HC Deb 12 April 1961 vol 638 cc243-6

Premium Rates

Medium-Term Business. A new scale of charges is being introduced.

The scale now displaced provided for heavy cumulative increases in charges both for the worse markets in comparison with the better, and for long oredit periods in comparison with the shorter. The substantial reductions in total charges now being made have been directed towards narrowing these differentials.

Countries are graded in four categories—A, B, C and D—with A commanding the finest rates. Charges in respect of D have been revised on the basis of a reduction of 40 per cent., and in respect of C of 33⅓ per cent. A and B charges have also been reduced by 5 per cent. The effect of this is that D rates will in future be three or four times as high as A rates, where previously they could have been up to seven times as high.

The reductions have been applied in such a way as to make the progressive increases smaller as the credit period lengthens. Cover on a transaction in respect of a D market which involved two years preshipment and five years subsequent credit might, under the old scale, have cost a once and for all charge of something over £10 per cent.; under the revised scale the corresponding charge would be £4 15s. And this will apply to some extent to the better markets also; for such a transaction in an A market the corresponding figures would be 38s. 9d. and 29s.

The new scale of medium-term charges comes into operation tomorrow. It is estimated that these charges, if applied to the existing pattern of medium-term business, would have meant a reduction of some 25 per cent. in income.

Comprehensive Business. Holders of comprehensive policies will, in respect of short-term business, have charges reduced by about a quarter and a third in respect of C and D markets; charges for A and B markets (which have already been reduced in this field) remain unchanged. Extended terms business will in future be related to the Medium-Term schedule, holders of comprehensive policies paying medium-term rates less, in appropriate cases, a discount; this discount varies according to the policy-holder's insured turnover and the amount of "spread" in the business offered in good markets as well as bad, and may be as much as 20 per cent.

The new charges come into operation tomorrow in respect of extended terms business, and from 1st May in respect of short term.

Long-Term Credit

The main features of these proposals are:—

  1. (a) The Export Credits Guarantee Department is being authorised in selected oases to guarantee due repayment of loans made to overseas buyers, the proceeds to be used for making payment to United Kingdom exporters in respect of contracts appropriate for the longer-term credit contemplated; this facility will be entirely separate from E.C.G.D.'s normal business of guaranteeing suppliers oredit.
  2. (b) Such financial guarantees should encourage banks and/or other private financial institutions to provide money for such loans to overseas buyers.
  3. (c) These facilities will be available on a basis of strict selection: that is, to qualify for consideration a transaction will have to satisfy the requirements set out below.

First, these financial guarantees are designed to assist in facilitating the sale abroad of large capital projects normally costing not less than £2 million (excluding local expenditure). Examples are power stations, steel mills, pipelines, industrial undertakings, railway projects and possibly harbours and dams. Ocean-going ships are another example, though the lower limit will not be as high as in the case of projects. Business will not be eligible if it can be covered by credit insurance within the shorter normal supplier credit period; further, the nature of the assets created must be such that their useful life extends substantially beyond the period of the loan.

Secondly, the prospects of due repayment must be such as to satisfy normal E.C.G.D. underwriting requirements, either because the buyer is creditworthy in his own right, or can make himself creditworthy by obtaining a guarantee, for example, from his Government or central bank. The country risk will also have to be acceptable for cover. For any proposals put up in respect of the weaker markets, exceptional treatment will have to be justified on the basis of good long-term prospects leading to a lasting and profitable connection for British trade.

Thirdly, there will have to be demonstrably strong commercial grounds for gaining the contract. These would include benefit to the balance of payments, the maintenance of a position in an established market in face of competition, the development of a market with a promising longer-term outlook, and the stimulus to an industry which is short of orders but on which we expect to depend in the future for a substantial volume of profitable exports.

To sum up: it will have to be demonstrated that there are adequate prospects of due repayment of the suggested loan and that the proposed transaction is suitable in character for long-term credit and will bring economic benefit to this country.

The intention will be that, where a supplier and a buyer come together in the usual way of business, the availability of such a guarantee will enable finance to be provided from private sources. The terms of payment between buyer and seller will have to provide for the buyer to make an adequate initial down-payment, and normally a final payment (the risk on which the supplier would carry himself) on or after completion of the contract. The seller would obtain the remainder of the price out of the guaranteed loan; the buyer would repay the lender by instalments over the full term of the loan.

In highly exceptional cases, where the business could not otherwise be financed and where in the opinion of the Government there were compelling reasons for regarding the project as one of outstanding economic importance to the United Kingdom, supplementary finance might be provided from the Exchequer under Section 3 of the Export Guarantees Act.

Charges for financial guarantees will be calculated on the basis of the new rates for medium term suppliers credit.

The Department is now prepared to consider business falling within the scope of these proposals.

Small Exporters

The Department has designed a simplified "Small Exporter" guarantee which will be available from 1st May to all exporters who have not exceeded £10,000 export turnover per annum in recent years. It will be available through all the Department's offices in London and the Provinces.

The guarantee will, for short-term business, provide 90 per cent. cover against loss. Claims will be payable four months after the event causing loss. Risks covered will be similar to those covered under normal short-term guarantees. Premium will be a flat rate of 15s. per £100 insured. Exporters will be able to cover individual buyers in any market for which cover is available, but all business with those buyers will have to be offered for insurance.

Transactions will be approved individually and a specific document, clearly stamped as covered by guarantee, will be available for an exporter to produce to his bank manager if he seeks finance.

This facility is specifically designed to meet the needs of the small business which has never exported, or has not exported on any significant scale; it is not intended for those able to make effective use of the normal E.C.G.D. cover. Once the holder of a "Small Exporter" guarantee has reached an insured turnover of £20,000 or at the end of two years, whichever is the earlier, he will be expected to use the Department's normal facilities if he wishes to continue with cover.