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Session 2008 - 09
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Public Bill Committee Debates



The Committee consisted of the following Members:

Chairman: John Bercow
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 Government’s 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 Department’s forward commitments and increase pressure on the section 8 ceiling, so today’s 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 taken—as they often have in the past—our 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 Government’s policies are often criticised for being over complex and piecemeal. We have seen sight today—and previously—of the enterprise finance growth scheme, which is for small businesses with a turnover of up to £25 million. We also have: the European Investment Bank’s 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 ground—it may be that head office staff have been briefed—do 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 Government’s 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 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 scheme—for lower carbon initiatives—complete? 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 scheme’s 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 Government’s master plan was that the junior Minister would be tasked to draw up a plan—no 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 believe—is 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 all—would 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 approach—the corporate regional bankers—do 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 guarantees—if they put all of their personal wealth on the line—which, 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 Government’s 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, 1975—which we were in office for—1980 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 used—economic crisis, downturn, recession, credit crunch, slump, or market turbulence—we are in a deep crisis. We have to do all we can to dig ourselves out of this crisis—quickly, I hope—and 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 wisdom—but 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 come—and go, I hope—I 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 resources—I presume that that is being done even though money is tight and most of it is being borrowed—but 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 towards—a 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 Library’s 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 low—I 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 Minister’s constituency, disappeared—it 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 can’t compete—we’re going under.” Even before that time, in the 1970s—
 
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