Regional Growth Fund
Business, Innovation and Skills

Geraint Davies (Swansea West, Labour)

To ask the Secretary of State for Business, Innovation and Skills for what reasons he decided that Royal Bank of Scotland, NatWest and HSBC should facilitate the distribution of £95 million of Regional Growth Fund money; what steps he is taking to monitor (a) the distribution of funds and (b) any commercial advantage; and what steps he has taken to ensure that any interest accrued is used for grants or returned to the Government.

Mark Prisk (Minister of State (Business and Enterprise), Business, Innovation and Skills; Hertford and Stortford, Conservative)

Royal Bank of Scotland and HSBC bids were both successful bids from Round 1 of the Regional Growth Fund (RGF). These bids were part of a competitive process and decisions taken by the ministerial committee chaired by the Deputy Prime Minister.

The banks schemes are an effective conduit of investment aid to small and medium-sized enterprises (SMEs) with projects that would create employment in areas that had become over dependent on the private sector. They are monitored quarterly to ensure that funds are distributed according to the terms of the offer letter which specify:

All the RGF funding must be used for beneficiary grants. The banks may not charge any fees for administering the schemes, and interest earned on any funds held on the bank's balance sheet must be used for additional beneficiary grants or returned to HMG;

Beneficiary grants must only be awarded to SMEs to support the purchase of new capital assets (typically plant and machinery), where the beneficiary agrees to create new employment or safeguard employment that will be lost if the investment in new plant and machinery is not made;

Beneficiary grants can only be awarded alongside an award of a new bank loan (with normal/unsubsidised terms and conditions) for the purchase of a new asset— grants cannot be used to support refinancing of existing debt by a beneficiary. Furthermore, grants cannot be provided where the reason why the original loan application is declined is that the beneficiary has insufficient collateral to support the new debt, as in these circumstances the Government's existing Enterprise Finance Guarantee scheme can help the beneficiary access commercial debt;

The banks must use their best endeavours to support the SME project using commercial sources of funding before awarding a grant to a beneficiary;

The schemes must operate in a manner that is consistent with European State aid rules on SME investment aid and regional investment aid. Specifically:

where the beneficiary is located outside of the assisted areas the maximum amount of RGF support that can be provided is 10% (medium sized enterprises) or 20% (small enterprises) of eligible costs (typically the cost of the asset);

where the beneficiary is located in an assisted area then the aid intensity can be increased by an amount between 10% and 30% depending on the level of economic vulnerability.