These two Bills, one of which amends the Industrial Grants Acts and the other the Undeveloped Areas Acts, are closely related as they deal with the changes which are being proposed in the legislation governing industrial grants. For this reason and because Senators will wish to compare the proposed changes in the legislation covering the undeveloped areas and the remainder of the country I propose to take the two Bills together.
The existing legislation is due to expire on the 31st December, 1963, and it will be necessary to continue it beyond that date. The emergence of problems in relation to certain projects, such as those projects with a relatively high capital and low employment content, also make it necessary to seek amending legislation. Industrial firms, moreover, have to adapt themselves now to free trade conditions and will incur expenditure in doing so. It is desirable, and this is the appropriate time, to provide special financial assistance to those industries that will be unable to provide all the necessary finance out of their own resources to enable them to prepare for the new situation.
The main changes proposed in these two Bills are the removal of the limit of £250,000 for grants which may be authorised by An Foras Tionscal outside the undeveloped areas; the fixing of new limits for grants which may be given by the Board, the substitution of a single composite grant for the separate grants for buildings and equipment; the introduction of adaptation and extension grants for the purpose of enabling firms to prepare for free trade conditions; the extension of the powers of An Foras Tionscal to enable them to give grants in areas outside the undeveloped areas for the training of workers and the construction and repair of roads, bridges, etc.; the increase in the amount available for grants from £15 million to £20 million and the revocation of the expiry date of the present legislation.
Under the present scale of grants, buildings rank for higher grants than plant and machinery. In the undeveloped areas, for example, the grant for sites and buildings may be as great as the full cost, while the grant in respect of machinery and equipment may not exceed one half the cost. Outside the undeveloped areas the grant in respect of sites and buildings may be two-thirds of the cost, while the grant in respect of machinery and equipment may not exceed one-third of the cost. As the relationship between the cost of buildings and plant and machinery may vary widely from one industry to another, it is not considered necessary to preserve the present distinction between grants for building and grants for plant and machinery. It is, accordingly, proposed that the amending legislation should provide that a composite maximum sum should be paid towards the cost of buildings, sites, machinery and equipment.
Taking first the case of projects involving grants not exceeding £250,000, it is proposed that the composite grant should not be more than two-thirds of the cost of the fixed assets in the case of projects in the undeveloped areas. Outside the undeveloped areas the grant will normally be limited to half of the fixed assets, but provision is made that a grant of up to two-thirds of this cost may be given in exceptional circumstances and where the Board are of opinion that there are sound economic reasons why the industry cannot be established or developed in the undeveloped areas.
There has been strong pressure from various quarters in recent times for the removal of the distinction, in the maxima for grants, between the undeveloped areas and the rest of the country, and the Government have considered this aspect of the grant legislation very carefully. They have come to the conclusion, however, that it is still necessary to preserve a distinction in favour of the undeveloped areas and this is being provided for in the case of grants of up to £250,000. At the same time it will be easier to secure such grants up to a maximum of 50% in other areas as it will no longer be necessary for promoters to establish that their projects are of exceptional national importance and cannot be established in the undeveloped areas.
An Foras Tionscal, will be able in certain circumstances, to apply the undeveloped areas scale of grants to projects located outside the undeveloped areas. Unlike the provision in the Undeveloped Areas Act, 1952, which enabled An Foras Tionscal to apply the undeveloped areas scale of grant to projects outside the undeveloped areas only where the Minister for Industry and Commerce had previously made an Order extending the scope of the Act to the particular area concerned under the new provision An Foras Tionscal will have power, in certain circumstances, to give higher grants for projects outside the undeveloped areas without any action on the part of the Minister.
Section 8 of the Industrial Grants (Amendment) Bill will also be relevant in the approach of the Board to requests for higher grants outside the undeveloped areas. In addition to the specific requirements laid down in Section 2, this Section imposes on the Board the obligation of having special regard in their general operations to the need for attracting industries to the undeveloped areas.
Large-scale projects (most of which have so far been located outside the undeveloped areas) in respect of which promoters seek grants in excess of £250,000 and also, in some instances, loan finances accommodation, have presented serious difficulties under the present arrangements and the Industrial Development Authority and An Foras Tionscal have stressed the need for providng a means of resolving these difficulties and removing the present state of uncertainty in the minds of industrial promoters as to what grants would ultimately be forthcoming.
The test now applicable (that is a substantial employment content) in a case in which An Foras Tionscal would recommend to the Government that there should be a grant in excess of £250,000 has been found unsuitable for major projects. After long consideration of the problem and the examination of various possibilities, including that of State participation in such projects, the following proposals appear to the Government to offer the best solution:—
(i) The removal of the limit of £250,000 so that the Board of An Foras Tionscal will be able to give grants in excess of this figure. The Board, however, may not give grants in excess of either 50 per cent. of the fixed assets or a sum calculated at the rate of £1,000 per worker, estimated by An Foras Tionscal to be employed in the industry when in full production, whichever of these two sums is the lesser. Should, however, the proposed grant exceed £500,000, the Board will require my consent and that of the Minister for Finance. These proposals have been written into the two Bills which also provide that, if either of the two limits I have mentioned, namely, 50 per cent. of the fixed assets or £1,000 per worker, be exceeded in the case of any proposed grant, it will be necessary to obtain the consent of the Government before the grant can be approved.
(ii) The setting up of a separate Finance Company, which would be managed by the Industrial Credit Company and financed directly by State funds to provide, on preferential terms, in lieu of a larger grant than would be available under the limits I have just mentioned, a proportion of any loan finance required. The Industrial Credit Company itself, would be available to provide further loan finance on commercial terms. The Minister for Finance has under consideration at the moment the legislation which will be needed for the formation of a semi-State holding Company, to be managed by the Industrial Credit Company which may,inter alia, grant loans where An Foras Tionscal make a grant.
It is intended that the combined amount of grant and loan, on preferential terms and otherwise, to be provided by the Board, the new Finance Company and the Industrial Credit Company, for any project will not exceed two-thirds of the fixed assets thus ensuring that promoters themselves will provide at least one-third of the fixed assets. Subject to these arrangements, the Industrial Credit Company and the proposed new Finance Company would between them provide loan capital up to a maximum representing the full amount of the balance of the cost of the fixed assets, over and above the total provided by way of grants and promoters' contribution. One half of the loan would be a contract loan provided by the Industrial Credit Company at commercial interest rates, repayable over 12 years, with no capital repayment for the first two years. The other half of the loan would be made by the new Finance Company on the basis that it would be repayable only at the option of the borrower and would be free of interest for seven years. Thereafter this loan would bear interest at a rate not less than that of the contract loan and at such a level as to act as a spur to promoters to repay the loan. If the promoters do not repay it then the State (through the proposed new Finance Company) would share in the profits of the undertaking.
The question as to which of the two limits (50 per cent of the fixed assets or £1,000 per worker) will be the effective one will, of course, depend on the employment content of the project. For a project with a sizeable employment content, the effective limit will be 50 per cent. of the fixed assets. The case of the capital-intensive project is also catered for, and for such a project the effective limit will be £1,000 per worker. So, for example, if we take a project of which the total capital cost is £1,200,000 and which is estimated to give employment ultimately to 300 workers, the maximum grant which the Board may give would be £300,000. In the same case the promoters could (subject to the decisions of the appropriate bodies) obtain a further £500,000 of which £250,000 would be a loan from the Industrial Credit Company and £250,000 an interest-free loan from the new Finance Company. The balance of £400,000 representing one-third of the cost of the fixed assets, would be provided by the promoters themselves.
It is my view that these new grant and loan arrangements are very necessary at the present time and, indeed, I fear that, failing their introduction, the possibility of attracting to this country large-scale projects will be seriously diminished. I believe that the adoption of these proposals will considerably improve the prospects of securing the establishment here of really worthwhile industries.
It has already been announced that the Government intends to introduce special grants for the purpose of enabling industry to adapt itself to free trade conditions and proposals for such grants are contained in section 4 of each of these two Bills. It will be seen that the Bills provide for the making of grants up to one-quarter of the cost of schemes for the enlargement or adaptation of industrial undertakings. Adaptation expenditure on plant, equipment and buildings will qualify for these forms of assistance, provided the project satisfies the test of competitiveness. Capital programmes of a kind designed to expand productive capacity, which would not qualify for a grant under existing legislation, will be covered by the proposed arrangements, as well as re-equipment not involving expansion.
It is the intention that these grants should be an alternative to loans on special terms from the Industrial Credit Company for industrial re-equipment. In a case where a firm might not consider the 25 per cent. grant to be adequate, it would have the option of applying instead to the Industrial Credit Company for a special re-equipment loan. These special loans will cover a proportion, to be settled in each case by the Industrial Credit Company, of the expenditure involved and will be granted where that Company is satisfied that there is a definite prospect that the re-equipment project will make the undertaking fully competitive. Firms will, of course, also be free to obtain ordinary loans either from the Industrial Credit Company or from some other source.
I would like to make it clear that the purpose of these grants and loans is to help finance re-equipment and readaptation, not simply routine replacement. In this connection, it is likely that, amongst the criteria to be observed, will be a comparison of the expenditure proposed by a firm with its capital expenditure, together with expenditure on renewals and maintenance, in recent years, for the purpose of ascertaining whether, in fact, the firm's proposals involve accelerated expenditure.
The object of these adaptation and re-equipment grants and loans is to enable firms to make themselves fully competitive and so the position could well arise that their effect would be to help a firm to compete with an existing Irish competitor. This is a position which must be accepted. Even when the home suppliers are already meeting the home market in full, applicants would still be regarded as eligible for grants, provided that there is some possibility that they could break into the export market. Such a situation could, in fact, provide an incentive to seek export outlets rather than engage in unprofitable competition on the home market.
A further change proposed in the Industrial Grants (Amendment) Bill, Sections 5 and 6, is to enable the Board to give grants for the training of workers and for the construction of roads, bridges, etc. in the case of projects situated outside the undeveloped areas. The Board already has power to give such grants in the case of projects within the undeveloped areas. No upper limit for the amount of these grants is being proposed. It would be unrealistic, if not impossible, to attempt to arrive at any estimates on which maxima could be based. However, expenditure for these purposes in the undeveloped areas has been quite small and there is no reason to suppose that the position in this regard will undergo any radical change in the future. Up to the 31st December, 1962, grants towards the cost of training workers, totalling £134,000, were approved by the Board. No grants have been given specifically for the construction of roads, bridges, etc.
Little needs to be said about the remaining provisions of the Bills. The existing legislation is due to expire on 31st December, 1963, and it is proposed to revoke this provision and leave the date of expiry indefinite. The aggregate amount of the grants which may be given under the existing Acts may not exceed £15 million. With the removal of the expiry date, the introduction of new limits and new types of grants, it is necessary to increase this figure and a revised limit of £20 million is specified in Section 7 of the Industrial Grants (Amendment) Bill, 1962.
Senators will have seen the CIO Report on Industrial Grants which has been published and the announcement made by the Government indicating its attitude towards the proposals in the Report. One of the principal proposals in the Report is that a small number of centres should be established for development and provision made for a grant differential in favour of these centres. This proposal will be considered in connection with the Second Programme for Economic Expansion. The remaining proposals in the Report are acceptable generally and effect is being given to them in the Bills, or will be given administratively within the framework of the revised legislation.
I recommend the two Bills to the House.