HL Deb 23 March 1988 vol 495 cc254-60

7.47 p.m.

The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Lyell) rose to move, That the draft order laid before the House on 1st March be approved.

The noble Lord said: My Lords, this order is laid before the House under the Northern Ireland Act 1974. The purpose of the draft order is to abolish the standard capital grants scheme by the repeal of Part IV of the Industrial Development (Northern Ireland) Order 1982. Under that order, grants are payable towards new fixed asset investment undertaken by businesses engaged in qualifying activities—in practice most manufacturing sectors—in Northern Ireland.

The standard capital grants scheme is similar although not identical to the regional development grants scheme in Great Britain. As announced in the recent Department of Trade and Industry White Paper, the regional development grants scheme will also be abolished and indeed the Regional Development Grants (Termination) Bill received its Third Reading in another place on 10th March. Under the provisions contained in that Bill, no new applications for regional development grant will be accepted after 31st March 1988. Similarly, the draft order presently before this House provides that standard capital grants will not be payable in respect of expenditure incurred after 31st March 1988.

We have been concerned for some time about the effectiveness of the standard capital grants scheme as a means of assisting industry in Northern Ireland. Indeed, significant changes to the scheme were announced in 1985 and it was made clear at that time that those amendments marked only the beginning of a change in emphasis in the form of support to industry in Northern Ireland. The concerns related to the high degree of deadweight and displacement which we saw in the scheme, to evidence of deliberate abuse from some quarters and to the fact that the legislation for the scheme restricted its application to manufacturing industry in a rigid manner which took no account of the increasing difficulty of distinguishing between manufacturing and service activities.

A consultancy survey of standard and capital grant recipients was therefore commissioned to assess the awareness of the scheme and to obtain more detailed information about the nature, objectives and impact of the investments being assisted. That survey showed that some 70 per cent. of assisted projects would have proceeded in the absence of standard capital grant. It further revealed that the grant has largely aided Northern Ireland companies to compete against each other in a limited local market rather than encouraging them to compete in markets outside the Province.

Those findings together with the fact that the grant is not job-related, demonstrated that the standard capital grant scheme is no longer an effective means of stimulating the Northern Ireland economy and therefore does not make the best use of scarce public resources.

While there are several differences in form and effect between the standard capital grant scheme in Northern Ireland and the regional development grant scheme in Great Britain, the decision to end the regional development grant scheme was based on similar conclusions about its effectiveness. That reflects an international trend away from automatic and poorly targeted capital grants. On 12th January this year the Government announced their intention to close the standard capital grants scheme in respect of capital expenditure incurred after 31st March, subject to parliamentary approval of the draft order presently before your Lordships' House.

Northern Ireland, like its competitor regions, will concentrate increasingly on assisting strategic business developments which help companies to perform more successfully in national and international markets. The assistance will go beyond aid for capital investment and will develop the human capital of business through, for example, marketing, management and product quality development. Together with the existing selective assistance from the Industrial Development Board and the Local Enterprise Development Unit, the new forms of assistance will ensure that business in Northern Ireland continues to have the most comprehensive system of support to industry and enterprise in the United Kingdom. Public funds will be used more effectively on strategic business developments and on those firms which can compete with producers outside Northern Ireland

Many companies which would otherwise have claimed standard capital grant will now turn to the Industrial Development Board or LEDU for assistance, and those good projects which would not go ahead without assistance from the Government will be eligible for consideration. We are convinced that the revised framework for assistance will strengthen industry and enterprise in Northern Ireland. I beg to move.

Moved, That the draft order laid before the House on 1st March be approved.—(Lord Lyell.)

Lord Prys-Davies

My Lords, the purpose of this short order is to abolish the standard capital grants scheme in Northern Ireland which is, as the noble Lord, Lord Lyell, pointed out similar to the regional development grant in the rest of the United Kingdom and is also in the process of being abolished by the Regional Development Grants (Termination) Bill which will receive its Second Reading in this House tomorrow.

On listening to the Minister's introduction to the order, one may be forgiven for believing that the termination of the standard capital grants scheme is a matter of great rejoicing in Northern Ireland. However, according to the evidence that has reached me, many business people are saddened that the Government have decided to bring this grant scheme to an end; a scheme which has been of considerable assistance to the Province in the past.

The grant was introduced in 1982 to assist investment by manufacturing business. I understand it has injected about £250 million into the Province. That is a substantial investment. Can the Minister tell the House how many jobs have been created, or preserved, by this investment since that time?

The Minister told the House that a consultancy survey, carried out on behalf of the department, showed that about 70 per cent. of the projects which have been assisted by the grant would have proceeded even in the absence of such a grant; the Minister made a lot of that point. When the Minister comes to reply, will he also confirm that the CBI are insisting that it has evidence which points to a different conclusion from that arrived at by the department's consultants. Can he further tell the House how the CBI in Northern Ireland has responded to the order?

Considering that unemployment in the province is appallingly high, the Government should proceed with the utmost caution before they decide to abolish a grant such as the capital grants scheme. It is a standard rate grant which is easily understood by industry, and it is automatic in its application; they are great virtues. The question arises as to whether the Government should have retained the standard capital grant for those businesses—the 30 per cent.—which on the Government's own evidence could not have proceeded without its help. I noticed that when introducing the order the noble Lord said that alternative financial assistance will be available to that 30 per cent. which require help and that it will be available through LEDU or through the IDB.

However, are we comparing like with like? I submit that we are not. Is it not the case that the alternative financial assistance will be discretionary? Of course a great deal turns on that aspect. For example, a company applying for assistance will not know with any certainty whether it is going to receive assistance or how much assistance it will receive. I shall be glad if the Minister will explain to the House what the basic criteria are that a company which wishes to apply for alternative financial assistance will have to satisfy. Presumably it will have to satisfy LEDU or the IDB that the project is viable but that the company itself is in need of assistance. How easy or how difficult will it be to satisfy those two criteria pointing, as they do, in different directions? If the company is in need of assistance, can the Minister tell the House what forward trading forecast will have to be prepared to satisfy LEDU or the IDB? Furthermore, how long will it take to process that application? Predictability will give way to uncertainty. Will that he helpful to industry?

I am also wondering whether there is another important difference between the standard capital grant, which is tonight being abolished, and the alternative financial assistance. Will the Minister tell the House how the new assistance will be treated for income tax purposes? I have understood—the Minister will correct me if I am wrong—that the standard capital grant, as its name implies, is a capital grant and is therefore free from income tax. I do not see why the alternative financial assitance should be treated any differently. However, will the Minister tell us whether for income tax purposes it will be treated as capital which is not taxable or as income which is. There is of course a world of difference between the two, is there not?

Should it be the case that the new assistance will not be tax free, then it seems to me that the total budget available for this type of assistance should be increased by 35 per cent. to ensure that there will be no reduction in real terms in the support budget. It is only if we can have firm assurance from the Minister that the totality of the support budget in real terms will not be reduced that we, from these Benches, can support the order. However, if such assurance is forthcoming, then I believe the order could be supported on the ground that a more selective targeting of the funds could prove more beneficial in the long term to the Northern Ireland economy.

8 p.m.

Lord Monkswell

My Lords, when we discuss anything to do with Northern Ireland we should recognise that that part of the United Kingdom is significantly different from other parts of the United Kingdom. I stress two particular differences. The first is the horrendous nature of the unemployment problem and the poverty that exist in Northern Ireland. The second, which is unfortunate but is one which we must appreciate, is the nature of the sectarian divide that exists in Northern Ireland.

I have two questions for the Minister. The first is: will the net financial benefit to Northern Ireland from the national Exchequer be unchanged after the introduction of the order? The Government have said that they will provide financial support in different ways. They have said that they will target it. Will the total amount of financial support be at least as much as is provided now?

My second question is: what mechanisms will the Government institute to ensure that there will be no perception of sectarian preference when money is disbursed under whatever new arrangements are made? There should be no perception of preference. I hope that the Government will never show any sectarian preference, but it is important that the scheme should be perceived to be fair by the people in Northern Ireland. I hope that the Minister can answer those two questions, which I believe are important.

Lord Lyell

My Lords, I am grateful for the close attention that has been paid to the order by the noble Lord, Lord Prys-Davies, and his noble friend Lord Monkswell. As the noble Lord, Lord Prys-Davies, suggested, the order is something of a new departure, and yet it relates to capital grants which are of course part of the GB scene. The noble Lord rightly stressed that since 1982 approximately £250 million has been spent through the scheme. I have the exact figures year by year, but I hope that the noble Lord will accept that the figure tailed off considerably during the last financial year. I hope he will also accept that that was in no way due to the foreseen change in the existing scheme.

The Government are committed to capital assistance to manufacturing and service firms in Northern Ireland. As I said when I opened my presentation of the order, we believe that the financial assistance should be more effectively targeted upon certain areas and certain firms.

The noble Lord asked how many jobs had been created through the scheme. The noble Lord and the noble Lord, Lord Monkswell, may know that the scheme is not job-related, and therefore I cannot state that figure with any accuracy this evening; nor would I, without undue research, be able to write to the noble Lord, Lord Prys-Davies, to tell him how many jobs, within thousands, had been created by the standard capital grants scheme.

The noble Lord asked me about the income tax treatment of the new capital grants. I am afraid that I shall have to write to him on that point. As he will appreciate, we have just had a Budget, and I have no instructions that any of these payments will be treated in any way differently from the previous capital grant. Any assistance given by the IDB and LEDU in substitution for the standard capital grants will be treated as capital. If I am wrong, I shall explain the position in the letter that the noble Lord will receive from me as soon as possible.

The noble Lord, Lord Prys-Davies, also asked me about consultations and the views of the CBI in Northern Ireland. On 12th January this year Mr. Alasdair McLachlan, the director of the CBI in Northern Ireland, commented on the Government's proposal to abolish the scheme which had been communicated to him and his organisation. He said: The changes at national level represent a bold shift in the way the Department of Trade and Industry supports industry in Great Britain. In many respects however the IDB, the LEDU and the DED"— in this dreadful game of acronyms the DED is the Department of Economic Development— are ahead of the game". That was the director's comment about the new scheme that we are discussing.

The noble Lord asked me what would replace the scheme that we have had for the past five years. The IDB and LEDU already operate selective financial assistance schemes in various different forms. We think that they are better equipped to contribute to the economic and employment benefit of Northern Ireland by stimulating new developments. They are doing something that I stressed in my opening remarks. They are promoting competition and, above all, helping industry to improve not just its design but its quality and marketing. I do not think that I can assist the noble Lord a great deal further tonight. I promise that I shall write to him about his tax query with all the detail that I can muster.

The noble Lord, Lord Monskswell, was kind enough to stay to listen to my presentation of the order. So far as I am aware, the measures contained in the order will result in no major change to the Government's net financial contribution to Northern Ireland. If there is any shift in that, and I am wrong, I undertake to write to him briefly with any figures that I can obtain which are relevant to the order.

Lord Prys-Davies

My Lords, will the Minister confirm that his reply to that question depends to a considerable extent upon whether the assistance will be treated as capital or as revenue?

Lord Lyell

My Lords, it will be treated in the same way as it is in the United Kingdom. If it varies greatly from the planned amount I shall write to the noble Lord. I shall attempt to answer the query about tax treatment raised by the noble Lord. He will appreciate that to a large extent the schemes which will be in the hands of the IDB and LEDU are demand-led. He will appreciate what that means, and that we would not necessarily know. I will write to the noble Lord about the tax treatment of the grants. I do not think that it will be significantly different from what it is at the moment. The Government certainly do not wish to place firms in Northern Ireland in any way at a disadvantage compared with their present position, let alone compared with the rest of the United Kingdom.

The noble Lord, Lord Monkswell, asked a second question about what he called the sectarian perception. I state quite definitely from the Front Bench that the IDB and the local enterprise development unit, would never take any decision on a sectarian basis. It will take its decisions on a purely commercial basis. The offices and services are open to every single business all over Northern Ireland. We shall take every step we can to see that the services available from the IDB and the LEDU, as well as from the Department of Economic Development which is looked after by my honourable friend Mr. Viggers, are widely known throughout Northern Ireland.

I hope that I have given noble Lords a brief foretaste of what might happen over the order this evening. I hope that the noble Lord, Lord Prys-Davies, as a Welshman will accept this, just as I do as a keen Scot. The order which I have presented to noble Lords will ensure that Northern Ireland will have the most comprehensive system of support to industry and commerce in the United Kingdom. I stress that we believe that the funds will be used more effectively than before because they will be concentrated and targeted on measures to strengthen the Northern Ireland economy. Above all, they will secure employment and the social benefits that come from a flourishing enterprise community which is what all noble Lords want. With that and with the guarantee that I shall be writing to the noble Lords, Lord Prys-Davies and Lord Monkswell, I commend the order to the House.

On Question, Motion agreed to.