HC Deb 28 July 1972 vol 841 cc2341-86

'(l) The Secretary of State may make regulations providing that in any case where the grant which would be payable at the percentages prescribed in subsection (3) of section 1 of this Act would, in the opinion of the Secretary of State, be excessive in relation to the number of jobs provided or safeguarded by the expenditure in respect of which the grant would be payable and the expenditure is not otherwise beneficial to the assisted area concerned to an extent which in his opinion would justify the payment of grant at the percentages so prescribed, the grant will be payable at such lower percentages as the Secretary of State considers justified in all the circumstances of the case.

(2) Without prejudice to the generality of the foregoing subsection, regulations under this section may provide that any restriction of grant will apply only in cases where the grant payable to any persons or relative group of persons, as defined in the regulations, would if it were paid at the percentages prescribed in subsection (3) of section 1 of this Act exceed a prescribed total over a prescribed period.

(3) A regulation under this section shall be contained in a statutory instrument, and such regulation shall not come into effect until approved by a resolution of the Commons House of Parliament'.—[Mr Alan Williams.]

Brought up, and read the First time.

Mr. Alan Williams

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

Mr. Deputy Speaker

With this new Clause we might conveniently discuss the following Amendments:

No. 43, in Clause 1, page 1, line 9, leave out 'capital expenditure incurred' and insert: 'creation of additional employment of persons'.

No. 1, in page 1, line 12, after '(2)', insert: 'Subject to section (Restrictions of grants) of this Act'.

No. 7, in Clause 4, page 5, line 23, at end insert: '(3) In determining whether and in what manner to exercise his powers under this Part of this Act the Secretary of State shall have regard—

  1. (a) to the relation between the expenditure involved and the employment likely to be provided; and
  2. (b) any consequential effect on employment in any other part of the same or any other development area'.

No. 50, in Clause 6, page 6, line 11, after 'nature', insert: 'and likely to increase employment at least in the ratio of one new job for every £5,000 of expenditure'.

No. 19, in Clause 7, page 9, line 9, at end insert: '(9) In determining whether and in what manner to exercise his powers under this section the Secretary of State shall have regard—

  1. (a) to the relation between the expenditure involved and the employment likely to be provided; and
  2. (b) any consequential effect on employment in any other part of the same or any other assisted area'.

Mr. Williams

The new Clause and the associated Amendments are intended to re-establish a job creation criterion at the discretion of the Minister. We on this side have always maintained—we are glad that we now have the Government's active support for this—that the investment grant system was beneficial because it was predictable; because it gave direct aid to cash flow, particularly to firms in cyclical industries; because it could be counter-cyclical, by using variations in the rates at the correct time in the cycle, as we did in 1966; and because it is particularly suitable for long-lead industries.

4.45 p.m.

Having said that and claimed that it has certain advantages, we never maintained that the system was perfect. Certain of its imperfections were pin-pointed frequently by hon. Gentlemen opposite—indeed, they were rather exaggeratedly commented upon. During the General Election period the investment grant system was generally condemned by the Conservative Party for its so-called wastefulness. It is right to say that after having been abandoned the system is now being reintroduced, and this is therefore a reasonable time to review whether it had imperfections.

The most sustainable criticism which could be made against the system, one of which we felt deeply conscious and of which hon. Members opposite were aware, was that in certain large projects the cost to the Government far outweighed any regional benefit that was derived from the investment of public money. Yet here the Government are not simply reintroducing this system; they are doing nothing to eradicate those shortcomings. If anything they are moving in the opposite direction because, as the Sixth Report from the Expenditure Committee "Public Money in the Private Sector" states at page 52: The criterion of immediate job creation would thus be largely removed from regional incentives. I do not think the Minister would deny that this is the case. In Committee he admitted it. We are now committed to an abnormally high level of expenditure for regional assistance without any meaningful job criteria.

We have always maintained too that if we are to have the proper industrial mix in the assisted areas, with labour-intensive and capital-intensive industry mixed properly, there has to be a correct mix of incentives to attract each type of industry. Yet at a time when, if anything, the incentives are being made increasingly capital-intensive, the Government are contemplating the abolition of the one labour-intensive incentive, the regional employment premium. It can be legitimately argued that as an inducement it has already been abandoned because, as a result of the doubts cast upon its duration or level if it is carried on in future, businesses looking for sites no longer take it into account. It has therefore ceased to be an incentive for new industry although its continued existence is temporarily beneficial to those industries currently receiving it.

The REP situation and the effect of the Bill make the development areas now relatively more attractive to capital-intensive rather than labour-intensive industry. This is an important shift in balance. Secondly, within the development areas the capital-intensity inducements in this legislation will encourage those labour-intensive firms already there to substitute capital for labour so that we are getting the most expensive form of subsidy, which is actually inducing job reduction among firms already in existence while attracting to the regions, in place of labour-intensive firms going into decline, firms which are capital-intensive.

The inadequate mix of incentives will mean that there will be an unprece- dentedly expensive cost per job figure at the end of, say, five years when we come to review the effect of this legislation. The effect of the Bill coupled with the REP position will be to minimise job creation from outside and maximise job loss within the development area.

I do not think Mr. Speaker would allow me to develop the argument about the regional employment premium keeping in existence firms which would otherwise have gone out of existence. However, the Government have created such low industrial confidence and such unwillingness to invest that they need a sledgehammer approach—and this Bill is the sledgehammer approach. But even a sledgehammer can be wielded selectively. Surely any assessment of the facts justifies the argument that there should be some sort of job link in the scheme which is being introduced.

As background to my proposition I should like to quote a reply which I received today from the Department of Employment giving comparative figures for the latest month this year with the equivalent month two years go. The increase in the number of wholly unemployed in the North is 29 per cent., in Wales 33 per cent. and in Scotland 45 per cent. The increase in unemployment among school leavers in the North is 65 per cent., in Wales 65 per cent. and in Scotland 102 per cent. The fall in notified vacancies in the North is 34per cent., in Wales 23 per cent. and in Scotland 42 per cent. If we bear in mind that in 1971 redundancies declared in Scotland were three times as high as they were in 1969, four times as high in Wales and five times as high in the North, it is incredibly difficult to understand why the Government are severing the job connection from their incentive proposals.

In any event, the unemployment position does not reveal the true gap which must be filled in the development areas. The activity rates there are substantially lower. Figures which I gave in Committee indicated that, taking the United Kingdom figure as 100, the activity rate among the male population in Wales is 90 per cent. and 73 per cent. among women. In the North the figure is 96 per cent. for males and 85 per cent. for women. Therefore, the job need is far greater than the official figures indicate because a lower proportion of the population is counted as being among the working population.

There is a further disguising factor, as I am sure Scottish hon. Members will confirm, namely, that there is a migration which is selective in its impact in that it tends to draw many of the younger, more dynamic members of the community away from the valleys of Wales and Scotland. Therefore, in addition to high recorded unemployment, there is high concealed unemployment.

The final factor to bear in mind is that when growth comes—both sides of the House genuinely hope that it will come; the regions desperately need it—the period of growth 1961–66 showed that, relatively, the development areas did not do as well as the prosperous areas. In the South-East, male employment rose 6 per cent. faster than in the development areas. Therefore, I am inevitably concerned at the Government's decision to announce the abandonment of the regional employment premium and their refusal to give details about the phasing-out arrangements. I am equally concerned about the unwillingness to tie the incentives offered to job creation.

On 12th July the Western Mail carried a report about the visit to the secretary of the CBI in Wales by senior officials of the European Commission. The Welsh secretary said: One point on which the commission was emphatic related to the regional employment premium which at present means that manufacturing industry in development areas receive a weekly allowance for each employee…they are obviously firmly opposed to this and this causes some concern".

It would be helpful to us to know—perhaps the right hon. Gentleman may care to confirm, if it is in order for him to do so—whether, as we hope is not the case, the Commission is in any way involved in the decision to drop the labour, the employment, link with the capital incentives. It would seem to me that, in relation to the unemployment circumstances, the job gap to which I have referred, at this stage it is absolutely imperative that the job link be kept.

No Government have a limitless pocket. The financial assistance envisaged in the Bill is extremely generous in its scope. That I admit quite readily. Even so, there is a limit. There has to be a limit. Any money which is wasted on ineffective incentives is money which might have been used in another way an effective incentives, as for example in continuation of the labour subsidy. We all know that many manufacturing firms choose to site themselves within development areas regardless of the incentives available, but we know of others—the oil companies almost immediately come to mind—which involve a public cost which is utterly unrelated to the regional benefit which they give to the Government in return. A source of considerable annoyance in the past has been that certain of the oil company chairmen, as my right hon. Friend the Member for Birkenhead (Mr. Dell) pointed out in Committee, have been willing to scoff at the fact that they were obtaining this money. I think we should preserve them from their mirth and give the Minister power to exercise a responsible discretion in this respect.

I hope, therefore, that even at this late stage the Government will feel able to accept our proposal. Other than administrative saving—and, quite frankly, the administrative saving cannot in any terms match the magnitude of financial saving which is possibly available if only one of these major projects is financed with a lower rate of incentive—other than the saving of administrative cost or administrative bother, the only other argument seriously put forward has been that of simplicity. Simplicity is desirable. No one would deny that. The more complex the arrangements, the more difficult it is to get industry to take them into account. But simplicity is not the only objective; it is an objective. Effectiveness is a more important objective. Therefore, we cannot go for simplicity regardless of cost, and certainly we cannot allow simplicity to cause a diversion of resources which would otherwise be available.

5.0 p.m.

Mr. Bruce-Gardyne

I find myself very much in agreement with almost everything that the hon. Member for Swansea, West (Mr. Alan Williams) had to say, although I shall come to a point where I think it will be demonstrated that his words this afternoon did not bear all that lose relationship with those of his own Administration. But that is not the first time. What I can say in general on his remarks is that I found myself very much in agreement with him, and I can well contemplate the desirability of supporting his new Clause in the Lobby. At the same time, I confess that I infinitely prefer Amendments Nos. 7 and 19, in the names of my hon. Friends and myself, to the new Clause itself.

I do not understand what the Clause means. I do not think that the hon. Gentleman understands it either, because he did not attempt to explain it. I can only think that it is an example of the brilliant and dynamic draftsmanship of the right hon. Gentleman the "Grand Communicator" in one of his Tolpuddle Martyrs performances. I rather wish that the right hon. Gentleman were here to tell us what he meant, because the meaning of the Clause does not exactly leap from the pages of the Notice Paper. That is a further reason for my preferring our Amendments.

The wording of our two Amendments, as my right hon. Friends will recognise, comes straightforwardly from the Local Employment Acts. Having read the Official Report of the Committee stage, I am still not very clear why my right hon. Friends should have decided that this was an opportune moment to remove the employment linkage of those Acts. My right hon. Friend the Minister for Industrial Development advanced, as I suggest, two main arguments for removing the employment link.

My right hon. Friend's first argument was the need to achieve immediacy and automaticity—if I can use some rather dreadful words at this hour of the day. He said that under the Local Employment Acts procedures there were terrible delays and that people were left wondering what was to happen. I know that there were lots of complaints of delay—that is indisputable—but I always thought from what I saw in my own area that they were somewhat exaggerated. The fact is that when people are expected to obtain substantial quantities of taxpayer resources it is inevitable that some careful scrutiny should be given to the way in which those taxpayer resources are to be used. So I do not think that we should carp too seriously at a certain amount of delay to enable proper scrutiny procedures to be carried through.

I argue that this applies with even greater force to Clause 7 than it does to Part I, and that brings me to the other distinction between the new Clause and our Amendments, in that our Amendments refer not only to Part I but to Clause 7. It is very desirable that the employment linkage should apply also in the case of Clause 7.

The second argument which my right hon. Friend advanced in Committee related to modernisation, to which the hon. Gentleman did not refer, although it is important, and is an argument which arguably has some merit. The point is that it is desirable on occasion that the Government should be able to assist firms in undertaking modernisation projects even when those projects do not involve any job creation but will, in the long term, safeguard jobs that might otherwise disappear.

There may be some merit in that case. On the other hand, I have not forgotten listening to the chairman of a substantial firm in my part of Scotland—a stauch supporter of the party opposite, by the way—when he explained how his company had undertaken a modernisation programme with investment costing £1 million. He said:"We would never have been able to go through with this without investment grants. That is why we want them back." His allegiance to investment grants was entirely right and proper in the light of his political allegiance. But he followed this up by saying. "It is perfectly true that as a result of this £1 million investment programme we are not employing any more people. In fact, we are employing fewer people."

I ask my hon. Friend and the House whether it is a very good use of taxpayers' resources to provide perhaps very substantial assistance to investment programmes calculated to reduce employment in areas which are suffering from high unemployment. That does not seem to be entirely logical.

Nevertheless, I accept the argument advanced by my right hon. Friend about how modernisation programmes may, in the long term, save jobs. But, apart from the question mark about the desirability of providing taxpayer assistance in order to have the end result of reducing employment in an area of high unemployment, there is the point that most of the evidence we have had, which at this stage I shall not go over in detail, is that on the whole the impact of all forms of investment incentive on investment decisions by industry is minimal in the extreme.

Those firms which can benefit from modernisation programmes of investment will be likely to undertake them regardless of whether they get investment grants. So we shall not forgo investment in these instances by saying that they would not qualify for investment grants or selective assistance, because not only do they not create additional employment but they actually diminish it.

There are some firms which ought to modernise and which do not do so. They put employment in their industries at risk as a result. Equally, on the basis of our past experience, I do not believe that they will be encouraged to undertake modernisation and investment, which they would otherwise be disinclined to undertake, by the existence of investment grants or selective assistance under Clause 7.

Mr. Chataway

My hon. Friend is saying that he does not believe that any kind of incentive will induce someone to invest unless he wants to invest and, probably, unless he would have done so anyway. Would my hon. Friend say the same about free depreciation, or about any kind of incentive to investment?

Mr. Bruce-Gardyne

If my right hon. Friend studies my comments in Committee on the Finance Bill, he will find that I said just that.

But at least those forms of incentive are profit related and do not automatically apply to projects regardless of their profitability. As my right hon. Friend knows well, one of the main objections we have always had to investment grants is that they are not profit related in the last analysis. I know that it has been explained that they are more profit related than they were, but that does not alter the fact that a totally non-viable invesment will still obtain investment grant.

Mr. Gerald Kaufman (Manchester, Ardwick)

Surely the hon. Gentleman must recall that, for better or for worse, and for whatever kind of employment is provided—which might have been very small in the light of the arguments to which we are used from him—the aluminium smelter would never have gone to Anglesey if it had not been for investment grants. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) will be able to confirm that. The representatives of Rio Tinto Zinc said that to a Select Committee.

Mr. Bruce-Gardyne

It would not altogether surprise me if the time came when the citizens of Anglesey regretted that decision. All sorts of things are said to Select Committees. In the last Parliament the Select Committee on Scottish Affairs heard the most wonderful gobbledegook from representatives of the Scottish Office about the magnificent effects of the incentives they had. It is attractive for civil servants to be able to say that they have a bigger and better gravy train behind them than people in other areas. However, that is not germane to this argument.

In Committee my right hon. Friend said this: …when we come to the question of selective assistance I shall argue that it will be right for the Department, in administering selective assistance, to try as effectively as we may to estimate the effect upon employment, and shall suggest at that point that it will be right for the Department to discriminate the terms on which loans are given in favour of firms which are likely to increase employment."—[Official Report, Standing Committee H, 13th June, 1972; c. 94.] In these circumstances I greatly hope that my right hon. Friend will be prepared to accept Amendment No. 19 which would secure that.

There are the more general considerations regarding the desirability of employment link to which the hon. Member for Swansea, West referred. This is a question of the very highly capital intensive and expensive projects which are unlikely to create significant employment. The hon. Gentleman gave the very good example of the oil industry.

While the hon. Gentleman was talking I could not help recalling the frenetic efforts of the Labour Party to provide up to £25 million in investment grants for a project which was calculated to produce 300 jobs at Invergordon, a project to which I have referred earlier and to which I shall refer in greater detail at a later stage of our discussions, because the full saga of this entertainment is even more relevant at a slightly later stage.

All that I say at this point is that the average cost per job which might have been created was £72,000. Taxpayers cannot be asked easily to accept that it is a right and proper use of their money which we are voted to Parliament to defend.

Mr. Dell

The Labour Government did not strive to pay out money to the company to which the hon. Gentleman is referring. The Labour Government would have been bound under the law as it then existed to pay out if the demand had been made. The hon. Gentleman should give one member of the Labour Government at any rate this credit, that that experience helped him to move in Committee two separate Amendments along the lines of that which my hon. Friend the Member for Swansea, West (Mr. Alan Williams) has now moved in an attempt to avoid such a thing happening again.

Mr. Bruce-Gardyne

I accept that from the right hon. Gentleman and in all fairness exonerate him from my criticisms on this point. It was not my impression that some at least of his right hon. Friends were entirely passive in their approach to this project.

Mr. Adam Butler

I am following my hon. Friend's argument in regard to the aluminium smelter at Invergordon and the consequent figure of job opportunities—

5.15 p.m.

Mr. Bruce-Gardyne

I apologise. Perhaps I used verbal shorthand, not wishing to develop the full story at this stage. I was referring not to the aluminium smelter but to a remarkable scheme called Grampian Chemicals, a projected petrochemicals plant. It was, perhaps, an outstanding example of the desirability of some form of employment link, at least in relation to very large projects, in a scheme of investment grants or selective assistance. Notwithstanding what my right hon. Friend said in the passage which I have quoted, we have no evidence that the Government have taken specific action to avert a situation of that kind.

We all recall the comments of our former colleague Dr. Jeremy Bray on the effectiveness of the investment grant system in action—

Mr. Dan Jones

On a point of order, Mr. Deputy Speaker. I apologise to the hon. Gentleman for interrupting him but, in view of the volume of work which is before the House and the need to get the Bill, may I, through you, Mr. Deputy Speaker, seek to prevail upon hon. Members to mention only salient points and not to go into academic digressions which take up the time of the House?

Mr. Deputy Speaker (Mr. F. L. Mallalieu)

Order. That is not a point of order.

Mr. Bruce-Gardyne

I assure the hon. Gentleman that I shall stick to salient points. On the matters now before us, I have a lot of salient points to make, but, no doubt, if he bears with me, we shall get through them in due course.

I was saying that we all recall the cogent arguments of our former colleague Dr. Bray, and the evidence which he produced of the way in which the investment grant system could positively add to the unemployment problem in the development areas.

In the light of the hon. Gentleman's intervention, I shall not labour that point. It is clear in all our minds. But I must emphasise the strength of the point made by the hon. Member for Swansea, West about the capital-intensive nature of the whole range of incentives offered under the Bill. This is one of the aspects of the Bill which causes me considerable concern—I admit that there are others which cause me even more concern—and about which, representing an area with, alas, high unemployment today and relatively low activity rates, I am especially worried.

The hon. Member for Swansea, West elaborated the argument about the extent to which the capital-intensive bias is intensified by the projected phasing out of the regional employment premium. I have never been much of an admirer of the REP. It suffers from two fatal defects—the Hungarian reflex against the service industries, conflicting with the sort of proposals in the new Clause which the hon. Gentleman himself recommended earlier—and the fact that it is a poll tax.

I have for a long time favoured the imposition of a congestion tax on a payroll-related basis which would act not as a subsidy to employment in the areas where there is room for industry to expand so much as a tax on excessive employment in areas of high congestion, a tax related to the payroll so that there would be a considerable fiscal incentive, so to speak, to a company to send not just its labour force from Oswestry to Angus but its managing directors and research and development staff as well. This is not achieved by the regional employment premium. The regional employment premium is akin to all the various measures we have pursued over the years to encourage development of the advance factory economy.

Mr. Alan Williams

In Committee we moved an Amendment dealing with REP but a similar Amendment was ruled out of order on Report. I made the point in Committee that we were not necessarily committing ourselves to a labour subsidy on any one basis. It could be ad hominem or ad valorem—it does not matter. It would depend on the objective view which the Government wished to achieve. I take the point the hon. Gentleman is making, but we put forward the proposition in Committee.

Mr. Bruce-Gardyne

I noticed what occurred in Committee, but there is still a distinction between us. I have been arguing for a congestion tax in the areas of over-employment and over-congestion rather than for an employment subsidy in the development areas. If there are problems in a European context about an employment subsidy, I put it to my right hon. Friend that there would probably be no problems in terms of a congestion tax. The arguments for such a tax are much stronger in the United Kingdom context.

I have heard the argument advanced by some of my right hon. and hon. Friends that one of the troubles about the development areas is that they tend to lack labour-intensive industry which would benefit from unemployment linkage in investment incentives. That is not true. Certainly in Scotland we have a number of relatively labour-intensive industries. There is the classic example of textiles which, notwithstanding a considerable degree of mechanisation in recent years, still remains a relatively labour-intensive industry. This particularly applies to the textile industry in the constituency of the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel). There are also some sections of the micro-circuitry industry in Scotland which are labour-intensive. It is not true to say that we do not have labour-intensive industries which could benefit from such a linkage in the development areas.

There is another aspect of Amendments Nos. 7 and 19 which does not come in the new Clause. That is why I prefer them. Amendment No. 19 refers not only to the relation between the expenditure involved and the employment likely to be provided but to any consequential effect on employment in any other part of the same or any other assisted area. I referred earlier to the anxiety expressed by the parent company of a factory in my constituency about the impact that the new financial fund set up for the assistance of industry in Northern Ireland might have on the competitive position of that factory. That is the sort of thing about which we are concerned. That anxiety existed because the Northern Irish had their public investment fund set up but we did not have such a fund on this side of St. George's Channel. Now we have one. We need some assurance from the Government that before large sums of the taxpayer's money are presented to firms in the private sector under either Part I or, above all, Clause 7 of the Bill, careful thought will be given to the competitive position of other firms in the same industry in other parts of the development areas. As was pointed out earlier by the hon. Member for Glasgow, Craigton (Mr. Millan), 48 per cent. of the population of the United Kingdom now lives in one of those areas and there is thus every prospect that we shall find ourselves robbing Peter to pay Paul.

If I found that a factory in my constituency was threatened with closure not through any fault of the management and not because of a failure of commercial viability, but because the Secretary of State had decided to give a special dollop of extra high content gravy for a factory in, for example, Oswestry, which was not a viable proposition, I would take it very much amiss. We need much clearer and more specific assurances than are written into the Bill at the moment. If acceptance of the Amendments would complicate and delay procedures for the provision of assistance, that is a relatively small price to pay. If we are not to rob one development area to help another, we must have clearer assurances in the Bill. I therefore hope that the Minister will accept my Amendments.

Mr. Pardoe

The hon. Member for South Angus (Mr. Bruce Gardyne) began his speech by saying that he preferred his Amendments to the new Clause moved from the Opposition Front Bench. He will not mind if I say that I prefer my Amendments Nos. 43 and 50. The first seeks to insert in Clause 1(1) what should be the central purpose of the Bill—the creation of jobs. It will make the subsection read: The Secretary of State may make a grant to a person towards approved creation of additional employment of persons". Amendment No. 50 provides that approved capital expenditure must be likely to increase employment at least in the ratio of one new job for every £5,000 of expenditure". I am not hard and fast about the figure of £5,000, but I presume that we all believe the main intention of the Bill is to create jobs in the development areas. But nowhere in the Bill is that central purpose stated. It is amazing, but then the whole Bill is amazing, an amazing conversion of the Government to a policy of direct intervention.

We can remember the speeches by Conservative leaders and by the Prime Minister when he was Leader of the Opposition before the last election when he spoke about getting value for money in the development areas. He criticised the Labour Government for spending money and for over-spending in the creation of new jobs without getting a satisfactory return on that money. I welcome the Government's new-found policy of intervention in the development areas. I wish they had never dispensed with the policy of intervention in the first place. I hope now that they will not throw the baby out with the bath water, because there is a danger that they will do so.

We are discussing a considerable sum of money and in the Bill considerable powers are being given to the Secretary of State. We must be sure that all this will be used for the purposes we have agreed upon, for the creation of employment. That is not a hypothetical argument, because we have already an example of an enormous sum of public money being spent under the regional development legislation by the last Government for entirely different purposes. I am referring to the aluminum smelters.

I have to declare an interest. I am not involved financially with any of the three aluminium smelters but, as the right hon. Gentleman knows, I am involved with the aluminium industry as a member of the London Metal Exchange.

5.30 p.m.

The aluminium smelters were not set up primarily to produce employment. They were set up to use what we thought was an excess supply of cheap electricity and to save imports. But the figures of the costs of jobs created raise a whole host of questions. For instance, the Lincan smelter at Lynmouth in Northumberland, give or take a few million, will cost about £65 million, depending on when it is finished, and will employ about 650 people. I do not know whether they all lived locally before the smelter was built, but I suspect not and about 200 technicians who would have been employed somewhere else must have been brought in. But even at a figure of 650 that works out at £100,000 investment for every job created. I know that the coal contract to supply the electricity power station has to be taken into account as creating many jobs for miners for a long time ahead.

However, at Invergordon there is no saving grace such as that coal contract. The smelter is owned by British Aluminium Tube Investment and the American Company Reynolds. It cost £37 million and is employing about 300 local employees, which works out at £90,000 per job.

I am not saying whether Anglesey should have a smelter. If the people of Anglesey want a smelter, I do not see why it should be taken from them. It is owned by Rio Tinto Zinc, British Insulated Callender's Cables and the American company, Kaiser Aluminium. It employs about 700 local employees and about 100 specialists and jobs for the 700 local employees cost about £65,000 each, so I suppose that that may be said to be the best value that the taxpayer has.

Mr. Dell

Surely the hon. Gentleman is not suggesting that those are the figures of Government grants. I accept that the primary purpose of the aluminium smelter project was not the creation of employment, but it is absurd to suggest, as the hon. Gentleman appears to be suggesting, that the total cost of those plants came from the Government by way of grant.

Mr. Pardoe

Theright hon. Gentleman has misunderstood. I am not saying that that is all grant, but it is the total level of investment. As the Government are encouraging investment, we ought to be concerned to ensure that that investment is made wisely, especially when investment is scarce.

Sir Val Duncan told the Select Committee, I take it, not that the aluminium smelter would not have gone to Anglesey, but that it would not have existed, that it would not have been built anywhere, and the reason is that there is no need for a smelter. All three aluminium smelters are entirely superfluous to anything that could be called a balance of world supply and demand in the aluminium industry. They were built as a direct result of the use of money that the House had voted primarily to create jobs, and they did not create all that many jobs. I suspect that the money was syphoned into an endeavour which the House never intended.

Those who follow the aluminium market know that new smelters are going up everywhere and that the world is saturated with aluminium of all sorts. The taxpayer is getting an extraordinarily bad return and I doubt whether he will ever get a satisfactory return on this investment, either in jobs or in any other way. Because of the close-knit nature of the aluminium industry in Britain—and I will not use any other description—many users of aluminium, both manufactured and semi-fabricated, are paying and will continue to pay vastly above world price for aluminium that those subsidised smelters produce, and they regard that as entirely wrong, for it makes no kind of sense economically.

Mr. Biffen

Before the hon. Gentleman leaves this sad and unhappy catalogue, would he not also agree that almost the final insult was that so much of the argument for the subsequent rationalisation was the important rôle that would be played in our import-export relationship to protect a rate of exchange which has gone anyway?

Mr. Pardoe

Of course, but since the hon. Member and I have probably believed in a floating £ for as long as each other—and probably longer than other hon. Members—we would have provided the answer before the money was spent and wasted. So long as one floats the £ there is no need to spend money on import saving in this way.

I do not suggest that we have generally wasted money on regional development. I represent a development area, and I know only too well the enormous advantages that development aid can give, in terms of the number of jobs created. I am not arguing from a general point of view.

I turn to the point made by the right hon. Member for Birkenhead (Mr. Dell) in his intervention. In 1969 I checked to see what value we were getting, in terms of Government grants per job created, and in an answer to a Question that I put down I was told that between 1964 and 1969 the average commitment per job by the Government in the Welsh development area was £694 and in the Scottish development area it was £677. The total for the United Kingdom was £629. For the South Western development area it was £440. None of those figures is excessive. I should be happy to spend that money and a good deal more—indeed, our Amendment mentions the figure of £5,000—in order to create a job. But to talk about spending £100,000 to create one job is a kind of madness.

We ought to write this into the Bill before we give the Secretary of State these huge powers to allocate this vast sum of money. I cannot understand why it is not in the Bill, unless the Government are being very devious. Are they trying to increase total investment generally under cover of regional aid? Have they considered the state of British investment? My word! it hardly brooks looking at; it is a very sad picture. Have they decided that something must be done, but, being unable to take the loss of face required in accepting grants generally, have decided to increase British industrial investment by this means?

I believe that they will fail. I take up the point made by the Minister about investment incentives. I do not believe that there is any evidence, anywhere in the world, that investment incentives of any sort create the totality of investment. They do not add to the totality of investment. One can decide, by varying grants, in which places investment improvement takes place. One can decide whether investment—perhaps in a world market—takes place in Chile, Anglesey, or somewhere else. One can certainly decide whether it takes place in London or Cornwall.

All the evidence of the last few years indicates that, basically, businessmen must decide whether their investment is favourable, and the question whether the Government are prepared to lash out taxpayers' money, give them tax allowances, or make grants, is totally irrelevant to that decision.

Mr. Alan Williams

The hon. Member may be considerably overstating his case. In 1966 we were given two estimates of investment intentions—the Government's and the CBIs, published early in the year. The CBI survey indicated that there would be a drop in investment of 23 per cent, and the Government survey gave a figure of 9 per cent. On the basis of the evidence available the Government increased investment grants by 5 per cent. as a cyclical measure for two years. The actual fall, far from being 23 per cent., or even 9 per cent., was 3 per cent. and the cycle was almost eliminated.

Mr. Pardoe

One could argue that there was a "cause and effect" relationship. I cannot prove it, but there may have been a minimal effect of that kind. The hon. Member needs to look more carefully at the question of forecasts given in CBI surveys over the years and compare them with the actual results. Everybody knows that investment intentions, as given in answers to a questionnaire, are often as wide of the mark as the answers that were given to opinion pollsters who asked people who would win the last General Election. We cannot run the economy on the basis of this kind of survey, although it may be a little helpful.

I should like to see many other kinds of direct employment incentives in the Bill, though this is not the place to state them, I regret the removal of regional employment premium. I should like to see a travel-to-work grant in rural areas to increase the activity rate in some of them. A regionally varied payroll tax, what has been called a congestion tax, has been part of my party's policy ever since my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) produced a pamphlet back in about 1960. One of these days a Government will get around to introducing it. They always do, but it takes a long time, and the British people have to slog through blood, sweat and tears before eventually a Government see sense and adopt Liberal policies.

Mr. Chataway

It may be for the convenience of hon. Members if I intervene now, because I hope I can help the House. I believe that most hon. Members are anxious that we should make progress and recognise that we have a good deal left to do.

The hon. Member for Cornwall, North (Mr. Pardoe) made a number of observations, which exposed some misconceptions about the purpose of the Bill and the nature of the incentives available. He supported the argument of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) that it is impossible for Governments by any incentive to induce businessmen to invest. I have great respect for my hon. Friend's views on these matters and know that they are based on a good deal of thought. [Interruption.] I hope I have not misrepresented his view. I see that I have.

Mr. Bruce-Gardyne

Yes. I had been saying that all the evidence was that these forms of investment incentive were a minimal consideration in investment decisions by private industry. My right hon. Friend then interrupted and asked whether that also applied to free depreciation and the like. I said that in my view it did.

Mr. Chataway

I am sorry. I exaggerated my hon. Friend's position. But he is arguing that investment incentives, of whatever kind, can have a very small effect. It would take a great deal of believing that it would not make any appreciable difference to a businessman to have half the costs of his initial investment met. I find it hard to believe that the free depreciation provisions introduced by my right hon. Friend the Chancellor in this year's Budget will have no appreciable effect and that the fact that all over the country outside the assisted areas 35 per cent. of the initial capital cost of an average project will be met from taxation will have no effect.

Obviously my hon. Friend's views will not be arrived at lightly, but the majority of people will find it difficult to believe that a businessman, with the cash flow advantages that will come to him from having one-third of his initial investment met, and the calculations that flow from his projections of return on capital if he has to provide only two-thirds rather than all the investment, will say that that is insignificant.

Mr. Skeet

While I concede that the aluminium smelters would never have been built if the grants had not been made, may I ask whether my right hon. Friend concedes that even if 50 per cent. is allocated, if it is allocated for a factory or plant in the wrong part of the country, where transport and fuel costs are too high, a firm will not go there? No matter what the grant, it will not accept it.

Mr. Chataway

That is very much part of my argument, that there is no reason to believe that investors will be so stupid as to invest foolishly, whatever the size of grant available.

The point I am making is that I find it very difficult to accept the proposition which underlies the argument of my hon. Friend the Member for South Angus about any kind of investment incentives anywhere, whether free depreciation or, as we propose here, a combination of free depreciation and regional development grant not subject to tax and therefore, as he rightly said, very much profit-oriented, in contrast to a system based entirely on investment grants, such as prevailed until two years ago. It is a little difficult to say that those investment incentives will have no effect whereas a congestion tax will result in a significant number of firms immediately moving out of London to Scotland. If my hon. Friend is arguing the impotence of Government in one direction he ought to acknowledge the limitations of its powers in another.

5.45 p.m.

Mr. Alan Williams

Since the right hon. Gentleman now sees with such absolute clarity the beneficial effect of the grant, may I ask why the Government abandoned it?

Mr. Chataway

That is a point the hon. Gentleman has made many times. It is a small debating point. The hon. Gentleman knows that the case has been answered on many occasions. What we are proposing here is to maintain the differential between the assisted areas and the rest of the country. We believe that the most effective kind of investment incentive is one that is tax-based. The basis throughout the country today of the incentives is 100 per cent. depreciation. When my right hon. Friend the Chancellor of the Exchequer extended free depreciation to the whole country, in order to give a measure of advantage and additional incentives in the regions the regional development grant, not to be counted for tax, was introduced. That is a different proposition from the investment grants we had before and I hope we will not go back into that question.

The Amendments deal with two specific parts of the Bill. First, there are regional development grants and then there is the selective assistance that may be given under Clause 7. For the general run of regional development grants I believe that the argument we are now putting forward is extremely strong. I hope my hon. Friends will think again about their Amendment. As the House knows, my right hon. Friend the Secretary of State and other members of the Government were involved for a long time in consultations before introducing this package of regional measures which has been widely welcomed.

One of the major changes that was urged upon my right hon. Friend was that there should be a system of incentives in the regions which was simple, predictable and direct. If we reintroduce a job link—if we insist that the grants are paid only if so many jobs are created—we immediately have to return to a system in which we do pay not on expenditure and receipts but on each project, which has to be examined and an assessment made—in many instances, it would be only a speculative assessment—of the number of jobs to be created. We are back with some of the features of the Local Employment Acts which have been shown over the years to be least acceptable in the regions. When talking of the run-of-the-mill regional development grant case, the argument is extremely strong for what we have proposed.

My hon. Friend the Member for South Angus referred to the question of modernisation. The consultations which preceded the Bill showed that in the regions, perhaps particularly in the North-West, there was a very strong feeling that an incentive was needed for firms to modernise. We are concerned not simply with levels of employment but with making the regions better places in which to live. In view of the legacy of dereliction and the state of much of the industry in the North-West, one cannot doubt that one of the major needs—I am sure that my hon. Friend the Member for Cheadle (Mr. Normanton) will acknowledge this—is to modernise old, outdated factories and premises. If we say that only those projects which will create new employment can qualify for investment incentives, we give no incentive to improvement projects.

Mr. Tom Normanton (Cheadle)

I am grateful to my right hon. Friend for laying emphasis on the situation in the North-West. I realise the depth of his feeling after his visit to that part of the world and after discussing the problem. But I very much doubt whether anything will render service to the North-West or any other part of the country unless the ultimate objective of the investment is profit. If it is purely a matter of investment for the sake of it and changing the date on a machinery manufacturer's plate from 1927 to 1977, that is not the kind of help which the North-West wants. If my right hon. Friend is prepared to recognise certain criteria, he will be serving the best interests of the North-West.

Mr. Chataway

I am talking about the regional development grant. The profitable firm will get substantially more out of a combination of free depreciation and regional development grant than the unprofitable firm. The system which we propose gives a relatively small incentive to the unprofitable firm. The thrust of the system is directed towards encouraging the profitable firm.

Mr. Bruce-Gardyne

With respect, my right hon. Friend has not grasped the meaning of Amendments Nos. 19 and 7. Amendment No. 19 states: In determining whether and in what manner to exercise his powers under this section"— that is, Clause 7—

Mr. Chataway

I have not yet reached the question of Clause 7.

Mr. Bruce-Gardyne

The same point applies to Amendment No. 7. Amendment No. 19 goes on to say that the Secretary of State shall have regard— (a) to the relation between the expenditure involved and the employment likely to be provided". It does not say that my right hon. Friend can give assistance only according to whether a particular number of jobs are created.

Mr. Chataway

The regional development grant would then cease to be automatic. I am advised that the words mean—I should have thought this was my hon. Friend's intention—that the Secretary of State, in administering the regional development grant, would be required to reintroduce the vetting process and to give grant only if new employment would be created—

Mr. Millan

The Amendment says "shall have regard to".

Mr. Chataway

I am advised that the meaning of the Amendment is that the Secretary of State would not be able to give the grant unless new employment was created. I find it very difficult to know what is being proposed if no effective limitation is to be placed on the Secretary of State. If it is being said that the regional development grant may be paid at this level automatically, irrespective of whether it will create more jobs, no limitation is being placed on my right hon. Friend. I am talking only about the regional development grant.

I wish to come to what I thought were the matters of greater concern to my hon. Friends, namely, Clause 7 and the regional development grant in connection with larger projects.

Mr. Brace-Gardyne

With great respect, I think my right hon. Friend is making rather heavy weather of this. What one is saying is that the job creation which is likely to result from the allocation of a particular investment grant should be taken into account and be considered—yes, all right, it diminishes the degree of its being automatic. But we are not saying that the Minister should lose his discretion to support a scheme of modernisation even though it does not create employment, if in his judgment that is the decision he arrives at.

Mr. Chataway

That is Clause 7 and selective assistance to be given. What I am talking about is my hon. Friend's first Amendment and regional development grants payable automatically at the levels prescribed in the Bill just like free depreciation, which before the Budget was the difference between the regions and the rest of the country and was paid automatically irrespective of whether the project was one of modernisation or created new employment. My hon. Friend's Amendment, if it is to have any bite, must mean that the whole basis is to be changed; the Secretary of State will not automatically give grant; it will become discretionary and not automatic. That, I believe, is very much contrary to the whole purpose of the investment incentive which has been devised by my right hon. Friend the Secretary of State and very much contrary to what has been urged upon us by the CBI and by most of those involved in regional programmes.

Let me turn to what I think is a matter of greater concern, certainly to the right hon. Member for Birkenhead (Mr. Dell) and, indeed, to my hon. Friends:that is, not the general run of projects but very expensive projects which may be capital intensive. My hon. Friend the Member for South Angus has mentioned one or two such projects which have caused him concern. I believe there is a good deal more complexity to all this than is sometimes suggested. It is easy in speaking of a very large project to divide the capital cost by the number of people employed in it and show that the cost is, say, £100,000 per job. That can overlook the fact that it is strengthening the finances of the region, improving the rates basis for the local authority and creating in the area an industrial complex which indirectly may have a very substantial effect upon employment in the longer term. The Grangemouth refinery is one example of a project without which there would not be the industrial complex which exists around it. So I think that there is a good deal more complexity than is suggested—not more than my hon. Friend has suggested, but more than is sometimes suggested in our debates.

None the less I recognise, and I recognised in Committee, that there is reason to have anxiety about some of the very large projects and to wonder whether the degree of assistance which is given really is necessary.

Mr. Bruce-Gardyne


Mr. Chataway

I am bound to confess that it is not entirely logical to show any more anxiety at the situation in which we have, as now, free depreciation plus regional development grants, making up substantial help, than at the situation in which we have simply free depreciation; because before the Budget the difference between the regions and the rest of the country was that the regions had free depreciation, equally then, of course, for a very large project, when it could be argued that one was giving in tax relief to that project in the region a totally unnecessary amount of money. Substantially less would be given under the present system if the project was not profitable. There are those considerations.

6.0 p.m.

It is suggested that we should introduce a ceiling, that the Secretary of State should say that for projects above a certain size the regional development grant would not automatically apply and that he might therefore, above that ceiling, choose to give assistance under Clause 7, but that there would not be an automatic grant.

I can tell the House that under Clause 1(1) the Secretary of State has power to exercise discretion in this way. I am prepared to look at the possibility of so administering regional development grant as to incorporate a scheme such as I have outlined, but at this stage I do not wish to be committed in any way or to suggest that it will necessarily prove possible to act in the way I have described. There are considerable difficulties about administering such a scheme.

Mr. Millan

What the Minister is now saying is quite helpful but, as he say that he will act administratively, will he tell us whether the House will be informed.

Mr. Chataway

I was just coming to that. I hope that what I am saying is of assistance to my hon. Friends who, I believe, are concerned with such very large projects.

I have explained that my right hon. Friend the Secretary of State will have power under Clause 1 as drafted to administer such a scheme. But, as I say, there are very considerable difficulties about the administration. For example, if one sets the ceiling in relation to projects there will be considerable difficulty in determining what is one project. If one were to say that any project over £X million would not automatically receive regional development grant, one would clearly provide an incentive to firms to divide a project into two. If, however, one were to say that no company would receive regional development grant for expenditure above £X million one would be discriminating in favour of the small company, which might have only one project in any case, and against the very large company which might have a number of projects. There are these difficulties and I do not wish to conceal them in any way or to suggest that it would necessarily prove possible to administer such a scheme.

It would be necessary to make an early statement on this matter. I am afraid that I could not guarantee that it would be made before the rising of the House because there would be further work to be done, but I would make an early statement so that it was clear exactly what the position would be.

Mr. Skeet

Will my right hon. Friend deal with Amendment No. 19?

Mr. Chataway

Yes. Obviously I am anxious to move on. I believe that in the main I shall deal with the points which have been the subject of interventions.

Mr. Dell

On this point, will the right hon. Gentleman clarify what he is say- ing? As I understand it, under Clause 1 (1), the Secretary of State may either give the rate of grant mentioned in the table on page 2 or a nil grant. Is the right hon. Gentleman saying, therefore, that the way he will exercise his administrative discretion is to decide in the case of certain very expensive projects that he will give a nil regional development grant and make it up at a discretionary level by making a grant under the selective assistance Clauses, Clauses 7 and 8? Is that what is proposed?

Mr. Millan

May I add to that point so that the right hon. Gentleman can perhaps answer this point also? The difficulty and obscurity in what the right hon. Gentleman is saying arises because subsection (2) says not that the amount of the grant "may" be the prescribed percentage but "shall" be the prescribed percentage. I am not very clear about how he will be able to do what he wants to do under Clause 1(1).

Mr. Chataway

The way in which it will be done is the way that the right hon. Member for Birkenhead describes. The Secretary of State has the discretion not to pay the grant. He can, therefore, fix a ceiling, and for projects over a certain size assistance could be given on a discretionary basis if it were felt right under Clause 7. That is the scheme I have undertaken to consider. But I should not wish to give the House the impression that the difficulties I have described can necessarily be overcome.

I pass to Amendment No. 19 which deals with Clause 7, and to the argument that all assistance under Clause 7 ought to be related to the number of additional jobs created. Here, as I have made clear, it is my right hon. Friend's intention to maintain a job link. The way in which grants and loans will be administered under the Clause is as follows. Those projects which are modernisation projects which create no new employment—they may safeguard it in the longer term—as a general rule will receive loans on near commercial terms. The rate of interest they will be charged will be a near commercial rate. The subsidised rate of interest will, as a general rule, go only to those projects which are creating new jobs. It has always been the intention to maintain the job link in that way in the administration of Clause 7.

I believe that this is a matter which I did not, perhaps, emphasise sufficiently in Committee and it is sometimes overlooked in the more general criticisms made that the Bill is unduly related to capital intensive projects. The first part of my hon. Friend's Amendment is not necessary, because one of the purposes mentioned in Clause 7(2) is to increase employment. If one were to adopt that part of the Amendment, it would simply duplicate a provision which is already in the Clause—unless the intention of my hon. Friends is to say that assistance under the Clause can be given only to projects which will increase employment, but I do not believe that that is their intention. In the present wording of Clause 7, one of the purposes which my right hon. Friend must have in mind is the expansion of employment. I would simply argue that it is important under the Clause that other objectives should also be allowed to the Secretary of State. For example, he should be able to give assistance to achieve an orderly rundown or to help a project of modernisation.

Mr. Bruce-Gardyne

Clause 7(2), which sets out the purposes mentioned in Clause 7(1), makes no mention of employment qualification.

Mr. Chataway

Clause 7(l)(a): For the purposes set out in the following provisions of this section 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 provide, maintain or safeguard employment in any part of the assisted areas,". Therefore, it is already covered in Clause 7.

I do not recommend the acceptance of Amendment No. 19, though in the administration of the powers under Clause 7 we must continue to pay great regard to the point my hon. Friend makes about the effect of assistance in one area upon concerns in another. Indeed, as the White Paper says, and as my right hon. Friend the Secretary of State made clear on Second Reading, one of the reasons for Clause 8 is to cover the circumstance where assistance is given to firms in an industry which are located in the regions and where, as in shipbuilding, this means that perhaps a relatively small proportion of firms which are not in assisted regions will be capable of being damaged. I assure my hon. Friend again that this point will be very much in my right hon. Friend's mind.

I hope that, on the basis of what I have said and of the assurances I have been able to give about regional development grants, hon. Members on both sides will not feel inclined to press the Clauses and the Amendments.

6.15 p.m.

Mr. J. Grimond (Orkney and Shetland)

I was encouraged by some of the Minister's remarks. I was glad to hear that he attaches importance to the provision of employment and that this will be taken into account in administering the Bill when enacted. I was also glad to hear that he will consider the possibility of so administering the Act as to safeguard the public purse from having to disburse large sums of money to large firms to create very little employment.

I welcome those intentions, but I am rather worried about the way in which they are apparently to be carried out, because most hon. Members already have some difficulty in dealing with the administration of Acts such as this. Much discretion is inevitably left with Ministers. Our constituents ask us why they have been granted assistance at a particular rate. Often the reasons are impossible to explain. There is, therefore, always some doubt and sometimes suspicion about the working of Acts.

I am not certain how we are to widen the discretion of the Minister or, indeed, whether we are to find out the principles upon which he will administer the Act. As I understand it, all that the House will have is a statement from the Minister as a result of which a few questions can be asked, and that will be the end of it.

I take the Minister's point that employment is not, perhaps, the only criterion. I also take the point made by my hon. Friend the Member for Cornwall, North (Mr. Pardoe) and by the hon. Member for South Angus (Mr. Bruce-Gardyne) that it should be one of the criteria. To take the extreme case it is anomalous that public money should be given to a very prosperous, large and profitable firm actually to reduce employment in a development area. It may be right that a firm should carry out a reorganisation but it is wrong that the public purse should be saddled with a proportion of the cost if it will do no good to the community.

Second, I hope that attention will be paid to the danger of simply drawing off labour from one place and moving it to another. The hon. Member for South Angus mentioned Northern Ireland. I feel that we are in danger of giving way too readily to force in our affairs, and that it would certainly be anomalous if other development areas, and, indeed other parts of the world, were damaged because of special aid given to Northern Ireland.

My hon. Friend the Member for Cornwall, North mentioned the aluminium smelter. I shall not go into that question now, but the House will recall that it did a good deal of damage to our relations with Norway. It seemed a slightly curious way for good Europeans to behave. Not only vis-æ-vis Europe but vis-æ-vis the world at large, we must look at our development policies and see how they affect other places.

I am by no means saying that it is not important in some development areas to encourage a sophisticated form of employment which may not give very many jobs in total but which brings new jobs into an area and may raise the general rate of earnings there. What I am saying—I am glad to hear that the Minister agrees—is that the creation of jobs should be one of the more important criteria to be applied.

It should not be forgotten that small projects employing only a few people may be extremely valuable in some places though of little value in others. A project employing 10 to 20 people is of great value to a small burgh though of no great significance in, say, Glasgow or Liverpool. If means can be found to encourage such projects to go to the small burghs, I shall welcome it.

As the Expenditure Committee pointed out, we still know extremely little about how the various Measures designed to help development areas are actually working. In Shetland, there has been a rather remarkable expansion of small businesses, in fish processing and knitwear. Many people say this has happened because Shetland has a good Member of Parliament. Others point out that they are very fine people there. Some give credit to the Highlands and Islands Development Board. I have even heard it said that some Governments have had something to do with it. In fact, no one knows why it has caught on at this moment when, for years and years, nothing happened.

I agree with the Minister in saying that incentives can be important not in directly creating investment but in stimulating it to some extent, but the intention to invest must be there already, and what we do not know is what creates the intention to invest at a particular time, apart from general economic climate, and soon.

We are too inflexible in our policies. We try to apply the same development policy all over the country, although in one part our aim should be to encourage quite small businesses to expand or to establish themselves, and, on the other hand, we should be trying to mop up unemployment in places like Clydeside or Lancashire. We must be far more flexible for these purposes.

It would be worth the Government's while giving definite encouragement to the universities and technical colleges which are already investigating the working of the various Acts. I have no doubt that the Government are in contact with them. They should be constantly monitoring the way things are going to see that we are getting value for our money, and to see what are the motives which cause investment of one kind or another to take place. I have no time to go into it now, but there are all sorts of motives involved—the environment, education facilities, transport and soon. We have very little idea, as the expenditure Committee said, what the real mixture is which sparks off investment.

The Minister said that sometimes it is right to get a new complex going at very substantial capital expenditure even if the initial number of jobs is not great. I accept that. But, here again, we know very little about the effects. It is essential to monitor developments in places like Invergordon to see whether they are, in fact, sparking off other developments round about or whether they are simply drawing off labour from other parts of the Highlands and concentrating it there.

I shall not delay the House, but this is an important matter, and I must say that I regret that we have so little time to debate it now, and we have so little time, also, to discuss the Minister's administrative principles.

Mr. Ridley

There is a dilemma before the House here. The Russians have no unemployment because they keep the appropriate number of people in each factory to make sure that all are in a factory, whether they are needed or not. The concept that modernisation and mechanisation will produce unemployment and that it therefore should be avoided leads one eventually to the Russian solution. I feel strongly that Russian industry is inefficient and should not be the object of the House. There can be no doubt that it is right always to improve, modernise and reform, even if it results in loss of jobs, because the people to make the new machinery have to be found, which creates new jobs. There is a tertiary effect. That is how economies grow and prosperity expands.

The concept of limiting the assistance under the Bill to a certain level of cost per job is not one which appeals to me. I am always tempted to agree when I hear the Opposition pressing a Tory Government to save money. It is an unusual and extraordinary sound to hear. My first reaction is always to join them in their clam our, but on this occasion it would not be right to do so.

I do not agree with my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) and the hon. Member for Cornwall, North (Mr. Pardoe) that investment differentials make much difference. I think that my right hon. Friend the Minister for Industrial Development was wrong to say that the differential was free depreciation plus 20 per cent. or 22 per cent. The differential between the assisted and unassisted areas is free depreciation across the board and 22 per cent. in special development areas. The only additional lure is the 20 per cent. or 22 per cent. grant. That compares with other systems in Belgium, Holland, France and other countries where there are different levels of incentives.

When one works out the incentive, it is probably of less value than money was two months ago before the Bank Rate went up from 5 per cent. to 7 per cent. Of course, the Bank Rate may again go up or go down. The variations in the cost of money are greater probably than the value of assistance of this sort. Moreover, Japan has invested per head between three and four times as much as we have, although it has interest rates which sometimes go as high as 13 per cent. or 15 per cent. It must be realised that it is not the cost of money which determines investment. It is, as many right hon. and hon. Gentlemen have said, the existence of the market and the right conditions for making the product which one hopes to sell at a profit. That underlines the folly of the smelter experiment. I was one of the few people who spoke out against the smelter orders when they came before the House. I predicted many of the figures which have been given, except that I added an estimate for the total cost of public funds and the grants under the Industrial Expansion Act. Even at that stage it did not look a starter either on employment, profit or import-saving grounds. We have been given the figure of 1,650 jobs from the three smelters, which is about 500 jobs less than predicted even before the smelters start. We have to avoid that sort of project.

My right hon. Friend announced—it took us all by surprise—that there is to be control over the large cost-per-job projects. Will cost per job be the general criterion, or is it to be the cost per job in large projects? One could conceive a situation where investment of £100,000 would result in the creation of only one job. On the other hand, my right hon. Friend may have in mind projects such as smelters and petro-chemical complexes where expenditure runs into millions of pounds.

Mr. Chataway

It applies only on large projects because, of course, on the general run of projects the cost-per-job criterion cannot be applied. In a modernisation project no new jobs may be created. We discussed this in Committee and I undertook then to look at it. I have said today that on expensive large-scale projects we shall consider applying this criterion.

Mr. Ridley

There still seems to be a need for more explanation and it should be included in the Bill because this is a major change in the Bill as drafted. I hope that my right hon. Friend will be able to put down an Amendment to achieve his aims because we are not clear about what is involved. What he is seeking could be achieved only by a project-size limit. It would have to run something like this:over a total cost of £X million the Secretary of State shall not advance a grant if the cost per job exceeds £Y thousand. If I have it wrong perhaps my right hon. Friend will correct me.

Mr. Chataway

I shall repeat what I said to the hon. Member for Glasgow, Craigton (Mr. Millan). I am agreeing to consider the proposal that there should be a ceiling calculated either according to the sum of money paid to a firm, or on the size of the project. Above that ceiling the Secretary of State would still have discretion to give assistance if he thought fit under Clause 7 but it would not be a regional development grant.

Mr. Ridley

That clears it up and I am grateful because I was not clear what my right hon. Friend had in mind.

This is a tremendously important group of Amendments and the House would be wrong to let them go without proper comment. I strongly support my right hon. Friend in his desire to be free of rigid criteria. I do not believe that any of the criteria we had before made sense. There was the criterion relating to a 20-mile distance from any existing project. There was also the criterion of viability, there was the employment link, and there were one or two other criteria. In operation they resulted in unfairnesses and in non senses in terms of what one firm received as opposed to what another received, and as the amounts paid to individual firms were secret it was impossible to know what was going on.

There is no other way to do this than to rely upon the discretion of a group of people, whether they be my right hon. Friends or a board or a group of advisers to distribute the public money in the way that they believe will bring the greatest improvement in the employment situation. I know that that is a difficult concept for Parliament to accept, but I still believe, after experience of administering these matters, that it is the best thing to do. If wrong decisions were made the responsibility would have to fall upon those who held the stewardship of that power. I do not believe that one could do it any other way.

6.30 p.m.

There is another element that should be considered—the reputation and behaviour of labour. It is not a good advertisement for Clydeside that, having given a no-strike guarantee to Marathon, Clydebank yard should be out for one day on a matter which is not even remotely connected with its new employers. That sort of thing does more harm to regional policy than any lack of grants or loans or abolition of REP or anything of that sort. Talking to industrialists when at one time I was administering these powers I was convinced that it was the reputation of labour—the reputation whether or not deserved—which was the biggest single handicap in some regions.

In deciding whether to exercise his discretion in certain cases, my right hon. Friend should take into account these factors and these reputations and make clear that a good reputation would attract not only more mobile industry, but more grant from the Government.

Mr. Dan Jones

I am increasingly aware that time is now the essence of the operation and if it were not for that a number of factors affect my constituency and North-East Lancashire generally, I would not intrude myself on the House. However, I cannot help but reflect on the last observation of the hon, Member for Cirencester and Tewkesbury (Mr. Ridley). He spoiled an otherwise sound speech by referring to qualifications that might attach to labour in the dispensation of a grant. Frankly, were such a consideration ever to be entertained, an impossible obligation would be thrust on the Government's shoulders.

It is incumbent upon the Minister clearly to demonstrate that the reason for subsidising the regions is to subsidise employment and not profit. That was not entirely grasped by the Labour Government, as I could show quite clearly if I had more time.

There is one factor that the Minister must keep in mind and which runs throughout the Bill, although he did not mention it. That is the significance of the regional industrial advisory board. I take it that these boards will not be some form of automaton and those concerned will have some kind of advisory standing with the Ministry when considering the spending of money, and I should like the Minister to say so. If he is to attract the right kind of men and women to these boards, their terms of reference will have to be such that they have a standing in the eyes of the Ministry that is more than an advisory function, so they should have some executive duties to perform.

I liked what the Minister said about old cotton mills and so on and I am pleased he spelt out that part of the case in such detail. This is clearly a serious problem not necessarily in the North-West but certainly in North-East Lancashire—and in Committee I repeatedly tried to make a clear distinction between the two, for the North-West does not care too much about North-East Lancashire, where we have more than our share of old mills that would not be suitable for modern industrial development. I go on record as saying that I support the Minister in that respect and I am exceedingly pleased that he made the point in such detail.

The other point that I want the Minister to take into consideration was made by my hon. Friend the Member for Swansea, West (Mr. Alan Williams) in referring to unemployment in various regions. What my hon. Friend did not say, but needs to be said, is that there is a tremendous amount of hidden unemployment in North-East Lancashire. Many people, especially women workers aged about 50 years of age, are not comprehensively registered, and are consequently not included in the number of people declared unemployed. I have for a long time advocated that they should be comprehensively insured, as a result of which they would count amongst the unemployed. I hope that the Minister will pay greater attention to that factor of hidden unemployment.

Paragraph (b) in the Amendment should have received more attention from the hon. Member for South Angus (Mr. Bruce-Gardyne). It refers to any consequential effect on employment in any other part of the same or any other assisted area. In that respect North-East Lancashire has been hit very hard. Even now I appeal to the Minister not to make the mistake that we made, and transfer unemployment from one area to another. That is precisely what ICI and Courtaulds did in the case of the Lancashire textile industry. Those industrial giants received millions of pounds of public money and transferred factories from North-East Lancashire to other parts of the country, after which they induced workers from North-East Lancashire to go there to work. Not satisfied with wounding North-East Lancashire to that extent they went round with packets of salt to drop into the wounds that they had made by telling the people from Lancashire that there were also houses for them in the new area.

I ask the Minister to take care not to repeat that mistake, first, because it makes no contribution to the solution of the unemployment problem to transfer it from one area to another and, secondly, because everyone must know that those firms would not have moved unless they had been given public subsidies. I am intensely pleased at being able to make it known throughout North-East Lancashire that the disabilities that we have suffered, with far too many employers looking at old mills and going away saying that they are not satisfied, will be remedied by the Bill.

I have argued consistently that North-East Lancashire should be made a full development area, for the reasons that I have given. I have no doubt that I could easily prove my case, notwithstanding that in the debate on the North-West, on 18th July, many hon. Members opposite opposed that idea. I should have no difficulty in proving to the Minister, or any independent fair-minded industrial court, that for the reasons that I advanced in Committee North-East Lancashire deserves full development area status because of the contribution that it has made to the national economy and the amount of industrial suffering that it has borne as a result.

Mr. Tom Normanton (Cheadle)

It gives me genuine pleasure and pride to follow the line of thought of the hon. Member for Burnley (Mr. Dan Jones). We have much in common as Lancastrians with deep roots in the North-West. But perhaps we differ fundamentally on the Bill.

I had hoped to catch the eye of the Chair during the past hour earlier than this, having sat through the debate since ten minutes past one.

I do not intend to repeat any of the points raised either by those who support the Bill or the Amendment. All I will add is a plea to my right hon. Friend to pay special regard to the problem not of the capital-intensive industries but of the smaller firms.

The hon. Member for Burnley and others have suggested the ways in which the implementation of a regional policy to benefit one area has transferred a sore from that area to another, perhaps an old area. That has happened in the north-east of Lancashire and many other parts of the country. The policies which have been pursued have, perhaps by intent—I hope not—or perhaps by accident—that should not be the case—been beneficial, or thought to be beneficial, to the large corporations. At the end of two or three years they have been found painfully and bitterly to have operated to the disadvantage of the small companies.

I do not want to enter into an emotional debate on the relative merits of small or large business. But if a regional policy is to be pursued which will clearly, on the basis of evidence which is to be seen if we look for it, penalise the smaller and medium companies, the Bill must be amended to give recognition to the need to observe some form of criterion. This was very much in the minds of those of us who put our names to the Amendments of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). My right hon. Friend has given certain assurances on the importance of relating jobs to grants. I do not think those assurances are in conflict with, but rather support, what those of us who support the Amendments want to see. In view of the identity of interest on this issue, I do not understand why my right hon. Friend cannot give the point similar recognition.

The second point about the consequential effect on employment is very important, not just in the context of the district, not just in the context of absorbing an excess of labour in one area, but in terms of the dangers which have occurred, the experience of the way in which trade has been shifted from one area into another. I earnestly hope that nothing in Amendment No. 19 or Amendment No. 7 will conflict with the requirement of the situation, the requirement to lay down a criterion and clearer guidelines to avoid the transferance of a sore from one district to another. I earnestly hope that my right hon. Friend will, if he is to add any further comments on this selection of Amendments, give some undertaking and an assurance that perhaps in another place he will give substance to the undertaking and see that the smaller companies are not prejudiced in the implementation of this Amendment.

6.45 p.m.

Mr. Dell

It would be wrong for me to sit here and listen to the various comments by right hon. and hon. Gentlemen about the aluminium smelter project and not confess—because that would appear to be what hon. Members present would require of me—that I actually negotiated the aluminium smelter project, a fact which did not prevent the Secretary of State for Wales from opening the Anglesey aluminium smelter, which suggests at any rate that he approved of it. I do not want to defend the project—it would not be relevant, although there is one aspect that is relevant.

I would merely say that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) was quite right when he suggested that he was one of the few Members who at the time opposed the project. The main complaint was that we did not get on with it fast enough. The relevant point is that it is no use hon. Gentlemen complaining, if they now wish to complain, about the aluminium smelter project and yet support the introduction of regional development grants, because the whole point about the regional development grant is that it may result in the institution in the assisted regions of projects which are not competitive on a pure basis of international competition. Hon. Gentlemen are not saying that if like projects which it could be proved were not competitive on that basis came forward they would not get such a grant, and therefore they are accepting the principle implicit in the aluminium smelter project by agreeing with the Government that a grant system shall be introduced in the regions.

Mr. Bruce-Gardyne

The right hon. Gentleman must realise that the scope of debate at this stage must be restricted to the Amendments selected. He cannot from that draw the conclusion that those of us who made it clear that we do not like the investment grants therefore like them.

Mr. Dell

If the hon. Gentleman had listened to what I said, he would know I was not attributing that to him. I know he does not like regional development grants. I am pointing out that his Party supports the introduction of these grants. The effect of introducing them is that we create the situation whereby there are projects which it could be said, on a pure basis of international competition, should not exist. I exclude from any accusation in this regard those hon. Members on the Government side who I know are opposed to the introduction of regional development grants. I am not opposed to the introduction of such grants, but that is a consequence of their introduction and I say that it does not lie in the mouths of those hon. Members to attack the aluminium smelter project in the way they have.

Mr. Biffen

None of those who have spoken and who attacked the aluminium smelter decision are to be found among that element of the Tory Party which supports the grants. They have been conspicuous by their silence.

Mr. Dell

I do not know whether that is true. There have been other Members who have spoken who appeared to be supporting the grants and attacking the aluminium smelter project. If what the hon. Gentleman says is right, the implication I draw from the Government's decision to introduce these grants nevertheless stands.

Mr. Ridley

I do not know whether that is quite true. The aluminium smelters were financed under the Industrial Expansion Act because the ordinary industrial development grants were inadequate to provide the quantity of subsidy needed to get the smelters off the ground. They were much more expensive than a straightforward investment grant requirement. This was a special case, and I do not think that the right hon. Gentleman is being quite fair.

Mr. Dell

The only grant aid—I welcome the Secretary of State for Wales who has now reappeared—for the aluminium smelter project was grant aid given under the Industrial Development Act. Other loans were made under the Industrial Expansion Act, but the Anglesey aluminium smelter and the British Aluminium smelter at Inver-gordon received grants only under the Industrial Development Act.

Now that the Minister has said he will give deeper and even more sympathetic consideration to the point I raised twice in Committee that there should be a way of cut-off, it would be ungenerous not to say a word of welcome to that concession. It is a very important concession because it is desirable that there should be a cut-off. The hon. Member for Cirencester and Tewkesbury expressed surprise that anyone on this side of the House should be interested in public expenditure. He has no reason for such surprise.

We want to ensure that public money is spent sensibly and that it achieves the intended objects. If it does not achieve the intended objects, there is the danger not only of waste of public money but that if such a step were not taken the Government might be faced with the choice of reducing the level of grant in the development areas and the special development areas. I would very much prefer that the Government should cut off some of the assistance to the more expensive projects than that they should cut the rate of regional development grant for industrial development in general. I therefore very much welcome what the Minister said in that respect.

Mr. Biffen

I place on record my appreciation of the Minister's remarks in answering the points raised by my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) and others on what is clearly a vexed issue. I hope it will not offend the right hon. Member for Birkenhead (Mr. Dell) if I say that the vexation is devoid of ideological purity. It derives from one of the oldest and most traditional concerns of this House, namely, the prudent monitoring of public expenditure.

The Minister said that there had been widespread consultations before the Bill was published. We are now at the stage at which parliamentary consultation is proceeding. I am not unaware of the Government's many difficulties at this time of the year, but the fact that it is inconvenient that we are now conducting our consultations does not lay upon us any responsibility to abdicate them. Indeed, the reverse is the case. Our responsibility is to fulfil our traditional parliamentary role because we are talking about issues of major significance.

The hon. Member for Burnley (Mr. Dan Jones) was uncharitable in trying to terminate the remarks of my hon. Friend the Member for South Angus. The hon. Gentleman subsequently made amends by the eloquent testimony which he gave to the second part of my hon. Friend's second Amendment when he explained the circumstances affecting his constituency. He believed that not entirely unforeseen consequences of Government action in employment terms could have serious repercussions for one area which saw itself as no less deserving than any of its neighbours in terms of employment and the receipt of Government aid and sustenance. We have to think only of the consequences for Harland and Wolff and of decisions concerning the Upper Clyde to realise that this is not a quibble; it goes to the heart of much of what we have been considering.

Above all, the point which still remains and which exercises a number of my hon. Friends is that, aware as we are of the preparedness of my right hon. Friend to meet some of the concern which has been expressed, there is no indication that this will reveal itself in legislative form. Surely the right hon. Member for Orkney and Shetland (Mr. Grimond) was quite right to want further reassurance on this, a point which, I thought., was eloquently underlined by my hon. Friend the Member for Cheadle (Mr. Normanton).

Therefore, the first question which arises is whether what is being requested is incapable of being written into the Bill in any form. Is the Bill of such immaculate conception that in the House of Lords it cannot admit of some Amendment which would meet in legislative form the general anxieties which have been expressed? As I read the Bill it is full of generalised aspirations, and I would not have thought that the addition of one more generalised aspiration—namely, that there should be regard for relativity between expenditure and em- ployment—would flaw the Bill in such a way as to make it aesthetically unacceptable to the Treasury. So I hope that my right hon. Friend will consider further these representations.

Clearly, we want to do two things. We want to behave in a civilised manner and not stay here and waste time, but on the other hand we want to do our parliamentary duty. I say we want to do our parliamentary duty because since Second Reading—indeed, since the conclusion of the Committee stage—we have had published the Sixth Report from the Expenditure Committee, "Public Money in the Private Sector", a report referred to briefly by the right hon. Member for Orkney and Shetland and to which I hope to refer in more detail on subsequent Amendments. If Parliament is doing its job it ought, out of sheer courtesy to the people of some distinction who served on that Committee, to pay regard to their recommendations and even at this late stage—one of the virtues of Parliament is that it has flexible arrangements—incorporate some of the advice which tendered in that carefully considered report following wide-ranging evidence from people of great eminence who have been major beneficiaries of a good deal of the moneys which have been voted under the provisions of the Local Employment Acts and other legislation which the Bill in part repeals or replaces.

I very much prefer the Amendments proposed by my hon. Friend the Member for South Angus to the new Clause proposed from the Opposition Front Bench, but I think my hon. Friend is right to say that we would like to see some consideration for relativity between the quantum of investment and the jobs created. The Bill is an immensely investment-conscious Bill. We in this country have a long tradition of legislation which has been investment conscious, and almost at every stage of that development whatever happens to be the current fashion is employed as justification for a further boost to industrial investment.

7.0 p.m.

I do not want to open up endless divisions between my hon. Friends and myself, but the prospect of Community membership will be the great argument employed by the Government for making available very large sums of money linked to direct investment. I do not think that to be an unfair representation of the Government's view. Indeed, at Llandrindod Wells on 17th June the Secretary of State said: As we go towards our Common Market membership we are faced with the need of ensuring that our industries are timed not just to compete more directly with those of our European neighbours but, in a larger sense, to contribute to the whole Community's efficacy as an industrial force. Recognising that the short fall of investment in the 'sixties has not achieved what is really wanted in this field, the Government has…decided through the Industry Bill to equip itself with the ability to play its part in this necessary modernisation. That is a very ambitious backcloth against which to be taking spending decisions, yet a great deal of the concern about the Bill, and a great deal of the argumentation, has been in regional terms and has been in employment terms. I therefore believe that unless we are prepared to make some tangible gestures towards the concerns expressed by my hon. Friend the Member for South Angus in his two Amendments we shall be dangerously failing to fulfil what I believe is a proper monitoring function, for there is a very real danger that under this legislation moneys will be expended which will bear little or no relationship to the causes that many who espouse the Bill believe they are serving.

Mr. Alan Williams

As the Bill's strongest defender, and as one who very much looks forward to opportunities perhaps of operating under its powers at a future date, I welcome the concessions which have been made to our arguments by the Minister. He has fully accepted our case. He has vindicated our efforts both in Committee and today to convince the Government that the lessons of the past, regardless of where they were learned, should be reflected in some sense in future legislation. Therefore, happily receiving the Minister's assurance that he will endeavour—we realise that his is not a cast-iron assurance—to meet our objections, I beg to ask leave to withdraw the Clause.

Mr. Bruce-Gardyne

On a point of order, Mr. Speaker. Since the whole argument in this debate has been related not to the new Clause at all but to my Amendments Nos. 19 and 7 which have been taken with it, is it in order for me to answer the points made by my right hon. Friend?

Mr. Speaker

I am afraid not. I selected only new Clause 5 for decision and the Amendments for discussion with it, which does not give a right of reply.

Question put and negatived.

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