§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ 5.39 p.m.
§ Mr. Oliver Lyttelton (Aldershot)
I intervene only to explore a question which is causing some anxiety. This is an administrative matter which, I think, I may conveniently raise at this stage. Since the Second Reading I have received complaints about the arrangements under which the Department insists upon exporters insuring with them all their risks in a certain country. I do not suggest it would be in any way a sound method of conducting business to have all the risks where the possibilities of loss are small written outside, leaving the Government with only the bad risks, but there are one or two things which are worth explanation by the right hon. Gentleman this afternoon.
For example, I have received a complaint—I hasten to say I did not accept it at face value, but I am asking for information—that unduly high rates are charged for the insurance of exports which are upon cash against document terms and that exporters have to pay very much higher rates on these 243 ordinary contracts because they wish to write some of these other very difficult risks with the Department. They cannot write the difficult risks unless they also write the ordinary risks and the rates charged on the ordinary cash against documents type of exports, it is represented to me, are unduly high. I have even heard of figures of 7s. 6d. per cent. as against 2s. 6d. or 3s. per cent. outside. That is a superficial statement and I have not had the opportunity of checking it up, but I should like the President of the Board of Trade to give an explanation and to assure the Committee that the fact that the Department have to write all the risks—I think they must insist on that—is not to be made an excuse or pretext for charging unduly higher rates than commercial rates for risks normally insured, or perhaps not usually insured at all.
§ Mr. Benson (Chesterfield)
A point on which I had the support of the hon. Member for Chippenham (Mr. Eccles) on Second Reading arises on Clause 1. The benefits of this Bill are limited to persons carrying on business in the United Kingdom, but I think there is a very strong case for extending the scope of the Bill and giving its benefits to persons who are not resident in this Kingdom and offering them insurance, just as our great insurance companies do in any part of the world. There is no reason why we should not offer to insure trade which never touches this country carried on between persons neither of whom are British nationals or associated with Britain. I have no doubt we should have to get the permission of the countries involved, but I am not certain that that would be difficult.
Everyone knows that the Export Guarantees Scheme has been of enormous assistance to this country and we are in a unique position to give that assistance to our own nationals because of the enormous accumulated knowledge of overseas trade which we possess and also because of the traditional skill of the City of London. We could do this whereas others could not. I think we are practically the only country, I am not sure about America, which offers this facility to our traders. In the old days there was what was known as a "London bill." It was a bill on London and was, in effect, a guarantee. It was a different 244 type of guarantee from that which we are offering, but, nonetheless, it was a guarantee in that the bill was backed and accepted in London. The effect was to make sterling the world currency. It earned us a good deal of invisible exports in foreign exchange and probably went a long way towards making sterling the dominant world currency.
It is obvious that there is an immense advantage to this country in any expansion or extension of the use of sterling in international trade. Many countries, particularly in South America, do balance their trade in sterling to our rate of values and anything that facilitates the use of sterling is to our advantage. I hope the President will look into the question. I do not think there are technical difficulties, or that there will be any great difficulty in getting other countries to allow us to offer what I might term a world service, but there are very great advantages to us and to others if this can be done. I hope my right hon. Friend will look at the suggestion seriously.
§ 5.45 p.m.
§ Mr. Eccles (Chippenham)
The hon. Member for Chesterfield (Mr. Benson) referred to the support I gave him on Second Reading. I want to see this type of insurance widened as much as possible. I think it true to say that many foreigners, knowing that the United Kingdom is the only country where such risks are underwritten, say to some broker in Liverpool, or London, "I will give 2s. 6d. per cent. and you can act as principle," and that brings a little more money to us. I would not be in a hurry to cut out the broker here. He can get business from abroad and get a profit on the turnover. The President of the Board of Trade is more expert on this matter and may be able to give us a more detailed explanation.
This Clause is very important because it increases the limit of the commercial guarantees from £300 million to £500 million and, as the President told us on Second Reading, it broadens the whole basis on which the Department works. In fact I think the Advisory Council will have less to do than formerly, because it is evident from what the President said, that he would like to bring into the scope of the guarantees pretty well everything that the Board of Trade considers would assist the earning of money from places 245 outside the United Kingdom, that if the Advisory Council considers the risk is not a good one there is £100 million behind it and the President of the Board of Trade can write it on his own. I take the Clause to be something which is considerably reducing the importance of the business element in this insurance system and, if that comes about, I forecast that the losses will be greater than in the past.
We all want to give as much help as we can to the exporter. Therefore we welcome the expansion of the limit, but we desire to know on what grounds the Government think they will require this extra £200 million. The President told us something about the invisible items which are now to be brought in. I have been trying to find how they could possibly amount to any large sum. There is no credit risk to be insured in regard to shipping. The shipowner today will not part with the documents relative to the cargo until he has been paid his freight so there is nothing to be done there.
There only seem to be small sums in the categories the President mentioned and I wish to ask about one of them. What is this financing of sales agencies overseas? Is that to come under the commercial risks, or under the special risks? What exactly is insured? I cannot see precisely how the policy can be written. If a man spends £5,000 setting up an office in some foreign capital is it the business of the Department to guarantee his money if the selling agency is a failure? What exactly do the Department do to assist in setting up those sales agencies?
The President mentioned the contractor's equipment. We agree of course that it is valuable to be able to insure that sort of risk. But surely what the public works contractor really wants is to be able to cover his retention moneys as well as the first 85 per cent. of the contract. I am told that the Department at the present time will not insure that proportion of the contract price which the foreign customer retains until he sees whether the bridge stands up to the strain, or the hydro-electricity works work, or whatever it may be. Would the President consider increasing the scope and bringing in these retention moneys?
The President also said that the power would be used to steer exports. I shall 246 be obliged if he would tell us just how this is going to happen. Then the President said:But I can give the House the assurance that the Board of Trade will maintain very close contact with the Export Credits Guarantee Department to make certain especially that transactions in goods of foreign manufacture which might compete with United Kingdom produced goods will not be encouraged."—[OFFICIAL REPORT, 2nd February, 1949; Vol. 460, c. 1684.]I should like to hear some more about that. Suppose, as indeed was the case, that the Middle East wanted motor cars and a British motor manufacturer cannot make the delivery. On the other hand there is a manufacturer of cars in France who can make delivery to the Middle East, and a British merchant would make a profit out of being the middle man in this transaction. The President will not allow that to take place for fear of competition. Can we not carry this reluctance too far? Is not the right principle to expand trade in Western Europe and to get goods moving, and when a market like the Middle East wants something we are unable to supply is it not reasonable that we should help to get it from somewhere else, and make a profit out of it at the same time? I would like to know exactly how the President is going to use that particular power.
My right hon. Friend brought up the very vexed question of the Department's rates on cash against documents business. What it really comes to is this. The Department is acting as though I were going to it and saying, "Will you insure my life?" They say, "Yes, provided you take out a policy for your wife and five children as well." That is the way the Department is acting in regard to some of this business. When goods are shipped cash against documents to a safe country like North America, which of the eight risks in the Department's policies are really worth insuring? Only the war risk. The rest of the risks are not worth insuring. The exporter would still have possession of the goods even if the buyer did not take them up. Therefore it is unreasonable when a trader does a certain amount of his business on C.A.D. terms, and still more if it is on irrevocable letters of credit, that this part of his business should also have to be insured in order that he might get cover for the political risks and the insolvency 247 of his buyer on account of goods he is sending to other more risky markets.
As the object of the Department is to help the export trade, and as we are getting to a time when prices will be very competitive, it is in the interests of the export trade that this selection of risks should be allowed. I endorse what my right hon. Friend has said. We do not want the Department only to insure the really bad risks. We want the thing to work out so that it is on a proper basis and whatever losses are anticipated are covered by reasonable premiums. But this is going too far in the other direction, and I hope that the President will tell us something about that point.
§ The President of the Board of Trade (Mr. Harold Wilson)
The right hon. Member for Aldershot (Mr. Lyttelton) raised this question of the insurance of all risks, and I know that it is a point on which there has been comment in the past in some quarters. The right hon. Gentleman's close and intimate knowledge of this Department, through his association with it over so many years, means that he is one of the greatest authorities in this House on this matter. As he knows, this requirement of the financing of risks relates to consumer goods only and not capital goods. So far as capital goods shipments are concerned each one is regarded as an entirely separate transaction. So far as consumer goods are concerned there is no requirement that an insurer has to cover all his trade in those goods. The Department merely requires him to insure a reasonable and representative spread of these risks in various markets. If it were not possible to do that, the average rates and charges made by the Department for some of this business would have to be a good deal higher than at present.
The right hon. Gentleman and the hon. Member for Chippenham (Mr. Eccles) mentioned also complaints received about high rates charged for cash against documents trading. I shall be very glad to look into this with the Department, but I have not myself had any complaints about it. I should have thought that traders generally considered the rates charged for this particular form of trading to be reasonably low, and they have in fact been recently reduced, but I am prepared to look into it.
248 My hon. Friend the Member for Chesterfield (Mr. Benson) raised the question of persons not resident in the United Kingdom. As he knows, the services of the Department are not at the moment restricted solely to British nationals, but they must be persons normally carrying on some form of trade in the United Kingdom. He suggested that there is a big field for us to cover in trade never reaching this country at all, but just between second and third countries. An enormous volume of trade between third countries is in fact insured by the Department, provided that that trade is itself initiated and carried through by persons who are themselves carrying on trade in this country, even though the particular goods and the trade never come anywhere near this country.
My hon. Friend's suggestion was that we might earn small or even large amounts of money if the Export Credits Guarantee Department were to offer to cover trade carried on by merchants in country B, being a country other than the United Kingdom. That means financing trade between B and C, or even C and D. It is not correct, as my hon. Friend suggested, that we are virtually the only country to provide this cover, because there are export credit guarantee departments, of a varying degree of value and efficiency, in a large number of other countries. I do not think there would be a very big field here and if we were to take this too far it would mean helping the traders of other countries against our own. I agree with what the hon. Member for Chippenham said that there are a good number of people notionally or actually in business in this country who do it through brokers and get the cover of our own trading services. I think that carries that business far enough. If we went further it might have the effect of encouraging the invisible exports of other countries against our own traders in this country.
The hon. Member for Chippenham rightly said that this first Clause of the Bill widens the whole basis of the operations of the Department. He commented on what I had said, that there was going to be some use made of the special guarantee. He suggested, and rightly, that the commercial guarantees will still be an important part of the work. For a moment he sounded as if he felt that by increasing the use of the specials we were 249 expecting commercial guarantees to become less important, and he said that if that happened, if there was a big swing over from commercial to special guarantees, the losses of the Department will be greater. I am sure that when he referred to losses being greater he was not referring to net losses, because he knows that the Department as a whole made considerable profits. Perhaps what he really meant, on a net basis, was that the profits would be less or might even turn into a loss
He was particularly concerned to know why we felt it necessary, particularly when we were putting a greater emphasis on special guarantees, to increase the maximum liability in respect of commercial guarantees. I think the main answer must be the developing character of trade. The figures given during the Second Reading show that month by month and quarter by quarter the use made of this Department is growing, and the best view that we can form is that we certainly ought to increase the size to cover the purely commercial work. The fact is that we believe this commercial work requiring advice from the Advisory Council will be increasing at such a rate as to make this figure necessary. I hope that that will to some extent set his mind at rest about the fear he expressed that, in one sense, we might be cutting down on the commercial work.
He mentioned further a reference which I made during the Second Reading to the question of steering exports. I have to tell him that we have not yet completed working out the ideas about which we may wish to tell the House on this matter of steering exports. But it certainly is a fact, as the hon. Member for Louth (Mr. Osborne) will know, he having just returned from the United States, that in some of these high priority dollar markets there are very great risks in selling, very great difficulties involved, and we are trying to work out some means—and it is not so easy—to give some kind of incentive to exporters to go into those markets.
§ Mr. William Shepherd (Bucklow)
I am not at all clear what the right hon. Gentleman means by the special and great risks attached to selling in the North American market. I should be glad if he would tell us more about that.
§ Mr. Wilson
They are risks so far as the individual trader is concerned. He has not been trading in this market. He regards it as a rather dark and unknown field in which to venture. He would rather stay in a safer market, perhaps at home. If he is to set up there he might need some kind of assistance or help, not necessarily through the medium of E.C.G.D. We may have to consider other ideas shortly, but as we are still working this out, I would rather not say more at the moment.
The hon. Member for Chippenham took me up on the phrase I used during the Second Reading about competing with United Kingdom manufacturers and not encouraging trade which would compete with them. If he had got from my words the impression that we should not want to encourage the form of trade he mentioned, then I can understand him raising the matter, because we should want to encourage that kind of trade. The case he mentioned envisaged the motorcar trade in the Middle East in circumstances where United Kingdom manufacturers would not be able to deliver. It might he reasonable from every point of view to assist trade with exports from France or some other Western European country, and we might at the same time make quite a tidy and useful little profit out of the arrangement. I entirely agree that that kind of transaction is one which we should most certainly wish to encourage. But the case he took began from the hypothesis that the United Kingdom manufacturers could not deliver and, therefore, that would not be competition with British manufacturers, at least in the short-term. I agree that over a long period it might be regarded as competition and obviously we should have to use considerable discretion about what was and was not going to be competition with our own manufacturers.
§ Mr. Lyttelton
I thank the right hon. Gentleman for his promise to look into the matter of insurance on cash against document contracts. I hope that he will not read me as meaning that the premium to be charged on all cash against document credits should be the same. In fact, the risks vary very widely. I am only entering a plea that where they are what we may call normal contracts—cash against document—the rates charged by 251 the Department should be those generally applicable in other parts of the City to that part of the business.
§ Question put, and agreed to.
§ Clause ordered to stand part of the Bill.