons on 4 March 2009 [Bill 70]
INDUSTRY AND EXPORTS
(FINANCIAL SUPPORT) BILL
EXPLANATORY NOTES
INTRODUCTION
1. These explanatory notes relate to the Industry and Exports (Financial Support) Bill as introduced in the House of Commons on 4 March 2009. They have been prepared by the Department for Business, Enterprise and Regulatory Reform in order to assist the reader of the Bill and help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.
2. The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.
BACKGROUND AND SUMMARY
3. The Industry and Exports (Financial Support) Bill amends section 8(5) of the Industrial Development Act 1982 (the IDA) and section 1(1) of the Export and Investment Guarantees Act 1991 (the EIGA).
Amendment to the Industrial Development Act 1982
4. Section 8 of the IDA contains the principal power of Ministers to give financial assistance to industry outside areas which have been granted Assisted Area Status. Assistance may be given provided:
a) it will benefit the UK economy or any part or area of the UK;
b) it is in the national interest; and
c) assistance cannot appropriately be provided in any other way.
Bill 70—EN 54/4
5. The purposes for which assistance may be granted are set out in section 7(2) of the IDA. They include:
a) promoting the modernisation or efficiency of an industry;
b) creating, expanding or sustaining productive capacity in an industry;
c) promoting the reconstruction, reorganisation or conversion of an industry;
d) encouraging the growth of an industry; and
e) ensuring the orderly contraction of an industry.
6. Financial assistance may take the form of investment, loans, grants or guarantees. Examples of uses of section 8 include the Enterprise Finance Guarantee, the recent support package announced for the automotive industry, and Regional Venture Capital Funds.
7. There is a financial ceiling on the exercise of the section 8 power. This was originally set in the IDA at £1,900 million and was raised in four £200 million tranches by statutory instrument to an overall maximum of £2,700 million. The limits were amended by the Industrial Development (Financial Assistance) Act 2003 which established a new initial ceiling of £3,700 which could be increased by order in four tranches of up £600 million each to an overall maximum of £6,100 million.
8. The initial limit established by the 2003 Act has been increased once by an order made in May 2008 and a further draft order has been laid. As a result of an expansion of existing schemes, and recently announced interventions such as the support measures for the automotive industry and proposals for new schemes to support businesses through the economic downturn (some of which provide financial assistance in the form of guarantees for large sums), the Government now expects to lay the remaining two orders as soon as possible, so that the absolute ceiling of £6,100 million is likely to be reached by the end of July 2009.
9. The Bill will amend section 8(5) by increasing the initial ceiling to £12,000 million and allowing for four orders increasing that limit by up to an additional £1,000 million each, so giving a new maximum limit of £16,000 million.
10. The Bill does not alter the procedure for orders increasing the new initial ceiling. The orders must be made by statutory instrument and require approval in draft by a resolution of the House of Commons. In addition, the requirement for a Commons resolution where assistance for one project would exceed £10 million remains. The Government will also continue to publish the Industrial Development Act Annual Report detailing interventions covered under section 8.
Amendment to the Export and Investment Guarantees Act 1991
11. Under section 1(1) of the EIGA, the Secretary of State, acting through ECGD, has the power to make arrangements with a view to facilitating the supply of goods from persons carrying on business in the United Kingdom to persons carrying on business outside the United Kingdom. Under section 1(4) of the EIGA, these arrangements may take the form of financial facilities or assistance for, or for the benefit of, persons carrying on business. The financial facilities or assistance may be in any form, including guarantees, insurance, grants or loans.
12. The power under section 1(1) allows ECGD to make arrangements to facilitate future exports, for example, by assisting a person who wishes to export goods or services. But the wording of section 1(1) restricts ECGD’s ability to give support to exports which have already taken place. There is a continued increase in demand from exporters for ECGD support in the form of “reimbursement cover”, that is, for an ECGD guarantee of repayment of a loan taken out to refinance the cash purchase of UK exports. In addition, requests for ECGD support are often made at a stage when the goods or services will be exported before ECGD can take a decision, particularly where ECGD must satisfy itself that it has complied with relevant Government policies. In the Government’s view, it is necessary to ensure that ECGD is able to provide support in respect of an export, whether or not that export has been made.
13. The Bill achieves this by amending section 1(1) of the EIGA to enable ECGD to make arrangements “in connection with” exports rather than, as is currently the case, “with a view to facilitating exports”.
TERRITORIAL EXTENT AND APPLICATION
14. The Bill extends to the United Kingdom.
15. This Bill does not contain any provisions falling within the terms of the Sewel convention. The Sewel convention provides that Westminster will not normally legislate with regard to devolved matters in Scotland without the consent of the Scottish Parliament. If there are amendments relating to matters which trigger the convention, the consent of the Scottish Parliament will be sought for them.
16. The Bill does not contain any provisions which would, in accordance with the Memorandum of Understanding, require a legislative consent motion in the Northern Ireland Assembly.
THE BILL
COMMENTARY ON CLAUSES
Clause 1: Increase in limit on selective financial assistance by amendment to the Industrial Development Act 1982
17. This clause replaces subsection (5) of section 8 of the Industrial Development Act 1982, as amended by the Industrial Development (Financial Assistance) Act 2003. The clause retains the structure of tranches in the existing legislation but replaces the numerical ceilings with new, higher ones. The initial ceiling on financial assistance will be increased from £3,700 million to £12,000 million and the subsequent four tranches from up to £600 million to up to £1,000 million each.
Clause 2: Amends section 1(1) of the Export and Investment Guarantees Act 1991
18. Clause 2(1) replaces section 1(1) of the EIGA. The new subsection (1) allows ECGD to make arrangements for providing financial facilities or assistance in connection with exports. Subsection (1A) expressly provides that the arrangements may be in connection with exports that have been made, are to be made or may be made.
19. Clause 2(2) is a transitional provision which provides that arrangements may be made in connection with exports that take place before the amended provisions come into force.
FINANCIAL EFFECTS OF THE BILL AND EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER
20. The Bill will not entail changes to public service manpower.
21. In respect of amendments to the IDA, the Bill will allow additional public expenditure by providing the statutory authority for continuing expenditure for measures that have already been announced and taken into account in expenditure forecasts, and will enable new measures to be introduced. Any new measures would have to be compatible with EU state aid rules and, where required by those rules, would be duly notified to and approved by the European Commission.
22. The EIGA allows ECGD to provide financial facilities for exports. The costs of providing the financial facilities and meeting any liabilities under them are met from public funds. The amendment to the EIGA allows ECGD to provide financial facilities for exports in a wider range of circumstances, but does not alter the financial limits on ECGD’s commitments set out in section 6 of the EIGA.
REGULATORY APPRAISAL
23. The Bill does not have a regulatory impact on business, charities or voluntary organisations.
EUROPEAN CONVENTION ON HUMAN RIGHTS
24. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of the Act). The Rt Hon Pat McFadden has made the following statement:
In my view the provisions of the Industry and Exports (Financial Support) Bill are compatible with the Convention rights.
COMMENCEMENT
25. The Bill comes into force on Royal Assent.
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