House of Commons
|Session 2008 - 09|
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Public Bill Committee Debates
The Committee consisted of the following Members:
Mark Oxborough, Committee Clerk
attended the Committee
Ninth Delegated Legislation Committee
Wednesday 4 November 2009
[Hywel Williams in the Chair]Financial Assistance for Industry Motion (UK Innovation Fund)
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): 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 UK Innovation Fund, sums exceeding £10 million and up to a cumulative total of £150 million.
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 Car Scrappage Scheme, an additional sum of up to £100 million.
Ian Lucas: Under the provisions of section 8 of the Industrial Development Act 1982, the Government are required to seek parliamentary approval for financial assistance when sums exceed £10 million.
I should have said that I am delighted to appear before you for the first time, Mr. Williams. I am happy that the Committee has agreed to consider both motions together, and am grateful to the hon. Member for Hertford and Stortford and the hon. Member for Solihull for their agreement to doing so. I will seek to curtail the debate as much as I can, consistent, of course, with proper scrutiny.
The UK innovation investment fund was announced by the Prime Minister on 29 June, as part of the Building Britains Future document. The rationale for the creation of the fund was the difficulties encountered in the current economic downtown by technology-based businesses that were dependent upon equity finance. There are about 1,093 venture capital backed technology companies in the UK, employing more than 40,000 highly skilled people. Those companies are active in key strategic sectors of the UK economy, such as life sciences, information and communications technology, and clean technologies. There is strong evidence that venture capital backed businesses significantly outperform other companies, with higher levels of employment, exports and growth. However, the total amount of venture capital invested in early-stage technology companies in the UK in 2007 was down £45 million from 2005, and key indicators suggest that it will fall significantly further in 2008 and 2009, putting those companies at risk.
To address those problems, Ministers have decided to create a UK innovation investment fund. UKIIF will operate as a fund of funds, with a cornerstone investment of £150 million from Her Majestys Government, funded by £100 million from the Department for Business,
HMG investment will be on an equal terms basis with that of other investorsprivate sector and overseas investors, perhaps. The fund will be managed by a professional fund of funds manager with a proven track record in raising capital for investment in technology venture capital funds, and in successful investment in the UK technology sector. UKIIF will invest in a small number of technology venture capital funds operated by experienced fund managers. The fund will invest throughout the UK, and in companies that require equity finance at all stages of development.
To ensure that the underlying technology fund mangers have the maximum flexibility to make investments in companies that they believe have significant potential, we seek approval to allow them to invest amounts of more than £10 million in individual companies. We believe that such investments will be made only in exceptional cases, but it is important that fund mangers have discretion to make the investments that they believe will fulfil UKIIF objectives. The motion seeks a resolution enabling the Government to do that.
Mr. Mark Prisk (Hertford and Stortford) (Con): The Minister is setting out what could be a very useful device, but it rather jars with the remarks made yesterday by the noble Lord Sugar:
I can honestly say a lot of problems you hear from people who are moaning are from companies I wouldnt lend a penny to. They are bust. The moaners are bust. They are bust and they dont need the bankthey need an insolvency practitioner.
Does the Minister agree with his colleague?
Ian Lucas: In life there are moaners and there are successful people, and in a vibrant economy, some businesses succeed and some fail. I have not discussed the quotation to which the hon. Gentleman refers, but I have noted it carefully and will look at it more closely.
I shall move on to the scrappage scheme, which I am sure the Committee will agree is very successful.
Mr. Adam Ingram (East Kilbride, Strathaven and Lesmahagow) (Lab): Before my hon. Friend moves on, could he expand a little more on the investment fund? Is it genuinely an investment fund in which the Government will invest and will, therefore, get the benefits of growth in the companies? What is the percentage of our potential return? There may be lossesLord Sugar notwithstanding. There is associated risk, but there may be great success, as well.
Ian Lucas: That is absolutely the case, and of course Government have an important interest in the success of, first, the overall economy and, secondly, the sector supported by venture capital. As I indicated, there is evidence that there will be great benefits to the development of not only the overall economy but also high-skill areas with the associated high-value jobs. UKIIF is a strategic long-term investment fund and partnering will be at the core of how it is run. The benefits will therefore accrue partly to the Government and partly to the other partners. Not every company will always succeed, so risk has to be shared too. The Government see the fund as extremely important to the development of a high-technology economy and high-technology industries.
Mr. Ingram: May I draw out my hon. Friend on that point? When the private sector invests, it takes a percentage share in the company and expects an extraction of profitsusually, it is about floating the company and making it bigger once it is floated. What will the Government do to mirror what is done in the private sector? I repeat my earlier question: what percentage are we taking? Have we set a percentage, or will it be variable?
Ian Lucas: The fund itself will be managed by the managers of the fund and, rather than Government setting prescriptive percentages for each individual project, it is appropriate for us to be involved in and connected to the management of the fund and to assess individual projects and make decisions based upon their circumstances. I am not sure that the best approach is to prescribe, at this juncture, the specific percentages that the fund should allocate. We are recruiting skilled fund managers to take the fund forward.
Mr. Prisk: To tease this question out further, I understand that the operational managerial decision on individual investments must rest with the fund manager, but I think that the question asked by the right hon. Member for East Kilbride, Strathaven and Lesmahagow, to which taxpayers will want an answer, is about how much oversight the hon. Gentleman, as a Minister, will exercise to ensure that taxpayers do not pick up the greater share of the risk. It is about understanding the balance and the fund as a whole. We recognise the leverage between £150 million and £1 billion. Can the Minister tell us what precautions are being put in place to ensure that the taxpayer does not end up with the greater risk?
Ian Lucas: I think that I can assist the hon. Gentleman. As I said in my opening remarks, the risk will on equal terms. That was explicit. The greater part of the risk will not be borne by the taxpayer.
Mr. David Winnick (Walsall, North) (Lab): The Minister has been very generous and I apologise for coming in a few minutes late. Without wishing to be parochial, we in the west midlands are concerned about the current situationrising unemployment and the rest of itand we remember only too well the devastation that occurred in the 80s. Will the assistance apply no less to the west midlands than to elsewhere?
Ian Lucas: I respect my hon. Friends great knowledge of the economy, acquired over many years, and, in particular, of the great difficulties in the west midlands in the 1980s. As I made clear in my opening remarks, the fund will apply across the UK. Projects will be assessed on their merit in terms of their economic potential. I will welcome projects from the west midlands, which is a great manufacturing area. [Interruption.]
That brings me neatly to the scrappage scheme. Thirty-eight vehicle manufacturers signed up to the UK vehicle scrappage scheme, which was introduced in May and has proved highly popular with consumers and the industry alike. Originally, consumers were offered a £2,000 discount on a new car or van if they traded in a 10-year-old vehicle that they had owned for 12 months or more£1,000 from Government with minimum matched funding from industry.
The scheme was set up with £300 million Government funding to operate from 18 May until March 2010, or sooner if that funding was used up. On 28 September, the Secretary of State for Business, Innovation and Skills announced plans to extend the scheme with an additional £100 million, which is subject to the approval of this Committee. That announcement was welcomed by the automotive industry and more widely by a range of business organisations, including the Confederation of British Industry. Even second-hand dealerships have reported improved sales figures as a knock-on effect of the scheme and have joined calls for its extension.
On 23 October, changes were made to the scheme to ensure that all 10-year-old cars still qualified and to reduce the age eligibility of vans to eight years were implemented, making the scheme accessible to even more consumers. On 11 May, the House authorised expenditure of up to £300 million for the scheme. The second motion seeks approval for the additional £100 million proposed.
The recession has been very challenging for the automotive sector and its supply chain. The scheme was introduced against a backdrop of UK vehicle production having fallen by more than 50 per cent. in early 2009 compared with early 2008. It was designed to stimulate consumer demand and give a short-term boost to the whole UK automotive industry. Evidence shows that the scheme has achieved that. Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders, recently said:
The rate of decline in new car production slowed to its lowest level in a year with the volume of vehicles being produced for the UK market comparatively high.
The additional £100 million will ensure that the stimulus provided by the scheme can continue until the end of February 2010, with some effects carrying on into June as outstanding orders are delivered. Naturally, the scheme brings forward some sales that would have occurred eventually in the future, and there may be an offsetting adjustment down the line. Evidence suggests that the state of the industry remains fragile. The industry, while agreeing that the scheme should close no later than February 2010, has made it clear that it continues to need help. A stronger UK automotive industry will be
The scheme remains strictly time-limited, financially capped and proportionate, to minimise impacts on other parts of the economy. With the additional funding, the scheme can continue to deliver the necessary short-term boost that the automotive industry needs now.
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