Orders of the Day — European Investment Fund

– in the House of Commons at 10:13 pm on 29th November 1993.

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Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester 10:13 pm, 29th November 1993

I beg to move, That the draft European Communities (Definition of Treaties) (European Investment Fund) order 1993, which was laid before this House on 18th November, be approved. The order's provenance will be well known to the House. It has been commented upon on a number of occasions, and the House will recall that the Edinburgh European Council in December last year at the conclusion of the British presidency agreed a package of measures to promote economic recovery in the European Community. One of those measures was a request that the Economic and Finance Council and the European investment bank give urgent and sympathetic consideration to the establishment of a European Investment Fund". Work has now been undertaken and substantially completed, with agreement being reached on the precise role of the fund and on the draft statute which sets out its rules of operation. The Brussels European Council on 29 October was able to commit itself to bringing the fund into existence by the new year.

The order provides for the small amendment necessary for the treaty of Rome to be regarded as one of the Community treaties as defined in section 1(2) of the European Communities Act 1972. The amendment would add a new article—article 30—to the protocol on the statute of the European investment bank. If the amendment is ratified by all member states, that article will enable the board of governors of the bank to create the European investment fund by unanimous decision.

I come now to the fund itself and how it would operate. The new fund has its origins within the European investment bank, which is one of the Community's least-known, but most efficiently run bodies. It is under the new and illustrious British presidency of Sir Brian Unwin, Because of recent concerns, I visited the bank, and I can report that I did not see signs of extravagance; indeed, I found it to be an extremely professional and well-run organisation.

As the House will know, the bank's primary purpose is to provide medium and long-term loans to capital investment projects that further the economic development of the Community. It borrows the bulk of its funds on the capital markets and borrowers have to meet the full cost of loans. The bank is not allowed to subsidise. Because it has a triple-A credit rating and is non-profit-making, it is able to on-lend at very attractive rates. It now operates on a considerable scale throughout the Community and the United Kingdom is a major beneficiary.

The European investment fund will be an offshoot of the bank. Although the fund will be based at the bank's headquarters in Luxembourg, it will be staffed by bank personnel on secondment. Legally and financially, it will be entirely independent of the bank. There are two reasons for that. The first is operational. The fund will complement, not duplicate, the bank's function as a lender to European Community investment projects. It will not make loans, but rather provide guarantees and in due course take equity stakes in enterprises.

The fund's draft statute allows it to operate throughout the Community in support of two classes of undertakings. One will be small and medium-sized enterprises; the other will be trans-European networks—projects to improve the links between the various member states' national transportation, telecommunication and energy networks.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Can my hon. Friend say clearly and precisely whether the order will enable a European fund to underwrite the losses of the channel tunnel, while domestic legislation—as my hon. Friend well knows—prevents us from doing so? There is concern that intra-Community transport could cover the channel tunnel, which some of us consider to be a great white elephant. Bearing in mind that the Government are not permitted under law to subsidise it, can my hon. Friend assure us that the European fund also will not be able to subsidise the channel tunnel project?

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

The channel tunnel project would be eligible to apply for capital guarantees of the sort that I have mentioned. I understand my hon. Friend's proper concern that the fund might provide guarantees for loans that would effectively finance loss-making activities. The intention is not to subsidise losses, but to guarantee loans that are made available by other institutions.

If a loan is made available to Eurotunnel or one of the other organisations concerned with the project, it is unlikely to be made available specifically to write off an operating loss —although it inevitably forms part of the total capital of the organisation. A loan to that or any other project would be made on the basis of the viability of the project. The fund would enable a guarantee to be provided to the institution providing the loan. Therefore, the position is not quite as my hon. Friend suggested. I hope that he is clear on the point that the fund would not be used in that way, although projects of the sort that he mentioned might be eligible for guarantees of certain loans that had been obtained from other sources.

Photo of Mr David Shaw Mr David Shaw , Dover

On the key issue of subsidising the channel tunnel, my hon. Friend the Minister will be aware that section 42 of the Channel Tunnel Act 1987 prohibits the British Government from subsidising or financially supporting the tunnel with public funds. Will my hon. Friend confirm that nothing in the order is inconsistent with the 1987 provision or will allow Europe to do that which the British Government cannot do?

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I do not believe that the order is inconsistent with the 1987 Act. The ability of the fund to provide equity stakes—risk capital interest in businesses —is intended to be applied not to trans-European networks but to small and medium-sized enterprises. Certainly, the channel tunnel does not fit into that category. In any event, it is intended that the equity stakes will be provided only to funds that invest in a variety of such concerns.

The fund's other activities will deal entirely with the provision of guarantees against loans provided elsewhere. They will not break across domestic law. The purpose of the order is to import into domestic law the obligations and agreements made.

Photo of Charles Kennedy Charles Kennedy Shadow Spokesperson (Foreign and Commonwealth Affairs), Party Chair, Liberal Democrats

The Minister will be glad to know that I do not want to pursue the points raised by two Conservative Members, to which he gave detailed and fair answers. However, given the Minister's general remarks about the investment fund, its siting and the use of seconded personnel, can he give some idea of the likely scale of the enterprise involved, as and when the fund begins to take shape?

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

Perhaps the hon. Gentleman will allow me to respond to that point during my remarks.

I mentioned that there were two reasons for the fund's independent status. After it has been in existence for two years, its shareholders may allow it to take equity holdings. It will concentrate particularly on small to medium-sized enterprises, to strengthen their capital base. The fund would not take a holding in its own name but would require stakes in financial institutions that specialised in holdang equity.

The second reason for the fund's independent status is legal and institutional. It is proposed that the fund will have an initial subscribed capital of 2 billion ecu, or around £1·5 billion, which will not be held entirely by the European investment bank. The bank will take a 40 per cent. stake, but it is envisaged that the remaining 60 per cent. will be divided equally between the Community itself—represented by the Commission—and those of the Community's private sector banking institutions that want to become members.

That participation by the private sector is most important. The fund would not attempt to provide guarantees directly to small to medium-sized enterprises in the member states; rather, it would enter into arrangements with local banks that knew those markets and that could then act as the fund's agent.

The fund will be run on a commercial basis and may pay dividends on its capital. As to the fund's guarantee operations, it is expected to have a gearing ratio of 3:1; therefore, a subscribed capital base of 2 billion ecu would allow it to give 6 billion ecu worth of guarantee cover. For reasons of prudence and to allow the maximum spread of support, the fund would not guarantee that more than 50 per cent. of the cost of any project was covered. If, for example, the average guarantee provided by the fund covered 25 per cent. of a project's cost, it could assist projects worth a total of 24 billion ecu, or around £18 billion—but that is very much the ceiling estimate of the fund's potential.

The concept of the European investment fund was given a big push by the initiative launched at Edinburgh last year under the United Kingdom presidency. If the treaty amendment is ratified by all member states, the fund will provide a useful addition to the Community's response to the key problems of unemployment and loss of competitiveness. Because the fund is targeted at small to medium-sized enterprises—the important engines of economic growth and employment in the Community—it will encourage private sector initiative and work with the grain of the enterprise culture, thereby helping to improve competitiveness and employment.

The fund will operate under the aegis of the European investment bank, which has a proven record of competence and efficiency. I commend the order to the House.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury) 10:24 pm, 29th November 1993

The Labour party supports the establishment of a European investment fund. It is a useful and potentially very beneficial innovation for which the Labour party has been calling. Indeed, we would like to see it built upon.

Incidentally, the small piece of paper in the form of this order will, if passed this evening, amend the treaties that govern the European Communities. By a similar small piece of paper we could bring the social chapter into effect in this country, and that is precisely the mechanism for doing so which we pointed out during the debates on the European Communities (Amendment) Bill. It would be no more difficult to extend those employment rights to British workers than it is to pass the order this evening, but that is a matter to which we shall return on other occasions.

In addition to welcoming this legislative step to help the European investment fund on its way, I shall ask several questions. First, why on earth has it taken so long to get this far? After all, the decision to set up a fund, as we have just heard, was taken as long ago as the Edinburgh summit on 11 and 12 December last year, and Commissioner Christophersen's letter, setting out in more detail the proposal for the establishment of the fund, was dated 15 January this year. What has been taking the time since then? Who is responsible for the delay?

After all, more than 18 million people are unemployed throughout Europe and the European economy—now, to many intents and purposes, the real macro-economy of all the member states—remains deeply in recession. Depressed private investment is one of the most disturbing aspects of that recession. In such circumstances, Opposition Members would have thought that a good deal more urgency could and should have been injected into the programme so that the fund could be up and running, generating jobs, improving infrastructure and stimulating recovery.

Secondly, how far has the establishment of the fund progressed? What other countries have yet to take the step to which we are giving effect tonight in amending the protocol? What progress has been made with setting up the interim board of shareholders of the fund? The European Commission said in April, in its report on the Edinburgh initiative about the interim board of shareholders: This Board will work on the further arrangements for the entry into force of the Fund … Most importantly, it will also begin discussions right away with project promoters, financial institutions and national/regional administrations on specific potential candidates for support. I should be grateful if the Economic Secretary would tell us how far those consultations have progressed. I should also be grateful if he would tell us in reply who is on the interim board of shareholders, and what reports the Government have received about the progress of its discussions. In particular, because their participation is an important element of the concept of the fund, what third party shareholders have been consulted and what has been the outcome of those consultations? My final question on the subject of timing is, when do the Government expect that the fund will be up and running and giving the guarantees for loans which will enable projects to proceed?

My third category of questions is about what projects the Government—or other organisations, such as the Scottish and Welsh Development Agencies—are encouraging to apply to the fund. What sort of projects do the Government have in mind? It would be helpful if the Economic Secretary would tell us the beneficiaries. The Labour party very much hopes and strongly urges that British private and public sector organisations, and the two together in partnership, are encouraged and assisted by the Government to apply to the fund and to take full advantage here in the United Kingdom of the opportunities that it offers. We cannot afford to be left behind in the take-up of funds as we have been with other sources of finance, such as the regional and social funds, and on occasion in the use of the European investment bank itself. We want Britain to obtain the full benefits of the opportunities which that type of European Community institutions have to offer.

Fourthly, I propose to ask about the financial accounting for the subscription of capital and expenditure from the fund. I should be grateful if the Economic Secretary could explain whether expenditure on the fund or its guarantees counts against the United Kingdom public sector borrowing requirement. If so, how is that recorded?

How do the Government see the role of the fund developing? I note that the Commission's explanatory memorandum says: The main objectives of the fund will be to contribute to the strengthening of the internal market and the furthering of economic and social cohesion. Major infrastructure projects in the framework of the transeuropean networks (TENs), as well as small and medium-sized enterprises (SMEs), especially in Community assisted areas, constitute the main targets of support of the EIF. Will loan guarantees be used to hasten the progress of public-private partnerships on which to date the Government's words and reannouncements of the same schemes greatly exceed actual progress on the ground? Given that the front-end risk on such projects has been identified as one of the main factors inhibiting private sector involvement, could there not be a role for the European investment fund in providing guarantees to enable such schemes to get under way? Is there a need for the project task force, which the Labour party has advocated, to inject the requisite urgency to get things moving?

Given that small and medium-sized enterprises are intended to be among the prime beneficiaries of the European investment fund guarantees, does not that make it more important to consider how the interface between small businesses and the European investment fund will work? I note what the Economic Secretary said about the role of banks familiar with the markets in which small and medium-sized enterprises are extending their activities. What do the Government envisage as their role in bringing about that partnership between the domestic banking sector and small and medium-sized enterprises? It is not as though small and medium-sized enterprises do not have one or two complaints about the treatment that they receive from banks at present.

If those enterprises are to benefit from the fund, it is absolutely vital that their involvement with it is assisted. I would argue that that makes a strong case for regional development agencies in the English regions, as well as those in Scotland and Wales, to facilitate that involvement. I should be grateful if the Economic Secretary could tell us how he envisages the fund developing what is described in the Commission's summary as its "secondary business" —that of the limited provision of equity largely through financial intermediaries. Will that become a sort of Euro national enterprise board? If not, how does it differ?

The Commission's memorandum states: Other projects, for example in the areas of environmental protection and energy production, may become eligible later after decision of the Fund's ruling bodies. Given the substantial contribution that environmental projects can make to generating jobs and improving the quality of life, the sooner those projects can be brought on stream through the work of the European investment fund, the better. What is the Government's thinking on that?

Finally, what is the Government's position on the size of the fund? Once all the institutional and administrative machinery is in place, and assuming a good take-up of funds can be encouraged, is there not a strong case for expanding the size of the fund beyond the indicative levels given by the Economic Secretary so that it could be used in a more counter-cyclical way, as the Labour party has argued, to help to play a more significant role in lifting Europe as a whole out of the recession which condemns millions of our fellow citizens to unemployment and thereby diminishes the living standards of us all?

Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford 10:33 pm, 29th November 1993

I welcome the new initiative and facility for the European investment bank. The bank has long needed to be able to invest in equities, but it has not had that ability. The new facility to guarantee loans is also extremely welcome.

I should like to add two other points to the list of questions asked by the hon. Member for Oxford, East (Mr. Smith). First, it seems to me that the change requires a completely different managerial approach by the bank, which is traditionally a conservative bank and has operated, generally speaking, with Government guarantees and other means of securing its lending. An advance into equity lending will be quite foreign to most of its personnel, and they will need additional training. The bank will also need the injection of people with experience in the private sector so that it can make those equity investments on a sound basis.

There is another problem that I would be grateful if the Economic Secretary would explain to the House. How will the bank account to the nation states' Parliaments and to the European Parliament in Strasbourg? The new facility will require careful monitoring, and there should be careful arranged accounting procedures to the Parliaments and possibly to the Public Accounts Committee.

Photo of Charles Kennedy Charles Kennedy Shadow Spokesperson (Foreign and Commonwealth Affairs), Party Chair, Liberal Democrats 10:35 pm, 29th November 1993

I have another couple of questions to add. One Minister is known to have a little list, but the Economic Secretary has rather a long list of inquiries to answer, and I do not want to add to his burden, particularly as I know that the hon. Member for Newham, South (Mr. Spearing) intends to contribute to the in-tray of intrigue in a few moments' time.

I welcome the measure, which is further proof, were any needed, that after the Edinburgh summit and the British presidency, and the passage of the Maastricht treaty through Parliament early this year, those who argue in newspapers and the broadcasting media that Maastricht marked the end, the problem is over and the issue can be put to one side, are wrong. The Europe Community, now the European Union in its other respects, will continue to develop and it is important that it should do so.

As is always the way, we are having a late-night debate in a thinly attended Chamber, with only those of us who have a specific interest in European matters, but the measure is still another sign of the important political and economic steps that will have social implications across the Community as a whole. I have a plea to make as I welcome those developments: it is not the Minister's responsibility, but I hope that the business managers will consider allowing the House one day a week just for European issues, as they have such impact on domestic political and legislative matters that it is nonsensical to go in this way.

My first question concerns the future development of the Community. Clearly, the investment fund will be coming on stream after much discussion—that was acknowledged in the Queen's Speech—about the agreements on accession that will be concluded with the remaining Scandinavian countries and Austria. Given that it is impossible for any measure to anticipate everything that may or may not happen, but that it is a reasonable assumption that those countries will be joining the Community, it is important to know how the Minister sees any restructuring or rejigging of this which may need to take place to accommodate those developments.

Those of us who have had discussions with the representatives of the Scandinavian countries will know that they have specific anxieties and agendas that they are trying to pursue about the distinct geographic needs of their countries, which are different from, and contrast with, those of some of the existing member states. I suspect that the Scandinavians may look to the investment fund as being of use to them. To what extent has that been anticipated in the discussions?

My second question concerns our domestic banks. The Minister made some interesting references to personnel of the fund being on secondment and how in due course the fund will look to banks in member states—although perhaps this is less true of banks in this country than of those in other member states—which have regional expertise within member states and may be able to assist or facilitate projects. Will the Minister put a little more flesh on the bones of the attitude of domestic bankers and say what role they hope to play?

The order is welcome. Let us hope that it will make an important political, economic and social contribution to the well-being of the Community in turning itself into union in due course.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South 10:40 pm, 29th November 1993

The hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) is right—I cannot add a chorus of praise for the order, although it has potential. We need to examine what that potential is and how it is to be exercised. There is some confusion about the nature of the fund and how it will be organised and run.

My hon. Friend the Member for Oxford, East (Mr. Smith) is right to say that this is a relatively simple piece of paper, but I remind hon. Members and anyone who may be listening or who may read the debate that a single paper of this sort can authorise a complete treaty. This is not all that long. It is not called a treaty. It is rather confusingly called an Act. In the early days of this procedure, I arrived in the Chamber with a heap of treaties this high, which were being authorised by a single statutory instrument. At lease we have this opportunity to scrutinise, and if my questions to the Minister appear naive it is not for want of reading the literature that has been supplied to us.

It is a pity that the explanatory note is highly constitutional and does not tell us much about the fund. I understand that it is a fund, but not necessarily one that will give loans, although other hon. Members have suggested that it might. As I understand it, its purpose is to provide guarantees, thus stimulating activity that would not otherwise take place in the realm of trans-European networks and small and medium-sized enterprises. A gentleman in Denmark once said to me, "Mr. Spearing, in Denmark all our firms are small or medium-sized enterprises." There are volumes of Government commissioned documents according that definition, which is pretty elastic to start with.

I am concerned because the explanatory note on the order does not take us far down that road, although the explanatory memorandum on the Commission document does. It makes it fairly clear. It says that the fund is for assuming and managing more specific risks without jeopardizing its credit standing and mainstream lending. That refers to the European investment bank. I assume that the fund is not a fund from which we can borrow and earn income but is a form of guarantee. The explanatory memorandum later says that the fund will facilitate private infrastructure financing by providing a complement or alternative to recourse to government guarantees for infrastructure financing. The viability criterion will also be an essential ingredient in its approach to SMEs. That confirms that it is a mechanism for creating guarantees that give confidence to those who subscribe capital, rather than for subscribing capital itself.

The Act is a mini-treaty, agreed in Brussels in March 1993 and awaiting ratification, of which this debate is part. Article A explains that, at present, the protocol of the European investment bank is not wide enough to fulfil that function. Paragraph 2 of new article 30 of the European investment bank statute says: The Board of Governors shall establish the Statute of the European Investment Fund by unanimous decision. The Statute shall define, in particular, its objectives, structure, capital, membership, financial resources, means of intervention and auditing arrangements, as well as the relationship between the organs of the Bank and those of the Fund. So all is there to be decided. By what means will the statute be made known to the House and the public? The objectives exist in broad terms and will, I presume, be part of the statute setting up the fund.

On the mysterious question of membership, the explanatory memorandum says that membership will be tripartite: member states; the Commission—30 per cent.; and other private organisations. I assume that those private institutions mentioned in paragraph 4 can be banks or other funds already in the private sector within the Community. I presume that members, who are appointed in proportion to their risk, must manage the fund and decide to whom, and for what purposes, guarantees are to be made.

The knock-on effect appears to be considerable, because other parts of the memorandum say that we will not have to pay much to the fund. Britain's paid-up amount is relatively small and we therefore take a proportion of the risk, in proportion to our national sector. How can the Commission take a risk separate from that of member states?

This does not seem to be a fund in the normal sense of the word, unless it is a fund for guarantees. It appears to deal with insurance, akin to institutions in the City that take on risks. Is it not essentially a risk-bearing mechanism, to be controlled partly by the bank—the Minister mentioned our representative on it—but also by other persons, as yet unnamed, and representing world institutions that would take the risk? Can we know more about who they are likely to be? Will there be people from the United Kingdom? What qualifications will they have? How will those matters be reported? I presume that they will be reported first to the bank, then from the bank to member Governments, then from member Governments to the House—if they get that far.

I am less enamoured of this set-up than some of my hon. Friends, who may assume that it will have the effects that they hope, but I cannot see the connection. It may deal with large projects—the channel tunnel was mentioned earlier —and various small and medium-sized enterprises may benefit. I assume that they must put up a case, saying that they are part of the European single or internal market. I understand that another purpose of the fund is to stimulate the said market.

I am also a little worried about the extent to which this is not just a complement to Government guarantees but a replacement for them. Indeed, the explanatory memorandum said: The existence of the Fund will thus facilitate private infrastructure financing by providing a complement or alternative to recourse to government guarantees for infrastructure financing. The viability criterion will also be an essential element". The question asked by my hon. Friend the Member for Oxford, East about the proportion of public sector borrowing is relevant here. Will decisions on financial guarantees for large projects be transferred away from Her Majesty's Government and handed to those who govern the running of the fund? I take it that that is what the memorandum means. If the Minister cannot answer that question now, I hope that he will tell the House the answer at some stage.

I close on a topical note. At a time of great unemployment and when there was a need for transport expansion and co-ordination in London, following the first world war, the House passed an Act known as the Trade Facilities Act 1921, which resulted in guarantees for the extension of the Northern line south of Clapham to Morden, and the western extension of the Central line, which was not actually built until after the next war. Could such guarantees be given now to British Rail or to any private firm by the Government without transgressing any European treaty? If not, and if this fund is the only way of assisting such networks, especially the channel tunnel, the House should know about it. If the Minister cannot reply tonight, I intend to table a written question on the subject tomorrow.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester 10:52 pm, 29th November 1993

With the leave of the House, I should like to thank hon. Members for their highly pertinent questions this evening.

The hon. Member for Oxford, East (Mr. Smith) made a number of points with which I will try to deal as expeditiously and frankly as possible. He asked why it had taken so long to bring the fund from its inception at the Edinburgh Council to where it is now. Actually, it has moved fairly speedily, given that all member states have to ratify the proposal. Only two have done so thus far, but all will have to ratify by the end of this year.

In the Edinburgh presidency conclusions, there was a specific request that "urgent" progress be made with implementation of the fund. But it was necessary first for the draft EIF statutes to be drawn up. It was also necessary for a draft Council decision under article 235 of the European Communities treaty on Community participation in the fund to be drawn up and submitted to the Scrutiny Committee—as indeed it was.

We are now approaching the point at which the EIF can be launched. We hope that it will be up and running in the early part of next year, but work is already under way to identify those who may be able to benefit from the guarantee resources which will constitute the early part of the fund's remit.

The hon. Member for Oxford, East asked what work was being done to identify the candidates. Preliminary work has certainly been done, but it was felt premature, before the fund's constitution had been set, for applications to be invited and candidates to be vetted. Nevertheless, in conjuction with work on the proposed statutes of the fund, some work has been done.

I pay tribute to the president of the EIB, Sir Brian Unwin, who has worked hard in the member states, including this country, encouraging commercial banks to take up the opportunity of being shareholders in the E1F, and advertising more widely among the member states the opportunities that will arise once the fund is itself funded.

The hon. Member for Oxford, East asked who would be on the board. There will be a supervisory board. It is intended, I believe, that the president of the bank will be the chairman of that board, but the detailed composition will be a matter laid down in the statute of the fund after article 30 has been imported into the protocol to the treaty of Rome. It will then be up to the fund, in conjunction with the European investment bank, to determine the details of how the various constituent shareholders will be represented on the supervisory board and the working committees.

The hon. Gentleman asked what sort of projects would qualify. I know that this is of interest to hon. Members —particularly those who want industrial regeneration and the uptake of employment for their constituencies, especially through small to medium-sized enterprises. Earlier, I referred to energy, telecommunications and transport; they clearly fit the definition of trans-European networks. The range of small to medium-sized enterprises is much wider, but the fund is not intended to provide guarantees direct to such enterprises: that will be done through the medium of commercial banks. However, the European investment bank itself provides—and recently the European Communities have enhanced the resources for—capital lending to small to medium-sized enterprises. An additional facility of some 1 billion ecu is being provided for subsidised lending: I believe that the current proposal is around 3 per cent. on the interest rates paid by such enterprises. A lot is being done.

As for financial accountability, a report will be prepared. The various constituent shareholders of the Community and the commercial banks that take up their shareholdings, as well as the investment bank itself, will be recipients. It will be run in close conjunction with the investment bank; it will be subject to the European Court of Auditors, and statute will lay down in great detail the financial accounting and reporting procedures.

A number of hon. Members asked about the status of the contributions to the fund, its capitalisation and how it relates to our public sector borrowing requirement. The answer is that it does not—except in so far as we make a notional contribution through the total resources that we give to the European Community, part of which will go towards financing our shareholding through the Community. We are shareholders in the investment bank, but its shares in the fund will be bought by its own internal capital resources; that will not be a call on the taxpayer, here or elsewhere in the Community.

The Community's shareholding will be funded from Community resources. That was provided for in the Heads of Government conference in Edinburgh; no additional contribution is involved. The private-sector funds will not be a call on the Government. That is not to say that no liabilities are involved. In the past, the House has rightly been concerned about the fact that nothing is free. Contingent liabilities are potentially involved, with the guaranteeing of loans given to organisations. Those can go belly up: things can go wrong. If the guarantee is called, it is real money that must be paid out of the European investment fund to the lending institution.

It is intended that only 20 per cent. of the 2 billion ecu that will be the initial proposed ceiling of funding will be drawn down in initial subscriptions for capital to run, or pay for, the business. The remainder will be held as a call against default on those guarantees. If a number of those enterprises go wrong, the loan is called in and the guarantee is called, the funds will be there; but it will run on a very prudent basis, with only 20 per cent. initially being drawn down and the remainder being held against default.

The hon. Member for Oxford, East asked how the present proposals would interface with the private finance initiative. In answer to him, and perhaps to the hon. Member for Newham, South (Mr. Spearing), let me say that the intention is not that the fund should take over from existing guarantees that are provided or make up for shortfalls elsewhere. The intention of the European Community expressed at the Edinburgh summit was that here would be a positive sum gained—a recovery fund in addition to what was already provided at national level. I hope and believe that the fund would be reluctant simply to refinance liabilities that had already been entered into. We are talking about funding over and above existing provision—or rather new guarantees of funding for trans-European networks and small to medium-sized enterprises.

The hon. Member for Oxford, East asked whether the fund would become a Euro-national enterprise board. We all pray fervently that it will not, and I was interested that the hon. Gentleman seemed to be making the case against such a trend. The important point is that, even if, after two years, the fund takes direct investment interest, it is not intended that it should invest directly in the small to medium-sized enterprises concerned. Funding will be through the medium of private sector investment trusts or funds so that the commercial element of choice and backing is introduced. The fund will simply pump prime or add additional liquidity to the financing and sources of funding of small to medium-sized enterprises. I hope that the fund will not be a direct investment board but will greatly help the private sector to do the job that it should be doing in the regeneration of industry.

Provision will be made for the funds to be increased beyond the level of some £2 billion, but that is not intended to be an early aspiration: the organisation must walk before it runs.

My hon. Friend the Member for Hertford and Stortford (Mr. Wells) asked about equity investment and said that new expertise would be needed. I entirely agree, and that is an important point. There are some extremely able people at the European investment bank who have to make judgments about risk as well as debt financing, and they will be seconded to the organisation. Additional people will probably be employed, but it is intended to keep them to the minimum and to appoint only in specialist areas. Provision will be made largely by seconding existing effort from the European investment bank. My hon. Friend also asked how the fund would be accountable, and I hope that I have answered that.

The hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) gave a welcome to the proposal—for which I thank him—and rightly pointed out the great social implications that it may have. He asked about the implications of the accession of other countries, and, in doing so, made an extremely telling and important point. Very often, Euro-bodies—the European investment bank is a large and eminent one—end up with empire aspirations that go beyond their original remit. Instead of financing organisations within the Community—the purpose for which they were originally established—they start becoming emulators of world banks. So it is that the European investment bank is financing enterprises in the Caribbean, south America and eastern Europe. There are good arguments for that, and I have tried to test some of them, but we need to keep our eye on the ball and ensure that the overwhelming majority of hard-pressed taxpayers' funds and liabilities are directed within the Community and not allowed to escape it. So there are implications for relations with nearby and potential acceding countries.

I have answered the question about domestic banks and the interest that they have taken. Only one in the United Kingdom has shown an interest so far, and that is Nikko Securities, but it is hoped that more interest will be forthcoming. The Government have certainly supported Sir Brian Unwin in making information available to the banks concerning the opportunities that exist.

The hon. Member for Newham, South rightly made a number of points about procedure. It is not novel but it is slightly unusual that we should be proposing the change by way of an order rather than primary legislation, and the hon. Gentleman is right to test the Government on that point. It was felt that the provision fell within section 1(3), and there are good precedents both in relation to changes to the European investment bank and to the de-accession of Greenland, so I am told.

Finally, the hon. Gentleman asked by what means the European investment fund statute would become known to the House. The statute has not been promulgated because the fund has not yet been set up. There is no requirement that the detail of the statute shall be published or promulgated. I agree that a strong case could be made for that, and I shall take careful note of what the hon. Gentleman has said, as will those Ministers who are involved in the European Community. There is a strong case for ensuring that the statute—that is to say, the detail of the constitution of the new fund—is made more widely available.

I hope that I have answered most of the queries raised in this interesting debate, and that the House will approve the order.

Photo of Andrew Smith Andrew Smith Shadow Spokesperson (Treasury)

I am grateful to the Minister for his attempts to answer the bulk of the questions asked by hon. Members. I asked a question to which he did not respond. I asked whether the Commissions's proposal that an interim board of shareholders be established immediately had been implemented, and whether the board is meeting and taking decisions. I shall give way to the Minister if he is prepared to answer that, or perhaps he will write to me on the matter.

The Minister said that the European Community and member states had moved speedily on this matter. The hon. Gentleman and the Government may think it speedy, but Europe's unemployed could not possibly agree, and the quicker it is up and running and doing some good by generating investment funds, the better. We shall watch closely to see how quickly it is established and what good it does. We shall also keep a close watch on how it reports its work and how the Government report back to the House to ensure the accountability that hon. Members rightly expect.

Question put:

The House divided: Ayes 187, Noes 3.

Division No. 7][11.06 pm
Ainsworth, Peter (East Surrey)Hamilton, Rt Hon Archie (Epsom)
Amess, DavidHamilton, Neil (Tatton)
Ancram, MichaelHargreaves, Andrew
Arbuthnot, JamesHeald, Oliver
Arnold, Jacques (Gravesham)Heathcoat-Amory, David
Atkinson, Peter (Hexham)Hendry, Charles
Baker, Nicholas (Dorset North)Horam, John
Baldry, TonyHordern, Rt Hon Sir Peter
Bates, MichaelHoward, Rt Hon Michael
Beresford, Sir PaulHowell, Rt Hon David (G'dford)
Blackburn, Dr John G.Hughes Robert G. (Harrow W)
Boswell, TimHunt, Rt Hon David (Wirral W)
Bowden, AndrewHunter, Andrew
Bowis, JohnJack, Michael
Brandreth, GylesJenkin, Bernard
Brazier, JulianJohnson Smith, Sir Geoffrey
Bright, GrahamJones, Gwilym (Cardiff N)
Brooke, Rt Hon PeterJones, Robert B. (W Hertfdshr)
Brown, M. (Brigg & Cl'thorpes)Kellett-Bowman, Dame Elaine
Browning, Mrs. AngelaKennedy, Charles (Ross,C&S)
Burns, SimonKey, Robert
Burt, AlistairKirkhope, Timothy
Butcher, JohnKnapman, Roger
Carlisle, John (Luton North)Knight, Mrs Angela (Erewash)
Carrington, MatthewKnight, Greg (Derby N)
Carttiss, MichaelKnox, Sir David
Chapman, SydneyKynoch, George (Kincardine)
Clifton-Brown, GeoffreyLait, Mrs Jacqui
Colvin, MichaelLamont, Rt Hon Norman
Congdon, DavidLang, Rt Hon Ian
Conway, DerekLawrence, Sir Ivan
Coombs, Simon (Swindon)Legg, Barry
Cope, Rt Hon Sir JohnLeigh, Edward
Couchman, JamesLester, Jim (Broxtowe)
Cran, JamesLidington, David
Currie, Mrs Edwina (S D'by'ire)Lightbown, David
Curry, David (Skipton & Ripon)Lloyd, Peter (Fareham)
Davies, Quentin (Stamford)Luff, Peter
Davis, David (Boothferry)Lyell, Rt Hon Sir Nicholas
Day, StephenMacKay, Andrew
Douglas-Hamilton, Lord JamesMaclean, David
Dover, DenMcLoughlin, Patrick
Duncan, AlanMaitland, Lady Olga
Duncan-Smith, IainMalone, Gerald
Eggar, TimMans, Keith
Elletson, HaroldMarland, Paul
Evans, David (Welwyn Hatfield)Marshall, John (Hendon S)
Evans, Jonathan (Brecon)Martin, David (Portsmouth S)
Evans, Nigel (Ribble Valley)Merchant, Piers
Evans, Roger (Monmouth)Monro, Sir Hector
Faber, DavidMontgomery, Sir Fergus
Fabricant, MichaelNelson, Anthony
Forman, NigelNeubert, Sir Michael
Forsyth, Michael (Stirling)Nicholls, Patrick
Forth, EricNicholson, Emma (Devon West)
Fox, Dr Liam (Woodspring)Norris, Steve
Freeman, Rt Hon RogerOttaway, Richard
French, DouglasPaice, James
Fry, PeterPatten, Rt Hon John
Gale, RogerPattie, Rt Hon Sir Geoffrey
Gallie, PhilPickles, Eric
Garnier, EdwardRedwood, Rt Hon John
Gillen, CherylRendel, David
Goodson-Wickes, Dr CharlesRenton, Rt Hon Tim
Gorst, JohnRichards, Rod
Grant, Sir A. (Cambs SW)Robathan, Andrew
Greenway, Harry (Ealing N)Roberts, Rt Hon Sir Wyn
Griffiths, Peter (Portsmouth, N)Robertson, Raymond (Ab'd'n S)
Grylls, Sir MichaelRobinson, Mark (Somerton)
Gummer, Rt Hon John SelwynRowe, Andrew (Mid Kent)
Hague, WilliamRyder, Rt Hon Richard
Sainsbury, Rt Hon TimThornton, Sir Malcolm
Shaw, David (Dover)Thurnham, Peter
Shaw, Sir Giles (Pudsey)Townsend, Cyril D. (Bexl'yh'th)
Shepherd, Colin (Hereford)Tredinnick, David
Smith, Tim (Beaconsfield)Trend, Michael
Soames, NicholasTwinn, Dr Ian
Spencer, Sir DerekWaldegrave, Rt Hon William
Spicer, Michael (S Worcs)Walden, George
Spink, Dr RobertWalker, Bill (N Tayside)
Spring, RichardWaterson, Nigel
Sproat, IainWatts, John
Squire, Robin (Hornchurch)Wells, Bowen
Stanley, Rt Hon Sir JohnWhittingdale, John
Steen, AnthonyWiddecombe, Ann
Stephen, MichaelWilkinson, John
Stern, MichaelWilletts, David
Streeter, GaryWolfson, Mark
Sumberg, DavidWood, Timothy
Sweeney, WalterYeo, Tim
Sykes, JohnYoung, Rt Hon Sir George
Taylor, Ian (Esher)
Taylor, John M. (Solihull)Tellers for the Ayes:
Temple-Morris, PeterMr. Irvine Patnick and
Thomason, RoyMr. Andrew Mitchell.
Thompson, Patrick (Norwich N)
Beggs, RoyTellers for the Noes:
Cryer, BobMr. Nigel Spearing and
Ross, William (E Londonderry)Mr. Dennis Skinner.

Question accordingly agreed to.

Resolved, That the draft European Communities (Definition of Treaties) (European Investment Fund) Order 1993, which was laid before this House on 18th November, be approved.