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I turn to the points raised by the noble Lord, Lord Wallace. I very much welcome his support for this order, and I immediately confirm that its purpose is to pave matters as a way forward for the Scottish Parliament. The noble Lord raised a point about delay and the fact that the Cabinet Secretary for Justice sent his letter on 25 October 2007. That was probably the day after the Judicial Committee’s decision. It may seem that the period that has elapsed is more than perhaps the noble Lord would have chosen However, one was looking at the interplay between the Human Rights Act and the Scotland Act. While one view might perceive this as a mere anomaly, for the reasons the noble Lord suggested, there is also a question of whether there is some constitutional issue which might not be perceived as

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quite so straightforward. In the result, discussions produced an agreement as to a way forward and any perceived constitutional difficulties were overcome and put to one side.

On the effect of what the Scottish Parliament may do under its Acts in relation to existing cases, there is no intention, and it probably would not be lawful, for any such effect in any way to remove an existing right.

The noble Earl, Lord Mar and Kellie, asks that perhaps I might afford him some pleasure by way of moving to a federal state or a confederal state. I regret to say that I must deny him that pleasure.

Unless there are any further points, I commend this order to the House.

Motion agreed.

Motion to Adjourn

Moved by Lord Brett

Lord Brett: My Lords, because we moved at great speed on the Marine and Coastal Access Bill, perhaps with the spring tide behind us, we are further ahead than we might have been. I beg to move that the House do adjourn during pleasure until 6.35 pm.

Motion agreed.

6.19 pm

Sitting suspended.

Industry and Exports (Financial Support) Bill

Second Reading

6.35 pm

Moved By Baroness Vadera

That the Bill be read a second time.

The Parliamentary Under-Secretary of State, Department for Business, Enterprise and Regulatory Reform & Cabinet Office (Baroness Vadera): My Lords, the Government have introduced this Bill, certified as a money Bill, to make two small but important amendments to the law: one to the Industrial Development Act and one to the Export and Investment Guarantees Act. These amendments will provide the framework for supporting business through the downturn and accelerating our economic recovery. I shall deal with each in turn.

The first clause in the Bill increases the cumulative limit on financial assistance that may be provided under Section 8 of the Industrial Development Act 1982. Section 8 lays down the basis for providing financial assistance to industry and specifies the limit allowed in law. The criteria for such assistance are also set out in the Act and include promoting the development, modernisation or efficiency of an industry and encouraging the growth of an industry or the arrangements for ensuring an orderly contraction of an industry.



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The scope of the power under Section 8 of the Act is wide, but it does not in itself authorise any actual expenditure. The Act provides for parliamentary oversight of expenditure through the need for the Government to secure a Commons resolution whenever assistance for one business or project is likely to exceed £10 million. The 1982 Act set the limit of available support at £1.9 billion, with a further increase to £2.7 billion possible using affirmative orders. The Industrial Development (Financial Assistance) Act 2003 raised the limit to £3.7 billion, extendable by orders to £6.1 billion. All the orders permitted under that Act have now been made.

Since 1982, the legislation has paved the way for essential support to business, including: the enterprise fund products, such as the small firms loan guarantee scheme; enterprise capital funding; the Phoenix fund; support for the post office network; and, most recently, programmes of assistance such as the enterprise finance guarantee scheme, capital for enterprise and support to the automotive sector.

Financial assistance under these programmes from 1982 until the end of March 2009 amounted to around £3.8 billion. I should stress that the financial assistance covers both actual expenditure—for example, grants—and the full amount of potential liabilities, such as loans or loan guarantees. This means that, if the Government support credit by issuing a loan guarantee of £1 million, the full £1 million would be counted against the financial limit even if the guarantee was never invoked and no expenditure incurred. This matters because, in the current climate, credit is at the core of the economic difficulties that we face and is therefore the focus of our response. It also means that we rapidly consume Section 8 headroom even though the actual taxpayer cost of the intervention, in terms of eventual defaults, is much smaller.

Current estimates for potential additional liabilities for the proposed schemes under Section 8 stand at £7 billion. This includes £5 billion for the new trade credit insurance scheme, which has been given a broad welcome by business groups.

The greater emphasis on support through loans, loan guarantees and equity schemes, as well as the new trade credit insurance scheme, provides the sort of real help that business needs in this financial climate. At the same time, such schemes offer better value for money to the taxpayer with the prospect of repayment over time and only a proportion of the guarantees needing to be met. These schemes are based on calculations of risk and default rates and are designed to reduce risk to the taxpayer. Such provisions were set out by the Chancellor of the Exchequer in the Budget and the Pre-Budget Report.

However, because the full amount secured against the public finances counts against the Section 8 total, this reduces the amount of headroom available. The higher limit of £12 billion, increasable to £16 billion through four orders, will relieve that pressure and lay the legislative basis for further assistance to business, should it be necessary.

I now turn to the second clause of the Bill, which amends the Export and Investment Guarantees Act 1991. The Act governs the work of the Export Credits

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Guarantee Department, a government department reporting to the Secretary of State for Business, Enterprise and Regulatory Reform. The ECGD helps exporters by providing insurance against non-payment for goods or services, or, more commonly, by issuing guarantees to banks offering loans to foreign buyers and project sponsors to purchase British exports. The ECGD supports capital and semi-capital exports where typically contracts are worth tens, and sometimes hundreds, of millions of pounds. The costs are such that buyers and project sponsors require extended credit terms to pay for them.

The proposed amendment is small but important and is intended to solve a difficulty with the wording of the 1991 Act. Section 1 states:

“The Secretary of State may make arrangements under this section with a view to facilitating, directly or indirectly, supplies by persons carrying on business in the United Kingdom of goods or services to persons carrying on business outside the United Kingdom”.

The use of the word “facilitating” is causing some difficulty. The department cannot be said to have facilitated exports if they have already been supplied by the time it decides to provide support. However, this situation is increasingly occurring for two reasons.

First, the way in which the high-value capital goods market now functions has changed. Today, requests for ECGD support are often made after the export order has been placed, and it is often the buyer or overseas project sponsor, rather than the exporter, who seeks the department’s backing. However, it is not uncommon for them to approach the ECGD after they have procured the exports and, in some cases, after goods or services have begun being supplied.

Secondly, the department’s own underwriting and assessment processes have changed since the 1991 Act was passed. The ECGD now assesses a wider range of issues when determining whether or not to support a project. Examples include undertaking checks for evidence of bribery and corruption, and assessing the environmental and social impacts of a project. Until the assessments have been carried out, the ECGD cannot give its backing to a particular contract, but the due diligence process may delay a decision until after deliveries have begun. I shall be very happy to provide illustrations of this if there are questions on the subject. In such situations, the ECGD will undertake all the due diligence required to be satisfied that the project is an acceptable risk and is environmentally sound or meets the other criteria. However, this is taking place after some supplies start to be made and the supplies might relate to front-end work that is necessary to get the project off the ground.

The amendment does not necessarily mean that the ECGD will provide support where exports have already been supplied; this will still depend on the ECGD deciding that the financial risks are acceptable and that the project complies with, for example, international environmental standards. Therefore, the amendment will not weaken the standards that the project must meet or reduce the due diligence that must be carried out.

The amendment will enable the department to support the exports that have already been made by the time it has completed due diligence. As a result, exporters,

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buyers and project sponsors can be sure that they will be eligible for support, although that will still depend on a positive evaluation. The revised wording will remove the degree of uncertainty that currently exists and ensure that British exporters are not disadvantaged by the time taken to carry out the due diligence process, which will continue to be thorough and rigorous. However, without the amendment, British exporters continue to risk being overlooked by overseas project sponsors because the ECGD cannot provide the type of support that they require.

For exports involving UK companies which meet the relevant international standards, this amendment will mean that goods already supplied by them can now be supported. This will put them on the same footing as their competitors and export credit agencies, which are not bound by statute in the same way. Therefore, the amendment creates a more level playing field for our exporters and, indeed, has been supported by business groups such as the CBI, which has requested it to be enacted as soon as possible.

The changes proposed today will ensure that the Government have the flexibility to deliver the support that businesses need in the current economic climate. I commend the Bill to the House, and beg to move.

6.45 pm

Lord De Mauley: My Lords, first, I thank the Minister for her helpful explanation of the Bill. It has been introduced as a key part of the Government’s attempts to tackle the economic crisis and, even given that it is a money Bill, it is perhaps remarkable how few noble Lords have chosen to speak today. Given that it deals with spending up to £16 billion, perhaps it suggests that we have become numb in the past few months to figures of that order. I hope not. In that regard, I should be grateful if the Minister could inform us how much of the existing ceiling under the extant legislation has been used up. She may have mentioned it, but it came at some speed so I should be grateful if she could confirm it.

She has explained Clause 1 as being necessary for several reasons, one of which was to accommodate the increasing number of loans, as opposed to grants, being made. We support the move from grants to loans and would encourage the Government to move even further in this direction if it means that limited taxpayer resources can stretch further and provide more support for more businesses. However, as my honourable friend in another place pointed out, this support is effective only if and when it actually reaches the businesses concerned. Simply announcing various million and billion pound funds to do various things in various sectors is meaningless, and even counterproductive, when companies and employers are unable to access the money or when the funds in question are insufficiently attractive to gain their interest. The last thing we need is another fiasco along the lines of the Government’s misjudging of the VAT cut. Indeed, the Government must have been very concerned that several major auto manufacturers had serious problems, coincidentally again to do with VAT, in the cash for bangers scheme.



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I suggest that it is time for the Government to provide in writing a detailed assessment of all the schemes they have announced, showing which are fully up and running and how much money has been disbursed and committed under each, as it appears that these schemes are so far producing very disappointing results. Manufacturing output has continued to decline—by 5.5 per cent in the first quarter this year—and the economy has shrunk by 1.9 per cent. Perhaps most worryingly, the Government’s policies seem so far to be making little or no headway against unemployment. We now have the highest redundancy rate since records began and have just witnessed the largest quarterly rise in overall unemployment since 1981.

Instead of a big, simple and effective scheme, like a £50 billion national loans guarantee scheme as proposed by the Conservative Party, which would cover all sizes of businesses in all sectors, the Government are relying on a hotchpotch of funds and schemes, all requiring the struggling employer needing help to jump through different hoops. The Bill even adds to the confusion since the money will apparently not be able to be spent in areas with assisted area status. The Government have apparently taken on board the impossibility of navigating their labyrinth and established what the Minister in the other place described as a “parallel programme”, called Solutions for Business, specifically designed to clarify the actual funds and schemes. I wonder whether the Minister can tell us how much money is being spent on this programme just to make the various funds and schemes more understandable.

In addition, I wonder whether she can give reassurance that a proper assessment is being done on each of the Government’s various schemes. Perhaps as an inclusion in the written assessment I asked for earlier, can we know what audit procedures and analysis are undertaken regarding each of the schemes to ensure that taxpayer money is committed effectively? Furthermore, what EU consents are required in respect of each scheme?

I now turn to Clause 2, which is slightly more controversial than Clause 1 because there is at least one group of outside interests who are convinced that it will have an impact. It is unfortunate for the Minister that that group is WWF, and the impact it foresees is not a beneficial one. Although we agree that the ECGD needs to be able to give what support it can, I hope the Minister can reassure us about the effect that this change will have on the stringency of the due diligence procedures that applicants must currently go through. We do not believe that the economic crisis that this Government have made such a major contribution to plunging us into means that we must give up on our environmental responsibilities. Finding ways out of the recession must not mean undoing necessary safeguards against environmental damage or our high standards on bribery, corruption and human rights.

I understand from the debates in another place that the requirement that no support can be given until the proper assessments have been made will be maintained and I welcome that assurance. However, the WWF highlights the difficulties of undertaking a proper baseline assessment retrospectively. The project for which support is being sought might already have had

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a significant impact on the local environment, making a proper analysis of any damage impossible. How will the ECGD deal with such applications where limited information is available? Indeed, it seems possible that the clause will provide an incentive for an application to be delayed to hide the very damage that the assessments are designed to prevent.

We also hear that the Government are looking to introduce a new underwriting process, the letters of guarantee scheme, with no impact assessments at all. Is that really the case? I very much hope that the WWF's concerns are unfounded and that the Minister can give us clear assurance that the impact assessments will not be weakened either by this Bill or by any future policy the Government intend to introduce.

If those concerns are misplaced, they are the predictable result of policy undertaken without proper consultation. Can the Minister explain what consultation was done on the policy? There seems to be considerable doubt as to whether even the Export Guarantees Advisory Council was consulted. Have the Government really made this change without talking to the advisory body most qualified to warn of problems?

6.51 pm

Lord Lee of Trafford: My Lords, I had two specific questions. The second has been put precisely by the noble Lord, Lord De Mauley. My main question complements his point. In the original scheme, there were guarantees on efficacy and on environmental matters. Will those be reinforced under that scheme, and, if so, how?

6.52 pm

Baroness Vadera: My Lords, I will take the questions that have been put in turn. The first question was about how much funding has been utilised. Since 1982, nearly £3.8 billion has been spent under Section 8 on a range of industry support schemes. As I explained, over recent months, a significant increase in expenditure under Section 8 will have occurred as a result of the package of measures that is currently being implemented, including the trade credit insurance scheme for £5 billion.

I start by refuting the claims about the VAT measures. They have now been supported by a wide number of institutions, such as the IFS and the CIER, which recently stated that the VAT cut led to a £9 billion increase in retail sales. I strongly refute the suggestion that it has been unsuccessful. I am also pleased to say that the scrappage scheme, to which the noble Lord, Lord De Mauley, referred, including the press speculation about VAT yesterday, has been settled. The scheme is now fully on track. Obviously, we are not responsible for the fact that certain companies may choose to negotiate in public. That does not suggest anything about the success or otherwise of the scheme.

I would also like to discuss the £50 billion guarantee scheme proposed by the Opposition and take this opportunity to explain the Government's approach—which, if I may say so, has been somewhat misrepresented by the noble Lord, Lord De Mauley. We do not believe that it is possible, desirable or feasible for the Government to substitute for private sector lending and private

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bank lending. I would have thought that the Opposition could agree with that. That lending to businesses is worth £590 billion. An untargeted scheme of £50 billion would be neither here nor there. It would cost significant funding because of the provisions that would have to be made for defaults if it was given to very risky businesses. It would be in no sense additional if it was not given to risky businesses.

The Government’s approach has, instead, been very straightforward. It is to make sure that the banking system works and that it has not, in the first instance, collapsed; and that it has sufficient capital funding in liquidity to ensure that lending is resumed, because you cannot substitute for the £590 billion. We have already done that through the recapitalisation plan, the asset protection scheme, the working capital scheme and the liquidity funding schemes provided by the Bank of England and the Treasury. As a result, we have lending agreements with two of the banks with which we have an asset protection scheme arrangement. There is £25 billion of additional net lending from the RBS and £11 billion of additional net lending to businesses from Lloyds. Even those banks that do not have an asset protection scheme with us have made commitments. For example, Barclays has committed £11 billion. This shows that we are working towards a resumption of credit from the banking system to the real economy. We monitor that very closely.

Having said that, it is not always possible to fix all the market failures that occur. That is why we have specific targeted schemes. The enterprise finance guarantee scheme, for example, is targeted only at about 2 per cent of the borrowers who would otherwise be viable but, in the current climate, may not be able to access this level of funding. We assist the banks by providing a guarantee of 75 per cent. These are the companies in the grey zone, if I may call it that, which now receive funding as a result of the Government’s scheme. We also have schemes in the auto sector for the same reasons. There are specific market failures where the overarching approach of fixing the banking system does not work. We are fixing the overall systemic problem, and providing targeted assistance where it is needed and where market failures exist. This is effective, targeted and protects the taxpayer. While a £50 billion scheme may, overall, sound very nice and is a good, simple slogan, it does not protect taxpayers and provide assistance where it is needed.

I am happy to provide noble Lords with details of the schemes as they work. The enterprise finance guarantee scheme, for example, has already disbursed over £200 million. It is on track to disburse the full £1.3 billion before the year end. The trade credit insurance scheme started a week ago and has already started to disburse. There are around 16 companies in detailed discussions on the auto scheme, where the risks are much higher and it is completely correct that the Government should ensure that the taxpayer is adequately protected. There are delivery mechanisms and they are monitored. Indeed, those that are my personal responsibility are monitored weekly by me. There are independent assessments that have already been named. The scheme goes through the Treasury’s Green Book procedures. All spending is reported to Parliament under the Industrial Development Act in

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the annual report. It may be something that noble Lords do not want to hear, but we have an overarching framework and targeted policies, which are now working, underneath it.

The noble Lord asked about EU consent. I am pleased to say that all the schemes that we are talking about have EU consent and are disbursing on that basis. The noble Lord asked about the letters of credit consultation. It is occurring now. All the appropriate authorities have been consulted on the matter. It is a specific scheme—again, in line with the overarching policy—that is available because we believe that there is a specific market failure around the confirmation of letters of credit, particularly because of foreign banks withdrawing and being unable to provide trade finance.


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