HL Deb 17 July 1979 vol 401 cc1293-306

3.45 p.m.

The MINISTER of STATE, DEPART-M ENT of INDUSTRY (Viscount Trenchard)

My Lords, with the leave of the House, I should now like to repeat a Statement being made in another place by my right honourable friend the Secretary of State for Industry. The Statement is as follows:

"The Government have completed their review of regional industrial policy and selective financial assistance in Great Britain within the context of their overall economic aims and the steps being taken to encourage national industrial vitality and prosperity. As the House knows, the Government seek to create conditions in which the whole country can prosper, including those areas with severe economic problems.

"As part of our general framework for industry, we propose to continue with a strong, but more selective, regional industrial policy. We shall maintain the three-tier structure of the Assisted Areas (AAs)—that is, Special Development Areas, Development Areas and Intermediate Areas—as well as the existing instruments of regional industrial policy, but concentrating on those parts of the country with the most intractable problems of unemployment.

"The Assisted Areas currently cover over 40 per cent. of the employed population. We propose over a transitional period of three years to reduce this to around 25 per cent. in order to focus on the remaining AAs more effectively, and to treat different parts of the country more consistently and fairly. We propose immediately to upgrade a small number of areas to take account of their changed circumstances. A number of Special Development Areas (SDAs) and Development Areas (DAs) will be downgraded by one step for similar reasons but these changes will not take effect until 1st August 1980. From 1st August 1982 we propose that a number of these areas should be further downgraded, but that of these those due to become non-Assisted Areas (non-AAs) should be the subject of a special review before such de-scheduling takes final effect. In addition, we propose that a number of Intermediate Areas (IAs) should become non-Assisted Areas in three years' time. Full details of these proposed changes in Assisted Areas boundaries and gradings are given in my Written Answer to my honourable friend the Member for Nelson and Colne and are available in the Vote Office, the Printed Paper Office and the Libraries of both Houses.

"We propose to maintain Regional Development Grant (RDG) at its present level of 22 per cent. in the Special Development Areas, so that assistance will not be reduced in the areas of greatest need. In Development Areas we propose that the rate of grant should be reduced from 20 per cent. to 15 per cent. on buildings, plant and machinery provided after 1st August 1980. We also propose that the 20 per cent. RDG on buildings provided in Intermediate Areas should be abolished from the same date. Finally, we propose to raise the minimum levels from £100 for plant and machinery and £1,000 for buildings to £500 and £5,000 respectively, in respect of expenditure defrayed on or from 18th July 1979.

"Full details of the transitional arrangements are given in my Written Answer to the honourable Member for Nelson and Colne.

"Our objective is to maintain reasonable stability in the framework of regional investment incentives and to avoid abrupt changes.

"In future regional selective assistance under Section 7 of the 1972 Industry Act will be provided in the AAs only where it is necessary to enable projects to go ahead. Particular attention will be paid to the provision of more productive and more secure jobs. I will say something about the future of national selective assistance under Section 8 of the Act in a moment.

"We consider that factory building is a useful and relatively inexpensive instrument of regional industrial policy and this will continue. We intend however to secure a greater element of self-financing.

"We have also reviewed the operation of Industrial Development Certificates (IDCs) in the light of our objective of reducing the burden of Government controls on industry. I am satisfied that the IDC procedure can still be useful in identifying large projects which are potentially mobile. I propose however to abolish IDCs in the IAs and to raise the exemption limit to 50,000 square feet in the non-AAs including the South East.

"We estimate that these changes will by 1982–83 lead to total savings of £233 million in the expenditure of £609 million on RDGs, regional selective assistance and factory building projected in the 1978 White Paper revalued at 1979 survey prices. Although expenditure on regional incentives will continue to be substantial, I must emphasise that regional differences will not be reduced simply by redistributing money from taxpayers: there needs also to be local enterprise and plenty of co-operation in making businesses competitive and profitable. Nothing will do more for the prosperity of a region than a reputation for effective work, high productivity and co-operation between workforce and management.

"Finally, I turn to our decisions on national selective assistance under Section 8 of the 1972 Industry Act—which can of course be paid to enterprises in the AAs as well as in the non-AAs.

"After consideration the Secretary of State for Energy, the Minister for Agriculture, Fisheries and Food and I have decided to allow the Energy Conservation Scheme and the two remaining sectoral schemes, for Footwear and Redmeat Slaughterhouses, to run their course. All applications under these schemes and any outstanding applications under the other sectoral schemes that have already closed will be processed under existing criteria.

"The Selective Investment Scheme, for major investment projects, closed for applications on 30th June. All outstanding applications which have not yet been approved will be processed against the existing criteria, but we shall interpret these criteria somewhat more stringently than in the past, so that marginal projects will in future not be assisted.

"For the future, the Government will continue to provide assistance under Section 8, but more selectively than hitherto. We shall continue to offer assistance to enable internationally mobile projects to locate in the United Kingdom: this is an area where other governments are also very active. We intend also to support projects leading to very substantial improvements in performance, particularly in productivity, or projects which will result in the introduction of new products. In addition, every project will have demonstrated that it will result in a substantial net contribution to United Kingdom output or will introduce a significant degree of innovation to the United Kingdom. Assistance will only be given for projects that would not go ahead as proposed without it, and will be negotiated as the minimum necessary to achieve this.

"I am laying before the House the four orders required to introduce the changes in Regional Industrial Policy, one dealing with RDG, one with AA boundaries and gradings and two with IDCs. The RDG order requires an Affirmative Resolution and my right honourable friend the Leader of the House will be announcing shortly the date for a debate next week at the conclusion of which this Resolution will be moved."

My Lords, that concludes the Statement. I am authorised to say that noble Lords will have an opportunity to debate the Government's proposals next week when they consider the Affirmative Resolution to vary the rate of regional development grant in development areas.

3.56 p.m.

Lord MELCHETT

My Lords, we are grateful to the noble Viscount for repeating this Statement, and also thank him very much for telling us about the opportunity which we will have to debate the matter at greater length next week. No doubt the noble Viscount is as pleased as noble Lords in all parts of the House that his right honourable friend the Secretary of State for Industry's "U" turn yesterday has given us an opportunity to hear this Statement, and indeed gives the Minister responsible for what little is left of regional aid policy to announce the gutting of his responsibilities in person. The Statement is a long and complicated one, particularly the Written Answer which unfortunately only arrived in the Library in your Lordships' House while the noble Viscount was on his feet. I have no doubt that everyone will want to study it with care.

The detailed Written Answer reveals a massive downgrading of areas all over the country; in particular, clearly there will be catastrophic effects on areas like Yorkshire, Humberside and the North-West. And not only that: all these areas will find themselves being downgraded to intermediate area status, only a shadow of their former selves with, for example, the loss of regional development grant. I was particularly surprised to see in the Statement the likely effect that there will be on small firms, on which noble Lords opposite are always so keen on placing emphasis. They will now find life five times more difficult. I imagine that that will be the only effect of raising the minimum levels of RDGs on plant, machinery and buildings by 500 per cent.

Turning, if I may, briefly to Section 8, as far as I can see from the Statement—and may I ask the noble Viscount to confirm this—there is absolutely no change of principle in the way that Section 8 assistance is going to be employed, as incidentally, again so far as I can see, there is absolutely no change in principle proposed in the practice of regional selective assistance under Section 7. I wonder whether the noble Viscount can explain to your Lordships why the Statement appears to give a rather opposite impression.

Our regional policy up to today has been the envy of the world. In the decade from the mid-60s to the mid-70s, 300,000 jobs were created and probably another similar number—another 300,000 jobs—saved because of expenditure on regional aid. In this Statement it says that expenditure will be cut by a third, and maybe the noble Viscount could confirm that that means that in the next 10 years 100,000 jobs will not be created which otherwise would have been, and 100,000 jobs will be lost in the areas of this country where unemployment is highest. If the noble Viscount does not agree with that estimate, could he tell us what estimate, if any, was provided by his advisers when these policies were being considered?

Finally, the Statement talks about the need for plenty of co-operation. I should like to ask the noble Viscount how the Government propose to get it with a policy that flies in the face of all the advice which the noble Viscount has been given by both the trade unions and the CBI in recent days and, incidentally, from both sides of your Lordships' House in all the debates that we had have when this has been touched on since the election.

3.58 p.m.

Lord ROCHESTER

My Lords, from these Benches I should like to join in thanking the noble Viscount, Lord Trenchard, for having repeated this Statement. Like the noble Lord, Lord Melchett, we are glad it has taken the form of an oral rather than a written Statement so that we are in a position to ask at least some general questions. We realise, of course, that the Government are permitted to make substantial reductions in their overrall subventions to industry in one form or another, But there is clearly room for marked differences of opinion as to the extent and the timing of action to be taken in various ways.

The Statement has to be seen in the context of other Statements which we understand are to be made in the next week or so concerning such matters as the future of the National Enterprise Board, the shipbuilding industry and maybe other employment subsidies. The effect of these taken together is surely going to be to increase unemployment, at least in the short term, in areas which certainly will not be confined to Merseyside the North-East, Glasgow and so on. It will hit pretty hard places like Wales and Scotland and parts of Northern England from where I come.

One therefore asks the general question: Is this the time to be making cuts in regional aid of as much as £233 million out of a total of some £600 million over a period as short as three years? Would it not have been wiser to adopt a more gradualist approach—not simply to limit this agreement, which was a point touched on by the noble Lord, Lord Melchett, but to give the Government themselves time to see what effect their policies have on profitability, and particularly in order to maintain that degree of stability which would enable large-scale manufacturing industry to continue to plan with confidence investment programmes over periods up to 10 or 15 years ahead, as now has to be the case?

There are two other specific questions I should like to ask the noble Viscount, and I shall quite understand if he is not in a position to reply to them immediately. One is really to support an observation already made by the noble Lord, Lord Melchett, but perhaps to sharpen it up a bit. How do the Government reconcile the raising of the minimum qualifying values of £100 for plant and £1,000 for buildings to figures as high as £500 and £5,000 respectively with their declared objective—which we on these Benches certainly have for long advocated—of encouraging the establishment and development of small businesses? Has any attempt been made to quantify the effect of these changes on the setting up of such enterprises and, if so, with what result?

The second specific question is this: What criteria do the Government propose to adopt in identifying, for purposes of potential support, those projects referred to in the Statement which may lead to substantial improvements in productivity on the one hand, or to the introduction of new projects on the other?

4 p.m.

Viscount TRENCHARD

My Lords, bearing in mind that there is to be a debate, I will try to be as brief as I can in replying to the many points that have been raised. First, I should like just to say that my right honourable friend the Secretary of State was extremely conscious, as we all are in Government, of the parliamentary programme which has to be got through before the recess. In his mind there was never any intention of denying a debate: it was purely a question of how to announce a long and rather complicated notice.

The second point I should like to deal with concerns small businesses, which was raised by both noble Lords. The first thought that comes to mind when you raise thresholds is: is it going to affect small businesses? As is known, in my Department we have a Minister who is specially responsible for small businesses. In point of fact, a study of small projects reveals that as many of them come from big businesses, and virtually pro rata as from small businesses, this is not a system whereby the business is graded but one whereby the project is graded. If we apply inflation since 1972 to the minimum level, we account for two-thirds of the upgrading. The other one-third we have looked at very closely and, against the combination of administration costs and who will be affected, we have concluded that it will not affect small businesses adversely. That is something we can return to in the debate.

On the question of Section 8, the noble Lord, Lord Melchett, suggested that we had not changed anything. I think that when he reads the Statement carefully, and certainly when we have the debate next week, he will see that we have changed the criteria on which Section 8 has been administered and we have tightened them up quite considerably, particularly in terms of projects of major value to the economy as a whole. In addition to seeing how projects relate to the net wealth and the GDP of the United Kingdom, we will make an assessment of whether the project will go ahead without grant, which really has not been a major part of the criteria hitherto. Certainly, I am perfectly prepared to debate that aspect at length and in detail when we come to the debate.

On jobs created, the noble Lord gave many statistics and I will return to this in the debate; but there is considerable argument about the net result of the regional programme that has been in operation since 1972, both in the net addition of jobs regionally and—what is far more difficult to assess but far more important with high national unemployment—the net addition to the national number of jobs. Your Lordships may also have noticed that there is some evidence of a greater failure rate developing in relation to businesses started in the regions than started elsewhere. These matters I shall be glad to elaborate on during the debate.

Unemployment will get worse. I think all I want to say at this stage—and again we can return to it—is that unemployment has been getting worse, and getting very much worse, so that unless, on a national basis, we get an upturn and a recovery from industrial decline then it is no good talking about regional policy or any other policy. Therefore, this Statement is couched in the framework of our national policy, which is mentioned in the Statement and which was epitomised in the Budget and in other steps proposed, both at present and for consideration in the future.

We must make this policy cost-effective. In the situation of the country as it is today, we, cannot possibly continue with areas of waste and non-cost-effective policies; and when you consider the percentage of the population that over history has come to be regarded as belonging to the Assisted Areas, and when you consider further that nearly two-thirds of the travel-to-work areas of the country now have assisted status, I think you will he able to see—and certainly when we return to the matter in debate—that this situation had to be sorted out and that it had to be made fair and rational.

The noble Lord, Lord Rochester, asked: is this the time? I am aware that I am not going to be able to deal with one of his points but I will deal with this particular one. I hope that your Lordships will read very carefully the transitional arrangements, because the main part of this retraction of aid, so far as it affects industry, does not become effective until 1981–82 or 1982–83—those are the years when the cash flow of industry in the regions will be affected by the amounts concerned. We are quite clear about that and we are clear about the many problems that industry is currently facing in relation to a strong pound and high interest rates. However, I would ask your Lordships to consider very carefully before the debate the timing of these moves and the over-riding need, in our present national circumstances, to make sure that our policies are cost-effective.

Lord GLENKINGLAS

My Lords, I will not ask the Minister to make another speech, in view of the fact that he is obviously going to open the debate next week, but may I inform him that I personally think he and the Government are right. Is he aware that there was a very famous song from Gilbert and Sullivan: When everybody's somebody Then no-one's anybody "— and this was happening rapidly to the assisted areas?

I should like to ask the Minister two further questions, neither of which need a long answer but both of which I should like to have fully answered next week. Having personally been rather heavily involved in regional policies some 15 to 18 years ago, I am doubtful—if I understood the Statement correctly, and it is a little difficult to do that when you have not read it beforehand—whether it is right to give London exemption up to 50,000 square feet for IDCs. In my day I believe it was 4,000. Fifty thousand seems to be a pretty big factory to build in the London area, where employment is already very good, when there are so many other areas that need employment. My second question is: Would he consider very carefully in the selection—if "selection" is the right word—of suitable industries from overseas, to choose those which are likely to be most useful to our developing industry, and give them very high selective help to bring here the companies that we really want?

Viscount TRENCHARD

My Lords, I thank my noble friend for his endorsement, with which he started his question. In relation to the IDCs, it might be worth my mentioning that over several years now, under the previous Administration—and I am in no way criticising—over 1,000 applications have been received every year and the refusals, in the end, have been under 10. That was the highest figure, and there were fives and sixes in recent years. So that you have an enormous administrative system for very little. It is against an analysis of that system that we have concluded that we should keep control only of the really big projects in areas where employment is still—and there are not so many areas—relatively full. In regard to inward investment, the sentiments which my noble friend expressed are part of the reasons why we are toughening the criteria in regard to selective assistance.

Lord LEE of NEWTON

My Lords, the noble Viscount told us that the review is now completed. Is he aware that he spoke far more about the financial saving that the review will produce, than he did about the jobs that will be lost? Would he say whether, in the course of that review, the Government made any estimate of the total job losses which will result from it? Further, is he aware, when he speaks about the intermediate areas, that one of the lessons we learned was that when you have an intermediate area on the fringe of a development area and the intermediate area then disappears, they are in a far worse position than any area which is within 100 miles of a development area? That is because nobody will go into an area on the fringe of a development area where no assistance is given, while a development area is only a few miles further on. Will the noble Viscount therefore tell us, in view of the £200 million less and the fact that inflation will erode that which is left for development purposes, what are the levels of unemployment that he can see forthcoming in the next two or three years?

Viscount TRENCHARD

Yes, my Lords, We have looked very carefully at the job losses and I do not think, when the noble Lord reads the Statement, that he will feel that we overweighted the emphasis on savings. I have set that against the absolute need of national economics and the recovery of British industry nationally. We have never pretended that the steps in the Budget did not cost something. We believe that they will be effective, and that a regional policy can be effective only within an effective national policy. So far as job losses are concerned, we have looked at this long and deep. We have read the papers and works and surveys of people, within and without the Government, and I will certainly return to this subject in the debate. I think it is highly arguable as to what the net gain has, in fact, been. There are some very depressing statistics and very depressing situations where jobs are still being lost, mainly in the extremely difficult areas where we are maintaining the SDAs, where they are being lost faster than they are being created. So far as the noble Lord's point about fringes is concerned, the more areas you have the more fringes you have.

Lord MELCHETT

My Lords, with great respect to the noble Viscount, he has now avoided answering a simple and direct question twice, having made the Statement. My noble friend asked him and I ask him, if an estimate was made of the numbers of jobs that will be lost as a result of this package of measures, what figure was given to the noble Viscount by his advisers? He has told us that his advisers gave him a figure. Would he kindly tell the House what figure was given?

Viscount TRENCHARD

My Lords, we of course examined the effect of this policy within the national policy, and we believe that we shall turn around the industrial decline—

Lord MELCHETT

What figure?

Viscount TRENCHARD

—and the rising unemployment that we have inherited, and turn it into an upward movement. How do you estimate forward one part of a major policy, when you inherit the situation that we have inherited? I will return to this subject in the debate.

Lord MOYNE

May I ask a more friendly question? Are the Government bearing in mind the effect on national recovery of the minimum lending rate of 14 per cent.?

Viscount TRENCHARD

Yes, my Lords, and I do not think anybody in this country or anywhere else would like that rate to last any longer than is necessary. I shall not go into the reasons again, which have been expressed in your Lordships' House by my noble friends in economic debates, as to why we found it necessary to do that.

Lord PEART

My Lords, may I ask the noble Viscount to think again? Surely he can give us a figure for the unemployment which will be created. After all, we are to have savings of £233 million in expenditure of £609 million. This is a big slice. Surely the noble Viscount can give us more details. Why is he so cagey? The new term "reduction of aid" means what?—severe cuts in aid, of course. We shall look forward to this debate and will criticise the Government's policy strongly, because I believe and I know that the country believes—and indeed the CBI believes—that aid should not be cut down in many of our regions. This will create more unemployment.

Viscount TRENCHARD

My Lords, I will say briefly, once again, that we do not anticipate that these changes of policy will have anything other, taken together, than a beneficial effect on employment, and that includes the regional element in it. I must remind the noble Lord the Leader of the Opposition that when the previous Administration cut the regional employment premium in 1976–77, they cut it by £218 million—over 30 per cent. of the current expenditure on regional industrial policy. What notice did they give?—two weeks' notice. An announcement on 15th December 1976 took affect on 2nd January 1977. Did they give us an estimate of the number of jobs that would be lost by that much greater measure at no notice, at the drop of a hat? No, they did not. We are putting in an orderly and effective reform to save waste and have a much more cost-effective regional programme.

Lord HOWIE of TROON

My Lords, would the noble Viscount not prefer to do rather better than the previous Government have done, and improve upon the performance to which he has just objected? Might I make life easier for him? It is obviously very difficult for him to give these estimates of a wide-ranging nature, but since he is dealing out yet another heavy blow at the construction industry, albeit an indirect one, could he tell us what is the employment effect on construction, which must be easier to do than tell us the whole story?

Viscount TRENCHARD

My Lords, I think I will return to the detail of industries, on which I have some statistics, when we come to the debate. Of course we intend to improve on the record of the last Government and a mixture of a one-year to three-year transition period, during which a lot of other policies will come to fruition, will be a very large help.

Baroness FISHER of REDNAL

My Lords, will the noble Viscount take into consideration the effect upon regional aid arising from our membership of the EEC? Noble Lords on this side of the Chamber fought hard in the European Parliament for our fair share of regional aid from the EEC, and one of the chairmen—a Member of another place—was congratulated on the amount of money which came to the United Kingdom from the regional fund. May I remind the noble Viscount that Italy and the United Kingdom are the greatest beneficiaries from the regional fund of the EEC? But so far as I understand it, the money spent on regional aid by the EEC has to be matched by the Member States' Governments. Does it mean that if Her Majesty's Government decide to cut back on regional aid, it will mean a lessening of the amount which we shall get from the EEC regional fund?

Viscount TRENCHARD

My Lords, after a visit to Brussels last week and, in addition, continuous negotiations between officials and the officials of the Commission, I can assure the noble Baroness that there is no risk whatsoever in the next two years of our losing our share of the EEC regional or social funds. Furthermore, I found in Brussels that the Commissioner responsible for regional policy is also adopting a policy of concentration. He believes that it will be beneficial to concentrate aid in areas of real need. So there appears to be, in the longer term, a convergence of view. We do not believe that there will be any shortage of projects in the next two years to prevent us from taking up our full whack.