Regional Development Grants (Termination) Bill

HL Deb 24 March 1988 vol 495 cc296-320

3.28 p.m.

The Secretary of State for Trade and Industry (Lord Young of Graffham)

My Lords, I beg to move that the Bill be now read a second time.

The subject of the Bill is the closure of the regional development grants scheme which was introduced under the Industrial Development Act 1982, as substituted by the Co-operative Development Agency and Industrial Development Act 1984. The transitional arrangements for running down the earlier RDG scheme are not affected by the Bill.

The Bill has two main clauses. Clause 1 removes the power to make grants for projects unless applications are received on or before 31st March 1988. Clause 2 places restrictions on the availability of grants for projects in respect of which applications for approval are received after 12th January 1988 except where applications are in respect of projects started on or before that date.

I explained the background to this and other changes in the policies of the DTI when I made a Statement to the House on 12th January about the White Paper then published—DTI the department for Enterprise. I offered some further elaboration in the debate in your Lordships' House on 19th February. On that occasion I drew attention to our two goals—to set the framework within which industry competes both at home and abroad and to encourage individuals to develop their enterprise and their skills in business. That is the context in which our decision to end regional development grant was taken.

Our aim is to ensure that all parts of Great Britain are able to strengthen and improve their economic performance, and create lasting jobs. The fact that we have a policy for the whole of Great Britain does not mean, however, that we overlook the special problems of particular areas. It means a strong and effective regional policy. It means a policy which seeks to tackle underlying weaknesses in the performance and development of firms, especially in the assisted areas.

It is the Government's belief that support for business consultancy to strengthen the management performance of smaller firms has a particular role to play. That is why the grant towards these services will be two-thirds of the total cost in those areas compared to half the total cost elsewhere. We are also introducing two new investment and innovation grants for very small firms in development areas as from 1st April next. And regional selective assistance will continue to be available throughout the assisted areas. This will provide the effective help which firms need, when they need it, to succeed in today's economic conditions.

We believe, in particular, that these incentives are the right ones to help prepare firms for the European developments. It is now that firms need that type of help to sharpen up their competitiveness for the completion of the single European market in 1992, let alone the Channel Tunnel, which is scheduled to open the following year, in May 1993. Those changes will open up the European market to British firms but they will also open up the British market to European companies.

Firms will be operating in a new environment of a single market of some 320 million people—nearly as many as the United States and Japan combined. There will be significant new opportunities—but also significant new challenges—for which British business needs to plan ahead and prepare for now. I believe that we have got off to an excellent start.

I am pleased to report that applications for consultancies are coming in at the rate of 70 a day, and we have had some 47,000 inquiries on our freephone number. Many firms have welcomed the effort to improve management performance by encouraging greater use of outside consultancy in tackling day-to-day problems. The DTI regional offices are reporting a very positive reaction from potential client companies.

I also said that we were keeping the long-standing and successful programme of regional selective assistance. We acknowledge the merits of a selective scheme of assistance, and we believe that RSA must continue. There have been many misunderstandings about the way RSA operates. It does not operate by picking winners. Applications are tested objectively against published criteria, which include whether assistance is necessary for the project to go ahead in the assisted areas on the basis proposed, and also that the project should contribute to both the regional and the national economy.

We draw heavily on private sector experience to help us to assess applications for RSA but it is for the company itself to decide in the market place whether to go ahead with the project. Moreover, the private sector must put up most of the money for a project. The role of government is merely to provide the additional incentive which makes the difference between going ahead or not, so that more projects take place and ultimately more jobs are created in the assisted areas.

The Government are not changing the essential criteria for RSA. Firms which were previously eligible to apply for RDG will be able to apply for RSA. However, we cannot guarantee that all of those firms will be successful because RSA is selective, while RDG was not. It is inevitable that some projects will not meet the criteria for RSA, criteria which are published and which include an assessment of whether the project would go ahead without assistance.

Some critics have suggested that the acid test of our commitment to regional policy is the level of expenditure we are providing for regional aid schemes. I do not accept that this is a mere question of volume, without looking at the quality of our schemes, and whether they are really what the customer—the company itself—actually needs. As a nation we often fall into the trap of ignoring the importance of quality.

However, having said that, I must emphasise that we are not cutting expenditure, and the fact that we are keeping RSA underlines this. We plan to increase expenditure allocated to specific schemes of aid to the assisted areas. For example, if one looks at our expenditure on regional aid—that is to say, on regional selectives assistance, regional development grant and the two new investment and innovation grant schemes for very small firms in the development areas—one will see that some £900 million in total is planned over the next three years, compared with some £700 million in total planned in the 1987 White Paper which extrapolates some expenditure into 1990–91.

The changes we are making must also be set against the background of a steadily improving economy. The UK economy is on a sustained upturn. It has had nearly seven successive years of steady growth, at an average annual rate of 3 per cent., and has grown faster, since 1980, than all other major European Community countries.

Our strong growth record is not just a phenomenon of the South-East. That is clear from the way unemployment is falling everywhere. Furthermore, since it started falling 19 months ago the rate has fallen fastest in the West Midlands, the North-West, the North and Wales.

It is generally expected that the United Kingdom will remain in the top two of the world growth league this year as well. Whichever way you look at it, the evidence is that growth is here to stay. Manufacturing productivity has grown faster than all other major industrial countries since 1980. Since 1981, after decades of relative decline, the UK has stabilised its volume share of world trade. Industry is now returning to the level of profitability it needs to compete and profitability is back to levels not seen since the early 1970s. Industry now has confidence in the future. This confidence is shown in investment plans. Business investment in the fourth quarter of 1987 was 12 per cent. up on a year earlier. The DTI investment intentions survey shows that companies expect 8 per cent. growth this year, and a further increase next year. Finally—and I believe most importantly—inflation, the major threat to sustained growth, is low and stable.

Those are the conditions against which we have judged it both timely and right to refocus the means by which further achievement can be encouraged, particularly in the more disadvantaged areas. I believe that keeping RDG would, quite simply, be a misdirection of resources, in many cases to little or no effect. An automatic scheme by its very nature always carries the risk that grants are bound to be paid to companies which would have proceeded with their projects in any event. That risk is bound to increase in any period of rising investment.

We do not believe that a scheme of near automatic grants, given towards projects without prior assessment being made of either need or viability, is any longer a cost effective and sensible way to help the regions. Such a scheme is also wrong for the firm which is looking to improve its competitive edge, not for continued reliance on automatic state handouts which are more likely to blunt its initiative.

I know that there is particular concern about inward investors, who are looking at a number of countries to judge which might be the best site for a new development. Of course competition for international investment is fierce. And this country has to be in a position to compete with its neighbours. I believe that we can compete well, even without RDGs.

The financial incentive of selective assistance is I believe a more than adequate attraction, in line with what many other countries are now offering as they too move to a more selective type of assistance. But selective assistance is unlikely to be the most important factor in decisions of inward investors. The UK has inherent advantages and the availability of selective assistance is often not even necessary for inward investors to make up their minds about locating in our country.

Besides our strong economy, we have one of the lowest corporate taxation rates in the industrialised world, low production costs, positive industrial relations, excellent access to Europe, worldwide trading links, modern international communication links, and not least, the English language. No other country can offer such a powerful mix. That is overwhelmingly the verdict of inward investors. Four out of five companies recently surveyed said that their performance in Britain has been in line with, or better than, expectations. Three out of four investors said that their experience in Britain has been so positive that they are currently planning further investments.

I was in Japan last week. Sanyo announced that it was adding two further factories to the one it already has in this country. The company told me that it came because of the state of our economy and its experience in this country. That is far more important than any grant.

In addressing the main purpose of the Bill, as set out in Clause 1, I have deliberately sought to cover a broad range of related issues which are relevant to the enterprise culture that we are seeking to foster. Let me conclude with a brief review of the transitional arrangements set out in the other substantive clause of the Bill—Clause 2. Clearly it is important to ensure that the transition from the present policy framework to the new one is achieved on fair and equitable terms which do not undermine the legitimate expectations of companies. Clause 2 of the Bill is designed to that end. As I said, its purpose is to set out the restrictions which will apply on payment of grant to projects which were the subject of applications for approval received after 12th January 1988 and on or before 31st March 1988; and which commenced after 12th January 1988.

Let me emphasise that the restrictions do not apply to any other projects. Projects started on or before 12th January (provided an application is submitted by 31st March) and applications received on or before 12th January will be completely unaffected by the closure arrangements. The restrictions which Clause 2 goes on to specify represent, I believe, a very fair and reasonable arrangement, in terms both of the likely effect on firms, and the perfectly legitimate need—the decision having been made to terminate the scheme—to ensure that the scheme does not run on into the future in an open-ended way. The restrictions apply from 13th January; that is, from the day following the date of announcement of closure, and that seems right and reasonable. Otherwise firms would have the opportunity, which I fear that they would undoubtedly take, to put in large applications in the full knowledge of impending closure. There is a two-year time limit for counting jobs and assets for grant. There must be a limit, for reasons of efficiency and budgetary control, to the financial claims which a closed scheme can make into the future.

However, we have taken a careful look at the position of present RDG projects. Some 90 per cent. of projects are completed within two years, so we can confidently say that the majority of projects will not he affected by the time limit. This clause is therefore a necessary and reasonable adjunct to the provision in Clause 1 for the scheme to be closed.

To conclude, the Bill is part of the wide-ranging enterprise strategy which we outlined in the White Paper. The initiatives set out in the White Paper are, as I have said before, about widening the scope for self help; the emphasis is on people, management and, above all, the private sector. This emphasis is particularly important and relevant in the assisted areas. Economic and social disparities still remain between those areas and other parts of the country. It is in those areas that there is a need to give special encouragement away from the old heavy industrial economy, towards a modern economy based on self-generating local growth. That is why we remain committed to an effective regional policy; but we must ensure that our resources are well spent. I do not believe that a near automatic scheme will be cost-effective.

The new focus on management development will, I believe, be effective together with selective assistance where it is required for projects to go ahead. That is what we are offering, and what we believe British business in the regions needs to be competitive. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Young of Grallham.)

3.46 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Lord, Lord Young, for introducing the Bill which, although short (two clauses) is of great importance. The Secretary of State made a wide-ranging speech some of which, I hope he will forgive me for saying, I have heard before. Your Lordships will also have heard it before. I suspect however that the Bill, although short, is not wholly innocuous. It marks the end of a bipartisan policy, which has existed for many years, between governments of both parties, and which we on these Benches believe has had a good measure of success.

There are three questions on the Bill that I invite your Lordships to consider. First, how committed are the Government in reality—I know what the noble Lord said—to regional policy? Secondly, are the criticisms that have been levelled at the regional development grant scheme valid? Thirdly, what advantages and disadvantages flow from the abolition of RDGs and the transition to a discretionary scheme of regional selective assistance?

Your Lordships may be surprised that I put the first question at all in the light of what the Secretary of State said; because there is a substantial section on regional policy in the DTI White Paper, and various ministerial statements, including the statement from the noble Lord today, express enthusiasm for regional policy. Nevertheless, I believe that there is some room for doubt. After all, philosophically —if I may speak like that for a moment—the whole notion of creating advantages for one region of the country over another by any form of subvention, be it grant or assistance, runs counter to what I believed to be the present Government's philosophy; that is, that market forces should have their play. Regional policy is, has been and will be designed to do exactly the opposite; to use public funds to correct market distortion; to buck the market—if I may use an expression that has recently gained a certain topicality.

We on these Benches are glad to see that the Government proclaim that they are still committed to a regional policy; that some degree of good sense survives. But we have to demonstrate that regional policy has been successful in the past and to argue our view that, in order to be successful in the future, it should continue to get maximum emphasis from the Government.

To demonstrate that let me take as an example one part of the United Kingdom, Wales. Let me take two yardsticks: net population movement and relative unemployment rates. Between the wars, when there was no such thing as regional policy, Wales lost an average of 25,000 people a year through net outward population migration. This outward drift continued after the war but at a lower rate as the regional policy started to bite. Between 1951 and 1961 the total net outward migration was 35,000, which was an average of 3,000 per year. Between 1961 and 1971 it was down to 10,000, an average of under 1,000 a year. From 1971 to 1981, Wales experienced a large net inward migration of 71,000 people—some 6,000 a year on average. Since 1979 and the weakening of regional policies, that inward flow has stopped. Between 1981 and 1986 there was little net movement either way.

It would obviously be absurd to relate this change in population movement uniquely to regional policy, but it must be right that when a regional economy is in relative health more people will stay there and fewer will look elsewhere for work. That must be good for balanced national growth. It is regional policy that serves to correct the relative disparities between different areas of the United Kingdom.

Let us now look at relative unemployment rates. In the 1950s the unemployment rate in Wales was double the national average. Today, the Welsh rate is some 25 to 30 per cent. above the national average. In absolute terms of course the Welsh rate is still extremely high, but policy aimed at narrowing the differential between Wales and the rest of Britain has been reasonably successful at a time when employment in the basic industries, which provided the great base for the Welsh economy, has been dramatically decimated. What is true of Wales—that regional policy has been effective—is also true of the rest of Britain. Indeed no fewer than three different reports on regional incentives commissioned by the Department of Trade and Industry have said that regional policy has made, in the words of one of them, "a real and substantial achievement". So we must hope that this Bill does not mark the Government's final retreat. We must hope that our suspicions are unfounded. But suspicions I am afraid there are.

We note, as a senior Conservative in another place noted, that the DTI objectives only use the expression "take account of the differing circumstances in the regions"; not, "do something about" those differing circumstances. We note that when the RDG scheme was changed in 1984 we were told that the major disadvantages—what we might call in the jargon the Sullom Voe phenomenon—had been removed and that no further changes were needed.

Finally, we note, making what we can of the maze of figures that the Government have issued and which I personally find extremely difficult to understand, making allowance for the transitional arrangements of what are known as RDGI and RDG2, which will still require outlays in 1990–1991, that there is I am afraid a deep suspicion that what we are actually seeing when we compare the new arrangements directly and cleanly with the old arrangements, is a steady decline in real terms which will take effect in the next decade unless there is a change in direction.

If regional policy as a whole has been a success, it also appears that the regional development grant scheme has been a success. Each of the three government-commissioned reports that I have mentioned praised the RDG scheme. It is valued by industry, or at least it was valued by industry in December 1983, unless the Government's own White Paper of that date is to be disbelieved. That White Paper says: Industry attaches considerable importance to a grant scheme which incorporates standard rates of grant, is predictable in its application and which by virtue of its predictability, can be taken into account at all stages of making investment decisions". Thus ran the Government White Paper of December 1983.

I do not know what has made industry change its mind. I do not know what has made the Government change their mind. It seems from what the noble Lord said that the Government's argument is that unemployment has fallen faster in the assisted regions than it has in the rest of the United Kingdom or Great Britain. Apart from that being a reason for keeping a successful scheme in operation, this argument falls when we look again at the relativities. The true test is surely the percentage reduction in the unemployment rate itself. On this test, the assisted regions have done worse than areas like the South-East and South-West, East Anglia and others. What that really means is that unemployment generally is falling, but that the differential between the assisted areas and the non-assisted areas, the buoyant areas in the South, is actually widening.

I turn now to my third question. Nothing is set in stone. I t may be that regional development grants are out of date or that somebody has changed their mind. There may be good arguments for greater selectivity, although I must say that we have yet to hear them. It is difficult to quarrel with the conclusion of a group of Scottish economists, again in a report commissioned by the DTI which said: Our evidence shows that a mixture of automatic and selective assistance, taken together, provides a powerful package". The disadvantages of moving to a scheme consisting wholly of selective assistance are evident. Since nothing is automatic, as the noble Lord said, companies cannot build anything into their investment calculations. First, they have to decide whether to embark on the project at all, then apply for assistance. No other procedure in terms of company finances makes sense. They then have to provide reams of information to government officials, including detailed trading forecasts and so on. Next they have to convince those officials that their project is a viable one, yet at the same time they have to convince the officials that they need assistance. That seems a pretty odd proposition. Finally, if they do receive assistance, they will find that instead of being able to account for it as a capital grant and applying it straight to the balance sheet, they are required to pass it through to the profit and loss account and, if they are in profit, to pay tax on it at 35 per cent. I remind noble Lords that if the project is not projected to be profitable they will not get the assistance.

There is also the problem of the capacity of what I would call the bureaucratic machine. Perhaps I may again refer to Wales as an example. In 1986 the number of RSA offers in Wales was 137. In the same year, 1,180 projects were approved for RDG. Let us assume, if the Bill is enacted, that some applicants will drop out, since they do not need the money. Let us assume that other applicants will drop out because they regard the procedure as being too tedious and time-consuming. Let us be generous and say that together those two factors might eliminate 300 to 400 applicants. There would still remain about 1,000 applicants a year to a system which is at present dealing only with 137.

The Explanatory Memorandum to the Bill says that staff requirements will decline. I imagine—and perhaps the noble Lord will confirm this when he comes to speak again—that there will be a corresponding increase and more than a one-for-one increase in other parts of the DTI and elsewhere, because I simply do not see how the machine can cope with a transfer of that nature from RDG approvals to RSA applications. Equally, the new investment grant and innovation grant schemes will also be discretionary. That will further add to the load.

Finally, there is the problem that the noble Lord touched on, that of picking winners. Whatever the noble Lord may say, any discretionary scheme involves the exercise of discretion. I thought that the Government were wholly contemptuous of the practice of allowing civil servants to indulge in picking winners. Yet inevitably with a discretionary scheme, we do seem to come back to that, unless the RSA scheme is made virtually automatic.

That is the first requirement that we would ask of this Bill or of an accompanying statement of government policy. The criteria for RSA should be clear and comprehensible so that companies will understand that they will receive the same degree of security which they had under the RDG scheme. Secondly, the assistance under the RSA scheme must be capable of being treated as a capital grant rather than as a subvention to the trading account. Lastly, the Government must state firmly and without equivocation that, after making adjustments for the RDG2 run-off and any clawback through the RSA tax effect—if our second point is not accepted—the regional spend will not decline in real terms. I am not talking about the regional budget but the regional spend.

There is a tendency in some quarters to think of regional assistance as some kind of charity—an aspect of the dependency culture about which there has been so much ill-judged comment. That is quite wrong. There is a saying in Wales that Cardiff is because the Rhondda was. Equally, London and the South-East are because the older industrial regions were. But regional policy is not just paying off old debts. It is redressing the effect of market forces so that the old industrial regions can once again thrive—I think that the noble Lord would agree with me here—not just as branch economies but as economies in their own right. That is not charity; that is plain common sense.

4.2 p.m.

Baroness Seear

My Lords, we recognise that in the application of the old regional development grants there has inevitably been a certain amount, and perhaps a considerable amount, of waste in that money has gone to organisations that would have gone ahead in any case and in some cases it has certainly not been used as well, as wisely and as productively as it might have been. We are certainly ready to consider changes in the scheme.

However, the substitution of selective assistance for the standard development grants raises a large number of questions. The Secretary of State has already touched on some of them and some have been raised in one form or another by the noble Lord, Lord Williams of Elvel.

The first matter I wish to raise is inward investment. There can be no doubt—I am sure that this is common among us all—that in this country we want the maximum amount of inward investment. However, I am not so sure that that principle is common to us all when we hear the cries of alarm that go up if any bit of British industry is being purchased by foreign money, which otherwise seems to be greatly welcomed. But that is as it may be. In general we surely want to encourage foreign investment. Only in the last week we have seen that, if it is to come here, foreign investment requires stable and reliable conditions.

There can be no doubt that the certainty that regional development grants gave to foreign investors was a very real encouragement. I am sure that if one asked such organisations as the Scottish Development Agency, which works very hard to get foreign investment, they would say that the fact that they were able to offer foreign investors the certainty that those grants would be available was of substantial importance.

The Secretary of State said that other conditions in Britain were so good and so attractive that he was finding that firms overseas were still willing to come here. It would perhaps be rather unkind to ask the Ford Motor Company whether that was the case. But, he that as it may, all those advantages were there and still are there but in the past there was the added advantage of the certainty of the grant. Foreign investors will no longer have that certainty so surely the attractiveness must in any case be somewhat reduced. I should like the noble Lord to say in rather more detail how he expects to continue to attract foreign investment particularly to those areas where we need new plants, without the very substantial inducement which existed in the past.

When it comes to the selective grants perhaps I have not studied this matter carefully enough and the answer is already there. Does this mean that we shall be able to deal with an issue which has concerned many of us for a long time—the fact that the regions are not necessarily the best form of defining the need for grant? There are very severe black spots in good regions, just as there are white spots in very bad regions. I am not sure whether "severe" is the correct adjective there; perhaps I should have said deep black spots. Does the new selective process mean that some of those very bad spots in the South-East (in Kent, for example) will be able to receive the kind of assistance which would not previously have been available? Will this new system be a freer and more flexible way of administering the grants that are available?

As regards the selection of people who are to receive grants, the noble Lord said that what was required of them was clearly laid down. Seeing is believing and "clearly laid down" as regards documents issued by government departments is not a common description of what is put out. It may be that this is the exception to the rule, but I wonder whether all the people who will be interested in the scheme will find the requirements as clear as the Secretary of State has suggested. As he would agree, and as I think the noble Lord, Lord Williams of Elvel, was implying, the mere business of applying for a grant can be very costly and time consuming.

The kind of people who will need grants and who ultimately will qualify for them are people who obviously have no time or money to waste. Unless it is very plain what a company's chances are of getting the money, it should be discouraged from applying and not encouraged. Will the Minister make it quite clear to us how plain the facts will be made to people as regards whether they stand a reasonable chance of getting the assistance? I think that there will be a great deal of wasteful, time-consuming and in the end very bureaucratic work being done to no good purpose unless the suitability of applicants is made very clear indeed.

The Secretary of State said both on this occasion and when he talked to us about this matter before that a great deal of help was going to come in the form of consultants. I have nothing against consultants. Many of my best friends are consultants and all that. But I am sure that we all agree that there are consultants and consultants, to put it mildly.

I am sure that the Secretary of State will say that the entrepreneur himself will select the consultant and he must be the best judge. I very greatly wonder whether that will be so. By what criteria are these consultants to be recognised? I understand that the Government will pay three-quarters of the cost of the consultants. That will add up to a very considerable amount of money. What standards are being applied? Who will make the judgments about whether the consultants are worth the money? How will we be able to check up on the effect of their work, because as I understand it a great deal of the effort, and therefore money, will be put in via these consultants?

Could we know a little more about where these people will come from? There is no standard qualification for them. In whose judgment will they be suitable?

When the noble Lord discussed this matter before I raised with him the fact that, among the categories of consultants who were going to be recruited and whose payments were going to be supported, there was no category which dealt with the whole area of human resources and with the selection and, above all, the training of people. I should be very surprised indeed if the Secretary of State did not agree with me that, in the establishment and the development of these companies, adequate training of the staff whom they will use is of the very highest importance. That is the area which is I suggest on the traditions of small companies in this country the most likely to be ignored. When I raised that matter in January, the Secretary of State was replying. He accepted that the list of consultants and the categories which he had given us did not exist. Has he given more thought to that matter? If so, what does he propose to do about it?

The Minister knows better than anyone how inadequate training in this country has been. The companies to which we are referring are of the kind that do not give a thought to training, to put it bluntly. They are not likely to do so unless somebody puts the idea into their heads fairly forcibly. Perhaps the Minister will tell the House what he is going to do about that.

Finally, I should like to say that, although we accept that aid of this kind has value and is necessary, we on these Benches believe that what is needed is a far more devolved approach to regional improvement. If there was a great deal more control over regional development in the regions themselves and if the people who had control in the regions on a devolved system were able to judge what was needed and had the resources to put into what they saw as being necessary, at the end of the day that would be a better way of using the money.

That was borne out when we, in conjunction with Shirley Williams, were looking over a period of time at the development which had gone on throughout the country in job creation and new employment opportunities. We found again and again that some sort of regional authority, with funds which could be directed by it, would have been an extremely valuable way of giving the maximum effect to the efforts of different people in different parts of the country. They would have been greatly helped by a strong regional agency with funds of its own.

4.12 p.m.

Lord Sefton of Garston

My Lords, I do not often speak in Second Reading debates. There is not much point in doing so. No vote is taken at the end of the debate. I know that the Government want to state the principles on which the Bill is founded, and from that point of view it may be useful. However, I like to participate in debates in which at the end of the day those who speak can take a position. We cannot do that today because of convention and various other matters.

We have just heard a speech by the Minister which consisted, if my estimate is right, largely of telling us how good the economy of this country is. He pointed out the growth of the economy, the fall in unemployment and how well we are striving to achieve a new enterprise culture which will cure all our problems. However, all that is nothing to do with the Bill.

The Bill is flawed and the speech made by the Minister was flawed. He did not concentrate on the subject matter of the Bill, which fundamentally says that the steps that have been taken up to now to assist development areas are not good enough and that we shall have a different kind of assistance. When we remove the diatribe and get down to the basic facts, the Bill says that the old grant did not work, it did not have any success and it was wasteful. Therefore, we shall now have a selective grant. By the very nature of the selective grant, it will mean—regardless of what the Government say about the amount of money for which they are budgeting—that there will be fewer grants in assisted areas. Previously grants were automatic; now they will depend on selection.

Let us examine whether the grants which we have had up to now have worked. The Ford Motor Company of Great Britain knew that it had to build another factory. It knew that it had to get into the big-car-making league. It wanted to go as close to Dagenham as possible. However, the government of the day said: "No, we do not think that you should. You should not concentrate there. After all, Great Britain, compared to other places, is a small island and we think that you should go somewhere else—to Liverpool". Ford did just that, on the basis of an automatic development grant which enabled it to set up the Ford plant at Halewood. That was actually an extension of the production line at Dagenham. That was a good arrangement. The same happened with Vauxhall.

I believe that those two schemes would not qualify for a grant under the selective assistance rule. It is evident that both Ford and Vauxhall at that time had the necessary cash to make such an investment. They would not have qualified. The net effect on Merseyside would have been that there was no cushion to fall back on when other industries in that area folded up.

In 1940 when Harold Wilson, as he then was, was at the Department of Trade, we sent a delegation to London. We did not ask for development grants. We asked for a fair share of the resources of the nation. We pointed out that we should prefer not to be listed as a development area. However, we believed that we were entitled to a fair share of what was going and that we should be allowed to develop on the basis of the resources which were being diverted from the South.

I make no apologies for the fact that since 1945 and before that time voices in Liverpool raised the prospect of a drift to the South, which has continued ever since. When we are told of the growth in the nation and the fall in unemployment, I suggest to the Minister that he should go to Lime Street at five o'clock on a Monday morning and tell that to the young people who are having to travel on the "Tebbitt Express" from Liverpool to London in order to work.

The Minister in the White Paper says that he does not believe in forcing people to go where they do not want to go. I agree with that. However, the policy of this Government is forcing people to go where they do not want to go and most of them are the unemployed of Liverpool. The Minister should not talk to them about the fall in unemployment.

What is happening is that there is growth in certain areas in the United Kingdom. The Bill is supposed to deal with the termination of aid to special areas. Let us concentrate on that. If the Government believe that the scheme should be changed, that they are going to be spending as much money and that regional aid is about moving jobs from one place to another, why do we not have a proposal to do that somewhere in the Bill? There is no such proposal. All the Bill says is that there will be selective rather than automatic grants. That is not good enough.

I challenge the Minister to say in effect that more people will be assisted to set up in such areas than are assisted under the present scheme. He knows that there will not be. He is nodding his head, and I suppose that means he knows that there will not be.

Lord Young of Graffham

There will be.

Lord Sefton of Garston

The Minister thinks that there will be. That is quite simple. How long will it take? I hope that the Minister will be in the same post in 12 months' time because I shall ask him what increase there has been in grants to the Merseyside development area. I know what the answer will be—if I receive an answer.

In the debate on this subject the Minister also said that there were a number of valid and important points to which he would give consideration. I went through the Hansard record of the debate and listed some of them. We were to persuade people to move north. That was surely a valid point because the overcrowding in the south is now leading to rows between Mrs. Thatcher and the Chancellor, in which the noble Lord himself seems to be getting involved. So it must be a valid point. But where in this Bill is there any move to persuade—not force—people to go north? Nowhere.

The question of regional pay differences was raised by the noble Lord, Lord Simon. The Minister responded and said that he would deal with the question. I do not see anywhere, either in his speech or in the record of that debate when he replied, that he dealt with the question of regional pay differences. What does he mean by regional pay differences? Does he mean that regional pay should differ in order to persuade people to fill posts in the areas where those posts are needed? Or does he mean that there should be regional pay differences in areas in the United Kingdom which are recognised by most responsible people to be in an uncivilised state? If the overcrowding and the distasteful things in life occurred in London and the South East we should pay people more to live there: is that what he means by regional pay differences? If it is not perhaps he would take the time to explain to us what he means by regional pay differences. What does he understand by regional pay differences? A branch economy?

Nobody in their right senses, who understands industry today, and particularly multi-national interests, really believes that anyone would set up a head office or even a major manufacturing exercise in Liverpool. If they look at the map they will realise that Liverpool is not the place. It is neither in the centre of a market nor is it in the centre of growth. We have seen figures showing that unemployment in the North West is falling, but where in the North West? If they went to the North West in all probability they would site those activities in and around Manchester and Leeds, which are the centre of the market and of the distributive network.

As Professor Ridley said (I do not mean the other Ridley, I mean Professor Ridley of Liverpool University), commenting on the plight of Liverpool as distinct from the plight of Manchester, geographically Liverpool has been stranded. If Liverpool was not there no one would invent it. In 1945 we pointed out to the Government of the day, and later we pointed out the same thing to Mr. Heath when he was Prime Minister, that what happens in boom and slump is that we go into a boom and the South and the affluent areas benefit but when the cutback comes—as it will surely come in the next 12 or 18 months—the less affluent areas are the ones to suffer. They go still further back into recession. If one looks at the developments in the United Kingdom as a whole on the basis of regional figures, one sees that that has been the pattern since 1945 and it will continue unless we do something about it.

So we are not going to have any improvement unless the Government could set up a main sector that would generate jobs in itself. It is an amazing fact that when the Government have in their hands the distribution of 620,000 Civil Service jobs, most of which could be centred anywhere in the United Kingdom, they never even mention it. However, we are told that the Department of Trade and Industry even had the courage and foresight to set up regional offices—consisting of about 10 men in each.

Lord Young of Graffham

Nonsense!

Lord Sefton of Garston

My Lords, perhaps he will give us the figures and tell us how many people will be in those wonderful offices that will recreate the economy in the regions, and where they will be sited. I very much doubt whether we shall get the answer. I have asked the question before and the Minister has had plenty of time to reply.

I shall not deal with the question of the uncertainty of the grant position. That also was raised in the debate. But I should like to hear what the Minister has to say about what I think was a most valid and important point raised, not by me, but by other Members of this Chamber in the debate. If those are not the valid and important points which the Minister said that he would consider, let me ask him: will he tell us today, because he should know now, what were the valid and important points that were to receive his very serious consideration? I use his own words. Tell us, today. I shall be interested to hear what they were.

I do not believe that the Government are serious about the question of regional assistance. I believe that Members of the Government have come to the conclusion that they can afford to write it out; that they can afford to forget it. They can produce glossy brochures which purport to tell us nothing about the fundamental problem, just as they produce glossy figures about the number of people employed. They jiggle the figures about, put some more people in training and before you know where you are Ministers can stand up and say to both Houses of Parliament that they are solving the unemployment problem. Nothing could be further from the truth. I believe that the Government want to bury the regional problem. But it will not go away.

I have said before in this House, and I say again, that if we do not remove the obstacles to decent progress in the South East of England, the private sector will get fed up with competing for buildings, secretaries and administrative assistance and move. I ask is it likely that any finance house, or the people who adminster the so-called capital centre of Europe—London—would move north? Of course they would not.

There is a very great possibility (as is already being mooted by estate agents just outside the other end of the Channel Tunnel) that when the Channel Tunnel is built the move will be in that direction. It may well be that the capital centre of Europe will be a damn sight nearer Paris than it is to London. That is a very real threat. No, the Minister says it is not a threat. He does not believe that it would happen. Will anyone deny that already the private sector is suffering problems of congestion in the South East? So we are not pleading only for Merseyside and Northern Ireland—and the Minister should go and talk to them about unemployment—I am pleading that the whole of the United Kingdom should be considered as a whole in regard to regional problems—not assistance. We should look at the problems in the South East and how they can be rectified. I believe that by proper planning on the part of central government there is a very real prospect that regional problems will be solved. The Government should not just talk about giving assistance to development areas.

The development areas have never wanted to hold out the begging bowl. They just want "fair do's". People do not want to have a levy imposed on business or to pay through their income tax in order to fund the extra expenditure on civil servants living in London, some of whom are now receiving almost £2,000 a year to compensate them for being in the capital.

I have mentioned before and I make no apologies for saying again that all the administrative offices dealing with unemployment, except for those standing in direct relation to Ministers in Parliament, should be sited close to the source of the unemployment problems. It should not be a case of just moving 6,000 civil servants out of a total of 600,000. The Government have been boasting about devolving administration since 1979. I see that the Minister is shaking his head. I do not know whether that means that he does not believe me. That information came in a reply to me from his department only a fortnight ago. The figure was 6,000. The previous Government had agreed to send 3,500 civil servants to the North West in order to relieve its problems, but within a few months this Government had scrapped the idea.

What a difference that would have made to the city centre of Liverpool. Instead of the developers having difficulty in finding occupiers for a building, the building would immediately have been full, which would have generated another 3,000 jobs at least. It would have cured some of the problems there. It would have had no effect at all on the South East. There has never been any problem about growth in the South East. There has never been a real unemployment problem in the South East. The unemployment problems are in the regions.

I think that this is a bad Bill. It is a Bill which is flawed. I sincerely hope that at the Committee stage an amendment will be moved and the Government will respond to it by indicating what else they intend to do to assist in solving the problems of the regions other than simply talking about selectivity grants. I challenge the Minister—and I shall repeat my challenge later. If selectivity grants are introduced in preference to automatic grants, in 18 months' time we shall finish up with fewer applications, less movement to the regions and fewer successes. Regardless of what the Minister says, still more will be spent from government funds on assistance to the South East of this country than is spent on the rest of the country in the areas that most need such assistance.

4.32 p.m.

Lord Taylor of Gryfe

My Lords, there is a certain finality about the title of this Bill: Regional Development Grants (Termination) Bill. As the noble Lord, Lord Williams of Elvel, said, it signals the end of an agreed policy in using investment grants as an instrument of economic policy and regional development.

I speak from the Social Democratic Benches but I want to assure the noble Lord, Lord Williams, and my noble friend Lady Seear that I share some of the concerns that they have expressed. As a party we are not indifferent to the problems of the region. Like a good consensus politician I should, first, like to establish common ground. Despite what has recently been said, I accept that the Minister is concerned about solving the imbalances in our society. The disagreement with him comes on the methods taken to achieve that end. However, I am sure he accepts that, so long as there are large areas of our country that have substantial unemployment with people feeling a deep resentment and believing that they are neglected, there will be very serious political implications in the expression of that resentment.

In my part of the world in Scotland the fate of the Conservative Party is indicative of the kind of resentment that is felt because the people there believe that in the past the Government have neglected them. In itself the growth of Scottish nationalism is a very dangerous reflection of that feeling. It is politically undesirable and economically wasteful. The high prices of land and houses in the South East and the under-utilised infrastructure in the North and the less favoured areas represent an imbalance and are a wasteful economic phenomenon.

Let us agree that we have common ground in believing that in any regional policy we are seeking to stimulate investment, create jobs and redress the regional imbalance. There is no need to argue about those common aims. However, we have to decide whether the instrument that is now proposed is likely to achieve those objectives.

As the Minister invited us to do, perhaps we may talk a little not only about the content of the Bill but also about the general strategy in regional policy. What influences investment decisions? My own experience of attracting inward investment to the UK leads me to believe that the regional incentives that existed—that is, automatic regional grant—were an important factor in any decisions that were made. I had the pleasure of being seconded to the previous Conservative Government and travelled throughout Europe with the Secretary of State for Scotland. We visited companies and businesses and we talked to banks about inward investment in Europe. At the head of the list of priorities was the recognition that at least they could claim certain automatic grant as basic.

There were other items and one of the important factors that influenced decisions was labour relations. It is a great sadness to me as a Scot to have witnessed the events at Dundee over the past weeks. That has been extremely damaging to the prospects of regional development in that area of high unemployment. I am delighted to see the noble Lord, Lord Williams, nodding assent to that view. I hope that the damage can be repaired at an early date. Just to show that I am even-handed, I say to the Minister that stability of exchange rates is also sometimes a factor in influencing decisions.

Certainly continuity of policy is important. That worries me just a little because when people make decisions about investment they look for some continuity in policy. Let me reflect for a moment that three and a half years ago in November 1984 a new policy was enunciated in this House by the Government. It was said that we were moving to a situation where an attempt was being made to create a single objective, which was to reduce regional disparities in opportunities for employment on a stable and long-term basis.

That was in 1984. So much for a long-term basis. However, that new policy was proposed and accepted by this House.

We must ask why there has been such a dramatic change. Have the regional development grants failed? I do not think that they have, but one has no right to discard them until evidence is produced that the new selective system will be more effective.

The DTI has many reports on this subject because the question of regional policy is regularly reviewed by it. I have a report beside me which goes back a long while. Between 1960 and 1981, it was estimated that 784,000 new jobs were created as a result of positive regional policy. Of these, 600,000 continued to be in existence after 1981. That may be regarded as a long time ago, but the last annual report of the DTI in February 1987 dealing with regional development grants said: The scheme is an important factor in investment decisions". If the Minister's department takes that view, it would be interesting to speculate why he has now changed his opinion in that regard. It is true that we are all suffering from the Sullom Voe syndrome. Sir John Harvey-Jones, the former chairman of ICI, said that many of our investment decisions were made, and we would have made them anyway, without regional assistance. But one has no right to generalise on the basis of these two exceptional cases in order to withdraw the entire system of regional development grants. The scheme which is now operating and which is about to be scrapped takes care of such cases as Sullom Voe and ICI.

I commend the Minister to read a speech made by a distinguished colleague of his who fairly recently occupied his important office. He said: I am not persuaded of the benefits of the proposal to drop the Regional Development Grant". That was said by a responsible former Minister fairly recently. He then went on to argue, as has been argued this afternoon in this House, on the uncertainty of the selective principle.

Let me visualise for a moment the financial director of a major company who comes to his board and says, "We ought to do this". The question is asked by the board, "Do we get a regional grant? We are going into an assisted area. What form of government assistance do we receive?" The answer is, "Yes. I shall negotiate that with the DTI. I shall need to prove my case. I shall need to prove that my proposal is likely to be viable and to conform to standards of modern technology, design and so on on the various criteria that are laid down".

The board may say. "This will take some time". With the increase in the number of cases that will now be processed, it will certainly take some time and may easily frustrate an investment decision. Someone in the boardroom may say, "Let us go to Southern Ireland. We can expedite things much more quickly dealing with that authority's much simpler procedures with automatic grants". Alternatively he may say, "Let us go to some other European country that still retains the automatic grant". Companies will not wait. The Ford Motor Company became tired after five months of frustration before it ultimately had to make its very critical but very unfortunate decisions. Who will process these decisions? Has the Minister the staff? Will there be an increase in bureacracy? Is there not a danger of frustration of investment decisions which may easily be injurious to his objectives?

The noble Baroness, Lady Seear, made reference to the use of consultants. When the Minister made his original Statement about the Department for Enterprise and the increased use of consultants, I looked at the list of public companies quoted on the Stock Exchange to see whether there were any consultancy companies. There are not. They are all private partnerships in private companies, but this is a bonanza for the consultancy business.

The thought is not original. This was done by the Scottish Office only a few years ago. I recall a very interesting decision in which the Scottish Office said that it would pick up the tab on consultancy fees in order to encourage business and to make it more efficient in Scotland. I had a friend who had a very successful business in the West of Scotland in an assisted area. He said to a well-known firm of consultants, "All right, if you can improve my efficiency, that is fine. You come and help me". It said, "Yes, we can improve your profits". He asked, "How will I do that?". The consultant said, "You will get much lower labour costs in your kind of industry in Southern Ireland". He was promptly recommended to move to Southern Ireland. He has since sold his business very profitably—all based on the advice of a consultant, with the tab picked up by the Scottish Office.

There are good, bad and indifferent consultants. I find very often that if one commissions a consultant who does it for nothing, or very little, one is not inclined to take his advice. If one gets a McKinsey fee one reads it thoroughly and takes it very seriously. We have to watch what we are doing in this connection. The consultancy device in this Bill provides for not only two-thirds for the assisted areas but 50 per cent. for the unassisted areas—that is for companies in the prosperous South-East of England—of the consultancy bill to be paid under this scheme.

The ICFC has a delightful scheme which I commend to the Minister. It has consultants in the organisation. It says to the companies in which it is interested, "Use our consultancy services", and then it submits the bill. It says that if companies have not recovered in increased profits and efficiency the amount of the bill within six months, then the bill will be cancelled. I wish that a similar discipline were applied to the consultancy business in general. I commend this example of the ICFC to the Minister.

I shall not argue about the reduction in costs. The Minister has said that there will be no less money spent. However, in estimating the cost over the next two years there is an overlap of the present scheme plus the new scheme. We are in fact talking about the amount of government money that will be spent on original aid two years from now. That is when the crunch will come, that is when the overlap ceases. I am not persuaded that the amount of money that will be spent on regional aid in these circumstances will be more—indeed, it will be substantially less—than the 1986–87 figure.

I have a certain admiration for the Minister's enthusiasm and confidence. I wish that I shared his confidence. We are making a very dramatic change in the direction of regional policy. It is a considerable gamble. I am sorry that I cannot share his enthusiasm or confidence, but I wish him well.

4.49 p.m.

Lord Young of Graffham

My Lords, I am very grateful to the noble Lord, Lord Williams of Elvel, for those comments, for his contribution to our debate and for his not inconsiderable history of the economic development of the Principality. However, his memory, alas, is failing him, because I recall that there was a very effective regional policy in the valleys before the war. If he looks at Treorchy, at many of the industrial estates that were built and indeed at the origins of the Welsh Development Agency and at the development of the agencies themselves, he will see they all came out of a regional policy that worked in the 1930s. It was aided by many people who came to this country during the 1930s bringing their skills with them. That indeed made a considerable contribution to the economy of South Wales.

Incidentally, I willingly accept that in some decades after the war there was a considerable movement of population into the Principality, not always out of it. The North-South divide was almost a North-West movement. The noble Lord did not take fully into account the enormous changes that occurred during that decade in which employment in many of the old traditional industries failed and disappeared. The policy of my department as set out is clearly that we should take account of the circumstances in the regions, not necessarily that we should do anything about the regions because we believe that the private sector is best fitted to do things to help themselves.

Running throughout all the contributions to the debate has been a misunderstanding. My department is not moving from a policy of automatic grants to one of selective grants. The regional selective assistance has been in place since the early 1970s and it will continue in just the same way as before. That does not represent any change in policy. What we have done, of course, is no longer to continue with an automatic system of grants which has been shown time after time not to aid regional policy.

The study to which the noble Lord, Lord Williams, referred, the Moore, Rhodes and Tyler study, found that during the period 1960–1981 (which was the period that the noble Lord boasted about) each new job created cost £40,000. That is a very considerable cost indeed for job creation. It not only does not represent good value for money—value for money is the theme that runs throughout this afternoon's discussion—it does not take into account the displacement of jobs elsewhere. I am concerned, as should be all in your Lordships' House, about the creation of jobs not only in the regions but a net increase in the economy as a whole. The principle of regional selective assistance takes into account national as well as local benefit in any project.

The most recent report on RDG, the report by Peeler in early 1986, found that nearly 40 per cent. of firms said that not getting development grants would have had no impact on jobs. It is not just John Harvey-Jones, who appeared on a television programme on the night of the original announcement, saying that the existence of RDG had had no effect on his planning for many years. Captain after captain of industry said that to me in the months before. They would take it if it were available, but in itself it did not make the difference. It was something that was quickly forgotten. They were more concerned about many other matters.

This afternoon considerable criticism—concern perhaps more than criticism—has been expressed about the amount of bureaucracy involved. The existing procedures for selective assistance are well tried. We are streamlining them for smaller applications. Indeed, it is small firms who need the help most and there are now simplified procedures for applications for assistance under £25,000. We do not impose upon civil servants the obligation of picking winners. I would have thought that the principle of selective assistance would commend itself to the noble Lord, Lord Taylor of Gryfe. Many projects would not have gone ahead without that assistance. The selection we leave to panels of industrialists throughout the land. They often have to apply difficult subjective tests when trying to decide whether or not, with the absence of that procedure, the project would go ahead.

Much has been said about the automatic nature of the scheme and how much assurance that would give overseas investment. That automatic nature is rapidly ceasing to find favour elsewhere. The Federal Republic of Germany has recently abolished its own automatic investment allowance scheme. Changes are happening in France, because all across Europe we are finding that in inward investment automatic grants are not enough.

I referred earlier this afternoon to my visit to Japan last week. There I spoke to many of the Japanese companies who have investments in this country. Going round the country during the rest of the year I speak to many inward investment companies about their experiences here. Since I came to my present department —it happened even in my last department—I am always asked what would make companies decide to come to the United Kingdom. I recall vividly in 1982, when I first visited Japan, being told time after time that the climate was not right in the United Kingdom—by that they meant industrial relations—and that it was absolutely necessary, if they were to go anywhere, that they should go to where they would be assured of a sensible approach by a workforce that was willing to become part of their firm. It was not the availability or lack of availability of grant that deterred Ford. Ford had all the grants it wanted. It was just that it did not have the right climate in which to see the way ahead. That is by far the most single important factor in a good regional or good industrial policy for the nation.

The noble Baroness, Lady Seear, talked about the encouragement of foreign investment. I should like to join in that encouragement, but it depends on how the economy as a whole goes. The noble Baroness criticised—I have heard it before from other places this afternoon—our enterprise initiative and the use of consultants. May I say one or two things to make the situation quite clear and to reassure the noble Lord, Lord Taylor of Gryfe. This is not a general consultancy scheme. It is a series of specific schemes which are in areas of admitted weakness in British industry. They are in design, in marketing, in quality control and in production systems. The consultants we take arc those which, in the design field, are on a panel approved by the Design Council and only on that; in the case of marketing they are on a panel approved by the Institute of Marketing and only there; and the Production Engineering Research Association is responsible for quality and manufacturing systems. We keep a close eye on the output of these consultants and should some prove not to be up to the mark then we shall ensure that they are no longer on the list. This situation is monitored, and we shall continue to monitor all the way through to ensure there is value for money in the output of their work.

The noble Lord, Lord Taylor of Gryfe, was slightly dismissive of the fact that unless people paid for their consultants they would not value them. I agree totally. That is why we insist with all consultancies between five and 15 days that we shall pay either one half in the rest of the country of two-thirds in assisted development areas. That still means a considerable investment by many companies in the assisted areas because often the consultancies are for more than a period of 15 days and we do not pay the balance. I assure the noble Lord that the companies will consider closely the value for money they are receiving. If they are dissatisfied with the work of any consultants we shall be the first to hear about it.

Baroness Seear

My Lords, as the noble Lord apparently seems to have disposed of me, will he answer my question about the complete absence of consultants in human resources, particularly on the training side?

Lord Young of Graffham

My Lords, I wish to reassure the noble Baroness that I doubt whether I shall ever be able to dispose of her in the way that she has mentioned! I was coming back to her question. I believe that at the moment there are sufficient consultants to provide the services at the level we are now looking for. I believe that we shall see a movement of individual consultancies from the South to the regions because that is where the demand will begin to occur, a possible expansion in the number of consultancies and in the number of consultants as demand for, say, marketing consultants causes people with those skills and abilities to leave other companies and to set up or join consultancies where they can offer their services more widely. That is a function of the market. I hope that by this time next year we shall be able to report clear evidence of that. I assure the noble Baroness that as yet there is no evidence of any shortage of those skills. In that limited sense I am sure that the market will work in order to ensure that there are sufficient skills.

I fear that I have not answered the point raised by the noble Baroness as regards training, but that is another matter with which the training commission is continually concerned. Skill shortages are appearing up and down the land, in the regions as well as in the South. It is a matter which we must continue to pursue and I believe that evidence now shows that companies are taking training much more seriously. However, I should like to see clearer evidence—

Baroness Seear

My Lords, will the Minister answer a terribly important point? Companies will carry out a great deal of in-service training and I am sure that he wishes that to be so. However, they will need help if they are to carry out training on the job.

Lord Young of Graffham

My Lords, I accept the point, although it is some way from the topic of the Bill and the function about which we are talking. Nevertheless, the work of bodies such as the training commission is an important and integral part of regional policy. We are not talking about whether the Government have a regional policy; they have a regional policy. We are not talking about whether they spend money in the regions; we are proposing to spend more money. We are talking about an effective regional policy and the best way of spending that money. I believe that we shall achieve that through the changes originally announced in the White Paper entitled DTI—the Department for Enterprise.

The noble Lord, Lord Sefton of Garston, was slightly dismissive about the good state of the economy. I believe that to be fundamental to the question of whether people will come—

Lord Sefton of Garston

My Lords, I did not say that at all. I said that the growth to which the noble Lord referred was in certain places and that there was a lack of growth in other places.

Lord Young of Graffham

My Lords, I hate to disagree with the noble Lord but I am afraid that he is incorrect. I shall return to that matter but I should like to point out that he was also incorrect in his figures in relation to civil servants. As I told him on the last occasion on which we discussed this matter, my department has many civil servants outside London; over 6,000. The total number in my department is 12,500, over half of which are outside the Greater London area. As regards the insolvency service, we shall move out a further 1,000 who are at present in inner London. In my last department over 90 per cent. of the civil servants were outside London. There is no question of all the 600,000 civil servants being in London and the South-East. Many of them must be here but I suspect that a large majority work in the regions.

If one looks at the way in which the economy has developed over the past few years, one sees new businesses moving in and growing in the North-East, the North-West, Wales and Scotland. We must not give automatic grants but we must give help which will assist in the creation and growth of the economy and in creating more jobs.

The noble Lord asked whether this time next year we shall see an increase in grants. I doubt that very much because we are moving away from giving grants. I hope that we shall see a considerable increase in jobs, businesses and prosperity in the regions arising from the change in direction which my department has taken.

Lord Williams of Elvel

My Lords, will the noble Lord answer my question about regional selective assistance; the assistance scheme going through the profit and loss account, whereas the RDT is a capital grant? Is it possible to make the assistance scheme a capital grant?

Lord Young of Graham

My Lords, part of the process of deciding whether regional selective assistance will be granted is consideration of the fact that grants go to companies where they will make a difference as to whether or not the project will go ahead. (This also relates to another question which referred to grants being given only to those companies which have funds.) In such finely balanced circumstances the fact that the money comes in in terms of income should not automatically go towards raising questions of tax. Regional selective assistance has always been on the income side of the balance sheet and I think that to change that at this stage would be a retrograde step. I hope that it will be effective and targeted in areas and to companies which will be helped the most. So far it has proved to be a far more effective instrument of regional policy than automatic grants. I believe that maintaining the situation will provide the best method of continuity and will ensure that it continues to grow.

The noble Lord, Lord Taylor of Gryfe, asked why we are making the change, because surely continuity of policy was important. It is important, but to continue with a policy which appears no longer to work is not a good strategy. As this decade has gone by we have seen a considerable change in the regions. Perhaps the noble Lord will note what has happened in Silicon Glen. He should consider the number of companies that have moved to Scotland and the enormous increase in business in Scotland. He will appreciate that, in terms of those unemployed. Scotland spends far more per head of the population than the rest of the United Kingdom. Perhaps he will accept that Scotland has grown not because of the failure of regional policy; it is to the credit of the Scottish Development Agency that Scotland continues to grow and I believe that these policies will help it to grow even faster. The fate of my party in Scotland is another matter entirely and I suspect that it will be totally unconnected with regional policy.

If the noble Lord honestly believes that the existence of a regional grant will make a difference to a company deciding to leave Scotland—forget Scotland and let us say England—to leave England and go to Ireland, he is not the shrewd man of affairs which I have long considered him to be. He knows full well that companies invest for sound economic reasons for the future and not because of the temporary stimulus of a grant.

I vividly recall a visit to Belfast and in one morning visiting six closed factories, each of 1 million square feet. They all had closed as a result of past regional policies. Our present regional policy will work by moving towards selective assistance and by helping companies to grow. That will set a firm foundation for the growth of the economies, for the growth of the regions and for the most desirable of all objectives—an end of regional policy when the regions become indistinguishable from the rest of the country.

Lord Sefton of Garston

My Lords, this is the first opportunity that the Minister has had to give the results of his consideration of the valid and important points—to use his words—that were raised in the debate on the White Paper. Would he now care to do so? Did the Minister not hear my question?

Lord Young of Graffham

My Lords, I should be happy to write to the noble Lord on points which have not been covered and which are a long way from the Bill. He is continually asking that we should transfer government departments to the regions. On the last occasion I reminded the noble Lord that I was responsible for moving the head offices of the Manpower Services Commission from London to Sheffield, which I believe can still be considered to be a region. In Bootle, in the North-West, a considerable number of people are in employment. I believe that the Department of Employment has more than 90 per cent. of its civil servants employed around the country, and that is true of most civil servants. However, I shall be happy to write to the noble Lord giving a full breakdown of the figures.

I believe that, as we have heard this afternoon, we are setting a firm foundation for the future.

Lord Sefton of Garston

My Lords, before the Minister sits down, it would be wrong for me to ask him to accept personal responsibility. I asked what the Government's attitude was. Fifty-two per cent of all civil servants are still employed in London and the South-East. What do the Government intend to do about that?

Lord Young of Graffham

My Lords, I believe that it is a matter of congratulation that 48 per cent. of civil servants are not in the South-East. However, London happens to be the centre of government I remember that on the last occasion I said that I should be quite happy if this House were to move to the North-West, but some things are impossible to move.

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