Seanad Éireann debate -
Wednesday, 10 Jul 1985

Vol. 108 No. 15

Designated Investment Funds Bill, 1985: Second Stage.

Question proposed: "That the Bill be now read a Second Time".

Minister of State at the Department of Industry, Trade, Commerce and Tourism (Mr. M. Moynihan)

I am delighted to have the opportunity to debate the Designated Investment Funds Bill in this House before it rises for its summer recess. Although this Bill is a relatively short one and is technical in nature, it is extremely important in the context of the Government's promotion of investment in industry and specifically from the point of view of encouraging the provision of high risk equity investment, or venture capital as it is often known.

I will deal with the technical aspects of the Bill and with the reasons for it being necessary at all a little later on, but I would like to dwell for a moment on a particular subject which is recognised as being one of the major obstacles to the growth and development of indigenous enterprise. I am speaking of the gross under-capitalisation of Irish industry and the unhealthy trend which exists in favour of debt finance and State aid.

When I spoke on the Second Stage of this Bill in the Dáil I commented on the performance of the Irish Stock Exchange in meeting the financial needs of Irish industry. I would like to take this opportunity to make my position in relation to the stock exchange quite clear.

In the first instance it is important to recognise that the exchange is the only market-place which exists for trading in stocks and shares of Irish industry and it is, therefore, an important indicator of industrial performance as well as of the financing trends in industry.

For this reason I will restate some of the statistics relating to the performance of the stock exchange in the past decade. At present only 77 companies have a full listing on the exchange and this number has been declining steadily over the past decade. Only 21 of these companies are engaged in manufacturing. The market capitalisation of shares quoted on the exchange is under 10 per cent of the country's national output as compared with 50 per cent in the UK and US.

Furthermore, many of the companies listed on the exchange do not have their shares actively traded and regular trading takes place only in respect of a small number of "blue chip" equities including companies involved in offshore oil exploration. The performance of the Unlisted Securities Market has also been disappointing and it has failed to encourage a significant number of smaller, high-growth companies to the exchange, which is what it was set up to do. The failure of industry and, in particular, manufacturing industry, to utilise the facility of the USM is an important indication of the lack of equity type capital in Ireland.

Now, these statistics paint their own picture and point to a declining level of activity on the stock exchange in recent years and the fact that the exchange is no longer a significant force in meeting the financing needs of Irish industry, particularly the needs of small and medium-sized industries. The blame for this poor performance cannot be laid exclusively at the door of the stock exchange itself. Rather, these statistics are a symptom rather than a cause of the disease with which we are faced and to which this Government are committed to finding a cure.

The causes of the disease on the other hand are manifold but can be summarised as the unwillingness on the part of Irish investors to invest in industry coupled with the unwillingness on the part of many businessmen and entrepreneurs to give up part ownership of their business in return for equity capital. I will expand on both of these points in just a moment.

One of the cornerstones of this Government's progressive policy for industrial development as outlined in the White Paper on the topic is our commitment to encouraging a greater level of private sector investment in the productive sectors of the economy. If we can achieve this we will have achieved a revitalisation and rejuvenation of Irish industry; we will have set ourselves on the road towards industrial prosperity; we will have dealt a major blow to the spectre of unemployment in this country which threatens the prospects of our young population. One of the most marked effects of this increased prosperity will be a dramatic increase in the level of activity on the Irish stock exchange. Therefore, Government policy is extremely supportive rather than critical of the stock exchange. Furthermore, I am pleased to say that the officials of the exchange have responded positively to my call for the injection of new life blood and new liquidity in the Irish capital markets. Indeed, at their initiative, I hope to have discussions shortly with them to discuss our mutual objectives further.

My view on the under-capitalisation of Irish industry is not a controversial one and is merely a statement of the factual position in which industry finds itself. Indeed, I have support from a number of auspicious quarters. The National Economic and Social Council produced a report a little while ago on "The Role of the Financial System in Financing the Traded Sectors". The report shows that between 1972 and 1982 bank borrowings by manufacturing industry increased in real terms by 6 per cent per annum while production volumes increased by only 3.5 per cent. The report also demonstrated that equity capital relative to total assets is much lower in Ireland than it is in the USA, Japan or the UK.

The problem has also been recognised and acknowledged by Members of this House through the report of an Oireachtas joint committee on manufacturing industry. This report pointed to the under-capitalisation of small industry in this country and added that because of low profitability and the lack of any further equity investment this situation continues during the life of the company. The report states quite clearly that "finance is without doubt one of the major problem areas for small companies". The Oireachtas joint committee's recommendations for bringing about a reversal of these trends included the encouragement of additional venture capital investment through the banks, other financial institutions and through private investors. I am pleased to say that I view the committee's report as being entirely supportive of Government policy in this area.

The White Paper on Industrial Policy outlined the Government's commitment towards the encouragement of a greater level of risk investment in industry. It would be a mistake, however, in tackling this problem, to assume that the lack of equity capital in industry is due only to the failure on the part of the investment community to provide the finance. This brings me back to a point I made earlier. Many businessmen and entrepreneurs have a traditional reluctance to give up part ownership of their business in return for equity capital. Many businessmen would prefer to rely on bank borrowings and State aid rather than to dilute ownership of their business. Many small businessmen are quite happy to sacrifice the benefits of expansion in favour of a quiet life with an acceptable level of income and they are often motivated by a reluctance to accept the increased workload and responsibilities to shareholders associated with third party investment.

Much of the reason for this traditional reluctance is the fact that native small industry is to a very large extent based on the family model. In such circumstances, the view often is that family ownership is sacrosanct and investment by third parties an undesirable intrusion into the family's private affairs. However, when faced with the sophisticated business world in which we live and the harsh realities of economic recession this attitude represents a narrow-minded and potentially dangerous approach. There is definite need for a re-think and a need to change the attitudes of some small business people towards accepting outside investment.

An over-reliance on bank borrowings by small industry produces a vulnerability to movements in interest rates with which most small businesses find it extremely difficult to cope. This is particularly so in times of high levels of real bank interest rates coupled with inadequate cash flow which is a feature of many small and particularly start-up businesses. Small businesses also often suffer, not from a lack of commitment on the part of the promoters, but a lack of management expertise. The small businessman will often find himself in a situation where he has to perform the functions of salesman, accountant, production manager, personnel officer, market researcher and will very often have to perform all of these functions, and any number of others, within the course of a single working day. This imposes an intolerable burden on the promoters of small industry and often leads to failure.

However, both of these difficulties can be overcome by a willingness to accept outside investment. Equity capital does not require the repayment of interest on a regular monthly basis and the payment of dividends is related to company performance. Where small industry, and particularly industry in the start-up phase, is concerned many venture capital type investors are prepared to forego the payment of dividends in the initial years in order to ensure the future viability of the company. Furthermore, many venture capital type investors adopt the US "hands-on" approach and are prepared to inject a certain amount of management expertise and guidance into the firm in return for their investment.

Existing businessmen and new entrepreneurs must be prepared to accept third party investment if industry is to survive and prosper. The bottom line is that it is far better to own 50 per cent or 60 per cent of a successful business rather than 100 per cent of one that has failed. The other side of the coin, of course, is the need to encourage both private and institutional investors to put more money into industry and thus satisfy the demand created by the new breed of entrepreneur.

There has been a marked reluctance on the part of investors to put money into industry and this trend has been particularly noticeable in the past decade. I suspect that there are many reasons for this but certainly one of the most significant has been the disincentive to productive investment by virtue of the more favourable tax treatment of other, less risky forms of investment, such as in property and Government gilts.

The Government, in the White Paper, committed themselves to an examination of the tax code to see how the elimination of this bias might be achieved. The Finance Act of 1984 introduced a number of relevant measures such as the elimination of bond washing and the restriction of tax-based financing.

I am convinced that there is significant potential for increased investment in industry on the part of our institutional investors such as pension funds and life assurance companies. It is estimated that these institutions have an income of somewhere in the region of £400 million per annum and this is available for investment in one form or another. At best, about 20 per cent of this money is invested each year in equities. In the UK, however, similar institutions invest up to 50 per cent of their annual income in equities. Most institutional investment in industry is conducted through the stock exchange and, while the institutions are significant providers of funds to the private venture capital houses, I am not convinced that the potential for channelling investment in this manner has been fully exploited.

In 1984 I had discussions with representatives of the pension funds and the insurance industry on this particular topic and the exchange of views proved very beneficial. I would hope to be in a position to renew this dialogue in the coming months as I would very much like to review progress to date and to discuss the potential for new initiatives.

I mentioned earlier the Government's commitment to reviewing the tax code with a view to removing the bias which exists in favour of less productive types of investment. The most significant initiative taken by the Government to date in this area has been the introduction of the Business Expansion Scheme. Under this scheme individuals who purchase the new ordinary share capital of unquoted manufacturing companies or of companies providing internationally traded services, that is, those eligible for the 10 per cent rate of corporation profits tax, are entitled to write-off the amount of their investment, up to a maximum of £25,000 per annum, against their liability to income tax.

The granting of income tax relief under the scheme is, of course, subject to a number of qualifying criteria. However, the benefits to an individual who avails of the scheme are extremely generous. This is best illustrated by the fact that an individual who is paying income tax at the rate of 60 per cent and who makes a qualifying investment of £25,000 can write-off £15,000 against his income tax liability. In such circumstances the net cost to the investor of a £25,000 investment is only £10,000.

The introduction of the business expansion scheme is a major incentive to private investors to invest in industry. Many economists, investment managers and others have argued, however, that tax incentives such as this will not remove one of the principal obstacles to productive investment which is the lack of suitable, well planned and profitable project ideas in which to invest. There is, some say, already too much money chasing too few projects. This is an entirely subjective argument which hinges on one's definition of what constitutes a suitable project.

I am entirely satisfied that there is in this country at present a significant pool of new and established businesses offering opportunities for investment. The major obstacle is not, therefore, the lack of suitable ideas but rather the unrealistic risk thresholds demanded by both institutional and private investors. Once again, the report of the Joint Committee on Small Businesses concurred with this point of view when they stated that "there is an urgent national need which the market has failed to deliver on".

The venture capital business in this country has not yet developed to a point where it could be favourably compared with the venture capital business in the United States. So-called venture capital in this country is targeted almost exclusively at better established companies with a good track record. This is not altogether surprising as I would agree that the industry itself must establish a track record before it can become actively involved in genuine high risk investment. I am, however, anxious to ensure that the industry gets every opportunity to evolve along the lines of its US counterpart. The real lack of equity investment in Irish industry is at the start-up and early development stages and this is where genuine high risk investment must take place. There is no lack of suitable project ideas in these phases; it is simply a case that the projects which exist at present do not come within the low risk thresholds demanded by our venture capital institutions.

The Government are committed to encouraging the development of a thriving venture capital industry in this country and I feel we can contribute to this development by the creation of an environment which is more conducive towards investment generally and through an integrated industrial development policy which will enhance the future profitability of Irish industry.

As I said earlier, both I and my colleagues in Government fully recognise and acknowledge the value of a thriving stock exchange. However, many small and medium-sized industries are not mature enough to contemplate a listing on the exchange and it is therefore necessary to provide suitable mechanisms whereby the stocks and shares of small and medium-sized industry can be actively traded. Furthermore, if we are serious about encouraging a greater level of private sector investment in industry we must set our sights at generating a greater level of liquidity in our capital markets than exists at present. For this reason I would recommend the development in this country of an over-the-counter market such as operates at present in the UK. I feel that the development of such a market is probably inevitable in any case as the financial community cannot ignore for much longer the hiatus which currently exists between small industry and the stock exchange. The only role which I perceive for the Government in the operation of such a market is a regulatory one. There is a danger that it will prove far too tempting an opportunity for unscrupulous operators and if we are to ensure a high degree of investor confidence in such a market it must be seen to operate in a properly regulated manner. My Department are urgently examining what is required in this area.

I can understand why the stock exchange might view the establishment of an OTC with some trepidation and indeed suspicion. I am sure however that they, no more than the Government, recognise the inevitability of this development and indeed I think that an efficient and properly regulated OTC could be in the best interests of the exchange itself. It has the potential to provide a type of interim market for the stocks and shares of small and medium sized industry and thus facilitate their development to a point where they might contemplate a full listing on the exchange itself. In other words, an OTC has the potential to bring about an active market in industrial shares from which the exchange must ultimately benefit.

I have based my views on this topic, not on some abstract notion, but on the conclusions of a consultancy report on the subject which I had commissioned some time ago. Another feature of the consultants' recommendations for the encouragement of a liquid capital market was the desirability of amending company law to allow companies to buy back their own shares. I view this as another extremely desirable development and as an integral part of the Government's policy for the promotion of industrial investment. I hasten to add, however, that it is an extremely complex area involving not only company law but also issues of corporate taxation and while I cannot promise the immediate introduction of enabling legislation I can assure this House that, in consultation with my colleagues in Government, and the Minister for Finance in particular, I will be examining this issue as a matter of some urgency.

Mr. O'Leary

I wonder if we could have a sos for a few minutes because of the noise in the public gallery.

An Leas-Chathaoirleach

I have taken steps, Senator O'Leary, so I will not interrupt the Minister.

Mr. O'Leary

I appreciate that, but it is a rather peculiar situation that should have been allowed to develop.

Mr. M. Moynihan

I feel that a public expression of my political will in this regard will significantly ease the minds of private investors in industry. The generation of a greater liquidity in our capital markets is of particular importance to the private individual in the context of the business expansion scheme. In order to qualify under the scheme, companies must not be quoted on the stock exchange. Investors are naturally suspicious of making any investment in an unquoted company because they fear the prospect of being locked into the shares and unable to realise their investment for a longer period of time than they had anticipated. I am not convinced that this is a major disincentive to the success of the business expansion scheme particularly in view of my stated commitment to resolving these difficulties. However, it does mean that we have to tackle the problems that bit more urgently.

The business expansion scheme should not be viewed as a panacea which will overcome all the financing problems facing Irish industry at a stroke. It is, nonetheless, an extremely important initiative. Indeed, it is an excellent scheme and one which, I regret to say has had its fair share of criticism. This criticism has been based on the complex nature of the provisions contained in the Finance Act, 1984. I accept that the provisions are complex, but necessarily so. The scheme is designed to encourage investment and to target this investment at the productive sectors of the economy. If any scheme such as this is to be successful it is essential to ensure against potential abuse.

The Government have reacted to some of the better informed criticisms of the scheme in a positive way by introducing some key amendments in this year's Finance Act. Firstly, close relatives, such as brothers and sisters, fathers and mothers and so on, who have up to now been excluded will, from now on, be eligible for tax relief under the scheme. This is a particularly important change as we are all aware that very often the only source of finance for a young entrepreneur is from a member of his own family.

Secondly, the statutory ceiling on fees which may be charged by the managers of the investment funds contemplated under the scheme has been removed. Thirdly, the time limit within which companies engaged in research and development must start trading is being extended from two to three years in order to encourage investment in this type of activity. Finally, companies with less than wholly owned subsidiaries and those with certain foreign subsidiaries will in future qualify under the scheme. This is also an important amendment particularly in the context of firms who have established marketing subsidiaries overseas in order to promote the export side of their business.

With the introduction of these amendments and with the introduction of the Bill currently before the House, the Government have demonstrated a willingness to make this scheme work. I would like to see a reciprocal willingness on the part of private industry and the business community in general on whose shoulders the success of the scheme now rests. Continued criticism of the scheme at this stage will only serve to demonstrate the truth in the age old maxim "give a man an inch and he will take a mile". While the purpose of the business expansion scheme is the promotion of equity type investment in industry, a direct, and in my view extremely important, consequence is an increase in the number of private individuals who hold shares in industry.

The most obvious benefit from share ownership is the return on the investment in the form of dividends or capital growth. People are motivated to save in order to make provision for the future. They want to do so in a way that will preserve and hopefully enhance the real value of their savings. Investment in shares is one way of achieving this aim. I believe that an unnecessary mystique has been cultivated, perhaps intentionally, about share ownership. I believe also that most people, given a little time and with the right type of information, could develop the expertise to buy and sell shares sensibly and profitably. The media already provide an extensive and valuable information service on financial and investment matters but could, I suggest, devote a greater amount of coverage to educating the uninitiated.

We are, after all, a property owning democracy. This is evidenced by the fact that up to 75 per cent of the total housing stock in Ireland is owner-occupied. From such a platform it is surely conceivable that we should also become a nation of share owners.

This Government are committed to the encouragement of a greater level of share ownership among private individuals. For far too long labour and capital have been regarded as irreconcilable inputs in the economic equation. The way to overcome this concept is, in my opinion, through the promotion of employee shareholding. As Minister for Finance I was instrumental in introducing tax concessions to promote the idea of employee shareholding. The attractiveness of these tax concessions was greatly enhanced by virtue of amendments introduced in the 1984 Finance Act. As a result, I am pleased to note that a greater number of companies are showing interest in the concept of employee shareholding. I believe, however, that this notion is not being fully exploited and too few companies have seriously considered the immense benefits which can be derived from the introduction of such schemes.

When employees commit their capital as well as their labour to the company for which they are working, then both they and management are united with the common objective of making their company successful. By achieving such a spread of wealth and share ownership it is possible to eliminate the "them and us" mentality which has so often divided management and workforce to the detriment of industry. When looking at successful economies, the togetherness of management and labour is a noticeable feature. The employee shareholder knows that his reward depends on the success his company has in selling its products in the market-place. The realisation soon dawns that this, in turn, depends on the ability of the management and the workforce to act at all times in a manner consistent with the long term well-being of the company. I know of no more successful formula for achieving this goal than through the promotion of employee shareholding schemes.

The framing of the business expansion scheme to extend eligibility to employees, therefore is, a critically important factor which represents the potential of the scheme to contribute to the equity base of Irish industry and it broadens its effectiveness through the promotion of employee shareholding. I would be the first to acknowledge that activity under the business expansion scheme has been less than we originally anticipated. The Government have, however, given a new impetus to the scheme with the amendments introduced in this year's Finance Act which I have already outlined. It remains, therefore, for us to ensure the speedy introduction of the Designated Investment Funds Bill to eliminate the difficulties associated with the establishment of such funds and so put in place the final piece of a very attractive package.

Under the business expansion scheme an individual may invest directly in the company of his choice or alternatively he may invest in a fund which has been designated for the purposes of the scheme by the Revenue Commissioners. These "designated investment funds" have a crucial role to play in determining the success or otherwise of the business expansion scheme. The experience of the UK authorities, where a similar scheme has been in operation for some years now, is that up to 90 per cent of total qualifying investments are made through this type of investment vehicle. We anticipate a similar profile of BES investment in this country.

Designated investment funds are a particularly attractive proposition to investors for two reasons. Firstly, each participant has an interest in all of the investments made by the fund and so is able to obtain a fair spread of the risk associated with his investment. Secondly, by investing through a fund, the individual has access to the investment expertise of fund managers who identify and actively monitor the companies in which they invest.

The difficulties with regard to the establishment of designated investment funds lies in the fact that they come within the scope of existing unit trust legislation and as a result have certain constraints imposed upon them. The purpose of this Bill is, therefore, to remove these funds from the scope of the Unit Trusts Act, 1972, and thus avoid a serious legislative anomaly.

Let me explain, for the purposes of clarification, the differences between a designated investment fund and a normal unit trust scheme. In an investment fund each participant owns a particular share in a particular company. In a unit trust scheme each participant owns a proportion of the total holding of the scheme rather than owning a particular asset. Also in an investment fund all subscriptions must be paid up by a specific date nominated by the manager after which no further participants may join the fund. A unit trust scheme on the other hand is open-ended and a participant may join or leave at any time by buying or selling units of the scheme.

The Unit Trusts Act, 1972, provides that unit trust schemes may register under the Act. The Act specifically provides, however, that schemes which do not register are prohibited from advertising. Investment funds would, therefore, be required to register under an Act, the provisions of which are wholly inappropriate for their purposes, in order to be able to advertise and invite subscriptions from the public.

Two investment funds have already been established under the business expansion scheme and as such are currently subject to the provisions of the Unit Trusts Act. There are, however, unregistered unit trusts who have chosen not to advertise and so remain within the law. It would, of course, be unreasonable to expect all prospective fund managers to operate within this constraint. There seems little point in introducing such generous income tax relief as is provided by the business expansion scheme if the main operators in the market are prohibited from informing the public of their existence.

In order to provide further clarification let me outline briefly how these funds will operate. Following designation by the Revenue Commissioners, each fund will advertise its existence and invite subscriptions directly from members of the public. It may specify a minimum/maximum subscription to be made by each individual as well as a total target size for the fund. The fund will also specify a closing date by which such subscriptions must be received. After this closing date the fund manager may make suitable investments in targeted companies on behalf of the participants in the fund. I feel that it is important to note that fund managers will act as a nominee of each individual participant who at all times retains beneficial ownership of the shares purchased on his behalf. The subscriptions of each participant will be spread pro rata over all investments made by the fund.

The main objective of this Bill is achieved by section 2 which removes the designated investment funds from the scope of the Unit Trusts Act, 1972. The remaining sections of the Bill are designed to impose certain requirements on designated funds in the best interests of investors.

The main aim has been to ensure that funds will provide the maximum possible information to prospective investors. Access to information such as that specified in section 5 of the Bill is essential if investors are to make an objective decision as to whether or not investment in a particular fund constitutes a good risk. It is worth noting that the prospectus in which this information is required to be set out must also highlight the risk involved in investment in industry and advise all prospective investors to consult their accountant, stockbroker, bank manager or other professional adviser before proceeding.

I do not consider it necessary or appropriate to attempt to provide in this instance for more comprehensive investor safeguards. Ultimately, responsibility for assessing the bona fides of a particular fund will rest with the investor himself. Given the likely profile of these investors, that is those on a high income, and the range of information with which they will be provided, it is not unreasonable to conclude that the provisions of this Bill are more than adequate to protect their interests.

Finally, I consider that it is important that I draw the attention of Senators to the provisions of section 6 which impose certain obligations on fund managers in regard to investments in private companies. This section provides important safeguards from the point of view of the investor. In formulating the provisions of this Bill I have had consultations with representatives of the two investment funds currently operating as well as with other members of the business community who are prospective operators of such funds and as a result of this consultation I am confident that we have taken a pragmatic and at all times reasonable approach to resolving their difficulties.

The enactment of this legislation coupled with the amendments to the business expansion scheme introduced in this year's Finance Act and to which I referred earlier will, I am sure, generate a much increased level of interest and activity under the scheme. I commend this Bill to the House.

Mr. Ellis

First, I want to welcome the Minister to the House with this Bill which is of major importance as far as the stock exchange and venture capital are concerned. Looking at it, I begin to wonder do we go far enough? Looking at the position of the American market, which it appears we are trying to copy in a number of ways, are the provisions in the Finance Act, 1985, sufficient to encourage people to put their money at risk? What we are doing here is providing another vehicle as recommended by the Joint Committee on Small Businesses who carried out an indepth examination into manufacturing industry. The main reason for the failure of small businesses was lack of capital. The Minister rightly pointed out that the manager or owner of a business often had to merge five or six different bodies into one to try to keep his business afloat. We must all realise that nobody can be master of everything. We try to understand the various problems involved in running a business, but nobody can carry both ends of the string at all times.

Business failures have been due mainly to the fact that they were under-capitalised from the word go. The Government, the IDA and other institutions in many cases were responsible for many of the small businesses that failed. One begins to wonder whether the present system whereby the IDA invest in small manufacturing industries is the best way to use the initiative of the entrepreneurs concerned. Would it not be more beneficial if State organisations were to take a major equity in some of those businesses rather than leaving the companies short of the financial clout which is necessary to enable them to survive?

When you look at the stock exchange and see the small number of Irish companies quoted on it daily you wonder do we have a very elite shop where a very small number of shares are traded on a regular basis. The only shares that ever seem to be traded at the moment on the stock exchange are the few major companies whose prices are quoted every day, the banks, the oil exploration firms and one or two of the major manufacturing groups. The Press are to blame slightly too in that the number of stock exchange dealings for the previous day quoted in the Press is very small. Looking at the unlisted market you will see that about ten or 12 companies are quoted daily. To create an awareness among the public of this type of share dealing, all companies quoted on the stock exchange should be listed daily by the national papers. I do not think this is too much to ask of them. If you look at the American equivalent you will see that they are quoted every day. There is one newspaper in America which is circulated throughout Europe which quotes every share traded in in America from the biggest to the smallest. It quotes them from the various markets in the United States. We must create an atmosphere in which people with risk money will risk it in these types of small companies which need this capitalisation if they are to progress in the future.

The Minister said that it would be better to own 60 per cent of a successful company than 100 per cent of a company that has failed. Everybody is in agreement with that. There remains another side to it. What price do company owners have to pay for this type of equity and is the price too high? Would it not be more beneficial to ask the financial institutions who, at the moment, are exporting their profits to hold those profits inside the country? In the past few years many of our major banking institutions have exported funds which they have taken from the Irish people to set up businesses in America or elsewhere.

The Minister may not have the information with him today but I am anxious to know how much of the profits earned by some of the banking institutions have been reallocated to foreign investment. Recently in this House we had to carry out a rescue operation on one of the major banking institutions. Yet the chairman told us yesterday about the healthy days that lie ahead for that company. Is it not more important that the profits from those healthy days should be reinvested and reimbursed to the taxpayer rather than giving them to many of the individuals who made the bad investment mistakes? If Irish business people made the same mistake as was made by AIB with regard to ICI, they could go down the tube and neither AIB nor anybody else would come in to their rescue.

It is important that we, as legislators, and the Government of the day should ensure that the profits made by the banking institution which made that mistake are recouped to State finances. At that stage a figure of £120 million was mentioned as the maximum amount that could be the loss. In recent weeks we have seen figures of the order of £200 million. When the figure finally comes to light in three or four years time it may be in the region of £400 million or £500 million.

An Leas-Chathaoirleach

Much as I dislike having to interrupt you, Senator, you will have to get back to the relevant remarks on the Bill.

Mr. Ellis

I will. This is the only opportunity many of us may get to express our concern about the venture capital market and the way in which some of the banking institutions are using venture capital. That is my reason for going off course.

On looking at the proposals in this Bill I begin to wonder how many people outside will be in a position to take up the opportunities that are being provided. How many people will decide to invest their money in these smaller companies? There would need to be a tremendous incentive for them to invest in companies rather than investing in Government stocks and gilts, which would more or less guarantee an investment return. I feel that if there is to be an incentive here the profits made from the dealings, provided they are reinvested again in a roll-over situation in this type of market, should be at a very low rate of tax. If they are to be taken out they should be taxed at a reasonable rate but definitely not at the same rate as they would be taxed if they were to be taken as profits from gilts.

The Minister should note with some anxiety that some of the recent offerings of some of the already listed companies have not found takers. Indeed, I believe that one institution recently found itself with quite an amount of shares in an oil exploration company on its hands after having a rights offer. What I would fear is that, while there might be the best of intentions with regard to many of these proposed share offerings, they might not receive the support of public investors to the extent required to make them successful. I hope that the initial offers which are made will be monitored to such an extent that they will prove to be a success. We do not want to see a number of groups being approved and then going out, taking in investors' funds and failing. This could be the most damaging thing that could be done as far as what is proposed in this Bill is concerned.

I know that the Minister and his Department will do their utmost to see to it that the funds which go into those companies are invested as wisely as possible. He will not always be in a position to see the cowboys who are in the business, especially when other countries come and take some of the rich pickings that are known to have been taken with regard to share offerings, especially in the United States. There have been quite a number of cases where people who were not in a position to suffer losses have suffered the extent that they may have lost their entire life savings.

The Minister said he hoped that the people concerned would take the advice of either their bank managers, their stockholders or their accountants before they enter into those commitments. Is it not a fact that most Irish people, especially most Irish business people, while they will consult the people referred to often take gambles in investing in various organisations? There should be a system whereby one would be allowed a period of withdrawal. People who give a commitment today might be allowed seven days to withdraw that commitment if they find that they had not been given the right information, or if they had not had time to consult the people whom they feel would be in the best position to give them advice on the matter.

When we look at some of the other points in this Bill we see that it is a welcome move forward. It is welcome because of the fact that it is hoped to create the necessary climate and give the necessary encouragement to people to become involved in this type of activity. I hope that when this Bill becomes law, as we all understand it will in the near future, it will be examined annually to see how it is working, to see how the provisions need to be updated, and to see what further incentives may be necessary to get people to take this type of risk and to expand further the business side which this is meant to help namely, small manufacturing business and small family-owned companies.

The provision under which close relatives — brothers and sisters, mothers and so on — of the company owners are allowed under this year's Finance Act to become involved is a very good idea. Without the support of one's family one does not get into business nor does one stay in business. Down the years the private companies which have expanded have expanded on a family basis. Take an organisation such as the Smurfit Group. It proves that a well-run family company can really expand and do great things. We have seen it also with regard to earlier generations or the McGrath family. Many of the other big family businesses have been built by the sheer determination of the family members to build those groups and to invest in them. Every incentive that can be given to them to further expand should be given and can, through the medium of the Finance Act this year and through this proposed scheme, be a major help.

We have a large amount of money being invested in pension funds. It is possibly time that some of this money which has been invested annually by the workers should, on their behalf, be reinvested to create jobs and to create employment. I would not like to suggest a percentage that should be reinvested. A write-off should be allowed to those groups with regard to any losses or a percentage of the losses which might be sustained on any of those venture schemes in which they might become involved.

With regard to the major banking institutions I wonder whether it would be more beneficial if they were to be allowed a certain amount of write-off for any failures which they might have with regard to small manufacturing companies in which they might have invested. It could possibly be a way for them to create necessary investment and necessary venture capital from their point of view. The banks are already allowed a certain amount for bad debts under which they might be included. If they were allowed 10 per cent, or were forced to put 10 per cent of their net profits aside to be made available the following year for selected companies under the supervision of the IDA for investment that would allow such companies, which are in need of finance in their initial years, to succeed. The amount of that investment would be held as equity by the banking institutions concerned and by the IDA until such time as the proprietors of the business might be in a position to buy it out.

I welcome the Bill. It is a welcome move forward as far as venture capital is concerned. We could well take a good, hard look at the venture capital market in the United States, in the UK and throughout Europe. We can learn from the mistakes they have made. We can see where we can go to create the necessary climate for the man in the street to be able to go in and invest small amounts of money in these companies. We can give him the necessary encouragement and use his flair and initiative in the industrial sector.

There is one point about which we can do very little. It is that in rural areas the only type of stockbroker service that is available to many people is through the banks. It is often not in people's best interest that they should have to take this avenue to stockbrokers. The stockbroker firms should look at this to see if they could establish small offices on a regional basis which would inform their head offices or the stock exchanges of the requirements of people with regard to the buying or selling of stocks. The establishment of small regional offices by the stockbroking firms would create an awareness among people of the services which they provide and of the workings of the stock market.

Mr. O'Leary

I would like first to welcome the Bill as being a positive contribution towards the future development of this concept of investment under the scheme initiated under the 1984 Finance Act, which goes under the rather unwieldy title of "relief in respect of investment in certain corporate trades". The original rules laid down in respect of the scheme in the 1984 Finance Act have been considerably loosened by virtue of the 1985 Finance Act, with particular reference to investments by, and on behalf of, related individuals and the permitting of these investments as being eligible investments under the 1984 Act. That is a very welcome innovation. It will expand considerably the number of companies who will take advantage of this excellent scheme in the years ahead.

The Minister knows that the scheme in general received a wide welcome on all sides of this House when it was introduced by the Minister for Finance. Quite a number of Senators expressed concern about the areas which the Minister has amended. There were also fears of lack of success based on different criteria. There was a lengthy debate in this House as to whether or not non-manufacturing industries should be covered by this type of legislation. I notice that the Minister has returned to that theme in his speech and has quite rightly pointed out that the exceptional taxation benefits which it is proposed to give in respect of these investments are such that it is reasonable for the State to indicate, as a matter of public policy, in what area these investments should take place.

The future prosperity of the country is dependent on our primary and secondary industries — our farming and manufacturing industries. We should concentrate our job-creation activity in these areas as the jobs will follow automatically in other areas. The Minister is wise to resist the temptation to expand the scheme to service areas. If he did so, he would have a far bigger take-up but, once again, we would be falling into the easy option, as we have over the years, of permitting investment at advantageous terms in low risk investment. The purpose of permitting this investment, and permitting such a large tax write-off in this investment of up to 60 per cent of the cost in respect of a high-paying tax individual, is to encourage investment in high-risk areas.

The Minister was right to be consistent in that regard. His review of the situation is realistic. It is interesting that the Minister has identified as a problem the narrowing range of economic activity in the Irish stock exchange. That is a very important consideration. The number of options available to investors are diminishing. As the Minister says, there are 80 potential investment vehicles who have full quotations on the stock exchange, but not all of those are traded actively, nor are all of those available. Only a few and very restricted number are available.

The problem we are faced with as a result of that is that this has created a climate of opinion where people have not been encouraged to invest. The small investor — the individual who may be relatively well-off in terms of income but not terribly well-off in terms of capital — has been encouraged to put his money in State investment, in the Trustee Savings Bank and various other institutions of that kind. In other countries who have a more aggressive attitude towards the question of investment, there has been encouragement through schemes such as this for the small investor to get into investment in high technology and in other manufacturing areas which, though risky, also contain an element of potential benefit which far outweighs the steady return one gets on one of the safer investments. It is right that the Minister should give proper and due consideration to expanding and creating an atmosphere where more people will think in terms of participating as shareholders in the economic life of the country. That is one of the cornerstones of the Minister's objective, an objective which is shared by most of the Members of this House.

The Bill is fairly narrow in its application in that it does not deal with investment in the companies themselves, but deals with designated funds or groups of people who are banded together in order to make these investments. If we ever hope to encourage the man with the spare £10,000 or £11,000 to invest in these companies we must provide him with two things to enable him to make that investment. First, we must provide him with a vehicle which will spread his risk and which will not have that individual's only available £10,000 invested in one industry, which must be high risk and, therefore, is more likely to fail than an investment in a safe, financial institution. The way in which we can do that is by bringing together groups of individuals in designated funds or unit trusts, or whatever, so that the £10,000 can be spread over many investments and the return is adequate and, at the same time, there is the stability which a wider portfolio of investment would give to the individual and the security which it would give to his investment. That is the first thing we should provide.

The second thing which we must provide is the managerial ability to assess the potential investment object — the company which is the object of the investment, the company to which the money is going. We must provide a vehicle for that person. We must enable the person who has no training himself to assess whether or not the investment in a particular company is a good thing or not. I have no doubt that both these objectives are best dealt with by the concept of a designated investment fund. That is where people are banding together.

This fund should be of sufficient size to enable people to employ professional expertise to advise them on the range and stability of the options which are available in respect of that investment. Therefore, the concept of designated investment funds, as one of the vehicles for making these investments in the corporate trades to which I have referred, is a cornerstone of the future success of this innovation.

I will have quite a number of difficult problems to raise with the Minister on Committee Stage with regard to the actual operation of the fund. I will make one point to the Minister in advance so that he can prepare the information on it. I am concerned that the Minister, in spite of what is in the Bill, by the control which he proposes to exercise over the issuing of a prospectus will, in fact, be seen to be giving some kind of guarantee to those people who are investing that their money will be safe. In section 5 (4) (f) (ii) the Minister says that no liability whatsoever shall attach to the Minister, and no right to the relief shall arise by reason only of the Minister having given an approval under this section. That will protect him in some way.

There are certain circumstances in which that could be quoted with approval by the Minister in the case of any individual investor taking an action for negligence against the Minister on the basis of having wrongly approved a prospectus, advertisement or brochure under section 5 of the Act. However, it is notorious in law that restrictions placed on people's liability by statute do not always work. The courts do not like them for a very good reason. The Minister should look with extreme care at the various subsections of that section. I will be taking him through it on Committee Stage. I will bring to the Minister's particular attention the series of statements which begin with the following phrase: "There will be within the prospectus a statement which the Minister considers to be adequate." In another case it reads: "There will be within the prospectus a statement which the Minister considers sufficient." Here the Minister is being given a task to do. He is being made the judge of whether or not the information is adequate. The Minister's decision will be paramount. In those circumstances the disclaimer which is in the Bill, drafted as it is, or indeed any disclaimer, will not protect the Minister should he arrive at a wrong decision as a result of these subsections. The Minister will have to examine section 5 much more carefully.

I support the concept of the Bill. It has my enthusiastic support in that regard. It is significant that section 6 of the Bill not only introduces a new concept to the designated investment fund itself but, in fact, it amends the Companies Acts, 1963 to 1984 in quite a significant way. I do not know whether the general public or the practising lawyers and accountants dealing with these matters are sufficiently aware of that. In fact, the Companies Acts are being amended by section 6 of this Act.

There are one or two other points which I will discuss with the Minister when we come to Committee Stage. I would like the Minister to indicate why he thinks that only body corporates should act as the owners or trustees of a designated investment fund. In other words, an individual cannot be the trustee. It can only be a body corporate. I would like to know why that is the case because I am not aware that body corporates are, by and large, any more honourable than individuals in the way in which they carry out their duties. Body corporates are as honourable as the individuals who run them, no more and no less. I am intrigued as to why that distinction is made.

I would like to come back to the main thrust of what I said. The Bill, as such, is a welcome addition. It creates the last portion of the edifice which was commenced in the Finance Act, 1984. It will enable the two designated investment funds at present operating to operate in a more open and fulfilling fashion. It will enable and encourage the people to commence operations in the organisation of investment funds. For all these reasons and for many other reasons, I welcome the Bill. I welcome the concept behind it. I hope the Minister will be able to deal with the various problems which will arise in this most technical legislation on Committee Stage.

Mr. Lynch

I, too, would like to add my welcome to this Bill. Certainly, I see it as an incentive at a time when we badly need more investment in industry. I am glad the Minister has a protective mechanism built into the Bill. If there are some anomalies I am sure they will be teased out during the discussions on the various sections. The Bill is in line with our thinking in the Joint Committee on Small Businesses. The Minister quoted the fact that we felt that there was a national need which the market had failed to deliver on. We are moving into an age and a period now where the country will be dependent more and more on entrepreneurship. There are people with new ideas and a big pool of new resources to be tapped. At the same time, there is the traditional business person who, for some reason or another, is unwilling to expand or fearful to expand. There is a lack of expansion in many areas where there could be expansion at present. It is felt now that there is a risk attached to expansion. People who would like to expand are very fearful of our tax system. PAYE is seen as a burden on employment. Some steps are being taken such as those in this legislation. I am sure the Minister saw this as necessary following the report of the Joint Committee on Small Businesses. He must try to bring it into some state of order that would be in line with the European taxation systems.

I received a bit of a shock when the Minister quoted the National Economic and Social Council report for the ten-year period between 1972 and 1982. It states that borrowings by manufacturing industry increased in real terms by 6 per cent per annum. Production volumes increased by only 3.5 per cent. We must ask ourselves the question as to where did the 2.5 per cent go. That is the kernel of the problem in manufacturing industry today and, indeed, in many small businesses. It would be interesting to know where that money went. I say much of it was used to service debt. Part of it would have been used to pay arrears of tax, be it VAT, income tax or whatever, or interest on that tax and interest on other bank loans.

I would agree that there has been an over-reliance on bank borrowing by small industries which produces a vulnerability because of interest rates. From our experience and our investigation when drawing up that report on small businesses, we found and verified that many industries had to resort to bank borrowing and they found themselves eventually having their businesses and their homes mortgaged for life. That is a situation from which we would certainly like to get away.

I welcome and support this Bill. I am delighted that the Minister has accepted another part of the report of the Oireachtas Joint Committee on Small Businesses. There are many other areas that need to be looked at. I am very satisfied that the incentive to invest will be there. The Minister has clearly stated that he has built in protective mechanisms in the Bill. I would certainly support that, no matter what other Senators may think about it.

Mr. Ferris

First of all, as a Member of the Labour Party I want to welcome the actual principles behind the Designated Investment Funds Bill, 1985. We accepted it on the basis that we are in a mixed economy. In such an economy if job creation is to grow and get a chance to improve there must be a viable manufacturing sector which can compete competitively with our European partners and also in other world markets. Unfortunately, over the past two decades in this country the number of people prepared to invest in manufacturing industry has been relatively small, particularly Irish nationals or entrepreneurs. They have been very slow to go into the area of capital investment in manufacturing. Certainly, we have managed to attract foreign industrialists into this area since our accession to the European Community.

This has been particularly so in the American pharmaceutical world which saw immediately the tax advantages of investing here as an industrial base. They also saw for themselves the advantage of a ready market in the European Community. They were prepared to expend capital in developing industry. They did that on the basis that the regime the Minister is suggesting we should set up here now has been in operation in America for many years. The public in America were prepared to invest funds in this area. Indeed, with many of these other unit trusts and pension funds and all the other available sources of money, they were prepared to invest it in this type of funding which gave them—admittedly it was a risk area — a very high capital return for their investment. That is what coaxed much American money from individuals and from trusts in America. They had the opportunity to invest with publicly quoted companies.

The Minister, in his opening remarks, was quick to point out that where you have an industry that has a proven track record the owners tended in the past to turn to bank borrowing to keep them in operation. We now feel that the future for small companies in the manufacturing areas particularly is such that we are advocating that people should invest their funds in this way rather than in gilt-edged securities which will give them a guaranteed income, but a very small one and one with very little risk attached to it.

We all have experience as public representatives of trying to entice industrialists into this country or to advise Irish entrepreneurs that there is a future in industrial development here. We have come across the problem where shareholders in Irish companies with vested interests precluded foreign capital being made available. I have experience of a natural resource in my constituency, the Ballingarry Mines. Some of the shareholders who had confidence in the future of the mine went to America and elsewhere and negotiated financing packages which would have ensured the continuance of the mine and the employment therein. For other vested interest reasons, they were precluded from putting large-scale amounts of money into an Irish industry like that.

The Minister also emphasised that it is important that we should coax as many people as posible to invest in the manufacturing sector which develops our natural resources. We all have experience of the importance in the agricultural industry of food processing, which I presume is covered as manufacturing in this Bill, because it processes our natural resources into an added-value situation. I would hope that that would be considered in this legislation as being a proper manufacturing industry as such. Irish Leathers, in my constituency have their problems because one of their subsidiaries, Plunder and Pollock, are likely to collapse because of a lack of capital. People were not prepared to put capital into what is, in fact, a viable industry with a world-wide market and a world-wide renown for their products, simply because the vehicle was not available in which people could invest in that type of industry.

Having recourse to Fóir Teoranta and other State agencies — which is really only a fire brigade action — is something we turn to when we are in desperation. The reality is that if we are to put industry on its proper footing these fire brigade actions are not the answer to the problem. We end up with Fóir Teoranta becoming a major creditor of a company which they have assisted. They put management consultants into companies. At the end of the day they can call the tune and suddenly put the company into liquidation. If the company go into liquidation or into receivership, their markets collapse. There is no incentive for the receiver or liquidator to continue the company in a trading situation. He tends to close off all the loopholes and wind up and get what he possibly can for the State and for Fóir Teoranta instead of trying to develop the company to continue their business.

For that reason, in a mixed economy this type of legislation is very important because for the first time it has been categorically set down that we are giving incentives to people to put money into manufacturing industry. It has been used widely and wisely in America, with great success. It has also been used in the British situation, as the Minister outlined in his speech. The Minister said that in the UK 90 per cent of the total qualifying investments are made through this type of investment vehicle. It must be useful for us to learn that the manufacturing industry in Britain have a similar type vehicle to this. I am sure that, with the amendments which the Minister has conceded since the 1984 Budget and the 1985 Finance Bill, the necessary adjustments in releasing some of the strictures which were written in, will be an incentive for people to put money into manufacturing industry. I would hope it will also create an environment which will give confidence to people to do so.

There are large amounts of money available in this country, whether we like it or not. It is a fact. There is something like £400 million available in pension trusts and other areas which in the past have been investing in secure, small-return investments on the basis that they were doing it for the safety of their investors. Still, we have had other companies that started up in that area. Suddenly they could go broke overnight and leave many small-time investors without any hope of recovering their life savings which they had put into them. I do not have to put on the record of the House the names of the various companies which have gone in that way. They are well-known to all of us. They were assumed by the investors at that time, and reported by the companies themselves, to be almost gilt-edged, simply because they were in the insurance business.

The large pension funds should show a bit of courage now in the knowledge that, if they invest their available cash in manufacturing, that is where the future of this country is and that is where the future of our balance of payments will lie. In a manufacturing situation the manufacturer will naturally have to develop his product at home and abroad and develop an export market for it. That is where the future lies for us, if we are to generate jobs in this sector of the economy.

The Government, from what they have said in this Bill, have a commitment to do that. This Government have been subjected, particularly from the private sector, to criticism about the levels of taxation and otherwise. The private industrial sector have received a lot of support from this Government and from previous Governments. We have always been liberal in this mixed economy in trying to assist people to stay in business. We have handed them so many incentives in our time that you would begin to wonder what is their brief in life. Is it just the profit motive? Is that the supreme motive for them to stay in business, or is there a commitment to giving employment to people?

Anybody who has any experience of family firms and their commitment to continue in business for the sake of their employees will know they are extraordinarily good. Family businesses have been very successful because of that commitment. Other companies, who do not have the same commitment to their areas, to their town, or city, tend to pack up when the going gets tough and will do so at the expense of the workers firstly. The workers have had a major input in trying to ensure that industry will be successful. They have paid their taxes. They have complained about them but at least they paid them. Many in the private sectors have done neither. They have not contributed by way of tax because they had exemptions. When they abscond, or close down, or go into liquidation the vast majority of them owe money to the State because what they justifiably took from their workers was not passed on to the Exchequer.

There is a feeling abroad that somehow or other this Government want to penalise the employing sector of this community. The opposite is the case. I hope there will be a positive response from the private sector in the manufacturing area to this type of incentive which gives them a write-off on a capital investment of £25,000 or more. That is a step in the right direction. I hope that the private sector will respond positively to it and generate activity in different areas. When you are Government and doing the best you can to tidy up the financial situation of the country, you wonder why incentives like this are not taken up in the interests of the country and in the interests of creating jobs for the people and trying to keep our people at home and gainfully employed.

My experience in life as a public representative is that the vast majority of people who are out of work at the moment want to work. They want an opportunity to work. It is always expected that Governments should be directly involved in creating employment. In a mixed economy such as ours, in which we have electoral support for this type of legislation, any incentives which are given to the private sector should be availed of quickly in the interests of the economy as a whole. Some effort is expected of the private sector to reduce our large-scale unemployment. This type of legislation will go a long way towards doing that. I sincerely hope that when the Bill is enacted there will be an uptake to justify the confidence we all have in that sector, particularly in the manufacturing area.

In his statement the Minister also commented on the stock exchange. It is appropriate that at some stage this Government should comment on the stock exchange. Many of us have relatively little experience of it. Those of us who have witnessed the stock exchange in action in any part of the world, not alone Ireland, know that it is an amazing system, with companies being bartered publicly, being bought and sold at the whims of international money markets. It amazes me how the system can stay together and work. It always amazes me how the capitalist system seems to survive in some way. The Minister's comments on the Irish stock exchange were relevant in that the number of companies trading — as we understand the stock exchange to trade — is so minute that one wonders why there is a stock exchange functioning at all.

The Minister is asking not only family firms but other firms who want capital, instead of just borrowing from the bank, to offer equity shares in this kind of format. That would bring the stock exchange right back into the picture where they should be, quoting these companies. If the companies have a viable future and the investment is reasonably good, I would hope the stock exchange could play a useful role in the development of Irish manufacturing industry.

I welcome the concept of the Bill. I hope the response to it will justify the confidence of the Government in, once again, looking to the private sector to play their major part in the development of industry and job creation.

Minister of State at the Department of Industry, Trade, Commerce and Tourism (Mr. M. Moynihan)

May I pay tribute to the Senators who have spoken with such welcome and such objectivity to this legislation? I look upon it as a reasonably major breakthrough in encouraging family groups, individuals and other groups, to stimulate activity and to stimulate the desire to invest in small industry which can play such a part. Indeed, in the future it must play a very substantial part in providing employment for our people. For far too long we have looked to the introduction of foreign large scale industry which, indeed, made a major contribution but which left many subsequent tragedies and losses. Those that are built within our own community and within our own families have the best opportunity and the soundest base for a successful future.

I would have sympathy with many of the points raised but they did not relate directly to the text of the Bill before us. They related somewhat to the Finance Acts and to the Minister for Finance. The main purpose of this legislation is to remove constraints that are contained within the unit trust legislation of 1972 in order to make it more opportunist and to provide a greater incentive to the individual and to groups to invest. I believe that that will have a very beneficial result.

Senator Ellis said that the State should take a greater equity stake. The undercapitalisation of companies was clearly identified in my speech as a major problem. It was in an effort to overcome this problem that the business expansion scheme with generous tax relief to the investor was introduced. The Senator also asked did we go far enough. I outlined in my speech the benefits of the business expansion scheme. A £25,000 investment would cost a top-rate taxpayer only £10,000. In my opinion this is a large inducement. Furthermore, this Bill helps to provide an important vehicle through which the investment can be made. Regarding the activity of the exchange and a small number of companies, I agree entirely that the principal problem is that many companies see the stock exchange as a suitable means of raising finance. We must seek to overcome this. The stock exchange needs to be more market-orientated.

Senator Ellis referred to the Finance Act, 1985 which introduced measures to make the retention of profits by foreign companies more attractive. This was one of the very strong points. In relation to capital gains tax, I sympathise with Senator Ellis's point. However, it is essentially a matter for the Minister for Finance to whom I will bring the observations of the Seanad.

In connection with the stock exchange, the rights issue by Aran Energy has failed to realise the target set. This again is not relevant to the legislation which we are considering this afternoon. The point was made that the Minister should take advice from stockbrokers. However, it was asked should the provision allow for withdrawal of money within, say, seven days. This in itself is not a feasible proposition because if legislation did enter into that it would put administration of any particular scheme totally out of line. Sensible people must consider all facets before they invest their money, and they must take advice. The majority of sensible people who have money to invest will do that. Then, having satisfied themselves, certainly they could not go back in in seven days and say, "Unfortunately, I feel I made a mistake. I got the wrong advice", because that would make any scheme difficult to administer. Again, the Senator made a very valuable point about the annual re-examination or the annual monitoring. Certainly this legislation will be very closely monitored right through and this is very necessary.

I am continually in contact with the banks to examine potential issues to help industry. This is an ongoing situation about which the Department and Minister are continually informed. Regarding pension funds, as I mentioned in my speech, I am anxious that pension funds should invest more of their funds in equities. With this in mind I propose to discuss this matter with the pension funds and the life assurance companies. Regarding the need for the regional stockbrokers to help, I will take up this matter in my proposed discussions with the stock exchange to see if they can decentralise information centres in order to attract more people and to give them greater involvement in the light of the legislation we are now proposing. We want widespread support.

I stated that the venture capital business in this country is in its initial years. We are, of course, reviewing the situation in the United Kingdom and the United States. We would hope to learn and benefit from the experience of these two countries and are basing much of our experience on them. Senator O'Leary said that it is important to succeed. I think the Government have shown a willingness to make the scheme work. I agree with Senator O'Leary that we should not widen the scheme any further at this stage. We should wait and see that the fears are realised before we overreact to further criticism. The point was made by Senator Lynch that VAT borrowings at 6 per cent to manufacturers should increase output. Undoubtedly, bank borrowings and interest-free payments have been the millstone around the neck of industry and have actually crippled firms. I agree with that.

Senator Ferris raised the point of the agricultural side and food processing as part of the manufacturing industry. Food processing industries are qualified and are eligible for the 10 per cent corporation profits tax. I cannot provide an answer to this. It is primarily a matter for the Minister for Finance. I suspect, however, that they do qualify within the terms of the legislation.

Question put and agreed to.

An Leas-Chathaoirleach

Next Stage?

Professor Dooge

A number of points have been raised which I think the Minister would like a short time to consider. I suggest that Committee Stage be taken later today. I do not want to specify a time but the time I have in mind at the moment would be 6.30 p.m. If we make the order for later today that would cover it.

Committee Stage ordered for 6.30 p.m.