The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): I beg to move,

It is a pleasure to serve under your chairmanship this afternoon, Mr. Martlew. In recent months, the Government have announced several measures to help businesses through the downturn. One issue that has been raised with us several times during this period is trade credit insurance. That is why the Chancellor announced in last week’s Budget that the Government would introduce a top-up scheme, and the motion will give effect to that scheme.

Before I explain exactly what the measure does, let me say a little about why trade credit insurance is so important. Trade credit insurance protects suppliers against the risk of a company failing to pay for its goods. That is important because it gives suppliers confidence to extend sometimes lengthy payment terms to buyers. Because it offers suppliers protection against financial loss, trade credit insurance is sometimes used to support the provision of financial products, whether through loans, invoice discounting or factoring services.

Credit insurance has become increasingly important during the credit crunch. In some cases, the obvious issues around access to finance have led to longer waiting times for payments along the supply chain, which in turn has affected confidence and the assessment of risk. In some cases, credit insurance providers have withdrawn backing from firms, which has led to financial pressure on buyers and suppliers.

In such a climate of uncertainty, businesses have sometimes collapsed, and some well-known, well-loved brands have disappeared from the high street. The British Retail Consortium recently found that the reduction in levels of credit insurance had hit the trading ability of half our large retailers and 40 per cent. of small and medium-sized chains.

As a result, businesses in retail, manufacturing and construction, as well as parties across the political spectrum, have called on the Government to find a solution. In response, the Chancellor’s announcement and today’s proposals will mean that UK businesses of all sizes and in all sectors that trade in the UK will be able to purchase six months’ top-up insurance from the Government.

The measures will be available to all businesses where some level of cover is still provided by the private sector. It is an important feature of the scheme that insurance companies must still be willing to insure a proportion of the risk. The Government do not propose to use taxpayers’ money to step in in areas where the market has concluded that the level of risk is uninsurable.

Eligible businesses will also need to ensure that they are insured with one of the credit companies that have signed up to the Government’s scheme. It is important to note that the three main trade credit insurance providers are already on board. Between them, they cover more than 80 per cent. of the market. In addition, the scheme is open to the broader credit industry, and we are aware of other insurance providers that are ready to take part.

The initiative is set to begin on Friday 1 May, and it will last until the end of the year. The qualifying window will be backdated for any company that has experienced credit insurance reductions since 1 April. Currently, the scheme applies only to trades that take place in the UK. As was announced in the Budget, the Government are considering what support may be appropriate for exporters.

Under section 8 of the Industrial Development Act 1982, the Government are required to seek parliamentary approval for financial assistance sums exceeding £10 million. Today, we are making up to £5 billion of additional trade credit insurance available, although I stress that that sum is the overall maximum amount of cover, and the cost to the Exchequer is likely to be much lower.

There are several reasons why the motion should be approved. First, it will offer a lifeline to a potentially huge number of firms. Trade credit insurance supports supply chains to more than 250,000 businesses in the UK. Secondly, we can do this immediately to alleviate some of the difficulties facing struggling businesses. It will give firms some much-needed breathing space, and offer real help to businesses in the very near future. Thirdly, the knock-on effect of such assistance could give a major confidence boost to businesses. Confidence is a critical factor in the economic environment. In recessions, confidence always takes a knock, but this measure could give a major boost to confidence. Just as the withdrawal of credit insurance has been a symptom of the downturn, so this Government-backed top-up scheme could help to create the conditions for the upturn to begin.

I understand that there have been calls for some months for the Government to introduce such a scheme. We have been working hard to introduce the best possible scheme to help businesses while ensuring that we look after taxpayers’ interests properly. It is important to get that balance right when sharing insurance risks of this type. The scheme ensures that the Government will never take on more risk than the private sector, and Government’s total exposure has been capped at £5 billion. There are also limits per company, which again will help to ensure that we get the right balance between risk and extending help to hard-pressed businesses. We weighed up the benefits of providing 100 per cent. cover, but decided that ultimately that would mean too much risk for the taxpayer, so we have a scheme that will extend insurance help where the private sector is also prepared to take some of the risk.

Of course, the Government are doing other things to help business through the downturn. I do not propose to delay the Committee by talking about those today, but this measure provides important additional help. Credit insurance companies have an important role to play in helping businesses to manage risk. It is essential that they work collaboratively to respond to the challenges of the current economic climate. We have sought assurances from the industry, and earlier this month the Association of British Insurers published a statement of principles clarifying the standards of conduct that businesses can expect from their insurance provider. That statement should give helpful clarity to business, and the help that we are providing with this order should give greater predictability and certainty to business at a time when it very much needs it.

As I said, the three main trade credit insurance companies are on board. Having taken the time to work through the key points of the scheme, we now want to act swiftly to ensure that businesses can access this help. With the approval of the Committee, Mr. Martlew, that will happen. For the reasons that I have given, I commend the order to the Committee.

Mr. Jonathan Djanogly (Huntingdon) (Con) rose—

The Chairman: Before I call the hon. Member for Huntingdon to respond, I would like to clear up the identity crisis that I am going through today. I was listed on the Order Paper this morning as Andrew Illsley and have now been referred to as Mr. Martlew. I am, of course, Mr. Illsley or the Chairman. I call Jonathan Djanogly.

Mr. Djanogly: Good afternoon, Mr. Illsley—I hope that that is a good start. The purpose of the order is to increase the upper limit of financial assistance that may be provided by the state to industry sectors, excluding banks and insurance companies, under section 8 of the Industrial Development Act 1982 as amended by the Industrial Development (Financial Assistance) Act 2003. The 2003 Act raised the cap on total industry support to £3.7 billion and provided that that could be raised to £6.1 billion in four tranches of £600 million, each requiring separate delegated legislation. This is the third piece of such legislation and the second this year, increasing the cap to £5.5 billion. According to the Government, the remaining order is likely to be laid shortly, bringing available assistance up to the £6.1 billion absolute cap. Primary legislation designed to increase that absolute still further, to a staggering £16 billion, is currently before Parliament.

Lorely Burt (Solihull) (LD): The hon. Gentleman may be aware that we passed that measure last Tuesday in Parliament.

Mr. Djanogly: I was aware that it was passed last Tuesday, and that is the figure.

The financial assistance to which we refer may be given in the form of investment, loans, grants or guarantees, provided that it benefits the UK or its regions, that it is in the national interest and that the assistance cannot appropriately be provided in any other way. It is worth mentioning that in recent years, grant assistance has fallen out of fashion, to be replaced by loan guarantees. Although such guarantees theoretically tie up a proportion of Government capital for the duration of the loan, they result, as the Minister described, in a much lower actual cost to the Treasury and represent a more limited form of intervention in the marketplace. It is fortunate that, in this case, the public finances are in their worst state since the second world war.

The real economy is also in difficulty: car sales have fallen off a cliff and automotive production has dropped like a stone, taking many jobs with it; the collapse in house prices has led to a collapse in the construction industry; our high streets have fewer shoppers and more vacant shops; for the first time in 50 years, we face the prospect of deflation; businesses of all sizes are grappling with falling revenues, late payments, shortened credit lines and Government regulation; the number of companies that are collapsing continues to increase, having increased by more than 250 per cent. in the final quarter last year; unemployment has just reached 2.1 million people; and the number of vacancies in the economy fell by 230,000 to 462,000. The United Kingdom is certainly in a recession, and many commentators believe that it will be long and deep. There is immense pressure on Ministers to help businesses that are struggling as a result of the downturn and, clearly, time is of the essence.

The conditions that must be met before assistance is granted as laid down by the 1982 Act are, however, tremendously important. Parliament, on behalf of the taxpayer, must be certain that assistance funds are well targeted and effective. As my hon. Friends have stressed repeatedly in recent months, our concerns focus not on the question of whether it is sensible to put in place appropriate support for industry—clearly, it is—but on how effectively Ministers are using the powers granted by the 1982 Act.

For instance, the working capital guarantee, which is worth £10 billion in loan guarantees, was announced in January 2009 and was due to start operating on 1 March, yet when pressed by my right hon. Friend the Member for Richmond, Yorks (Mr. Hague) at Prime Minister’s questions on 4 and 25 March, the Leader of the House was forced to admit that the scheme was not working. Why was there such a delay in getting that guarantee up and running? I suspect that the Minister for Employment Relations and Postal Affairs will mention European state aid approval, but the Government have a decidedly poor record on applying for such approval in a timely fashion. Even more important, how much lending has the scheme underwritten to date? The Minister could answer that question directly or undertake to write to me if he does not have the information to hand.

The details of the £75 million capital for enterprise fund are of even more concern. The scheme, which was announced in the November 2008 pre-Budget report under another name, is intended to provide equity funding for small businesses. According to enterprise and business support at the Department for Business, Enterprise and Regulatory Reform, the fund should have been

Instead, it was repackaged and reannounced that month alongside the enterprise finance guarantee, but it has still not invested any money. Earlier this month, the fund was split into three and fund managers were said to be about to strike their first deals within weeks. To date, it appears that the fund has not invested any money in any business. Despite its being announced more than five months ago, nothing has yet been achieved. I would be happy for the Minister to put me right on that if he can do so.

Aside from the number of businesses that have been left to struggle with little or no support, the Government’s clear inability to prioritise policy delivery and accurate forecasting above their own rhetoric leaves me decidedly queasy about throwing another £600 million of public money on top of the billions for which they have already gained approval. The headlines of the past six months may somewhat have deadened public sensitivity to such big numbers, but that is no excuse simply to wave through expenditure without scrutiny.

Five and a half billion pounds is a tremendous amount of money; indeed, so is £600 million. We recognise that the limit of financial assistance needs to be capped at a level aligned to the difficult times we are in. What assurances can the Minister give us that the increase in the state assistance funding cap that we are debating will be better used than the last? How will Ministers make sure that it quickly translates into timely, efficient, front-line help for businesses? That is the question that the Government have consistently failed to answer. Will the right hon. Gentleman deal with it today before we rubber-stamp this latest dollop of taxpayers’ cash?

It is all well and good to talk of loan guarantees and suchlike, but the other side of the coin is businesses’ concern about not being over-regulated. Perhaps the Minister, mindful of today’s key negotiations in Brussels on the working time directive, would like to take the opportunity to confirm that the Government will not concede our opt-out or make concessions that will make it unworkable.

To return to the motion—I had to get that last point in; I apologise, Mr. Illsley—we note that under section 8(8) of the 1982 Act, financial assistance on any one project shall not exceed £10 million, unless authorised by resolution of the House of Commons. However, there is a caveat: such a resolution is not required

and

in the available time frame.

When I looked at the motion, it suddenly came to mind that the jump from £10 million to £5 billion is a staggering one. Is not it inappropriate to ask permission all in one go? Should not such a huge approval be debated fully in the Chamber of the House? Perhaps the Minister would address that issue, because the Government have repeatedly demonstrated their willingness to circumvent parliamentary process—by trailing proposed policies in the media, for instance.

Will the Minister explain what safeguards exist to prevent an abuse of the provision? Does the right hon. Gentleman expect that the Secretary of State will invoke the power, perhaps when Parliament is in recess this summer? In what circumstances would the Minister consider its use warranted? Finally, are any European consents or clearances required? If so, were they applied for at the earliest opportunity?

Lorely Burt (Solihull) (LD): Welcome to the Chair this afternoon, Mr. Illsley. Hon. Members may be pleased to know that I shall confine my comments to the motion, which is extremely welcome. My early-day motion 687 came on the heels of that of the hon. Member for Bridgend (Mrs. Moon), which is primarily about the furniture industry. We have, as the Minister said, been calling for some time for help for a side of industry that is really beleaguered when simply conducting its everyday business.

I welcome the Minister’s comments about the introduction of standards of conduct for the industry in question. I am deeply concerned: as he said, three major companies constitute 85 per cent. of the market, and when one of those withdraws its support it can be the death knell of a company—often one that has a quite viable business to take forward.

The industry’s actions have recently been arbitrary and sometimes inexplicable. A retail company in my constituency had its trade credit insurance reduced when business was growing. When the managing director asked Euler Hermes—I name and shame—why that had happened, he was told, “You are in the wrong sector.” The practices of some of these companies have been those of fair-weather friends, who offer an umbrella when the sun is shining but take it away when the rain comes.

Of course, that does not mean to say that each decision should not be made with a proper degree of risk assessment—that is the last thing I want to imply. However, I have a number of questions for the Minister. The first relates to whether the scheme applies only to reductions in insurance. For example, if a company in my constituency has applied for but been denied an extension to its trade credit insurance, would that be a case for the company to reconsider the possibility of extending the amount of trade credit insurance that it needs to expand its business?

The second question is: will companies other than the main three be in a position to offer the scheme? Otherwise, we are supporting the top triumvirate, and that would be detrimental. The third question is whether the trade credit insurance company can refuse to extend the Government aspect of the help—in other words, if it sees a situation in which it thinks it would not be wise on behalf of the taxpayer to extend the amount, would that constitute grounds for it to refuse? Alternatively, is it automatically the case that the amount that has not been granted by the company is the maximum that the Government will be able to offer in help?

What happens at the end of the six-month period? I know that our Chancellor feels that we will be well on the way to the green shoots of recovery in that time, but if that analysis proves not to be entirely correct, what will happen? Will the Government then consider a further extension of the scheme? Finally, what happens if the trade credit insurance was refused before 1 April? A lot of companies have had their trade credit insurance reduced. Is it permissible for them to reapply to their insurance company for the original amount and will that insurance company have the ability to match-fund the insurance that it has already requested?

David Tredinnick (Bosworth) (Con): Mr. Illsley, I can assure you that I have not forgotten your name, having served in the House for almost the same time as you have. It is always a pleasure to be under your chairmanship.

I would like to ask the Minister a few questions. I am slightly concerned because I thought I heard him say that the £5 billion to credit insurance businesses for credit insurance policyholders is solely UK orientated and does not take into consideration a company’s overseas interests. We are an exporting nation and we depend on exports for part of our wealth, so I am worried and would like to know why that exclusion has been introduced. I would also like to know whether the Government have any plans to help businesses—such as the many in my constituency—that export on a regular basis.

The second matter I would like to raise with the Minister is that I do not think he gave the Committee a clear indication of how these risks will be assessed. He said that there would be some mechanism for assessing risk. Well, what is it? Who will assess the risks at a time when many risks in the nation have been badly taken with unfortunate consequences?

The third point builds on the remarks of my hon. Friend the Member for Huntingdon, who talked about the other loan guarantee schemes that the Government have introduced. Having asked businesses around my Leicestershire constituency whether they have benefited in any way from these schemes, as my hon. Friend mentioned eloquently, most of them have not reached the targets that they are intended to reach. One problem with the Prime Minister’s approach generally is that he fires off initiatives, apparently from the hip, without having the proper support systems in place, so although they sound great in the Chamber, delivery on the ground is incredibly slow.

A good illustration of that is as follows. On Friday, while visiting a building society in my constituency, as I was going round banks and building societies, the people there were talking about the homeowner mortgage support scheme—I am relating this to the proposal that we are discussing this afternoon—and saying that it is incredibly complex and expensive for them and for banks to implement and that the only ones that have taken it up are those who are under instruction to take it up: the banks that have been largely bailed out by the Government. Of course, those banks have fundamental conflicts of interest, because on one hand they are being told to lend money as fast as they can and on the other they are being told to be cautious and prudent and to run their banks effectively. In a sense, the two instructions are mutually exclusive.

It is strange that in this country we have a general financial policy of throwing money, big time, at any problem that appears. It is time that the Government looked at the Irish Government’s recent budget, which was much more cautious than the one that we heard this week. The Irish Government have already addressed the huge problems created by the enormous debt increase, housing inflation and the vast increase in public sector employment.

In 1983, I had the honour to stand against a former Labour Prime Minister, Lord Callaghan, in Cardiff South and Penarth. When I was researching for that campaign I came to the conclusion, and was told by others, that if Mr. Callaghan had won the election more than half the employees in this country would have been in the public sector. I have to ask: why, at the moment, is the private sector carrying the can for the disastrous policies of this Government? Why is there no downward pressure on the public sector? The Prime Minister talks always about job creation schemes and how many more jobs he has created, but how many real jobs have there been in the private sector, which create wealth, as against those in the public sector, which depend on taxpayers’ money? Many public sector workers in my constituency are doing a great job, but now, at a time when we face great financial hardships in this country, the tone of my right hon. Friend the Leader of the Opposition is required to address these problems.

Returning to the motion—I am sure you are pleased that I am doing so, Mr. Illsley, and I thank you for your forbearance—I heard the Minister say, “We never take on more risk than the private sector.” That is an extraordinary remark, because surely the Government have taken on all the risk of the private sector and gone to the bond market for vast sums, with huge, ever-increasing coupons, to pay for their profligacy in the past. Perhaps the Minister will comment on those remarks.

I am grateful to you for calling me to speak this afternoon, Mr. Illsley.