§ 11.30 a.m.
TILE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF TRADE AND INDUSTRY (THE EARL OF LIMERICK)
My Lords, I beg to move that this Bill be now read a second time. The problems of regional imbalance have been the concern of successive Governments in the United King- 624 dom for nearly four decades. Much has been achieved but no solution is yet in sight. In the Government's view additional action is needed to improve both the environment in the less prosperous areas and their industrial structure and to increase employment opportunities.
The Government have been very conscious of the need to improve the total environment of those regions suffering from heavy and persistent unemployment and are determined to see that these areas are better places in which to work. That is why we have taken action in a great many fields to provide help to local authorities in these areas and to stimulate them to further efforts. The Government have encouraged local authorities to expand their programmes for the reclamation of derelict land, for which grants of 85 per cent. are available in development areas and 75 per cent. in intermediate areas and derelict land clearance areas. They have set a 10-year target for the clearance of such land. Last year they initiated a £164 million programme for additional infrastructure expenditure in assisted areas on roads, schools, hospitals and public services. In assisted areas they have made available 75 per cent. house-improvement grants. Earlier this year, under the operation Eyesore scheme, they introduced 85 per cent. grants for environmental improvements with 75 per cent. in intermediate areas and derelict land clearance areas.
In addition, further massive injections of public investment in the environment include £1,300 million over a five-year period on water and sewage and a major effort to clear our rivers and canals of the gross pollution from which too many of them suffer; over £400 million to be spent on main roads in England in the present financial year, 1972–73; and a 3,500 mile strategic network of trunk-ways and motorways is planned for completion by the early 1980's and will include another 1,000 miles of motorway. A further £60 million worth of trunk roads are now being added to the preparation pool. These extensive measures supplement the wide range of aids to encourage investment in the regions which have been built up over the years and they are now being reinforced by the measures in the Industry Bill which is before us to-day.
625 This Bill has three main strands. It provides the legislation required to implement both the proposals for regional development grants and for the extension of selective financial assistance for industry as set out in the White Paper on Industrial and Regional Development, published in March at the time of the Budget, and it makes provision for extending the financial limits for the home shipbuilding credit guarantee scheme and for grants for the construction of ships and mobile offshore installations announced in the White Paper. Part IV of the Bill deals with miscellaneous and supplementary matters. When the policy set out in the White Paper was being formulated we started from the fundamental premise that the United Kingdom economy was predominantly a market economy in which particular industries, firms and products grew and declined in accordance with the markets at home and overseas which they could profitably supply. The success of any enterprise must depend on the future market for its products and its ability to supply this competitively.
Within this broad context the Government are responsible for setting a general framework of incentives, opportunities, requirements and restraints for industry. Fiscal incentives are an important feature of these responsibilities and have an important part to play in helping British industry and commerce to improve its technological strength and competitiveness. At the same time, our resources of labour, management and capital need to be sufficiently mobile to adapt to changing market conditions in the United Kingdom, the E.E.C. and the rest of the world. Equally important, full weight has to be given to the importance of reducing regional imbalance, and this involves bringing into use underemployed resources, particularly of manpower, and the strengthening of economic development in the regions as well as a substantial increase in investment. Our measures have been deliberately framed with these objectives in mind.
Part I of the Bill will establish the new system of regional development grants. These will provide the main preference for the regions in our system of investment incentives. They are, therefore, a most important element in our regional strategy. Very broadly, there 626 were two basic approaches we could have adopted. We could have worked out a system which involved meticulous examination of the use to which each particular capital asset was put. But bearing in mind the administrative burden and cost to industry and Government of the old investment grant scheme and the time-scale for approvals, we rejected this approach. Instead, we shall emphasise simplicity, and we recognise that this will mean some rough justice at the margin. Not all complications can be avoided when so much money is at stake, but I feel sure that the House will approve our general intention.
We also had in the forefront of our minds that the new grants should offer a powerful incentive to firms in the assisted areas both to expand and to modernise the facilities they already have. The grants will not, therefore, be tied to the provision of employment as the Local Employment Act building grants had been. This brings in modernisation projects and will, incidentally, make the grants system a good deal simpler. But let me make it clear that the ending of the direct "employment link" does not mean that we attach any less importance to jobs. Quite the contrary. It simply reflects our belief that strengthening the efficiency of existing industry will make more secure the jobs already existing in the assisted areas and modern industry in the assisted areas will be in a much sounder position to expand.
The central feature of the new system is that eligibility for grant will, in general, depend on the assets being used in qualifying premises rather than the particular use made of them. Thus, the key question will be whether the building or the plant and machinery, as the case may be, is on qualifying premises. If it is, then in principle it will be eligible for grant. Qualifying premises are defined in Clause 2 of the Bill as those used wholly or mainly for the activities described in Orders 2 and 20 of the Standard Industrial Classification. The range of activities described in these Orders are listed in Annex A of the White Paper on Industrial and Regional Development; they are broadly manufacturing, mining and construction. Additionally, the grants will cover the processing of scrap and waste materials, 627 the repairing of plant and machinery designed for use in qualifying activities and scientific research and training of staff in qualifying activities.
Ancillary or associated functions which are not expressly mentioned in the qualifying Orders, such as office work, storage or distribution, are not included except where they are conducted on premises which are preponderantly used for manufacturing or other qualifying activities. This should bring in, for example, the works office or canteen on factory premises. Where an ancillary building of this kind is near to the factory, although separated from it by, for example, a road, there is power if the applicant so requests for the building to be treated as part of the factory premises and thereby qualify for grant. The distant office or warehouse will not, however, qualify for grant. Neither will any assets, whether or not used for qualifying activities, on premises where non-qualifying activities preponderate.
The advantage we see from this approach is that it will avoid the need for complicated investigation. With minor exceptions all eligible assets will get grants so long as they are on qualifying premises—or on what will become qualifying premises once the assets have been provided. As I have said, this may result in occasional rough justice at the margin, but it seems to me that this is a price well worth paying in the interests of simplicity of operation. The system will be discretionary, as the investment grant and Local Employment Act building grant systems were, so as to provide the essential flexibility needed to deal with changing circumstances. The White Paper made clear, for example, that it is not our intention to make grants to local authorities, except for new buildings let for use for qualifying purposes, or on individual items of plant and machinery costing less than £100 and individual buildings schemes costing less than £1,000.
The Bill provides that grant may be made to any person incurring approved capital expenditure in the assisted areas. Small firms as well as large will be able to benefit. Nationalised industries with qualifying premises, particularly the National Coal Board and the British 628 Steel Corporation, will qualify. Developers (including local authorities and development corporations) who provide new factories will be eligible for grant on the cost of a building if it is let as a new building to a tenant who will use it as qualifying premises. This represents an important change since developers providing buildings for occupation by others were not eligible for building grants under the Local Employment Act scheme. The payment of grant for factories built for letting should be of special benefit to smaller businesses which are often unable to raise the capital to build or buy their own premises.
Clause 1 provides for a wide range of assets on qualifying premises to be eligible for regional development grants. In development and special development areas they will cover new plant and machinery, buildings, adaptations of existing buildings and other works including mining works. In intermediate areas, and for two years in derelict land clearance areas, grants are available for new buildings, adaptations to buildings and other works, except for mining works. The rate of grant will be 20 per cent., except in special development areas where it will be 22 per cent. These grants will not be deducted from the gross cost of assets for the purpose of calculating tax allowances, so that they will, in effect, be tax free. I think it is just worth looking at the percentage and seeing how this relates to previous incentives. The investment grants, of course, while they were not taxable, were deducted in computing the amount eligible for capital allowances, whereas going right back to the days of investment allowances these were tax deductible and in that way they provided the additional benefit.
Plant and machinery used by the construction industry presents a special difficulty in that commonly it is moved from one building site to another and will not often be located on qualifying premises. We propose to deal with this by paying grant on plant and machinery used by the construction industry anywhere in the development areas. Again because this plant is often moved in and out of the special development areas, we think it makes for better sense and simpler administration for everyone to get grant at the 20 per cent. rate. In working out 629 its investment programmes, it is very important that industry should be aware that—subject of course to the proposals being accepted by Parliament—regional development grants will be available towards expenditure defrayed on or after March 22, 1972. In the case of buildings and qualifying works this is subject to construction beginning after March 21.
In determining the starting date of construction, the Bill proposes that any work on clearing or preparing the site should be ignored. In the case of plant, machinery and mining works, the assets must be provided after March 21. For this purpose, we propose to take the date when plant or machinery is provided as the date it is delivered at qualifying premises. I should perhaps draw attention to the fact that, as is usual in schemes of this kind, Clause 4 of the Bill provides that the making of grant may be subject to appropriate conditions. For example, an appropriate repayment may be required if premises cease to be qualifying, or the asset on which grant is paid is moved from qualifying premises or from a development area as the case may be.
Before leaving Part I, I should like to say a word on timing. We shall not of course be able to give full detailed advice to applicants or deal with applications until we have the necessary powers. But I expect detailed explanatory material and application forms to be available during September and we shall aim to begin making payments as soon as possible after then. In the meantime industrialists should retain all relevant documents so that applications can be verified and processed quickly when the time comes.
I turn now to Part II of the Bill which is concerned with regional selective assistance. The arrangements we propose here differ in three major ways from those on which successive Governments have relied for many years. First, we are extending eligibility for selective assistance to include investments essential for the modernisation of industry. This change reflects the widely held view that, while the totally new project or the expansion of an existing project is important to regional development and the creation of jobs, the strengthening of the industrial base in the assisted areas depends also on modernising those regions. The extension of regional 630 development grants to existing industry is of first importance in this work. But more may be needed in particular cases, and selective assistance will provide an additional stimulus.
Second, whereas the old powers under Section 4 of the Local Employment Act to give assistance to industry were confined to the development and special development areas, this Bill extends them to the intermediate areas.
Third, effective regional regeneration must be organised to take the fullest account of regional needs and make the fullest use of regional experience, knowledge and enthusiasm. We shall, therefore, devolve decision taking on selective assistance as fully as is practicable to the greatly strengthened regional offices of the Department assisted by the new advisory boards and the new regional industrial directors. This approach, combined with our other measures, provides the means by which the assisted areas can be helped and, of prime importance, be enabled to help themselves.
§ LORD BOYLE OF HANDSWORTH
My Lords, may I ask the Minister one question on what he has just said? Will there be any inter-relationship between the regional offices and the new Board which is to be set up under the Bill? Will there be any admitted cross-membership or co-ordination, or will the Minister receive quite unco-ordinated advice from both organisations?
§ THE EARL OF LIMERICK
My Lords, I do not think there is any proposal for cross-membership because the local boards will be drawing on those with local experience who are constituted in the areas. They will be commonly served by the work of the industrial development executive teams who will be putting up both the projects and they will therefore be working to the same set of criteria. This is a point on which I am afraid I can give no further help but I shall certainly look at it and provide a further answer.
The basic powers we require to carry through this programme are contained in Clause 7 of the Bill now before the House. The House, and industry, will wish to have a clear view of the assistance which may be provided under this clause. Essentially we will be deploying four 631 weapons. First, loans: these will continue to be available on a substantial scale for projects providing employment. They will also be available for modernisation projects. The terms and conditions will be tailored to suit individual circumstances, but broadly loans for employment-creating projects will be at preferential rates whereas, normally, loans for modernisation will be at commercial rates. Second, as an alternative to loans, and as a new departure, subsidies will be available towards the interest payable on loans obtained from the market. Third, in suitable cases, guarantees designed to aid borrowers to obtain loans from the market for approved projects will also be available. Fourth, removal grants similar to those previously available under the Local Employment Acts, will be on offer to help firms seeking to move an operation lock, stock and barrel from a non-assisted to an assisted area.
We also propose (and really this represents a fifth weapon) to make full use of our powers in the Local Employment Act to provide factory space in the assisted areas. Rents, as in the past, will be based on current market value as assessed by the district valuer, but for projects creating new employment we will be prepared to consider a two-year rent-free period to a new tenant. As the White Paper foreshadowed, we also intend to make greater use of our stock of factories to rehouse existing industry. Clause 13 of the Bill proposes that the Estate Corporations' power to provide advance factories should no longer be tied to the provision of employment and will enable factories to be made available to re-house firms whose present premises are unsuitable for modem production techniques. This should both assist such firms to establish their operations on a sounder basis and will also ensure that maximum use is made of our existing resources.
I must emphasise at this point that we intend to make aid available under Part II of the Bill only for the benefit of firms and projects with sound economic prospects. The new organisation announced in the White Paper is, therefore, being equipped with the expertise needed to assess the merits of applications for selective help. The regional industrial advisory boards and the headquarters 632 Industrial Advisory Board will be made up of experienced men from business and industry who can form judgments on commercial lines. The development unit at headquarters, with staff from a wide range of commercial activities will also play an important role here.
§ LORD DIAMOND
My Lords, may I interrupt the noble Earl at this stage to take up the point already mentioned? The noble Earl made it quite clear that these powers will be discretionary, and he has said that judgment will be exercised centrally and locally by separate industrially trained and experienced people as to economic viability and prospects. Clearly those judgments could vary. Two honest and able people can give different answers on the same set of facts. I hope, therefore, that either the noble Earl or the noble Lord, Lord Drumalbyn, will be able to help us with the obvious and important point of getting the same kind of treatment in the various areas, and getting co-ordination of policy.
§ THE EARL OF LIMERICK
My Lords, I think this is a most important point and it is my understanding that guide lines will be issued: Working from the development unit at the start, a common policy will be evolved and, of course, ultimately will go to the Secretary of State for decision, and it will be subject to Parliamentary control. There is also a provision to the effect that if the advisory board think fit, having been overruled by the Secretary of State, they may give their reasons to Parliament. This leads me on to the way in which we think this might work.
For example, after the development unit has made an intensive study of a particular industry or project it is possible, and it would be our hope, that private sources may be prepared to provide capital on the basis of the study, which otherwise might not be available. The powers to assist industry in the assisted areas in Clause 7 have been drawn widely. I have outlined steps to assist industry in these areas to create employment and expand and modernise their industrial base but there are other situations in which selective assistance may be essential for the economic strength of a region. For example, there may well 633 be projects which, while they have good prospects of long term viability, require a measure of assistance because of their sheer size or the long time they take to come to fruition. In such cases the market normally responds to the lead and is able to provide the major contribution towards the necessary capital.
Secondly, as I have already emphasised, our resources of labour, management and capital need to be adaptable so that they can accommodate changing market conditions in Britain, the E.E.C. and the rest of the world. Industries in this situation sometimes have difficulty in adjusting to rapidly changing market conditions. In some industries a scheme for scrapping excess capacity may be needed, as has happened in the cotton industry. Temporary assistance may then be required to permit the contraction or rationalisation necessary for a new and successful future to be undertaken at a pace which mitigates the social disruption which would otherwise occur.
In such cases, effects and waste of resources are likely to be particularly serious where a substantial proportion of the capacity of the firm or industry concerned is located in the assisted areas. But it may also be serious in other parts of the country; for example, in a locality highly dependent on a single employer when there are poor prospects of finding alternative employment quickly. Thus it may, on occasion, be in the national economic interest to assist industry in the same way outside the assisted areas. Also, where a whole industry requires selective assistance it would be unfair and impracticable to assist the undertakings located within the assisted areas without including those situated elsewhere. But different criteria are needed for such assistance; these are provided for in Clause 8 which deals with assistance in all parts of the country for the purposes listed in Clause 7(2). I must make it plain that we have no intention to supplant or interfere with the normal market sources of finance for industry. We have therefore imposed a statutory requirement that before assistance can be made available in the national interest the necessary funds cannot be provided from any other source.
The powers under Clause 8 are subject to a number of important safeguards to preserve Parliamentary control. They are 634 limited in duration to a period corresponding to the transitional period of our entry to Europe; that is, until the end of 1977. Also, the funds available, including those needed to back guarantees, are limited to £150 million and an Affirmative Resolution in another place will be required when a further tranche of £100 million needs to be made available. Finally, the selective financial assistance which may be paid or undertaken to be paid under Clause 8 in respect of any one project may not exceed £5 million unless there is authorisation by a resolution in another place. Where the limit of £5 million may need to be exceeded because of urgency at a time when it would be impracticable to obtain the approval in another place, as, for example, when Parliament is not sitting, the Secretary of State will be required to lay a Statement concerning the financial assistance before another place and your Lordships' House.
The Bill provides that, with the company's consent, the Secretary of State may take an equity interest in a company where this is agreed to be an essential element in getting a project off the ground. A similar power has existed under the Local Employment Acts for many years. If circumstances arise where the taking of an equity holding would make sense we shall be prepared to consider them subject to the safeguards which the Bill provides. In the first place, the Secretary of State must be satisfied that financial assistance cannot appropriately be provided in any other way. Secondly, he must obtain the consent of the company and where assistance is being given under Clause 8, he may not acquire more than half, by nominal value, of the equity share capital. Where the Secretary of State acquires shares or stock under Part II of the Bill, he will be required to dispose of them as soon as he finds it reasonably practicable to do so. And before disposing of them he will be obliged to consult the company so that their views may be taken into account in relation to the sale.
My Lords, I turn now to Part III of the Bill, comprising Clauses 10, 11 and 12, which provides for two forms of assistance for the shipbuilding industry; namely the provisions of guarantees to finance the construction of ships in the United Kingdom for U.K. shipowners, 635 and a new scheme of construction grants. Clause 10, the home credit scheme, is well known to noble Lords. Its purpose is to provide U.K. shipowners ordering at home access to credit facilities on comparable terms to those available to them abroad. In view of the demise of the Shipbuilding Industry Board, the Bill provides power to enable the scheme to continue, and extends the financial coverage from £700 million to £1,000 million with provision by Order to increase this further up to £1,400 million, subject to approval in another place.
The construction grant schemes provides temporary assistance to the shipbuilding industry in view of its serious and unprecedented financial difficulties. The origin of these difficulties is the intense international competition and the extent of subsidies being granted abroad to its competitors. This led our shipbuilders in the late 'sixties to take fixed-price contracts, many of which are now seen to be unrealistic. Currently there is a low level of ordering. The Government recognise an immediate need to safeguard employment and provide a period of stability for the industry. Ninety per cent. of the employment in the merchant shipbuilding industry is situated in the development areas. There are also thousands of jobs among suppliers dependent upon the shipbuilding industry.
A long-term study of the industry is now being carried out by the Industrial Development Executive in order to allow a strategic plan to be outlined, taking into account likely developments in European policy. The special assistance already announced for Govan Shipbuilders and Cammell Laird is to be provided under Part II of the Bill. Noble Lords will be aware that Govan Shipbuilders began trading on July 1 and the Government have undertaken, subject to certain conditions, to provide adequate financial support for the company for a period of five years or until the company has achieved viability, whichever is the less. The company announced on July 18 a £15 million order from Kuwait for cargo vessels.
My Lords, that is a summary of the thinking behind the Bill. It has the several purposes which I have described, all of which are worth while in themselves 636 and of considerable importance to the future of all who live in these islands. It represents a major attack on the problems of regional imbalance which affect the population of half of our country, by providing a new initiative which will stimulate the industrial investment which is so badly needed if we are to keep pace with our competitors and which will assist in promoting industrial efficiency to meet the challenges which lie ahead. The Bill cannot by itself achieve these aims. Their fulfilment will depend upon the efforts of industry, both management and labour, so that steady and more widespread growth in the economy can be achieved. But the measures proposed in the Bill will help provide strong encouragement for industry and help towards the national prosperity that we are all so anxious to see.
These measures must be allowed time to work. They are not short-term palliatives; their success will depend on the consistency of application which the Government intend to operate so that we can strengthen the areas of weakness that have for so long afflicted our industrial performance. With these thoughts I commend the Bill to the House.
§ Moved, That the Bill be now read 2a.—(The Earl of Limerick.)
§ 12.3 p.m.
§ LORD DIAMOND
My Lords, I find myself in the usual position of offering the thanks of the House to the noble Earl for the manner in which he has discharged his task. I am also in the somewhat unusual but very pleasurable position of welcoming very warmly indeed everything that he has said and the Bill that he has introduced. It will be the purpose of those on these Benches to facilitate its passage in every possible way and as quickly as may be, because of the great need for the assistance which is being provided. I hope I do not make the Government's task the more difficult with their own supporters by giving the Bill this very warm welcome.
This is a very important Bill, and perhaps it is important in two particular respects. First of all, it now puts an end, I hope for all time, to the and argument as to whether or not the major Parties are agreed about the need for Government intervention in the private 637 sector. It was a pointless argument, because everybody knew that, apart from the political embarrassment of admitting the truth, it was no more possible for Tory Governments to avoid intervention in the private sector than it was possible for Socialist Governments to nationalise everything holus-bolus, and to be unwilling to recognise that, for the lifetime of everybody here, we would be dealing with a mixed economy. If, therefore, we can all devote our attentions to improving both sectors and the whole of the economy rather than in having arguments based on philosophy as opposed to the facts of particular situations, I am sure that it will be for the benefit of our country. Therefore, I welcome the Bill on those grounds.
The other important ground on which I welcome it will not perhaps be so acceptable to the Government, but I think it is nevertheless very important in our present situation. That is the complete change of heart which this Bill represents. I shall fill in the detail a little later, and add some of the background which I am sure your Lordships would wish to have but which the noble Earl, in the interests of brevity, omitted to give. I do not know whether any of your Lordships noticed, as I did when we started our Business this morning, that there was a distant sound of bells. I did not know whether it was a Division bell or not, and so I made inquiries through "unusual channels", and found out that it was the perfectly normal and well precedented traditional rejoicing which goes on in Heaven when a sinner repenteth. I was glad of that explanation.
I want now to be very serious, and say that it is very easy for an Opposition to jibe at a Government when they make a complete change of front; it is much more difficult for a Government to change their mind, as they have done. I take off my hat to the Government for having done so, and will support this move in any way I can. I will explain shortly the reasons for doing it to your Lordships, but having those second thoughts brings nothing but credit to those who hold them. It is not absent from my mind that, just as much as the change of heart here will undoubtedly be of assistance in the development areas and to the whole of our economy, so I hope I can perceive distantly a slight change 638 of heart in our industrial relations, and particularly in an Act which governs them, which again is very much overdue, just as this change is overdue, and which again will have a most important effect on our economy and our welfare. We shall be coming back to this matter during the course of next week on the Emergency Regulations. I would be most anxious to say nothing that would in any way make the path of a Government which is having second thoughts the more difficult.
I think that it is necessary to examine for a short time the change that has taken place, and to illustrate my argument I start off with the "bible" for these purposes—that is to say, the Tory Manifesto in the last General Election which said:We will repeal the so-called Industrial Expansion Act which gives the Government power to use taxpayers' money to buy its way into private industry.Indeed, that Act was duly repealed. In fact, it was repealed barely a year ago. The Bill which is now before your Lordships restores not only all but more than all the powers which were in that Act, and I am happy to say in certain important clauses, such as Clause 7, does not hesitate to describe those powers in literally the same language word for word. We welcome that, but it does represent a considerable change.
The other authority I would quote is of course that passage of the speech of the Secretary of State which has become so famous when, on November 4, 1970, at column 1212 he said:The vast majority lives and thrives in a bracing climate and not in a soft, sodden morass of subsidised incompetence.He went on to refer to "lame ducks", and that has come to be known as the "lame-ducks" speech. When introducing this Bill in another place he referred to the theme of "non-culpable decline". The "lame ducks" have given way to "non-culpable decline", and I rejoice that that is so.
The other aspects of the Bill which represent the most welcome change relate to investment grants. Investment grants were changed by the Chancellor of the Exchequer at the earliest opportunity, I think in November, 1970, on two grounds. Two main criticisms were made. The first was the familiar one 639 which was shared by most opinion on the Benches opposite as I understand it, namely, that the difficulty about investment grants is that they subsidise incompetence—if I may go back to the words I have just quoted. You get your investment grant whether the assets towards which the grant goes turn out to be profitable or unprofitable. If they turn out to be unprofitable then you are using Government money to subsidise incompetence.
That is what is proposed in this Bill, I am happy to say—regional development grants totally irrespective of profits. You get your grant and you try to make a profit. Of course, judgment is used. I referred to that in the interruption which the noble Earl was courteous enough to allow me to make in relation to the prospects of profitability. So there we have seen a major change. The other criticism I mentioned was that proposals in the Bill require a great increase in Civil Service manpower; in fact an increase of 500, as is made clear in the introductory comments to the Bill. Of course you cannot achieve these benefits and see the implementation of your policy unless you have the necessary manpower, so I for one also welcome that.
Finally, I want to refer to the Press comment which was made when the Labour Government introduced the Industrial Expansion Bill which contained the powers which are now restored under this Bill. There were a number of provisions in that Bill, including one to take an equity interest in the private sector, which were roundly condemned by The Times, the Sunday Times, the Financial Times, the Daily Telegraph, the Spectator and the Economist—a pretty good selection of solid journalism. Not only were they roundly condemned by the Press but the C.B.I. broke off negotiations with Her Majesty's Government at that time because of these provisions. It is interesting to recall who was the Director-General of the C.B.I. at that time—no doubt carrying out the policy of his masters and carrying it out with great efficiency—namely, John Davies. I am bound to say to your Lordships that what happened to Paul on the road to Damascus is as nothing to what hap- 640 pened to John on the road to sanity. We welcome it extremely.
My Lords, why has there been this complete change? Because Governments learn, some of them very slowly unfortunately, in the light of hard and harsh events that the sooner they adjust their platform speeches at election time to the needs to govern the country in the interests of the country the better. When that process of learning takes place they are affected in reaching their conclusions by the hard facts, and the hard facts which brought about this change of front are serious unemployment and serious under-investment, in particular serious unemployment clearly demonstrated in the regions to which these proposals are directed.
In the North-West region unemployment has increased in the period of the present Government's tenure of office by 80 per cent.; in the West Midlands it has increased by 100 per cent. It is interesting to observe that the rate of unemployment in the West Midlands to-day—previously one of the busiest areas in the country—is greater than the rate of unemployment in the Welsh development area at the time the Government took over. In Scotland the general rate of unemployment is around 60 per cent., and the job position, which I should like to dwell on for a moment, is that for every job open to a male 18 men are seeking it; for every job open to a skilled engineer in Scotland 29 men are seeking it—I am talking about skilled, not unskilled, labour. For the unskilled the figures run into thousands—thousands seeking every available job, on the basis of comparing the number of unemployed with the vacancies. So it is a very serious situation indeed and I am more than grateful to the Government for taking the massive steps which are proposed here, providing very substantial sums to assist towards reducing unemployment in the areas and increasing economic activity.
The two particular anxieties I have about the provisions, anxieties the remedy for which is careful watching rather than particular changes in the Bill itself, are, first, the scale on which assistance is provided. The powers provided under this Bill are wider than the powers we had in the Industrial Expansion Act: there is more money provided, the criteria are if 641 anything more loose, public and Parliamentary accountability are undoubtedly less and the risks to the public purse are greater. One is very familiar with the fact that a convert is more enthusiastic than one who has always maintained a certain philosophy or a certain religion, and in case there is some of that enthusiasm around I want to make it plain to the Government that, as much as we welcome the provisions, the powers and the general attitude displayed in the Bill, we shall of course feel it our duty to watch their application because of the risks to the public purse involved due to the way in which the Bill has been drawn.
The second anxiety is one which I am sure the noble Earl will particularly easily understand, and I hope that he and his colleagues will take it on board. It is the rather technical point of the relationship with third parties. The Government make it clear that in the private sector they are going to back companies, if necessary up to 49 per cent. of the equity. When a creditor, a supplier, deals with a company which has 49 per cent. of the equity shares held by the Government, it is inclined to rely on that company as much as it would rely on the Government themselves. Indeed, it will do so unless the Government make it absolutely clear that it should not. Problems will inevitably arise where this situation develops—and one speaks not wholly without experience—unless the Government make their position absolutely clear from the word, "Go". There is the good name of the Government, on the one hand, and the reliance which will implicity be put on a company in excess of the strict interpretation of the law, on the other. That is one reason why the relationship with third parties does, I think, cause some anxiety.
The other, again arising out of the provisions of the Bill, is that the noble Earl has said that it will be the Government's practice to give financial help where help could not otherwise be obtained; that is to say, if a particular company goes to its bank and says, "We are in very difficult financial circumstances, and we need some help", and the bank says, "No, we are not going to let you have it". The company might indeed go to a merchant bank, and the merchant bank might make the same answer; or it might go to any other source of finance. The 642 answer would have to be "No" before the Government helped. The noble Earl has made that quite clear, So Government help would be help to a company without funds. Whether it is technically insolvent or not, one cannot say; but what one can say is that it is without necessary funds, otherwise the Government would not be helping. As the noble Earl knows, when a Government intervene in these circumstances they take upon themselves very considerable responsibilities, far in excess of the amount of money put up, unless they take the most minute care to avoid that.
Therefore, these two reasons—(a) the implicit confidence that a supplier, a third party, would have with a 49 per cent. Government-backed purchaser; and (b) the desire of the Government in other cases to help only when that help cannot be obtained elsewhere—will again produce these problems in relation to third parties.
These are not matters, I repeat, on which I am proposing any adjustments to the Bill, or indeed asking for any answer today. What I am asking is that the Government will be good enough to bear these matters in mind, because otherwise (if I may put it in this way) if they do not take the necessary precautions they may be forced off doing what I want them to continue to do; namely, to intervene without getting involved in unnecessary liability. If they plan to intervene in such a way that they find themselves involved in excessive liability, they may draw the conclusion, "Oh, well, we cannot intervene". What I am saying to the Government is, "No; the conclusion is to avoid, by steps in advance, any unwanted liability, but to go on intervening in the interests of increased employment and higher economic activity".
My Lords, I repeat that those are anxieties, and you will have observed that I am not making any detailed suggestions for improvement of the structure of the Bill. I am taking that attitude for two very good reasons: first, because the Bill is in general very acceptable to those of us on these Benches, and, secondly, because there is no time to do anything else—and I take a practical view of life. The Government's programme, as has already been expressed in words which I 643 cannot better, is in such a mess that there is no opportunity to have a real Committee stage on this Bill, to get it back to another place and to get it enacted and implemented as urgently as that needs to be done. One recognises this, and so far as those of us on these Benches are concerned—it is, of course, for other noble Lords to do what they think fit—we wish the Bill to have its speediest possible passage. If there is any need for any change, any revision, in the light of the working of the Act, as it will be, of course the Government will be able at a suitable opportunity, in six months' or a year's time, or whatever it may be, to introduce amending legislation and tack it on to whatever Bill they can find going through the House at the time which has something to do with industry—and I do not suppose that that will be very difficult. Having said that, my Lords, I repeat that we welcome the Bill; we welcome its contents, and we shall facilitate its passage in every way open to us.
§ 12.27 p.m.
§ VISCOUNT SIMON
My Lords, I am very happy to be able from these Benches also to assure the Government that any help we can give in getting this Bill on the Statute Book promptly will be forthcoming. We believe that this is a very necessary Bill: the more so because the development areas (or the regions, as I think we can call them for short) clearly need help, since the advantage they have so far enjoyed has to some extent been whittled away by the extension of what is called free depreciation over the whole country, and also by the threatened withdrawal of the regional employment premium. I do not know whether there is any hope that there might be a stay of execution, or even perhaps a pardon, in the latter matter because it certainly is a way in which employment can be directly stimulated, and that does not apply to the other methods of support which are put forward in this Bill.
May I now say a word about Part I and the regional development grant? Like the noble Lord, Lord Diamond, I welcome the change of heart which the Government have had over this matter. We on these Benches have always felt that a grant was in this context superior 644 to an investment allowance, and we think that the experience has shown that this is the correct view. I should certainly myself like to see—and I believe that this is possible under the Bill, because the Secretary of State has power to add items to the list—the extension of this grant beyond the basic manufacturing industries to service industries. At the outset of his speech the noble Earl made reference to improvements in the environment, and I feel that in many of the areas of which we speak the environment could be substantially improved by the injection of a certain amount of service industry, so that the community would become a more balanced community instead of being a community based entirely on manufacture. As I said, the Secretary of State can vary the qualifying activities under Clause 3(2)(a), and I hope that at some time the possibility of extending the qualifying activities to include some at least of the service industries may be considered. In another place a powerful case was made for the inclusion, for instance, of the tourist industry which has considerable importance already in the South-West and in Cumberland—and, as my noble friend has reminded me, in Wales. I often feel that in the arrangement of industry there are opportunities for tourism that have not been taken in the very beautiful counties of Northumberland and Durham, where the old basic industries have contracted.
I want to say a few words about the noble Earl's remarks on the subject of modernisation. He argued that it was proper for assistance to be offered for modernisation without particular reference to employment possibilities because modernisation was calculated to make employment more secure. I must say, in face of a particular aspect of modernisation which has been very much in our minds during the last few weeks, that that seems rather a broad statement to make—because certainly modernisation in the port transport industry has not made employment more secure; it has made it much less secure. In this context, if I may go ahead for a minute or two, the noble Earl referred to this same matter when speaking of Clause 7. If I understand Clause 7 correctly, it is not possible under it to offer assistance for modernisation unless it is, in the opinion of the Secretary of State, "likely to provide, 645 maintain or safeguard employment". So as far as Clause 7 is concerned, I should have thought that the general offer of assistance for modernisation must be qualified by the requirement that the Secretary of State must be satisfied that, in the particular area, it is likely, as the clause says: "to provide, maintain or safeguard employment …".
My Lords, I now turn to Part II of the Bill. Before raising general points I wonder if I may ask the noble Lord, Lord Drumalbyn, to answer a very simple question. I suspect that I am probably the only person in your Lordships' House who does not know the answer. I think I know it, but I should like to have it spelled out. What, in Clause 7(1)(b) is the meaning of the word "undertakings"? I take it that if there is what I should call an undertaking, a business, which is carried on in all sorts of places all over the country, it is not "wholly or mainly in the assisted areas". But if it decides to set up one installation in one assisted area, then I assume that that single installation would be entitled to get the benefit of the Bill.
The curious thing is that, if that is so, it does not immediately jump to the mind why the words "wholly or mainly" were put in, unless one is considering an installation which physically straddles the boundary between a development area and some other area. If "undertakings" means single undertakings then either they are or they are not in an assisted area and the word "wholly" would have little point. I should be surprised if a company like I.C.I., which has installations all over the country—not necessarily all in the regions—decided to set up a new factory in one of the regions it could not be entitled to this assistance.
To come back to the generality of Part II, like the noble Lord, Lord Diamond, I was struck by the immense width and breadth of the assistance under this clause. I was a little concerned as to the control over what happens. The powers of the Secretary of State are very wide. The criteria in Clause 7 (which is the one I have already mentioned and of which the rubric reads: "Selective financial assistance for industry in assisted areas.") is fairly clear, but the criteria in Clause 8, on the other hand, seem to be very broad. The clause speaks 646 of activities "likely to benefit the economy of the United Kingdom" and to be "in the national interest" in the opinion of the Secretary of State. That seems to be an almost subjective test. It rather depends on who is the Secretary of State and whether in his opinion some particular activity is in the national interest.
The effect of Clauses 7 and 8 taken together is undoubtedly to give the Secretary of State and his Department a very large area of patronage. The Secretary of State himself was well aware of this because in the Second Reading debate in another place he said:But I am very conscious that access to arbitrary and discriminatory powers constitutes a heavy responsibility, not least to justify to those who might be the victims of such discrimination the methods practised and the decisions reached."—[OFFICIAL REPORT (Commons) 22/5/72; col. 1022.]My Lords, we are very fortunate in this country in the very high standard of integrity in public life, but we do occasionally hear whispers of things that have not gone quite right. I see behind these two clauses a real danger of excessive pressure which might in some sad instances prove too much. After all, any offer of assistance under these clauses is bound to be in response to an application. The Secretary of State, the Department and the Advisory Board cannot of their own knowledge identify places where help may be needed. Therefore, anybody whose firm has need of help must make an application. I can imagine a situation in which there is a firm which feels that it is in danger of going down. It has a number of employees who would be thrown out of work and it feels that it should go to the Minister to ask. "Can you help me?". But the Minister will see—he can only see—the case as presented to him; and we all know that cases of this kind can be presented in one way and in another way to produce different impressions.
Then, as I understand it, the matter is referred in the first instance to the Advisory Board. They, too (although, as I understand it, they are men of experience) will have some difficulty, I think, in one individual case in assimilating the facts and in putting them into their context in the national scene. Let us suppose that they felt that there was a primary case for giving assistance. There 647 may be two or three other firms in the same position which have not at that stage thought of applying for assistance. Are they going to be, as it were, beaten at the post? It may even be that there is a situation where there is over-production and where (shall I say?) the least efficient firm is the one in danger of going down. If that firm makes out a case for assistance it might be that it is the next least efficient firm that goes down as a result.
I have been wondering how the Minister and his advisers can protect themselves against the sort of pressures that may come upon them and against the possibility of deciding single issues without a full understanding of all the surrounding circumstances. I am sure that I do not want (none of us wants) some elaborate procedure because that slows down the operation of necessary work. But how about a provision—perhaps the noble Lord would like to think of this; I do not expect a reply today—to the effect that before any decision is finally taken publicity is given to the proposal. This would alert other undertakings who might be adversely affected by a decision to support a single firm. It would have the further advantage that it would alert our always vigilant Press and, if there was the least chance of some improper pressure having been brought to bear on civil servants or on Ministers, then the Press would seize on it and show it up. That is something that we hope would never happen, but if it did we would hope that it would be shown up.
I have only one other point to make about the Industrial Development Advisory Board. We read in Clause 9 that there are to benot less than six nor more than twelve other membersbesides the chairman, and it shallinclude persons who … have wide experience of … banking, accounting and finance.There is clearly room for others, and I hope that the Secretary of State will include some other persons. If the Board is to be wholly financially established, it is almost bound to look at projects from a classical financial angle. We do not want the Secretary of State to back only losers; but when the primary object is to promote employment in the short-term, in the hope that a project will 648 eventually become viable, it seems to me that he must expect to have a certain number of losers. This may be necessary in order to effect the object of the Bill of stimulating industries in the regions.
I think it was the noble Earl who said that under Clauses 7 and 8 assistance would be given only to sound commercial projects. But as the noble Lord, Lord Diamond, pointed out, assistance is to be given to projects that no one else is prepared to back. While I think that "sound commercial projects" is perhaps a comprehensive term, I feel that a good many of these projects must be at the lower end of the "sound" bracket—if I may put it in that way. So, my Lords, I believe that it would be helpful if the Industrial Development Advisory Board contained not only bankers, financiers and accountants, but also some professional men who might bring an independent view to these matters. When I say "professional men", I am thinking of engineers, lawyers and people with academic qualifications—people who are not up to their eyes in business and who are quite capable of taking a broad view of projects.
I shall not say anything about the shipbuilding proposals, because they are temporary proposals and we shall await with interest the strategic plan which has been promised. I would conclude by saying that, in looking at this legislation we must also look ahead to what it is that we are trying to achieve. Ultimately, the regions must stand on their own feet; I nearly said "on their own two feet" but perhaps that would be plagiarising. We on these Benches have always been in favour of regional authorities with devolved powers, and I hope that that may one day come about. To my mind, it is absolutely vital that all the men and women working in an undertaking helped under this Bill, whether managers, or workers on the shop floor or wherever it may be, put their backs into a project to make it a success. The regions cannot be indefinitely sustained by help from the rest of the country, and if full use is not made of the assistance offered to undertakings by the provisions of this Bill to put themselves on a sound basis so that they may continue to flourish, then indeed the money spent will have been wasted. I should like to refer again very briefly to the service industries, 649 because I believe that if the regions are to become successful growth areas in the country, they must have a balanced community with something in addition to manufacturing industry to support them.
§ 12.46 p.m.
§ LORD BOYLE OF HANDSWORTH
My Lords, like other noble Lords who have spoken, I warmly welcome this Bill. I regard it as an important measure. To be frank, its appearance does not surprise me all that much. I always believed that, sooner or later, a measure of this kind would be brought before Parliament; and I share the view of the noble Lord, Lord Diamond, that in view of the tightness of the programme we in your Lordships' House had much better speed the progress of this Bill on to the Statute Book as rapidly as possible. But we are certainly in a very different world to-day from the world of the 1930s. I recall being told that it then took three months within the Government machine to get one distressed area scheduled as such. We have certainly progressed a good deal since then.
I feel that the Bill has special significance in the context of the intention to enter the European Economic Community. I was not present for the recent debate, but I find myself very much in sympathy with the line of argument uttered in that debate by the noble Lord, Lord Hale. Like, him, I have always felt that the strongest reason for wishing to join the E.E.C. is a belief in the unity of Europe; a belief that for a number of purposes—cultural, environmental, and military, as well as industrial—we need to get beyond the confines of the nation State. But at the same time—and here again I find myself in great sympathy with what the noble Lord said—my chief anxiety about this decision has always been the fear that membership would result in the rich areas of this country becoming richer and the poor areas becoming poorer; hence the very great importance of this Bill, and I would say of the whole approach to regional policy which we should aim to promote when we become members of the Community.
Before I come on to the detailed provisions of the Bill, I should like to echo the satisfaction expressed by the noble Lord, Lord Diamond, that in British politics we are now all coming to accept 650 the need for a mixed economy. As the noble Lord knows, I have always shared that view. I should, however, like to say a word in answer to those who still believe that the operation of market forces could offer the whole solution, or, at any rate, by far the greater part of the solution, to regional economic problems. It seems to me that that cannot be true, for two reasons. The first reason is a theoretical one, but it is important. The old doctrine which used to be believed so profoundly in the nineteenth century that, however much richer one country or one region was than another, there was always a pattern of unregulated trade and unregulated economic development in which they could engage to the mutual advantage of both, simply cannot be applied without very considerable amendment to the economic circumstances of to-day.
The regional process is all the time getting more dynamic, and it becomes less and less realistic to regard perfect competition, on which old-fashioned market economics were based, as the norm. But, quite apart from theory, there is the practical point that we have ourselves experienced in Britain since the war, an attempt to try to do without a regional policy and to rely solely on market forces. In the mid-1950s the Government of the day, quite understandably, wanted to encourage economic activity, especially investment, and they allowed the motor industry in this country to expand in the West Midlands virtually as it wished. I was then a West Midlands M.P. as well as a Treasury Minister, and I remember the circumstances well. The policy did not work at all satisfactorily. In a single year we had an increase of 26 per cent. in expenditure on motoring in this country. But the other results were an overheating of the economy, the sudden obsolence of a whole mass of social capital, and the spoiling of what, looking back, was the best chance for a British economic miracle that we had at any time between 1950 and 1970.
I emphasise that it is not only the development areas of this country which need a regional policy; it is the potentially congested areas as well. I am sure that a regional economic policy must be in the interests of the whole nation. I therefore welcome the proposals for regional development grants in Part I of the Bill, and I would venture to say 651 that the amount of the proposed grant is about right. May I suggest one candidate as an addition to the list of eligible assets? I should like to see a specific grant made available for the clearing of eyesores. I have always believed that they rank high in the priorities for assisted capital expenditure. My own criticism of Part I does not relate so much to any specific proposals, which I think are good, but rather to my feeling that we still need rather more of a regional strategy, with certain specific policy objectives.
Let me give a few examples of what I mean. First, I think we need a broader, more articulated, classification of regions in this country. Professor A. J. Brown. our senior Professor of Economics at Leeds, in his Minority Report to the Hunt Report—and that Minority Report is still very much worth reading—argued very ably the case for a fourfold classification of regions of this country: development areas, grey areas, neutral areas and congested areas. He suggested that congested areas should have to pay a congestion tax—a sort of regional employment premium in reverse. I believe that this suggestion for a more sophisticated, a more articulated approach to the regions has much to be said for for it.
Secondly, I would ask just how significant in the Government's mind is to be the role of local initiative. On this point, I found the Second Reading speech of the Secretary of State moderately encouraging. But, if we want to take the role of local initiative in regional policy seriously we must get away from one very peculiar British economic institution. I refer to the very tight central control of social capital expenditure which is imposed by Whitehall. There is no country in the Western World which has such a centralised, detailed control of capital expenditure, extending to items like bridges or to minor capital works for schools. Noble Lords who have ever served as Ministers in spending Departments will know what I mean. I have always believed—and I would like to think that in the Scottish context I have the particular support of Sir Alec Douglas-Home on this—that some relaxation is essential if we are to have a true regional policy in this country.
652 Thirdly, I hope Mr. Chataway—I mention him specifically because I was very lucky to have him as my Parliamentary Secretary for two years—will try to achieve something which no Government since the war have achieved. I hope he will try to marry the housing programme in the regions with the industrial programme. We have always had a programme of advance factories and we have built a considerable number of New Towns. But I can recall the noble Lord, Lord Kahn—I wish he were here—once addressing the Tuesday Club on this subject and pointing out most convincingly that we had never tried to marry the housing programme and the industry programme closely enough.
Fourthly, I suggest that we need, so far as possible, to reconcile three aims: the right to work, the mitigation of the human costs of adaptation, and the economic need to diversify economic activity within each region. I feel that the thinking behind the Bill is stronger on the third of these matters than on the other two. For my own part, given the need for growth in employment in the depressed regions of the United Kingdom over the whole range of both manufacturing and service industries, which are not growth industries themselves, I should like to see direct grants to the regions as a supplement to the regional employment premium, or at any rate as an alternative to it, rather than the phasing out of the REP altogether. I very much agree with what the noble Viscount, Lord Simon, had to say about this in his speech just now.
I should like to add one or two specific points about labour and capital markets in the context of regional policy. First, whilst I welcome the geographical mobility grants—they are a valuable provision—I suggest that the public employment service needs to play a greater part in regional industrial policy than it does already. Its role in linking industry with the formal education system really is derisory, as is the use made, at regional and national levels, of the knowledge of local exchange managers. This is a serious matter, involving not just the problems which will arise from the raising of the school leaving age. I wish, by the way, we took more seriously the issue of job opportunities for those 653 school-leavers who are in the relatively low streams. The problem is not confined to immigrants; it is very wide indeed. Again, where are the manpower forecasts oil which the Department started work in 1964 and which I recall the Estimates Committee saw as essential for an effective system of industrial training?
On capital markets, I wonder whether this Bill makes adequate provision for an effective capital market from the point of view of the regions. Whatever the scale of public support through grants, investment allowances and special capital investment, a depressed region needs most of all an increase in the flow of private capital. I must say that I was rather attracted by the speech which Mr. Harold Lever made during the Second Reading debate in another place. He put forward the idea of a regional development bank. As he pointed out, not unfairly, that is just what the Secretary of State, among his many other functions, will be offering under this Bill. We have here a curious reversal of roles. Again, I think back to the 1950s and recall Mr. Wilfred King, who was then editor of the Banker, saying that under Government policy at that time bankers were having to act as planners for a Government who had decided that planning was impossible. Now a major Department of State, a Department traditionally devoted to laissez faire policies is becoming both planner and banker. It is a curious reversal of roles over 17 years. Those are suggestions—I hope considered suggestions—about the labour market and the capital market, and about how they could be helped to work more efficiently from the point of view of the regions.
For a few moments may I now turn to Part II of the Bill, which deals with financial assistance to industry. I wish to comment on what the Secretary of State in his speech called the "mechanism" of this assistance. Part II provides for selective financial assistance not just for the depressed regions but also, in Clause 8, for the general benefit of the United Kingdom economy. I agree with the noble Viscount who has just spoken that Clause 8(1) is very widely drawn indeed. I will not read it again because the noble Viscount has just done so. During the Second Reading debate in another place the Secretary of State 654 explained that the mechanism to undertake the selective assistance would be not an external agency like the I.R.C., but would be a part of Government itself. At the same time, the Secretary of State, in carrying out this function, will be advised by an Industrial Development Advisory Board which can request him to lay a Statement before Parliament if he acts contrary to its advice.
This decision to make the Government itself the agency for selective assistance, rather than an outside body like the I.R.C., was politically inevitable. I think also that on balance it was right, even though at the time I regretted the demise of the I.R.C., just as I certainly very much regretted the demise of the Prices and Incomes Board. But I think it was, on balance, right for two reasons: first, the importance of Ministerial accountability for what are large sums, and also the fact that, as the Secretary of State's speech itself showed, many decisions would be bound to be in part political.
I do not think I shall be out of order in your Lordships' House if I paraphrase one part of the Secretary of State's speech which shows exactly this point of how politics and economics are of necessity intertwined in the decisions that will have to be taken. The Secretary of State referred to what he called "difficult and controversial cases where important concerns suffer a severe financial setback". He went on to say in effect: "We must not prop up inefficient management. But where the firm has an important place in our economy we need to be sure that the setback is irreversible. We may want to provide temporary assistance while the situation is being assessed; and anyway"—and this is the important point—"profitability cannot be the only test. We must also bear in mind the employment the industry provides in relation to the future of a particular area."
My Lords, I think that those last words, even though they may cause some slight surprise to the noble Lord, Lord Diamond, were realistic. What best to do in the light of all these factors must be a decision of the Secretary of State and ultimately for the Cabinet itself. But in that case—and this is the point to which I am leading—the Secretary of State, as head of a major 655 Department, must exercise a real responsibility, and there must be, I suggest, sufficient expertise in his Department to enable him to assess the advice he receives both from the regional offices and the Industrial Development Advisory Board. I would stress very much the importance not just of the avoidance of corruption and those matters to which the noble Viscount has just referred, but also the importance of sufficient skilled accountants in Government service and, indeed, all the infrastructure of professional advice that the Secretary of State needs. I was myself a member of the Fulton Committee on the Civil Service. We were rather bothered to find at that time that of 25,000 accountants employed in this country only 300 were in Government service—and not very well paid at that. I think the importance of a more professional Civil Service does arise here very strongly and I would hope that the Civil Service College, which I do not think has been sufficiently utilised, will be brought in here also.
May I pick out just one detail that I do not myself like very much: the proposal in Clause 9(4) which lays a statutory duty on the Secretary of State to lay a Statement before Parliament if there is a disagreement between him and the Board? I do not myself care for laying a statutory duty on a Minister to lay a Statement before Parliament, any more than last night I cared for putting a Select Committee into a Statute. I think it is best that Statements should arise out of the Parliamentary process itself, and if I may say so without being controversial, I see in this subsection a small example of that growing tendency, which I personally regret, of the House of Commons not just to reach out to the Executive and to question it hut to try to confront the Executive. That has been something of a growth in recent years and I think that it is an undesirable tendency.
Lastly, my Lords, let us remember that it remains a puzzle to some other European countries that Britain should have developed an extensive set of fiscal and financial inducements and yet continue to have unemployment and slow growth. I think we must admit that the fault is partly ours. M. Massé, the head of the 656 French Commissariat, once defined planning rather well, in my view, asthe art of handling short-term fluctuations in such a way as to avoid long-term weaknesses.This is not an art in which post-war Governments, whatever their political complexion, have conspicuously excelled. But do let us remember also, in the context of this Bill, the very real problems of adaptation in a country like Britain with a long industrial tradition and a radically altered world role. For Heaven's sake let us remember the genuine problems of adaptation which exist to-day in the regions and in industries like the docks, in coalmining, steel, shipbuilding and the railways, where indeed the insecurity of employment lies at the root of our industrial relations problems.
I welcome the recent perceptible movement back towards conciliation and consensus in Government economic policy, as evidenced not least by my right honourable friend Mr. Robert Carr's admirable speech last weekend. But one essential element, I suggest, in any consensus must be the recognition that the human costs of adaptation are bound to be greatly aggravated by an overall level of unemployment higher than it need be. One pre-condition for the success of this important Bill is the recovery and the maintenance of a high level of demand for labour.
§ 1.6 p.m.
§ LORD BARNBY
My Lords, I should like first of all to thank the noble Earl for the trouble he took to make clear to us in his speech to-day the many angles and provisions of this Bill. At the same time I wish to congratulate him on his good fortune in introducing a Bill with these high aims and massive requirements—a Bill which meets with unqualified approval from the Opposition, and this certainly is justified in the light of all the recommendations which have come from all sides of the House. It is obvious that something of this character is desirable for this country.
My intervention, which will be brief, is motivated by the wish to raise a couple of points which I hope my noble friend, Lord Drumalbyn, will be able to comment upon when he comes to reply. I am encouraged by the fact that my noble friend, in moving the Second Read- 657 ing, himself introduced one or two specific instances. Before mentioning these I should like to take the opportunity to make a few general remarks. One point is the massive volume of funds involved in this. One wonders to what extent this fact is contributing, as it must do in part, to the current concern about the increase in the money supply and the upward pressure which it must have on prices in general.
The objects, clearly indicated throughout the speech of my noble friend, are to be labour-intensive rather than capital-intensive; that is to say, motivated by the hope of increasing employment rather than guaranteeing an increase in efficiency. This is, of course, partly an inherited position, because the last Government took action in the same direction, though some of it was less successful. I am prompted to say now that one wonders whether real efficiency was adequately pursued. Were the cost assessments adequately made in the first place and were adequate arrangements made to supervise the efficiency with which the large sums of money were employed?
It is fortunate that in this particular Bill it appears that the provision for expenditure and supervision by Parliament is of a substantial character. But at the same time, no one speaking on this could refrain from looking back at the misfortunes of the vast sums of money already handed out to Upper Clyde Shipbuilders and seeing how little good it did. Were they justified? That brings me to the two points that I want particularly to make. I always wonder why such vast sums of money are so readily accorded in the area of shipyards and shipbuilding. Why should the larger amounts not have been channelled into other sections of industry? It suggests that the large units are the ones that are most favoured. That brings me to the second point. There is much written and said about the desirability of consideration for the small business as against the large business. One would think that there may still be a means of including some procedure whereby, provided the aim is to encourage employment, grants in a smaller amount may be channelled through some mechanism, such as the I.C.F.C., which does such a good job in the encouragement of smaller firms in industry.
658 Coming to the particular point on which my noble friend made some comment, it is understood that in the sphere of naval vessels specific grants are given to such ships if they are for foreign accounts. That permits sharper pencilling in the securing of contracts, all doubtless very close cut. But why is it not possible to extend that degree of subvention to naval vessels built for home purposes? That surely would encourage the efficiency of the yards capable of building them, and at the same time is would increase the likelihood of getting more of that character of work from overseas. One cannot help referring to some of the hypocrisy that came from the other side of the House when orders were possible from countries the faces of which the Opposition did not like. They said, "There must be no orders from that side because in the event of our return to power we would stop the supply of spare parts."That is only an instance which one remembers in connection with these points. I hope that my noble friend may be in a position to say something on this matter. For myself, as the first Back-Bench speaker from this side, I should like to give my unqualified support to the aims and scope of this Bill.
§ 1.13 p.m.
§ LORD BALOGH
My Lords, I cannot but join the ranks of those people who welcome this Bill and, more especially, the noble Lord, Lord Boyle of Hands-worth. His brilliant and constructive speech has rendered half of my speech unnecessary, and as time goes on I shall cut it by 50 per cent. I shall not talk about the administration, or about the criteria on the basis of which this Bill will operate. The Bill represents a partial repentance of the Government from one of their major stupidities: the change from a system of grants to tax allowances. It revives, more or less, the I.R.C. and also revives the powers of "Mintec", which were so terribly attacked when they were proposed by the previous Government to enable the Ministry of Technology to give direct help to industry. Thus it is a retreat from an untenable position which we attacked and predicted. If one were to speak less charitably, one might say that Pompidou's poodle has performed a head stand, which is also a notable feat. Even the noble and learned Lord the Lord Chancellor (I am 659 sorry that he is not to speak in this debate, for it would have been amusing, as was his high-spirited buffoonery yesterday) could not hide this fact. The brief of the noble Earl, Lord Limerick, which was a good, if somewhat dreary, Civil Service product, hid it even less.
What is regrettable, but also quite understandable, is that the retreat is on the wrong lines—it is a South Vietnamese retreat. The Government repented only partially, and this performance does not comprise much the most important measure. My noble friend Lord Diamond gave us a number of statistics about the increased unemployment in the regions, but he did not mention the regional employment premium. As the noble Lord, Lord Boyle of Handsworth, said, this could have been refined. I was never very enthusiastic about the administrative work we had to do owing to the resistance of the Inland Revenue. At any rate, here was something which we had advocated ever since the 1950s and which could bridge the difference—and it is a very important difference—between social and private costs; that is to say, which could make the profit motive act as a good signal to private industry.
If the Government are unwilling to learn from British examples that worked, they ought to pay some attention to Italy in this respect, which adopted such a system for the Mezzogiorno. The following important measures are in force and should be noted by the Government. For small firms up to £1 million capital, there is a grant of 35 per cent. of fixed investment. The rate of interest for a loan is 3 or 4 per cent. for 15 years. Seventy per cent. of the investment of small firms is either outright grant or a heavily subsidised one. On top of that, medium-sized firms get a grant of from 15 to 20 per cent. fixed investment and loans of up to 50 per cent. of total investment. Large firms with fixed assets exceeding £3 million get outright grant of only from 7 to 12 per cent. of fixed investment. They get loans, at very favourable rates of between 30 and 50 per cent. of total investment.
That is not the whole picture. What we want, and w hat they want, is employment, not capital intensive investment. One of the great difficulties about grants 660 is that they attract capital intensive investment where employment ought to be attracted. I recommend this Italian system to noble Lords opposite because Italy has pulled itself up by its bootstraps from a very difficult and disagreeable situation. For the share of present employment which is equal to the total employment as registered by the firm on September 30, 1968, they get 5 per cent. employment premium. This is worked through the social service contribution scheme; the State pays the employer's share of the contribution. A higher percentage, up to 13 per cent., applies for the increase in employment since 1968. And a 17 to 18 per cent. direct subsidy to wages is forthcoming on employment which increases from 1971 onwards; that is to say, any enlargement or any new investment will attract 17 to 18 per cent. subsidy on wages.
It is true of course that the Italian Government are protected against the destructive clauses of the Rome Treaty by a special Protocol which we have not got. I must say I am very doubtful, for instance, that certain parts of this measure will be compatible with the E.E.C. It is no use Ministers saying they are absolutely convinced they are, because they cannot be. The sovereign decision over whether this agrees with the Treaties or not is not in our hands, and therefore any assurances are worthless. That is presumably the reason why the grant is limited mainly to 20 per cent., that being the maximum regional advantage which the E.E.C. have accepted. There is a grant of 22 per cent.—and I suppose the 2 per cent. is like the Czech baby: it is so little that it does not count as a countervention. Perhaps that is the most charitable explanation of that. The time limit set in Clause 8 also is presumably due to the destructive clauses of the Rome Treaty. I wish the Government had looked, and would look, at V.A.T. or at Social Security payments to see whether they could not be analogous to Italy's.
Clause 7 represents a resurgence of the I.R.C. powers. This is the one point on which I would disagree with the noble Lord, Lord Boyle of Handsworth. I do not believe that direct governmental power is in any way a substitute for an I.R.C. It would be if we had not vast giant Departments which have been foisted on the British system quite recently 661 and which make an orderly administration quite impossible. The Minister is dead and cannot exert political supervision. Finally, the oddest thing, of course, is that we are now going to subsidise the oil companies. Both the noble Lords on the Front Bench opposite have from time to time suffered from my furious preoccupation with the oil companies; and my Charles's head bobs up again. Not only are we going to grant them, roughly speaking, 500 per cent. more than the Arabs, but we are now going to subsidise their platforms. Well, the more power to the oil companies! Slowly the Government are forced to adopt all the policies which they condemned in Opposition. I fear that this is often the case with all Governments. I remember myself some cases where we did the same, but the extent to which this Government have been retreating is unparalleled, and the only thing I can say is debuisset pridem.
§ 1.25 p.m.
§ LORD TANLAW
My Lords, I am very pleased to give a welcome to this Bill and recognise it, as we do from these Benches, as a very real attempt to assist growth in the regions and the areas of high unemployment. Various reasons have been given or suggestions have been made for the Government's recent conversion. My own theory is that perhaps the Minister of State sought his inspiration among the Old Testament prophets: Ecclesiastes, Chapter XI, verse 1, would be perhaps a possibility:Cast thy bread upon the waters".I think in all seriousness that this is what this Bill is meant to do; and we welcome it because of that. The Bill could also have been conceived with the regions of Scotland particularly in mind, where there are I believe at this moment approximately 12,000 people looking for every vacancy. It is an incredible figure which I believe comes from the Department of Employment Gazette.
The noble Lord, Lord Boyle of Handsworth, has made a fine speech leaving little for me to add as the penultimate speaker. But I feel some words could be said about what the noble Earl said at the beginning of his speech when introducing the Bill, concerning infrastructure. It may be relevant at the Second Reading of a Bill of this kind to imagine for a moment how an Indus 662 trialist is going to react to the intentions behind this Bill, if he is sufficiently tempted, as I am sure many will be, to consider setting up a business or new industry in one of the regions designated as a development area. First of all he will, as some have already done in the oil business, have sent executives to make a report on the spot. I have, perhaps like some other noble Lords, been given such assignments in my time: to go to out of the way places and make a report. Often the first problem is to get there, and Scotland is no exception. Let us imagine that a destination North of Edinburgh is involved. How many times does one end up in Glasgow because of crosswinds at Turnhouse? If one is trying to go to Aberdeen, how many times is one told that the plane is full, and one has to wait not for another plane but for another day?
Oil executives seen on the television in these last few weeks have already said that it is becoming difficult, or impossible, to arrive at the place in which they are meant to be carrying out an investigation in order to put capital into an area. They must be very surprised. They might perhaps recognise this situation in places such as Libya or the Arabian Gulf; but I feel the infrastructure must match—and communications are an important part of it—the weight of capital that is going into the area. On arrival at a proposed site the next item is to find suitable housing for the skilled personnel who have to be brought out there. That includes directors. Even if a spanking new advance factory is available for you, more often than not, having spoken to people who invested in Scotland, it is my feeling that housing for key personnel is not accessible, or often not available. There is also the problem of the schooling of executives' children. These are key executives to whom I refer and represent only small numbers. A whole project usually rests on a few key people. As key executives usually have wives and families, if these facilities are not readily accessible then it is more than likely that the proposition begins to look untenable because they will not go to the area.
There are two more important considerations before the grants and cash incentives are looked at. The first is accessibility and the cost of despatch of 663 goods to the markets, be they for export or the home market. For instance, is the road system capable of carrying products quickly and efficiently without long diversions or weight-load restrictions? How far is the nearest railway station or goods siding, if bulk raw materials or finished products have to be handled? In Scotland, regrettably, this may be many miles away. I wonder whether the noble Lord, Lord Beeching, regrets, as many of us do, the speed with which he shut down some of the main rail transport arteries, now that minerals represent the future wealth of Scotland. In Australia they are building railways to develop their mineral and oil potential; in Scotland we are told to tear them up.
Finally, and perhaps most important, is the availability of labour and the local wage structure, coupled with the attitude of the local union leaders. All these things are looked at during a first reconnaissance visit before the industrialist gets down to looking at what cash is available on the Bill. The main intention of the Bill is to reduce regional imbalance, and one of the regional imbalances is on weekly wage earnings. According to the abstract on regional statistics there is a major differential in different parts of Britain. For instance, there are variations in South Humberside where the weekly average earnings are £28.3 per week and that varies to £21.9 per week in South-West England and the Border areas of Scotland. Quite often in these peripheral areas the cost of living is actually higher than it is in the city centre, simply because of transport and so on, and this adds materially to the hardships of those working on low incomes.
On reflection I agree with the noble Lord, Lord Diamond, that it is better not to try to introduce an Amendment to this Bill to rectify the omission in Part I, Clause 4. I hope the Secretary of State will bear in mind these areas where the average weekly earnings are as low as £21.9 a week and that this will encourage him to designate them as special develop-matt areas if he has not already done so. In effect what I am trying to say is that regional development must be integrated regional development if it is to become effective, and Government assistance of a capital nature as envisaged in this Bill will evaporate unless it is 664 directly linked to adequate infrastructure in regions where help is needed.
Turning to Part II of the Bill I should like to take up a point made in another place and underlined to-day by the noble Lord, Lord Boyle. It concerns the Development Board. I question, as Mr. Lever did and as the noble Lord, Lord Boyle, has done, whether a Board of this nature is the right vehicle for fiscal assistance of this mammoth kind. To me, the Board needs to be a board of merchant bankers, and one question which perhaps the noble Earl will be able to answer is the kind of remuneration the experts on such a Board would be able to receive. The kind of work that they have been asked to undertake is that of a merchant bank, which is highly sophisticated, involves immense fiscal planning and the financial assessment of the viability of the projects put forward.
With due respect to Government departments, training of a Government department man, however able, is not likely to be the same as that for a merchant banker. They look at the problems in entirely different ways, and if this Development Board is to do all the things that it is meant to do the people on it must be of the highest calibre. Clauses 7 and 8 of the Bill could be the articles of association of a bank rather than from a Minister of the Crown. The intentions and principles behind the Bill are basic banking principles but with one major difference: in order to obtain financial assistance from a bank or the I.C.F.C., which did such great work in this way, cost projections and discounted cash flows are prerequisites over and above the terms of repayment. The criteria are entirely different for the Development Board and the Secretary of State. A non-repayable scheme of this kind to satisfy a Government department does not need any of these business essentials where viability and profitability are essential but a paper that will be acceptable to Government department people and, ultimately, the Minister of State.
Industry is quite used to dealing with bankers, and the company accountant is used to preparing schemes to put before a bank in order to raise funds. I only hope that the industry in this case that we are trying to attract to these areas feels capable of drawing up a paper which 665 will attract the attention of the Minister of State, which will be a different kind of paper. If they are very keen to accept funds of this sort industry may even have to go to a retired civil servant to prepare such a paper because the thinking is different, the training is different and the kind of people with whom they will have to deal is different. I hope that no abuse will remain because of this. I understand from the noble Earl that the nationalised industries will be eligible for grants, and here they may have a slight edge. The nationalised industries are quite familiar with dealing with Government departments and, to put it bluntly, they know how to write a Government memorandum in order to get the right answer. Those in industry are not quite so good at it, but I do not quibble over that.
I should like to make one final point. I think the noble Earl said that the facilities available under this Bill will be available only if the funds cannot be provided from another source. I fully accept the reasoning behind this but I should like to think that some feeling of viability is given to a company before it applies for this job. To me the implication of what the Minister was saying was that if no bank, no finance company or no enlightened individual will finance a company then that company has no future whatsoever. It is wrong to put it quite like that and I hope that I misunderstood the noble Earl.
If the position is such that the company wishes to expand, if the company's borrowing powers are fully extended and the collaterals are not there and the guarantees are not there, then I would agree entirely with the Minister, but if a company is eligible because nobody else would dream of financing it except the Minister of State I begin to have some doubts about the effectiveness of this kind of aid. If that is the case long-term employment will not, naturally, go on. This company will go broke, sooner or later, and the employment and the hopes given to people who are temporarily employed will fade away. I should like to be reassured on this point.
I should also like to welcome Part III of the Bill, which is a real attempt to give British industry an opportunity to take full advantage of the oil companies' activities around our shores. British 666 industry has been complaining that it has not had proper opportunities and that the oil companies have been buying foreign rigs and so on. That is quite true, but this Bill gives them the opportunity to get the expertise to build the foundations of an industry entirely geared for mineral and oil expansion, so it is now up to them to take full advantage of it. I have no doubt that British industry will take up this challenge and the opportunities offered to them by this Bill.
To conclude, the success of any under taking of the types outlined in this Bill must be dependent upon three factors: the first is the capital which is available and attainable through this Bill; the second is management, which can be found, provided it is paid for; the third is communications, which is up to the Government.
§ 1.39 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)
My Lords, I should like to start by thanking noble Lords for the welcome they have given to this Bill. As the noble Lord, Lord Diamond, has said we do not always have the luxury of a complete concensus on Bills before the House, and in regard to some of the Bills that we have had before the House in recent times he and I have had occasion to disagree sharply; but I feel sure that this will not be so on this Bill. Of course he has indicated some of the reasons and I should like to meet some of the points that have been raised. Before doing so, I should like to thank those noble Lords who have spoken for remaining. If I hear rumblings, I shall take it that it is due not to discontent but to the absence of food. The noble Lord, Lord Balogh, has courteously informed me that he has had to leave for a previous engagement and apologises for not being in his place to hear my reply.
Several noble Lords referred to the Bill as a kind of repentance. The noble Viscount, Lord Simon, pointed out that once free depreciation had been extended right over the country, that in itself had removed the differential in favour of the regions and that since we were obviously still anxious to give preference to the regions some other means of doing so had to be found. The obvious way to do it was through grants. I am glad that 667 the general grant system has been welcomed here. My noble friend Lord Boyle of Handsworth, whose speech we so much welcomed and enjoyed, thought the levels were about right, and that view has been shared by the House in general. The noble Lord, Lord Diamond, said that regional development grants were not profit-related. In looking at the assistance that is available in the regions one must look at the whole of the assistance, including the budgetary measures. One will then come to the conclusion that, taken as a whole, the new system of investment incentives is in fact profit-related. For example, for a typical project in a development area, 63 per cent. of the total recoveries—that is, grant and tax savings—will be in the form of tax savings and, therefore, profit-related. This compares with 28 per cent. and 38 per cent. respectively before October, 1970. It is therefore wrong to say that, taken as a whole, the assistance is not profit-related. Then of course the grants are available only in assisted areas: building grants in all of them, and grants for plant and machinery in development and special development areas only.
The second important point made by the noble Lord, Lord Diamond, was about public accountability. We are well aware of the need for this and, in our view, the degree of accountability will be much greater if a separate organisation is set up to administer the funds available. Ministers will at all times be answerable to Parliament—this, as the noble Viscount, Lord Simon, said, in some degree has dangers from the point of view of pressures—but they will be assisted by the Industrial Development Advisory Board; and if, as my noble friend said, the Secretary of State does not take the Board's advice, he must lay a Statement before Parliament, if the Board so requests. Under Clause 16, my right honourable friend will have to make an annual report or reports, and he has given an undertaking that they will include reports from the Industrial Development Advisory Board and the regional industrial advisory boards. All of this will help to protect him from the pressures of one kind or another to which some journalists fear he may be unduly exposed and which the noble Viscount, Lord Simon, thought he would have difficulty in resisting. Ministers soon get 668 accustomed to resisting pressures and I would not have rated this particular danger very highly. Moreover, the Secretary of State will have the new development unit to advise him, as the White Paper says:… on the appraisal and implementation of industrial and development needs.In addition he will have a Director of Industrial Development, in the person of Mr. Tindale, who was a director and general manager of the I.C.F.C., and industrial directors who are to be appointed for Scotland and Wales, and regional industrial directors for the Northern, the North-Western and the Yorkshire and Humberside regions. This in itself represents a considerable degree of expertise and it also means that there will be a considerable devolution of decision-making on assistance to the regions.
As my noble friend said, guidance will be given from the centre on the way in which discretion is to be exercised in the regions. Senior Department of Trade and Industry officials at head regional offices will be accountable for expenditure in the regions and it is thought that they will be given a ceiling of grant beyond which they cannot act on their own discretion, and that above that they will have to submit proposals to the centre. One must distinguish between two different kinds of case. The noble Viscount, Lord Simon, was concerned about the possibility of assistance being given to one individual and not to another. He went on to say that the way in which the grant would originate would be through an application on the part of the individual. That is largely so, and it is so at present.
The Local Employment Acts Financial Advisory Committee has for long been examining applications, and I have no doubt that it has taken discounted cash flow and the prospects laid before it into account. In fact, the criticism has been that the procedure has been much too detailed and slow. The fact that to a large extent this can be done in the regions—particularly so far as small industries are concerned; they will of course be just as eligible as large industries—should result in a good deal of saving in time in dealing with applications and also the consideration of them with expertise and much greater local 669 knowledge. I do not foresee the likelihood of a wide disparity between one region and another in the way in which applications are dealt with or approved, for the reasons I have given, because of the accountability of the regions for the way in which they are spending the money and because the Secretary of State will have to account for it at the end of the day. Whenever you give a discretion, of course, you are bound to have minor variations but I would not have thought that there would have been any wide differences in this regard.
My Lords, the noble Lord, Lord Diamond, spoke about the relationship to third parties where Government takes an equity interest. I remember the first time that I made a Statement from this Box, and the noble Lord asked his first question, or made his first intervention after coming into this House on exactly this subject. It is one of which we are very conscious, but the fact that the Secretary of State, in taking an equity interest in companies, is taking it with the consent of the company and has also to dispose of the equity interest as soon as may be, will be clearly known to industry, and creditors and customers will realise that the Government are in the firm for a limited period and not for keeps. The point that the noble Lord made is one that will have to be very closely watched at all times, but it is one which is perhaps not quite so serious as he may at first have imagined.
There is also the point that he and other noble Lords made about the availability of finance from Government only where no other source is available. This is to a large extent a question of the time scale. It may very well be that in some cases the firm has sought to get money from the banks and from other financial institutions and has been unable to get assistance. But in the course of so doing if it was indicated that the Government were also to help it may well be that they would agree to cooperate. Indeed, as my noble friend said, the Bill provides for guarantees of private loans; so that is the kind of situation that is envisaged there.
Again, one is very well aware of the danger that for the more risky type of enterprise the private institutions may not be so willing as they are sometimes to put up finance because they think that 670 the Government will have to put it up in the long run in order to safeguard employment. That is a risk, but we envisage that the kind of nexus that we are establishing under the new arrangements between Government and industry through the advisory boards, and through the use of outside people for limited periods within the machinery of Government, will reduce this risk very considerably.
§ LORD DIAMOND
My Lords, if that is all that the noble Lord is going to say on that point, will he allow me to say one word by way of the question, "is he aware that?". He has been good enough to describe the risk of losing the capital investment. That is not, and I underline the word "not", my concern at all. If one puts up a certain amount of capital one is aware of the risk of losing it. What the noble Lord is saying is that it may be necessary to put up this money in order to maintain employment: that is to say, in order to keep a company going that would otherwise not keep going. May I just say to the noble Lord that the Companies Act and company practice have very strict provisions about those who insist on a company keeping going, and the provision of a small amount of capital may involve the Government in vast sums of liability in that company far in excess of the capital subscribed, in order to carry out the policy of the Government in maintaining employment. I am only saying that in the hope that he will be good enough to bear it in mind.
§ LORD DRUMALBYN
My Lords, yes, indeed. That is a point which the noble Lord and I have discussed together at one time and another, and it is one that we will certainly bear in mind. The most frequently used form of selective assistance is, in any case, likely to be a loan granted against security, which is another of the points raised by the noble Viscount, Lord Simon. He was concerned also about the provisions in Clause 7 as to the Secretary of State's power to provide financial assistance where, in his opinionthe financial assistance is likely to provide, maintain or safeguard employment in any part of the assisted areas".So far as the safeguarding is concerned, this is a new development but it is in 671 recognition of what the noble Lord, Lord Boyle of Handsworth, was talking about; namely, the social aspects of the support that needs to be given to the regions. It is also linked with, or at any rate supported by, subsection (2)(f)which gives as one of the purposes mentioned in subsection (1)—to encourage arrangements for ensuring that any contraction of an industry proceeds in an orderly way".My Lords, the noble Viscount, Lord Simon, spoke about the service industries. The Government carefully considered the question of bringing the service industries into the grant system, but we were forced to the conclusion that we should not be justified in doing so for the following reasons: first, that grants would not be a particularly effective way of influencing the location of service activities since the great majority have to be near the people or industries that they serve. In most cases, therefore, the shops, bus depots, branch banks, restaurants, and so on, have to be in the assisted areas to serve the people who are there. But I recognise that there are cases—for example, the head offices of national organisations—where this does not hold good, and we will certainly be on the lookout for some way in which to assist those cases. It might be that they could be assisted under Clause 7. Nevertheless, it is true as a broad generalisation that the extent of these activities in the assisted areas is generally decided by the prosperity of those areas rather than whether or not we make available regional development grants.
The second reason is that to extend the system to the service sector would greatly increase the cost. A measure of this is provided by the fact that the services taken as a whole spend roughly as much on building work as the manufacturing industry. The third reason is that discrimination between different projects on the basis, for example, of the extent to which grants might influence their location, would not be feasible in a scheme of this kind which is designed to operate as simply as possible with a minimum of detailed investigation of individual projects. It would be very difficult to distinguish between one service industry and another. This kind of discrimination is more practicable in relation to the selective assistance which will 672 be available under Clause 7 of the Bill, and it is our intention that selective assistance should be available to service projects in appropriate cases. I have in mind here, for example, projects which are moved from a non-assisted area to an assisted area, or projects which serve a sizeable part of the country and therefore have a genuine choice of locating inside or outside an assisted area.
The noble Lord, Lord Tanlaw, raised the question of the environment. May I say that in addition to what my noble friend said at the outset of his speech about the additional money that is being spent—the £164 million programmed for additional infrastructure expenditure in assisted areas on roads, schools, hospitals and public services—the whole concept of the organisation which we are setting up is designed to ensure a much closer liaison at regional level between industrial considerations on the one side and environmental considerations on the other. We have been very conscious of this need. I think perhaps I may say that this works well in Scotland simply because they have an organisation of their own. We hope it will work just as well in other parts of the Kingdom. I hope I have covered most of the points. I should like to say we have taken very careful note of the points the noble Lord, Lord Boyle of Handsworth, made. We shall study these very carefully indeed.
My Lords, I do not think I need presume to criticise anything the noble Lord said; I am not sure he asked me for any particular information on what he said, but there arose from time to time a general point about expertise on the Advisory Board. The Bill merely says, in Clause 9:The members of the Board shall include persons who appear to the Secretary of State to have wide experience of … industry, banking, accounting and commerce.It does not mean that only persons who have wide experience and who have shown capacity in industry, banking, accounting and finance should be included. So the Secretary of State is not limited in his choice; but these are the bases on which this question of organisation is bound principally to work. I need only say that so far as the chairman of LEAFAC was concerned, he was an accountant, and I think one can be sure there will be accountants in this 673 organisation as well. I can assure my noble friend Lord Barnby that small businesses are very much in our minds in setting up this kind of organisation. He also asked about naval shipbuilding. The reason why they are not included in the grants system is, very simply, that they are not in international competition, unlike our shipbuilders in this country. Tenders for building for the Royal Navy go out to firms in this country only and, that being so, there is not the same reason to give them grants. The Ministry of Defence is bound to have a very great interest in its procurement policy in ensuring continuity, and for that reason they most certainly want to see that that capability remains. So I do not think the same kind of arguments for this assistance that applied to the commercial side of shipbuilding apply to the naval supply.
The only other point—I do not want to detain your Lordships longer—was that regarding entry to the European Economic Community. We have been in close touch with the development of the Community regional policy and thinking over a very considerable time, and I am certain the facts that the noble Lord, Lord Balogh, produced to the House were well known to Her Majesty's Government. As a result we have no reason to believe there is any conflict between the measures provided for in this Bill and the obligations of membership. It remains our policy to apply a vigorous and effective regional policy and the Bill embodies such a policy; and we have no reason to think it will be in conflict with the obligations we shall be taking upon ourselves when we become members of the E.E.C.
The provisions of Article 92 of the E.E.C. Treaty have been interpreted by resolution of the Council of Ministers in October, 1971. Under this the Community is divided into central and peripheral regions and there is a limit on regional aid of 20 per cent. of the project cost in the central areas in order to prevent bidding up for mobile projects. There is at present no limit on regional aid for peripheral areas though it is intended to establish one in due course. Regional aid must be transparent—that is the word that is used; that is, openly capable of being calculable on a basis 674 which enables it to be related to the capital cost. This is generally acceptable to us. Moreover, Article 154 of the Treaty of Accession provides that the principles concerning regional aid shall apply to us not later than July 1, 1973, though they will be supplementary to take account of the new situation of the Community after enlargement. It will be during the course of the first six months of 1973 that what is meant by central and peripheral areas will be settled in our case.
The importance of the maximum use of the Bill during the period of transition will not have escaped your Lordships' attention. Clause 8 brings this into relief by limiting the powers under that clause to the end of 1977. I welcome very much the resolution that has been shown by this House to-day that all concerned, whether Government, employers or labour, should join together to make the greatest use possible of the facilities of this Bill and to make certain we do achieve a measure of growth which will encourage industries to go to the regions. It has been the experience all along that only in circumstances of national growth are we able to attract new industries to the regions in any substantial degree. But in general the new assistance to be given to the regions should be of great help in reducing the imbalance that has defied the efforts of successive Governments over a long period of years, and I think that I can echo the feelings of the whole House in saying that we wish this Bill well. I am very glad indeed to have received the support for it that we have had from all parts of your Lordships' House.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.