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Financial Assistance for Industry (Increase of Limit) (No. 2) Order 2009

25th April 2009

Jonathan Djanogly calls for minimal delay in implementation of this assistance package and asks for reassurances about safeguards on a caveat that circumvents the need for Commons approval for assistance above £10 million.

The purpose of this order is to increase the upper limit of financial assistance that may be provided by the state to industry sectors, excluding banks and insurance companies, under section 8 of the Industrial Development Act 1982, as amended by the Industrial Development (Financial Assistance) Act 2003. The 2003 Act raised the cap on total industry support to £3.7 billion, and provided that this could be raised to £6.1 billion in four £600 million tranches, each requiring a separate piece of delegated legislation. This is the third such piece of legislation, and the second this year, increasing the cap to £5.5 billion. According to the Government, the remaining order is likely to be laid shortly, bringing available assistance up to the £6.1 billion absolute cap. Primary legislation, which seeks to increase this absolute still further, to a staggering £16 billion, is currently before Parliament.

The financial assistance to which we refer may be given in the form of investment, loans, grants or guarantees, provided that it will benefit the UK or its regions, it is in the national interest and the assistance cannot appropriately be provided in any other way. It is worth noting that, in recent years, grant assistance has fallen out of fashion, to be replaced by loan guarantees. Such guarantees, whilst theoretically tying up a proportion of government capital for the duration of the loan, result in a much lower actual cost to the Treasury and represent a more limited form of intervention in the marketplace. It is fortunate that this is the case, for the public finances are in their worst state since the Second World War.

The real economy, too, is in difficulty. Car sales have fallen off a cliff. Automotive production has dropped like a stone, taking many jobs with it. The collapse in house prices has led to a collapse in the construction industry. Our high streets have fewer shoppers, and more vacant shops. For the first time in fifty years, we face the prospect of deflation.

Businesses of all sizes are grappling with falling revenues, late payments, shortened credit lines, and government regulation. The number of companies collapsing continues to increase - by more than 250 per cent in the last quarter of last year. Unemployment reached 2.1 million people last week, and the number of vacancies in the economy fell to 462,000, down 230,000 on the previous year.

So, the United Kingdom is in recession, a recession that many commentators fear will be long and deep. There is immense pressure on Ministers to help businesses struggling as a result of this downturn, and time is clearly of the essence. But the conditions laid down by the 1982 Act, which must be met before assistance is granted, are of tremendous importance. Parliament, on behalf of the taxpayer, must be certain that assistance funds are well targeted and effective.

As my hon. friend, the Member for Hertford and Stortford, has stressed repeatedly in recent months, our concerns focus not on the question of whether it is sensible to put in place appropriate support systems for industry - clearly, it is - but rather on how effective Minister are at using the powers granted by the 1982 Act. For instance, the Working Capital Guarantee, worth £10 billion in loan guarantees, was announced in January 2009 and due to start operating on 1 March. Yet, when pressed by my rt. hon. friend, the Member for Richmond, Yorks, at Prime Minister's Questions on both 4 and 25 of March, the Leader of the House was forced to admit that the scheme was not yet working. Why was there such a delay in getting the Working Capital Guarantee up and running? I suspect the Minister may mention European state aid approval, but the Government has a decidedly poor record on applying for such approval in a timely fashion [Automotive Assistance Package]. Even more importantly, how much lending has this scheme underwritten to date? Perhaps the Minister will answer this question directly, or undertake to write to me if he does not have the figures to hand.

The details surrounding the £75 million Capital for Enterprise Fund are even more concerning. Announced in the November 2008 Pre-Budget Report under another name, this scheme is intended to provide equity funding for small businesses. According to the Department for Business, the fund should have been "ready to start investing by the end of January 2009" (www.berr.gov.uk Enterprise and Business Support, Capital for Enterprise Fund, Acc. 17 Mar 2009.) Instead, it was re-packaged and re-announced that month alongside the Enterprise Finance Guarantee, but had still not actually done any investing. Earlier this month the Fund was split into three separate funds, and fund managers were said to be about to "strike their first deals within weeks" (The Telegraph, 13 Apr 2009, Enterprise project divides up £75 million into three funds.) To date, it appears that the Capital for Enterprise Fund has not invested a single pound, in any business. Despite being announced over five months ago, nothing has yet been achieved.

Quite aside from the number of businesses left to struggle with little or no support, the Government's clear inability to prioritise policy delivery and accurate forecasting above its own rhetoric leaves me decidedly queasy about throwing another £600 million of public money after the billions they have already had. The headlines of the last six months may have somewhat deadened public sensitivity to such big numbers, but this is no excuse to simply wave through expenditure without scrutiny.

To be succinct: £5.5 billion is a tremendous amount of money. Indeed, so is £600 million. We recognise that the limit of financial assistance needs to be capped at a level which is aligned to the difficult times that we face, but what assurances can the Minister give that this particular increase in the state assistance funding cap will be better used than the last? How will Ministers make sure that it quickly translates into timely, efficient, front line help for businesses?

I would also like to mention one or two brief, final points. We note that under section 8(8) of the 1982 Act, financial assistance to any one project shall not exceed £10 million unless authorised by a resolution of the House of Commons. However, there is a caveat here, which holds that such a resolution is not required where the Secretary of State is satisfied that the payment is urgently needed and it is impracticable to obtain approval of the Commons within the available timeframe.

This Government has repeatedly demonstrated its willingness to circumvent Parliamentary scrutiny - by trailing proposed policies in the media, for instance - so can the Minister explain what safeguards are in place to prevent an abuse of this provision? Does the rt. hon. gentleman expect that the Secretary of State will invoke this power - perhaps when Parliament is on its extraordinarily long summer recess this year - and in what circumstances would the Minister consider its use warranted?

Finally, could the Minister confirm if there are any European consents or clearances that are required here? If there are, were they applied for at the earliest available opportunity?

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