HL Deb 19 February 1985 vol 460 cc508-16

4.55 p.m.

Lord Lucas of Chilworth

My Lords, I beg to move that the Bill be read a second time. Since 1980 the English Industrial Estates Corporation has concentrated on providing accommodation for small businesses and for high technology and service industries. The corporation now has over 3,000 small business tenants who have a much greater need for business support services than the larger companies, which EIEC used to cater for almost exclusively. Additionally, money is now available from the European Regional Development Fund to help United Kingdom companies provide these services for small businesses. The changes need to be accommodated in the 1981 English Industrial Estates Corporation Act, which is the legislation that controls EIEC's activities.

The Bill before your Lordships this afternoon is a technical Bill aimed at improving the operational efficiency of the English Industrial Estates Corporation, particularly in the light of changing circumstances and the lessons we have learned from their commercial operations in the property market since 1980. This Bill deals with what the corporation could do with the money and how it accounts for it to Parliament and the public. It does not in any way change the amount of money which the Government provide for the corporation.

I now turn to the Bill itself. Clause 1 allows the corporation to provide a range of business services and advice to its tenants. The corporation intends to provide these services for the tenants of their small units, notably in the steel, shipping and textile closure areas, for which it will be able to make a claim from the European Regional Development Fund. The provision of these services will improve the commercial attractiveness of the corporation's small units and should, to a large extent, contribute to improving the commercial viability of the tenants themselves.

Clause 2 allows the corporation to borrow money in sterling from United Kingdom institutions and banks. This brings it into line with the borrowing powers of the Scottish Development Agency. It is the Government's policy to encourage private sector involvement in the corporation's activities wherever possible, and commercial borrowing could be the basis of some of these joint venture proposals. However, I should mention that, as usual, any borrowing by a public body such as EIEC will be very strictly controlled and monitored by the Department of Trade and Industry and subject to the overall authority of the Treasury. Clause 6 makes similar provisions for the Welsh Development Agency.

Clause 3 reflects the Government's stated requirement that the corporation should fund more of its activities from the sale of properties and from increasing revenues. Under the present legislation we provide grant-in-aid to cover all of the corporation's capital investment programme. That does not provide any incentive for the corporation to sell its property because the receipts from such sales are simply paid into the Consolidated Fund. This clause will allow the corporation to keep all its receipts and the Government will provide grant-in-aid to cover any shortfall between total receipts and expenditure. Providing the corporation with finance on this basis should make its accounts more easy to understand.

Clause 4 changes the way that the corporation accounts to Parliament and the public. At present two sets of accounts are produced: one by the corporation (which usually appears some time in June or July) and the other by the Secretary of State, which appears in a White Paper. This is usually published in the January of the following year. We propose doing away with this second set of accounts because it contains no information in addition to that already provided in EIEC's own accounts.

The clause will require that in future the corporation's own accounts should be laid before Parliament when they are first published. At present the National Audit Office audits the White Paper accounts and thus has full access to all the corporation's books and papers. This clause makes provision for the audit office to retain access for the purpose of conducting efficiency and effectiveness audits on an ad hoc basis. In effect, the clause removes an unnecessary duplication of accounting procedures without any reduction in accountability of the corporation to Parliament or the public.

Clause 5 exempts the corporation from development land tax and brings it into line with the Welsh and Scottish Development Agencies. These agencies and the corporation are never likely to incur liability for this tax, because of the nature of their activities.

While the Bill is technical, it is, I suggest, fairly straightforward, enabling the corporation to fulfil a more useful role. I commend the Bill to the House. My Lords, I beg to move.

Moved, That the Bill be now read a second time.—(LordLucas of Chilworth.)

5.1 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having introduced the Bill. I am bound to say that the explanatory notes to the Bill itself carry no real clue as to the type of activity upon which it is proposed the estates corporation shall embark. It is quite true that there are the original functions of the English Industrial Estates Corporation set out at Section 2 of the Act of 1981. Its functions are defined there mainly in relation to sites, premises, means of access, land and other property. In other words, the old Act, which this Bill seeks to amend, refers to a strictly non-industrial and non-commercial oriented corporation.

This Bill extends its wings slightly, more in line with the Welsh Development Agency Act 1975, which, as your Lordships will recall, gave the WDA very wide powers in the commercial and industrial fields, notably at Section 1(3) and (7). The Bill adds to the previous functions, providing—and I emphasise the word "provide", which is used in the Bill—or assisting in the provision of, any services which appear to the Corporation to be calculated to facilitate or improve the running of an industrial or commercial undertaking". That is new Section (1 A)(a). Paragraph (b) refers to the provision of: advisory services in relation to the establishment or location of any such undertaking". That means that the EIEC will in future itself draw much closer to industrial and commercial enterprises.

The Bill does not say so, but the noble Lord has been good enough to inform us that its activities will be directed mainly to the provision of services or advisory services to smaller enterprises. I ask him whether he will be kind enough to enlighten the House by indicating what services and advisory services it is proposed to provide. The distinction between services and advisory services for the moment eludes me, but he obviously has some reason for the differentiation in the paragraphs. It would be helpful if he could give some delineation or broad description in readily understandable, non-technical terms of what is proposed by the reference to the provision of or assisting in the provision of services or advisory services.

From the explanatory notes and the noble Lord's observations we gather that the proposal will cost £500,000 per annum, and that even that could be reduced by grants from the European Regional Development Fund. One would therefore infer that the costs to Her Majesty's Government are likely to be minimal. At the same time there is to be no increase in public service manpower. I do not know whether the personnel of the EIEC rank as public service manpower; but on the assumption that they do—which is what I would assume—the next question that I have to ask the noble Lord is, who then will provide the services or the advisory services?

Perhaps the noble Lord will forgive me if I digress for a moment to muse a little that Her Majesty's Government in their present posture do not normally regard civil servants as the ideal people to proffer advice to industry or to commerce. In fact, in political terms much of their time is spent denigrating the virtues of civil servants in so far as they affect industry and commerce; so I have to ask him whether these services and advisory services are to be provided by Civil Service personnel. I can only speculate on this at the present stage because the noble Lord was very brief in his introduction, but, on the assumption that the Government follow their professed philosophy, so vehemently expressed, that civil servants are not the correct people to advise or to provide services for industry, I assume that the services will be provided from outside; in other words, that they will be subcontracted to private enterprise.

There can be no objection to that. Many skills are available in the private sector of which small businesses can take considerable advantage. But, on the assumption that that is so, under what conditions is the work to be subcontracted? Then, again, on the assumption that the services and advisory services to be provided are to be subcontracted, what criteria will the Government establish to entitle the various commercial and industrial undertakings to be provided with the services or advisory services mentioned in the Bill? Have they established criteria of size, for example, or the nature of the trade, industry or commerce—whatever it may be, whether it is a service or manufacturing? Are there provisions for a contribution to be made by the undertakings in return for the services or advisory services they will receive?

Again, on the supposition that the services or advisory services are to be subcontracted—and I take it that the noble Lord would have interrupted me a long time ago if my assumption was not correct—who will select the persons or undertakings to provide the services or advisory services? What qualifications are they to have? Will the Minister be advised by a panel of advisers? Who will advise him on the selection of people capable, willing and able to provide these services and the advisory services to which he has referred?

The noble Lord was kind enough to say in his initial remarks—although of course it is not in the Bill—that the services and advisory services are for the aid of small businesses, in the main. I will not hang him on that; they can be small or medium sized. They may be newly established, although from the clauses in the Bill there is some inference by the insertion of the words, improve the running of an industrial or commercial undertaking", that some of them may have been in existence for some time.

The noble Lord will know that small business enterprises newly starting up are very vulnerable indeed. The noble Lord is well aware—and he has given voice to his anxiety, which I share with him—that a very large number of newly established small undertakings fail within the first 18 months of their existence. I intend no disrespect in this, but it has been said that a man and the benefits of his redundancy pay are soon parted. Therefore it is absolutely necessary, within the modern context, that advisory services are made available.

But now we come up against the financial limitations. Here we have £500,000 per annnum. That may mean £1,000 each per annum for 500 undertakings; £500 each for a thousand undertakings, or £250 for two thousand undertakings. It sounds rather a small bite at what may be a very large problem. One appreciates that the Government have to go slowly with these matters, aside from the questions of financial constraint—with which I do not in fact agree, but the Government are entitled to follow their own policies in these respects. But on the assumption that only this limited amount of money will be available, and taking into account the fact that advisory services and services tend to be rather expensive, particularly when they are deployed by skilled personnel and by trained people, it seems to me to be taking a very small bite indeed.

It is not always appreciated that a person starting up a new business or a small firm faces quite formidable difficulties that he may not apprehend when that first and fateful decision is made to embark upon an enterprise. So many snags arise which people do not apprehend. Therefore they ought to be able to receive advice and help in the same way, if I may say so, as people working in collaboration with the Welsh Development Agency already receive it. This, after all, is only fair.

The nature of my remarks has been essentially exploratory. The noble Lord will have to forgive me for that because his own opening remarks were very brief. If he can put a little more flesh on the bones that he has presented to us, I am sure it will be to your Lordships' advantage. But for our part, and subject to any mishaps on the way, we would intend to give this small and quite useful Bill a fair passage through your Lordships' House.

5.14 p.m.

Lord Rochester

My Lords, from these Benches I should like to join in thanking the noble Lord, Lord Lucas, for the clear way in which he has introduced this Bill. We, too, are willing to support its purposes and provisions as far as they go, but have some doubts as to whether it goes far enough in extending the functions of the English Industrial Estates Corporation.

In saying that, if your Lordships will allow me, I can perhaps best explain what I mean by referring to the report of the Select Committee of your Lordships' House on unemployment, of which I was privileged to be a member under the chairmanship of my noble friend Lady Seear. While seeking in that Committee long-term remedies for unemployment, we examined a number of ways in which demand for labour could be stimulated. One factor affecting new employment opportunities that we considered carefully was, of course, the assistance which could be given to small businesses.

In that connection we looked at the work of the Development Commission and its subsidiary, the Council for Small Industries in Rural Areas, and estimated—this was, of course, two or three years ago, now—that those organisations were creating jobs at a cost of £2,000 or £3,000 per job, often in remote locations. The main method they adopted was the building of small factories and workshops, which were then allocated to tenants who created new jobs. The provision of an advance factory appeared to be the key factor which got the process going.

From evidence which was given to the Committee by a Member of your Lordships' House, the noble Lord, Lord Northfield, based on his experience at Telford, we learned that in that new town the problems were just the same as those which the Development Commission and CoSIRA met in rural areas. The agencies which could extend the method of small business stimulation were, however, confined in England to new towns or rural areas. What in our view was clearly needed was a means of carrying the practice into decaying urban areas where these were not designated as new towns. The Scottish and Welsh Development Agencies had a good tool for doing that, which was comparatively well financed. We concluded that there ought to be bodies with comparable aims to cover all parts of the United Kingdom.

As to the precise machinery to be used, our preference was to fill in the gaps left by existing institutions. For that purpose we thought that, initially, local authorities were probably the best agencies, for in that way local communities would be involved and the creation of new bodies would be unnecessary. However, we also felt it was desirable to have, working in conjunction with these authorities, a more specialised agency in English urban areas.

Now I come to the link with this Bill. For that purpose we suggested the Industrial Estates Corporation, provided that its interest in premises could become more job-oriented and that its emphasis could be switched from that of a mere building agency. We thought it should move in the direction of the Scottish and Welsh Development Agencies and, like them, help to realise entrepreneurial talent and job creation.

We saw the corporation acting as adviser and, perhaps like CoSIRA, as lender of last resort to small businesses, and also, in conjunction with local authorities, going into urban areas as a kind of roving urban development corporation to stimulate growth and redevelopment. It could then aid local initiative and help to provide opportunities for would-be small businessmen to flourish.

I recognise, of course, that to a considerable extent these needs have since been met in practice, with the spread of enterprise zones and local enterprise trusts, and indeed in other ways. But I wonder whether still more could be done. One of the functions of the EIEC—and this has already been referred to by the noble Lord, Lord Bruce of Donington—which is specified in Section 2 of the 1981 Act, itself only a consolidation measure, is, as the noble Lord reminded us, to, provide, facilitate the provision of, and manage sites and premises in England for occupation by industrial or commercial undertakings. I welcome Clause 1 of the Bill which is now before us, amending as it does that section to enable the corporation to provide business support and advisory services to occupants and prospective occupants of such sites and premises. However, I take leave to ask the Minister whether the Government are satisfied that Clause 1 goes far enough in the direction in which I have been pointing. May there not be a strong case for adding further to the functions of the corporation in the light of the recommendations of your Lordships' Select Committee that I have outlined?

I, too, have noted from the Explanatory and Financial Memorandum accompanying the Bill that the cost to the corporation of providing additional business support and advisory services is estimated at £500,000 a year and that the net cost will be reduced partly by grants from the European Regional Development Fund. I am all for making use of that fund for this purpose. But even if the sum of half a million pounds was not reduced at all, is it really enough to make a significant contribution to the solution of the problems to which I have referred?

I have deliberately concentrated these few remarks on Clause 1 of the Bill because that appears to be at its heart. For the rest, I would briefly welcome Clause 4 under which the Secretary of State will, as the Minister told us, in future be obliged to lay the corporation's annual report and accounts before Parliament and also the extension of the borrowing powers of the Welsh Development Agency referred to in Clause 6.

I return, in conclusion, to where I began. The Bill is acceptable to us on these Benches so far as it goes. But even allowing, as we should, for the financial constraints under which the Government must now operate, my noble friends and I need to be assured that it goes far enough. We therefore await with interest what the noble Lord Lord, Lord Lucas, has to say in response to the points that I have raised.

5.22 p.m.

Lord Lucas of Chilworth

My Lords, I am most grateful to the noble Lords, Lord Bruce of Donington, and Lord Rochester, for their acceptance of this Bill. I am sorry if noble Lords feel that I was a little too brief in my explanation. I was trying to set the scene of what we are trying to do in what is, after all, a very modest Bill. Perhaps I can say this in terms of fleshing out as well as answering some of the questions. In recent years, a number of leading experts in the field of property development have been appointed to the board of the English Industrial Estates Corporation. I think we are particularly fortunate now in having Mr. Christopher Wates as chairman. Let me say straight away that the Government value greatly the commercial realism which Mr. Wates and his colleagues have brought to the corporation's development programme. Under their guidance, in recent years there has been a very much marked improvement in the corporation's financial performance. It has managed to let, on fair market rentals, an increasing number of factory units over the past four years.

Both noble Lords wanted, I think, to extend the services of the corporation. However, to do so might take us into areas that we feel are already covered. For example, the noble Lord, Lord Rochester, drew attention rightly to the points that arose from the Committee of which he was a member and of which the noble Baroness, Lady Seear, was chairman. I do not think it is right that we can necessarily draw an analogy between CoSIRA's activities and those of English Industrial Estates. Nor do we feel that there is any need for yet a further body. The urban programme run by the Department of the Environment, with its urban development grants and other forms of assistance, is aimed specifically at the urban problem, which, we have to admit and have to face, is really quite different from the problem that CoSIRA attempts to deal with.

Nearly all the major deprived cities, apart from London, benefit from assistance under the Department of Trade and Industry support for the assisted areas. Noble Lords will recall that we discussed this matter under the regional policy Bill that was before the House only a short time ago. Assistance to small firms is also available to those in inner cities and elsewhere under the small business schemes run by my department.

We are anticipating, with this further freedom of activity and under the guidance of an extremely good board, an extension of the commercial activities of the corporation. It is not intended that the Civil Service—I do not denigrate its abilities although I sometimes wonder whether these are always the right people to become involved in commercial and industrial activities—should provide the services to which the noble Lord, Lord Bruce, alluded.

I can confirm to the noble Lord that it is not intended either that there shall be any additional funds from the Government. There is no intention, in the provision of the £500,000, to duplicate the powers of the Welsh Development Agency. The corporation is still essentially a property development organisation. The provision that this Bill allows will help it to manage its property more effectively. We understand only too well the great number of difficulties that face small businesses when starting up. It is of no value to the corporation to have small businesses fail and units empty. It is thought by the corporation therefore that if it can give timely help and assistance in terms of counselling—I shall return to this in a moment—there is a greater probability of success for those small firms which, in turn, will lead to a much greater success of the corporation itself.

What are the services that we envisage? They fall under four headings: consultancy, which includes budget and control systems, business planning, financial structures and the like; the common services, which would consist, in a group of factory units, of what one might call central clerical help, duplicating, book-keeping, the use of word processors, microcomputers and so on—

Lord Bruce of Donington

My Lords, I am sorry to interrupt the noble Lord. Will he confirm that marketing is also part of the consultancy services to be offered?

Lord Lucas of Chilworth

My Lords, I was going on to say marketing—to explore market potential regionally, nationally and for export of existing products and new products, processes and indeed services. The fourth heading would cover innovation to support feasibility studies on new projects which may lead to the development of new products and processes. Each of those four headings is available for ERDF support. That support varies from between 55 per cent, and 70 per cent. But, in addition, it is a condition of that ERDF support that the beneficiary meets 20 per cent, of the charge; so we have something between 75 per cent, and 90 per cent. already accounted for—the ERDF grant and the beneficiaries' contribution. The remainder will come from the EIEC's own funding, supported by the £500,000 to which both noble Lords have referred. That will enable the corporation to provide at the outset a fairly comprehensive service. The 20 per cent., it is anticipated, will be inbuilt into the rentals, because most of it will be for common services.

The noble Lord, Lord Bruce of Donington, asked me about the criteria that the Government may set down. It is not intended that the Government shall set down criteria as such. I have spoken of the regard the Government have for the chairman and the board of the corporation, and we would look to that board to set the criteria. The noble Lord, Lord Rochester, asked whether there was a sufficiently strong bridge from CoSIRA—from the urban development grants and other matters to which I have referred, and to which he referred obliquely. He asked whether we should not expand the provisions of this Bill. We do not believe that we should expand the provisions of the Bill. We believe that it provides a satellite service, as it were, to the other services which are offered through Government agencies of one kind or another. It will enable the corporation to fulfil its main function. One has to recall of course that its main function is property development. This is the kind of thing it has been doing since the late 1930s. The new business environment demands something more than just a factory building, and this Bill provides that something. I hope I have answered the main questions—

Lord Bruce of Donington

My Lords, will the noble Lord be kind enough to cast some further light on the proposed sub-contracting arrangements? The noble Lord was kind enough to indicate that he did not think that the corporation itself was going to provide these very wide-ranging advisory services in terms of marketing, budget finance, cash flows, and all the rest of it. I should be obliged if he would give me some indication of how the corporation proposes to deal with that. Does it propose to hire consultancy firms, or is there going to be a direct contract between the undertaking and the consultant, with the criteria of selection, and so on? If the noble Lord would be kind enough to enlarge on that, it would be helpful.

Lord Lucas of Chilworth

My Lords, of course I will; I am sorry if I missed that out in my main response. The general intention is that the corporation will provide the services. It will determine the commercial criteria and will vet, as it were, the requests that may come from its tenants. It will engage the advisers and set the terms of such an engagement. All of them will be brought out finished; they will be consultants. Some may well be on an ad hoc basis; others, it is envisaged, may very well be on a contract for six months or a year, or engaged to undertake a specific task. It will be essentially for the corporation to determine all that would go into the provision of any of the services under any of the four headings which I have mentioned.

If that answers the underlying doubts that may be in the noble Lord's mind, perhaps I should conclude by saying that I am obliged for the welcome that the House has given to the Bill. We think that it will improve the efficiency of a worthwhile organisation. We believe that the organisation is one of the most cost-effective instruments of the Government's regional and industrial policies. We believe that it can do a great deal for small businesses, and therefore, in its way, add to the job opportunities, as all your Lordships would wish it to do. I hope that the House will now give the Bill a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.