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European Investment Bank (Scottish Agency)

Volume 974: debated on Monday 19 November 1979

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10.18 pm

This debate takes place against the background of the total uncertainty on the part of industry in Scotland, first, about the future of the European Investment Bank and, secondly, if its role in Scottish industrial investment is to continue, who will act as agents for the bank. I raise this matter on the Adjournment because I regard it as very important to the development particularly of small businesses throughout Scotland.

The uncertainty has been the result of the Government's reluctance—indeed, refusal—to make clear to industry in Scotland who exactly will conduct the agency work on behalf of the EIB at the end of this year. In the interim, much damage has been done to the prospects for developing industry in Scotland, because, since the end of August or the beginning of September, the Scottish economic planning department—acting on the instructions of the Minister, I assume—has flatly refused to accept any applications for investment capital from the EIB, on the basis that the Scottish Office's agency of the EIB is to be terminated at the end of this year. We are considering this at a time when we continually read of the Secretary of State being "seriously concerned" or "gravely concerned" about the loss of jobs in Scotland. Many jobs have been lost since the Tories came to power. The Secretary of State has often said that if only each small business in Scotland would employ one extra employee we should have no unemployment.

However, it is precisely those small businesses that are most affected by the decision of the Government not to continue the scheme started by my right hon. Friend the Member for Glasgow, Craigton (Mr. Millan) at the beginning of 1978. That scheme has been of great help to firms wishing to expand. If anyone thinks that the scheme has not been used, I shall quote the parliamentary answer given by the Minister on 22 October in reply to a question that I tabled on 25 July. It took the Minister 13 weeks to tell me that
"Since the European Investment Bank agency loan and risk exchange guarantee scheme came into operation in January 1978, 24 companies have requested the assistance of the Scottish economic planning department in the negotiation of agency loans. Of this number, 11 requests were received in 1978. The number of employees in companies at the time of application totalled 3,720 and the number of jobs"—
I assume that means additional jobs—
"associated with the projects involved was estimated at 2,234."—[Official Report, 22 October 1979; Vol. 972, c. 38.]
Scotland is losing about 1,000 jobs a month as a result of Government policy and 2,234 jobs should not be thrown away as if they did not matter. The House must bear in mind that the scheme has run not for two years, as the Minister has said in a letter, but, effectively, for only 18 months, because he terminated it at the end of August or the beginning of September. It is misleading to suggest that the scheme is under review when no fresh applications have been accepted. As the Minister knows, the scheme provides for the granting of loans up to £2½ million. The Government carry an exchange risk for a premium of 1 per cent. to protect the company from the fluctuations in the values of currencies. This has been welcomed by those companies that have benefited under the scheme.

The company indirectly responsible for my attention being drawn to this issue has been told that it should apply direct to the European Investment Bank and that it should be prepared to carry the exchange risk itself. I suspect that that company is not alone and that a number of companies have been similarly informed. No doubt the Minister will be able to advise us about that. The Minister knows that that simply is not on for many of the small companies that make up Scottish industry.

In early October I was made aware of this by a letter that I received on behalf of a company known as Messrs. Dunn and Wilson Limited, a bookbinding firm in Falkirk, in my constituency. A report in today's issue of The Scotsman refers to a meeting with the company—which is not named in the report—in the Scottish economic planning department on 26 September. I have the notes of that meeting. I will not name the official, because in government we took responsibility for our officials and I assume that the Minister is prepared to accept responsibility for what was said at that meeting.

The senior official present made it clear, I assume on behalf of the Minister, that because of the change in Administration and the "new criteria", whatever that means, of aid to industry, and the more stringent measures that were to be applied to granting financial aid, and also because the Scottish Office's agency on behalf of the European Investment Bank was to be terminated at the end of 1979, no further applications were to be received.

To my knowledge, no announcement of this change has ever been made. I have spoken to officials of both the CBI in Scotland and the Scottish TUC, and none was aware of it. The only people who have been made aware of the Government's decision to terminate or to make alternative agency arrangements—we are still not sure what the Government intend to do; perhaps we shall find out tonight—were companies that were applying for aid under the agency scheme only to be told that no further applications were being accepted.

I can only assume that this is all part of the exercise to reduce the number of civil servants at the Scottish Office. If so, it takes little or no account of the damage being done to industry in Scotland in the process. If not, perhaps the Minister will say exactly what are the reasons for the Government's apparent decision to terminate this scheme.

Although loans of up to £2·5 million can be made to one firm, obviously there are variations. One of the benefits of an agency is that it can produce a package on behalf of a number of small firms and allocate the £2·5 million in smaller sums to those firms, with which the European Investment Bank would not deal directly because of the small amount that each required.

There is a whole host of advantages, which apparently the Minister does not appreciate, not only in retaining the agency but in, if possible, developing it. No regard whatever appears to have been paid to the damage being done to industry. Industry, the CBI and the Scottish TUC did not know that the decision had already been taken not to accept fresh applications.

That is bad enough. Even worse is the Minister's blatant and repeated refusal to advise Scottish industry who is to conduct this scheme as the agent of the European Investment Bank. I received a letter from the Minister dated 7 November in which he said:
"The position is not quite as stated in your letter."
That refers to a letter that I wrote to the Minister on 19 October. He explained that
"it was decided at the end of 1978 to continue for another year the arrangement by which the Industry Departments would act as agents for the European Investment Bank".
I know that. The point is that the Minister has decided to discontinue the scheme at the end of six months. No fresh applications have been accepted or considered since the end of August or beginning of September. Far from the position not being quite as stated in my letter, it is nowhere near what was stated in the Minister's letter.

The letter continued:
"That review is now taking place and all offices administering the scheme have to have regard to this position."
What does that mean? The Minister went on:
"Clearly they could not enter into commitments in the absence of a decision to continue the scheme, whether on the existing or a modified basis".
How long does it take the Minister to make up his mind? Has it not been long enough? We are into November and we still do not have decisions on whether the European Investment Bank is to continue functioning in Scotland or whether it is to do so through the agency.

I am glad that the Secretary of State is here. His presence is a recognition of the importance of the issue. It is a pity that that importance was not recognised earlier. A great deal of damage, which will be beyond repair, has already been done. The Minister responsible for that should hang his head in shame at the way in which he has treated Scottish industry, particularly the small business sector.

During the last election campaign, Tories tramped the country telling us how interested they were in Scottish industry. We have seen an example of that interest in the past few months. They are not in the least interested. Their delaying tactics on the European Investment Bank are eloquent testimony of that. The actions of the Under-Secretary and the Secretary of State are hardly the actions of those who care at all, let alone those who are, in the Secretary of State's words, gravely concerned.

When I asked the Under-Secretary about this matter at the last Scottish Question time, he told me, in his usual offhand way, to write to him. He did not seem to appreciate that I had written to him seven days earlier. I asked the Prime Minister about the European Investment Bank and its agency in Scotland and I went to great lengths to ensure that she knew the supplementary question that I intended to ask—I did not want to catch her by surprise; a gentleman such as myself does not do that sort of thing. All that I got for my pains was the insulting remark that capital investment in Scotland is wasted investment in any case. All my efforts to obtain an answer from the Prime Minister have failed, and the Under-Secretary did not even know that I had written to him a week before the last Scottish Question Time.

The Minister must stop dilly-dallying. He must not shirk his responsibilities any longer. He must now answer the question that he has so far refused to answer, although he appears to have given instructions to his officials. I pose these questions. Is the agency role of the Scottish Office to continue? We want an answer. If not, who will be the new agents? Will this be communicated to Scottish industry as soon as possible. We want an answer to that question as well. Are the Government continuing to carry the exchange risk? If not, what estimate has the Minister made about the number of jobs that will be lost as a result? We also want an answer to that question, because we have waited far too long for answers.

These are questions of vital importance. Frankly, in view of the number of letters that the Minister has received and in view of the fact that I have already raised this matter with both himself and his right hon. Friend the Prime Minister, if he fails to answer tonight he cannot blame us for regarding him not only as inefficient but as a Minister who is doing more damage to Scottish industry than helping it.

10.35 pm

Despite the heavy weather that the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing) made of a few rather simple questions, I am grateful to him for raising the important question of the European Investment Bank and for giving me the opportunity of commenting on its operations, with particular reference to Scotland.

I want to make it clear at the outset that press reports of a possible transfer of agency powers from the Scottish economic planning department to Whitehall are totally without foundation. The issue is whether the scheme should continue in the United Kingdom as a whole. If it does, the Scottish Office will continue to act as the agents in Scotland. If it does not, no Government Department will act as agent. There are, therefore, no grounds for regarding this as a weakening of the role of the Scottish Office as regards European affairs or anything else.

The hon. Gentleman criticised the Government's delay in renewing the EIB function. We have had only six months to see the scheme in operation, let alone carry out a review. After seeing it run for the best part of a year, the hon. Gentleman must know that the previous Labour Government deferred the decision for another year. We have now reached the point where, having taken office, we are trying to meet the deadline that they set in the little time available to us.

I am sorry. I cannot give way, because there is very little time to respond to the debate.

It may be useful if I say a few preliminary words about the EIB itself. It was set up as one of the institutions of the EEC under articles 129 and 130 to the Treaty of Rome, and operates independently on a non-profit making basis. Its task is to contribute to the balanced development of the Community by making loans and giving guarantees towards projects in less developed regions, projects for modernising or converting undertakings, or for developing fresh activities called for by the progressive establishment of the Common Market, and projects of common interest to several member States.

The EIB's capital is subscribed by the nine member States, although only a proportion of their respective shares are actually called up. The bank's funds are mainly derived from borrowing in European currencies and in dollars. The interest rates charged are close to the cost of this borrowing. Private firms, as well as public enterprises and authorities, can borrow from the bank on condition that the project to be financed is located in a member State or associated territory. The loans are intended to supplement finance obtained from other sources and rarely exceed 50 per cent. of the fixed capital cost. The bank prefers to make loans of not less than 1 million monetary units of account, equivalent to about £500,000.

In 1977, in response to an initiative by the European Council, the EIB undertook to expand its activities, particularly in regard to regional development, and to give increased priority to regions where structural unemployment was severe and to crisis sectors where investment was necessary to modernise the restructure operations. However, much of British industry was reluctant to borrow from the bank because of the risk of exchange losses from loans made in foreign currencies. There was also a problem for small to medium-sized firms that did not require loans as large as £500,000.

In December 1977, therefore, in response to the European Council's initiative, an arrangement was reached in the United Kingdom which, while not the usual global loan arrangement, enabled the industry departments to act as agents for the bank. These arrangements are defined in a contract of mandate between the Secretaries of State concerned—including the Secretary of State for Scotland—and the EIB. They provide for the departments to act as a channel for EIB loans to small and medium-sized companies, with the departments guaranteeing repayments to the bank.

In performing that role the departments are responsible for appraising the projects concerned and for securing a counter-guarantee of repayment from the borrower or other security commensurate with the risk.

We know all that. The hon. Gentleman should be answering the points raised.

The hon. Member for West Stirlingshire (Mr. Canavan) says that all this is known, but there is no evidence from what we have heard so far that the facts are as well known as they might be.

In detail, the industry departments—that is the Department of Industry, the Scottish economic planning department, the Welsh Office industry department and the Northern Ireland department of commerce—act as the bank's agent for loans of between £17,000 and £2·5 million. The loans are limited to projects with investment in fixed assets between £34,000 and £8 million and where the total net fixed assets of the borrower do not exceed £20 million. Priority is given to independent companies employing fewer than 500 people.

There have been two agency schemes. In 1978, the bank made £20 million available which was fully used. In 1979 a further facility of £30 million was arranged which is well on the way to being taken up—and the hon. Member for Stirling, Falkirk and Grangemouth should bear that in mind in his criticisms of the way that the bank has carried out its activities since this Government took office.

The solution to the problem of exchange risk was found by the departments guaranteeing repayments to the bank of foreign currency loans, whether these were made under the agency arrangements that I have just described or were larger loans negotiated directly between the bank and the borrower. These arrangements were set up by the exchange risk cover scheme established at the same time as the EIB agency scheme, at the beginning of 1977.

On a point of order, Mr. Deputy Speaker. Is it in order for a Minister simply to read a lot of prepared rubbish from his civil servants which does not cover the points raised?

Order. The Chair has no control over what the Minister says.

Further to that point of order, Mr. Deputy Speaker—

Borrowers pay departments a premium of 1 per cent. per annum for exchange risk cover on the outstanding balance of the loan. Departments operate that scheme under section 7 of the Industry Act 1972, thus ensuring that assistance is confined to the assisted areas, with priority being given to employment creating manufacturing projects in special development areas and development areas. That deals with the hon. Gentleman's point on the question who should act as agents. It is a matter for the Scottish economic planning department as far as the operations in Scotland are concerned.

The exchange risk cover scheme is also available for loans made by the European Coal and Steel Community. These are reconversion loans provided under article 56 of the Treaty of Paris to projects in coal and steel areas.

Loans of over £1 million are made directly to large businesses, and smaller loans of up to £1 million are made through global loan arrangements operated by the Industrial and Commercial Finance Corporation, which guarantees repayments. Exchange risk cover is provided on the same terms—1 per cent. premium—to these ECSC reconversion loans as to the EIB loans.

As I said earlier, the EIB agency arrangements and the exchange risk cover scheme were introduced at the beginning of 1978, and the previous Government intended that they should be experimental for a period of one year. As I also said earlier, at the end of that period the previous Government were unable to make up their minds about the future of the scheme, and therefore extended the experimental period for a further 12 months.

At the end of 1978 it was decided that more time was needed for a proper evaluation, and the experimental period was extended. That period is now drawing to a close, and the Government are currently engaged in their review of the arrangements.

Companies throughout the United Kingdom have found that access to EIB loans has been very useful in providing them with medium-term finance at attractive fixed rates of interest. In Scotland, 24 companies, which is the number the hon. Gentleman referred to, have made applications that were, in principle, acceptable. One application was, in fact, rejected for technical reasons.

In 11 cases loans have been advanced. Ten others have been approved by the EIB, and the money will be advanced shortly. These companies in Scotland can still look forward to receiving the benefit of the scheme. The remaining three are under consideration.

So far, the operation of the scheme has not resulted in a charge on public expenditure, except to the extent of administrative costs within Departments, but I have to say that continuation of the scheme cannot be taken for granted for this reason. Fluctuations in currency values cannot be predicted, particularly over the period for which loans are normally made—seven years in the case of EIB agency loans and eight years for ECSC global loans.

That means that as more loans are made the public expenditure at risk from covering movements in currencies becomes correspondingly larger. We have a responsibility, as the Government, carefully to evaluate the advantages of the scheme against the potential costs before any decision is made to renew it beyond the term of its present experimental period—the end of this year. I repeat to the hon. Gentleman that it is the end of the experimental period that his Government designated.

This deadline does, of course, require that offices administering the scheme have to set cut-off points for applications at much earlier dates, since applications have to be approved, agreed and processed and the complex legal and administrative arrangements have to be completed before the expiry date. Offices administering the scheme have to have regard to this position. They could not enter into commitments in the absence of a decision to continue the scheme, whether on the existing or a modified basis, beyond the present agreed term.

In Scotland, my Department has already effectively had to discourage further potential applicants, giving them a full explanation of the position. However—I ask the hon. Gentleman to bear this in mind—my officials have noted these cases and will be able to contact the companies concerned if the scheme is renewed.

As to the case to which the hon. Gentleman referred, I am afraid that there is no time left for a detailed reply. However, there is every opportunity for the Dunn and Wilson case to be examined by the Department and to be processed in time for a grant to be approved, if that is the EIB's wish, before the end of the year. If the hon. Gentleman had left me more time I might have been able to give him a fuller account, not just on that point but on the other matters that he raised.

Before the hon. Gentleman sits down after his gobbledegook—

There is one minute left, Mr. Deputy Speaker, and I should like to ask—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at Twelve minutes to Eleven o'clock.