Industrial Development (Financial Assistance) Bill

– in the House of Commons at 4:50 pm on 24th February 2003.

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker 4:50 pm, 24th February 2003

I inform the House that Mr. Speaker has selected for discussion the amendment in the name of the Leader of the Opposition.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions) 4:54 pm, 24th February 2003

I beg to move, That the Bill be now read a Second time.

The purpose of the Bill is to increase the cumulative limit on financial assistance that may be provided under section 8 of the Industrial Development Act 1982. A useful starting point would be to explain what the section 8 power is and what it can be used for. Section 7 of the 1982 Act allows financial assistance to be offered in the assisted areas of the UK if it is likely to provide, maintain or safeguard employment. Section 8 has much broader scope and provides the legislative basis for financial assistance, both inside and outside the assisted areas. It gives wide discretion to provide financial assistance to industry if, in the opinion of the Secretary of State, it is

"likely to benefit the economy of the United Kingdom, or of any part or area of the United Kingdom".

That can be a geographical area as well as a sector of the economy. Assistance can also be provided if it is "in the national interest" and if it cannot be provided in any other way.

The precise purposes for which assistance may be offered are set out in section 7(2) of the 1982 Act. They include promoting the development, modernisation or efficiency of an industry; the creation, expansion or sustaining of productive capacity in an industry; promoting the reconstruction, reorganisation or conversion of an industry; encouraging the growth of an industry; and encouraging the arrangements for ensuring an orderly contraction of an industry. The legislation is drafted in such a way as to permit other Secretaries of State, as well as the Secretary of State for Trade and Industry, to use the section 8 power. Following devolution, Ministers in the devolved Administrations are also able to use the powers of section 8 to fund their own activities. If they do so, their expenditure counts towards the cumulative limit.

Assistance using section 8 as the legislative basis has been subject to a statutory limit since the Industry Act 1972. In calculating the cumulative spend under section 8, it is necessary to take account of all expenditure since then. More than 60 measures of financial assistance to industry have been established using the section 8 power since 1972. Of those, 15 are currently open, which I will return to shortly. The 1972 Act contained a limit of £150 million on section 8 expenditure, but provided for that limit to be raised by a sum not exceeding £100 million on not more than four occasions, by order made with the consent of the Treasury. The Act stated that an order should be contained in a statutory instrument and that a draft order should be approved by a Commons resolution. The limit was reset by the Industry (Amendment) Act 1976 to £600 million, with provision for up to four increases, by order, of up to £250 million each.

The Industry Act 1982, which the Industrial Development Act 1982 consolidated, raised the ceiling to £1.9 billion. The system of affirmative orders was retained and section 8(5) of the Industrial Development Act 1982 allows the limit to be increased four times by up to £200 million on each occasion. This provides for a maximum ceiling of £2.7 billion. The Government have sought parliamentary approval to increase the limit on three occasions to date, most recently in January 2002. The current limit is £2.5 billion. As this is likely to be reached by the end of the current financial year, a fourth and final order under existing legislation is needed before the Bill completes its passage through Parliament. A draft order raising the limit to £2.7 billion was laid in the House on 30 January and will be debated in Committee next week.

At the end of March 2002, the cumulative expenditure for all section 8 schemes since 1972 was almost £2.35 billion. For the current financial year, the forecast is that a further £167 million will be spent, with a further £208 million for the financial year 2003–04. Based on current levels of spend, the maximum amount allowable under existing legislation—£2.7 billion—is expected to be reached early next year.

It may be helpful if I explain what contributes to the cumulative limit. The 1982 Act states that the aggregate of sums paid, plus liabilities under any guarantees given, less any sum received by way of repayment of a loan or of sums paid to meet a guarantee, count towards the cumulative limit.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

Before the Minister moves on to the schemes that fall within section 8 expenditure, I am interested in the build-up of total commitments. I may have missed something, but I looked in vain in annual reports on the Industrial Development Act 1982 for a cumulative total, building up year on year, of section 8 expenditure. Can the Minister give some indication of the pace at which those commitments have built up over the past five years in comparison with the preceding years?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

I shall come to that in due course when I explain how we have had to come back to the well, so to speak, to replenish stocks. I am surprised that that information has not been in the annual reports—it should have been.

This small Bill of just two clauses is essential to enable the section 8 power to continue to be used by the Department of Trade and Industry, other Departments and the devolved Administrations to give financial assistance to industry. Without an increase in the limit, the legislative basis for the various schemes set up using section 8 would be exceeded when the absolute limit of £2.7 billion is reached, rendering unlawful Ministers' further use of that power. The Bill raises the financial ceiling in section 8(5) of the Industrial Development Act 1982. It retains the structure of tranches in the existing legislation but replaces the numerical ceilings with new, higher ones.

Clause 1 replaces section 8(5) of the 1982 Act by increasing the initial ceiling from £1.9 billion to £3.7 billion and the subsequent four tranches from up to £200 million to up to £600 million each. Clause 2 gives the short title of the Bill. The other provisions of section 8 remain unaltered.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

The Minister seems rather coy about what he is actually doing. Will he confirm the arithmetic? Is his position that he inherited a total ceiling of £2.1 billion when the Government took office because the cap had been increased once, and that he now proposes to increase the total ceiling available to £6.1 billion—in other words, trebling it?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

For the sake of clarity, the financial ceiling that has existed since 1982 is £1.9 billion. I believe that we had been to the well twice for £200 million by the time we came into government in 1997. We went back to the well again last year, so we have been three times and there is one more time left. We have reached a situation whereby we have spent £2.5 billion and there is another £200 million left. We are now suggesting, 20 years after the 1982 Act, that we replenish the stocks. While maintaining the four tranches, we want to increase the ceiling on those tranches—as, indeed, did the previous Government in 1982—to £6.1 billion.

There are no plans to change the threshold at which individual offers of assistance under section 8 are subject to the approval of the House of Commons. That threshold, fixed by section 8(8), remains at £10 million. The aim of subsection (8) is to give Parliament the opportunity to consider larger cases of assistance to industry. As there have only been a couple of occasions in recent years on which that has been required, there seems to be no reason to raise the threshold at this time.

The new limits in the Bill were chosen to provide more regular parliamentary consideration of the section 8 power. If we consider existing legislation, 14 years elapsed before the first order was needed, and there were subsequently only four years, two years and one year between orders. Based on the average spend forecast for the next four years of £185 million per annum, the new initial ceiling is expected to last for approximately six years before the first order is needed. Increases through affirmative order will be required every three years after that until the new ultimate limit of £6.1 billion is reached. On that basis, the proposed new limits are expected to provide legislative cover to enable assistance under section 8 to continue for almost 20 years.

Section 8 is an enabling power. The Bill provides the statutory authority to continue expenditure on measures that have already been announced and enables the introduction of new measures as appropriate. However, I am not announcing new measures today. The Bill has no regulatory impact on business and a copy of the regulatory impact assessment was placed in the Library today.

Section 8 is not the only legislative base on which to enable financial assistance to be offered to industry. Section 5 of the Science and Technology Act 1965 and other sections of the 1982 Act also provide for that. Section 7 of the 1982 Act provides for the regional selective assistance scheme, the main regional policy instrument. Some industrial sectors such as aerospace are covered by specific legislation.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

I appreciate that the Minister is not announcing any new schemes under section 8 today, but the explanatory notes to the Bill specifically refer to the urban post office network reinvention programme, which costs approximately £450 million. Am I correct that that money has not yet been spent and that, for three years, it creates a much higher rate of expenditure under section 8 than in the recent past?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

The hon. Gentleman is right. The money, which Parliament authorised in November, has not yet been spent.

When assistance under section 8 is regarded as state aid, it must be compatible with European Community state aid rules. The European Commission will need to be notified of and approve any new scheme under section 8 that constitutes state aid before it can be introduced. However, if one of the block exemptions covers it, simpler notification procedures can be adopted and the aid can be granted immediately. The Commission has been informed of our intention to raise the limits.

The Small Business Service, which was established in April 2000 to meet the needs of small businesses, administers eight of the current assistance schemes. The Government acknowledge that there were weaknesses in the market's provision of finance to small and medium-sized businesses. The SBS was established partly to ensure that Government support programmes for small firms dealt with their needs at all stages of their development and helped to bridge the funding gap that many companies face. One of the main SBS programmes is the enterprise fund that was announced in the competitiveness White Paper in 1998. It aims to stimulate more finance for small businesses and tackle marked weaknesses in the provision of the finance.

Four elements of the enterprise fund use section 8 as their legislative basis. First, the small firms loan guarantee scheme, which was set up in 1981, is the oldest section 8 scheme. It offers guarantees on loans to small firms with viable business proposals that are unable to obtain conventional finance because they lack assets as security against the loan. By providing a guarantee against default, the scheme encourages lenders to lend when they would not otherwise do so.

Secondly, regional venture capital funds were established to tackle the equity gap experienced by SMEs that seek investment of up to £500,000.

Thirdly, the UK high technology fund was set up to encourage institutions to invest in early-stage, high-technology businesses and to increase the amount of finance available for investment in technology-based businesses.

Fourthly, the early growth funding initiative seeks to stimulate small amounts of risk capital for start-ups and growing businesses that are usually too risky for the banks or too small for venture capital. The first of those, the London seed capital fund, was formally launched in December 2002. The Small Business Service also administers the enterprise grant scheme, which is a discretionary scheme for SMEs in areas of special need. Enterprise grants are given to businesses to finance capital investment projects.

Another main SBS activity is the Phoenix fund to promote entrepreneurship among disadvantaged groups. Two elements of the Phoenix fund use section 8. The first is support for community development finance institutions, which are organisations that lend to enterprises that the banks consider too risky. The second is the Government's investment, in parallel with private sector investors, in the bridges fund, which is a community development venture capital fund that makes equity investments in growing businesses in disadvantaged communities that tend to be overlooked by established venture capital funds. There is also the business incubation fund, which helps to improve the chances of survival and growth of start-ups and early-stage SMEs through increasing availability and access to business incubation.

Section 8 has also been used for schemes that address the needs of particular industrial sectors. The UK coal operating aid scheme, which was set up to help the coal industry through a period of transition, closed at the end of December. It was established to prevent the premature closure of viable mines owing to short-term market problems. The Government are in negotiation with the European Commission over our intention to use section 8 to support redundancy payments arising from the closure of UK Coal's Selby complex. Section 8 was also used last year to support supplementary redundancy payments to those who lost their jobs following the sudden and catastrophic flooding of Longannet colliery, which was the last deep coal mine in Scotland.

Section 8 is also used to enable the Government to make payments to redundant steelworkers through the iron and steel employees readaptation benefits scheme. Most recently, section 8 has been used for the urban post office reinvention programme, which Mr. Lansley mentioned, to enable the Post Office to carry out its programme to restructure the urban post office network, and to ensure that sub-postmasters whose offices close are adequately compensated for the loss of value of their business, and that those who remain can benefit from investment grants. The House debated and approved that funding on 15 October 2002.

Part of the assistance offered through the Rover taskforce programme uses the section 8 power. The funding is to enable the regional development agency, Advantage West Midlands, working with business link operators, to help businesses in the region to modernise and diversify.

Section 8 is also used by the National Assembly for Wales to operate that country's regional innovation grants scheme and the Assembly's investment grant scheme. Those initiatives are funded by the Assembly, but the expenditure counts towards the cumulative section 8 limit.

Those are the 15 current schemes under section 8.

Photo of Michael Weir Michael Weir Scottish National Party, Angus

I note what the Minister said about funding from the National Assembly for Wales. Is it additional funding that is made available to devolved Administrations for these schemes or does it come out of their existing block grant, even though it counts towards the cumulative total under the Act?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

No, it comes out of the settlement for the Welsh Assembly. Unlike English schemes, the schemes in Wales do not require Treasury approval and they count towards the cumulative total.

Having gone through the 15 schemes, I am aware that only three years ago, during the debate in Standing Committee on the second order, we estimated that replacement legislation would not be needed until 2010. In true confession mode, I shall try to pre-empt any comments from Opposition Members about the increase in the number of financial assistance to industry schemes set up using the section 8 power, and the acceleration in section 8 expenditure over the last three years. This issue should be considered against the DTI's total spend on business support, which has remained at around £1 billion per annum in recent years.

A fundamental change is taking place in the DTI's business support activities. The Secretary of State unveiled a complete overhaul of the DTI's business support programmes in November, following a comprehensive review. The problem that we identified—initiative overload—was partly symptomatic of enthusiasm in the DTI for assisting business. The purpose of the review is to channel that energy in a more strategic direction. Businesses said that they were confused by the plethora of DTI schemes, and found them difficult to understand and access. The aim of the review is to sort out the muddle, cut out inefficiency and focus on our strategic priority, which is to drive up UK productivity.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

When the Secretary of State appeared before the Trade and Industry Committee on 29 October, she said that there were 183 schemes within the DTI's ambit, and that she proposed a major simplification of those schemes. As far as I am aware, the Select Committee has not been told the outcome, although the Secretary of State said that it would happen "certainly by Christmas". It did not happen by Christmas, and we have seen nothing since. Perhaps the Minister can enlighten us on when we will see something.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

It did not happen by Christmas because it took longer than we had thought to do a thorough job. We are hoping to launch this stage of business support simplification in April, and I am sure that the Select Committee will be among the first to know about it.

To ensure that DTI business support is both strategically targeted and simple for business to access and use, all existing schemes are being closed. New business support offerings, some of which will incorporate the best elements of existing schemes, will be produced under a new mechanism approved by the business support review, and will focus on the drivers of improved productivity. We are not cutting the amount that we spend on business support, but we will greatly reduce the number of business support products that we offer. The new approach will ensure that funds are allocated to activities that offer the best value for money.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

I am grateful to the Minister for giving way yet again. I certainly support the streamlining that the Secretary of State announced, of which the Minister is now giving more details. I understand that an American business woman, Mrs. Fields Wicker-Miurin, will chair the new investment committee that will make all the decisions on the various support schemes. Will they include some of the schemes covered by section 8?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

As the hon. Gentleman will understand, I am not yet in a position to announce the outcome of the review, but I am sure that many of the schemes governed by section 8—after "year zero", when the schemes have been closed and then incorporated in a much simpler structure—will be there, although perhaps under different titles and accessed in a different way. But this is not a debate about the DTI review of business support; it is a debate about section 8 of the Act.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

Is it not surprising that the Minister should present us, in late February, with legislation designed to increase substantially the amount to be spent on these schemes, while proposing to tell us in early April what the product will look like? Is he not asking the House to pay for the product when he will not tell us what we are buying until a few weeks down the line?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

No, I am not. We are not talking about the DTI review; we are talking about 15 schemes funded under section 8. As the hon. Gentleman said, there are a good many more schemes—about 160. That is part of the problem for people who are confused by the process of gaining access to DTI support. Moreover, if the Bill is not passed now we shall not be in a position to finance some very important schemes—some introduced by the last Administration—later this year.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

I will give way just once, because the hon. Gentleman is so utterly charming.

Photo of John Bercow John Bercow Conservative, Buckingham

I thank the Minister, who is better able than most to make sound reasonable that which on closer inspection may prove not to be so.

The Bill's very title has a certain 1960s or 1970s ring. In what circumstances does the Minister think that it would be appropriate—in this century, or this decade—for the Government to expend resources to create

"productive capacity in an industry"?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

The Bill may look from its title as though it is wearing flares and tank tops. If we go back to the early 1970s, the legislation was used originally, to use the parlance of the time, to bolster lame-duck industries. That changed completely. I am not sure I am equipped to answer the hon. Gentleman's precise point, but I remember one scheme from, I believe, November 2001. Customers of Atlantic Telecom in Scotland were faced with losing their telecommunications systems overnight because the company went bust. The use of funding in co-operation with Scottish Enterprise enabled those business customers to continue to have a telephone system until they were able to find a new one. These days there are many varied reasons why the scheme is used. They might differ from the reasons in the 1970s but they are still valid.

As I said, we are not cutting the funding that we spend on business, to draw a line under the DTI review of business support. I provide this information as background. This short Bill is not about the quality of the business support offered by successive Governments. It is before the House today because, before the Government can incur any expenditure on such schemes, there has to be an appropriate statutory power. Section 8 of the Industrial Development Act 1982 provides that power. The Bill allows for the continued use of section 8 as the enabling power for financial assistance to be given to business inside and outside the assisted areas. On that basis, I commend the Bill to the House.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry) 5:21 pm, 24th February 2003

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof:

"this House declines to give a Second Reading to the Industrial Development (Financial Assistance) Bill because it amends section 8(5) of the Industrial Development Act 1982 in a way that diminishes accountability to Parliament on the levels of future financial assistance to industry."

I declare my interests, which are in the Register of Members' Interests. I will come to the amendment in a moment, but first I thank the Minister for the full explanation that he has given. I make it clear that we support many of the principles behind the Bill. After all, it was a Conservative Government who introduced the original Act in 1982. We certainly strongly support some of the section 8 schemes.

Some of our concerns relate to parliamentary scrutiny and accountability as well as the lack of detail in the Bill. On scrutiny, as the Minister explained clearly, the Bill amends the cumulative limit in section 8(5) of the 1982 Act and sets a new higher figure of £3.7 billion as the initial ceiling. It then sets a new figure for the four tranches, which go up from £200 million to a pretty hefty £600 million each.

I understand from the Minister that the new limits were chosen by a 20-year roll-forward of the existing limit of £2.7 billion in real terms, using a 2.5 per cent. gross domestic product deflator. The Minister pointed out earlier that, based on current spending, and assuming that the rate remains constant, the new ceiling will last for six years before the first order is needed, with increases by order every four years after that.

To my surprise, I see that the Department of Trade and Industry's briefing note says that the DTI believes that the new regime will lead to more parliamentary scrutiny. It bases that conclusion on the premise that it was 14 years before the first order was needed in 1996, but the 1982 Act was a new initiative setting a new ceiling of £1.9 billion. The previous Government would have had to spend at a furious rate to reach the ceiling before 1996.

Three orders came hard on the heels of the one in 1996. There was one in 2000 and one in 2002. We were going to have a fourth one tomorrow but I gather that it has been postponed until next week. Since the first ceiling was reached, Parliament has had the chance to scrutinise the Act and the relevant section 8 schemes every 20 months. That compares favourably with the 4.5 years or 54 months anticipated by the new Bill's regime.

We are talking about much bigger sums, as my hon. Friend Mr. Fallon made clear. The urban post office network reinvention scheme alone will take up a very large amount of money. Furthermore, the Secretary of State has made it clear that she wants significant consolidation of the plethora of section 8 schemes, which is why we welcome and support her business support review. However, that is surely a very good reason for initial scrutiny to take place well before 2009.

As my hon. Friend Mr. Lansley pointed out, it would surely have made much sense for the Secretary of State to complete her business support review before Second Reading. Either next week or the following week, the statutory instrument extending the original phase 1 will be introduced. That will give the Government considerable leeway, so Second Reading could easily have been postponed, thereby enabling the business support review to be launched at the same time. That surely would have constituted more joined-up, grown-up and sensible government.

On scrutiny, we will look at some constructive suggestions in Committee, and we shall certainly consider including in the Bill a requirement for the Minister to come to the House every two years. That is not unreasonable, given that, on average, Ministers have come to the House every 20 months for the past seven years, and that debates on delegated legislation in Committee are short and hardly onerous. In 1996, when my former colleague Phillip Oppenheim was taking such legislation through, the debate lasted 14 minutes. The then Opposition did not provide much scrutiny, but in 2000, scrutiny increased to 18 minutes, in 2002 to 55 minutes, and perhaps next week we can crack the one-hour mark. It is to enhance the scrutiny available to this House that we intend to table constructive amendments in Committee.

The different schemes can be found on the DTI website. Alternatively, one can refer to the annual reports relating to the Industrial Development Act 1982, the last of which was published on 27 June 2002—my hon. Friend the Member for South Cambridgeshire referred to it—and covers the year to the end of March 2002. It would have made good sense to advance this year's report to, say, 1 April—not a very difficult task—so that it could be combined with Second Reading. That way, at least we would have had more detail on what is happening with these different schemes. My hon. Friend and I have had a close look at last year's report. Much of it is already out of date, and new schemes are to be launched. We are being asked to vote for very significant extra resources for Her Majesty's Government without having up-to-date information before us.

I do not propose to go through all the schemes in detail. The Minister has already covered many of them—I am grateful to him for that—and in his inimitable, lucid way he explained exactly what they do. In the main, we are happy with how they are operated on the ground. They are efficiently managed and run, and I pay particular tribute to the tireless work of the Small Business Service in running the bulk of them. We support the enterprise grant scheme and, in particular, the small firms loan guarantee scheme, to which I shall return. However, we are cautious about the business incubation fund, which was announced to a terrific fanfare in 2001. Is it true that no loans have so far been agreed under its terms?

We are also concerned about a number of aspects of the Phoenix fund—the somewhat appropriately named initiative launched by Mr. Byers. We applaud attempts to encourage enterprise, small business and entrepreneurship in the most disadvantaged areas, and within disadvantaged groups. Such an initiative will undoubtedly appeal to my hon. Friend Mr. Bercow, and we must try to help these people. I am sceptical—as, I am sure, is he—about community loan funds or not-for-profit funds that focus on non-profit-making social enterprise. They may be laudable, but is it appropriate for the DTI to be involved? I want to see real evidence of success and achievement before we can support community development finance institutions.

Photo of John Bercow John Bercow Conservative, Buckingham

My hon. Friend correctly anticipates my mindset on the subject. Does he accept that, as a working premise for the Opposition, it is important to distinguish between funds that can legitimately be spent from time to time as a palliative or cushion in the event of the breakdown or destruction of a whole industry, and a generalised largesse on the part of a Government who mistakenly believe that they can run industry?

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

My hon. Friend is right, and I shall give an example that shows up some of the flaws of section 8. The mini-schemes may be laudable, but should such work be done by the DTI under that budget?

I am not very impressed by the UK high technology fund, which—according to the DTI's briefing paper—is

"a 'fund of funds' providing finance for existing venture capital funds that specialise in financing early stage small and medium sized high-technology firms. The Funds have received investment from the UK High Technology Fund and also receive funding from many other . . . sources. As a result, businesses do not necessarily know that they have received funding from the Fund."

That is bizarre. Should the DTI be hunting round the country for high-tech success stories? Should the Department be in the business of trying to back technology sector winners, when we have one of the most sophisticated and vibrant venture capital sectors anywhere in the world? We submit that the DTI should not do that, and that the money would be better saved or reallocated to the small firms loan guarantee scheme.

The Minister mentioned Atlantic Telecom. Hon. Members may recall that Atlantic Telecom was a stock market darling whose share price went up to about £13, but which went spectacularly bust in October 2001. Most of its operations were sold as going concerns by the administrators. However, they could not find a buyer for a fixed radio network, which led to a risk that some business customers, who had switched carriers from—in the main—BT, would have been without a telephone service temporarily. Atlantic Telecom's customers were given extra time to switch back, at a cost of £550,000, shared, as the Minister pointed out, between the DTI and the Scottish Executive. That was not a good use of money. I suggest that the Scottish Executive put pressure on the DTI and, to make the Department look good in Scotland, it agreed to go along with it.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

I shall give way to the hon. Gentleman, because he probably knows much more about the situation than I do.

Photo of Michael Weir Michael Weir Scottish National Party, Angus

There was a serious danger that many businesses, especially in the north-east of Scotland, would have been without a telephone service for some time. In Aberdeen and Dundee especially, many businesses had gone over to that private operator and found that when it went down the tubes, BT would not reconnect them for many weeks, if not months. I do not often support the Government, but it was a good use of money to ensure that business disruption did not occur. Otherwise, Atlantic Telecom's collapse could have been disastrous.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

I am grateful to the hon. Gentleman, who obviously knows much about the subject. That fly-by-night operator conned a lot of businesses by offering them much lower rates than BT, and the Minister's time would have been better spent talking to BT and urging it to reconnect the businesses affected. Surely in this day and age it does not take more than a few days to reconnect a fixed line system.

The loan guarantee scheme has achieved significant success since its launch in 1981. To a large extent, it was the brainchild of my hon. Friend Mr. Page. I am sorry that he is not in the Chamber this afternoon to hear my praise for him.

As the Minister pointed out, from June 1981 until March 2002, 79,900 loans were guaranteed. The average loan is £37,000 and the total value of the loans is well over £3 billion. Since the scheme has been finessed and improved, it has been a significant success.

I shall give the House some examples of companies that have benefited considerably from the scheme. During 1999, a biotech company had secured providers of new equity capital but was struggling to fund working capital. The projects undertaken by the business were not suitable for bank security, but the bank was able to offer £100,000 under the loan guarantee scheme. The injection of equity was dependent on that loan agreement, as were the jobs of 23 employees. Two years later the business was sold to a plc for £4 million and the loan was repaid.

Another success story comes from a steel fabricating company that was struggling to finance working capital during turnover growth from £0 to £4 million over a three-year period. The banks agreed to an initial £100,000 and recently provided a second tranche of £150,000 under the small firms loan guarantee scheme. As a result of that growth, 20 new jobs have been created and the business is making a net profit of nearly £500,000 a year.

There are many similar examples. I urge the Minister to reinforce that success. Will he remove some of the sector restrictions? For example, the scheme cannot apply to education, medical health services or motor vehicle repairs and servicing—something that many of our constituents would resent—and nor can it apply to retail or transport.

Will the Minister also look into the turnover limits for manufacturing businesses? Currently, the limit is £5 million and it has not been raised for some years. It should be raised because it is too restrictive.

We should try to make the scheme more flexible. As an example of its inflexibility, a business that needed funding to cope with increased orders was excluded from securing £250,000 because although it had been in existence for two years, its parent had gone into receivership. The management team bought the company from the receiver and continued to trade with the same staff, premises and customers as well as a continuing order book, yet the small firms loan guarantee scheme interpreted the change in ownership as a cessation of business. Surely that was a mistake. Let us try to make the scheme more versatile and reinforce success.

Will the Minister tell the House how much the scheme costs every year? I have studied the report in vain. It gives the number and amount of loans and the global totals, but it does not actually give the write-off figures. Obviously, most of the money is paid back to the banks because the businesses are successful, so the Government's guarantee is not called in. However, will the Minister give us the annual figures for the last four years and the global figure for the bad debts that the Government have had to guarantee and which have been a cost under section 8 of the report?

We have debated important concerns for our industrial and manufacturing base, but we need to set the Bill in the wider business and economic context. The Government are right to take credit for the recent falls in unemployment and inflation, but serious storm clouds are gathering. Manufacturing is already in severe recession; 600,000 jobs have been lost since 1997.

The Confederation of British Industry predicts that 40,000 more jobs will be lost in the sector by April this year. Its recent monthly survey was very gloomy indeed. It suggested that the cloud of misery engulfing manufacturers showed no sign of lifting and that output was expected to continue to stagnate, with order books remaining below their normal level. The CBI's conclusion is not surprising, given that industrial output has fallen every month for the past two years.

In terms of market capitalisation, Invensys was once Britain's seventh largest company. It changed its name from BTR Siebe, which probably cost a large amount of money. In spite of the gallant efforts of the new chief executive officer, Rick Haythornthwaite, the company has been in a downward spiral ever since. Four years ago, its shares were worth £4; a year ago, they were worth £1; and they closed on Friday at 15.5p, threatening many further job losses. That is just one example.

It is little wonder that the outlook is grim. In 2002, 16,500 businesses went to the wall, which is a 10 per cent. increase on the previous year. Our trade balance in goods is worse than at any time for over 300 years. Britain's net foreign assets of £5.5 billion in 1992 have turned to net liabilities of £114 billion in 2002. Those figures are staggering.

The Chancellor of the Exchequer has a real problem with public finances as a result of undershooting his growth targets and the fall in tax revenues. The Chancellor was rebuked last week by fellow European Finance Ministers. He was told that his optimistic assumptions on growth could lead to a breach of Brussels rules on public finances, and that

"The Council considers that the macro-economic forecasts now appear to be optimistic in the short term and that there are downside risks to growth."

That is not me speaking but the judgment of the Council of Ministers on the Chancellor's control of public finances.

We cannot ignore the fall in the stock market and the crisis in pensions, which certainly do not help. Smaller pensions lead to less tax, lower share prices, less tax from the City and less stamp duty revenue. Quietly tucked away in one of the many volumes of the previous Budget was the Chancellor's assumption on the stock market. He assumed that it would go up in line with money gross domestic product—that is, by 4 per cent. In fact, it has fallen by 25 per cent. We all have a vested interest in that, and no one will take great pleasure from that fall.

In conclusion, there are real problems in manufacturing, and many problems in other areas as well. At least the Secretary of State acknowledges those problems in manufacturing. At Labour's spring conference, she said:

"We also all know our manufacturing is hurting and manufacturing workers are losing their jobs."

If she knows that, why are the Government about to hit businesses large and small with a large national insurance tax increase? Why is she piling more and more red tape on business?

A survey in today's report by the British Chambers of Commerce shows that the total extra burden—excluding the minimum wage—is £22 billion. David Frost of the BCC has said:

"Red tape is strangling British productivity and it is threatening to combine with other blocks on business to create critical mass that will destroy jobs through a dramatic loss of competitiveness."

If the Government are serious about business—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

I appreciate that the Bill is about the financing of businesses, but I do not want the debate to develop into a general debate on the economy as a whole.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

I apologise, Mr. Deputy Speaker—but, with respect, I thought that it was important to set the Bill in its wider economic context.

The Opposition feel strongly that, if the Government are to listen to business—as they say that they will—they will have to consider the burdens on business. They will have to reconsider their work-life balance agenda. They will have to consider carefully the agency workers directive and the equal treatment at work directive. Above all, the Government should start to listen to business. It is time to stop the avalanche of burdens. It is time for the Government to take business seriously.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 5:44 pm, 24th February 2003

I wish to express my very strong support for my hon. Friend the Minister and his Bill, and I urge all hon. Members to vote for it later this evening.

I speak because I have some knowledge of these matters from my previous employment. In the 1970s, I worked in the TUC's economic department and was responsible for regional policy. During that time, I undertook some modest research to show the effect of regional policy over economic cycles, and with and without regional selective assistance, and I concluded that it had a very beneficial effect, particularly in reducing regional inequalities. Although we are talking about selective assistance to certain firms, perhaps helping them through difficult times, such policies have a very beneficial macroeconomic effect. However, they are no substitute for developing a growing economy and reducing unemployment.

It is rather surprising that that measure of intervention has survived through some decades of attachment to the neo-liberal dogma—I do not share it myself—that the free market is all and Government intervention is to be eschewed. I very strongly support such measures and am glad that they have survived; and they have done so for historical reasons. Even as far back as Sir Edward Heath's Government in the early 1970s, there were attempts to promote the rigorous free market agenda. Most hon. Members are probably too young to remember Selsdon man, but I remember Selsdon man very well in the form of Sir Nicholas Ridley, Sir John Eden and various others.

That Conservative Government panicked when there was great resistance to those policies and reverted to an interventionist approach, which was a very wise thing to do. Indeed, Sir Edward Heath was negotiating Britain's membership of the European Union and it was known that, if we wanted to get into the EU, we would need some regional policy measures as a counterbalance to the very unfair burden of the common agricultural policy, which would have had no benefit whatever to Britain. Even with a regional policy approach and with the later structural funds, we still had to negotiate a rebate, and I am glad that we still have it in place today.

In 1979, Mrs. Thatcher's Government had a very rigorous approach to the economy, which led to unemployment rising to 3 million in two years. No doubt, many people thought that a splendid idea—a bit of rigour and the cold draught of competition. I thought it disastrous, and eventually even Mrs. Thatcher thought it slightly worrying, because her Government introduced the 1982 legislation to which reference has already been made.

I remember that time extremely well, and Labour had an enormous public opinion lead shortly before the Falklands war, which rather changed the balance of public support. Nevertheless, there was a reaction to the initial period of rigorous free market policies, part of which involved the 1982 legislation. So we carried on with that approach for a long period.

We cannot solve the macroeconomic problems of low growth and investment and high unemployment simply by such selective measures, but they are still absolutely vital to underpin development in the regions, especially those that are more vulnerable—unlike the south-east—where older industries have declined and we have needed to help small companies to sustain employment. That has been very successful, and I very much welcome the fact that the Government have chosen to increase the amount of money that will be available. It is possible that we are running into some serious economic difficulties now, which are not necessarily of our making, and the world economy will be in difficulty, especially if there is a war. In such times, the Government will need to keep as much of a measure of intervention as they can to assist our industries to survive through difficult times to emerge on the other side, when we can all breathe again in a growing economy.

At the end of the last period of serious economic decline, between 1990 and 1992—the disastrous period of the exchange rate mechanism, the failure of which I predicted and wrote about before it started—unemployment had risen to enormous levels. Everyone who supported that policy said that depreciation and getting out of the ERM would cause massive inflation, would not bring down unemployment and would be economically disastrous. In fact, what happened was that there was a substantial depreciation straight after the ERM collapse, unemployment started to fall, and the inflationary surge did not happen until considerably later.

I hope that we will keep such measures as part of the Government's armoury for running the economy for the foreseeable future and that we will raise the amounts available to appropriate levels as time goes on. I would like more vigorous intervention in the economy to assist our manufacturing sector in particular. Without doubt, the manufacturing sector is currently suffering, to which Opposition Members have drawn attention. A major factor in that is the overvaluation of the pound, which cannot be solved by these measures. The pound has depreciated somewhat in recent weeks and months, and that is very welcome, but there is still a competitive disadvantage for Britain in the manufacturing sector. The balance of trade deficit is evidence of that. We must consider macroeconomic measures as well as supply side measures to solve our economic problems, and particularly to bring manufacturing back to the strength that we should expect.

We still have major economic problems to solve, our investment levels are still too low, and measures in which the Government get involved directly in the economy to promote investment are precisely what we want. I am very happy to support the Bill and I look forward to voting for it later this evening.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry) 5:53 pm, 24th February 2003

The Minister introduced the Bill with his usual flair and clarity, but I am not persuaded. I share many of the concerns of the Conservative spokesman, both in respect of the necessity of this legislation and in relation to the issue of parliamentary accountability.

First, we are talking about very large sums of money, as the intervention by Mr. Fallon made clear. We are progressing at one step from a commitment to £2.7 billion, which is the current total, to £6.1 billion. An increased commitment of £3.4 billion is very substantial, even if, as the Government say, it is spread over a 20-year time horizon. Is it really necessary? In 2001–02, which is the last year on which we have any kind of report on section 8, there was spending of £113 million. At that level of expenditure, it would take 30 years to use up the proposed sum. In addition, many of the schemes that have absorbed substantial amounts in the past—for shipbuilding and coal—have been brought to an end. That raises the question of what this funding is for.

Clearly, there are occasional useful and necessary purposes, of which Atlantic Telecom, as Mr. Weir reminded us, was a very good example. As I recall, however, that intervention was very small—it involved only £500,000. Concerns exist about the enormous imbalance between very small, very useful activities and the enormous sums of money for which provision has been made. To my mind, the two do not gel, unless there is a clear statement about how accountability will be provided for the big jumps that will no doubt take place.

A great danger exists that if there is a giant slush fund of this kind—essentially, that is what we are talking about—means will be found of spending it. If we look at some of the recent initiatives to spend section 8 money, we find that that raises some awkward questions about what the Government are trying to do. The biggest, latest initiative is the urban reinvention programme in the Post Office. That has nothing to do with industry or innovation—we have debated the Post Office frequently on the Floor of the House. Of course, some of us welcome some elements of the reinvention programme—there is a necessary consolidation—but it essentially provides emergency funding for redundancy money for a lot of postmasters who have been forced to close down as a result of the automated credit transfer programme. It has nothing whatever to do with industrial restructuring. I suspect that schemes of that kind, which are far removed from the original purposes of the Bill, may be wheeled in to use up the funding that is provided.

I would feel more reassured if there were a little more evidence and more of an attempt to explain to us how productive the funding was. I am prepared to believe that all these schemes for small business are brilliant and enormously useful, but we have no evidence to show whether they are. The only document that I have found—I may be missing something—is the annual report, the latest of which ends in March 2002. Those reports largely provide a description of what is being spent and are not presented on any kind of comparable basis. There is no explanation of the costs and benefits of the different schemes or of the cost-effectiveness from the taxpayer's point of view. Those are legitimate questions that we need to put.

Let us take the most important of these schemes—the small firm loan guarantee scheme. The Conservative spokesman gave that a rousing endorsement, and he may be right. I am sure that many small businesses find it very useful. There are certain questions, however, that I would ask. How many of the companies that have been helped under the scheme are still in business? How many have expanded their business? How does their performance compare with companies in the same sector and the same region that have not had the benefit of that assistance? Those are the kinds of questions to ask to judge whether the scheme has been a success. It may be a brilliant success, but no attempt whatever is being made to justify it, explain it or give its history.

Similarly, many of us would want to know how much of every £1 that is allocated to this and other small business schemes actually reaches the small business. Many of the costs are absorbed in overheads, and we need an evaluation of that simply to provide accountability.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

Of course, the fact that evaluations are not presented in the annual report does not mean that they do not occur. I have no recollection of recent evaluations but I know that they occurred in the later part of the 1980s. It is important to get the evaluation into the public domain, however, as a scheme in which everybody succeeds is probably not necessary because the loans were probably going to be successful in any case, and the additional benefit of the guarantee is probably limited. A scheme in which too many fail, however, is probably equally misjudged. Somewhere in the Department of Trade and Industry, there will probably be a target for the proportion of guarantees to such loans that fail. The point is that it is not in the public domain or in the annual report.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry)

I am sure that the hon. Gentleman is right. It ought to be in the public domain, and there are different mechanisms for ensuring that. The Trade and Industry Committee, on which he sits, may be one forum in which these programmes can be analysed properly, and the National Audit Office is another. However it is done, it should be done. I remember seeing some of the evaluations of the wool textile assistance schemes, going back to the 1970s, which were very sophisticated economic evaluations justifying the substantial amount of public money put into the industry. We have nothing comparable in this case; if it does exist, it is bottled up in the DTI, as the hon. Gentleman points out, and we are not privy to it, which is clearly wrong.

My next point is on the same theme. A lot of the funding has gone into what one might call adjustment assistance schemes for redundant steel workers and coal miners and for Rover. In principle, that is admirable. It is surely right to provide funding to help workers to adjust to other activities and to assist the process of change, rather than simply to provide open-ended subsidies. If agriculture had been helped in the same way as industry, many of the problems with the CAP would no longer be with us. However, I have questions about accountability and about where the money went, and I have no idea what the answers will be.

I notice, for example, that one of the big schemes provided for under section 8 was the £129 million programme of adjustment assistance for Rover. That was one of the big schemes launched by the former Secretary of State for Trade and Industry at a time of crisis for the company. As far as I can tell from the last annual report, in 2001–02 only £1 million of that £129 million was spent. What happened to the other £128 million? Was it not spent? Could not the company find a use for it? Perhaps I have missed it somewhere. Can we have an explanation of what happened to the Rover package?

Similarly, in the coal industry, about £76 million was spent up to the last financial year for which accounts are available, and then another £62 million was made available, so the industry has received about £138 million of special help. I do not want to criticise that. I am sure that after the battering that the industry has had, help with adjustment must be welcome. However, I question how much of that money has gone to the coal miners to help them to adjust and how much has simply provided an open-ended subsidy to UK Coal, which subsequently closed those mines. We need an economic evaluation of where that money has gone and what value the community has got from it.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry)

I think that I can provide the hon. Gentleman with an answer. When the Government announced that £129 million, it was provided as regional selective assistance, under section 7. However, it took some work to discover that because it was not clear, and the hon. Gentleman is right to make the point about accountability.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry)

That is my closing point. I am willing to be persuaded that most of this funding is useful, that it is welcomed in industry and that it raises productivity, but I have no proof of that. There appears to have been precious little effort to provide us with evidence to help us to support what the Government are doing.

When the Minister sums up, will he tell us how the Government intend to account for the money that is spent and to ensure that that is done on a rigorous and consistent basis? Do they intend to report to the NAO, the Trade and Industry Committee or to another forum where we can judge the usefulness of the funding? I support the proposal that Parliament should be asked to review these measures every couple of years. Providing open-ended funding for long periods in large sums for which there is no identified use seems to me very dangerous in principle, and this process should be subject to a good deal more parliamentary scrutiny.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee 6:03 pm, 24th February 2003

I am grateful for the chance to speak on the Bill, and I declare the business interests recorded in the register. I welcome the chance to follow Dr. Cable. I assume from what he said that he will support our amendment in the Lobby, because he shares some of our reservations about accountability.

This is a short Bill, but it is substantial and it has something of a history. The Minister referred to its origins in the Industry Act 1972. It is always good to hear a Labour Minister taking forward progressive Conservative legislation. There is no reason that he should know that the Act was one of the great tipping points of the Heath Government. It was one of the events that led to the resignation of a junior Industry Minister, and he may care to bear that in mind as the Bill unfolds.

The Bill cannot simply be dated to what the Minister called the period of tank tops and flares—it goes further back. It comes almost exactly 70 years after John Maynard Keynes wrote his famous four articles for The Times on "The Means to Prosperity". In the first, "An Argument for Action", he set out the current basis for industrial development policy. He made the case for state expenditure, including loans, to promote industrial and commercial activity, and he rested that case on the indirect employment benefits of subsidised employment on the higher yield in taxation that resulted and on the consequently reduced expenditure on the dole. That was a locus classicus of industrial development policy, and it was the first time that it was set out.

Those arguments were followed a year later by a further series of articles in The Times entitled "Places With No Future", which called attention to the plight of the Durham coalfields and the problems of south Lanarkshire, south Wales and Cumbria. Those in turn were the origin of Baldwin's special areas and the foundation of regional development policy, which is covered by a different section of the Industrial Development Act 1982.

Here we are, some 70 years after modern industrial development policy, as run by the Government, was launched. This is an appropriate time to take stock. We could first reflect, as Mr. Hopkins did, that there are regions that still require the assistance available under the Act. It is ironic, and I ask the Minister and Labour Members to reflect on the fact that 70 years after that Government action started, almost exactly the same areas still require special assistance—the north-east, parts of Scotland, south Wales and Cumbria. Indeed, with this Bill, it is the legacy of the same old industries of steel, shipbuilding and coal that we are assisting. We cannot argue that industrial development policy, whatever else it is, has been a dynamic force for modernising our economy.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman seems to be making a case that such assistance may be a necessary condition for solving those problems, but not a sufficient one. Would not the situation be much worse if there had been no assistance?

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

It might have been. That is the argument that is always put forward when state expenditure is involved. I shall try to answer that question a little later. It is perfectly reasonable for the hon. Gentleman to pursue it. On regional employment, the doctrine according to Keynes has been followed by all Governments since the '30s, some with more success than others, and as I shall explain, some of these instruments have been more successful than others. I simply ask the hon. Gentleman to reflect on the point that 70 years on we are still looking after the same areas. We do not seem to have cracked the problem of regional industrial regeneration in the way that other countries have.

Keynes fatally over-estimated Governments' ability, as did the Governments themselves, to pick out the particular schemes that are likely to be effective and to promote the necessary change within a region or an industrial sector. Too many schemes had precisely the opposite effect; they fossilised innovation and they continued to subsidise unproductive, inefficient practices. They prevented the kind of change that a more market-oriented economy, without any intervention, might, with great pain—the hon. Gentleman was right to draw attention to the pain, such as rapid increases in unemployment—have delivered by a different route. I suggest that there were follies in regional aid, and in the most extreme cases it got captured by political lobbies in the regions. Some of those cases of regional selective assistance are well documented. However, the failures of national selective assistance, with which the Bill is concerned, are equally profound. Time and again, Ministers have backed the older industries rather than promoting the newer ones. There were no schemes in the '70s or '80s to promote the new technologies as there were to subsidise the old technologies.

Governments have inevitably seen aid in quantitative terms, as we have discussed. Ministers like to take credit for the total—the millions, the hundreds of millions, the billions—rather than the value that is added in the regions or in particular industrial sectors. In addition, successive Governments and Ministers have deployed aid according to the most perverse criteria. When we came into office back in 1979, aid was capital intensive. Huge grants went to industry. Well known national companies—the BPs and ICIs of this world—received grants to build their massive petro or oil complexes. They might have employed only a handful of extra men, but they qualified for grants under section 8.

We changed the balance a little in the mid-1980s by making the criteria specifically job intensive. That sounded more reasonable. Surely the object of industrial development policy should be to reduce unemployment, but that carried with it its own internal fallacy because head count became all. Someone only had to show that a project would create new jobs to get a grant or loan. Almost immediately, of course, the job test was corrupted. Jobs were defined not simply as jobs created but, as they still are today, as jobs created or safeguarded. Even today, no inward investment project is complete without at least four or five different local agencies trumpeting in their press releases how the money has safeguarded x number of jobs. I have never seen a rigorous analysis of whether jobs that are claimed to be safeguarded by a Government grant actually have been safeguarded; nor do I know how long they have been safeguarded or how the risk to those jobs was measured in the first place.

Conservative Governments were no better at that than Labour Governments. Indeed, sometimes they were worse. We had our aluminium smelters in curious parts of the country and our politically sited steelworks. We paid good money for unreliable Celtic votes just as the Minister may have done with Atlantic Telecom. But the object of industrial development policy should not be to increase either capital or jobs, although both of those are important. In the end, the test should be whether that money stimulates enterprise and wealth creation, and that should always be measured against the other instruments available at the Government's disposal, some of which were mentioned by my hon. Friend Mr. Bellingham, notably lower taxes and less regulation.

It was also true that the head-count approach to job creation was flawed by a terrible bias towards bigger industry. Some £1 million given in grant to create 100 jobs in one place was always more appealing to Ministers and local Members of Parliament than 10 times £10,000 to create 10 jobs in 10 places. One might argue that it is odd to have a policy that constantly pitches the Department of Trade and Industry against the Treasury. It seems that the DTI gives companies money for creating as many jobs as possible while the Treasury encourages the same companies to be as productive as possible with as few jobs as possible.

All the schemes over the years have been biased towards the older technologies, declining businesses, labour-intensive processes and, with one or two exceptions, larger, medium-sized or established companies. The newer processes, the smaller companies and, above all, the processes that add value have been neglected. It is no accident that the best schemes are those that have helped the self-employed or very small businesses. My hon. Friend mentioned the small business loan guarantee scheme, which continues to flourish. It was introduced a little earlier than he suggested and filled a serious gap when the banks had a poor record on backing small new companies, both regionally and by sector. However, that small scheme also needs the critical analysis that is so lacking in the Department.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

The small firms loan guarantee has of necessity been successful at various times and to varying degrees. After the recessionary effects of the early 1990s, it was clear that the retrenchment of lending by banks without security made that scheme more necessary. However, if the Cruickshank report were implemented in a way that was successful in stimulating genuine competitiveness on the part of banks lending to small businesses, one of the corollaries would be the reduction of the desirability of large-scale funding through the small firms loan guarantee scheme.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

My hon. Friend may want to catch your eye, Mr. Deputy Speaker, to advocate the abolition of the small business loan guarantee. Perhaps he is more of a moderniser than I am. It is sometimes hard to keep up with the development of Conservative industrial policy. However, he is right to say that the small firms loan guarantee scheme has performed a useful service at different times. There have been successes and I would not advocate its immediate abolition, but perhaps my hon. Friend will make a case for further revolution so that it is redirected more efficiently into certain parts of the economy.

On the detail of the Bill, the Minister and others have well described what it does. The Industrial Development Act 1982 set a ceiling of £1,900 million which could be raised four times. We only raised it once in 1996 after 14 years in government. When the Minister came into office, he inherited a ceiling of £2,100 million. He and his hon. Friends were soon at the pot. They have increased the limit three times, the third of which we are discussing tonight. As he confessed, the limit is going to be breached shortly when it reaches £2,700 million. However, the proposed increase is enormous. The individual tranches will increase not by £200 million, but by £600 million, giving the Minister a total of £6,100 million. I know he will forgive us if we take with a pinch of salt his qualification that the final limit might not be reached for another 20 years, because, as he candidly confessed, he was wrong about the last limit. Money seems to trickle out a little faster when Labour Ministers get their hands on it.

We must consider where all the money is going. The increase is huge. Given its size, it might have been better for the Government to introduce a new piece of legislation. The original formulation of this Bill is old and no longer appropriate to the ragbag of schemes that it covers. There is nothing in it to increase the parliamentary scrutiny that such large sums warrant. It would be absurd to have only an hour and a half in a Committee Upstairs to authorise another £600 million of industrial assistance, ranging over 15 to 20 different schemes.

It is clear that the Minister and his colleagues are rethinking their policy. As he confessed, the Secretary of State announced that all 183 of her business support schemes are being lumped together under a review and will be administered by an American business woman, Mrs. Fields Wicker-Miurin. I do not doubt her qualifications for the task. She is described in the Department's press release as

"'having more degrees than a compass'".

Apparently she speaks fluent French and Italian. That is all fine. However, those of us who are concerned about the accountability of this expenditure and the need for greater scrutiny of it would like to see a little more detail of the investment committed that will support Mrs. Fields Wicker-Miurin when she comes to allocate more than £1 billion in total. I am still not quite clear—I think that the Minister tried to answer my question on this point—whether all the 15 schemes under the Bill will come under the 183 that have been brought together for Mrs. Fields Wicker-Miurin's personal supervision. Perhaps the Minister will clarify that when he replies.

When we turn to the detail of the schemes that are covered by the Bill, it is clear that there is a ragbag of schemes that well qualify for the streamlining that the Minister has spoken about. Too many of them are trying to do almost exactly the same thing. There is the help that is given to businesses to start up. There is the business incubation fund. We have the phoenix fund. The community development venture capital fund sits alongside the regional venture capital fund. There is a huge amount of overlap. If the Minister and his colleagues are serious about streamlining all this stuff, with all the separate application procedures and investment committee processes, he will certainly have my support. It seems to me that too many of these schemes are chasing too few worthwhile investment opportunities.

The proposal is a ragbag. There is no binding theme to any of the 15 schemes that are covered by the Bill, nor is there any consistent rationale for them. Some clearly derive from history, such as the steel and coal schemes. Some simply derive from faction—for example, the film scheme. Some have obviously been dumped on the Department of Trade and Industry by the Treasury. I notice that some of the schemes have been rather slow to show results. Some schemes were announced in 2000 or 2001, but they have yet to make substantial allocations. I share the doubts that have been expressed about the regional venture capital funds in particular. These schemes have been set up by the Government in conjunction with the banks. I suspect that the major banks were rather arm-twisted into providing the equity capital. I remain to be convinced that there is a gap in the market.

Ten or 15 years ago there was generally a shortage of venture capital in this country. Now, however, with more sophisticated small business banking and an explosion of private equity, I would need to be convinced that there is a gap that requires a host of Government bureaucrats and others round the regional development agencies to be involved in the venture capital business.

I take the point of my hon. Friend Mr. Lansley that had the Cruickshank report been followed through properly, some seedcorn schemes, including the regional venture capital scheme, might not have been necessary. We know now, of course, that Cruickshank was not followed through. The Government chose the price control route, slapping price controls on the banks and making it more difficult for new banks to enter the small business lending market. The ragbag of often overlapping schemes seems continually to be involved in trying to support the same type of business in different ways. I certainly welcome streamlining.

The Bill does a little more than the Minister made out. It trebles the amount of industrial selective assistance from £2,100 million to £6,100 million. That is a massive amount of money. It will certainly be used quite significantly before 2020. Secondly, this legislation is very out of date—it is almost archaic—and needs revision. Thirdly, as the Minister admitted towards the end of his speech, everything is up for grabs in the sense of the business support review, the idea of which may have been announced in principle. However, the conclusions have yet to be agreed with Ministers. It is a little presumptuous to come forward with the Bill for Second Reading and to ask for another £4,000 million of taxpayers' money before the Minister makes clear exactly how it will be spent and before he makes clear exactly how it will be accountable to Parliament.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster 6:25 pm, 24th February 2003

I never cease to be amazed at the fundamental lack of understanding that government in general has of the essential economic engine of wealth creation. I must confess that in Department of Trade and Industry-speak, I suppose I am a keen proponent of initiative underload, if such a thing exists. It is a pleasure to speak after my hon. Friend Mr. Bellingham and Dr. Cable. There was a lot of sense in much that the hon. Gentleman said. It is also a pleasure to speak after my hon. Friend Mr. Fallon, who presented a tour de force of some of the historical underpinnings involving financial assistance.

It is probably the case that the Government have formerly had some hostility towards the engine of wealth creation to which I have referred. However, it is now recognised that the DTI talks the language, but I suspect that all too often in its actions its ignorance is betrayed.

My background before coming to this place was in business. I know that that is increasingly unusual, even on the Opposition Benches. The Bill recognises the importance, in the Government's mind, of regional development outside assisted areas, which are tightly drawn on a geographical basis. Therefore, for example, objective 1 funding areas would not be included in this context.

One or two examples include the British Film Commission, whose affairs have been subject to tightening up within the Finance Act 2002. As my hon. Friend the Member for Sevenoaks rightly said, perhaps all too often there is something of a conflict between the DTI and the Treasury in the operation of much of this type of legislation. Although the film business is primarily based within my constituency, there is a fundamental question to ask: is it really the business of government to interfere in any way in these matters?

As has been mentioned already, the increase in the total budget is more than threefold, from a figure of £1.9 billion rising to £3.7 billion. Thereon, we have the option of four additional tranches of £600 million apiece, up to a total of £6,100 million. As my hon. Friend the Member for North-West Norfolk pointed out, there has to be a large question mark over such expenditure. Where is the accountability for that vast envisaged expenditure?

The tradition of financial assistance has been referred to by my hon. Friend the Member for Sevenoaks. I shall look back even further in history to the chambers of commerce that existed. It all began with the London chamber of commerce in my constituency as long ago as 1882. It was led by my predecessor, Sir Robert Fowler, who lobbied for foreign policy to be geared primarily towards business and the global expansion of trade. That is an important lesson today. There is an understandable fear of parochialism rather than an appreciation of global trade in much of what is put forward regarding the financing and the assistance that is proposed in the Bill.

One only has to look at parochialism within the European Union, for example. It is often said that 57 per cent. of our trade is with the EU, which means by definition that 43 per cent. is outside that area. Very often that trade is with some of the fastest growing global nations. Some of those nations will be the key global trading partners of future decades. We should always remember that.

In my view, there are too many smaller pots of locally oriented government cash assistance, and much of this lacks focus.

Prior to entering this place, I was a local councillor in the Royal Borough of Kensington and Chelsea. In that role, I was the director of a local business centre. There was little doubt, as the hon. Member for Twickenham pointed out, that much good work was done in that micro-context of Government funding, but it was not clear how many businesses funded in that way remained in business over a period of time. Notwithstanding the weekly, monthly and quarterly statistics that were published, one had to ask whether a number of those businesses would have thrived without such aid. I hope that we will be able to examine the issue of accountability, and that the Minister will take on board the concerns that consideration by a Standing Committee on Statutory Instruments on a variable basis will not provide the sort of accountability that we need to ensure that moneys are not wasted.

There is little doubt that the concept of regional aid in this country is based on the historical wealth and political power of London and the south-east, as Mr. Hopkins noted. That is partly due to the climatic advantages of the south-east, compared to the far north of Scotland. Since the industrial revolution, political and economic strength has tended to be based in London and the south-east. The political implications of the north-south divide have enabled the Government at times to play to the gallery. They were happy to play to the gallery while in opposition, but now that they are in government, with such a large majority, their marginal seats are no longer in the Lancashire mill towns, but in the southern England new towns, and it is less easy for them to play the deprived northern card.

I am concerned that all the proposals for new layers of government, whether through expanded regional development agencies or more formal regional autonomy, will not be the answer. We wait to see what will happen, and whether we are to have referendums. That may be successful in the north-east of England, but one of the grave concerns is that it will lead to ever more demand for power in the hands of RDAs and for further financial assistance arising from the Bill and through various other means. [Interruption.] Adam Price suggests from a sedentary position that the City of London may qualify. It may qualify all too soon for regional development assistance, but that is another matter.

In recent speeches, the Deputy Prime Minister has espoused the cause of sustainable communities. That seems to me to be a superficial absurdity. After decades of Government interference, as my hon. Friend the Member for Sevenoaks rightly said, why will more initiatives now lead to the nirvana of no regional divide in the future? The Deputy Prime Minister's view is that we must tackle the fundamental problem of high demand in the south and the collapse of housing demand in some of our most deprived communities. One is tempted to point out that if central Government relocated to the north, we might see some progress, [Hon. Members: "Hear, hear"] but until that occurs, it is merely words. I am glad to hear that my fan club from Wales and Scotland is present.

Under DTI policy as a whole, regulation is slowly but surely and perceptibly drowning business. Many of the regulations may seem superficially designed to protect consumers and employers, but the risk is that the regulations will be subject to the law of unintended consequences. There have been huge additional costs, which make business uneconomic and kill innovation, creativity and originality. If small businesses are to thrive, innovation must be encouraged, not discouraged. I fear that all too often, aid will have the opposite result to that which was intended.

Regulation of all types leads to a lowest common denominator mentality, which in a global marketplace is potentially fatal. Hon. Members will understand that during the recent constituency week, I would want to escape from my constituency. I escaped briefly to Germany, where I was on a lecture tour. It was very interesting to speak to individuals who were leading lights in political circles or local chambers of commerce in cities in the old East Germany, particularly Leipzig and Schwerin. Notwithstanding the enormous sums that have been pumped into those regions in the 12 years since German reunification, employment opportunities are getting worse, the economy is diminishing, and the young and innovative are voting with their feet by moving from the east to the west, or getting out of Germany all together.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman mentions East Germany. I hoped that he would mention West Germany, which in the post-war era had the strongest and most successful economy, and the most managed economy, in western Europe.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I am glad that the hon. Gentleman raises that matter. Indeed, I also spent a day in Essen and a day in Bonn. Bonn was, of course, the home town of Konrad Adenauer, whose Finance Minister in the first few years of the history of West Germany was Ludwig Erhard. He realised that one of the reasons why Germany thrived and why the economic miracle of the 1950s occurred was that planning did not work. That was the key insight of Ludwig Erhard and the CDU in Germany during that period.

The economy may have been managed at a macro level, but not at a micro level. I expect that that comes to a number of the points that the hon. Gentleman made. Planning was not the way forward. That was the lesson of West Germany, which has largely been forgotten in dealing with large-scale expansion of that territory following reunification. I fear that it is one of the reasons why that country now has 4.6 million unemployed which, as I am sure the Minister will be happy to confirm, compares unfavourably, even in proportional terms, with the UK.

The Bill is a further, albeit small, example of a trend towards market distortion and political interference by means of political risk. Every business man in the UK, especially in the areas likely to be affected by the money, will have to second-guess before making investment decisions. Stamp duty rises and exemptions, a refusal to end stamp duty on shares as a whole, caps on stakeholder pensions, and windfall taxes on the oil industry and pension funds are all examples of large-scale and high-profile distortions, but the Bill will introduce a range of other distortions and political interference. Trade associations, chambers of commerce and regulators will need to have an eye not just to the market, but to the super-regulator in the form of the Minister and his right hon. Friend the Chancellor of the Exchequer. That will lead to uncertainty, above all, and to ever more form-filling and second-guessing, which will affect business growth and confidence today and have a negative effect on profits tomorrow. 6.38 pm

Photo of Michael Weir Michael Weir Scottish National Party, Angus

In introducing the debate, the Minister gave a thorough and useful exposition of the various sections of the Bill and the parent measure. On the face of it, the Bill should be unreservedly welcomed—after all, any measure that gives financial assistance to industry and, hopefully, prevents job losses or increases employment would be wholly welcome. However, we in the Scottish National party and Plaid Cymru have some reservations about what the Bill will achieve, as we believe, contrary to the argument of Mr. Field, that it will have the effect of widening the already apparent north-south divide.

As has been pointed out, the Bill will raise the ceiling on the limit of selective financial assistance from £1.9 billion to £3.7 billion, in effect doubling it, although as the Minister observed, the original ceiling has long since been overtaken, and will raise the maximum amount of each increase from £200 million to £600 million, in effect trebling it.

On the face of it that is welcome, but I remind hon. Members of the wording of section 8 (1) of the original act, which states:

"For the purposes set out in subsection (2) of section 7 above the Secretary of State may, with the consent of the Treasury, provide financial assistance where, in his opinion—

(a) the financial assistance is likely to benefit the economy of the United Kingdom, or any part or area of the United Kingdom".

That word "may" could become very important indeed as the economy enters choppy waters and a great many calls are made on the funds, as the Treasury could be unwilling—despite having what the hon. Member for Twickenham described as a slush fund—to pass money out to many of the industries that may be forced to seek it.

Section 7 of the 1982 Act—which we are not discussing today—deals with region-specific financial assistance. That has been referred to many times in this debate, as though the two kinds of assistance were interchangeable. They are not. Section 8 was originally intended to provide general selective assistance on a national or industry-specific basis. That is where we perceive a problem. The danger of the Bill is that, by granting increases in overall national assistance funds, it will consolidate a shift that is already evident from specific regional assistance of the type referred to by the hon. Member for Luton, North to a system of more national assistance.

My hon. Friend Adam Price has asked a series of questions about the payment of regional selective assistance between 1990 and 2001. Indeed, such questions were regularly asked by the present Chancellor when he was in opposition. The figures revealed that, in present-day cash terms, there has been a dramatic decline in the amount paid during that period. In Scotland, the figure has fallen from £150.9 million—in today's terms—in 1990–91 to £71.5 million in 2001–02. In effect, the amount has halved during the period. If we look at the figures for Wales, we see a similar picture, with a drop from £72.4 million to just £38.1 million—again, effectively half the amount. The total amount of regional selective assistance payments in 1997–98, when Labour came to power, was £295 million—two and a half times the amount estimated for 2002–03.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

If we turn the clock back even further, to the last year of the last Labour Government—1978–79—we see that the figure for regional selective assistance was more than £3 billion in today's terms. That is more than 15 times the £200 million total. Notwithstanding the scepticism expressed by Mr. Fallon, that was a period of significant convergence in the growth rates of the regions of the UK, compared with the divergence that we have seen over the last six years.

Photo of Michael Weir Michael Weir Scottish National Party, Angus

That is very true. The hon. Member for Sevenoaks, who is not here at the moment, could well be haunted—as could the Scottish Conservatives—by his quip about unreliable Celtic boats. He may remember that, after the work-in at Upper Clyde Shipbuilders, the assistance given to the company resulted in the survival of the shipbuilding industry on the Clyde. It would not be there to build aircraft carriers today, had it not been for the assistance that it received back in the 1970s.

Getting back to my point about the decline of regional selective assistance, and to show that I am not being entirely parochial, I should point out that the figures for England also show a marked decrease, from £214.5 million to £112.6 million. The clear message from all these figures is that there has been a steady move away from regional selective assistance during the time of the previous Conservative Government and of the present Government. As I said earlier, the total regional selective assistance payments in 1997–98, when Labour came to power, was £295 million—two and a half times the amount estimated for the current year.

The whole purpose of the concept of regional selective assistance was to create a level playing field. There has been a move away from that, however, and the effect of the Bill will increase that, since, if the intention is to give the same assistance to all areas, it will intensify and increase the already apparent divide between the north and south. The present Chancellor has in the past been a strong supporter of regional policy. We believe that aid should be redirected towards the areas that require assistance, rather than being provided in the form of blanket coverage. I was interested to note that the Minister said that the powers could be exercised by Scottish Ministers or Ministers in the National Assembly for Wales, but that the money would come out of the settlement for those areas. We have to wonder exactly what the benefit is of having the operation of those powers in Scotland and Wales, if there is no increase in the funds available. I would be interested to hear what the Minister has to say about that.

It is also interesting to note how section 8 has been used to provide assistance, because there seem to be cases in which, in the words of the section, it has been used to assist specific areas. Mention has been made—and the research paper from the Library gives details—of the example of the Rover taskforce set up when BMW announced the closure of the Longbridge plant. There was some discussion about the difficulty of finding out where the money for that came from, but page 18 of the research paper makes it clear that the Government converted promised regional selective assistance of £129 million into more general relief under the auspices of section 8. So it can be used for specific areas, and, as the Minister has confirmed, those can be geographical areas in the UK as well as being industry-based areas.

This is of particular interest to many of us who represent areas with strong fishing links. The Minister will be aware that, in the north-east of Scotland, we have been hit by a crisis in the fishing and fish-processing industries, which are immensely important to the economy of Scotland, and in particular of the north-east of Scotland. These are not assisted areas. The Scottish Executive have come up with a package worth up to £50 million, but it is specifically targeted at the catching sector. In this House and in the Scottish Parliament, however, Ministers have said that any onshore aid would be provided through the regional development agencies. In Scotland, that is the Scottish Enterprise network. I appreciate that direct aid to the fishing industry is complicated by European considerations, but I would like the Minister to clarify whether it would be permissible to provide assistance similar to that given to the Rover taskforce for general work in the Longbridge area, or to the UK coal operating aid scheme, which provided Government support for the UK coal industry that was designed to allow mines with viable futures to overcome short-term market problems. Those conditions apply equally in the onshore fish-processing industry and other associated industries. If the political will existed, could some of the extra funds being proposed in the Bill be utilised for a specific aid package to assist onshore industries in getting through this difficult time? It would be interesting to see where the money for that would come from, in the case of Scotland.

I would like to take up some of the points made about the use of section 8. It has uses in many areas. Mr. Bellingham mentioned Atlantic Telecom, and I intervened on him to explain some of the difficulties involved in it. I am surprised that the Conservatives made this point, because Atlantic Telecom's circumstances illustrate how relatively small amounts of money can be used to make a real difference. In my constituency—and in the Dundee and Aberdeen areas in particular—the collapse of Atlantic Telecom caused huge problems for many small businesses, because they were threatened with the loss of their telephone service.

It is a feature of the modern economy that many small businesses rely a great deal on business received over the telephone. They rely on contact by telephone, and by e-mail and other forms of electronic communication. One of the difficulties associated with the collapse of Atlantic Telecom was that many of those businesses had produced leaflets and had entries in Yellow Pages, and their only means of contact with their customers was by telephone. If assistance had not been given to allow the continuation, for a relatively short period, of their Atlantic Telecom telephone numbers, many of those businesses would have been uncontactable by their customers, because they would not have had the time or, perhaps, the money quickly to change all their promotional material, such as their entries in Yellow Pages.

That is a small example, but it is a good example of how even small amounts of assistance can make a great deal of difference. The Minister said that he was not going to announce any new schemes, but if he is thinking about it I should like to put in a bid for the fisheries. According to the Library research paper, in 1993 specific aid was given to areas that lost assisted area status when the aid map was redrawn. That is not a one-off problem, in that when the aid map was redrawn again in 2000, many other areas lost assisted area status, including Arbroath in my constituency, which was just recovering from a serious economic downturn. At the time, that withdrawal of assisted area status was graphically described as being a bit like driving a lawnmower over the green shoots of economic recovery. If the assistance had been in place when the fishing crisis hit our town, we might not be faced with our current difficulties, having to scramble around trying to find out where assistance might be available. When I had a meeting with the Scottish Enterprise Network, it was clear that although it can give minimal assistance no new money is available.

The Department, in conjunction with the devolved Administration, needs to consider how to deliver the money through the regional development agencies in England, and the Scottish Enterprise Network in Scotland, so as to ensure that it makes a real difference. We are talking about huge sums of money, but many areas are seeing little benefit from it at the moment. If the Government are, as we suspect, moving away from specific regional selective assistance to more general assistance, they must give serious thought to how that is to be delivered on the ground in Scotland, in Wales and in areas of north-east England.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire 6:51 pm, 24th February 2003

I am glad to have the opportunity to contribute to the debate and to follow Mr. Weir. Although it has been a short debate on a short Bill, it has had some substance. I hope that I can add a little more in its latter stages, although I fear that other hon. Members have already had the better of the arguments.

I do not want to take the hon. Member for Angus to task too much, but as he recited the statistics on the decline over time in the amounts that have been spent by way of regional selective assistance, or regionally differentiated Government grants, I felt that it was a case of "never mind the quality, feel the width"—that what mattered was how much was spent, not whether it was spent effectively.

My hon. Friend Mr. Fallon referred to a change in the shape of regional assistance that took place many years ago. It makes me feel rather old to say so, but I was there at the time, sitting in an office of the part of the Department of Trade and Industry that administered the regional development grant scheme. In late 1981 or early 1982, the cheque to BP was signed BP for Sullum Voe. We handed over £110 million—if my memory serves me right—to pay BP for doing something that we knew it had to do and that it knew it had no choice about doing. My hon. Friend was right to say that that is how the jobs test first arose; I worked on precisely those issues. I am afraid that the whole experience jaundiced me in relation to the continuing efforts by Departments—the DTI in particular—to seek to influence outcomes by ever more sophisticated mechanisms for intervention. The more sophisticated those mechanisms become, the more complicated become the ways in which markets are distorted as a result.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

I am following the hon. Gentleman's argument with interest. We are of course aware of the problems of dead weight in relation to the regional development grant, but does he accept that many companies are deterred from applying for regional selective assistance because of its discretionary nature and the amount of time that they have to take to go through the application process with no guarantee of getting any funds at the end of it?

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

Yes, but I do not want to go too far down that track because, as I freely confess to the hon. Gentleman and to the House, it is some time since I have been involved in assessing such matters. The last time would have been in 1987 or thereabouts, when I was secretary to, if my memory serves me correctly, the science and technology advisory board, and we were trying to assess additionality. The hon. Gentleman is right that the dead-weight issue was key to that, in that we were trying to assess the additionality of the schemes that were presented to us, which is precisely the mechanism that is applied to regional selective assistance. At least in theory, if a project cannot demonstrate additionality it should not receive support. I was only too painfully aware of the inadequacy of our scrutiny mechanisms for trying to determine what was genuinely additional.

As soon as I left the Department of Trade and Industry for the industry side, I began to talk to business men who were willing to tell me about the ways in which they had, in effect, made assumptions about the availability of Government support. Some companies—no names, no pack drill—had a portfolio of schemes at the margin of their capital investment programme, which, although they did not regard them as having any particular economic justification, they reckoned they could put to the Department of Trade and Industry so that one or two would get through and add to their capital investment programme in such a way that the cost was reduced. In that case, technically speaking, additionality is met. Funding projects the economic viability of which has not satisfied the internal analysis of the companies concerned raises questions about the overall economic value of such projects. The money that funds them is not cost-free—it comes from the pockets of taxpayers and from the business contributions that my hon. Friend Mr. Bellingham talked about. The £47 billion of extra taxes that business pays is partly directed to the pockets of the DTI for it to put into projects that are sometimes of dubious economic viability.

It is therefore terribly important to have an underlying rationale for what one is doing as opposed to having some spurious theoretical justification and trusting in the scrutiny mechanisms of the industrial development advisory board, the investment committee, or whatever grand title it will have within the Department of Trade and Industry. People of great weight and merit will consider the issues, but they will not always get it right—too often, they will get it wrong. The question is, "What are we trying to achieve?" We should not be in the business of simply trying to identify areas that could be the subject of financial assistance, then adding to the capacity of industry by the application of subsidies—there must be a rationale. When my hon. Friend the Member for Sevenoaks talked about underlying theoretical justifications for such assistance, he missed out what I understand to have been—if not in 1982, shortly after 1982—the intellectual justification for such assistance schemes: that we are trying to remedy market failures. As I understand it, that was the basis on which matters proceeded after 1982. One might say that, in individual cases, an assistance scheme can remedy any market imperfection in the sense of saying, "Here is a scheme with economic justification that is not going ahead because there is not sufficient capital available to support it." However, it is not the Government's role to be that specific at the micro level, but to identify systematic market failures and to seek to remedy them. The shape of the Department of Trade and Industry's programme should properly be directed towards the stimulation of competitive intensity and competition. Other Bills—we shall discuss one tomorrow on communications—are designed to stimulate that kind of competitive intensity. The risk of rolling forward section 8 is that competitive intensity will be undermined if the schemes that are supported under it do not clearly address some form of market failure. That brings me to the point that my hon. Friend the Member for Sevenoaks and I have discussed in relation to the small firms loan guarantee scheme. The SFLGS is justified only if a market failure remains in the provision of small-scale finance to unsecured businesses. That varies over time and it should not be assumed that such a failure will continue for ever. The Bill's underlying assumption is that such matters simply roll forward into the future and that we must take the same actions for ever.

Evaluation is therefore important. We should evaluate the measure continually to ascertain the justification for continuing a scheme such as the SFLGS. The small business lobby's support for its maintenance—we all support it in principle—is not a justification. With great respect to the small business lobby, of which I was a member, it will always say, "Here's a jolly good scheme for helping our members." Nobody will say, "Get rid of it." However, a scheme is justified by objective evidence, not lobbying. We should not respond to the lobby rather than the evidence.

Dr. Cable and I had an exchange about the SFLGS. We may have done the Department a disservice when we emphasised the importance of the evaluation of the scheme being in the public domain. The hon. Gentleman wondered whether the evaluation had been undertaken. I do not know how recently the scheme was evaluated, but the results should be made public—and, indeed, I find that the figures for the defaults are in the public domain.

Figure 6.2 in the Department's annual report covers the information and tells us that approximately between £34 million and £40 million in respective years has been lost through the value of demands against the guarantee. If £250 million-worth of loan guarantees are being offered in a year, one in six—perhaps slightly more—loans default. I have no basis on which to judge whether the figure is correct. For the reasons that I outlined earlier, if all loans succeed, one is probably taking insufficient risk whereas if too many default, one is probably taking excessive risk. I have no means of judging where the balance should be struck; serious academic work is necessary to get that right.

I have tried to show the importance of objectively understanding the market failure that we are trying to resolve. When one compares receipts by way of interest for the SFLGS with defaults, it is apparent that the scheme costs money. It is not like bank lending. Clearly, there is a level of lending to specific small firms that banks and financial institutions would not undertake on the same basis. The receipts suggest premiums of 2 per cent. or 3 per cent. rather than the 0.5 per cent. or 1 per cent. premiums that currently have to be charged.

The scheme means a substantial benefit to business in the context of a proper market failure. It prompts the question whether businesses that are that risky should be willing to pay so great a premium to justify the level of borrowing. Perhaps that point is too detailed to consider now. It is certainly too late in our proceedings for hon. Members other than the Minister to respond to it, so I shall simply leave it hanging.

It is important to bear in mind the purpose of section 8. It should not be used to engage in the politically driven restructuring of companies or industries, but should be narrowly confined to operations that are necessary to fulfil some significant social need, such as the employee redundancy support for the coal industry. We have argued about the Post Office reinvention programme, which would be more properly titled the Post Office closures programme. We have debated its extent and nature elsewhere, but there is no doubt about the likely reduction in the number of post offices in urban areas and financial assistance may be required for that.

The debate shows how things have moved on. If we go back 15 years, when I prepared the budget for the Department of Trade and Industry, we would calculate the Post Office's negative external financing limit and its contribution to the Department's finances and associated nationalised industries. Nowadays we consider ways in which the Department can find mechanisms for recovering money and paying it through section 8 assistance to the Post Office. That is a worrying change, and a large part of the justification in the next couple of years for the additional financing availability.

Earlier today, the Secretary of State tabled a written statement, to which she referred in the Chamber, on the affairs of British Energy after the agreement with shareholders that was concluded a week ago. I am not clear whether the continuation of the loan to British Energy will be achieved legally by statutory cover under section 8. Clearly, it relates directly to the reorganisation of an undertaking in an industry and therefore appears to have the appropriate statutory cover. That has not been necessary until now, because the loan has been from the contingency fund and is to be repaid before the end of the financial year. It is therefore not necessary for section 8 to cover it. However, a longer-term loan is different. Perhaps the Bill is necessary to deal with the affairs of British Energy, provide loans to it or meet its liabilities. I would be interested to learn whether that constitutes one of the undisclosed reasons for the further limit.

Let us consider regional development agencies. The Minister spoke earlier about the availability of section 8 assistance to the Welsh Assembly through the block grant. That does not require the Treasury's consent. We have created a mechanism whereby, despite the cumulative total that is allowed for expenditure under section 8, the Treasury does not have fingertip control over precise amounts. In so far as it is confined to the Welsh Assembly, perhaps the amounts are not large and it does not have a great impact on the overall totals. However, I am not sure whether the Government have substantially changed their mind about the greater freedoms to regional development agencies or assemblies.

If we already have a single pot for RDAs, which effectively control the budgets for some purposes, including the Small Business Service, I presume that part of section 8 assistance can be spent through RDAs. To what extent are section 8 powers available to RDAs? To what extent can RDAs transfer money from budgets that were previously under a statutory provision different from section 8? There may be much greater variations in the amounts being spent on section 8 through action by RDAs without the Treasury's consent. I do not believe that they are required to have the Treasury's consent to move money between different budgets in their single pot.

Photo of Michael Weir Michael Weir Scottish National Party, Angus

The Scottish Executive have powers under the Scotland Act 1998 and the National Assembly for Wales have similar powers under the National Assembly for Wales (Transfer of Functions) Order 1999. Those powers were specifically given to the devolved Administrations. They do not apply to English regional development agencies. As I understand it, if the devolved Administrations use this power, there is no extra money to fund that. The position may be slightly different with the regional development agencies.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

I understand the point that the hon. Gentleman makes. I am sure that that is right. I am not clear whether the consent of the Treasury is required for regional development agencies to vire money within the single pot that is available to them, which is a bit like a block grant, if they want to use section 8 powers. If it is not, there is the administrative problem of how to monitor and report on the extent to which they are bumping up against the limit. Perhaps that is one of the reasons why the Government are proposing such big steps of between £200 million and £600 million. If they require the Treasury's consent to move money within a single pot, that undermines the sense of freedom that regional development agencies in England are supposed to have to be able to spend this money. The Minister may be able to enlighten me on that. Perhaps my concerns are not justified.

Back in 1982, the legislation envisaged a limit to restrict previous largesse by Government that had led to intervention in industry, and a system of scrutiny such that if the limit was hit there would be frequent scrutiny by Parliament of that extension of financial intervention in industry. It is astonishing that the Government are now turning that into something that involves big steps: from £2.7 billion to £3.7 billion in one step, on the basis that several years may go by before Parliament needs to reconsider the use of this money, and thereafter up to four steps of £600 million, which if spending is at the current rate may require two or three years between each reconsideration.

My hon. Friend the Member for Sevenoaks is right. On the face of it, the further we move from the 1982 legislation in time, in philosophy and in approach to industry, the more important it is for parliamentary scrutiny to be systematic and frequent. We must decide whether expenditure using these powers is justified. The Government are breaking with the intention of the 1982 legislation—although it may not have been expressed in these terms. It was envisaged that the time would come when the level of financial commitment would be reached, but it should not be breached, or only by small amounts and subject to frequent recall to Parliament. We are going away from that. My hon. Friend is right that we should reconsider the whole structure of the legislation and the basis on which we now approach this issue, because we have come a long way since 1982.

Before this debate, I was aware of a particular absurdity, but my concerns were not assuaged by the Minister's responses. The Secretary of State came before the Select Committee on Trade and Industry and told us about the desirability of rationalising grant schemes in the Department of Trade and Industry. She said that they would be managed under specific portfolios. She came before us again on 29 October last year, and spoke in glowing terms. She said:

"The team that I have got working on this have been making fantastic progress and, again, I expect to make an announcement on that certainly before Christmas."

Well, the fantastic progress has not progressed fantastically. It was not before Christmas, and it will not be before the end of the financial year.

I am not naive. I know that it is difficult to get rid of schemes. Various parts of the Department may be involved in a substantial fighting retreat on what should be kept and what should be scrapped, so it may take longer than was thought. Even if it takes longer, it is absurd to bring before Parliament legislation on a substantial number of these schemes. I presume that the majority of the 15 schemes will form part of the review, even if the post office programme does not. It is absurd to propose that year zero for the design of Government grant schemes should be April, but to say to Parliament now, "Fine, we'll spend another £3.7 billion on some of these schemes, but you don't know what they will look like, because we haven't told you yet. We'll tell you a couple of weeks after the legislation has passed through the House." That is deeply undesirable, and completely at odds with the scrutiny which the House demands and which is called for by our reasoned amendment. I shall support my hon. Friend the Member for North-West Norfolk.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Trade and Industry) 7:16 pm, 24th February 2003

With the leave of the House, I should like to reply to the debate. I am grateful to my hon. Friend Mr. Lansley, because he succinctly summed up the difficulties that we have with this legislation. A substantial review is taking place, so why on earth could not Second Reading be delayed until it was completed and the Secretary of State had made a statement?

We have had an interesting, albeit short, debate. I am glad that Mr. Hopkins recognises the plight of manufacturing and the difficulties over investment levels. I note that he wholeheartedly supports the rationale behind the original Act and this Bill. Dr. Cable talked about accountability, and I hope that, in the light of that, he will support our reasoned amendment. He mentioned the purple report, and the need for statistics and comparable studies. He is right, because we need to know the administrative costs incurred for every pound that goes into these schemes. That point had not been raised before, and I hope that the Minister will comment on it.

On the Rover taskforce scheme, I think that I am right in saying that the £129 million was under regional selective assistance. So far, £12 million has been allocated under section 8, and perhaps the Minister can tell us how much of that has been spent.

The speech of my hon. Friend Mr. Fallon was a fascinating philosophical tour de force. He considered the genesis of this policy, going back to Keynes's famous four articles, and he fast-forwarded 70 years. He rightly said that it was time to take stock. He made a valid point when he said that Ministers should be looking for value added, not just the headline millions. He made an amusing quip. He talked about good money paid for unreliable Celtic votes. I wish that he had seen the expression on the face of Mr. Weir. Questions need to be asked. Does the money stimulate wealth creation and enterprise? My hon. Friend was spot on when he said that the timing of Second Reading is completely awry. We need to know exactly what schemes will be kept.

I was interested in what my hon. Friend Mr. Field said about the film industry. I had a quick look at one of the DTI briefs. The British Film Commission was launched in 1991, and one of its aims is to encourage film and production units from abroad to use UK-based facilities. It also helps to co-ordinate the work of other national and local film bodies. The commission now comes under the Department for Culture, Media and Sport. Were the grants paid out up to 31 March 2002, which totalled about £7 million, provided by the DTI or did they come out of the DCMS budget? Would the Minister elaborate on that?

My hon. Friend reinforced what had been said about some of the mini-micro-schemes, in regard to which there has been a total loss of focus. The reason we cannot go along with some of these schemes is indeed the lack of sufficient focus and accountability. I am glad that he also mentioned the red tape burden on business and the law of unintended consequences. He gave a fascinating example from East Germany, following his visit last week to some of his more far-flung constituents.

I will accept the rap over the knuckles administered by the hon. Member for Angus in connection with Atlantic Telecom because he obviously knows quite a lot about it, but I stick to my guns nevertheless. Most of those small business men will have had mobile phones, and I do not believe that, had the Minister contacted the chairman and chief executive of British Telecom, it would not have been possible to sort something out at a cost amounting to much less than over half a million pounds.

My hon. Friend the Member for South Cambridgeshire drew on extensive DTI civil service experience. He gave a riveting example involving BP and Sullom Voe, and made the interesting point that the more sophisticated intervention mechanisms became, the greater the distortions that resulted. That must return us to the inadequacy of the scrutiny mechanism set out in the Bill. Moreover, my hon. Friend's point about the loan guarantee scheme was spot on. Apart from the broad statistics relating to the small firms guarantee scheme, we see nothing about failure rates or the net cost. I hope that the Minister will respond on that, and also to the point about the money dispensed by the regional development agencies and the influence that they will have.

The Secretary of State recently promised to drive up UK productivity and competitiveness in order to deliver prosperity to all. We will hold her to account. The five key tests will relate to business investment, which is falling faster than it has for 36 years; to manufacturing jobs, 600,000 of which have gone since 1997; to the trade deficit, which is at its worst since 1967; to productivity, which is growing at half the rate at which it grew under the last Government; and to strikes, to which more than 1 million working days have been lost.

We shall continue to take every opportunity to hold the Secretary of State to account, but for the moment I ask hon. Members to support our amendment, because what we need above all else is proper scrutiny of the Bill and the workings of section 8 of the 1982 Act.

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions) 7:22 pm, 24th February 2003

With the leave of the House, I shall reply to what has been a thoughtful debate on this short Bill, featuring excellent contributions from Opposition Members—although the best came from our side. What we lacked in quantity, we gained in quality.

I was deeply hurt by the comments of Mr. Bellingham, and by the lack of a political consensus. I had thought that we would sail through this with a fair amount of agreement between the various parties—only to find that our motives were being questioned, particularly in regard to the formula.

There is no getting away from one aspect. It took 14 years, from 1982 to 1996, to produce just one tranche, and the money has been spent more quickly since 1997. I do not argue with that. The problem is that we are talking about schemes that may have existed in the past, and about the use of taxpayers' money, which should of course be used properly, in the absence of any analysis of the payback for the Government.

We inherited one scheme: the small business loan guarantee scheme. The hon. Gentleman was scathing about some of the schemes that we have introduced, but very complimentary about the one that was left over from past Governments. We have introduced 14 schemes. It was right for hon. Members to question some of them and for me to defend them, but we must look at the Bill on the basis of what is happening now, not what was happening in the 1970s or 1980s.

In fact, it could well be argued that Governments in the 1970s and 1980s should have used such provisions. Especially in the 1980s, constituencies such as mine were crying out for just a bit of assistance so that one industry could diversify into others. In my case, the problem was the collapse of distant-water fishing, and very little help was forthcoming. That is all in the past, however.

The rationale of our formula was to roll forward the existing limit of £2.7 billion—which we have almost reached—in real terms, using 2.5 per cent. as a proxy for the long-term gross domestic product deflator, for 20 years. The figures produced at the time, in co-operation with the Treasury, did not satisfy us: they would have meant a £4.5 billion new ceiling, and our returning four times to ask for £400 million in each tranche. We felt that the first hurdle should be reduced, enabling us to return to Parliament more quickly. We therefore reduced it to £3.7 billion. To reach the £6.1 billion figure, the other tranches were £600 million more than £400 million.

Photo of Andrew Lansley Andrew Lansley Conservative, South Cambridgeshire

I understand that the Minister has produced an arithmetical approximation to the way in which things were done in 1982, but our point is that the original 14-year period after 1982 at least followed carefully considered legislation setting out a framework of support for industry. Following the meeting of that limit, is it not time for a reconsideration of the framework, and for the framework to be established for a period rather than being rolled forward?

Photo of Alan Johnson Alan Johnson Minister of State (Employment Relations, Industry & the Regions)

In a sense we are doing that, but let me develop the argument.

The accusation, reflected in the amendment, is that we want somehow to avoid parliamentary scrutiny. Let me say in all honesty—I suppose that anyone should speak in all honesty from the Dispatch Box—that we have tried hard to do the opposite. We looked at the figures and said, "No, we want to return to Parliament earlier." We have proposed the same four tranches. There was an argument that we should return to Parliament two or three times rather than four, but we did not accept it. There is no change in the £10 million limit requiring parliamentary scrutiny, despite the argument—given that the limit was set in 1982, if not 1972—that it should change because of the increased cost of living. There is still an annual report, however inadequate it may be. We reached for the Kleenex when we were accused of trying to avoid returning to Parliament, for that was far from being our rationale.

The hon. Member for North-West Norfolk praised the Small Business Service. I was pleased about that, because I had understood that the Conservatives had pledged to abolish it. We may be witnessing the determination of policy here, and I can think of no better shadow Minister for the job.

The Small Business Service administers eight of the current schemes. Those eight schemes—this answers a question raised by, particularly, Mr. Lansley—are the ones that are in the pot for the review of DTI business support, as opposed to the industry-specific schemes relating to coal, steel and the post office network. So eight out of 15 are in the pot, along with another 175—the total number of DTI business support schemes being 183. Only those eight will be carried over from section 8 of the 1982 Act.

Two schemes were criticised by the hon. Member for North-West Norfolk. I pull in also his point about Scotland. There is an issue about Conservative Members, perhaps because of the constituencies that they represent and because after 1997 they were true one nation Tories—they did not represent anyone in Scotland and Wales; they represented one nation and that was England—not realising how important the Phoenix fund is in deprived areas, particularly among ethnic minorities. The whole basis of this approach is to encourage people to be entrepreneurial and to help them to start up their own businesses. Every bit of feedback that we get from the Phoenix fund shows that it is one of the most beneficial.

It is right that no money has been paid out of the incubation fund thus far. I am told that that is because the very nature of the fund means that it takes a while for the applications to be processed. It is hoped that any problems will be ironed out. We are still expecting to spend a projected £65 million by the end of the scheme in 2004–05.

The other point that I make in relation to the contribution by the hon. Member for North-West Norfolk concerns the small firms loan guarantee scheme and what it costs per year. I will write to him, and probably to all hon. Members who will sit on the Committee, before the Committee stage, so that they receive a proper analysis of how the schemes are working. That analysis exists but it is all over the place. It is in documents that are published at different frequencies. I understand that it is not all in the annual report, which surprises me.

I am told that since the small firms loan guarantee scheme began in June 1981, the net cost up to the end of October 2002 has been £460.39 million. In all, over 82,000 loans have been guaranteed. The guarantees provided on loans so far total £3.1 billion, but I will write to the hon. Gentleman on the other points that he raised and on the point raised by Dr. Cable about whether there has been any comparison between companies that did not access the loan scheme and those that did. That is a valid question.

I am not going to be drawn into a debate on the economy, particularly as my right hon. Friend the Chancellor of the Exchequer made mincemeat of the Opposition just two weeks ago on that subject.

My hon. Friend Mr. Hopkins is a strong supporter of these measures. He seems to have disappeared, but he was the only Labour Member to attend the whole debate and I am grateful for his support, which was welcome.

The hon. Member for Twickenham talked about post office network funding and questioned the use of section 8 for the urban post office network. I do not think that it should be questioned. I mentioned at the beginning the criteria set down originally in the 1972 Act and carried into the 1982 Act, which were about development, modernisation and efficiency. In terms of the post office network, that is necessary. The debate in the House last October threw up a number of issues that need to be addressed, difficult though they are. They probably should have been addressed many years ago.

The hon. Gentleman mentioned the Rover taskforce. The hon. Member for North-West Norfolk was right that most of that money was a regional selective assistance grant that had already been applied for by BMW Rover when the problems occurred. Nevertheless, £12 million was set aside, as he rightly said. A total of £7.4 million has been paid up to now, but only £1 million of that relates to section 8 and the issue under scrutiny in this debate.

Mr. Fallon made a thoughtful contribution. I was fascinated by the light that it shone on what was happening in the 1970s. I was particularly interested to know that the legislation caused the resignation of a junior DTI Minister. That made me sit up and take close notice of how we should deal with this fresh Bill.

The hon. Gentleman said that we have never helped new and emerging industry. The eight support schemes administered by the Small Business Service—there is an argument about whether there is any duplication there—focus on new emerging businesses, particularly in sectors such as biotechnology, so it is unfair to say that we are sticking to the credo of the 1970s and looking only at failing industries.

Nevertheless, as the hon. Gentleman accepted, the scheme has united all parties. There needs to be assistance when traditional industries come up against problems, in particular iron and steel and coal; there are two specific schemes, one for Selby and one in Scotland. They need that assistance. The question is whether other industries should have had similar assistance. I have mentioned distant-water trawling in my constituency, where 5,000 people lost their jobs and did not receive any help because they were classified as casual workers. There was a case for some assistance under the scheme. It was not provided under the previous Government.

It is important to mention that there is full agreement on the Labour Benches about the rigorous analysis that the hon. Member for Sevenoaks spoke about. We abolished the shipbuilding intervention fund three years ago, with the support of the trade unions and the industry itself, because it was having no effect on our competitiveness or productivity. That was an important point.

Mr. Field made some important points, particularly about the City of London, which may be next in the queue for financial assistance. We will look at that claim with interest. He mentioned Conservative Members' experience of business and made the rather dated accusation that Labour Members did not really understand business. A back-handed compliment was paid to Labour by a business person whom I met recently. He said that the problem with the previous Government was that, because they had all had a directorship or two and all thought that they knew how to run businesses, they did not listen. He said, "The thing about you lot is that you know absolutely nothing about business and as a result you listen," which I thought was as good a compliment as we can expect in the circumstances.

Mr. Weir made a number of important points. He asked about RSA and in particular about the money that goes to Scotland and Wales. RSA is covered by section 7, not section 8. It is demand driven: companies have to apply for it. In circumstances where we have the highest number of people in employment ever and the lowest period of unemployment since the Beatles released "Abbey Road", we will probably find that there is less cause for people to apply for RSA than previously. Also, the assisted areas map has changed and reduced. While we fought the good fight in Europe, we were unable to secure all the money we wanted.

Another important point was raised about RSA. The Secretary of State has power under the Regional Development Agencies Act 1998 to require the regional development agencies to administer funds under section 8. That power has never been used, but we have asked them to administer powers under section 7 because they now allocate all RDA applications up to £2 million, which is about 95 per cent. of RSA.

The hon. Member for South Cambridgeshire has detailed knowledge of how the DTI works, which may or may not be helpful in his current capacity. His was an important and interesting contribution. He spoke of the need to be remorseless in trying to achieve a root-and-branch examination of the 183 support schemes. That is what we intend to do, and although it may take us a little longer, we will end up with money that is better directed.

In the light of a helpful nudge from the Whips, I conclude by saying that the Government need the legislative means to operate their business support activities. We can debate what those activities should be, but there is little doubt that such support is needed. I commend the Bill to the House, and I look forward to making good progress in Committee.

Question put, That the amendment be made:—

The House divided: Ayes 156, Noes 301.

Division number 92

See full list of votes (From The Public Whip)

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on second or third reading), and agreed to.

Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of bills)