§ Order for Second Reading read.
§ 11.37 a.m.
§ The Minister of State, Board of Trade (Sir Keith Joseph)
I beg to move, That the Bill be now read a Second time.
The Export Credit Guarantees Department has for many years been carrying out an increasing volume of insurance business, and I am glad to say, since the country so desperately needs an increase in exports, that its business is steadily increasing today. I shall be mentioning considerable sums of money, but I should like to reassure the House straight away that the Bill should make no call whatsoever on the taxpayers' money.
The Department is a self-supporting institution taking one year with another. It has been successful in supporting itself over the years, but, whenever it ensures a policy, public funds are at risk if anything goes wrong with its self-balancing record, and so a limit is set to be approved by Parliament for the maximum amount which can be at risk. It has been the custom in the past not to try to estimate a limit which will cover the Department for very many years ahead, but to look only about three years ahead and set a limit to cover about that length of time, with the idea of reporting to Parliament when that looks like being exhausted.
I would briefly remind the House that the Department operates broadly through three Sections of the Export Guarantees Act, 1949, as amended. The first Section is the normal insurance of the vast bulk of the export business which is ensured through this country, I believe that last year it accounted for no less than 97 per cent. of the exports which were insured by the Department. This is business that is recommended as a sound commercial risk by the Advisory Council which gives its advice to the Department. For this Section 1 business there is already a £1,000 million limit, and there is no need, in the Government's opinion, to consider raising this at the moment.
Of the £1,000 million, £688 million is actually firmly insured at the moment, but a substantial amount of this will run 1295 off during the next three years, and against this run-off there has to be taken into account that there is, in addition to the £688 million, about £125 million of contingent insurance business. I give this only as background because, of course, Section 1 is not affected by the Bill. I thought the House would wish to know the reason why the Government are not dealing in this Bill with Section 1.
Section 2 covers business where the Advisory Council, because of political or economic uncertainties, does not regard exporting insurance to a particular market as being a good commercial risk. In such a situation, it is open to the Export Credits Guarantee Department and the Government to cover export insurance in the national interest, either by way of a standard comprehensive guarantee or by specific guarantees.
Also covered under Section 2 are the various relatively complex credit insurance operations, of which I will mention only the names—specific guarantees that cover individual longer term export projects; special guarantees—and there have been a number of these invented by the Department, such as the "Dollar Drive" policy, which has now been extended outside the dollar zone; small exporter policies, which were introduced only this year; and, as a final type of guarantee under Section 2, there is the newly introduced financial guarantee which is given not to the supplier, but to the lender of the money on which the supply is made. Those are all Section 2 operations.
But Section 2 of the original Act contains a limit up to which export insurance may be carried out, not only for all these types of export insurance I have mentioned as coming under Section 2, but also for Section 3 business. This business is really part of the assistance given by this country to underdeveloped countries, primarily to Commonwealth countries. It takes the form of economic assistance loans which are tied to projects in this country. It is the only form of aid given by this country which is invariably tied, and accounts for only about 25 per cent. of the assistance given to underdeveloped countries by the British taxpayer. It should not be taken as being anything like the whole of the aid we give to underdeveloped countries.
1296 Sections 2 and 3 share a common limit, which stands at £400 million at the moment. At the end of September, £356 million was already at risk, of which £211 million was actually at risk and £145 million contingently at risk. That is why it seems to the Government that, in order not to slacken the rate of export insurance in these categories, and particularly of economic assistance loans under Section 3, it is important that Parliament should now be asked to authorise an increase in the limit of £400 million.
In judging the amount by whcih we should suggest raising the limit—and we are asking for an extra £400 million to double the present limit to £800 million—we have taken into account what we hope will be a steady and considerable increase in all normal export business under Section 2, associated with small exporters, dollar drives, specific guarantees and financial guarantees. We have also taken into account that we hope that export business will continue to increase, as far as is prudent, to the non-commercial markets where comprehensive and specific guarantees are given under Section 2, and naturally we also have to expect, as the Chancellor of the Exchequer has explained, that, despite the difficulties facing the country at the moment, we shall continue economic assistance at about the present level.
For all these reasons, we think it sensible to suggest that, looking forward perhaps three years—and we cannot forecast exactly in these fields—we should raise the limit for Sections 2 and 3 from £400 million to £800 million.
We recognise that we shall have to come to Parliament again, as has happened in the past, to revise this limit as soon as it looks as if it is getting too close to the amount already at risk, but, subject to that, and subject to the warning that no one can predict whether this amount will last for three years, or for a trifle less or a trifle more, I commend the Bill to the House and hope that it will be given a Second Reading.
§ 11.45 a.m.
§ Mr. Douglas Jay (Battersea, North)
I hope that I am not belated in congratulating the Minister on his appearance in his new office, where, I hope, we shall see him as often as his predecessor, even if he does not talk quite 1297 as fast. It is a real, if rather a rare, pleasure in the House, to welcome Conservative legislation enlarging the work of the Labour Government. We all agree that the Export Credits Guarantee Department is an extremely successful public enterprise. The total liabilities which it is now allowed to carry rise to the huge sum of £1,800 million. I believe that about 20 per cent, of our exports are now covered in this way. The Minister of State did not give that exact figure, but perhaps he can do so later.
The Department runs entirely without any subsidy from public money, as he said. I think that it is true that, throughout its history, the Exchequer has not been a penny worse off for the operations of the Department. Our exports are disappointing enough in total, but one wonders where they would be if it were not for the operations of the Department.
The history of the Department is interesting. It started originally in 1919 in one of those bursts of post-war constructive reform which are usually followed by long periods of stagnation in this country. It developed into its present form in, significantly, 1929 when, I believe, my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) had a hand in it. This enabled it to move forward, and the next idea came in 1949, when the whole scheme was greatly developed by the addition of special guarantees and the economic assistance loans with public money under section 3.
What the present Government have done is to build on these provisions since 1951 by raising the limit for liabilities from, I believe, £500 million under Section 1—where the figure stood in 1949—to £1,000 million in 1959. The Minister is maintaining that figure, and under Section 2 the figure has risen from £100 million in 1949 to £400 million two years ago and £800 million in the present Bill. There has thus been a formidable increase.
These figures, as I understand them, are, of course, of liabilities and not of expenditure, in any sense, of public money. One point I had not been clear about but it was made clear today that the limit we are discussing—£400 million rising to £800 million—covers not merely 1298 special guarantees under Section 2, but also money raised under Section 3, which may be public money, for the purpose of acquiring securities.
§ Sir K. Joseph
It is public money that is used, but it is repaid because it is only in the form of a loan under Section 3.
§ Mr. Jay
I realise that, but I want to be clear that the amounts used for the purpose of acquiring securities are contained in the £800 million.
The point was explained to us by the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith), when he was Minister of State, when my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) said that it was as clear as mud. I think that the Minister of State has done very much better today. If my belief is correct, is it possible to be given the figure? I have not been able to discover the amount of public money advanced since 1959, nor of the actual amount outstanding now and not repaid. These figures might be of some interest.
Despite the success of the Department and its expansion today, I do not think that we should necessarily assume that we have reached the limit even now in the matter of public credit insurance. There is a rhythm in these things. Every two years we have a Bill to increase the limit. The Government say that everything possible is being done, and that any further concession would be a breach of the Berne Union. Then we have speeches by hon. Members suggesting further expansion. The Government usually tell us that it would be impracticable. Then, six or twelve months later, they come along with a statement proposing extensions very similar to those which have been proposed in this House. This has happened a good many times.
That leads me, being a little sceptically-minded, perhaps, to ask whether, even now, more could not be done. We all agree that our exports are still grievously inadequate. If it is the Government's policy not in any way to limit imports, to leave the job of exporting almost entirely to private enterprise and to turn down all suggestions to tax incentives for exports, surely export credit insurance becomes 1299 of cardinal importance to our whole economy. Indeed, in the economic debate on Tuesday, a number of hon. Members made suggestions for further developments.
The Chancellor of the Exchequer himself said that more was necessary. He used these words:I think there is room for improvement in our machinery.He was talking about exports and he added:My right hon. Friend the President of the Board of Trade and I are now examining whether there are opportunities for further action over the provision of credit and whether our arrangements for the various types of credit needed for various periods meet the requirements."—[OFFICIAL REPORT, 7th November, 1961; Vol. 648, c. 826.]We would like to know what the Chancellor meant and whether the Government have come to any decisions. If so, what are they, or how soon will they be able to announce further progress?
Is it impossible, for instance, at least while we are to be burdened with 6 per cent. and 7 per cent. Bank Rates, to have a scheme by which we grant lower interest rates for export credits? Otherwise, British exporters suffer a handicap. In the United States, during the past year the authorities have successfully managed to make interest rates for external purposes to some extent independent of internal rates. We were told by an hon. Member on Tuesday that the Bank of France now rediscounts bills for exports at a specially low fixed rate of interest, and so, I believe, does the Bank of Belgium. Therefore, one feels bound to ask whether there is any reason why the Bank of England should not do the same thing.
Do the Government consider that it would be unladylike for the Bank of England to do that? Would this be, in their view, a breach of the Berne Agreement? If so, I should have thought that we should take action to stop it being done by other countries. If not, however, could we not do something similar ourselves? I am not as expert on these operations as some hon. Members opposite who follow them closely, but I should have thought that in the case of large capital projects like the building of ships the rate of interest on exports might be decisive. I agree that we 1300 export, not for the sake of exporting, but to get paid. Nevertheless, since the history of the Department shows that normally we are paid, it would be shortsighted to be too strict on the terms of one's credits.
Secondly, as the Department is normally a guaranteeing body and does not itself supply the funds, is there not evidence of the need for a new source of credit for loans for a period of over five years and less than, say, ten years? I know that the banks claim to provide all that is necessary up to five years. The insurance companies have arranged facilities for longer periods over ten years, but there is evidence of a gap in between. I wonder whether the Government think that there is a case for a new finance corporation, perhaps either Government sponsored or quasi-Government, to fill the gap, or do they favour another type of body? Could the Department itself, which has great experience in this field, possibly fill the gap?
Thirdly, does not the Minister agree that there is still an imperative need for assisting, encouraging and galvanising the smaller firms into a much greater export effort? If our balance of payments problem is to be solved, whatever else is done it is obvious that we must get the small firms organised into the export market.
I know that the Department introduced a small-exporter scheme, which was announced by the former President of the Board of Trade in April. I wonder how it has prospered. Has it been successful and has it had any noticeable effect—it may be too early to say, but one would like to know—on the volume of exports from small firms? There are signs that something more far-reaching than we have done yet will be necessary if the many thousands of small firms which have not yet got into the export effort are to be mobilised.
I wonder whether the Government have considered more unorthodox ideas—for instance, perhaps a central exporting agency, possibly Government-sponsored, which might develop the necessary expertise and "know-how" and, indeed, buy goods from small firms and itself do the job of selling overseas. There are a great many private organisations 1301 which do this, some more and some less successfully, but they do not yet seem effectively to have mobilised the small exporter. Therefore, in view of what the Chancellor of the Exchequer said only this week to the effect that this machinery had still to be improved, I hope that the Minister may be able to give us a few more observations today and tell us what he thinks of these suggestions.
One thing of which I feel fairly sure is that we have not done enough either in the strict field of credit insurance or in the campaign to get the small firms into the export business. I also feel fairly sure that we must have new ideas and put them into effect. If nobody had had new ideas in 1919, 1929 or 1949 we should not have had the Export Credits Guarantee Department successfully dealing with hundreds of millions of pounds worth of business and we certainly should not be exporting on our present scale. I hope, therefore, that the Government will heed that moral, that they will not turn their face away from new ideas, however unorthodox, and that we shall even get a little more information about them this afternoon.
§ 11.58 a.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I also warmly welcome the Bill, and I agree with much that the right hon. Member for Battersea, North (Mr. Jay) has said. It is a tribute to the system of export credit guarantees that the limit has been increased from £200 million to £1,800 million in the short space of time since the war. That is the measure of the usefulness that this service provides.
In considering the limit of £1,800 million, we are, perhaps, approaching a stage when we shall have that figure or slightly less of capital invested in credit guarantees. Although this money does not come from the Export Credits Guarantee Department, it is lent to companies abroad. It is in itself an export, and it should in interest provide a help to our invisible export balance. I give great credit to the Export Credits Guarantee Department for the work it has done.
The only way that the Government can legitimately give financial assistance to our exports is by bolstering up the 1302 work of the Department and making sure that in every respect the service we provide is first class. I have heard it rumoured that some foreign Governments are offering honours to those who buy their exports. I would not suggest that we should go as far as that, but we should make sure that we match our foreign competitors in every possible field.
There are one or two points which I should like to raise concerning Section 2, particularly the long-term special guarantees for large capital projects such as ships, which are usually individually negotiated contracts. The problem which I have heard mentioned and which is a genuine one is that each case is taken on its merits by the Export Credits Guarantee Department, and in the case of some of our more dubious customers—I would be wrong to mention who they are—rather low percentages of the total credit required are offered for guarantee.
I have heard it said that only 70, 75 or 80 per cent. is offered for coverage. Very often, this leaves up to 30 per cent. of the risk to be borne by the manufacturing and exporting company making the item. This applies in those cases where the risk is greatest and where the instability of the régime to which we are selling is most severe. This has been a reason why some companies, particularly big ones, who are very busy, have not pursued export orders as often as they could.
If we wish to export to such countries—only the Government can take the final decision whether the risk should be undertaken—credit should be available up to the very maximum that the company requires. If this causes the possibility of a loss or a claim being made, the premium should be increased. That could be covered and allowed for in the price. Then there would be no fear of credit insurance not being forthcoming.
When, as at present, our more prosperous and forceful industries find themselves short of labour, of time and of manufacturing capacity, they will not pursue a difficult order unless they are absolutely certain that the credit insurance is tied up and safe. They will concentrate on easier markets which they can get, and the easier work, which is probably the home market work, at the expense of more difficult exports. 1303 That is not at all what our principal competitors do. They go all out for everything that is going in the world. There is certainly need, I think, for another look at the provision of this sort of credit—although this is not strictly to do with the present Bill—and I hope that my hon. Friend will take another look at the question of a possible Export Credit Finance Corporation, because I do not think that we should leave any stone unturned in trying to discover ways of helping in this matter.
The only other point that I should like to make concerns tendering for these projects. Very often busy companies have to do a large number of their big tenders every week, so to speak. They may put in prices for a much larger number of jobs than they are likely to obtain. Obviously it is a part of their effort on which they cannot spend too much time and energy. What rates of credit they will be able to obtain and what guarantees they will be able to get should be immediately available to such companies. I have heard exporters say, "We have put in a figure for the cost of the credit insurance and a figure for the cost of the credit, but we do not know whether those figures are right. We shall have to wait until we can get a direct answer from the E.C.G.D. and the City, because we cannot quite tell what the rate of credit will be if we get the contract and what the rate of credit insurance will be." It would be a great help if thought could be given to these problems of how to make easily quotable rates, both as regards interest rates and the percentage of total cost to be covered.
I hope that the Minister of State will take these two small points as constructive suggestions as to how our system can be improved without frustrating any of our international agreements. I should like once more to pay a tribute to this very vital and valuable service of the E.C.G.D.
§ 12.5 p.m.
§ Sir John Vaughan-Morgan (Reigate)
Perhaps I may begin by congratulating my hon. Friend the Minister of State on filling the important post to which he has now moved. I can think of few of my colleagues who are better qualified 1304 to fill it or who have a wider experience of business, which he will find most useful and most necessary in his Department. The Department with which we are dealing today is not, perhaps, the most entertaining section of his work. It will provide him with more headaches than almost anything else. He will find himself studying briefs for which it is essential to have an ice pack on the head and aspirins to hand. They are technical, they are complicated and the problems are almost always insoluble.
This is a most important section of the Government machine. It does work of vital importance to us at this stage in our history, work which, by and large, I think, meets with the approval and acceptance of the overwhelming mass of the business community. There is a minority which complains, which, quite frankly, is sometimes unbridled and very unfair in its comments both to the officials of the Department and, when they are ultimately able to reach him, to the Minister of State who will have to handle the problems. I came to the conclusion when I filled my hon. Friend's post that the worse the case the louder the criticism, and I think he will find that that is a fairly good guide as to the merits of a case.
This is an astonishing success story of the way in which the expert credit system has grown to meet the changing needs of exporters. It was, as the right hon. Gentleman the Member for Battersea, North (Mr. Jay) said, first started in 1919 to provide for the distressed countries in the Baltic. I see that on the 3rd July, 1959, the then Minister of State was stated to have said that it was started to provide aid for the Balkans; he was wrong, it was the Baltic. Today, with our dire needs, it is taking on a new and greater importance. I should like to congratulate my hon. Friend and his predecessor and the Department on the successful improvements which they have been able to make. The right hon. Member for Battersea, North said how often it happens that when bright ideas are put forward in debate or in correspondence in the newspapers, or by other means that may be available to businessmen or Members of Parliament, they are usually turned down by the Minister and subsequently adopted six 1305 months later. He knows and I know, and my hon. Friend knows, that the reason is that this Department, although supreme in its own sphere, is largely—dare I say it?—at the mercy of the Treasury. The Treasury is the Department of State which calls the tune, and it is only within the limits allowed that the Department can relax its regulations and provide a better service.
Today we are dealing with Sections 2 and 3—covering what is usually known as national interest business. I would like to hear a little more from my hon. Friend as to how the Department stands in relation to Section 1. Two years ago, when the last Bill was put forward, the Minister of State said that it would be enough for the next two or three years. In the light of the fact that Section 1 is not mentioned today, does that mean that we shall have another Bill next year? If so, the time is coming when we ought to consider whether a Bill should be necessary each time for a relaxation of the limits under Section 1, 2 or 3.
I know that there are very strong arguments for this being done each time by a Parliamentary Bill. If my hon. Friend will turn to HANSARD of 3rd July he will find them very cogently put forward by me. But I am not certain whether those arguments apply now. If the Department continues to expand at its present rate it should not have to wait for time in the complicated Parliamentary machine for a Bill to meet its needs. I put forward, as a suggestion to the powers that be, that it might be a good thing to take—within limits which the House must lay down very carefully—powers to relax the limits either by affirmative Resolution or even by a Clause in the Finance Bill. Both those means would give the House what we are having today, and what we need—time to discuss the Department and its work. I suggest that, out of courtesy to the House, it would help not to overload our time table.
I hope that my hon. Friend will say a word about the position of the Berne Union. That Union—that most successful international cartel, operated by and with the approval of Her Majesty's Government and several other sovereign Governments, all of whom dislike and 1306 attack restrictive practices when practised within their own boundaries—has helped enormously to prevent the growth of a credit race. It is probably true to say that no trading nation in the world has more to fear from such a race than ours. While welcoming all the relaxations there have been, therefore, I should like my hon. Friend to say whether he is satisfied that there is no risk of the Berne Union breaking down, or of our being looked on as the black sheep of the flock and finding ourselves competing against others in the relaxation of credit.
There is much confusion about the borderline between credit insurance and credit, which is the cause of a good many of the criticisms, misapprehensions and misgivings about the work of the Department, but it is a very clear-cut boundary. Confusion is made worse by the fact that the Department is also engaged in export credit insurance, which is made by the Government the instrument or the means of providing export credits as well. In those circumstances, can one wonder that the average exporter who finds himself turned down on an insurance risk is utterly baffled by the fact that the Department is also a source of credit?
I am now in a position to complain of the grossly inadequate information given about what is being done under Section 2 and Section 3. I know that there are very good reasons, but we ought to have—in a rather more accessible form than at present—some idea of the amount of money which is out at risk, first, in Commonwealth assistance loans, secondly, in those countries where the commercial risk is too great for the Advisory Council—that admirable and shrewd body of men—to accept as an ordinary commercial risk, and, thirdly, the amounts which, whether under Section 2 or Section 3, are given as "political loans". They may be credits, but they are really loans, in the degree of ultimate risk involved.
The help Which we can give is enormously appreciated under that category, as is shown by the fact that the limits have grown in twelve years, from 1949, to the figure of £800 million now proposed. I am not in any way critical of the amount being given or the amount of work that is being done. In many ways we wish that it could be more. 1307 We know what a help it is to some countries at a critical period in their history.
If the House will forgive me, I should like to relate an anecdote. When I was Minister of State I went out on one of those very worth-while journeys which the present Minister of State will find himself taking, and on the way I called in at a certain country which had reached a very critical stage in its economic history and was very hard-up. We had agreed to give it a credit for £5 million, under Section 2 or Section 3, and I was the ambassador who bore this welcome gift.
When I arrived I was treated, not unnaturally, as a very honoured guest. Instead of staying at the British Embassy I was the guest of the Government, and I was feted. But during all my conversations with the Head of State and with all the Ministers singularly little was said about this generous gift, which I found very baffling. It was mentioned, but it was dealt with rather perfunctorily. Finally, on the last night of my three-day visit, a dinner was given in my honour and speeches were made. Again, very little reference was made to this handsome gift, and I found myself beginning to wonder whether our help was really appreciated.
Finally, when the hour for departure came, the last guests had gone, leaving me alone with the Minister of Finance, and I was about to fly off to other places, we said goodbye, and he took my hand in both of his and said, "Thanks awfully for the £5 million". Those words are engraved on my memory, and have been a great solace to me when I have had some painful interviews with my bank manager concerning rather smaller sums of money.
The amount which is out under Section 2 and Section 3 has grown, and is largely a measure of the uncertainties in the state of the world. My only plea is that the House should be given a little more information than it has been given so far. Again, I join with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in all that has been said about the contribution which the Department is making to our economy.
§ 12.20 p.m.
§ Mr. T. H. H. Skeet (Willesden, East)
I join with other right hon. and hon. Members in paying tribute to the appointment of the Minister of State. I believe that he has all the qualifications necessary, and I am very thankful indeed to have him in this Ministry. The House demands a certain amount of information on this very important topic and that is why this debate is taking place today. My hon. Friend indicated that maximum liabilities stood at around the figure of £356 million and that, therefore, it was desirable to extend the ceiling to £800 million.
If we go back to 1949, we find that we started off with £100 million. The next step up was to £250 million in 1957 and the next was to £400 million in 1959, and the bill for this year will be £800 million. Looking at some of the figures, I think that the maximum liability outstanding at the end of the year 1960–61 for special guarantees is £225 million made up of a maximum liability in economic assistance—that is Section 3 largely—of £158 million and under special guarantees of £67 million in round figures.
I should like to know where we are going to find the allocations. Is the vast expenditure which the Minister has in mind to be on Section 3 loans or to be on guarantees under Section 2? Is this a belated recognition that credit is of great significance in the world and that whatever the price we shall not get orders unless we have the appropriate credit, and that therefore something more has to be done about this?
Is this entirely new thinking, and how far does it take us? I agree with the right hon. Member for Battersea, North (Mr. Jay) that we are well provided with details under Section 3 because we have tabulations in our records about them. But very little comes out under Section 2. Very recently there has been an endeavour to secure a contract with Yugoslavia which would involve the establishment of a steel mill costing £28 million. The preparatory negotiations has been conducted by the Metallurgical Equipment Export Company Limited. That, of course, is one of these doubtful cases, but it is of considerable interest to the national economy, and it falls within the class of Section 2 guarantees. Will 1309 the Minister give a little further information of what actually falls under this heading?
We know from the recent G.A.T.T. Report, which is indeed gloomy reading, that we have done rather badly in some aspects in international trade, Will the Minister indicate how our traders have been operating in Latin America? While I have been a little critical, I think that I should refer to the Radcliffe Report which goes a certain way in underlining precisely what the Minister has in mind. The Report said:If the Government considers that insufficient assistance is being given to Commonwealth or other overseas developments, or is looking for a means of stimulating international trade in a time of world recession, and is ready to use public money (or put it at risk) for this purpose, it can do so without bringing about a lengthening of the general run of export credits by making use of its existing powers in Sections 2 and 3 of the Export Guarantees Act, 1949, to give guarantees or lend money outside the normal credit insurance scheme; this would in our view be the right way for a Government to proceed in such circumstances.That is what Radcliffe has indicated, and that is, as I understand it, the policy of the Government.
It is rather interesting to note the evolution of Government thinking. In April of this year the President of the Board of Trade brought to the House several proposals among which, of course, was the discounting of export paper within eighteen months of maturity. He also made provision for guaranteeing extended credit. It was not unexpected that when these proposals came before Berne in June of this year they did not receive the happiest reception.
My right hon. Friend the Member for Reigate (Sir J, Vaughan-Morgan) indicated that there is a very clear line of distinction between general guarantees under Section 1, which are covered by the Berne Union, and long-term lending, whether by loan or guarantee. First of all, let us look and see what the Berne Union said on this matter. This is a statement which has been issued by the Department and, of course, it is issued on behalf of the Secretary-General of the Berne Union. It states:An important feature of the discussion was the consideration given to the measures 1310 devised by several governments for facilitating guarantees, in exceptional cases, for exports on terms exceeding five years. The Meeting recognised that these various Governmental measures would assist particularly the economic growth and stability of newly developing countries. The Meeting reaffirmed that Berne Union members would continue to co-operate in restricting any general lengthening of terms of credit beyond five years in their field of operation.May we take it then that the Berne Union is limited in fact to Section 1 guarantees, and Section 1 guarantees only?
When it comes to a question of forming consortia around Lazards mobilising the resources of pension funds, insurance companies and others to raise the funds for the steel works in Yugoslavia, that is an entirely different question outside the Berne Union provisions. It is not a question of the suppliers' credit. It is a self-liquidating capital investment. It is in the form of a loan which is granted direct to the borrower, but in the course of the particular financing there is an E.C.G.D. guarantee.
If it is looked at in that way we can say perfectly clearly that when it comes to Sections 2 and 3 they have really nothing to do with the limitation imposed, viz 5 years from shipment laid down by the Berne Union. It is importtant to put this in perspective because I think that we can compare the Export-Import Bank of the United States with the facilities provided under Sections 2 and 3. If we appreciate that the United States is only an associate member of the Berne Union, it is only right that the E.C.G.D. should offer comparable facilities to our exporters.
§ Mr. Skeet
I am grateful to the right hon. Gentleman for that intervention, and I think it is partly that which stimulated the Government to adopt the line of reasoning outlined in the Radcliffe Report and also to bring forward their measures in April this year. I think that without these we should have been in great difficulty when we came to the export of capital goods in the markets abroad.
1311 One further point on export credit. There is difficulty here. It is not going to conduce to our balance of payments if credit terms are to be unduly lengthened. We are making a clear distinction between heavy capital items, which do not come every day, and the general run of business. Another way of looking at it is that debt liability can increase so substantially on developers abroad to such an extent that some South American States can hardly bear the burden.
I wish to indicate what I have in mind on this matter because I think it is important. It occurred to me when the right hon. Member for Battersea, North was speaking that he was pointing out another idea mentioned by Radcliffe, namely, the formation of an Export Finance Corporation as a separate entity. I remember that after these proposals were laid before the House by the President of the Board of Trade in April the various institutions in the city got together and established a consortium around Lazard Brothers. It is significant that no second consortium has been established, and that great difficulty has been experienced in raising the money.
I think that what Radcliffe indicated was that if the City failed something else would have to be done. I feel that when there is lending over five years up to the point of fifteen years and the like, there is an opportunity for the insurance companies to play their full part. This is a challenge to the insurance companies. The writing is clearly on the wall. If they are prepared to co-operate in this matter—and they are suppliers of long-term funds, with the pension funds and so on—they could provide the funds which are essential to enable our exporters to provide satisfactory credit for selling larger pieces of equipment.
Nothing could be better than having an association of the City and the State. On the other hand, I think it would be regrettable if it were a State institution alone. On the other hand, if one has a separate entity it may be practicable to have differential interest rates or a special rediscounting rate for export paper.
I think we should understand in this House that while credit is difficult to obtain in the United Kingdom, a large 1312 amount of it is available in Europe at preferential rates. I do not want to go too deeply into this, because some hon. Members may say that it is limited in volume. It is, but it is available in Belgium and West Germany. The Government should be prepared either to accept that interest rates should be kept low, or, if they are to be kept at a perpetually high level, then we should think in terms of having a lower rediscounting rate for export equipment if it happens to be of a capital nature. It would, however, be wise to provide that it does not extend to all items.
I therefore make this suggestion to the Minister. Will he contemplate sheering off Sections 2 and 3 from the E.C.G.D.? It seems that if a separate institution were to be established in partnership with the State and the City, this body would be the one which should operate them. It seems to me that Sections 2 and 3 are inextricably mixed, and that they should be administered by a separate body.
§ Mr. G. R. Mitchison (Kettering)
Shortly after the President's statement in April, an article appeared indicating that Lazard's were forming a consortium, with the banks to provide up to seven years, and the insurance companies beyond that. A day or two ago an article appeared in the Economist indicating that that consortium had functioned to the tune of projects involving £69 million, and had lost £53 million. There is, therefore, apparently something in existence.
§ Mr. Skeet
I have already referred to the Lazard consortium being in existence, but when the President made his statement it was expected that other consortia would also come into existence, but so far no others have raised their head. It may be due to the difficulty of raising money.
It is significant that this money has been mobilised, but when one considers the requirements of international trade from this country's point of view, one appreciates that much more is required than is at present forthcoming. What is being considered now is whether an Export Finance Corporation should be run in conjunction with the City. One has to bear in mind that we are on the 1313 threshold of going into the Common Market, and these matters have to be looked at with some circumspection.
I now turn to the other limb, which is Section 3 financing, and find remarkable results. Between 1958 and 1961 India received funds or credit to the tune of £120.5 million. Between 1954 and 1961 Pakistan received £40 million. The interesting one is Yugoslavia. Between 1956 and 1961 she received £23.135 million. The Minister has rightly said that these are either guarantees under Section 2 or loans under Section 3. Under Section 2 they are risks which are not normally acceptable, but are undertaken in the national interest. It means that we are determined in expanding trade with Yugoslavia.
In view of our export performance, it looks as though we should be extremely assiduous in extending trade in Latin America. There is a lot to be gained, but a lot to be lost if we are not first in the field. Will the Minister, therefore, say that he contemplates a massive expenditure under Section 3, and that, as he is looking only three years ahead and is doubling the figure under Section 2, we may expect a considerable boost for the export trade?
If that is so, I ask exporters to note that the Government are doing considerable work in this field, and that money is being provided. Also, that they are being put in a position to enjoy the facilities which are currently being provided by West Germany, Belgium and certain other European countries.
I am concerned about the method of lending in the United Kingdom, and the Radcliffe Report, when dealing with the means of stimulating international trade, says:We do not think that longer export credits on a tied basis are the best means of doing this, so far as the United Kingdom are concerned. We believe th atour interests as a nation dependent on a high level of international trade lie in a policy of encouraging by word and deed the international provision of capital untied to specific purchases of goods.I was surprised that the Minister said Section 3 was the only tied facility in the United Kingdom.
§ Mr. Skeet
I am glad to hear that. There are other loans which are recognised as being tied and this, I think, is a great failing, as that policy is likely to lead us into serious difficulties. We are trying to do better than the Americans are doing. The Export-Import Bank loans have always been tied. It was only when the Americans fell into difficulties that they decided to tie all the lending and Development Loan Fund, and Mr. Dillon has indicated that whereas at the moment about 50 per cent. of the aid which comes out of the States is spent on American equipment and services, they look in future to 80 per cent. of it being tied.
That will present one of the greatest difficulties for a country like ours which depends on international trade. If we are to have substantial lending abroad, which I think is a good idea—though it may seem paradoxical that I should say this—should we not look into this matter carefully and have a little free thinking about whether we want tied or untied loans?
The I.B.R.D. and other international organisations operate on the system of free tenders. That is good for the trading country, and particularly good for the developer who may be short of foreign exchange and cannot afford to pay the high prices prevailing internationally. I therefore hope that the Minister will have something to say about the extent and scope of tied loans, particularly under Section 3, and other matters which may be relevant.
I welcome this Bill. It is a step forward, and possibly an indication of a lot more support to be given to the exporter. I should like to know, however, whether it will be the case that in two years' time application will be made in this House for another £600 million. But so far as it goes the Bill receives my support.
§ 12.40 p.m.
§ Mr. Richard Marsh (Greenwich)
It is pleasing to hon. Members on this side that such charming things should be said about a Measure which was essentially Socialist in its original conception. I do not think that the complaints about exports should be taken too far. Exporters are always complaining that they are handicapped in the world markets by inferior credit facilities. That 1315 complaint is made regularly in the United States, and was made recently in Germany. It has also been made in France.
I should like the Minister to say something about the operation and the future of the Berne Union. I think that the present limitation on export credit insurance to five years is becoming increasingly theoretical at a period when loans and the provision of credit should be for ten and fifteen years and countries are suffering from the problem of shortage of foreign exchange.
I wish to refer primarily to the question of interest rates. I do not think that there is any doubt that high interest rates impose a considerable handicap on export finance. Facilities which are available to British exporters at present are, in most ways, very good, but everybody can work out suggestions for their improvement. Perhaps something could be done about State assistance to exporters in special areas. But, be that as it may, I think that interest rates represent a very real problem.
Most hon. Members on this side of the House are against high interest rates in general. That has been argued elsewhere. It was argued in the economic debate and the issue is not one which primarily concerns us on this occasion. But the rates here, although higher in proportion to other countries in Europe, are not perhaps in many cases higher than the general interest rates in many foreign countries. What is becoming a problem is that most countries—this was referred to by the hon. Member for Willesden, East (Mr. Skeet)—are offering special and favourable rates specifically for export credit. Recently, the West German Government were faced with a demand from the shipbuilders for credit for capital shipbuilding at the rate of 5 per cent. I should have thought that that would face the British shipbuilders with a serious problem. The Belgium National Bank operates two rates.
The point which I am making—this is an issue primarily concerned with large capital production—is that there is fast coming the time when we should examine the possibility of widening our views on this question of special export rates and lower rates of interest. It has been suggested that some competitors 1316 within G.A.T.T. would be unhappy about this, but, on the other hand, it should not be forgotten that many of them are operating the same sort of subsidy.
The case for an export finance corporation is becoming increasingly obvious, but it would be a pity if we had a situation—it sounds tragic to be supporting the City against anybody else—where the Government found themselves in the position of acting independently of the City. It would be even more tragic if a situation arose where the City decided that it could attempt to meet this problem by itself. There is obviously need for a real liaison and some fresh thinking on this issue.
I return to the primary point. This issue of high interest rates in the sphere of exports, while it is not the only problem, and not even the major problem, is one which at least in the most vulnerable areas—in regard to heavy capital production—we need to look at closely. I am not here raising the political issue. It is not a question of expecting the Government to lower interest rates in general. We have had that argument. But I think that there is a case for producing a special policy in relation to interest rates in the sphere of export credits.
§ 12.45 p.m.
§ Mr. Stanley R. McMaster (Belfast, East)
I should like to add my humble congratulations to my hon. Friend the Secretary of State—
§ Sir K. Joseph
It becomes immodest for me continually to accept the wrong appellation. I hope that my hon. Friend will correct himself.
§ Mr. McMaster
I apologise, I should have known. I congratulate my hon. Friend the Minister of State, and I should also like to say a word of praise for the work of the Export Credits Guarantee Department. I have heard from many sources in the City, and from merchant banks, continuous praise for the speed and care with which the Department deals with the great volume of work which comes its way.
I should like to follow the hon. Member for Greenwich (Mr. Marsh) and deal particularly with the question of rates. The Export Credits Guarantee Department manages to operate at a 1317 successful profit. I should like to hear a little more from my hon. Friend on this point. I should like to be assured that the Department is keeping its rates at the minimum and that it will cover as much as possible of any risk in a wide range of countries.
I should like to know whether the time has come when the Department would be prepared to cover individual transactions. There are many cases where exporters do not insure with the Department because for the greater part of their business they are satisfied to carry the risk themselves. Would not it be right, now that export credits are properly established, that exporters should have a choice and should be able to cover part of the risk or transaction, or the risks which they thought were not particularly perilous, at, of course, an appropriately high rate of interest? At least they should have the choice and the Export Credits Guarantee Department should be in a position to work out the odds and offer a price for any proposition which is made.
I wish to refer now to a subject mentioned by my hon. Friend the Member for Willesden, East (Mr. Skeet), the offering of longer-term cover. A great deal of the export business of this country relates to heavy articles, complicated machinery used in road construction in South America, for example, and such things as the steel mill which was referred to by my hon. Friend, the building of ships and even in an advancing technical age the exporting of such things as expensive jet aircraft. It includes the exporting of complicated machinery such as computer machinery which has a life very much longer than that of the smaller articles which formed the bulk of our export trade in the past.
Is it right that the limits, which I know have been recently extended, should be so short for the cover which the Department is prepared to give for exporting heavy and major items such as I have mentioned? I hope that the House will realise that I am aware of the distinction between guarantee and loan. I know that the distinction exists but, as has been already mentioned, the Bill does seem to confuse the two. However, I think that the Minister might consider that the present limits for guaranteeing a loan are inappropriate. 1318 Where a machine or a boat has an expected life of, let us say, thirty years, is it reasonable to expect the whole loan to be repaid in twelve or even fifteen years?
Could that loan not be extended so that we would be placed in a position comparable to that of other countries? A comparison has already been made in connection with credit with the Export-Import Bank of the United States, and with Germany, and a comparison might also be made with other countries, such as Sweden and Japan, with whom we compete for this export trade.
I am well aware of the difficulty, mentioned particularly by my right hon. Friend the Member for Reigate (Sir J. Vaughan Morgan), arising from the Berne Union Agreement. That, I gather, is an informal and unwritten agreement. It is an agreement which is based on the idea that it would not suit any country to engage in a credit war. Nevertheless, the scope of this agreement is limited, I believe, to guarantees, and in addition there is much evidence available that other countries are prepared to offer better and longer terms than we are.
I do not know whether we are too fond of following the rule of law in this country, but it is undoubtedly a fact that once such a convention or agreement is made, other countries find ways round it. I ask my hon. Friend to deal with this point in his reply, and I hope that he will perhaps have a word to say on this comparison particularly with Germany, Belgium and the United States.
I should like to say a word on the subject which was dealt with so well by my hon. Friend the Member for Willesden, East—the length of credit, the extension of credit to be provided by the Export Credits Guarantee Department from five to seven years, with the expectation that the City would be able to provide loans over that period.
Mention has also been made of the Lazard consortium. Is it reasonable to leave such important finances to City groups? At the moment we have only one such group. We know that the amount of money which the insurance companies have to use for this purpose is very great. Nevertheless, there are 1319 many calls on the capital of the insurance companies. They have to keep a proper balance in the use of their money. Moreover, a lot of it is used for financing large operations in this country, such as building. Is it right and reasonable to expect that in this vital operation they should be expected to cover entirely loans for more than seven years?
I conclude by mentioning the particular difficulties which, as a result of this limitation, have been faced in certain parts of the country. In my own constituency, in Northern Ireland, we are particularly concerned with this topic which has been so well debated today. We manufacture some of the computers which I have mentioned, as well as ships and aircraft. All of these are items which have an expected life not very much longer than the average and so face severe competition from abroad, including subsidies, which take the form of guarantees and more favourable loan and interest payments.
I should like my hon. Friend to deal with this, and especially the problems of the shipbuilding industry. I cannot go into this matter at any length in this debate, for I would not be in order, but the House is well aware of the difficulties which this industry is facing today, and it would be very much in the interests not only of the export trade of this country but of the welfare of the shipyard workers and others that our shipbuilding should enjoy terms at least comparable with those of Germany, Sweden and other shipbuilding countries.
Therefore, if there is any gap at all, or if the Government are not satisfied that City consortia can find the necessary finance and the Export Credits Guarantee Department the necessary cover, I urge the Government to look into this point and deal with it as a matter of great urgency.
§ 12.55 p.m.
§ Sir K. Joseph
With the leave of the House, I should like to reply to some of the points that have ben raised. First, may I thank all right hon. and hon. Members who have been kind enough to congratulate me on my new office. It is indeed an extremely interesting and challenging one. As I have only been in this office four weeks, and as there are a number of obvious experts in this 1320 matter, I hope that I shall be excused if I have not mastered the entire esoteric lore on this subject.
Even to a layman it is obvious that the interest of hon. Members in this subject is extremely encouraging. This country is utterly dependent upon an increase in its exporters, and here we have constructive and detailed criticism which will be of great value to my right hon. Friend and myself. I should also like to say how much the tributes that have been paid from both sides of the House to the work of the officials and the advisers of the Export Credits Guarantee Department will hearten them. I think that they receive a fair meed of appreciation from their clients, but, obviously, any such enterprise is bound to receive a number of criticisms, and this measure of encouragement will do their morale much good.
I should like to say, in answer to the right hon. Member for Battersea, North (Mr. Jay), that my right hon. Friend and I will listen eagerly to any suggestions, however unorthodox, that might possibly lead to an encouragement of exports. But I would say that that is subject to two reservations. First, it really is not good business for us—and I think that the House accepts this—to break international agreements which this country has been among the first to urge; and, secondly, while we—
§ Sir K. Joseph
I shall deal with these in turn. I am generalising for the moment.
The second reservation is that while we can encourage and help business enterprise, we must be careful not to tell these business people how to run their own affairs. What we can do—and I hope that we shall do it more and more—is to point out to some sections of business how other sections of business have successfully tackled individual export problems.
I hope I may be allowed to deal, first, with a number of detailed questions which were asked, and then to take up one or two of the other bigger subjects which have been raised. The right hon. 1321 Member for Battersea, North asked about the progress of the small export guarantee scheme. This is, of course, a counterpart of the direct mail campaign that my right hon. Friend, when he held my office, mounted to persuade small exporters or those firms which were not already exporting of the importance and practicability of exports.
One part of the campaign was to make available to them the small exporter guarantee, and I am glad to say that the present score, up to a week ago, was that 547 guarantees had been issued, and contracts declared amounted to about £250,000. It is to be hoped, although I cannot assure the House of this, that very large numbers of those were new exporters. Of course, the House will realise that we cannot expect these new initiatives to reflect themselves in the export figures for some time to come, but this scheme has had a healthy welcome and use, and I think that it is a growing use. The right hon. Gentleman asked me to confirm, as I gladly do, that about 20 per cent.—actually, it is 19 per cent.—of our total visible exports were covered by credit insurance last year.
I was asked by my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan)—whose kind words, particularly, I appreciate—whether, although the Bill does not deal with Section 1, a Bill to extend the limit under Section 1 is to be expected next year. I think that I can firmly answer "No" and say that another Bill next year is out of the question. At the moment, there is £187 million headroom, even assuming that all contingent liabilities become actual, which, as my right hon. Friend knows, is most unlikely, particularly under Section 1, and as well as that £187 million headroom there will be a large run-off, probably at least £50 million a year or a sum of that magnitude, of existing guarantees. As the rate of growth in Section 1 applications was running at about £55 million during the first nine months of this year, I think that my right hon. Friend will agree that there is really no need to expect another Bill to raise the Section 1 limit next year.
My hon. Friend the Member for Willesden, East (Mr. Skeet) made a very interesting and expert speech, and he 1322 asked me several questions. He asked what the division was that the Government expect between the different uses for which the extra £400 million that the Bill is about will be used. I cannot answer that in actual figures, because we shall have to take a broad guess at what is sensible for the next three years or so, but I can say to him that, very roughly, we expect that about half of that sum will go in Section 3 economic assistance loans and, very approximately, the other half will go under Section 2 business.
§ Mr. Mitchison
Can the hon. Gentleman tell us how that proportion compares with the actual proportion in recent years?
§ Sir K. Joseph
The actual proportion in recent years has been about two in Section 2 to every three in Section 3. That is very roughly the proportion. But we are dealing here, as the hon. and learned Gentleman realises, only with broad guesses, with recourse to come back to Parliament as necessary.
My hon. Friend the Member for Willesden, East and other hon. Members asked me about the South American markets. I am sure that the House will realise that we have to take the views of the Advisory Council on the capacity to repay of each individual market and, therefore, broad answers about whole continents cannot make much sense. If hon. Members have any particular subject in mind, I hope that they will understand that any detailed inquiries will be much welcomed.
My hon. Friend went on to ask about the breakdown of existing actual applications which have already been insured. I can tell him—this really confirms the broad figures which I gave a moment ago to the hon. and learned Member for Kettering (Mr. Mitchison)—that at the moment there are about £88 million of special guarantees in operation under Section 2 and about £123 million of economic assistance loans. But the broad picture of economic assistance loans—this answers a question put by the right hon. Member for Battersea, North—is that the Government have advanced or agreed to advance £208 million since the 1949 Act but, at the moment, of that £208 million only £123 million remains 1323 outstanding, that is to say, not repaid. It is a little difficult to be sure that one is comparing like with like, but I think that those figures are strictly comparable.
My hon. Friend the Member for Willesden, East asked me about our future plans for Section 3. I repeat that my right hon. and learned Friend the Chancellor of the Exchequer did say that, despite our present difficulties, we propose to continue the rate at about the present level. I was delighted to hear my hon. Friend say, as is perfectly true, that this does represent a great reinforcement to the exporting opportunties of our business, and I reinforce the trumpet call he gave to business enterprises to take advantage of Section 3 help. My hon. Friend asked also about a Yugoslavian scheme, and I can tell him that this is still very much alive.
My right hon. Friend the Member for Reigate asked several searching questions about the Berne Union, and other hon. Gentlemen took an interest in the same subject. It is a trade association of exporter's credit insurance organisations, and it covers Sections 1 and 2 only of the Export Credits Guarantee Department Statute. Its object is to serve as an information bureau. It has no mandatory powers over us whatever, but hon. Members will be glad to know, I think, that despite the frequent evidence which reaches the papers of credit insurance over more than five years, at least 75 per cent. of the business carried out by the countries forming part of the Berne Union comes within the maximum of five years credit insurance terms.
§ Sir K. Joseph
Yes, I was referring to credit insurance as opposed to financial guarantee.
Inasmuch as other members of the Berne Union are from time to time in breach of the understanding between the credit insuring companies, I remind the House that my right hon. Friend has introduced "matching guarantees", the matching services of the E.C.G.D., and, despite the difficulty of proving that other countries are in breach of the understanding, I am told that a number 1324 of cases have been proven to the satisfaction of the E.C.G.D. and matching terms have been agreed.
§ Sir J. Vaughan-Morgan
What we are dealing with here is the case where we are up against competition from another member of the Berne Union. What happens where we face—as happened some years ago in connection with aircraft—longer and better terms given by, as in that case, America, where we match those terms and we are thereby actually in breach of the Berne Union? Are there many cases of that, and how are we, so to speak, getting on in that respect?
§ Sir K. Joseph
The answer is, I regret, that I do not know at the moment, but I will find out and write to my right hon. Friend.
We understand that the rule of law is particularly prevalent in Ireland—we were told that by the hon. Member for Belfast (Mr. McMaster) today—but how far does it prevail among members of the Berne Union? Is a special low discount rate for export paper a breach or not a breach of the Berne Union arrangements?
§ Sir K. Joseph
I shall come to that subject, which I regard as one of the most important in this debate.
My right hon. Friend the Member for Reigate and also, I think, the hon. Member for Greenwich (Mr. Marsh) threw some doubt on the survival chances of the Berne Union and suggested, I think, that it might be approaching break-down.
§ Sir K. Joseph
I am glad that I misunderstood. In fact, it is in a very hearty condition.
My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in, if I may say so, a most useful speech, took exception to the judgment sometimes reached by E.C.G.D. on the amount of risk it leaves with the exporter. He said that he understood that this is very much a matter of commercial judgment, and I think he will understand that the most we can do is to seek and take the advice of the Advisory Council, which is very well qualified to give us a judgment.
1325 As a newcomer, I have been very impressed by the analysis done by and for the Advisory Council on the economic future of each market, on which, of course, any sensible business judgment must depend. Here, I will say—I think this covers other questions which were raised—that it is no good saying that we do not in every case give as good terms as some other countries.
Some other countries have much larger reserves than we have. Also, some other countries, as the hon. Member for Greenwich said, receive complaints that we out-do their credit in certain instances. We have to take a broad view and, in this matter, I think that our exporters are served admirably, on the whole. Of course, I am eagerly open to any suggestions that a particular judgment was wrong.
§ Mr. Ridley
I wished only to suggest that the risk should be taken on an increase in the premium rates charged by the E.C.G.D. rather than by insuring a smaller proportion of the total guaranteed loan, which would mean that the contract could go ahead if the company were short of funds.
§ Sir K. Joseph
There are three variables here. There are the premium rates, the amount that we are willing to undertake in any particular market and the proportion of the risk that we leave with the exporter. If we increase any one of those, and particularly if we increase the amount of risk borne by the Department, then we shall more quickly consume the amount in total that it is acceptable to insure. This is a nice balance of judgment. I do not say that it is always perfect, but I am sure that my hon. Friend will bear those difficulties in mind.
My hon. Friend the Member for Belfast, East asked a number of major and searching questions, and I doubt whether I can deal with all of them to his satisfaction. In particular, he asked whether the Department might take on individual projects. I should like to hear from him about any particular project that he has in mind. The Department undertakes individual specific guarantees for the longer term projects, which involves special under-writing expertise and which is not a 1326 recurrent item and cannot be covered by a comprehensive guarantee.
§ Mr. McMaster
I am aware that the Department covers long-term projects. I was asking whether that could be extended to medium or short-term transactions. If my hon. Friend is not in a position to answer that today, may I ask him to consider the point?
§ Sir K. Joseph
My task would be easier if my hon. Friend gave an individual example. We have to be careful that exporters do not select particularly bad risks against the Department as a whole. That is why, in general, in recurrent export operations the exporter is expected to go in for either a broad selection of risks or a comprehensive guarantee.
§ Mr. McMaster
The point that I was seeking to make was a general one. The Department is in a monopoly position. It is the only place where exporters can obtain cover. Some large exporters who do not cover with the Department sometimes get a proposition put to them to export to a particularly hazardous market. They do not want to cover all their transactions because they are satisfied about the credit-worthiness of their purchasers in the main part of the market and about the political risk. It is in cases like that where the Department might be prepared, at an appropriately high rate, to insure and cover in the interests of the export trade.
§ Sir K. Joseph
I should like to think about that point. However, if it is anything which might be considered recurrent it would breach a principle which is vital to the Department as a self-supporting institution.
My hon. Friend the Member for Belfast, East asked about what he called the profit of the Department. It is a very modest profit, and I put it as much as a voice can in inverted commas. It is a notional accumulated balance and it has to meet a large outstanding liability. It is more in the nature of an aggregate of premiums which have been paid in advance on risks which may survive for many years. The House will know that, taken over its whole term under Section 1, the notional accumulation of reserves amounts to under half of 1 per cent. of turnover. 1327 This is as narrow a margin as an institution can be expected to have. The bulk of any over-assessment of premiums has been returned to exporters by way of lower premiums and improved conditions.
§ Mr. Mitchison
We hear a good deal about the investment of their funds by other insurance companies. What does this insurance institution do with its funds?
§ Sir K. Joseph
I have always expected to be caught out by the hon. and learned Gentleman. This is notional. It is money held by the Treasury and any obligations which the Department cannot meet at any one time are met by the Treasury and not from the Department's own reserve. There was a case in 1954 and 1955 when large obligations beyond the notional reserve had to be met. They were met by the Treasury and the reclaims made in due course were returned to the Treasury.
I now come to the most important individual point which has been made. It was particularly stressed by the right hon. Member for Battersea, North (Mr. Jay) and my hon. Friend the Member for Willesden, East and the hon. Member for Greenwich said a number of most sensible things about it. It concerns the question of the availability and the rates of export finance. The right hon. Member for Battersea, North referred to a speech by my right hon. and learned Friend the Chancellor of the Exchequer. What my right hon. and learned Friend was referring to in his determination to search for improved export terms was finance for exports, both the availability and the rate, rather than credit insurance. While that is relevant to the whole subject, it is not particularly relevant to the Bill. It is true that some countries, particularly France and Belgium, have differential rates of interest for exports. It is also true, as the hon. Member for Greenwich said, that that is not an overwhelming factor in all exports. It is an important factor in a small range of exports.
I have been asked whether such differential rates of interest are a breach of the G.A.T.T. As I understand the position, they are not a breach of the G.A.T.T. provided that the rate of interest available for exporters is not 1328 lower than the rate of interest which the Government concerned has to pay in order to raise the necessary funds. I am informed that, subject to that, it is not a breach of the G.A.T.T. This is certainly an important subject, and it is also most important to know whether the funds, at whatever rate of interest, are available.
My hon. Friend the Member for Willesden, East gave examples of some successful consortia and suggested that there should be more. I am sorry, but I can say no more today than that this subject is under the most active review by the Chancellor of the Exchequer and the President of the Board of Trade. I am sure that they will welcome any evidence that right hon. and hon. Members can send about any cases in which individual contracts have been lost on export finance either through rates or availability alone. Granting that there is bound to be some export business which is lost for one or other of these reasons, it is difficult to find cases which depend on this alone.
My hon. Friend the Member for Belfast, East will remember that the shipbuilding inquiry failed to pinpoint any order which had been lost for that reason alone. We do not deny that this matter is important, but we think that it can be exaggerated, and it certainly cannot be made an alibi by a whole range of business.
§ Sir K. Joseph
After all these technical comments, we should recognise that this country is achieving a certain satisfactory performance in an increasingly competitive world. We are exporting £10 million worth of goods each day, and I am sure that as markets improve in Europe and America, as they are doing, and, we hope, in the Commonwealth, more and more businessmen will realise that it is a sensible way to use resources freed at home to maintain and even increase their turnover and profits by exporting. We hope that they will do so and this Bill should be a great help to them.
§ 1.19 p.m.
§ Mr. G. R. Mitchison (Kettering)
I should like to add my personal congratulations to the Minister of State on 1329 his appointment to the post which he now occupies. British arrangements are sometimes curious. The distinction between a Minister and a Parliamentary Secretary is not always as clear as it should be, and public Departments in which the principal is by no means the principal and the assistant principal by no means the second string are not rare.
Turning to what we have been discussing, may I be allowed one general observation. Looking at the Bill from the point of view of a lawyer, who, in the course of his searches among law reports, finds many odd things, it seems to me that the business of dealing with doubtful creditors, doubtful purchasers, shall we say, abroad used to depend on private enterprise with practically no State or institution intervention at all. I do not know how many del credere agents exist in the world nowadays, but it is perhaps a rather outmoded way of dealing with matters. This is one of those cases where private enterprise has had to deal with changing conditions, has found itself, as it has in the educational field, insufficient for the purpose, and has had to turn to public enterprise to complete the picture in modern terms.
This has certainly been a successful undertaking. Everyone would agree, not only in the praise that has been given to the ideas behind it but of the praise given of the practical execution, and the practical advice that has so obviously weighed with the Department in their operating. One is, however, entitled to make one general comment. It is perfectly true that this is called export credit insurance in some form or another, but the line gets very thin indeed between that and actual export credits, and what the Department is now providing is, at any rate, to some considerable extent, export credit.
When, in April last, the President of the Board of Trade announced the extension of the arrangements under, I think, Section 3, he spoke of the sale of steel works and ships and other things as the subject of insurance, but what is really happening there is not merely the extension of credit for export trade but the extension of credit for what is really investment abroad. That is one of the functions one must recognise that, acting within the terms of the Statute, the Department is carrying out.
1330 As I see it, there is here a broad field of discussion, and today's discussion has certainly been broad. I would not claim to compete with the expert and learned—in the commercial sense—hon. Members opposite who have been talking on the subject, but it strikes me that the basis of all that we are discussing today is the distinction in Section 2 of something that is in the national interest, but is not within the usual scope of short term exportation and that, on a matter that is of national interest, the information we have is more scanty than it need be.
A report comes out from time to time showing the trade accounts and balance sheets of an odd mixture of bodies, including the Stationery Office, the Royal Mint, the Forestry Commission and the Department we are now discussing, but it is financial information in the very narrowest sense of the word. These are audited accounts, with very few comments on the nature of what is being done, and if what we are here considering are actions and transactions of the greatest importance to the country's position abroad and to its responsibility, for instance, towards the underdeveloped countries, we should be told a very great deal more.
Even from the narrower point of view, I hope that nothing the Minister said at the end of his speech will make anybody suppose that our present export and foreign trade position is at all satisfactory. It is most unsatisfactory. I have not yet been able to get a copy of the very recently published G.A.T.T. Report on international trade for 1960, but it has been summarised in a passage a couple of days ago written by the Geneva correspondent of the Financial Times, who points out what we have all elaborated, in the course of other discussions, thatThe U.K.'s share of world trade dropped in all major export markets compared with the pre-war period. …It is the long story we go through in other connections and more contentious debates quite frequently in the House. It is, therefore, a case of using this organisation, and of seeing, not only that it is used in the national interest but also how far it can be used to meet our export difficulties.
1331 At intervals, the Government's export drive reminds me a little of their drive to remove the slums; there is a frightful amount of noise but the actual work is done by someone else, and the extent of Government encouragement and support is not always as clear as it might be. This is a case very much in point. I agree with what was said from the other side of the Chamber that there is a need for credits longer than the five-year term that was contemplated by the Berne Union and, secondly, that the consortium formed very soon after the statement made by the President of the Board of Trade in April—and possibly contemplated before that statement was made—is no doubt an excellent thing to have, but it is by no means the whole of the story.
I agree with the comment that there is room here for some form of Government institution to cover the same sort of field and, from that point of view, something like the Export-Import Bank—or, more fashionably, the Export-Import Corporation—is a matter which, I hope, the Government will consider very seriously. I hope that they will not hide their light under a bushel and wait until they come again in this way to the House before telling us more.
I disagree with the right hon. Member for Reigate (Sir J. Vaughan-Morgan), who said that he thought that there should be arrangements made under this Act for increasing limits either by means of Clauses in the Finance Bill, as was one suggestion, or by affirmative Resolution, which was another. I think that an affirmative Resolution would lead to too narrow a debate—we want occasions to review the operations of this Department at fairly short intervals. Such Clauses in the Finance Bill are not satisfactory, either. They come in the middle of a whole mass of stuff and, incidentally, they seem to be a subject only doubtfully appropriate to the Finance Bill.
I turn to one or two other suggestions and, knowing that the Minister may not be in a position to answer them today, I ask him only to do what he is doing in other cases, which is to take notice of them. I have already spoken of longer credits, and would only add that it cannot be right to leave that to Lazard's consortium, however respect- 1332 able that may be. I am glad to see that the Chancellor of the Exchequer is, in the language of my hon. Friend the Member for Oldham, East (Mr. Hale), up in the attic playing, not only with his regulators but also with his consortia. That is undoubtedly a good thing; a few more toys are needed in the export direction.
It is perfectly true that encouragement can and should be given to individual small exporters, and that where there is machinery available they should be induced to use it, but I cannot resist the conclusion that a good deal of the trouble about exports is not so much a matter of individual exporters as of whole industries or trades.
In my constituency we have a very high proportion of boot and shoe makers. I do not want to say anything nasty about them I think that they are a good crowd on the whole—but I always have a feeling, and I put it forward merely as a feeling and hope that it will not be taken as too violent or too detailed a criticism, that they complain overmuch about boots and shoes coming into this country from foreign countries, about competition from Switzerland or Czechoslovakia—we can all think of the names—and that, on the other side of the picture, they really do not do quite all they might to sell their own boots and shoes abroad. I must say at once that I put forward this very tentatively—I know that there are exceptions—but I think that it is much the same in a good many industries.
We find some firms quite enterprising over this sort of thing. I do not think that the real remedy is to try to persuade the others to do it. It is sometimes very difficult to do it. The remedy seems to me to be to have it considered for the industry as a whole. My right hon. Friend the Member for Huyton (Mr. H. Wilson) suggested the other day, in a slightly different connection, the advisability of working parties in some of these industries, and I think that it was a very good suggestion on the grounds he gave at the time. I think that it is also a very good suggestion in connection with the business of exports. After all, all of us can agree that there is nothing more vital for this country at present than that particular question.
1333 I should, therefore, have liked to have seen the question, the effect, the sufficiency, if hon. Members like, of export credits and export credit insurance considered industry by industry where the occasion arose, and I am sure it must be an advantage in quite a number of industries to have working parties with, as part of their remit, the obligation to investigate possible export extensions or new export fields.
I turn from that to the question of information. I will not repeat what I said just now, that the present information is really rather sketchy. I certainly do not intend to try to extract figures which the hon. Gentleman has given us today out of the Estimates. The part of the Estimates which deals with the Export Credits Guarantee Department is about the most obscure part of that somewhat difficult tome which comprises the Civil Estimates. It is really, to me at any rate—I am sure it is the deficiencies of my own intellect—quite unintelligible.
Is there any real reason why we should not have a proper annual report from this body, telling us a good deal more about what it has done, telling us a good deal more, within the limits of confidence and—shall I call it—of commercial discretion, about the kind of long-term assistance which has been mentioned by one or two Members and is obviously a developing feature?
There is one final comment I want to make, and it is again on an aspect of information. The hon. Gentleman produced figures which showed the long-term assistance, the Section 3 as distinct from the Section 2 assistance, up to date in recent years to be rather more than the Section 2. He then said that it was contemplated that they would now roughly equate. If that is so, it does look as if, for one reason or another—it may be a reason beyond the hon. Gentleman's control; that I do not know—the effort is being directed a little into what I should have thought was slightly the less necessary of the two lines of advance.
I trust, therefore, that when we get a more suitable opportunity, or when the statement is made, we shall be told that the Government continue to attach the very greatest importance to Section 3 1334 assistance, having regard to the two things which I mentioned at the beginning of my speech, the general need for investment from this country abroad, and the need to assist underdeveloped territories.
On the question of rates of interest, it will not do, it seems to me, to treat the rates of interest for export purposes as something which is related only to the general rate of interest in this country. I should have thought it would have to be considered, too, in relation to rates of interest which were being charged for services of this sort, whether credit or credit insurance—it really comes round to the same point in the long run—in other countries. If, as I understand, the Bank of France—or is it the Bank of Belgium?—is justified, under international agreements and subject to the paint the hon. Gentleman mentioned, in discounting at a lower rate what I would call export paper, something of the sort could well be considered here.
I appreciate the difficulty, and I appreciate the particular difficulty of the G.A.T.T. limit as long as the Government continue to have such a monstrously high Bank Rate by comparison with the rest of the world, but I do think the matter does merit further consideration and that it should be possible to find means of giving assistance of that sort in one way or another.
I have taken the time of the House quite a bit, and it is, I suppose, rather bad manners, in a way, to have waited until the hon. Gentleman had made his second speech and then got up, but I hope that he will believe me when I say that I really did want to hear what he was to say in respect of the very forceful but, on the whole, friendly criticisms and suggestions he received from both sides of the House, and that he must allow someone comparatively ignorant in this field to have all the advantage he can from other sources of information before exposing his own deficiencies.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. Gibson-Watt.]
§ Committee upon Monday next.