The
Committee consisted of the following
Members:
Chairman:
Mr.
Eric Illsley
Brown,
Mr. Russell
(Dumfries and Galloway)
(Lab)
Browne,
Mr. Jeremy
(Taunton)
(LD)
Burt,
Lorely
(Solihull)
(LD)
Djanogly,
Mr. Jonathan
(Huntingdon)
(Con)
Dobbin,
Jim
(Heywood and Middleton)
(Lab/Co-op)
Ennis,
Jeff
(Barnsley, East and Mexborough)
(Lab)
Heyes,
David
(Ashton-under-Lyne)
(Lab)
Liddell-Grainger,
Mr. Ian
(Bridgwater)
(Con)
McFadden,
Mr. Pat
(Minister for Employment Relations and Postal
Affairs)
McGovern,
Mr. Jim
(Dundee, West)
(Lab)
Seabeck,
Alison
(Plymouth, Devonport)
(Lab)
Timpson,
Mr. Edward
(Crewe and Nantwich)
(Con)
Tredinnick,
David
(Bosworth)
(Con)
Ward,
Claire
(Vice-Chamberlain of Her Majesty's
Household)
Wilson,
Phil
(Sedgefield)
(Lab)
Wright,
Jeremy
(Rugby and Kenilworth)
(Con)
Alan Sandall, Committee
Clerk
attended the
Committee
Sixth
Delegated Legislation
Committee
Monday
27 April
2009
[Mr.
Eric Illsley in the
Chair]
Financial
Assistance to
Industry
4.30
pm
The
Minister for Employment Relations and Postal Affairs (Mr.
Pat McFadden): I beg to move,
That the
Committee has considered the motion, That this House authorises the
Secretary of State to undertake to pay, and to pay by way of financial
assistance under section 8 of the Industrial Development Act 1982, in
respect of the Trade Credit Insurance Top-up Scheme, sums exceeding
£10 million and up to a cumulative total of £5 billion to
credit insurance businesses for the assistance of credit insurance
policyholders.
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
weeks 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 Chancellors announcement and
todays 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 Governments
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 Governments 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.
4.39
pm
Mr.
Djanogly: Good afternoon, Mr. IllsleyI
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
industryclearly, it isbut 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 Ministers 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
ready to start
investing by the end of January
2009.
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 Governments 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 todays 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 motionI had to get that last point in; I
apologise, Mr. Illsleywe 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
where the
Secretary of State is satisfied that the payment...is urgently
needed
and
it
is impracticable to obtain the approval of the
Commons
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
processby 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?
4.47
pm
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
Ministers 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
companyoften one that has a quite viable business to take
forward.
The
industrys 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 HermesI name and shamewhy 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 assessmentthat 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 helpin 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?
4.53
pm
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 companys 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 businessessuch as
the many in my constituencythat 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 Ministers 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 schemeI am relating this to the proposal that
we are discussing this afternoonand 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 Governments 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 motionI am sure you are pleased that I am doing so,
Mr. Illsley, and I thank you for your forbearanceI
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.
4.53
pm