§ Order for Second Reading read.
§ 4.6 p.m.
§ The Minister of State, Board of Trade (Mr. Derek Walker-Smith)
I beg to move, That the Bill be now read a Second time.
This is a short Bill, but I cannot conscientiously say that it is also a simple one. It is, however, an important Bill, though short, because it is designed to facilitate the work of credit insurance. As the House will know, it is nearly 40 years since the State first entered the field of credit insurance in 1919, and 27 years since the Export Credits Guarantee Department became an independent Department. In those years the business has grown greatly, both in volume and importance, in the country's export effort, particularly in these post-war years. If I may indicate the comparative figures of exports covered by the Department, for the financial year 1939–40 the estimated figure was £50 million. In 1949 that had grown to a figure of £260 million, and in the financial year 1956–57 to an estimated figure of no less than £ 500 million. The Export Credits Guarantee Department now covers 13 per cent. of the total exports of the United Kingdom.
The Bill deals with three separate and distinct points and, in order to explain them to the House, I think that I must briefly indicate, or perhaps I should say remind the House, of the pattern of the existing Acts from 1949 to 1952 on this subject. The Export Guarantees Act, 1949, provided for two forms of guarantee; what is known as the commercial guarantee under Section 1 and what is known as the special guarantee under Section 2.
The commercial guarantees are guarantees in connection with the export and so on of goods and services, given in consultation with the Advisory Council and with the consent of the Treasury, to encourage trade with places outside the United Kingdom. Though they are known as commercial guarantees, they do, of course, cover political risks as well as the commercial risks. The arrangement under which these commercial guarantees are given are generally known 403 as credit insurance schemes. They are operated on a commercial basis with the help of the Export Guarantees Advisory Council, and we are grateful for its valued and expert services in this regard.
There is a maximum permitted liability under these commercial guarantees of £750 million, and the latest available figure, for 28th February last year, was £368 million. I mention that because 90 per cent. of the work of the Export Credits Guarantee Department is in fact done under Section 1 in respect of these commercial guarantees, and no problem arises in the whole of that field. The problem arises in the narrower though also important field of the special guarantees, which are those given under Section 2 of the 1949 Act. They also require the consent of the Treasury, but they do not give rise to the necessity for consultation with the Advisory Council.
The special guarantees under Section 2 are themselves of two sorts. The first type is for the encouragement of trade, and that type of special guarantee is, in effect, a bridge to Section 1 cover, or given on an experimental basis. The second type of special guarantee is for rendering economic assistance to countries outside the United Kingdom. In respect of both types of special guarantee the criterion is the national interest.
There is also a maximum liability fixed for the Section 2 guarantees by the Act of 1952 at £150 million; that is all of them, all of the special guarantees under Section 2. It is in respect of this figure that the first problem arises which it is sought to deal with by this Bill. The present position, that is to say at 28th February last, regarding the special guarantees is that the figure for firm commitments amounts to £72,800,000 and the figure for contingent liabilities amounts to £72,700,000. Therefore, as the House will see from the addition of those two figures, if all the contingent liabilities were suddenly taken up, the Export Credits Guarantee Department would be now within £4,500,000 of its statutory limit under Section 2. That is an unlikely contingency, I fully grant. Nevertheless, without an increase in the permitted maximum liability under Section 2, the Department might soon find itself unable to offer further cover because of the opera 404 tion of this £150 million limit, and the effect of that would be, of course, serious in this context.
In regard to the need of these Section 2 guarantees, these special guarantees, the Export Credits Guarantee Department is at present offering only very limited cover in respect of exports to Middle East countries. We may, however, in the near future wish to prepare the way for full cover, by offering more generous cover under Section 2, and that is the concept of the bridge which I mentioned a moment ago.
To take another point, large dollar market orders have recently loomed large as candidates for Section 2 cover, and some of these may go forward. So, in summary on this point, if the Department was completely prevented from offering Section 2 cover, much valuable export business could be lost. Before leaving this aspect of the matter, perhaps I may make this observation in regard to the financial position, so that it is clear to the House beyond a peradventure. The Export Credits Guarantee Department is not, by Clause 1 of this Bill, asking for permission to spend money, but only to incur additional liabilities, and, of course, it will only result in the expenditure of money if the transactions covered result in a loss and the guarantees must be implemented; that is, a loss to the exporter.
§ Mr. Ronald Williams (Wigan)
The right hon. and learned Gentleman is making so formidable a case for the need for doing this that he is throwing me into some doubt as to the measurement of the additional figure which he requires. He is putting a much stronger case now than would be necessary to support an additional £100 million. It may be that, in the course of his observations, he may give reasons why the measurement has been fixed at that figure, and I intervene only to invite him to do that as he proceeds with his opening speech, as that may make it unnecessary for me to make any comments later.
§ Mr. Walker-Smith
I am much obliged to the hon. Member, not least for his implied tribute to my own moderation in this regard. The figure in the Bill is fixed at £250 million because we consider that to be a realistic and proper estimate, having regard to the present 405 position and the ratio, as I say, of the firm commitments and contingent liabilities to the permitted maximum liability. It seems to us that £250 million is the right figure to put before the House as not being an extravagantly large figure, but also a realistic figure, which I would hope would mean that we would not need to trouble the House very soon again in the same context.
I would also say for the information of the House, on the point that this is not a request for the expediture of money but only for the raising of the permitted liability, that since the special guarantee scheme was introduced in 1949, the Department has more than covered its claims by the premiums earned, and there has, therefore, been no net expenditure of public money in this context. That is the first point of the Bill, and the most important one, dealt with by Clause 1.
§ Mr. Eric Fletcher (Islington, East)
Before the right hon. and learned Gentleman leaves that point, could he explain for the benefit of the House precisely how the first kind of special guarantee under Section 1 of the 1949 Act differs from the commercial guarantee under Section 1? The right hon. and learned Gentleman has referred to the conception of a bridge between the two. Will he explain what is really the nature of the difference between the guarantees in Section 1 and 2?
§ Mr. Walker-Smith
I think that the hon. Member, with his well-known legal acumen and experience, will see what the statutory difference is by looking at the 1949 Act. In that Act, he will see that, in respect of the ordinary commercial guarantee in Section 1, there is an obligation to consult the Advisory Council, and, therefore, it must be an appropriate commercial proposition in their opinion for the commercial guarantee under Section 1. Under Section 2, for the special guarantee, there is not the same statutory necessity to consult the Advisory Council. There is the criterion of the national interest, and the consent of the Treasury is still required. But it is therefore, possible to embark on a rather wider range under a special guarantee, more particularly in respect of the two categories which I mentioned a moment ago, either as a preliminary to possible extension of commercial guarantees thereafter, or, as it were, on an experimental 406 basis. I am grateful to the hon. Gentleman for allowing me to make that clear.
§ Mr. Walker-Smith
If I may now come to the second of the three points with which the Bill deals, the second point which is covered by Clause 2 is also concerned with the special guarantee, but, in these cases, exclusively with the second type of special guarantee; that is to say, those made for the purpose of rendering economic assistance to other countries.
There is no doubt, I think, that the basic intention of Sections 2 and 3 of the 1949 Act was to enable the Export Credits Guarantee Department to continue to provide economic assistance to overseas countries by making loans tied to the purchases of the United Kingdom goods and services. Unfortunately, a technical difficulty has arisen in carrying out Parliament's intentions. This is where the Bill becomes a little complex, and I ask the indulgence of the House if I try to put it as clearly and briefly as I can.
If hon. Members will be good enough to look at Section 3 of the 1949 Act, they will see that that Section provides that the Export Credits Guarantee Department may acquire and dispose of securities which it has guaranteed, and it also provides for the method of receipt and payment. This Section is used by Her Majesty's Government to give economic assistance to overseas Governments for the purchase of British goods and services, and it has been used within the recollection of the House in the cases of Pakistan, Iran and Yugoslavia. The procedure thus prescribed by Section 3 is, in effect, as follows. First, the overseas Government issues its promissory notes. Then, the Department guarantees these promissory notes, which it then acquires. The proceeds are paid into a special account and, out of that special account, the British contractors are paid That is the scheme of the Section 3 procedure.
In the case of the Pakistan Agreement in 1954, certain doubts arose as to the legality of the procedure which was actually followed in that case. What in effect happened was that the Department was giving its guarantees—to that transaction, for example—after acquiring 407 the promissory notes instead of before acquiring them, as contemplated by Section 3. In other words, it was guaranteeing securities which it had acquired instead of acquiring securities which it had guaranteed, which is the contemplation of the Section. A revised procedure was devised, because of that difficulty.
This is all really on a technicality. I have already made clear to the House the intention of Section 3; the difficulties which have arisen are procedural technicalities which the Clause is seeking to set right. I am sorry that it is technical and complicated, but it cannot be otherwise. In these circumstances, a revised procedure was devised in this form to meet that point. First of all the promissory notes are issued by the oversea Government. These promissory notes are then guaranteed by the Department Having been guaranteed, the promissory notes are then handed back to the over-sea Government and, at that stage, they are finally acquired by the Department. By that revised procedure, the technicalities of the Act are complied with and the difficulties which I have mentioned in respect of the Pakistan Agreement are removed
Although this revised procedure complies with Section 3 of the 1949 Act, it is obviously unsatisfactory in that it is highly artificial. It is artificial because, on that procedure, the promissory notes are guaranteed as it were in the air and at no stage does any third party hold the notes for value with the Department's guarantee. This revised procedure, which complies technically perhaps with the Act but is artificial and unsatisfactory, came under the scrutiny of the Public Accounts Committee, and it was agreed that this procedure was unsatisfactory; but it was pointed out to the Public Accounts Committee that legislation would be required if it were to be put right.
Now that we have had to come to the House to get powers to raise the maximum liability, it is proper that we should, in the context of export guarantees, seek to put this matter right. That is what Clause 2 seeks to do and is the genesis of the Clause. The Clause is designed to remove the artificiality of the procedure and to make it clear that the Department has power to enter into these economic assistance agreements which 408 are important politically as well as in the promotion of our export trade.
As to the effect of Clause 2, subsection (1) provides that, for the purpose of rendering economic assistance to countries outside the United Kingdom, the power to give guarantees shall include the power to make arrangements for facilitating the payment of sums which are payable to persons carrying on business in the United Kingdom or to their oversea subsidiaries. Subsection (2) provides that the Department may acquire securities created in pursuance of such arrangements, and may acquire securities without the necessity of prior guarantee. Both those subsections are retrospective, as obviously in the context they must be. Subsection (3) simply ensures that the amount paid for acquired securities in this way shall count against the maximum liability of Section 2 of the 1949 Act, as amended, of course, by Clause 1.
Perhaps I may now summarise the second point in this way: the giving of a guarantee has no necessary place in the giving of a loan. The procedure which I have described will be modified so that in the future the Department will simply acquire the security from the issuing Government instead of first guaranteeing it, handing it back and then acquiring it again. It is a change of procedure rather than of substance, although acquiring a security will still be related to an approved export transaction.
§ Mr. E. Fletcher
Before the Minister of State departs from Clause 2, will he say whether this procedure has been applied to any country other than Pakistan, Iran and Yugoslavia?
§ Mr. Walker-Smith
Section 2 economic assistance? I have not got in mind another case, but I will check that in the course of the proceedings. If there is another, I will, with the permission of the House, give it to the hon. Gentleman.
I can deal with the third point quite shortly. It is covered by Clause 3 and relates purely to a question of interest. It comes about in this way. In operating the economic assistance agreements under Section 2 of the 1949 Act, the Department, through the Acquisition of Guaranteed Securities Fund, borrows money from the Consolidated Fund at one rate, that is the rate fixed by the Treasury by reference to current 409 exchange interest rates, and lends it to the overseas Governments at another rate. The intention and the normal effect is that the difference between the two rates should constitute a small premium for the Department. This expectation has been somewhat affected by changes in the interest rates.
What has happened is that the rates paid by the Pakistani and Iranian Governments were fixed at 4 per cent. Since then, the rate charged to the Export Credits Guarantee Department by the Treasury has gone up to 4¾per cent, so it is now the wrong way round in that sense. This means that for the next two or three years there will be a deficiency in the Fund if the Treasury rate is maintained. The 1949 Act did not make provision for meeting such a deficiency. Clause 3, therefore, provides that such a deficiency may be defrayed out of moneys provided by Parliament. It applies only to agreements already entered into. In any future agreement it is intended to avoid such deficiencies by providing for a rate of interest which will vary with the rate charged to the Department by the Treasury.
The sums are not large. The estimated deficiency in 1957–58 will be £22,000; in 1958–59, £5,000; by 1959–60 and thereafter nil.
§ Mr. John Cronin (Loughborough)
The right hon. Gentleman said that future loans made to countries overseas will be based on a variable rate of interest. What interest will there be in a given year? Will that be a satisfactory arrangement?
§ Mr. Walker-Smith
Yes, I think so. It is obviously not a very sensible proposition that the Department should be lending money at a lower rate of interest than it borrows it, in order to make that operation possible. The obvious method of dealing with that is to link the rate of interest in that way. If we did not do that, I suppose the only alternative would be to cover ourselves so as to avoid the disagreeable possibility of a deficiency by putting the rate higher, which would be more unwelcome to the recipient: than a linked varying rate.
§ Mr. J. T. Price (Westhoughton)
So far as outstanding long-dated loans are concerned, this new procedure could not be applied to old contracts?
§ Mr. Walker-Smith
We cannot change a contract in mid-stream. That is why we are obliged to meet the deficiencies in that context out of moneys provided by Parliament. That, as the hon. Member for Westhoughton (Mr. J. T. Price) appreciates, is the genesis of Clause 3 of the Bill.
In conclusion, as the House will appreciate, this Bill is technical and complex, but it is both necessary and useful. It is designed to, and will in fact, assist the machinery and working of our export credit insurance and, thereby, help our export trade, which is the prop and stay of our whole economy. In those circumstances, I confidently hope that it will meet with unanimous acceptance by the House.
§ 4.32 p.m.
§ Mr. Douglas Jay (Battersea, North)
First, I must congratulate the Minister of State on a most painstaking explanation of the Bill and on having got through his speech, so far as I could make out, without committing any major indiscretion.
I hope that the House will readily give this Bill a Second Reading and will then proceed to due examination of its details. Its main purpose, I think the Minister will agree, is to extend a bit further the scope of the export credits guarantee scheme. This E.C.G.D. venture has often been rightly held up to public admiration as a pioneering and shining example of successful public enterprise. I do not think that there would be any argument about that from hon. Members opposite. Despite what the hon. Member for Bradford, West (Mr. Tiley) may be about to say, I do not think that he would gainsay that.
§ Mr. Arthur Tiley (Bradford, West)
The right hon. Member is very kind to give way. It should be stated that the lesson the Department learned came from the history of private enterprise insurance extending over a hundred years.
§ Mr. Jay
I do not wish to be too controversial, especially at this stage, but, based on the experience of both public and private enterprise, I think that the Bill is a visible admission by the Government that, in the export trade, at any rate, Conservative freedom is not in itself enough. I think that the right hon. and learned Gentleman said—although in a rather veiled manner—that it was in 1929 411 and 1930 that the Department substantially assumed its present form. It was the Act of 1949 which launched the special system of guarantees with which we are mainly concerned.
§ Mr. Graham Page (Crosby)
To be fair, it should be said that it was Lord Swinton who devised the present system about 1929 and that the development from 1929 to 1931 was as a result of that.
§ Mr. Jay
It does not greatly matter, but I think it was finally perfected at that time. What I think is more interesting and substantial is that the Department has worked all these years as a direct Government Department, not even in the form of a public board or public commercial enterprise of that kind. That shows that the assumption we are all inclined to make that the separate Departmental form cannot operate successfully, like many other dogmas, is not necessarily correct.
As the Minister of State said, we arc mainly concerned with the special guarantees which had their genesis in the 1949 Act. They were divided as the right hon. and learned Gentleman also said, into two sorts. They were described by the Government when the 1952 Bill was introduced as coveringa wide number of projects.Examples were given ofcertain aspects of the dollar drive and such things as the export of herring to Poland. … "—[OFFIAL. REPORT, 20th February, 1952; Vol 496. c. 319.]What "such things" as the export of herring to Poland may be, I do not know. On the basis of experience we have had since then perhaps we could have a little more information about how these special guarantees have worked in concrete terms.
I wonder whether the right hon. and learned Gentleman could give some actual examples of what has been done. I think he said that the whole activities of the Department under the special guarantees had been profitable. That is to say, that up to now there has been a credit balance as a result of all the operations. I wonder whether we could know what total of exports has been covered by this part of the activities of the Department?
We were told by the Government in 1952 that, in addition to the dollar drive 412 —which, no doubt, was the most important objective—trade with "Iron Curtain" countries would also be included in these special guarantees. I take it that is still the rule and the objective. Does the increase that we are now asked to accept foreshadow or give evidence of a belief by the Government that trade with the "Iron Curtain" countries may be likely to increase? I cannot help remarking, in passing, that it is a little ironical, if that is the intention of the Government in this Bill, that our trade with those countries should still be subject to special embargoes which are having such a limiting effect. I hope that now, at least outside Government circles, it has become an uncontroversial question, the Minister is looking at that matter and that in the interests of our export trade generally something will be done to relax the embargo on trade with Russia and to remove altogether the now completely obsolete embargo on trade with China.
Clause 2, of which the Minister spoke in a most light-hearted manner—I think that light-hearted is a proper Parliamentary expression—is intended to make an honest woman of the Board of Trade, and to cast a sort of retrospective veil of respectability over some of its rather queer activities in recent years. It is really remarkable what goes on under the present Government. There seems to be no end to the revelations of irregularities and muddles from time to time.
I would have thought the story of the Swift aircraft would have been sufficient, but we also owe to the zeal of Sir Frank Tribe—who is certainly a great guardian of public morality the—discovery that the Board of Trade, through the E.C.G.D., has, in effect, been breaking the law in its operation of these export credits.
§ Mr. Walker-Smith
If, as I apprehend, the right hon. Member accepts that the intention of the 1949 Act was that these economic assistance agreements should be viable, whose fault was it if the 1949 Act was not framed in such a way as to make the intention possible of implementation?
§ Mr. Jay
Surely the Minister, as a lawyer—much more of a lawyer than I am—is not arguing that because an Act was not perfect we are all entitled to 413 break it? I am merely remarking that according to the Public Accounts Committee the Board of Trade acted in contravention of the Act.
Now we are told by the Public Accounts Committee that in March, 1954, the Board of Trade lent £10 million to, I understand, the Government of Pakistan by an agreement which was not really legally valid under the 1949 Act. The Public Accounts Committee, as far as I can discover, does not say that it was the Government of Pakistan, but I take it that this is the same transaction as that to which the right hon. and learned Member referred. Counsel's opinion was given to the Department in October, 1954, that the Board was acting contrary to the Act, but the Board continued—I do not know whether "light-heartedly" is the right word—drawing money out of the Consolidated Fund until July, 1955, when, in Sir Frank Tribe's words "they brought the situation to the notice of the Treasury". The Public Accounts Committee—I do not think that the Minister will dispute this—described this as "irregular"which is quite a strong word for the Committee to use, and expressed the hope that it would not happen again.
Apparently, in a later case, the export of locomotives to Iran, which, I am sure, was a healthy objective in itself, it appears that even the Treasury condoned the illegal, or, at any rate, dubiously legal, drawing of money, and the Public Accounts Committee described this as "somewhat disturbing". Indeed, it appears that even the Treasury, under the present Administration, is not altogether free from the atmosphere of laxity which seems to prevail. I must say that with the plethora of lawyers we have had in the Board of Trade in recent years, whatever happened in the sphere of economic policy I should have thought this kind of irregularity might have been avoided.
The Government now propose to legalise their past actions. Clause 2 tells us that Section 3 of the 1949 Actshall have effect, and be deemed always to have had effect as if …In fact, the Minister is asking us to validate the Government's past practice in a more sweeping fashion than even the marriage service is normally expected to do. He expects us to say that everything they did was legal although, in fact, it was not legal at the time. I do not 414 quarrel with that, but I think we might have had from the Minister at least an assurance such as the Public Accounts Committee seeks—that the Government do not intend in future to commit fresh irregularities which will be contrary to the law as we are now enacting it.
In Clause 3, we come across one of the odder consequences of the Government's dear money policy. I hope that I have correctly understood what the right hon. and learned Gentleman is asking us to do. The Export Credits Guarantee Department borrowed money, as I understand, from the Treasury at interest and proceeded, in effect, to buy securities from overseas Governments. It then found that under this dear money policy the interest which it had to pay the Treasury had risen above the yield on the security.
The Treasury ask for power to pay more money to the Department so that it may pay back to the Treasury a higher rate of interest. I think that is, in effect, what we are being asked to do. Here we see the Government hoist with the petard of their own dear money policy. They are put in a position in which many humble house purchasers have been during recent years.
I should like to ask the Minister whether it is necessary to proceed in this rather round-about manner, to compel the Department to pay a high rate of interest to the Treasury and then to hand out to the Department the money with which to do it. Would it not have been a simple alternative—this is the commonsense thought which occurs to one—to charge a lower rate of interest? There may be a good reason for this procedure, and I am not saying that I object to it, but perhaps we might be given a fuller explanation why the Government are acting in this apparently round-about manner.
I will make only two other points on the Bill. First, the Department had an unfortunate experience in trading with Brazil a few years ago and that spoilt its record, which had gone right back to 1929 or 1930 and in some senses beyond that, of having a credit balance on all its trading operations up to date. We should be told clearly whether what is called the cumulative balance at 31st March, 1956, of £4,780,000 from credit insurance, which I find in the official trading accounts 415 for the E.C.G.D.—that is to say, from the first part of the Department's activities—means that the Department has paid off all those losses due to the Brazilian transaction and now has a net credit in all its trading operations from the start.
The Minister told us that on the second branch of its activities, the special guarantees, it had shown a net credit, and it therefore appears that we can say that on the activities of both kinds, despite the unfortunate Brazilian experience, all losses have been paid off and that there is now a net credit balance.
Secondly, in giving a blessing to the Bill, as I hope the House will— and it will undoubtedly make constructive suggestions on how the Department's operations may be still further improved—I hope that we shall not assume that we are doing something for our export trade which makes it unnecessary to take other steps as well. I hope that a result of the Bill will not be that we shall be complacent about the present position of British export trade. The increase in our exports over the last five years or so has been only a very few per cent a year
I think it is true that the U.K. exports today in volume are only about 15 per cent. above what they were in 1950. That is a much smaller rise in volume than almost any of the other great industrial countries have achieved in those years, and it follows from that, and it is true, that our share of world exports has been falling and is still falling now.
While we give a blessing to this scheme, therefore, I hope that the Government will in no way be complacent about the present state of our export trade or think that these measures are a substitute for other kinds of stimulus and encouragement which ought to be given.
§ 4.48 p.m.
§ Mr. Graham Page (Crosby)
May I start with two tributes, one to my right hon. and learned Friend for his extremely lucid explanation of a rather difficult Bill, and particularly for his explanation of Clause 2, and the second to the Export Credits Guarantee Department itself for its great efficiency and its successful trading? From a small experience of that Department, I can personally testify to the great willingness of the staff there to make their policies fit the facts of any specific case.
416 I have found greater flexibility from that Department than one normally finds from the ordinary insurance company or the banks. At the same time, there is no carefree generosity about their quotations. They are a commercial undertaking and they have to fix their premiums and gauge the price of the service which they are offering to the public so as to expand the business, as it has been expanded for these 40 years past, at the same time not making.a loss on it.
They have no competitors against whom to gauge the price, because in many respects the Department is a monopoly. For example, there is no other institution which will cover war risks. It is therefore all the more commendable that the Department has been able to calculate its premiums so as to produce a body of satisfied customers, if I may so describe them, proved by the considerable expansion of business over the past years.
As my right hon. and learned Friend said, the Department deals with two forms of insurance or guarantee. For the sake of brevity, they are spoken of by reference to the 1949 Act as Section 1 or Section 2 guarantees. Section 1 guarantees are the ordinary commercial transactions entered into on the advice of the Export Credits Advisory Council, and the Section 2 guarantees, as my right hon. and learned Friend said, are the extraordinary guarantees which are considered to be of national importance.
I am not quite clear whether one can make that clear-cut distinction, and though I may be showing crass ignorance in asking the following question of my right hon. and learned Friend, I will nevertheless ask it. Can one point to any particular transaction and say, "That is a Section 1 transaction "or" That is a Section 2 transaction"? Perhaps I may explain it by example. Suppose an exporter comes to E.C.G.D. with some proposition, asking for a quotation. It is an ordinary commercial transaction, which they would cover to the ordinary extent of the 85 per cent. or the 90 per cent. as the case may be. Let us suppose it is a capital construction work in some foreign country. A quotation of 85 per cent. is offered and the exporter says, "I cannot undertake this unless I have 100 per cent. insurance on it. It is just that 15 per cent. extra that I am worried 417 about. That is the retention money. When I have finished the work, it is just that 15 per cent. I am not likely to get, because I cannot stop work in order to force payment."
Is it possible then for E.C.G.D. to say, "The Government think that 'this is work of national importance. We will carry the 85 per cent. under Section 1, and we will carry the 15 per cent. under Section 2"? I want to know whether there is a sort of mixed policy of that nature. Or must they say that the whole of such a guarantee must come under the Section 2—the limit for which we are intending to increase by this Bill? I would have hoped that there could be some way of making mixed guarantees in that way so that Section 2 would be underwriting, as it were, a part of a Section 1 guarantee. I may remind hon. Members, perhaps, that, in talking of Section 1 and Section 2, I refer to the 1949 Act.
I have two further points. It is only residents in the United Kingdom who can obtain the benefits of this type of guarantee. The 1951 Act extended the benefits to subsidiary companies; that is to say, companies, often operating overseas but controlled from this country—controlled by a United Kingdom resident. It is common knowledge that if a merchant wants to trade through a company in the Colonies or the Commonwealth the very last thing he will do is to have that company controlled from the United Kingdom; in fact, he goes to great pains not to have it so controlled, because if it is controlled from here all the United Kingdom tax laws come down round his ears.
As I read the 1951 Act, it does not give the benefits of the export credit guarantee policies to the normal colonial and Commonwealth company of United Kingdom origin, if I can so put it. I should have hoped that it would, and unless my right hon. and learned Friend gives me a shattering reason why we cannot extend it in that way, I hope that this Bill, by an Amendment made at a later stage, may include the United Kingdom merchants who are operating by, as it were, independent companies in the Colonies and the Commonwealth. We all know under what stress they are working with regard to tax problems, and if they 418 cannot also get the benefit of E.C.G.D. it puts them in a worse position still.
My second point is this. Is it intended to use E.C.G.D. guarantees deliberately for export steering? It was acknowledged, I think, in debates on previous export guarantee Bills that these policies have been used deliberately for steering exports into the dollar market. I am not sure how that is done. I am not sure whether it is that guarantees are offered on doubtful dollar transactions but refused on other doubtful transactions, or whether the steering is done by offering a greater percentage cover on exports to the dollar markets; or done by charging a lower premium. Is it a deliberate steering policy, and, if so, how is it done? I would have hoped that all those sort of methods are, and could be, used for steering exports into particular markets.
As my right hon. and learned Friend mentioned, there are certain markets into which we may wish to steer exports during the next year or two. In particular, he mentioned the Middle East. Our maintenance of exports to the Middle East may need some very cut-throat competition by our exporters, and they may well be unwilling to undertake that unless they have very favourable terms of guarantee. Then, again, with the European Common Market coming along, it may be necessary to steer exports there, at any rate in the initial stages of breaking into the European market. I would have hoped that if this steering policy is adopted the £ 100 million, to which figure the Bill increases the limit, would not wholly be used for steering exports in either of those two directions which I have mentioned.
There is one important field upon which E.C.G.D. should be concentrated at present, and that is in connection with exports and economic assistance to our new Commonwealth countries—our Colonies which have just developed into Commonwealth countries, or which will so develop. I believe that E.C.G.D. could fill the gap left by the withdrawal of Colonial Development Corporation assistance from those Commonwealth countries. That subject has been discussed here on several occasions recently. In particular, it was discussed both here and in another place during the debates on the Ghana Independence Bill. During the debates in this House I ventured the 419 suggestion that much could be done through E.C.G.D. to take the place of the Colonial Development Corporation grants.
My right hon. and learned Friend, in his introduction of this Bill, said that there could be economic assistance through the Section 2 guarantees to Governments outside this country. Indeed, it is just the sort of economic assistance which was recently given to Pakistan. It has seemed to me that the continuation of anything in the form of colonial grants was rather repugnant to the idea of the independence of our new Commonwealth countries. These countries have become independent because both they and we believe that they can stand alone politically and, at any rate partly, economically.
There is not the slightest doubt that there are great possibilities for capital development in those new Commonwealth countries, and that they would get plenty of financial support for capital investment from this country if it were not for two anxieties. One is the fear of a sudden collapse of a raw material market, and the other is an anxiety about—let us be frank— the business morality of the indigenous traders.
We can all remember the situation when the wool market in Australia collapsed in 1952, but that was as nothing compared with what might happen with the collapse of the cocoa market in Ghana, the collapse of the rubber and tin market in Malaya after Malaya becomes an independent State, or—a different type of contingency perhaps—the withdrawal of the naval base from Singapore. Because of political and economic contingencies of that kind, there is a reluctance for private capital to go into our new Commonwealth countries. I believe that if there were some cushion, which E.C.G.D. can provide, against those risks there would be plenty of capital ready to go into those countries.
§ Mr. J. T. Price
is the hon. Gentleman directing his remarks to the provision of capital in the form of finance or in the form of capital goods exported from this country? What we are discussing today is, surely, machinery for facilitating, encouraging and expanding the export of British goods, and we are not talking about the export of capital at the moment.
§ Mr. Page
The investment of capital in the production of goods in this country for export to those countries is the type of investment of capital to which I was referring. That is one type.
Perhaps I might take another example from Ghana, which might come under Section 2. Ghana could offer this country promissory notes for the cost of construction of the Volta River Scheme. It is, perhaps, a very large project, but it might be undertaken by E.C.G.D. guaranteeing those promissory notes. It is an extreme example, but it is a possibility under the Section 2 type of transaction, and it is not an out-of-the-way possibility. After all, we have done the same thing for Iran in the purchase of locomotives; we have taken Iran's promissory notes and guaranteed them, and set a fund aside in a special bank account from which Iran can draw to buy those locomotives. That seems to me to be the sort of assistance which our new Commonwealth countries require and which would greatly help their development.
If we consider it our mission to bring our Colonies one by one to political independence, we must realise that during that post-independence, transitional period we still have a certain amount of economic responsibility. In the recent debates there has been a searching for some agency through which our responsibilities could be undertaken and our evident duties exercised. I believe that E.C.G.D. could provide that agency.
In those debates, there was also a searching for a medium through which the older Commonwealth nations could, in partnership with us, assist in the development of the new Commonwealth nations. I foresee something of this kind. If E.C.G.D. were providing economic assistance or commercial guarantees for development of a new Commonwealth country, the older Commonwealth countries might have organisations similar to E.C.G.D. through which the United Kingdom E.C.G.D. could unload part of the contingent liability. There could be a partnership of that sort in the development of the Commonwealth.
I am sure that the House has great faith in the Export Credits Guarantee Department. What I am advocating is that we should use it where it can be of great value, that we should deliberately steer 421 our exports and our economic assistance to our new Commonwealth countries and to the development of Colonies into Commonwealth countries, both by long-term guarantees for capital construction work and by short-term guarantees for the consumer markets which are produced by the wages resulting from those capital construction works. I am one who believes that in the past there have been very great developments in the Colonies and Commonwealth but that there could be still greater developments. If we in this country do not make certain that there are those greater developments in the future there, then there will be very little future for us here.
§ 5.7 p.m.
§ Mr. H. Rhodes (Ashton-under-Lyne)
I should like, first, to congratulate the Minister on a very lucid explanation of Clause 2 of the Bill. I should have been glad, however, if the Minister had gone to a little more trouble to explain one or two of the improvements in policy which are to take effect in April this year, because such an explanation might have covered one of the points raised by the hon. Member for Crosby (Mr. Page), when he mentioned the possibility of providing cover for 85 per cent. on the first part and 15 per cent. on the second. I understand that after 1st April it will be possible to get cover of 95 per cent. on certain specified risks.
I understand that increased facilities are to be given in the lengthening of the term within which credit is given. In this, I have one or two observations to make, and I hope that the Minister will give me an answer when he replies to the debate. I wish to quote the case of a constituent who said to me, "I am a machinery manufacturer. I have just been to South America to try to sell my machines, but I find that people there do not want them, although the machines are good ones, because they are buying from Germany on the basis of six and seven years' credit". I should like the Minister to explode that notion if it is not true. Inquiries I have made lead me to the opinion that it is not true at all.
I believe that the credit facilities given in this country are as good as, if not better, than those given in any other part of the world. But we have to define the difference here and in Germany in the 422 way in which credit is obtained. Here, if a trader or exporter goes to the bank with a guarantee from E.C.G.D., the bank gives him facilities on a good risk. If, on 1st April, E.C.G.D. will give facilities up to two years, then in this country we shall have credit facilities equal to any in the world.
In Germany, it is rather different, because I understand that there is an organisation there especially for giving credit facilities and advances to exporters. A number of banks jointly called the Ausfuhrkredit have arisen, backed by the Bank Deutsche Lander. But it is interesting to note that during the last six months there has been a reduction all the way down through these institutions right to the institution known as "Hermes", which is the comparable organisation in Germany to the Export Credits Guarantee Department here.
I understand that in August of last year the credit guarantee organisation, known as "Hermes", reduced its maximum coverage from 90 to 80 per cent. The Ausfuhrkredit followed by reducing the proportion of credit it would give on an export order from 80 to 60 per cent. I understand that, as recently as the end of last month, the Bank Deutsche Lander reduced its discount facilities to the Ausfuhrkredit.
Does the Minister think that this means that the Germans at one time were offering long-term credit because they were hungry to get the orders and now that they are not hungry to get orders they are scaling down the credit facilities that they allowed? That is the kind of thing that the British manufacturer would like to know now. We want more information coming from the Export Credits Guarantees Corporation in the way of statements giving particulars of credit facilities given to business organisations in other countries.
E.C.G.D. is doing a first-class job, but I think that the parent body, the Board of Trade, should encourage it a little more. I remember that when we were in office we were staggered to find, for instance, that the servants of the Export Credit Guarantees Corporation had to walk and take buses and had no transport facilities of their own. These are little things, but they are very important.
It looks to me as if our credit facilities now are better than they have ever 423 been. While I have been critical, during part of the time that the Government have been in office, on the subject of the reduction in credit facilities, nevertheless I believe that there has been no diminution of credit facilities for genuine exporters at any time since the Government took over the reins, backed by the enlightened policy of E.C.G.D.
With these few comments I conclude by asking the Minister to give us a brief picture of the sort of facilities that are in existence elsewhere, including those that apply to Germany, and whether he can tell us whether the Germans are being given facilities by the American export banks for exports to South America. If he can give us information on these few points, I do not think that there is any question about giving the Bill a Second Reading.
§ 5.16 p.m.
§ Mr. E. H. C. Leather (Somerset, North)
I will detain the House for only a very few minutes. I should not have spoken at all had it not been for the perfectly appalling suggestions of my hon. Friend the Member for Crosby (Mr. Page), who has now left the Chamber. Before he left, I told him that I thought his suggestions were appalling and that I would try to undo some of the damage.
I must, as I have always done in these debates—and this is, I think, the fourth in which I have taken part—declare my very large personal interest in this matter. May I say first, following the speech of the right hon. Gentleman the Member for Ashton-under-Lyne (Mr. Rhodes)——
§ Mr. Leather
That is a mistake which should be put right. My experience is exactly the same as his, and, if I may, I will take this opportunity to pay a tribute to the present Comptroller-General of Export Credits Guarantee Department, because I think that he has established a co-operation and an understanding, particularly with his counterparts in Germany, such as we have never had before, and which is of very great value indeed to British exporters. I should like to have that on the record, because this has been very much his personal contribution.
There are two short points I want to make. This is the third or fourth occasion that I have been on my feet in this 424 House during the last few years when we have been raising the maximum limits of liability. I cannot help feeling that it is rather comic solemnly to take up the time of the House of Commons every few years to discuss something which we all know perfectly well is sheer fiction. The figures of these hundreds of millions are quite meaningless, as anyone who has bothered to read the export credit policy knows.
While I am all in favour of having opportunities to discuss the work of this Department, I would point out that the size of its growth can be easily ascertained by looking at the premium figures and the insurance turnover figures. These limited liabilities are obtained by the simple process of writing down 50 per cent of what every exporter thinks his annual turn-over will be. It is utter fiction. The risk of any exporter losing 50 per cent. on any one year's turn-over at one go is pretty remote, and the risk of the whole lot losing 50 per cent. at one go is so remote as to be not worth talking about. I think that the Minister might for the sake of using our time more intelligently look at this method of accounting these maximum credit liabilities, because they are a complete fiction and not very satisfactory.
With regard to the speech of my hon. Friend who has gone elsewhere, I hope and pray that the last thing the Government will do is solemnly to tell us that export credits are to be used for economic assistance to under-developed territories in the Commonwealth. There are very few people in this House—I can say it without conceit who can get more passionate over the need for this Government to do more on the lines of economic assistance for under-developed territories than I can, but this is not the way to do it. I was shocked when one of my right hon. Friends from this Box a few weeks ago solemnly put forward this suggestion.
To argue that granting insurances on capital goods to Ghana, for example, is part of our great policy to assist the capital development of Ghana is quite fantastic. The same Department in the same way grants great insurances for capital goods to the United States, and by the same argument Ministers could say that this is part of Britain's policy of economic aid to the poor depressed Americans, or the Russians or the Germans for that matter. It is really standing export credits on their head. I 425 do not know where the idea came from. I was shocked when the Minister concerned brought up the idea a few months ago, and I am certain that he had been very badly briefed. I hope and pray that we shall not get that argument again.
This is a commercial insurance organisation. It is doing a first-class job, but to mix it up with economic aid to under-developed territories is to mix up two completely and absolutely unrelated subjects. In so far as it is of assistance to the country concerned to receive longterm credits from Britain, that is being done automatically already. There is nothing more that needs doing in that respect. I do not see that there is anything more that export credits could do. If there were, those with whom I am associated would have thought of it already.
Secondly, if we are going to try to divert this already understaffed and overworked Department to a completely new theme, the services given by this Department to industry will deteriorate. The only complaint that one can make of the Export Credits Guarantee Department is that severe delays frequently occur in getting answers to my problems. What frequently happens—and it happens every day in the week in my working life—is that when an exporter is tendering, the tender very often must go in during the afternoon and it is not possible to get a decision in time. I would not like that to be taken as a reflection on the civil servants who are doing the job. There are very few senior civil servants available, and they work very hard and long hours. If the Government were even tinkering with the idea of loading some completely new 'tasks on to the civil servants, severe harm would be done to the British export trade.
These three specific deals with Pakistan, Iran and Yugoslavia were quite exceptional. They were possible under Part III of the Act, but they were quite exceptional. The odd one may occur every two or three years, and in such cases this would be the most convenient way of doing the job, but I hope that the Minister of State will give an assurance that the Board of Trade is not thinking of making this a standard pattern for economic aid. If it does, it will stand export credits on their head. What the Board of Trade is doing may be completely legal, but 426 it is the opposite to the intention of this Department and it would be treating an already overworked Department in a way which would be very deleterious to the export trade of this country.
Let us have much more economic aid to the Commonwealth, but let us not find the Government pretending that this is the best way to do it. It is not relevant to the issue and it would divert the attention of this Department in a way which would do real harm to our export trade. I hope the Minister of State will give a categorical assurance on that point, that this red herring which has been introduced will not be pursued any further.
§ 5.23 p.m.
§ Mr. Eric Fletcher (Islington, East)
I thought the Minister of State was unduly modest in his speech when commending this Bill for a Second Reading. He seemed to suggest that it was a short technical Bill, whereas, as I think has subsequently become clear from the debate that has ensued, the Bill is of very great importance to this country's export trade and to our whole balance of payments position. Nor did I think that the Minister of State lived up to the professions that he made of explaining some of the Clauses as he hoped to make them clear beyond a peradventure.
I want to put one or two questions on that latter point, but first, like everybody else who has participated in this debate, may I, from my relatively small knowledge of the subject, pay a tribute to the excellence of the work which this Department has been doing over the years. I think all exporters and traders, all who have had any occasion in any way to come in contact with the Export Credits Guarantee Department, are impressed both with the very efficient work which it is doing in performing a public service which is unique, and also with the spirit of helpfulness and co-operation which pervades those who work in the Department in giving advice and assistance to traders.
Having said that, I should like to make two minor suggestions for the benefit of the Department, one of which I think has already been mentioned this afternoon. The hon. Member for Crosby (Mr. Page), in the course of a speech with most of which I disagree, said that this Department fixes rates and has no 427 difficulty in doing so because there is no competition. But, of course, that is not quite true. There is a great deal of competition, not internally but internationally. The essence of the service which this Department is rendering to British exporters is that it enables them to compete with continental and other exporters.
Therefore, the rates which are fixed for these credit facilities have to be competitive. Indeed, experience shows over and over again in a number of trades that it is only by the service rendered by this Department in providing cover at an appropriate rate that British exporters are able to compete effectively and successfully on very narow margins with their competitors in France, Belgium, Holland, West Germany and elsewhere.
From that point of view, I have heard only two criticisms or suggestions of a critical nature about the Department. They are both directed to enabling exporters to compete more effectively with foreign exporters. As the Minister will know, the length of credit which is covered for Iron Curtain countries is normally fixed at three months. In special circumstances the Department will give cover for transactions entered into on a six months credit basis. It is becoming increasingly common on the part of continental exporters and others to secure in their country extended credit beyond the ordinary 90 days. If those continental dealers can get cover for a lengthy period, it is desirable that British exporters should have the same advantage.
Will the Minister also bear in mind that the limit of 90 days—and here I am speaking particularly of Iron Curtain countries—was presumably fixed many years ago when, I think it is fair to say, without putting any gloss on it, the political risk, the risk of war, turmoil and uncertainty beyond the Iron Curtain, was much greater than it is today. Therefore, if, as I am sure it must be, part of the policy of the Government is to encourage trade with Iron Curtain countries as well as with all other countries, there might be a case for reviewing the circumstances in which the length of cover is given.
The other point was the one to which the hon. Member for Somerset, North (Mr. Leather) referred. As he said, it is very often a matter of the greatest urgency 428 to traders to know within a matter of days, sometimes hours, whether a certain transaction will be insured by the Department or not. Everyone appreciates that inquiries have to be made. My experience, such as it is, is that the Department always works with the greatest speed, and I am sure that it realises the necessity for giving merchants replies on such subjects with absolute dispatch.
I now turn to some of the observations made by the Minister. I am bound to say that I do not think the right hon. and learned Gentleman made it clear what really is the distinction between Section 1 guarantees and Section 2 guarantees. In so far as I understood him, he said that Section 1 guarantees were commercial guarantees and that Section 2 guarantees were special guarantees. I rather gathered that the only real difference is that Section 1 guarantees, the commercial guarantees, have to obtain the approval of the Advisory Council, whereas what are called Section 2 guarantees need not obtain the approval of the Advisory Council, but may be given by the Board of Trade if that Department thinks it in the national interest so to do.
§ Mr. Walker-Smith
Substantially that is right, so long as the hon. Gentleman appreciates all the time that within the special guarantees under Section 2 there are two different types and that he is, therefore, referring to the former.
§ Mr. Fletcher
I am coming to that because, of course, the Bill deals almost entirely with Section 2 guarantees. Therefore, it includes both guarantees which are similar to Section 1 guarantees, except that they do not require the approval of the Advisory Council, and it also includes the quite special class of economic assistance to countries outside the United Kingdom such as Pakistan, Iran and Yugoslavia.
With regard to the point made by the hon. Member for Crosby, I think it is just as well to get it clear. It may be an academic point, but, as I understand it, it would be possible, if the Department so desired, for it to give, on the same transaction, a guarantee of 85 per cent. under Section 1 and the balance under Section 2—it may not be desirable, but I think the Minister of State would agree that it would be legal. If the Department gave a particular commercial guarantee up to the limit recommended 429 by the Advisory Council the Board of Trade could still under Section 2 say that in the national interest it was desirable to increase it. Although such cases may not arise, I hope that the Minister of State, looking at the matter purely as a legal one and as to what is practicable would not exclude the possibility of it being done if it were desirable. I do not want to pursue the point because it may be academic.
What I really want to ask the Minister about is this. I do not think that the right hon. and learned Gentleman explained very clearly for what use the extra £100 million is required. Is it required to increase guarantees of the first class under Section 2 or is it required to increase guarantees of the second class under Section 2? The right hon. and learned Gentleman told us that at the present date, commitments under Section 2 amounted to £72 million and that there were contingent commitments of another £74 million, make a total of £146 million. We have therefore got very near the existing limit of £150 million and are going to authorise another £100 million.
It would be useful to the House to know the breakdown of those figures as between the two categories which fall under Section 2. Could the Minister please tell us how much of the existing commitments, including the contingent commitments, of £146 million are in respect of guarantees for economic assistance for countries outside the United Kingdom? I do not want, at the moment, to enter into a debate as to what is the most desirable way for the Government to use the extra £100 million which is to be granted, but I think that the House is entitled to know the Government's intentions in this respect and why the extra cover is being asked for.
In so far as there may be any alternative choice before the Government, I would hope, as my right hon. Friend the Member for Battersea, North (Mr. Jay) said, that we should use these additional facilities for the purpose of extending very considerably this country's export trade not only to Soviet Russia but also to China. I find it very difficult to find what there is in the present international situation which justifies the continuance of the existing restrictions on trade with Russia and China. I understand that this is one of the subjects which is being discussed at this very moment in Bermuda 430 between the Prime Minister and President Eisenhower. Whether or not we can obtain the concurrence of the United States to our own ideas. I very much hope that in the near future the Government will be able to announce a very considerable removal, if not total removal. of the existing restrictions on trade with China, because there is a vast potential for British exporters there. It may well be—I hope it will—that some of the extra money voted under the Bill will be used for that purpose.
§ Mr. Leather
I am entirely in sympathy with the hon. Gentleman and all in favour of having more trade with China. I agree that the present restrictions are nonsensical. However, I am under the impression that (a) the Chinese have no sterling, and (b) nothing whatever to export to us with which they could pay on any appreciable scale. If the hon. Gentleman has any ideas about that, I should be very grateful to hear them.
§ Mr. Fletcher
I do not want to be drawn into details, but I think the hon. Gentleman is mistaken. At the moment, trade with China is obviously on a very small scale, but China is a very large country with an immense potential, immense quantities of raw materials and other goods, and a country with which we used to have a very large trade years ago. I see no reason why, given a sensible economic policy and the removal of restrictions, a very large trade with China could not be built up again by this country. It may need assistance in the form of guarantees by the Department in the early stages, but it seems to me one of the most promising fields for developing a greater export trade. I am quite sure that if we do not do it, some of our competitors will.
I pass from that to two or three final points. I am sure the Minister of State 431 will realise that it is now five years since we had a debate on the workings of this Department. As the hon. Member for Somerset, North stated, we had some very interesting debates on the subject some years ago, one in 1952 and another in 1949 one of which, if I remember correctly, went on all night or at least into the early hours of the morning.
I have always thought it is most important that the work of this Department should be widely known. I was reading last night the OFFICIAL REPORT of the debate that took place in 1949. The Minister of State, Board of Trade is, no doubt, familiar with it. There were two most important speeches. One was by the President of the Board of Trade and the other was by the Parliamentary Secretary to the Board of Trade. Curious though it may seem, in those days both the President of the Board of Trade and the Parliamentary Secretary were very critical of the workings of this Department and were prolific in suggestions how it should be improved.
§ Mr. Fletcher
The present President. He made a long speech putting forward many suggestions how the work of this Department should be improved, and he was supported by the present Parliamentary Secretary It seems to me a little significant that neither of them, who now occupy Ministerial office giving them responsibility for this Department, has come to advocate the Bill today. I wonder if there is any significance in the fact that this duty has been entrusted to the Minister of State, Board of Trade.
§ Mr. Fletcher
Yes, and I am making a similar complaint, that neither the President of the Board of Trade nor the Parliamentary Secretary is here today.
I want to remind the House of criticisms which were then uttered of this Department by the present President of 432 the Board of Trade and the present Parliamentary Secretary. I ask specifically whether, now that they are in charge of the Department, they are of the same opinion as they were in 1949, and, if so, what steps they have taken to improve the shortcomings to which they then drew attention. Five or six specific matters were mentioned by them. They are very relevant to this debate. The whole House and the whole country will be interested to hear what the situation is now.
The President of the Board of Trade drew attention to this aspect of the matter. He said that the volume of exports was increasing at a much higher rate than the proportion of exports covered by the policies of the Export Credits Guarantee Department. Would the Minister of State say whether that is still the case, and, if so, why it is the case, and also what is the present policy of the Government to deal with that problem?
§ Mr. Walker-Smith
I traced the movement from 1949 to the present day. The hon. Gentleman must have been listening with less than his usual diligence and attention or he would have noticed the striking use, possibly not unaffected by my right hon. Friend's constructive suggestions.
§ Mr. Fletcher
I made a careful note of what the right hon. and learned Gentleman said. He gave us what struck me as being some very coloured and selective figures. He mentioned certain specific years, 1949, 1950, 1956 If he looks up his speech he will find he did not deal in any way with the general trend between the rate of exports and the rate of exports covered by the Department.
§ Mr. Walker-Smith
Let there be no misunderstanding about this. There was nothing sinister or even selective about the choice of those years. I chose them purely to illustrate the trend by the comparison of the pre-war with the post-war. I took the year 1949 to 1950 for two reasons only: one, that it was ten years from 1939 to 1940; and the other was its relation to this Bill. That is all.
§ Mr. Fletcher
I am obliged to the Minister of State, and I am very glad to feel that he has been able to deal, to his own satisfaction at any rate, with this 433 matter. I hope that he will be able to deal equally to his own satisfaction with the other five matters.
The second which the President of the Board of Trade in those days stressed was that the Department and its schemes did not get sufficient publicity. He thought much more publicity ought to be given to the work of the Department and that its activities should be more widely known so that all exporters and others could know about the facilities which were offered. I therefore ask the Minister of State if he will give us an assurance that he is now doing everything to ensure that the work of this Department is as widely known as possible.
The third matter, which, I think, is one of more substance, was this:How are we going to improve the system of guarantees? We want something rather more flexible.The right hon. Gentleman complained that there was a certain rigidity about the kind of policy which the Department offered. He said the exporterhas to take out a comprehensive policy covering the solvency of his debtor, the risk of war, the risk that a foreign country may put on exchange control, the risk that there may be some change in the import policy. All the risks must be insured against together."—[OFFICIAL REPORT, 2nd February, 1949; Vol. 460, c. 1708.]He was suggesting it would be convenient to have a much more flexible policy so that an exporter could insure against more risks at a lower rate, but not be compelled to insure against them all. I ask the Minister of State whether the right hon. Gentleman is now proposing to act upon the suggestion he made in 1949 and introduce a greater measure of flexibility in the kind of policy offered by the Department.
Then there was another very pertinent suggestion. I thought so at the time. I listened to the speech with care. The present President of the Board of Trade made this suggestion:In the past the Department has advised, if not insisted upon, an exporter covering with them the whole of his business in a certain market."—[OFFICIAL REPORT, 2nd February, 1949; Vol. 460, c. 1709.]He said that was quite unnecessary. To my knowledge there are cases in which exporters would like to be able to cover certain transactions without being compelled, as a condition of doing so, to 434 insure with the Department the whole of their transactions for a period of a year or so in a certain market. The right hon. Gentleman thought it would be a good thing to relax that unnecessarily severe restriction. Would the Minister of State please tell us whether now that he is in office he agrees with the suggestion made by the President and is prepared to relax the conditions of the policy in that respect?
I think it is worth noting that the right hon. Gentleman, criticising, as he then was, a proposal to raise the figure under Section 2 from £50 million to £100 million—we are now increasing it from £150 million to £250 million—said that that was giving the Government a blank cheque. Would the Minister of State tell us whether what he is now asking for is a blank cheque, and if it is not would he please tell us how he is proposing to fill it up? Because nothing whatever that he said in his speech indicated in the slightest degree to me or my hon. Friends how this £100 million, which the President of the Board of Trade regards as a blank cheque, is to be utilised. I think we are entitled to know.
Finally, the present President of the Board of Trade made another suggestion which I thought more controversial. He thought that the work of the Export Credits Guarantee Department should be extended to cover credit facilities for imports as well. In a sense, that would be an even more startling innovation than that of the hon. Member for Crosby, which the hon. Member for Somerset, North demolished with such effect.
Mr. Eccles, as he then was, referring to the Marshall Plan and to O.E.E.C., seemed to think that the work of this Department could quite easily and very profitably be extended to cover a great deal of bilateral and multilateral transactions and thereby would benefit importers as well as exporters. I confess that it was not particularly clear to me how that was to be done. I do not think that my right hon. Friend the Member for Battersea, North (Mr. Jay), who at that time was Economic Secretary to the Treasury, understood it either because he certainly, and I have no doubt very wisely, refrained from any comment.
However, it is satisfactory and I am sure it must warm the heart of the President of the Board of Trade that he now 435 has the opportunity of introducing all these improvements and refinements in the work of his Department— some which struck me as very serious and well-meaning and others which my hon. Friends suggest were light-hearted. As this is the first opportunity that the President of the Board of Trade has had, to tell us, though he has deputed it to the Minister of State, I am sure that we are entitled to know what he thinks.
§ 5.52 p.m.
§ Mr. John Cronin (Loughborough)
I was most diverted, like other hon. Members, by the reference of my hon. Friend the Member for Islington, East (Mr. E. Fletcher) to the President's views in 1949, but it is perhaps a little hard to go back as far as that. We find that members of the Government Front Bench vary in their views over much shorter periods. When we discussed the Cinematograph Films Bill, a matter of a few seconds caused a very large difference of opinion on the part of the President.
I should like, however, to draw attention to what was in many ways a lucid and excellent speech by the Minister of State. He referred to Clause 2 in a somewhat light-hearted fashion. The Clause is a piece of retrospective legislation to cover a serious irregularity in his Department. My right hon. Friend the Member for Battersea, North (Mr. Jay) went into this matter in some detail, but I do not think that he actually pointed out that the Department found that it was acting cultra vires counsel's opinion in October, 1954. Then, in spite of having counsel's opinion, it was acting irregularly, and it continued to do so until July, 1955, when it was stopped only by the vigilance of the Comptroller and Auditor General, Sir Frank Tribe.
Paragraph 48 of the Sixth Report of the Committee of Public Accounts states:their action in continuing to apply for issues from the Consolidated Fund in spite of that opinion, and without taking any steps to remedy the position under the defective agreement until the matter was raised by the Comptroller and Auditor General, was quite irregular. They hope that all possible steps will be taken to guard against any recurrence of such irregularities.It may be that the House can regard with indulgence the Department's overstepping its legal limits, perhaps from enthusiasm to get work done, but it is 436 symptomatic of the real weakening of Treasury control that is taking place under the present Government. Certainly, Treasury control is hardly likely to be strengthened by the remarks of the Minister of State today. He referred to Clause 2 as being on a technicality. Can we accept that the decisions of the House are merely technicalities? He said that Clause 2 was designed merely to overcome a procedural difficulty. Is an Act of Parliament a procedural difficulty?
In an intervention, when my right hon. Friend the Member for Battersea, North was speaking, the right hon. Gentleman suggested that the real fault was with the Government which in 1949 drafted the Export Gurantees Act, 1949. It is a most extraordinary doctrine that a Department can blame a Government for drafting an Act which the Department has contravened. One has the impression that there is a tendency in the Board of Trade not to admit when one is wrong. One feels that the Minister of State has followed a bad example. We would have accepted Clause 2 much more happily if the right hon. Gentleman had made a frank avowal of the error which is patent to everyone.
Clause 3 brings us up against the painful effects of the Government's credit policy, particularly the raised Bank Rate. It is perhaps poetic justice that the Board of Trade has had its antennae singed by the blast from the Chancellor's credit-squeeze blunderbuss. I hope that the Minister of State will try to induce the Chancellor to modify the severity of the credit squeeze.
Clause 1 is a more welcome part of the Bill. It does not arise from any errors, either of administration or of policy. It would, however, be much more welcome if it became necessary on account of any general rise in exports. Unfortunately, the Clause is in the Bill merely for the purpose of increasing guarantees for risks which are not commercial—in other words, a very minor part in actual money sums of the work of the Export Credits Guarantee Department.
The Minister of State gave us some figures, which my hon. Friend the Member for Islington, East suggested were rather selective. It seems to me that there is a good deal of substance in that suggestion. In page 12 of a very excellent and lucid booklet called "Payment 437 Secured", issued by the Export Credits Guarantee Department, there is a graph of the actual business taken from year to year. This business increased in a meteoric way from 1945 to 1951 and then there was a sharp decline. Business decreased considerably and, presumably from the figures the Minister of State has given us, it has only just recently increased again, though I doubt whether it has reached the 1951 level. We should like the Minister of State to tell us, perhaps more clearly, whether business has really substantially increased during that period, because the figures issued by his own Department tend to controvert that.
It would be very happy indeed for us if the export position were satisfactory. Admittedly, there was a small increase in exports last year, but there is no escape from the fact that we are having a declining share of the world export market. That simply means that our exports are increasing to a lesser extent than those of everybody else, that we are merely taking part in a world process but to a much more limited extent than should be the case, and that we are in fact dropping behind.
In 1949 the present President of the Board of Trade made some suggestions to which my hon. Friend the Member for Islington, East referred today. There seems to be a good deal of substance in at least two of those suggestions. The first concerns publicity. This Department will obviously be an enormous help to all exporters and potential exporters, but is it widely known to all the business interests concerned? Personally, I have never seen an advertisement in the financial Press referring to the Department. One does not know whether all the small firms are circularised. Are steps being taken to ensure widespread publicity to any firm likely to increase our exports? I should be glad if the Minister of State could reassure us on that point.
There are some grounds for dissatisfaction about the omnibus nature of the risks covered. If one looks at the ordinary policies issued by the Export Credits Guarantee Department, one finds a very wide range of risks which are all covered simultaneously for the same premium. I feel that many of these risks are either very small or certainly such as would not be likely to occur.
438 For instance, let us consider a firm exporting motor car engines to the Australian Government. Under the comprehensive scheme it would be insured against additional handling charges occurring through interruption or diversion of voyage. It could be insured against any other cause of loss occurring outside the United Kingdom and not in the control of the exporter. These are useful forms of insurance, but would the exporter to the Australian Government want insurance against the insolvency of the buyer or against war between the buyer's country and the United Kingdom or against the buyer's refusal to pay within twelve months? It seems to me that these are remote contingencies for insurance. There seems to be a substantial case for cutting the cloth more consistently with the requirement of the customer.
I think a very helpful extension of the power of the Act would be if some provision were made to guarantee the export of capital. There is no doubt that a very substantial advantage is to be gained by investing capital in other countries. The United States has found that of enormous value. It has a scheme in which the Economic Co-operation Administrator can guarantee money invested in foreign countries for capital projects. Quite apart from the vexed question of help to our newer Dominions, which we have debated, it seems that there might be some advantage in extending the export guarantee scheme in limited cases, at the Department's discretion, to capital invested in foreign countries.
We have debated this somewhat limited Bill at considerable length and it would be ungracious if we on this side of the House did not make it clear that we think very highly of the work of the Export Credits Guarantee Department and that we think it is doing a very fine job and in many respects is pioneering new fields of financial activity. We certainly accept Clause 1 with pleasure and satisfaction.
§ 6.4 p.m.
§ Mr. Walker-Smith
Perhaps I may have the leave of the House to reply briefly—briefly in view of the volume of business still before the House—to the points raised in the debate. On the whole it has been an extremely pleasant debate, and I should like to start by thanking the hon. Members for their agreeable references 439 to myself and for the tributes which they have rightly paid to the work of the Department. I should also like to thank my hon. Friend the Member for Somerset, North (Mr. Leather), who has explained to me that he has been compelled to leave, for his kind and well-merited reference to the Comptroller General of the Export Credits Guarantee Department.
The only harsh words which have been spoken in the debate fell from the right hon. Member for Battersea, North (Mr. Jay), perhaps echoed in milder terms by his hon. Friend the Member for Loughborough (Mr. Cronin), in relation to the past history of Clause 2. I do not intend to take up the time of the House with a protracted post mortem. When I say that it is a technical matter, that does not mean that it is of no importance. I am distinguishing it from the main points of the Bill in Clause 1, which has important repercussions upon our export trade.
In so far as the Export Credits Guarantee Department was not able to implement the intention of the 1949 Act by the procedure which is prescribed, it bears a measure of blame from which it would not wish to retreat. But there is also a measure of blame upon the farmers of the 1949 Act from which the right hon. Gentleman cannot successfully dissociate himself by however so emphatic a shake of his head.
All these things are relative. In my view to talk of "irregularities" is to use rather extravagant language. I am quite prepared to make an admission of error on behalf of the Board of Trade and the Export Credits Guarantee Department in this sense, but I do not think I could properly go beyond a phrase which may awaken some nostalgic thoughts in the mind of the right hon. Member, that this was just one of those occasions on which it turned out that the gentlemen in Whitehall, in the event, did not know best.
§ Mr. Jay
All I asked the Minister to say was that the Government intended to take steps to prevent this sort of thing from happening again. The Public Accounts Committee, and not I, said that it hopedthat all possible steps will be taken to guard against any recurrence of such irregularities.It is reasonable to ask the Government, I think, to say that they mean to comply with that.
§ Mr. Walker-Smith
That is why we have written Clause 2 into the Bill at the earliest possible opportunity. I have explained the genesis of Clause 2 and I have explained that when the procedure did not fit with the requirement of the Act counsel devised what I called a revised procedure which complied with the technicalities of the Act. On the other hand, this was an artificial concept, and we therefore now have Clause 2 which will provide a viable method of implementing what at all times was the intention of Parliament under Sections 2 and 3 of the 1949 Act.
§ Mr. Ronald Williams (Wigan)
The right hon. and learned Gentleman is asking a lot more than that. Clause 2 definitely provides, although not in express terms, that whatever consequences could have flowed as a result of these illegalities, these will now be prevented by Clause 2, if we accept it. The right hon. and learned Gentleman cannot have it both ways. If he is saying that, perhaps in an excess of zeal, the Department did certain things which the House ought now to regard as something which it should overlook and for which full indemnity should be provided, there is no one more likely to accept such a proposition than the House. But he also says that this is a trifling matter, an artificial question and a purely technical question of no significance at all. He is asking for an indemnity in Clause 2 which up to the present I most heartily would have given him.
I was under the impression until his last few words that there had been irregularities and that the word "irregularities" was the proper word to apply, but I do not think that, because there have been irregularities, there should, therefore, be an investigation into every case and that a rigorous prosecution should follow. It seemed to me there was another way of doing it and that this was, perhaps, the right, gentle and sensible way of doing it. I hope that the Minister will not, at this stage of the debate, force us into the position of saying that although up to the present we could have accepted Clause 2, we must now have doubts about it.
§ Mr. Walker-Smith
The hon. Gentleman uses the language of indemnity and proceedings in respect of individuals. What this Clause is primarily for is to 441 make it clear that the agreements entered into by this procedure, which was not in total accord with the requirements of Section 3 of the 1949 Act, are not rendered ultra vires. They are restrospectively validated, if necessary, by the Clause in this Bill for which we are seeking to obtain a Second Reading today.
As regards the extent of error, I used the word "technical" in the sense in which I have already sought to define it. I used that word as meaning that the action taken did not, so far as I can see, go beyond the intentions of Parliament, albeit it did not in all respects comply with the procedural requirements of Parliament. It is not to say that it is a small thing, because the sovereignty of Parliament is absolute and what it says must be done, but I was seeking to distinguish it from any effort to go outside the intention of Parliament. Indeed, inso-for as the Department erred in these matters, it erred—I will adopt the hon. Gentleman's own phrase—"in an excess of zeal" to implement what has been the evident intention of Parliament throughout.
§ Mr. Jay
We never suggested—I do not think anyone did—that the Department attempted to go outside the intentions of Parliament. Nor, indeed, were we blaming anybody. We are merely asking the hon. and learned Gentleman to say that, although he is proposing to change the law in this way, it is the intention of the Government to ensure that, even when the law is changed, other irregularities are not committed. I do not see why he should not say that.
§ Mr. Walker-Smith
Yes, the Department—indeed, the Board of Trade—will seek to be as competent as possible in this and all other matters. I will unreservedly give that assurance to the right hon. Gentleman, with which I hope he will be content.
Now, if I may come to the specific points raised during the course of the debate, the right hon. Gentleman asked first about the economic assistance agreements. There are, in fact, only three current ones, to which I referred. There was a concluded agreement with Iraq, but that has been paid off, and therefore that is not a current agreement. His next question related to the total of exports covered by Section 2, special guarantees. 442 The total figure, from the inception of the scheme to date, is £220 million. The position at 31st March, 1956, which is the last balance, for the Section 2 scheme was, for encouraging trade £867,000 odd, and for economic assistance nearly £226,000, a total of £1,093,587.
The next question put by the right hon. Gentleman was rather a wider one, whether the increase for which we ask the consent of Parliament in the Section 2 permitted maximum liability reflects evidence of the Government's belief in increased trade with the Iron Curtain countries. That is not a necessary inference to be drawn from this, because, of course, there are other purposes for the Section 2 guarantees. I mentioned more particularly in this context the Middle East, which is particularly in our minds in this increase of permitted liability. However, I should like the right hon. Gentleman and the House to be clear about this point. He rather gave me, at any rate, the impression that he thought all Iron Curtain business could be dealt with only under the special guarantees under Section 2. That is not the case. It is possible for exports to Russia to be dealt with, and there are cases in which they are so dealt with, under the ordinary commercial guarantees under Section 1.
As to the general position of the embargoes, I do not think this will be the occasion for me to seek to add to what has already been said in this House by the Government on this matter. As the House knows, the Government are prepared to encourage trade with East Europe and China in non-strategic goods. As regards strategic goods, the embargo is operated in consultation with our partners in the Paris Consultative Group, and any change in the embargo must be agreed with our partners in that Group. My right hon. Friend the Minister of State for Foreign Affairs has already said today that it is likely that the embargo will be amongst the subjects discussed at Bermuda.
The next point of the right hon. Gentleman related to Clause 3 in respect of the interest. He asked, would it not be perhaps more convenient for the Treasury to lower the interest? The right hon. Gentleman was at the Treasury rather longer than I, and knows more of these matters, but I understand that it would be contrary to the Treasury view of these 443 things to lower the rate charged to the Department and to give it a special rate lower than would generally be accorded.
His last question was about the net credit or notional reserve of £4,800,000 on the commercial guarantees at the end of the financial year 1955–56. That is a figure which represents the outcome of twenty-six years' credit insurance trading covering about £5,000 million of export trade. I call it a notional reserve because, as the right hon. Gentleman will appreciate, the Department does not hold it itself, because of the ordinary budgetary procedure. On his specific question about the losses on Brazil, the fact that there is this notional reserve of £4.8 million means that those Brazilian losses have been successfully wiped out.
I now turn to the points raised by my hon. Friend the Member for Crosby (Mr. Page). His first point has already been dealt with by other hon. Members in the debate, and I think he will now appreciate that one cannot mix Section 1 and Section 2 guarantees. In any event, even if that were so, one could not properly —I say this as a matter not of law but of insurance principle—give 100 per cent. cover in respect of any transaction because of the principle—I think the House will agree that it is a proper principle—that the exporter must retain an interest in the transaction for which he seeks cover.
My hon. Friend also asked about colonial companies. I am afraid that would be going outside the purpose and ambit of this type of scheme, which is designed to assist our own exports. It has been extended to overseas subsidiaries, but I could not properly hold out to my hon. Friend any hope that it could be extended beyond that.
My hon. Friend also asked to what extent this was used as a method of export steering. The Department's standard facilities are available for exports to dollar markets as to other destinations. Section 2 also provides for an exceptional range of facilities. I mentioned the interest in the dollar market in respect of applications under Section 2, and to that extent, though to that extent only, I think it might be said that they are in a way a form of export steering.
The last point made by my hon. Friend was the more controversial one about the use of the Export Credit Guarantees 444 Department in respect of supplementing colonial development and welfare work. My hon. Friend probably hardly appreciates just how controversial his point is, because I think he was not in the Chamber when my hon. Friend the Members for Somerset, North denounced the proposition in characteristically vigorous terms. I do not want to repeat what he said about that, and will merely say that the reference of my right hon. Friend the then Minister of State for the Colonies which was mentioned was, of course, to the economic assistance agreement aspects under Section 2. It would, of course, still be possible for Ghana, for example, or any other former Colony to have an economic assistance agreement under Section 2 in the same way as Pakistan already has. In addition to that, there is the ordinary availability of cover for the Export Credits Guarantee Department under the commercial guarantees and the first type of special guarantees. Those have a useful function, but it would not be right, of course. to put forward the Department as a substitute for, or an activity linked with, the colonial development and welfare activities.
The hon. Member for Ashton-under-Lyne (Mr. Rhodes) asked for a comparison of credit facilities with other countries, and in particular Germany. The credit insurance schemes vary from country to country, all being run, as ours is, on a self-supporting basis. The Export Credits Guarantee Department has information about these matters, not least because of its membership of the Berne Union, which is an international association of export credit insurance. But the information which is got by one country about another in this way is necessarily only partial, and it is also confidential. It would not, I think, be proper or possible to disseminate such information obtained on a confidential basis. Indeed, it would tend to weaken the basis of confidence which underlines the association in the Berne Union.
The hon. Member for Islington, East suggested that I had not made clear, to him at any rate, the difference between the special and the commercial guarantees. I am sorry if I failed to make it clear to him. As Dr. Johnson said: "I can only give him an explanation; I cannot give him an understanding." Perhaps 445 when he reads the OFFICIAL REPORT tomorrow he will find my explanation clearer than he at present thinks. He asked whether the increase was necessary for the first type or the second type of Section 2 guarantee. It is, in fact, necessary to cover future guarantees of both types.
The other point put by the hon. Gentleman referred to the splitting of the existing commitments and contingent liabilities. The contingent commitment figure which I gave is made up by £52 million for encouraging trade and £20 million for economic assistance.
The hon. Gentleman referred to a speech made in 1949 by my right hon. Friend the present President of the Board of Trade. I thought that the suggestions made by my right hon. Friend, as read out by the hon. Gentleman, were characteristically constructive and symptomatic of his far-ranging mind and his interest in these matters. The questions of publicity and flexibility will certainly be very present to our minds, and any improvements which we can make in accordance with those suggestions or the suggestions of the hon. Member, we shall certainly seek to achieve.
§ Mr. E. Fletcher
As the President of the Board of Trade has now arrived to support the right hon. and learned Gentleman, may we take it that what he has now said means that the President will be desirous of carrying out the suggestions which he made in 1949?
§ Mr. Walker-Smith
I was pointing out to the hon. Gentleman that in regard to the first point it has already happened in a very striking way. With regard to the point about increased publicity, that is an ever-present need, and we shall seek to make further progress under the inspiration of my right hon. Friend who has now assumed responsibility for the matters on which he was then advising. I hope the House will now give the Bill a Second Reading.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Barber.]
§ Committee Tomorrow.