§ Order for Second Reading read.
§ 11.27 p.m.
§ Lieut.-Colonel J. COLVILLE (Secretary, Overseas Trade Department)
I beg to move, "That the Bill be now read a Second time."
On the 6th March the Financial Resolution relating to this Bill was passed, and on that occasion I explained to the House the reason why the Bill was being introduced. Hon. Members, therefore, will not expect me at this late hour to develop the subject at any length, but they would wish perhaps for a word or two in recapitulation of what I said on that occasion. As the House is aware, the Overseas Trade Act empowered the Board of Trade, with the consent of the Treasury, and after consultation with an advisory committee, to give guarantees 335 in connection with the export of goods wholly or partly manufactured in the United Kingdom. They contain a proviso that the amount of guarantees outstanding at any one time shall not exceed £26,000,000. It is not proposed to alter that limit. As a matter of fact, it has never been approached. The sum required to finance the Department's operations is voted annually by the House, and for the fourth year in succession we have presented an estimate for a token sum, the receipts from premiums and fees being sufficient to cover expenses. When the Financial Resolution was introduced, I referred to the work of the Advisory Committee, which gives voluntary service of great value to the Government in the operation of this scheme. We are content, in the continuance of the scheme, to rely on the assistance of that Committee.
The record of the Department during the period in which it has been in operation is one of which we have no cause to be ashamed. All my predecessors in office have taken a very close interest in the work of the development of the scheme. In particular, I might perhaps mention the work of the hon. Baronet, the Member for Farnham (Sir A. M. Samuel) who in 1925 set up the Credit Insurance Committee out of which the present scheme was evolved. That scheme has been entirely successful in its operation. Broadly the facts are that during the first seven years the guarantees given have covered some £47,000,000 worth of exports, and up to the end of December last those guarantees had involved payments of about £350,000, of which nearly £100,000 has been recovered from defaulters. The accounts to 31st March, 1933, which were recently published, show that we have a balance in hand of £1,359,000, being the result of our operations for that period. Outstanding liabilities on guarantees were £8,000,000.
In introducing this Bill, which enables the Department to continue these guarantees and to give further guarantees up to 31st March, 1940, the guarantees to remain in force not longer than 31st March, 1950, we are asking for the power to continue the work of a Department which has been responsible for securing orders for British exporters to the extent 336 of £47,000,000. A very great number of those orders, quite the majority of them, would not have been secured had it not been possible for exporters to have the services of this Department behind them; and when we consider that these orders were secured for British trade without loss to the taxpayer, in fact, leaving us with £1,300,000 in hand, I think the Department can face criticism without fear. That result has been largely due to the great assistance which we have received during the time we have been in existence from the members of the Advisory Committee.
§ Lieut.-Colonel COLVILLE
That varies from time to time. I could not give the hon. Member that information.
§ Lieut.-Colonel COLVILLE
It has always been the practice of the Department not to state at any one time the exact amount outstanding in any particular country. It varies from time to time.
§ Lieut.-Colonel COLVILLE
I see. I could not give that answer without notice. That would require a calculation. The amount varies from time to time. I could not state without further examination the amount of the credits guaranteed for Russian business.
§ 11.33 p.m.
§ Sir GEORGE GILLETT
When the Financial Resolution was before the House I raised one or two points, and I rather hoped that my hon. and gallant Friend would refer to them. In view of the great service which this Department has rendered to the export trade I do not see why the same facilities cannot be granted to our import trade. If an exporter wants to have his goods insured to Warsaw he can get the assistance of this Department, but if he is sending them to York or Scotland or Northern Ireland the assistance of the Department is not available for him. In view of the 337 great importance of the home trade I cannot see why this suggestion cannot be further considered. There is another point, which may appeal to those who are interested in Empire trade. The goods which exporters send out with the assistance of this scheme must be British goods—virtually British goods. If a trader is bringing goods from, say, Australia, and proposes to export them to the Continent, why should he not have the facilities of this Department in view of our general desire to assist the export trade of the Dominions as well as of this country? The Overseas Trade Department might very well consider that point. It is only, in one sense, a question of book-keeping.
Those who are familiar with this kind of accounts and have studied them will be aware that the premiums that were taken this year amounted to over £300,000, but the liabilities in regard to that sum were something like £4,000,000. Yet the Treasury insist upon that money being transferred to the general account. If, over any one year, a large amount of these liabilities has to be paid exceeding the amount of the premiums received in that year, a special vote of this House would be required to get the money back again, in order to make the payments. I cannot help feeling that, although that may be Treasury finance, a Department of this kind would be much more satisfactory if the money had been invested in ordinary concerns and any future accounts presented to the House and the country in such a form as to show exactly how much were the premiums in hand originally, without being transferred. Those are points which I think must be considered. It is important that the Bill should be continued, but I hope that at some future time the scope of this very useful Department will be enlarged to improve what is already a useful service.
§ 11.37 p.m.
§ Sir STAFFORD CRIPPS
We do not offer any opposition to the passage of this Bill on Second Reading. I understand that this scheme was really set up to deal with abnormal risks which could not be carried by the ordinary machinery of trade insurances in the country. It is interesting to note that the taking over of financial responsibility by the State has been so eminently successful. 338 The State has been dealing with the most difficult portion of that kind of business which is usually dealt with by private enterprise and has been extremely successful. I would ask the hon. Gentleman whether he would not consider now taking over the whole of this kind of business by the State, in view of that success, of which he is so justly proud, as he has just demonstrated to us.
Would he also consider seriously the question of reducing the premiums upon the insurance, in order to give traders a better opportunity in certain foreign markets, and especially in view of the Russian Trade Agreement, in the Russian market? I believe that over £20,000,000 of insurances have been effected in regard to goods exported to Russia. It is very largely from that £20,000,000 that these profits have been accumulated, and there has been no loss. In view of that fact, is it not time that the premium on the Russian trade was dropped so that our exporters may be given a better opportunity of quoting for exports to Russia? The prices which they quote are necessarily enhanced by the amount which they have to pay for the premiums. I believe that the amount is, on the average, up to 6 per cent. or 7 per cent. of the total value of the goods, and that makes a great deal of difference where the tenders are competitive with countries that have similar arrangements, but where the charges are only on the basis of 1 per cent. or 2 per cent. I would ask the hon. and gallant Gentleman to consider very seriously, in view of the opportunities now open for trade with Russia, whether his Department cannot do something to increase the utility of these facilities in enabling our traders to compete in that market.
§ 11.40 p.m.
§ Mr. GRANVILLE GIBSON
I do not suppose that any Member of the House will be lacking in desire to congratulate the Export Credits Department on the manner in which they have carried out their work in the last few years. The hon. and gallant Gentleman has referred to the fact that on the whole £47,000,000 worth of trade has been insured against up to 75 per cent. of possible loss. There is one phase of this work to which I should like to refer. It is connected with the point just referred to by the hon. and learned Member for East Bristol (Sir S. Cripps).
339 Whenever the Secretary to the Overseas Trade Department has been asked what were the premiums charged in respect of trade with Russia, his answers have always been very ambiguous, and he has never definitely stated what those premiums are. I rather suspect that the reason why he does not care to make them public is lest his Department might perhaps be accused of being usurious in their charges. We are now entering upon a new phase of trade with Russia, and those of us who are connected with export trades realise that there is no part of the world where there are such abundant opportunities for opening up trade in the future as in that country, a great part of which is undeveloped, and which has about 170,000,000 inhabitants. It is very important that we should take every opportunity there in the future, in view of the new Trade Agreement which has been made, and should explore every avenue in order to win as much of that trade as we can. One way in which we can do that is by having given to us good facilities for insuring against the possibility of loss at the lowest possible rates of premium.
It is well known that the premiums charged in respect of trade with Russia are on the average about 10 per cent., as against Germany's charge of about 1½ per cent. It is evident to any business man that, if there is an order in the offing, the Britisher is placed under a considerable handicap in having to pay a premium of 10 per cent., as against the German who pays 1½ per cent. I heard the other day of nearly £1,000,000 worth of orders for machinery for Russia being placed in this country. A premium of somewhere in the neighbourhood of 10 per cent., or £100,000 on a £1,000,000 order, is sufficient, unless Russia is almost compelled to buy from this country, to place us outside the market and lose us the business. I would urge that in the future the Advisory Committee should see to it that this does not occur, in view of the fact that the Department has made large profits out of this business, particularly in respect of trade with Russia.
There is no doubt that the £1,300,000 which is now standing to the credit of the Department, representing profits made over the first few years after all 340 administration expenses have been paid, has in the main been made out of the premiums charged on trade with Russia. Having accumulated this very comfortable balance, surely, in order to assist industry more in the future than they have done in the past—although they have done very well—they are now in a position in which they might be able to take a greater risk in the future than they were prepared to take in the past, in order to help industry. I do not suggest that unnecessary or absurd risks should be taken, but at any rate they need not go to the extent of charging such a high premium as 10 per cent., which makes it almost impossible in many cases to get business against another country which is probably as efficient and up to date as we are in industry, namely, Germany, and which, as I have already said, only charges about 1½ per cent. Speaking on behalf of the Associated Chambers of Commerce, to which 40,000 firms are affiliated, there is a strong desire that there should be a considerable reduction in the premium.
§ 11.45 p.m.
§ Mr. PETHERICK
I may be the only Member of the House who feels very strongly that this is a thoroughly unsound scheme and that the experience of this credit system has been a great mistake. My hon. Friend who has just spoken represents a constituency that stands to gain very largely under this scheme. It is obvious that a Member who represents a hardly hit industrial constituency, when he sees an opportunity, perhaps, of obtaining a chance of £1,000,000 worth of goods to be manufactured there will be only too pleased to back up any scheme which will bring that about but I believe the whole system is not wise or sound. Let me go back over the history of the schemes. Under the first there was a very heavy loss to the Treasury. Under the second, which has now been wound up, there was a loss of £91,000. That can be found in the trade accounts. Then Russia was brought in under the agreement made by the Labour Government and the scheme has now become solvent. No doubt hon. Members will point to the fact that Russia has not yet defaulted. She may never default. I hope she never will. There is no doubt that, if it had not been for exporting £20,000,000 worth of goods to Russia, the present export credit insurance 341 fund would be hopelessly insolvent, as the first two schemes were. There is no doubt that it has got out on the Russian shoulders. I believe there is a total of some £50,000,000 which has been covered under export credits, some £20,000,000 representing sales to Russia. The Russian premiums are very high. I had a letter the other day from the director of a machinery fisrm in the Midlands who said his firm was paying 6 per cent. on a guarantee of 60 per cent. of the total, that is to say he was paying to the Government for the guaranteeing of goods sold to Russia no less than 10 per cent. I do not know if the same premium applies to all guarantees of credit for goods sold to Russia. But I think we may take that as a fair average.
I said before that £20,000,000 out of about £50,000,000 are goods sold to Russia. As the premium, being 10 per cent., is approximately double—perhaps a little more than double—the premium on goods sold to other countries, that means that more than half the income of the Export Credits Fund comes from Russia. It is therefore obvious that Russia is carrying the scheme. One of the first principles of insurance, as I have always understood, is to spread your risk, and, as you are here in effect putting half your eggs in one basket, you are undoubtedly undergoing a very grave risk indeed.
There is a further point upon that. Under the recent Trade Agreement with Russia we have agreed that we shall sell to the Russians in certain proportions and that they shall sell to us in certain proportions. In 1935, I think it is, we can buy from Russia one and a half, and we can sell to Russia one. We can import from Russia, for example, £15,000,000 worth of goods and can sell to Russia £10,000,000 worth of goods. Suppose that only £1,000,000 of our exports to Russia were covered by credit insurance, that means that, when you add your premium, the amount of goods that you are selling to Russia under that credit insurance, instead of costing £1,000,000, costs £1,100,000. As you are only allowed to sell to Russia £10,000,000 worth in every year, it simply means that £100,000 worth less of British goods are to be made and sent to Russia. What happens to this £100,000? It is paid to the Export Credits Department in respect of 342 the credit grant. It can, therefore, only do harm under this Trade Agreement with Russia to have any credits granted to Russia at all.
Besides, it is not necessary, because Russia is selling to us more than she is buying from us; consequently, there should be no objection to forming a clearinghouse through which payments to and from Russia may pass. I noticed that the Secretary for the Department of Overseas Trade, when he spoke the other day on the Trade Agreement, pointed out that there was a great objection to this canalisation of trade, as he called it; that it would cause interference and irritation. He will realise, however, that when the Russians are selling to us they sell through agents, and the agents, instead of paying the Russians direct, can pay the money into a clearing bank; and, vice versa, those of our exporters who sell to Russia can receive payment in the same way. I can see no possible objection to that practice. If, therefore, you have a clearing bank there is no possible necessity for guaranteeing any of the credits which may be granted to Russia. Arising from that, we can sell the full amount of British goods under the ratio system contemplated under the Russian Trade Agreement. There will be no diminution at all on account of payments to the Export Credits Department.
In conclusion, it is obviously unsound in any insurance scheme, or for any insurance company, to put so many of their eggs in one basket. There is no necessity for this scheme in which the State is taking on bigger and worse risks than the ordinary insurance company can possibly contemplate. The Government are undoubtedly taking on risks in which the political element enters very largely. They are doing so because they know that an ordinary trader who wishes to sell to certain countries or to certain clients abroad in large sums will not be able to cover his risk in the City of London. It therefore simply means that the taxpayer may at almost any moment be called upon to find large sums in the event of default. I apologise for detaining the House for so long, but I feel that the whole system contemplated by these schemes is so utterly unsound that at least one voice must be raised in protest.
§ 11.56 p.m.
§ Mr. LOUIS SMITH
I am very surprised to hear any criticism of this Bill to-night, and I certainly cannot understand that any industrialists in this country would criticise a Bill which carries on work which has been of such great service to industry in the critical period during which it has been operating. I am sorry that so important a Bill, although a short one, is taken so late in the evening, but I would like to congratulate my hon. and gallant Friend, who has steered his Department so very wisely and successfully during the last two years, and to say that industrialists all over the country welcome with great pleasure the continuance of this Measure. There are, however, one or two points I would like to raise to-night, and apparently it is the only opportunity we may have of making comments upon them. Seeing that the money is found by traders and not by the Government, one of the faults in the scheme, if there be any fault at all, is that the surplus obtained in any year goes back to the Exchequer instead of being carried to what might be called a suspense account and used for increasing facilities in the following years. If that were done, the high charges to which my hon. Friend the Member for Penryn and Falmouth (Mr. Petherick) has referred to-night might be reduced, and increased trade might be done.
I want also to mention the restriction that at present exists in connection with any money that is spent abroad in pursuance of a contract, the major portion of which is covered under the export credits scheme. When a contractor takes a contract abroad, all the materials that come from this country are included in the scheme, but any expenditure, such as the purchase of cement or the provision of unskilled labour in a foreign country, cannot be covered at the present time. It is very difficult, in the case of perhaps a large civil contract, for that additional expenditure to be covered. Apparently the French Government have recently laid before the French Parliament a Bill to provide that up to 25 per cent. of the total of this particular expenditure in a foreign country should be covered by their guarantee. I would ask my hon. and gallant Friend to take that matter into consideration. I agree that the amount should be limited, and that 344 it must at all times be definitely laid down that it is expenditure in connection with a main contract of goods being delivered from this country, as naturally we must protect in every way any contracts which would employ to any necessary extent foreign labour.
There are, as far as one can see at the moment, certain restrictions which might, by careful co-operation between the Department and the leading industrialists of this country, be removed. Naturally, a scheme which was commenced in a difficult time, and which has had considerable troubles during this period, might well be improved so as to enable industry to get greater advantage from it if very close co-operation between the industrialists and the Department concerned could be arranged. In this country we do not make the best possible use of the brains in industry, as is the case in some other countries. When trade agreements are being entered into other countries send as their representatives men closely connected with the industries concerned and this is a point which I think the Department should bear in mind. I congratulate the Department on the work it has done and trust that in the next few years we shall see an expansion of its services.
§ 12.1 a.m.
§ Lieut.-Colonel J. COLVILLE
Let me deal briefly with some of the points raised in this short but interesting Debate. I will deal, first, with the one dissentient voice, the hon. Member for Penryn and Falmouth (Mr. Petherick), who suggested that the scheme was unsound because, apart from the Russian business, it would be insolvent. I can set his mind at rest upon that point. Apart from the Russian business, the scheme is solvent and can stand upon its own feet. It is wrong to suppose that it is only because of the profit made from the Russian business that the scheme is in a solvent position. As to the amount of Russian business that has been assisted I cannot give the exact amount, but I think it is approximately £20,000,000. The hon. Member for Finsbury (Sir G. Gillett) raised the question of Empire goods and the facilities for domestic trade. That would require wider powers than we have at present and while there is a general demand for an expansion 345 of the scheme it cannot be considered under this Bill. As regards the point put in relation to the accounts by several hon. Members, they will be aware that it is in accordance with the normal practice for the Government to carry their own risk without insurance and for any surplus to be surrendered to the Exchequer. That is the reason why our surplus has been surrendered to the Exchequer. Hon. Members will not expect me to reply for the Chancellor of the Exchequer on high policy, but, if they desire me to speak from the point of view of the Department as to the suggestion of a reserve fund, I shall be happy to do so. It must be remembered, however, that this scheme is backed by the Treasury, and, according to the normal practice where the Government carry the risk they also take any surplus.
The other point was that raised by the hon. and learned Member for Bristol, East (Sir S. Cripps) in relation to premium rates charged on Russian business. During the Debate on the Trade Agreement with Russia I dwelt at length on the attitude of the Advisory Committee towards this question. In the case of exports to Russia, as in the case of exports to other countries, the committee deal with each guarantee on its merits, they do not lay down any general rule. There is no general rate for guarantees on Russian business. The premiums have varied from time to time according to the view taken by the Advisory Committee as to the Russian risk at that time. It must vary obviously, according to the financial position. They have the question under constant review and would not ignore so important a factor as the Trade Agreement. If they decide on any change in the charges made in guaranteeing Russian bills, it will be communicated in the ordinary way of business to exporters who inquire about 346 the guarantee. It is only by careful handling and the way that business is facilitated that they have been able to show the present results. I hope that the House and traders will continue to have confidence in the operations of the Advisory Committee. I appreciate what was said by the hon. Member for the Hallam Division (Mr. L. Smith) in regard to co-operation with industrialists. We shall do our best to have the closest co-operation possible, because we believe the schemes are advanced by a close understanding. I hope the House will now give a Second Reading to the Bill, which will enable the Department to carry on its useful work.
§ Mr. L. SMITH
Will the hon. and gallant Member make some comment in regard to the expenditure of money in foreign countries in pursuance of a contract?
§ Lieut.-Colonel COLVILLE
That would require rather wider powers than we have in the Bill. I should be glad to look into the question if the hon. Member will discuss it with me.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the Whole House, for to-morrow.—[Major G. Davies.]
§ The remaining Orders were read, and postponed.
§ It being after Half-past Eleven of the Clock upon Tuesday evening, Mr. SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.
§ Adjourned at Eight Minutes after Twelve o'Clock.