HC Deb 31 July 1972 vol 842 cc204-14
Mr. Bruce-Gardyne

I beg to move Amendment No. 8, in page 5, line 32, leave out 'the asset is provided or'

Mr. Deputy Speaker

With it we shall take Amendment No. 9, in page 5, leave out line 33.

Mr. Bruce-Gardyne

The purpose of the Amendments is to provide that under the terms of subsection (2) the Secretary of State would be entitled to make payment of the grant only when he was satisfied that the expenditure on the qualifying asset had been defrayed. This was a point which I raised on Second Reading and which I have pursued subsequently in correspondence with the Minister. I am concerned to ensure the avoidance of fraud.

As I understand the old system of investment grants, it provided that investment grants should not be payable unless an invoice to prove the purchase of the qualifying asset was first produced. I had reservations about that grants system, but this requirement was at least a restriction on the possibility of abuse and, to put it bluntly, fraud. Notwithstanding that provision, I know of a case not 100 miles from the constituency of my right hon. Friend the Minister for Industrial Development, concerning a splended mansion complete with ballroom and heart-shaped swimming pool, entirely equipped from investment grants paid under the last Labour Government supposedly for the development of industry in Scotland. This was an instance where the procedures were correctly followed, but some extremely smart accountancy work ensured that the asset changed hands so fast the responsible authorities were unable to keep up with them. At any rate, it suggests that even the old system was not foolproof.

We appear to be moving to a system which is even less foolproof and, to my mind, shrieks to the heavens for some smart manipulation by individuals wishing to take advantage of the taxpayers' largesse under Part I of the Bill, because we are saying that a grant will be payable at any time when, in the opinion of the Secretary of State, the asset is provided whether it is paid for or not.

12 midnight

I have pursued this matter in correspondence with my right hon. Friend, who has in practice underlined the point, because, in a letter to me on 7th June, he said: But it makes it quite clear that I have to be satisfied that the asset is provided or the expenditure defrayed as the case may be… For example, applications will need to he supported by a report from an independent accountant confirming that expenditure has in fact been defrayed, or in the case of plant and machinery, evidence, such as a delivery note, that the asset has been delivered to qualifying premises. I ask the House to note "delivered"; not necessarily "paid for". Under Clause I of the Bill, I have also to satisfy myself that the expenditure has been incurred by the applicant, which in most cases will mean that the asset has been purchased by him. Clause 5(2) is based on the arrangements for paying building grants under the Local Employment Acts which allowed grant to be claimed in full once the building was provided and the total costs were ascertained. This is some improvement on the investment grants system as, under the Industrial Development Act, 1966, investment grants could be made only when the expenditure became payable, with the result that where an asset was purchased on credit, grant could be claimed only as and when payment of the instalments became due. That does not seem an unreasonable proposition. We are now saying that if an asset—perhaps a very expensive asset—is purchased on hire purchase the whole of the grant will apparently be payable at the latest when the first instalment is paid. That seems almost an open invitation to fraud which I think we would be better advised not to include in the provisions of a Measure which, in all conscience, provides relatively limited supervision of the way the taxpayers' funds are to be expended. Therefore, I hope my right hon. Friend will give the House a clearer explanation tonight than any we have had to date why this subsection has been drawn so widely and in appearance so generously for the purpose of applicants for the investment grant.

The Minister for Industrial Development (Mr. Christopher Chataway)

To avoid any possibility of doubt, I should make it clear that there is no ballroom or heart-shaped swimming pool in my establishment in my constituency. If the suspicions of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) harden into anything firmer, it will be a very serious matter which my Department would wish to investigate fully.

I appreciate my hon. Friend's anxiety to ensure that the arrangements in the Bill are absolutely watertight and that there is as little opportunity for fraud as we can devise. However, these Amendments would needlessly complicate the payment of the regional development grant to an applicant who was acquiring an asset on credit terms.

We are following the long-established practice under the Local Employment Acts rather than the practice that was adopted for the investment grants. Experience of the former investment grant scheme under which the grant could be made only when the expenditure became payable by the applicant showed the disadvantages of spreading out grant payments in that way. It led to considerable administrative inconvenience and expense, and no saving to the Revenue. Therefore, in the Bill we are following the arrangements for paying building grants under the Local Employment Acts, which enabled grant to be claimed in full once the building was provided and the total costs ascertained. Subsection (2) will enable grant to be made on the whole cost of the asset once the Department is satisfied that the asset has been provided—that is, delivered to or completed on the site—and that the applicant is under an obligation to pay for it. That is a straightforward arrangement which should work to everyone's advantage.

My hon. Friend fears a situation in which the purchaser of a qualifying asset pays the first instalment and then pays no more. But, as he knows, there are obligations to repay grant if the grantee does not continue to use the asset for the stipulated purpose for a certain period, so that exactly the same safeguards apply where an asset is purchased on credit as where an asset is purchased outright.

Mr. Bruce-Gardyne

Surely the position is not quite on all fours. Suppose I purchase an asset costing £1 million, which I agree to pay for in 10 annual instalments of £100,000. I pay the first instalment and then receive the qualifying grant of, say, £200,000. Therefore, I am in pocket to the tune of £100,000, which I never was under the old arrangements, because I could receive the grant only once I had either paid for the qualifying asset or paid the instalment which attracted the grant. I am £100,000 in pocket, and then I depart with my £100,000 beyond the confines of the United Kingdom. I do not think that whatever provisions there may be for recovery of that payment would serve any useful purpose under such circumstances.

Mr. Chataway

My hon. Friend's hypothesis is fairly far-fetched, because he must remember, that if it were his intention to do that, he would probably have to provide a good deal more than the qualifying asset, as he would probably be establishing a factory in the process and would be involved in a good deal of expenditure which was not qualifying. There is no departure from past practice here, because this is the arrangement which has prevailed under the Local Employment Acts for many years. There is no evidence to suggest that applicants who had arranged to pay over a period of years for assets that qualify under those Acts were any more likely to default on their payments because they had received the full building grant.

On the other side of the argument, it will be clear to the House that there is needless administrative work involved in the regular checking and paying of grants by instalments. We are simply learning from experience and making an arrangement which is more satisfactory.

Mr. Millan

I am not terribly happy about the right hon. Gentleman's reply. I am not sure what the subsection means, particularly the phrase "…whichever is the earlier". Does this mean that in every case the payment is on the earlier event, that is, whether it is the provision of the asset or the defrayment of the expenditure? Or does it give flexibility? In other words, in a particular case where the Department may feel a certain amount of doubt about an applicant who has provided an asset, but who has not yet paid for it, does the wording of the subsection mean that despite that doubt the grant must be paid whenever the asset is provided? Or does it give an element of discretion? I hope that it gives an element of discretion, that all the phrase does is to define the time beyond which a payment could be made. Or does it mean that the payment would be made on the date of the earlier event? The former interpretation is respectable but the latter would possibly be open to a certain amount of abuse.

Where the grant is paid on the provision of an asset without the asset necessarily having been paid for, is it the intention of the Department to ask for later evidence of payment? I read the provisions on hire purchase in Clause 6 to mean that the grant would be payable by instalments. The right hon. Gentleman is saying that the grant will always be payable in one lump sum to save administration. That is an odd argument. Substantial sums of money could be involved where the cost to the Exchequer of paying the grant in one sum must outweigh any possible administrative costs of payment by instalment. In every case is a lump sum to be paid, or in particular cases will the grant be paid by instalment? In general, I have no objection to the subjection if it merely gives flexibility, but if it means that the practice will always be to pay grant at the earliest possible opportunity, and always in full, there may be certain cases where there would be substantial disadvantages which would outweigh the administrative advantages referred to by the right hon. Gentleman.

Mr. Douglas

During the Public Accounts Committee's investigation of the payment of previous forms of investment grant, some evidence was given relating to the fact that the expertise gathered by the Department in administration was to be shared at the end of the investment grants procedure in 1958 with the Treasury. I am anxious to know how the right hon. Gentleman is to avail himself of the experience during previous incarnations of the investment grant and how he is to operate in terms of supervision between his Department and the Treausry. The Bill allows for an estimated increase in public service manpower of about 500. Are some of them to be employed in administering the new grants?

12.15 a.m.

Mr. Ridley

Is there a distinction between buildings and movable plant? My right hon. Friend said that the provision was taken from the old building grants. I can understand that a person could not default and take a building with him to the Bahamas, but in the case of a highly expensive piece of machinery which might be small enough to fit into a suitcase there is no reason why he should not order the machinery, take it to the Bahamas on delivery, not having paid for it, and collect the 20 per cent. grant from the Government.

If it is not necessary to pay for the item before he receives the grant it would appear that that can be done. Is my right hon. Friend satisfied that this provision is secure against that sort of thing, bearing in mind that with investment grants a person had to produce an invoice before he got the grant?

Mr. Kenneth Warren (Hastings)

I do not think that the person referred to by my hon. Friend would have to go to the Bahamas. If he had ordered such a small piece of machinery it could be moved to another part of the country which is not in receipt of the aid that we envisage.

Mr. Chataway

I hope that I can set at rest some of the anxieties that have been expressed. It must be said that no scheme can be totally proof against deliberate fraud. There have been a number of prosecutions under the Local Employment Acts and the investment grant system. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) says that it would be possible for somebody to decamp to the Bahamas. That may be so. My hon. Friend the Member for Hastings (Mr. Warren) says that the machinery could be moved to another part of the country. There are provisions for checking, both under the Local Employment Acts and under these procedures, as there were under the investment grant provisions, to ensure that the assets purchased are still being used for the purposes for which they were bought. It would be extremely unlikely that anybody would succeed in getting away with the fraud that my hon. Friend suggests.

The hon. Hember for Glasgow, Craigton (Mr. Millan) asked whether this was mandatory or whether there was a discretion to the Secretary of State. I can tell him that there is a discretion and that we would watch carefully the working of the arrangements. As is required from the Secretary of State under Clause 1, it will be necessary to show evidence that the asset has been acquired, and if it is acquired on credit that will normally be evidence that a first payment has been made.

There would not necessarily be a saving to the Exchequer if the payments were made in instalments over the years, because then the payments would include interest payments. If the purchaser were purchasing on credit and the cost were being met in instalments by the grant the Exchequer might have to meet the interest payments involved. There is not necessarily any saving, quite apart from the administrative expenses involved in paying in instalments.

Mr. Millan

That does not seem to be accurate, because capital expenditure under Clause 6 is defined specifically in terms only of the capital element in hire-purchase payments. Surely under no circumstances will people be paid a grant on interest payments.

Mr. Chataway

That is the provision in the Bill and it is framed in that way because that is our intention. I may be wrong, and I shall tell the hon. Member if I am, but I believe that under investment grants, in payment of instalments, interest was included.

The main point I make to the hon. Gentleman is that certainly the Secretary of State has discretion and that we shall watch very carefully the way in which Clause 5(2) works out in practice. We shall be prepared to make changes if it seems that there are any disadvantages in the matter.

I can tell the hon. Member for East Stirlingshire (Mr. Douglas) that we are anxious to learn from the lessons acquired during the administration of investment grants, as from the lessons of building grants.

I was asked about inspection. It will be the practice, as it always has been under previous Administration, for visits to be paid by enforcement officers to ensure that assets are being used for the purposes for which they were bought and to ensure that repayments are made wherever they cease to be so used, so there are manpower implications in that and the hon. Gentleman is correct in drawing that to our attention. I hope the House will be prepared to accept that we are following the best practice.

I take the point that we need to watch carefully to ensure the minimum possibility for fraud, here as elsewhere and if some other dangers were arising, the Secretary of State has power to make changes in this subsection.

Mr. Ridley

The Minister should watch the cases in which a firm buys instruments of small size but large value, paid for by industry over a period. Would it not be better to consider the Amendment, which would save the necessity and the expense of policing the operation?

Mr. Chataway

I think not. Even if one were to pay the full grant only where the total cost of the asset had been met, it would still be possible for those bent on fraud to sell an asset immediately afterwards, so there is obviously a continuing need, what ever system one adopts, to ensure that assets are being used for qualifying purposes. It would not be the case, if one accepted the Amendment, that there would be a significant reduction in the need to police the system. If we were to accept it, we should find that additional administrative expenditure was involved, which from past experience has seemed unnecessary in the case of investment grants, and which from our experience of the building provisions we need not incur.

Dame Irene Ward (Tynemouth)

I certainly appreciate all the arguments, but is it not rather sad, too, that all we have to talk about is people desperately wantting to help in the unemployment prob- lem, and in the creation of new industries, being likely to commit frauds? Should we not prefer just to get on with this and if my hon. Friends want to divide the House, to do so, but for heaven's sake do not let us get into a long argument as if all concerned who were getting help were longing to commit fraud. I do not agree with that. I think that we have a jolly lot of very good people who are trying to help the nation and the economy and we had better forget about people who commit frauds.

Mr. Bruce-Gardyne

I had no intention of suggesting, and I do not suggest now, that my right hon. Friend had anything to do with the heart-shaped swimming pool to which I was referring. Neither I nor any of my hon. Friends have heart-shaped swimming pools, more is the pity. Having said that, and accepting entirely what my hon. Friend the Member for Tynemouth (Dame Irene Ward) says about the "jolly lot" of people who would be benefiting from Part I, I am bound to tell my right hon. Friend—I hope he will not take it amiss—that I have heard more convincing answers to arguments in this House. My right hon. Friend made the analogy between the arrangements under the old Local Employment Acts procedure and the regional development grant procedure. The point is, that, if I recall correctly, the figures given by the Under-Secretary show that the average rate of grant and loan to individual enterprises under the old Local Employment Acts was running at about £32,000. Now we are talking in terms of regional development grants which could be up to £25 million or more on a single project. That is totally different.

If we are talking of seven-figure sums, as we may be, it is a very attractive proposition to get double the outlay on the initial down payment on an asset from the Government and then to abscond. In his reply to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), my right hon. Friend seemed to suggest that we were on all fours with the previous system under investment grants where six-tenths of the money that had to be found had to be provided by the taxpayer before he could obtain the grant. Here we are talking about the position in which theoretically, and perhaps not so theoretically, someone can lay down one-tenth of the cost of the asset and get a 20 per cent. grant next day. Under the terms of this subsection he would have to lay down nothing at all; it merely says that the Secretary of State has to be satisfied that the assets will be provided. He may not have paid anything at all.

I hope that my right hon. Friend's confidence in the innate honesty and reasonableness of our fellow citizens, and my hon. Friend's confidence as to their "jollity", and the enthusiasm they will show for making good use of the money, will be justified. I have a feeling that once again human nature will let us down. However, my right hon. Friend has perhaps greater confidence than I in the innate honesty and reliability of our fellow citizens and other entrepreneurs from overseas who may qualify for this largesse. I hope that his conviction will turn out to be justified rather than mine. On that basis, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Anthony Grant

I beg to move Amendment No. 10, in page 5, line 37 leave out subsection (4).

Mr. Speaker

With this we can also discuss Amendment No. 12.

Mr. Grant

This Amendment and Amendment No. 12 would require any order made under Clause 3 which would change the rate of grant in any respect to be approved by a Resolution of both Houses of Parliament. This arises out of our discussions in Committee about the order-making powers under Part I. I undertook to look carefully at all that was said. After considering it, I have concluded that alterations in the rates of grant are of sufficient importance to justify applying the affirmative procedure. For the rest, I believe that the negative Resolution procedure is adequate, and the Amendments retain it.

Question put and agreed to.

12.30 a.m.

Mr. Anthony Grant

I beg to move Amendment No. 11, in page 5, line 43, at end insert: 'including, in the case of an order under section 3(2)(a) of this Act, amendments of subsections (2), (3) and (4) of section 2 of this Act'. This is a drafting Amendment. We recognise that in the light of experience a case may be made for adding some other types of repairing to the qualifying activities by an order under Clause 3(2)(a). In that event, I am advised that some consequential rewording would be required to Clause 2(4), and the Amendment seeks to do that.

Question put and agreed 10.

Amendment made: No. 12, in page 5, line 43, at end insert: '(6) Any power conferred by this Part of this Act to make orders shall be exercisable by statutory instrument and, except where subsection (7) below applies to the order, the statutory instrument shall be subject to annulment in pursuance of a resolution of either House of Parliament. (7) The Secretary of State shall not make an order under this Part of this Act which varies all or any of the percentages specified in the Table n section 1 of this Act (whether or not it also provides for other matters) unless a draft of the order has been approved by a resolution of each House of Parliament'—[Mr. Anthony Grant.]

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