The
Committee consisted of the following
Members:
Ainger,
Nick
(Carmarthen, West and South Pembrokeshire)
(Lab)
Binley,
Mr. Brian
(Northampton, South)
(Con)
Burt,
Lorely
(Solihull)
(LD)
Cryer,
Mrs. Ann
(Keighley)
(Lab)
Dowd,
Jim
(Lewisham, West)
(Lab)
George,
Mr. Bruce
(Walsall, South)
(Lab)
Kemp,
Mr. Fraser
(Houghton and Washington, East)
(Lab)
McCartney,
Mr. Ian
(Makerfield)
(Lab)
McDonagh,
Siobhain
(Mitcham and Morden)
(Lab)
McFadden,
Mr. Pat
(Minister for Employment Relations and Postal
Affairs)Mates,
Mr. Michael
(East Hampshire)
(Con)
Prisk,
Mr. Mark
(Hertford and Stortford)
(Con)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Viggers,
Sir Peter
(Gosport)
(Con)
Ward,
Claire
(Vice-Chamberlain of Her Majesty's
Household)Wright,
Jeremy
(Rugby and Kenilworth)
(Con)
Glen McKee, Committee
Clerk
attended the
Committee
Eighth
Delegated Legislation
Committee
Thursday 5
March
2009
[John
Bercow in the
Chair]
Draft
Financial Assistance for Industry (Increase of Limit) Order
2009
8.55
am
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
2009.
It
is a pleasure to serve under your chairmanship this fine, sunny
morning, Mr.
Bercow.
The
order provides for an increase in the cumulative financial limit on the
Governments exercise of the power to support business in
section 8 of the Industrial Development Act 1982. The reason for the
order is straightforward. We are obviously in the midst of a global
recession and this Government, like Governments around the world, have
announced various measures to help and support business through it. The
order will cover some of the expenditure involved in achieving that
aim.
Section
8 of the 1982 Act allows the Government to operate a range of schemes
of direct benefit to companies, such as the small firms loan guarantee
scheme and the grant for business investment scheme for small
businesses. The limit is currently £4.3 billion, with a
provision to raise the amount in a total of four steps of up to
£600 million at a
time.
As
of the end of January, £3.747 billion had been spent under
section 8 since 1982, which means that the remaining amount of
available funds stands at £553 million. However, the
figure does not take into account current or future spending on schemes
that have been announced such as the finance guarantee scheme and the
capital for enterprise fund. We also recently announced a wide-ranging
package of support for the automotive sector, which the fund will also
help
facilitate.
The
new schemes will add greatly to the Departments forward
commitments and increase pressure on the section 8 ceiling, so
todays order will raise the limit by £600 million to an
overall total of £4.9 billion over the entire period. We are in
a fast-moving situation, and the measure will give more
flexibility both now and in the future to counter the current economic
downturn. I would like to make a few points about
it.
First,
we have done this before. The 1982 Act set the ceiling for amounts
payable under section 8 at £1.9 billion, and included
provision to top up the amount, by order, four times by up to
£200 million at a time. After the fourth order was passed, the
1982 Act was amended by the Industrial Development (Financial
Assistance) Act 2003 to raise the ceiling to £3.7 billion. It is
the provision in the 2003 Act for four steps to increase the amount by
up to £600 million at a time that we are discussing today. In
May last year, we took advantage of that
provision with an order to raise the section 8 ceiling by £600
million to £4.3 billion, and today we are taking the second
step.
My
second point is that the order in itself does not authorise
expenditure, but gives us the legal power to use the funds as and when
required.
Thirdly,
I should tell the Committee that this is not the last time that we will
have to do this. We fully anticipate having to pass more orders and
have already set in motion the process of making the remaining two
allowed under the Act. In addition, Members may have noticed that
yesterday we introduced the Industry and Exports (Financial Support)
Bill, which will increase the overall ceiling in section 8. It is
similar to the Bill that we introduced in 2003 in that it further
increases the ceiling.
We are doing
that because we face unique economic challenges, and such measures are
an important part of our response. There are many cries for the
Government to do more to help business and the economy. We cannot will
the end without willing the means, and these measures are part of the
means.
The order is
needed so that the Government can help business fight the current
economic downturn. Therefore, by raising by a further £600
million the potential expenditure under section 8, the order does
something specific. As I have said, we anticipate using the provisions
under the 2003 Act to do the same again in the relatively near future.
The Industry and Exports (Financial Support) Bill that we introduced
yesterday will give us further headroom for some of the schemes that
have been announced, and perhaps more to
come.
9
am
Mr.
Mark Prisk (Hertford and Stortford) (Con): I welcome you
to the chair, Mr. Bercow, and look forward to your firm but
fair guidance.
We welcome
the announcement of an increase in provision, but our quarrel with the
Government lies not in their announcements but in their slow and often
overly complex actions. Since the fall of Lehman Brothers last
September and the collapse of world markets in the autumn, the need for
urgent action has been clear to enable working capital to reach real
businesses.
Last
November, my party set out a plan for a national loan guarantee scheme
of some £50 billion for businesses of all sizes and sectors of
all types. I wish that the Government had then borrowed, or perhaps
takenas they often have in the pastour policy and
implemented it. It was not until January that schemes were finally
introduced, some of which the instrument specifically covers. Even then
it was clear, once we asked certain questions, that elements of the
instrument and the schemes that are being additionally funded today
have not been worked out. Ministers have not even managed to take many
of those schemes to the European Commission, as they are required to do
under state aid rules.
Meanwhile,
our competitors had by Christmas issued support to their industries. In
America, some $17 billion was offered to its car industry. In France,
the figure was some €6 billion, and in Germany, it was €2
billion. Many British businesses ask me, Why is it that, under
this Government, we are the last to get the help that we need, behind
almost all our competitors?
The
Governments policies are often criticised for being over
complex and piecemeal. We have seen sight todayand
previouslyof the enterprise finance growth scheme, which is for
small businesses with a turnover of up to £25 million. We also
have: the European Investment Banks supported loans for growing
firms, with a different set of criteria; the working capital scheme for
short-term lending for those with a turnover of up to £500
million, and the automotive assistance programme, which has at least
three separate programmes, each of which has its own criteria. That is
related to the statutory instrument and its policies, and does not deal
with all the other packages that have been thrown out like
confetti.
My problem,
and that of the CBI, the Federation of Small Businesses and all the
business groups to which I have spoken, is that people are unclear
about who is eligible and for which scheme they should apply. The banks
told me this week that they have yet to be able to brief their staff
about what the schemes are. If the staff on the groundit may be
that head office staff have been briefeddo not know the details
of the schemes that they are meant to implement, how on earth is this
supposed to work in practice?
Let us take,
for example, the reported case of Lotus Cars. It is too small for
EIB-backed schemes, but too large for the enterprise finance growth
schemes. Given that the Department was reported only this week as
denying that Lotus is ineligible, it might be helpful if, in his reply,
the Minister could tell us for which schemes the company is eligible.
The media have reported a comment from the Department, but it would
probably be better if we heard it directly from the Minister.
Significant
problems with the working capital scheme have also been reported, and
they were mentioned in the House earlier this week, too. The Secretary
of State told ITN that the scheme, which is the Governments
flagship proposal, was open for business on 14 January, when it was
announced. We were told that the first tranche, of £1 billion,
would be operational on 1 March. By my calendar it is 5 March, and the
banks tell me that the Department cannot yet give them the details that
they need to operate the scheme. So, for the benefit of business and
our constituents, has the scheme been finalised, have the banks been
briefed and will the scheme be operational by 1
April?
The
Minister highlighted a £600 million increase in that provision.
Will he give us a breakdown of its different elements? Are they all
allocated to existing schemes, or is there some additional provision
for, shall we say, a rainy day? The enterprise finance guarantee scheme
was announced in November in the pre-Budget report, and it was formally
launched two months later in January. We were told by the Prime
Minister that it would
provide
real
help for business now.[Official Report, 14
January 2009; Vol. 486, c. 206.]
Six weeks later, the
FSB tells me that the majority of its members say that the banks are
still not using the scheme, so, what proportion of the £1.3
billion of additional bank lending has been extended to date, and how
much is that by value?
The capital
for enterprise fund was also launched on 14 January, and it is intended
to operate through professional, commercial fund managers to tackle the
equity gap between £250,000 and £2 million. Clearly, it
is not aimed at struggling businesses, but I have already had several
inquiries about the fund, so will the Minister help businesses by
telling us whether the fund managers have been appointed, the month in
which the fund will be open for business, how business should apply and
who will undertake the due diligence? I trust that it will not be Lord
Myners. Has the guidance for eligible firms been written, and have the
Government briefed the key intermediaries? Ministers are keen to talk
about their website, which is welcome, but, unless the intermediaries
who have to operate the scheme are briefed so that they know with what
they are dealing, it simply will not work.
The
automotive assistance programme, to which the Minister referred, was
announced a little later, on 27 January, but Ministers
received approval for proceeding with the scheme only last week. Are
the details of the £1.3 billion European investment loan
guarantee schemefor lower carbon initiativescomplete?
If so, have they been presented to and discussed with the industry,
including the Society of Motor Manufacturers and Traders? If so, what
are the schemes main conditions, and who is and who is not
eligible? Are the details of the £1 billion non-European
investment guarantee scheme complete, have they been agreed, and have
they been distributed to the banks? Will that scheme be operational
by 1 April?
Finally, the
automotive programme was announced without support for car loan and
manufacturers credit companies. Indeed, we were told that the
Governments master plan was that the junior Minister would be
tasked to draw up a planno doubt, there will be a review, a
study and an investigation. We were assured that the scheme would be
implemented imminently, so, five weeks on, will the Minister tell us
the details of the scheme and the value of the cover needed?
I spent most
of yesterday in Birmingham and Coventry and met many representatives of
businesses from all sectors, but not one could name a business that had
received assistance through any of the schemes included in the
statutory instrument before us. I have no doubt that Ministers mean
well and wish to help, but my fear is that the gap between their
rhetoric and reality is one through which hundreds of firms and
thousands of jobs could be lost. We need action. We asked for it and
will support it, but if we see not action but announcements, I fear
that the economy will go from bad to
worse.
9.9
am
John
Thurso (Caithness, Sutherland and Easter Ross) (LD): In
its effect, the statutory instrument is relatively straightforward, and
many of the questions that I wanted to put to the Minister have either
been answered in his opening statement, or been asked by the hon.
Member for Hertford and
Stortford.
I
am grateful to the Minister for his explanation of the draft order and
of the Bill that the House is shortly to consider, which is helpful.
Will he tell the Committee how much of the sum that he specified as
already having been committed£3.747 billion, I
believeis in the form of loans, guarantees and other types of
assistance? It will be helpful to know where the money that has already
been committed has gone. It will also be helpful if he is in a position
to say where he thinks the remaining balance is most likely to be
committed. I intended to
ask him whether he thought that two further slugs of £600
million£1.2 billion in allwould be
enough, but he answered that by saying that, clearly, in the
current circumstances, it will not be enough, hence the forthcoming
Bill.
On the
enterprise finance guarantee scheme, the Minister will know that
getting assistance through to the banks is a matter that I have raised
at departmental Question Time. Having spoken to representatives of many
businesses in my part of the world, it seems to me that many of them
are not yet aware of the scheme, even though we are all, I am sure,
doing our best to ensure that they become aware of it. More worrying is
the fact that, once we make them aware of it and tell them how to find
out about it on the departmental website, the businesses then find that
the bankers whom they approachthe corporate regional
bankersdo not know what the scheme is about and how it
operates. I was able to raise the subject with the chief executive of
Lloyds banking group in the Treasury Committee a couple of weeks ago.
It is only as a result of his intervention and that of the managing
director whom he tasked to look into it that the corporate managers in
Inverness are considering giving the benefits of that scheme to the
company that I discussed with the chief executive.
Even more
worrying is the fact that, having been directed by the chief executive
to look into and make use of the scheme, the bank has now told the
company that it will think of using the scheme only if all the
directors give personal guaranteesif they put all of their
personal wealth on the linewhich, given that they have spouses
and other commitments, is not terribly fair. I wonder whether the
Government really intend the scheme to be used in that way, or whether,
as I had understood it, the loan guarantee that the Government provide
should be sufficient comfort to the banks to enable them to offer
finance in borderline cases.
We all agree
that credit and the ability to remain solvent is critical to small
businesses. I applaud the Governments desire to introduce
schemes, but it is essential that they work. I will be grateful if the
Minister comments on those
points.
9.13
am
Mr.
Bruce George (Walsall, South) (Lab): Mr.
Bercow, the last time we had the honour of serving on a Committee
together was in the Committee on the Bill that became the Private
Security Industry Act 2001. In that Committee, I gave the Government a
bad time on security and the proposals in the Bill, and everything I
said has since come true. That Bill immediately preceded a general
election. I can only hope that history does not repeat
itself.
The
Minister should listen carefully to what the Opposition says, because
he must realise that the Conservatives have far more experience in
dealing with recessions than we do. The Library very kindly gave me us
all the details of the recessions of the past half century, which
occurred in 1956, 1957, 1961, 1973, 1975which we were in office
for1980 and 1981. So please, Minister, listen carefully,
because the collective wisdom of the Conservative party in getting into
crises and then, hopefully, getting out of them is something
that we should bear strongly in mind. Now, however, we are in the mother
of all crises. Whatever euphemisms are usedeconomic crisis,
downturn, recession, credit crunch, slump, or market
turbulencewe are in a deep crisis. We have to do all we can to
dig ourselves out of this crisisquickly, I hopeand the
Government are largely doing that.
I listened
with care to the comments of the hon. Member for Hertford and
Stortford, and it is a pity that only one Opposition Back Bencher was
prepared to get up at this time in the morning to listen to his words
of wisdombut that is not my problem. The Labour Benches are
packed with Members listening to the words of wisdom from the Minister
who, like me, represents a west midlands constituency. I suspect that
most people can detect from our accents that neither of us is
indigenous to the area, although that has not prevented us from making
a major contribution to it.
I agreed with
a great deal of what the Conservative spokesman said, but some of his
comments irritated me. Perhaps the Government and the civil service
have fallen into going through things very professionally, but often at
glacial speed, and there is danger of consulting all and sundry,
wanting to get things right, while the ship is slowly disappearing
below the waves. However, the other approach, of excessively speedy
decision making, is equally dangerous because it involves showering
money on a process without giving sufficient thought to the principles
behind increasing the amount of money that is available to industry.
One has to be absolutely certain that the criteria are correct, so
perhaps the answer lies somewhere in the middle. The Government have
been prudent and have taken their time, but some schemes have not
kicked in yet. I am not taking an equidistant position, because the
Whip would report me if I did, but I feel that, as in all matters of
politics, there are no easy, simple, facile answers. The reality is
infinitely more
complex.
Every
Member present will have had endless meetings with chambers of commerce
and companies in their constituencies, as well as everyone else who has
an opinion. In my long experience as a Member of Parliament, and having
seen many recessions comeand go, I hopeI have seen that
each crisis is slightly different and that there are always people who
can express an opinion. If we took the time to add up the cost of all
the proposals that have been made to us on what the Government should
do to help individual companies or groups of companies to overcome the
crisis affecting them, we would find that the gross domestic product of
the whole of western and eastern Europe would be required to meet them.
Care must be taken, but I hope that we can move a little more
swiftly.
Another
problem is that some companies will go under anyway. I am not being
complacent in saying that. I do not want to spend all my time raising
problems, but something as important as this order deserves a
reasonable degree of scrutiny from hon. Members. Companies go under
because of bad management, because the owner or founder has died,
because there has been no investment, or because they cannot compete.
There are many ways in which a company can naturally expire, and we
might all be there at the funeral to express our sadness at the expiry
of a company in our constituency.
We have to
give resourcesI presume that that is being done even though
money is tight and most of it is being borrowedbut Governments
have to be absolutely certain that such money is being given to
companies that have a life expectancy and that will survive if they are
properly resourced by Government through loans or simply through being
given money. It sounds callous to say that if a company is going under
anyway, one should not give it more than sympathy, but money is so
tight. The increase announced today is helpful, but it is only a
fraction of the money that is going into industry and only a fraction
of what needs to be put in, wisely, to ensure that investment is made
so that when we come out of the recession, we do not wake up like
Doctor Who in a new environment. We must prepare for the new
environment that we are inexorably moving towardsa post-crisis
economic environment. I hope that money will be properly spent so that
companies that deserve to survive and need help can survive. Sufficient
resources must be put into companies not just to help them see out the
present crisis, but to prepare them for the environment that we will
enter.
Members
have mentioned schemes that are currently working. I am sure that when
others speak they will say the same. However, in south Wales, north
Wales, the west midlands and the east midlands, we are really hurting.
It is with some envy that I look at the Librarys statistics on
the latest unemployment figures. I look with immense envy at those
constituencies where the crisis has not yet truly hit, and where
unemployment is relatively low. I hope that it remains relatively
lowI am not wishing them equal bad treatment. However, some of
us represent industrial areas that in many ways have been in decline
for some time.
I do not want
to make too many political points, and I promise,
Mr. Bercow, that I shall not go on indefinitely. I would
like to go on for a good while, but you certainly would not let me do
so. Not to make too hard a political point, I can recall the events
leading up to the 1983 election. A part of my constituency, Darlaston,
which was adjacent to the Ministers constituency,
disappearedit disappeared. There was one week when I was
terrified every time I took a telephone call. I expected somebody to
say, I am sorry, Mr. George, we are announcing 100
redundancies, or We are announcing 500
redundancies, or, worst of all, We cant
competewere going under. Even before that time,
in the
1970s