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.