§ INCREASE IN LIMIT ON SELECTIVE FINANCIAL ASSISTANCE5.50 pm
§ Mr. Andrew Lansley South Cambridgeshire)
I beg to move amendment No. 1, in page 1, line 4 leave out'The limit shall be £3,700 million'and insert—'The said limit shall be £3,440 million'.
§ Mr. Deputy Speaker (Sir Michael Lord)
With this it will be convenient to discuss amendment No. 4 in page 1, line 5 leave out from 'than' to end of line 7 and insert—'six occasions and with no more than one occasion within any twelve-month period, by order made with the consent of the Treasury increase or further increase that limit by a sum specified in the order, being a sum not exceeding £200 million.'.
§ Mr. Lansley
I am grateful for the opportunity to return to issues that we debated on Second Reading. The Bill is short, so there is not much room to stray from its content. Reflecting on the debate on Second Reading and in Committee, I found that we had not yet completed the process of scrutinising the judgment to which the Government came in the Bill. We ought to return to it, and I hope that discussing the two amendments will help in the process of further examinating—further examining, rather—what the Government are trying to achieve.
To avoid confusion, and to assist those who read our proceedings and save them having to look back at Second Reading and Standing Committee, let me explain that amendments Nos. 1 and 4 would provide that, instead of what is proposed in the Bill, section 8(5) of the Industrial Development Act 1982 would read:"The said limit shall be £3,440 million, but the Secretary of State may, on not more than six occasions and with no more than one occasion within any twelve-month period, by order made with the consent of the Treasury increase or further increase that limit by a sum specified in the order, being a sum not exceeding £200 million."That would be the content of the Bill.
It is obvious that the amendments introduce three substantive changes. First, the limit to be specified on accumulated expenditure under section 8 would be £3,440 million. Secondly, instead of the four further tranches available under the affirmative resolution procedure, six such tranches would be available. Thirdly, instead of tranches of £600 million being able to be authorised in that way, the sum would be £200 million.
Let us recall the context of the Bill. The history of the provision goes back to the Industry Act 1972. On Second Reading, my hon. Friend the Member for Sevenoaks (Mr. Fallon) reminded us of the vexed political history of that Act. The 1972 Act provided for a sum of £150 million, with four further tranches of £100 61 million to be available. It is interesting, and it has not previously been mentioned, that those were not the original terms of the 1972 Bill. That Bill, as drafted, specified a sum of £250 million and four further tranches of £150 million, but in the course of consideration of the Bill, the sums were significantly reduced from those proposed by the then Government.
The 1972 legislation was not intended to last for 30 years. The then Minister, Mr. Christopher Chataway, summing up the Second Reading debate on 22 May 1972, said:"In preparation for entry into Europe the Government have made it clear that they believe that there is a job of modernisation to be done in various sectors of industry. It is in recognition of this factor that the powers under Clause 8, which enable the Government to assist in the modernisation process, lapse at the end of the transitional period."—[Official Report, 22 May 1972; Vol. 837, c. 1130.]The transitional period was to last until the end of 1977, as Mr. John Davies, the Secretary of State for Trade and Industry, said earlier in that debate, so the powers to which we are referring and the expenditure that was contemplated were for only a four-year period.
All that changed in 1976, when the sums were changed and the caveat that no expenditure was to be undertaken after the end of 1977 was removed. The sum in question went up from £150 million plus four £100 million tranches—that is. a cumulative total of £550 million—to a limit of £600 million. In other words, the tranches were consolidated into that limit, and provision was made by order for four additional tranches of £250 million.
§ Mr. John Bercow (Buckingham):
I am grateful to my hon. Friend, as is the entire House, no doubt, for the history lesson that he is helpfully providing. I, for one, am anxious to complete my education on this important subject. The subsequent ratcheting-up of the available funds in the course of the Wilson-Callaghan Government is no surprise, but would I be right in thinking that the original change downwards that was made from the time the Bill was first presented was the result of activity from the Conservative Back Benches, led by economic liberals including Mr. Enoch Powell?
§ Mr. Lansley
I am grateful to my hon. Friend. The latter point is correct. It was Mr. Jock Bruce-Gardyne who led the antagonism to the sums that were intended to be spent and the purposes for which they were to be spent. I do not recall any reference to Mr. Powell in the Second Reading debate. Mr. Bruce-Gardyne was instrumental in questioning the Bill.
§ Mr. Kelvin Hopkins (Luton, North)
Has the hon. Gentleman calculated the effects of inflation during that time? Would not the sums mentioned in the 1972 Bill be much smaller in real terms and as a proportion of gross domestic product?
§ Mr. Lansley
As a proportion of GDP the sums would be smaller, and to a greater extent than would be the case if one were simply to calculate in real terms. It is true that a significant part of the uprating of the amounts specified in the legislation in 1976 and again in 1982, which we shall come to, was the result of substantial increases in inflation in the 1970s. As a 62 Labour Member, perhaps the hon. Gentleman should not dwell too long or too hard on the ravages of inflation during the 1970s. In addition to other factors, inflation cost his party dear in 1979. It has cost Parliament and the taxpayer dear as well.
Rather than saying that the sums got out of control and the amounts were disproportionate to the purpose, I am trying to illustrate the mechanisms in question. In 1976 the mechanism was to consolidate the previous intended expenditure and to make provision for additional tranches subsequently. The intention at that time was that the subsequent tranches would be reached quite quickly. The implied total in 1976, of £600 million in the first instance and four tranches of £250 million by extension, meant a cumulative total of £1,600 million.
In 1982, not least because of the impact of inflation, and because of the impact of substantial expenditure under the section 8 provisions, which were continuing, the then Government, in a consolidation measure which does not afford us much opportunity to see what was intended at the time, consolidated the previous Industry Acts and uprated the sums in question. The original limit—the said limit under section 8—was raised to £1,900 million, which is a very big increase over the previous £600 million, but was only a small increase—little more than one tranche— in excess of the £1,600 million, which was the cumulative total implied by the 1976 amendments. However, not only were those provisions consolidated, but further provision was made to make further tranches available—£1,900 million in the first instance, along with four further tranches of £200 million.
It is interesting that the size of the tranches was not further increased. The £200 million tranches were smaller amounts of additional funding than the £250 million that had been provided beforehand. That makes the position slightly different from what the Minister told us on Second Reading:"While maintaining the four tranches, we want to increase the ceiling on those tranches—as, indeed, did the previous Government in 1982".—[Official Report, 24 February 2003; Vol. 400, c. 49.]Of course, the previous Government did not increase the ceiling in 1982, but lowered it from £250 million to £200 million. That indicated the desire in 1982 for regular parliamentary scrutiny of the additional sums. If the Government had intended to move to £2,700 million and beyond without parliamentary scrutiny, they could have done so without providing for such relatively low limits on the tranches.
That took us to £2,700 million, which is, of course, the figure that has applied until now. Interestingly, given the sums that were spent in the late 1970s and early 1980s, it is astonishing that the sums provided in 1982 lasted as long as they did and applied until 1996, before the additional four tranches of £200 million were called upon. Of course, as the Minister will no doubt tell us, at or before the end of this year, having passed the final of the four tranches, the Government will take us to that £2,700 million level, but the question is this: how much further should they be allowed to go?
There is an argument that the Government should not be allowed to go any further at all, as when the money was introduced it was transitional restructuring money 63 for industry. I do not propose to advance that argument, however, and my Front-Bench colleagues have not sought to do so either. Whether or not that was the intention when the original powers were introduced, we have seen events move on and a range of schemes have been introduced under section 8 that are clearly not geared to the transitional restructuring of industry to meet the requirements of a competitive marketplace, but are intended to provide for specific measures to deal with perceived market failures that would otherwise inhibit industry's competitive abilities. Examples include the smart scheme, which relates to the promotion of research and development, and the small firms loan guarantee scheme, which deals with the availability of unsecured capital for small businesses. I understand the rationale for those schemes, and although they must be examined carefully, I shall not argue that they can be entirely dispensed with.
We need to think long and hard about the sums involved and the accountability that applies. The purposes of my amendments are therefore as follows. First, they seek to constrain the amount that is to be provided for under the Bill and which will be available to the Government without further substantive debate in this House. Secondly, they seek to constrain the rate of spend, as it seems clear that, since the Government came to office in 1997, that rate has increased. I do not recall the Minister previously informing us of the level of expenditure in relation to section 8 schemes on an annual basis since 1997, as compared with preceding years. It is clear, however, that the level must have increased, as we have reached the next tranches so quickly since 1996. Thirdly, through the mechanism of limiting the additional tranches of money and ensuring that not more than one can be introduced in any 12-month period, the amendments seek to increase accountability. In effect, in the later stages of the expenditure that the Bill would authorise, the Government would either have to constrain their rate of spend or come to Parliament at least once a year in order to secure through the affirmative resolution procedure the necessary ability to continue the expenditure.
In case it is not obvious—I am sure that the Minister will have worked it out—I should explain how I arrived at the figures. The cumulative total of £3,440 million is the product of consolidating the existing approved expenditure of £2,700 million and providing for four years' worth of additional expenditure at the rate at which the Government themselves say that expenditure under section 8 is forecast—£185 million a year. Amendment No. 1 would therefore ensure that, if this Government or a succeeding one continued at the current rate of spend, they would probably have to secure parliamentary approval for additional tranches of expenditure in between four and five years' time. That seems a reasonable period, especially when one considers that, in the first 10 years after which the powers were conferred, the Government came to Parliament three times to introduce primary legislation to maintain the expenditure. It is only because of the constraint and limited recourse to section 8 expenditure in the 1980s that such a long period passed—from 1982 until now—before primary legislation was required.
64 The provisions relating to additional tranches of £200 million are proposed simply because I see no justification for the assumption that as much as three years should pass in each case before the Government must have further recourse to Parliament. I did not have the privilege of being a member of the Standing Committee, but I know that it carefully discussed accountability and sought to introduce some sort of debate about annual reports. However, instead of a purposeless debate about an annual report, a purposeful debate about the extension of the power to spend section 8 moneys would be far more effective and would concentrate the minds of Parliament and Ministers more. Such a debate would probably be informed by the annual report, but would not relate only to that report. Such a debate would happen pretty much annually and, because of the provision referring to six occasions rather than four, the arrangement would take us about 10 years hence.
These are all matters of judgment. The Government's assumption is that, because the last consolidation measure, which was introduced in 1982, lasted 20 years, the new power should also last that long. There is no rationale or logic behind that position, which is based merely on an assumption that, because it was good enough to last 20 years last time, it should last 20 years again. My contention is that, if anything, there is a strong rationale for requiring Ministers to consult the House more frequently as time passes where they are simply extending powers without any fundamental revision of the legislative framework.
The provisions were basically devised in 1972, but 30 years later, Ministers are contemplating the idea that they should simply be left in place and that the funds should be made available so that they can do what they like with them for another 20 years. Accordingly, in 20 years' time, we will be considering legislation that was framed on a temporary basis and intended to last four and a half to five years, but will have been around for 50 years—and Ministers will be continuing to spend the money. Why are Ministers so happy to extend the power and for it not to be subject to more regular scrutiny? The answer is that the legislation was phrased in such a way as to be virtually an enabling power allowing them to spend whatever they like for whatever reasons they like, subject nowadays to the agreement of the European Commission.
§ Mr. Bercow
Given the desirability of avoiding the incentivisation of the subsidy junket, has my hon. Friend made any assessment of the displacement effect of the financial assistance in deterring other productive investment? Does he agree that, in the next few years, we should be more effective in the private sector at reacting to the changing economy in terms of employment patterns and new investment? We should not continually need such a function to be carried out by the state.
§ Mr. Lansley
My hon. Friend makes a good point. Ministers have always professed to aim for a competitive market economy free of subsidies, which distort the markets to which they are provided and the businesses from which the money is taken. We examine the latter point too rarely. The Bill's object is to enable the Government to spend £3,700 million on pretty much 65 whatever they like. The distorting effect of taking £3,700 million out of the pockets of British industry in the shape of one company to spend it on another is rarely taken into account. The opportunity cost and industrial disruption that high taxation causes are becoming increasingly apparent to business. [Interruption.] As my hon. Friend the Member for Blaby (Mr. Robathan) says from a sedentary position, business knows that well this week because of the way in which the process affects pay packets and employers' costs.
The Government may claim that the national insurance increases are to pay for the national health service. Perhaps they will tell us precisely out of which business taxation the £3,700 million will come. Business representatives could then make a more balanced judgment about the merit and amount of expenditure under the schemes, as compared with the disruptive, distorting and damaging effects of the taxation to gain the money. My hon. Friend the Member for Buckingham (Mr. Bercow) happily distracted me from my purpose and I shall therefore revert to my more mundane task of trying to ascertain the origin and destination of the figures.
On Second Reading and in Committee, the Minister tried to explain that the Government simply took the cumulative total expenditure of £2,700 million under the 1982 Act and rolled it forward, with a gross domestic product deflator for 20 years. The number of years is arbitrary. The Government have simply decided that, since the 1982 Act lasted for 20 years, the Bill might as well last for the same time. Does it make sense simply to roll forward a previous figure? Is the figure in the Bill an accurate reflection?
I confess that I am not a mathematician and I have not had the time or the opportunity to go away and consider carefully the effect of a 2.5 per cent. GDP deflator on £2.7 billion. The Minister implied in some of his remarks that £2.7 billion, deflated by 2.5 per cent. for 20 years, equals £6.1 billion. I am not sure that that is correct. The figure is more likely to be £4.5 billion. If I did a net present value calculation, a figure of approximately £4.5 billion would be right.
The Minister will correct me if I am wrong, but I believe that the Government have taken the figure of £2,700 million, discounted it for the 20 years of inflation ahead, reached the figure £4,500 million, decided that it was too large and that the period before Parliament had to reconsider it would be too long, and therefore discounted it to £3.700 million. They then added the £800 million left over to what would otherwise be tranches of £400 million and were in excess of the figure that they had reached. A net present value of £200 million is more or less the same as a discounted figure of £400 million in 20 years.
Ministers are not only asking us to endorse the effective doubling of the cumulative total for the benefit of inflation so that it can all be spent in the next 20 years, but are offering us four additional tranches, which have been added to the sum. In 20 years, the money that has been spent will be significantly more in real terms than the sum for which the Bill provides.
I confess that my comments are complicated and that I should have done my mathematics before I arrived, but I suspect that I have accurately outlined what has happened. In a sense, it is neither here nor there, because 66 the calculations refer to funny money. They are statistical calculations, but the point is that the Government plans mean spending the substantial sum of £3,700 million in the next 20 years. That is £170 million a year and means maintaining the current rate of spend for the whole 20 years. There is no suggestion of any substance that the Government believe that it might be desirable, over time, to reduce expenditure.
The Government show no recognition of the necessity to move to more competitive markets over time. For example, £450 million will be spent on the urban post office reinvention programme—I know, before I am reminded, that it should be called the urban post office closure programme.
§ Mr. Robathan
The figures are: £210 million for urban reinvention; £450 million for rural post offices; and £15 million for urban deprived post offices.
§ Mr. Lansley
My hon. Friend is always reliable. I cannot remember which figure applies to the section 8 money. I presume that it is that for the urban post offices closure programme. The Government cannot keep spending the money year after year. When they have spent the section 8 money on the urban post offices once, the process is completed, and they cannot close post offices all over again. Perhaps the Government can; they close hundreds of post offices every year.
There must be a limit to the number of industries on whose restructuring or closure the Government propose to spend section 8 money. Governments have used such legislation for 30 years and they propose to use it for another 20 years. If they want to do something substantively different from introducing a measure whose purpose is not to allow Ministers to spend what they like on restructuring industries, but to promote research and development in industry or small business regeneration, they should do that. Such a measure should be tighter and more directed towards the effect that it wishes to achieve.
I am tempted to make comments that are better expressed on Third Reading. I shall therefore avert later to the way in which the money is spent and the range of the DTI schemes, of which section 8 schemes form a part. The Government continue to fail to provide us with information about restructuring section 8 and other DTI schemes, yet we are asked to support the Bill.
I urge hon. Members to accept that simply rolling forward the measure for 20 years is untenable. Ten years is a far better basis on which to expect a return to Parliament for primary legislation. Four or five years—early in the next Parliament—is a better point at which it would be right for Ministers to secure the ability to add to their expenditure powers. The total amount of money is £4,644 million. Even my amendment would allow nearly £1,750 million to be added to the amount that Ministers will spend. That is a more modest and 67 responsible amount of additional empowerment for expenditure than the £3,700 million that the Government propose.
§ Mr. Hopkins
I welcome and warmly support the Bill and I oppose the amendments tabled by the hon. Member for South Cambridgeshire (Mr. Lansley). The hon. Gentleman is trying to tie my hon. Friend the Minister's hands, and I want to give him a freer hand. The hon. Gentleman suggests that the amounts involved should be halved and that the timing for introducing new tranches should be constrained. Therefore, in a crisis, if my hon. Friend wanted to release more money more quickly, he might be unable to do so, and we would regret that at such a time.
§ Mr. Bercow
Given that the Department of Trade and Industry has accepted the principle of the sunset clause to the extent that it included such a clause in the Electronic Communications Act 2000 during the previous Parliament, what objection does the hon. Gentleman have, in principle, to the incorporation of such a clause in this piece of legislation? If the case is strong enough, surely the Government can come back and get a decent hearing from Parliament. Of what is the hon. Gentleman afraid?
§ Mr. Hopkins
I thank the hon. Gentleman for his intervention. My hon. Friend the Minister will answer for the Government and the Department of Trade and Industry, but I am happy to take a much more relaxed approach to these matters. I would not necessarily have a sunset clause in legislation such as this. I would like to see Governments given a freer hand in relation to the extent to which they can provide assistance to industry at times of industrial modernisation or economic difficulty. I could be described as a more old-fashioned socialist than some of my more modern friends.
§ Mr. Lansley
Further to the point made by my hon. Friend the Member for Buckingham (Mr. Bercow), the whole point is that, when this legislation began, it had a sunset clause. It was all going to stop at the end of December 1977, yet we are debating it now, some 26 years on, and the sunset clause was done away with.
§ Mr. Hopkins
The hon. Gentleman mentioned that the original legislation was meant to last for a transitional period during our entry to the European Union, or the Common Market or whatever it was called at that time. I was very pleased that the Labour Government of the 1970s sprung the legislation forward and took what was a good idea and carried it on. That is what we are doing now. The hon. Gentleman laughs, but it was a Conservative Government who brought forward the legislation in the first instance. I suspect that that Government did not have quite the same political flavour as the present Conservative Opposition, but they were certainly called a Conservative Government. I welcomed the Bill then, I welcomed the Labour legislation that followed it, and I welcome this Bill now.
The Government have done a good job in skirting round the constraints of the European Union, because state aids are now very tightly circumscribed by 68 European legislation. When there is scope to use appropriate state aids, I believe that the Government should do so. They have, indeed, carried on with the Bill. I understand that it was at the Berlin European Council that they negotiated the scope for continuing such state aids until at least 2006.
I have two reasons for believing that the Bill is important now. First, it is clear that, in spite of my right hon. Friend the Chancellor's optimism about our economy—one hopes that it is well founded—world conditions are certainly more difficult at the moment. We are looking at something of a downturn in the world economy. In those circumstances, Governments have to have instruments with which they can at least assist their own economies in such difficult times. One hopes that times will not be too difficult for this country. Indeed, we are better placed to face the future than almost any other developed country in the world, and one hopes that these happy circumstances will continue. The world economy is bound to have an effect on our own economy, however, and we want to give our Ministers and our Government as much scope as possible for providing appropriate assistance to our economy during such times.
The other concern that I have—the reason that I am against the amendments—is that we cannot predict the consequences of the enlargement of the European Union. At the moment, we receive certain payments from the EU in respect of structural funds, but, inevitably, with the accession to membership of the EU by many countries that are much poorer than ours, there is bound to be a major shift in the fiscal transfers across the EU. It is probable—indeed, I would say certain—that we will be net losers at that point. I think that that is appropriate, in that we are one of the richer countries of the European Union, and there will inevitably be some transfers to poorer nations.
At that time, such transfers might have an impact on our economy and our industries, particularly in those regions that currently receive structural fund assistance, and we will need more scope for Government intervention to assist those regions and the businesses in those regions. The Bill will provide a basis for doing that. It is, therefore, a good thing that we are introducing the scope to provide substantially greater sums to assist the needy parts of our economy. Indeed, I believe that we could go further.
§ Mr. Lansley
I am grateful to the hon. Gentleman for giving way again; he is being very courteous. I would be slightly worried if the Minister were to endorse his argument even for a second, because if the European Commission were presented with such an argument for section 8, it would simply strike the whole thing out. The measure, in its current form, should not be available to provide competitive subsidies for UK businesses to compete in the single market. The restructuring involved should not impact adversely on the single market. Furthermore, if such restructuring is related to specific regions, it should be covered by section 7 rather than section 8.
§ Mr. Hopkins
The European Union is well aware of this legislation, and well aware of what our Government have done to provide appropriate assistance to our economy from time to time. I would suggest that other 69 members of the European Union have caused greater offence to the principles of the EU. For example, when France attempted to subsidise its state airline, it caused much more upset than a modest measure such as this would do. I suspect that the spirit of the European Union's competitive philosophy is adhered to more strongly by our Government than by many other EU Governments. I do not, therefore, have any fears that the EU will be upset by the Bill.
I was about to make the point that I would like the Bill to go further. It is a relatively modest Bill and it could be improved by increasing the numbers still further. However, I do not imagine that my right hon. Friend the Chancellor would want to give me the opportunity to spend his money willy-nilly. I would simply encourage him in that direction, and hope that, in future years, he will be more inclined to provide appropriate assistance to our economy in this way and in others. I shall leave that argument there.
I emphasise that I do not speak for the Government. I speak for myself as a member of the Government party. I am just trying to encourage my Minister to go further even than the Bill suggests, and to reject the constraining amendments tabled by the Opposition.
§ Mr. Henry Bellingham (North-West Norfolk)
I am most grateful to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) for tabling the amendments. He has a huge amount of experience in these matters, he is very highly regarded—after all, he worked in the DTI for a while—and he is an expert on this subject. As he pointed out, the new limits were chosen by means of a 20-year roll-forward of the existing limit of £2.7 billion in real terms, using a 2.5 per cent. GDP deflator. The Minister explained on Second Reading that, based on current spending and assuming that the rate remained constant, the new ceiling would last for six years before the first order would be needed, with increases by order every four years after that.
That is the nub of the issue, because, in spite of the claim in the DTI's briefing note that the new regime would lead to more parliamentary scrutiny, the reverse will be the case. It based the claim on the premise that it was 14 years before the first order was needed in 1996. Of course, the 1982 Act was a new initiative that set a brand new ceiling of £1.9 billion. To be honest, the previous Government would have had to spend at an unbelievably frenetic and furious rate to have hit the ceiling before 1996, when the first tranche was needed.
As the Minister will be aware, the three orders after that came hard on the heels of each other. The first came in 1996, followed by others in 2000 and 2002. Of course, another was introduced only the other day, which means that, during the past seven years, Parliament has had the chance to scrutinise the 1982 Act every 20 months. That compares favourably with the 4.5 years, or 54 months, anticipated under the new Bill's regime, however, so accountability is the issue and my hon. Friend is absolutely right.
70 If we have to wait six years until the House has a chance to scrutinise what has been going on, that will be far, far too long, which is why I tabled a commencement and continuance enforcement clause in Committee. The Secretary of State would have had to bring the matter back to the House every two years or the legislation would cease to have effect. My hon. Friend's amendment would have roughly the same outcome, which is why we will support him if he forces it to a vote. We must try to increase scrutiny and accountability.
Another point is highly relevant to the debate, and it concerns the Secretary of State's business support review, which obviously includes many section 8 schemes. I do not know the state of play, but perhaps the Minister will give us another update, as the review involves all the industry and business support measures operated by the DTI. A number of important changes may be recommended and some schemes could be abolished, reconfigured, finessed or whatever, but what, for example, would be the case should the Secretary of State decide to abolish some section 8 schemes?
That is not completely improbable, and if it happened the Minister may have trouble spending taxpayers' money under section 8, despite his keenness to do so, within the six-year period. In such circumstances, the date of the debate on the first tranche could be pushed back further than six years, so it might be seven or eight years before the House has a chance to consider the legislation, what is happening under section 8 and the 1982 Act. Accountability would be reduced still further.
It is quite possible that various changes may be made to some section 8 schemes when the Secretary of State completes her review. We have pushed hard for an early look at such schemes, particularly those involving venture capital. I ask the Minister to address our concerns, especially on venture capital funds and, for example, the UK high-tech fund and the early growth funding programme, whose first fund, the London seed capital fund, was launched in December last year with a £2.65 million investment from the Small Business Service. It may eventually build up to £50 million.
A lot of money is going into those schemes, and I simply submit that the Opposition are not convinced that the Government should be in the business of trying to pick winners and acting as a substitute for this country's mature, enlightened and proactive venture capital sector. It does a superb job and the Government should not be in that space at all. If the Secretary of State takes our advice, some of those schemes—perhaps the two or three that I have mentioned—will be seriously reviewed, which could immediately take out quite a tranche of the section 8 funding.
It could be 2010 before the House considers what has been going on, holds the Government to account and scrutinises them, which is why I support what my hon. Friend is trying to do. If we do not have a vote this evening, we will return to the issue in another place, because although we support the principle of what the Government are trying to do and although we would find it difficult to vote against some schemes, including the urban post office reinvention scheme, we feel strongly that we are considering a large increase in the amount of money in the well, as the Minister calls it. The ceiling is being increased substantially as are the 71 tranches, but accountability and scrutiny are to be reduced. That is why I urge the House to support my hon. Friend.
§ Dr. Vincent Cable (Twickenham)
May I say a few words in support of the amendment, which is eminently sensible and modest? It is perhaps too modest, but it is still well worth supporting.
I regret that I did not participate in Committee. Obviously, there are occasions when we all miss a Committee for reasons of double booking, forgetfulness or constituency engagements, but neither I nor my hon. Friend the Member for Weston-super-Mare (Brian Cotter) was informed about the Committee. When we discovered that it had taken place, we went back over the records and discovered that we had received cards inviting us to proceedings on something called the international development Bill.
A mistake had been made, which was subsequently rectified through the Government and Conservative Whips Offices, but not through ours. The Bill is modest, but it is important and I would not want the Minister and other Members to think that the fact that I was not present, which I regret, reflects any lack of interest in it.
On the substance, I argued on Second Reading, and do so again, that the problem with the Bill is that the sums are too large, too long a period is involved, the tranches are too big and there is a lack of accountability. The measures built into the amendment seem sensibly to address that, however, and I want to make three substantive points. Most of them have already been made, but I want to add emphasis.
First, the rather lazy assumption is being made that, because we have been spending a large amount on industrial assistance for the past 20 years we should continue to spend it for the next 20. Why should we make that assumption? A few moments ago, the hon. Member for Luton, North (Mr. Hopkins) addressed the issue by saying that we need a reserve facility in case of crises, but the problem with that argument is that one is more likely to try to sort out a crisis with public money if it has already been allocated.
§ Mr. Hopkins
Does the hon. Gentleman agree that when there are inevitable occasional downturns in the economy, the time to ensure that the investment goes in and new businesses are encouraged to start is on the upturn? Indeed, those occasions sometimes happen in concentrated time spans, so one needs instruments to be available at that time.
§ Dr. Cable
I realise that, but I am not sure that such legislation is necessary even if we have emergencies. A few weeks ago, we had the example of a major crisis in the British nuclear power industry. I was one of those who opposed the bail out, but, even without recourse to such legislation, the Government were able to take 72 legislation through Parliament within weeks and it was closely scrutinised, as it should have been. That, surely, is the way to deal with an emergency, rather than having open-ended facilities such as those in the Bill.
There is also the question whether we should continue to see such industrial assistance as necessary. The hon. Member for South Cambridgeshire (Mr. Lansley) made those points today and has done so previously. The industrial development system was seen as important, particularly in the 1980s, because we had labour-intensive, highly concentrated industries such as coal, steel and shipbuilding with a real need for adjustment assistance, but they have largely gone—the process may have been brutal—and they will not recur. Such traditional industrial assistance has largely passed.
Industrial assistance was also seen as necessary because of specific market failures. We should particular examples where legislation has been used to disburse large sums of money. We must ask why we should assume that such market failures will continue indefinitely. One of the examples is the use of venture capital financing. In the past, a strong argument has been made that the British venture capital market was deficient, particularly at the smaller end. As I follow it, however, the venture capital institutions have advanced considerably. It is not at all clear whether, in the next 10 to 20 years, the same need will exist that exists today.
More importantly, there is the issue of banking. The small industry loan guarantee scheme, which was generally welcomed by all parties, arose from a specific analysis that the banking system was defective in providing loans to medium-sized business, and charged an excessive risk premium to them. After that assumption was made, the Government conducted a full analysis, in the form of the Cruikshank report, which addressed that specific failure. Some of us have been frustrated that the Government have not followed through the Cruikshank report's conclusions—I secured an Adjournment debate on the matter—and that they have still not addressed the issue of the payments regulator. None the less, I do not understand fully why we should assume that, for the next 10 to 20 years, there will be a deficiency in the ability of the banking sector to lend to small business, and why the scheme should continue indefinitely.
My third substantive point, which I made on Second Reading, and which I will repeat, is that to justify this level of commitment we need a more rigorous system of evaluating the expenditure that has already been made. I appreciate the Government response, and the Minister has been very courteous in following up the comments made on Second Reading, particularly with much detailed information on the small loan guarantee scheme. None the less, I sense in this whole area an absence of rigour in the way in which funding is evaluated. Little attempt has been made to establish what difference such assistance would make to companies, or, as the hon. Member for South Cambridgeshire put it, to examine the opportunity cost. The £3.4 billion could be spent on education and skills or on transport facilities, which could raise the productivity of British industry, and probably more so than spending through this Bill. Who will ask those questions, however, in relation to the rigorous evaluation needed to make a sensible assessment of the legislation?
73 I remain very doubtful about the Bill. I welcome the attempts to establish a greater degree of accountability, and I will therefore support the amendments if they are to put to the vote.
§ The Minister for Employment Relations, Industry and the Regions (Alan Johnson)
I welcome the debate. This is a very small Bill, on which I did not expect to spend much time, but the time has been well spent. We have heard some very constructive comments and, as the hon. Member for Buckingham (Mr. Bercow) said, some history lessons. I was grateful to the hon. Member for South Cambridgeshire (Mr. Lansley) for taking me back, with names such as Chris Chataway and John Davies, to the days of flares and tank tops in the glam rock era of British parliamentary life of the 1970s.
The hon. Member for South Cambridgeshire said that the Bill had not received sufficient scrutiny. That is wrong: we have subjected it to a great deal of scrutiny. He departed from his normal eloquence by saying that it was not "examinated" properly, but I think that it was examinated properly. The amendments may be different, but our basic argument has been about whether the Government are being profligate with taxpayers' money in business support measures under section 8, whether we are seeking to avoid proper parliamentary accountability and whether we should be coming back more often for extra tranches of money. All those are covered in the amendments. As I explained in Committee, we want to strike a balance between retaining the concept of parliamentary control and bringing the limits in the Industrial Development Act 1982 up to date to take into account the growth in the economy since 1982, without making the process too burdensome for Parliament. The limits proposed in the Bill reflect that objective.
The hon. Gentleman said that the effect of the two amendments taken together would be to make three changes. I think that there is a fourth. He said rightly that they would set a new initial ceiling of £3,440 million—not too wildly dissimilar from ours of £3.7 billion—and I understand the logic of using £185 million, which is our forecast spend, to reach that figure. I will not therefore fall to the floor sobbing about that change, but we think that £3.7 billion is more sensible than £3.44 billion. He suggests six tranches of up to £200 million, whereas we propose higher tranches of £600 million—we rejected the Treasury proposal.
There is one consequence, however, that he did not mention specifically: under the amendment, the legislation would expire about 10 years earlier than provided for by the limits in the Bill, and would halve the expected life of the new legislation. That is based on taking the average of the forecast spend for the four financial years, 2002–03 to 2005–06, and the assumption that the rate of spend of £185 million per year remains constant over subsequent years, once we have reached the current limit of £2.7 billion early next year.
We propose a longer-lasting piece of legislation, subject to periodic scrutiny by Parliament. We discussed in Committee how long Parliament had spent scrutinising the Bill. We made the point that, on average, parliamentary debates have taken place every 74 five years, and, on average, have lasted less than half an hour. The hon. Gentleman feels strongly about these issues, but all the evidence is that the amount of parliamentary scrutiny that we give to section 8 of the Industrial Development Act is about right. There is no evidence that not enough time is available for such parliamentary scrutiny.
An estimated period of six years would seem appropriate for the initial limit to last, bearing in mind the scrutiny that we have just had in this place and another place. The effect of the limit proposed in the Bill would mean that we would return to the matter after six years, given that Parliament will have had opportunities for detailed scrutiny during its passage.
As I have explained, the hon. Gentleman was absolutely right—he may not have done his sums in advance, but he did them correctly—that we could have gone for a higher initial limit of £4.5 billion, but we chose not to do so. That is based on rolling forward the existing limit of £2.7 billion in real terms—using the famous 2.5 per cent. figure as a proxy for the long-term GDP deflator—for a 20-year period, which would have given a ceiling of £4.5 billion, and four subsequent tranches of up to £400 million. We have set a lower initial ceiling of £3.7 billion, however, and bigger tranches of up to £600 million each, resulting in the same ultimate ceiling of £6.1 billion.
Amendment No. 4 proposes that the tranche sizes remain at £200 million. As I argued in Committee, however, prices have more than doubled since 1982, increasing by a factor of 2.2. That would have the effect of almost annual parliamentary scrutiny of the use of section 8. After the first order, the three subsequent orders would be needed every 12 to 15 months. I accept that that is a difference between us, but we believe that that is not a proper use of Parliament's valuable time. It would be too restrictive to retain the tranche size at £200 million, and, significantly, to introduce a requirement that not more than one affirmative order in a 12-month period could be made, as amendment No. 4 proposes. That would mean that not more than £200 million could be spent in any 12-month period: in effect, a ceiling on the annual rate of spend, which would introduce a completely new concept into the Bill and, indeed, into the 1982 Act.
Forecast expenditure for the current uses of section 8 for the current financial year and the next, however, exceeds £200 million. In the financial year that has just started, we predict that we will need £208 million, and, in the following financial year, £221 million. In the financial year just gone, we budgeted for £160 million but used £130 million.
The amendment would have serious consequences. It would mean that the limit available to us would be exceeded by the schemes. Apart from some mild criticism about venture capital funds, all the evidence during all the scrutiny—we have had three orders since 1997—has not suggested huge controversy about the way we are spending the money. The amendment would prevent us from being able to do that.
There is no rational basis for saying that no more than £200 million should be spent in any one year. It is in the nature of schemes that expenditure fluctuates from year to year. The amendments would be unnecessarily burdensome for the House and could disrupt DTI 75 spending plans on longer-term business support such as the small firms loan guarantee scheme, which we expanded last week—we announced last November that we were expanding it. It could also disrupt the plans of other Departments and the devolved Administrations, who also use the facility of section 8. The Government's proposals represent a far better balance between scrutiny and efficiency.
I pick up two important points made by hon. Members, including the hon. Member for North-West Norfolk (Mr. Bellingham). The first relates to an update of the business support review. My right hon. Friend the Secretary of State will be writing to members of the Select Committee on Trade and Industry and to all other hon. Members when we have finally worked out how it will operate. However, we closed 20 schemes last week. We will close 84 schemes by the end of this year. None of the section 8 schemes has been affected, apart from the expansion of the small firms loan guarantee scheme that I mentioned in Committee, which was widely welcomed, including by the hon. Member for North-West Norfolk. No other section 8 schemes have been affected by recent developments under the DTI business support review.
The second point that was raised—it has been raised before—was about venture capital and the fact that we have such a mature venture capital fund market. Hon. Members have asked whether we really need those schemes. The evidence, not least from the British Venture Capital Association, is that venture capital companies have moved relentlessly up the value-added chain and are now more involved in management buy-outs or management buy-ins. The latest BVCA report on investment activity in the UK shows that only 3 per cent. of total private equity investment was at the start-up stage in 2001 and only 8 per cent. in early-stage investments. In comparison, management buy-outs and management buy-ins accounted for 60 per cent. of the spend of venture capital funds. Organisation for Economic Co-operation and Development figures indicate that, despite having a much larger private equity industry in total, UK private equity investment in early-stage companies as a proportion of GDP is relatively low compared with other OECD countries.
Therefore, there is a need for the venture capital fund schemes that we have, although I have accepted, and I will say it again on Third Reading, that we need to report on the matter more fully and to give hon. Members the chance to see how schemes are faring, as we did in the KPMG report on the small firms loan guarantee scheme as recently as 1999. We need to do much more and I have accepted those points.
We believe that the Bill as currently structured offers the best basis for providing continued support for industry as well as accountability to Parliament. Therefore, I hope that the hon. Member for South Cambridgeshire will withdraw his amendment.
§ Mr. Lansley
I will not detain the House too long because we have the opportunity to make further points in relation to the Bill generally on Third Reading. I thank the Minister for responding to the debate. I know that he covered similar issues in Standing Committee but, not least by virtue of the presence of the hon. 76 Member for Twickenham (Dr. Cable), we have benefited from the further debate about the specific numbers in the Bill. We elicited from the Minister a rather damaging admission that the Government's intention is for expenditure to go above £200 million and above £220 million. In his view, it may damage the argument for amendment No. 4, but in my view it reinforces the argument for the amendment.
We are dealing with legislation that was always intended to be for an exceptional purpose and over a transitional period. It has been appropriated by Ministers, in some cases correctly, as a mechanism for providing support to industry. I heartily endorse the points that were made by the hon. Member for Twickenham that far too little scrutiny is being given to the underlying question of whether Ministers ought to have a power to spend in this way. There is far too much recourse to section 8 as an omnibus mechanism for paying out money for various schemes. The fact that it is being used for the closure of post offices demonstrates that it is simply a well, as the Minister is fond of describing it, of money into which Ministers are want to drop their bucket for all sorts of purposes that do not necessarily have appropriate parliamentary scrutiny. It seems all the more obvious that we should come back to Parliament more regularly to examine what is going on. If we are not doing it on the basis of scrutiny of annual reports, we should do it on the basis of scrutiny of regular orders to add to the sums of money that are available to Ministers.
It is purely a matter of judgment as to whether the first of the orders should happen in six or four years' time, and whether the length of the further extension of spending power should be 20 or 10 years. I do not resile from my view that 10 years is a perfectly sufficient—in fact, rather generous—length of time, during which Ministers should be free to spend only with affirmative resolution scrutiny of their powers from Parliament.
My mechanism would at least have meant that, at the present rate of spend, Ministers came back before the House early in the next Parliament, whereas they may come back at a later part of the next Parliament. We shall see when that happens and who it is who does it, but I hope that Ministers, whichever Government they serve, will begin—perhaps not least because we have spent some time arguing our points in these debates—to think far more rigorously about section 8 as a legislative framework for the expenditure of the DTI. It is long overdue for the DTI to think again, to restructure its legislative framework and to find a more modern definition of what the DTI's purposes are, rather than resting on one that is about the restructuring of the smokestack industries of the 1970s.
I do not want to let down my hon. Friend the Member for North-West Norfolk (Mr. Bellingham) or the hon. Member for Twickenham but, notwithstanding their generous support, I do not propose to pursue the amendments to a Division. Ministers and my colleagues have had plenty of opportunity to express their views. I hope that they will be regarded with seriousness. On that basis, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Order for Third reading read.77 6.58 pm
§ Alan Johnson
I beg to move, That the Bill be now read the Third time.
The Government believe that we can best support business by encouraging its competitiveness and creating a favourable climate in which it can operate. We believe that financial assistance has a part to play in that, where it will drive up productivity and where there is clear evidence of market imperfection.
It is a small, modest Bill of just two clauses, but it is essential to enable the section 8 power to continue to be used to give financial assistance to industry for the purposes specified in the 1982 Act. The Bill will increase the cumulative limit on financial assistance that may be provided under section 8 of that Act. The Bill retains the accountability to Parliament contained in the existing legislation through the need for affirmative orders of the Commons. It replaces the existing limits with new, higher ones reflecting the growth in the economy over the past 20 years, without making it too burdensome for Parliament. We want to strike a balance between retaining proper parliamentary control and bringing the limits in the 1982 Act up to date.
A transformation of the DTI's business support activities is under way, and eventually all existing business support schemes will be run down, including the eight Small Business Service schemes set up through the use of the section 8 power. New products will be introduced, some of which will incorporate the best elements of existing schemes. We have begun to roll out the new approach to business support with the release of the first of the new products on 1 April. This included the launch of the new extended small firms loan guarantee. Further products will be released over the coming months, and announcements will be made by the Secretary of State.
We need the new limits in place to ensure a legislative base for existing schemes, as do Secretaries of State and Ministers in the devolved Administrations, who are able to use section 8 to fund their own activities. Without the introduction of new limits, the legislative basis for the current section 8 schemes would be exceeded when the £2.7 billion limit that is allowed for by the 1982 Act is reached—we forecast that that will happen early next year—rendering unlawful further use of this power by Ministers.
I am pleased that hon. Members on both sides of the House have been supportive of the Bill's main aim, which is to allow financial assistance, under section 8 of the 1982 Act, to continue to be offered to industry throughout the UK Even though the Bill has not had a detailed or lengthy passage, it has certainly undergone scrutiny on Second Reading and in Committee. In addition, section 8 was the subject of a Standing Committee debate last month, in order to raise the ceiling for a fourth and final time under existing legislation.
I am grateful for the constructive approach that Opposition Members have taken, and I hope that they feel that, for the most part, the Government have listened to their views and taken action on many of the issues that they raised, even if the proposed amendments and new clauses were not accepted. In response to their comments, I have committed to including more detail on each section 8 scheme in the future annual reports 78 required by the 1982 Act, and to including the conclusions of any explanations published in the reporting year. My officials are already taking forward this initiative for the 2002–03 report. Moreover, I wrote to those who spoke on Second Reading and in Committee, outlining progress on the current DTI section 8 schemes since the annual report was published for the year ending 31 March 2002.
I cannot commit to laying the annual report before the House much earlier than we currently do. It takes time for the information and statistical data to be gathered from throughout the DTI, as well as from other Departments, devolved Administrations and regional development agencies. The 1982 Act requires an annual report to be laid before Parliament"not later than six months after the end of the financial year to which it relates".By laying the report before Parliament in June or July each year, we are fully meeting the requirement laid down in the 1982 Act.
I also said that I am in full agreement with Members about the importance of the evaluation of schemes. Following the DTI's review of business support, in future all the Department's business support products, including measures that use section 8 as their legislative base, will be subject to ongoing monitoring and analysis to measure whether they have achieved their objectives and offered value for money. Evidence from this analysis will help the newly formed investment committee to target business support funds where there is a clear rationale. It is expected that this evidence will be published in full.
With these assurances, I commend the Bill to the House.
§ 7.3 pm
§ Mr. Bellingham
I shall be brief, obviously, and I should begin by declaring my interests, which are listed in the Register of Members' Interests.
We support the principle of this Bill, and we certainly accept the need for some industry-specific intervention—after all, the original Act was ours. I do not accept the comment of my hon. Friend the Member for Buckingham (Mr. Bercow)—albeit from a sedentary position—that it was among the worst of the legislation that we introduced. [Interruption.] Well, it certainly numbered among our better legislation. Indeed, if one looks at the good that has come out of it—the number of jobs saved, and the number of schemes that have brought substantial business success—one can conclude that it is very good legislation.
There has been considerable debate about the different ceilings and tranches and the need for greater scrutiny, and I do not doubt that there will be further debate on those issues in another place. The same applies to the points that I made about the business support review. The Minister did not give a satisfactory answer to the questions that I posed. If that review comes up with various fairly significant and far-reaching conclusions, the actual date for initial scrutiny under the legislation could well be pushed back beyond the six-year period. He did not deal with that point, and hopefully it will be re-examined in another place.
I am very grateful to the Minister for what he said about trying to improve the level of reporting on the different schemes. As he pointed out, KPMG produced 79 a very good report on the small firms loan guarantee scheme, which we all appreciated enormously. It added a great deal of material, and contributed to wider knowledge of that scheme. Why cannot the same be done in respect of many of the other schemes under section 8, particularly those carried out by the Small Business Service?
The Minister said that it would be unrealistic to bring forward the annual report any further. I take on board entirely the point that, under the legislation, the report has to be published within six months of the end of the financial year. However, in the light of modern IT and the information retrieval systems that the Minister has at his disposal, surely it is not asking too much for the report to be published within four weeks of the end of the financial year, say, probably in May. We need to know exactly what is going on, particularly given the extra money that the Government will be spending. So perhaps the Minister could have a look at that issue.
We had a good discussion about the small firms loan guarantee scheme on Second Reading and in Committee. It is a flagship scheme and, as the Minister pointed out, to the end of January this year almost 84,000 loans averaging £37,000 had been guaranteed, totalling some £3.24 billion. On Second Reading, we debated the problem whereby some sectors do not qualify for the scheme. The Minister pointed out that the Minister with responsibility for small businesses—he was here earlier this afternoon—has announced that some of the sector restrictions have been lifted. In fact, I understand that the scheme has been expanded to include, for example, retailing, catering, coal, hairdressing, libraries, museums, motor vehicle repair and servicing, steel and travel agents. However, what about education schemes and medical health services—the two sectors for which I pushed for inclusion very hard? They appear not to have been included, but they certainly should be.
I want to say a brief word or two about the urban post office reinvention fund, which was introduced to deal with the fallout from the proposed implementation of automated credit transfer. As my hon. Friend the Member for Blaby (Mr. Robathan), who is shadow spokesman for Post Office matters, pointed out, the total fund committed is £210 million, of which £180 million will constitute straightforward compensation, with £30 million going into matched funding schemes. Presumably, the £15 million that will come from the Office of the Deputy Prime Minister is not covered under section 8, and will actually come from that Department. Perhaps the Minister knows the answer to that question. The chairman of the Post Office, Allan Leighton, pointed out in a speech of 14 November last year that some European money would be brought in to match the money coming in under section 8. He presumably knows what he is talking about, or perhaps it was simply wishful thinking on his part.
We are looking at the law of unintended consequences. The Government worked out that a fairly juicy saving could be made by moving over to automated credit transfer. I understand from my hon. Friend the Member for South Cambridgeshire (Mr. Lansley), who is very experienced in these matters, that the total potential saving to the Department for Work 80 and Pensions is in the region of £430 million. That may sound like a significant sum, but in the light of how those savings will be made—mainly through clawing back payments made to sub-postmasters—one needs the urban post office reinvention fund, and that is to say nothing of the money that will be put into rural post offices. So through the law of unintended consequences, one part of government is looking at a juicy sum that can be saved, and another is simply coming to the rescue of the victims of that ill-thought-out scheme.
The post offices in my constituency do not have enough information to hand at the moment. Many people are asking for details of how to have their benefits or pensions paid into bank accounts. I have recently received many letters from constituents telling me that many post offices do not have the information available. Perhaps the post offices are trying to fight a rearguard action because they do not want people to move over to automated credit transfer. As I said, we are seeing the law of unintended consequences at work.
We must take the wider economic and industrial context into account. The Chancellor will tell us some good news about employment and inflation on Wednesday, but the Opposition have set out five tests to assess the wider economic context. One test is business investment, which is unfortunately falling at its fastest rate for 36 years. Another test is jobs in manufacturing industry, and 600,000 jobs have been lost since 1997 with the CBI predicting another 40,000 job losses in the next month. We have the biggest deficit in traded goods since 1697, when William of Orange was on the throne—
§ Madam Deputy Speaker (Sylvia Heal)
Order. The hon. Member is straying rather wide of the debate currently before the House.
§ Mr. Bellingham
I am grateful to you, Madam Deputy Speaker, for putting me right, but we have to take the wider economic context into account. I will be brief, but I want to mention two more criteria. First, productivity, which is growing at half the rate under the present Government—
§ Madam Deputy Speaker
Order. I have just ruled the hon. Member's comments out of order, so I would be grateful if he would return to the debate.
§ Mr. Bellingham
I will, indeed, return to the debate, Madam Deputy Speaker, and I apologise for being over-zealous, but it is important to put the debate into the right context. Unless we consider the grant aid that is available under section 8 within the wider economic context, it does not make much sense.
The Government should be aware—it is a relevant point—of how the Department of Trade and Industry is regarded. What Business Wants recently carried out a survey—I see you looking a little nervous, Madam Deputy Speaker, but this is relevant to section 8—based on the responses from 600 companies. One question was"Does the DTI do a good job at helping UK firms?"81 In response, 4.5 per cent. said, "Yes, by and large", which is not very encouraging. Another question was"Does this Government understand enough about what business needs to thrive?"Some 61.2 per cent. said "No, not at all"; and 1.9 per cent. said "Yes". It also asked:"Do you think Trade Secretary Patricia Hewitt has a grasp of how business operates and what it needs?"We should not forget that the survey was based on the views of 600 companies, ranging from multinationals to small businesses and 47.8 per cent. said "No, not at all".
§ Madam Deputy Speaker
Order. Once again, I am afraid that the hon. Member is straying rather wide of the mark for this particular debate. Perhaps he could come back to it.
§ Mr. Bellingham
I will come back to order, Madam Deputy Speaker, but only a staggering 0.5 per cent. said yes, the right hon. Lady did understand completely. [Interruption.] It is one business in 200. That shows that, if the DTI wants to justify the different schemes under section 8 and the huge extra expenditure involved, it has to do much more explaining to the business community. There is some potential good will for the different Government schemes, but they need to explain what they are doing much better. On the wider issue, we will come back to the importance of scrutiny in the other place and we shall keep on pressing our points, which were fairly and comprehensively encapsulated in the amendments proposed by my hon. Friend the Member for South Cambridgeshire.
In conclusion, we support this small Bill, which is necessary, but it needs more scrutiny. In the light of the recent, wide-ranging and important survey to which I referred, we also believe that the Government should explain their case to business more clearly.
§ Mr. Michael Weir (Angus)
My contribution will be brief. I expressed some reservations about the Bill and the intentions behind it on Second Reading. Although it has been described as a small Bill that does not achieve a great deal, it is still another step—as I thought then and still do now—in the direction of providing assistance to industry on a sectoral and national, rather than a regional, basis. I think that that is wrong and that it could have important implications for the future.
I was particularly interested on Second Reading—the Minister referred to it again tonight—in the role of the devolved Administrations in the use of section 8. I followed up my interest with a letter to the Minister asking for further details and I received a full and fairly detailed reply about how the devolved Administrations could utilise section 8 powers without necessarily having to secure Treasury approval. Reading between the lines and after going all around the houses, it appears that there will be little benefit for the devolved Administrations, because no more money will be made available to them. Once again, we come back to the block grant from this place to the devolved 82 Administrations, which is decided in advance of any need to utilise section 8 powers. There may not be much benefit from the provision, so it provides another argument for the full fiscal autonomy of the Scottish Parliament. I hope that we will move towards that in the near future. Having said that, the power has been used to good effect in some areas of Scotland. I supported the Bill on Second Reading and I will continue to support it, but with some reservations.
§ Mr. Lansley
I do not want to repeat what I said on Report, but to make one or two additional remarks about the purposes to which section 8 scheme money is put. I take the point made by the hon. Member for Angus (Mr. Weir). If I do not agree with him about the extent to which expenditure should be made on a devolved basis, particularly in respect of the English regions, I can still recognise a conflict between the Government's expressed intention to devolve budgets to the devolved Administrations—and, in England, to the regional development agencies in a single pot—and their attempt to spend considerable money by assuming powers for national spending through national rather than regional schemes. That is an inherent contradiction in the Government's approach, which the Bill does nothing to resolve.
My points are straightforward. I do not share the enthusiasm of my hon. Friend the Member for North-West Norfolk (Mr. Bellingham) for the principle of spending Government moneys. It may be a small Bill, but it has a quite a large price tag. By the time we finish, we will have spent just over five hours in the House and in Committee scrutinising the Bill: that amounts to £10 million a minute in relation to the expenditure that the legislation will allow, so our scrutiny is not excessive. The Government fail to acknowledge that in extending the ability to spend—and in making the financial resources available—they have strayed far from the spirit of the legislation, and have in fact used it even more widely in recent years.
The hon. Member for Twickenham (Dr. Cable) pointed out on Second Reading that in 2001–02 approximately £113 million was spent on section 8 schemes, and the Minister told us earlier that it will increase to £220 million—a worrying acceleration in the rate of expenditure. As my hon. Friend the Member for North-West Norfolk illustrated so well, businesses have little confidence in the way in which the Department of Trade and Industry has spent its money, and at the same time they are expressing rising concern about the extent to which they have to pay taxation in order to fund Government activities. They do not want a merry-go-round in which money goes out of the pockets of successful businesses to be spent through section 8 on subsidising failing businesses. We must ensure that section 8 money is spent well. There is no doubt that the Minister or the Secretary of State will tell the House how 183 schemes will be compressed into 30 or 40, but there is no evidence, so far as section 8 is concerned, of a diminished desire to spend on the part of the Government. If anything, there is an increased desire. It had better be good expenditure.
83 I am not impressed by my personal experience in my constituency of the so-called post office reinvention programme. First, there was an attempt to define the post office at Ickleton, one of the smaller villages in South Cambridgeshire, as an urban post office—
§ Mr. Lansley
I am grateful, Madam Deputy Speaker, but I am simply referring to the way in which money is being spent under section 8, which the Government want to top-up. The urban post office reinvention programme is precisely the sort of the scheme whose money the measure is designed to facilitate. It seems relevant whether that money is spent well or badly.
§ Madam Deputy Speaker
That is fine, so long as we do not get into a discussion about rural post offices.
§ Mr. Lansley
I am looking forward to the debate tomorrow in Westminster Hall, in which my right hon. Friend the Member for West Dorset (Mr. Letwin) will discuss rural post offices, a subject close to the hearts of my hon. Friends and me. In Ickleton, those involved ignored where the post office was and persisted in doing so until I practically had to take them there to show them that it was not in the middle of Saffron Walden, as they believed.
The Wulfstan Way post office, in the Queen Edith's ward in my constituency, serves the southern part of Cambridge and is the closest post office to Addenbrooke's hospital, the principal destination of those working in Cambridge. There is not a post office on the Addenbrooke's site, and there is now a proposal to close the nearest one. Those involved are following a rationale based on which postmasters want to get out of the business and paying for that, rather than restructuring around a rational understanding of markets and businesses. I shall be taking up that matter vigorously with the Post Office; it seems to be an unwise choice.
I am not expecting a reply now, and we can debate these matters at another time, but it is important that we get an indication of where the Government are going with regard to section 8 schemes. The Minister seems to be saying that there are no proposals to change section 8 schemes under the DTI review of business support. I understand that the Smart scheme, which the Minister knows well, is changing. The feasibility studies that can be part of Smart hitherto have had a possible subvention of up to 75 per cent., or £45,000. It is proposed that that should go down to 60 per cent., although the maximum grant could be increased. The development grant can go up from 30 per cent. to 35 per cent. of the project funding. That is surprising and undesirable.
Recently, the thrust of science and technology policy has been towards pre-feasibility and feasibility stages and away from the development phase. That is the point at which those promoting their project should expect to provide the funding themselves to a greater extent. It is at the feasibility stage that one should expect Government support and help for people in 84 universities—in my case, the university of Cambridge—to the point at which a business plan can be put together and research validated. That is where the Government ought to be.
The Government seem to be looking to a smaller number of such schemes, with more money going to the development phase. That is undesirable and I hope that the Minister will have another look at it. There have been something like 80 such schemes around Cambridge. We are pleased to be recipients of Smart money, but it has to be spent in a smart way.
The Minister wrote to those of us who spoke on Second Reading and responded to a number of questions. The hon. Member for Twickenham (Dr. Cable) said that section 8 would not be used in relation to British Energy or the restructuring of the nuclear power industry. However, the legislation in relation to British Energy was not designed to provide a power to spend money; it was a power to change the way in which the Government occupied their shareholding position in relation to British Energy in particular. The measure, in effect, removed constraints upon spending money.
I am still slightly unsure about the matter; perhaps the Minister will give an answer now, as I have written to him about it. Where will the money come from for British Energy, as the original guarantee to British Energy's borrowing will run over the year end and will become, effectively, a permanent guarantee? On the face of it, it looks to be the kind of thing that section 8 was designed to do. I am surprised that section 8 is not the vehicle that Ministers have chosen.
§ Alan Johnson
First, the legislative basis of the Smart scheme, to which the hon. Gentleman refers, is the Science and Technology Act 1965 and not section 8 of the Industrial Development Act 1982. Secondly, on the use of section 8 for British Energy, we have not decided to use that route yet. However, in terms of the urban reinvention programme, any scheme that exceeds £10 million will be subject to scrutiny by this House. The post office urban reinvention scheme is a bad example in terms of parliamentary scrutiny because we debated it in November of last year.
§ Mr. Lansley
I think it was on 15 October, and I remember the debate very well. At that point, we did not have the benefit of seeing how it was working, which we do now. Parliamentary scrutiny in advance is a good thing, but scrutiny in arrears also has its merits. I thank the Minister for his clarification. I should be interested to know where the money will come from and what the statutory cover is for the expenditure on British Energy. However, I do not propose to hold up the House any further.
I have expressed my reservations about the scale and character of the funding. I hope that Ministers will not simply take the legislative vehicle as an opportunity to spend with abandon, but will think hard about what they are spending under section 8.
In 1987, when Lord Young was Secretary of State for Trade and Industry, he set up the enterprise initiative, which was geared towards remedying market failures among small businesses. It lasted for three years. The intention was to provide a pot of money that would, in effect, go back to the Treasury, with the DTI stopping 85 doing what it was doing and diminishing its activity. Far from it; every three years thereafter, and every subsequent three years, the DTI has reinvented itself, spending about the same amount of money, using about the same numbers of staff and—in the view of many in business—having the same impact in science and technology. The measure is directed at science and technology this time, but it was small businesses that time and it might be consultancies next time. It is about time that the DTI was much clearer about what it wanted to do and how it was going to do it.
§ Question put and agreed to.
§ Bill accordingly read the Third time, and passed.