§ The Chancellor of the Exchequer (Mr. Selwyn Lloyd)
With permission, I wish to inform the House that as a result of discussions between the Bank of England and leading banks and insurance companies, details are being announced today of new arrangements for the finance of export contracts which are covered by a direct bank guarantee given by the Export Credits Guarantee Department.
The London Clearing Banks and the Scottish Banks have agreed to provide finance for export contracts at a fixed rate of 5½ per cent. for terms between three and five years, while a group of member companies of the British Insurance Association have agreed to lend up 53 to a total of £100 million at a fixed rate of 6½ per cent. where finance in excess of five years is needed.
The effect of this arrangement is twofold. First, it means that medium-term finance for exports will now be available at fixed rates more favourable than the present rates. Second, it means that substantial funds will be available to fill the gap between the period of up to five years post-shipment, which the banks are normally prepared to cover, and the longer terms which are normally more suitable for insurance companies.
These arrangements represent a notable advance on the present position. For the first time the banks as well as the insurance companies will adopt a general practice of providing export finance at a fived rate, irrespective of fluctuations in Bank Rate. Moreover, the rates will be markedly better than those obtainable at present. Thus, whereas bank credit would at present generally cost 1 per cent. above Bank Rate and would change as Bank Rate changed, it will, if it is provided under these arrangements, cost 5½ per cent. fixed. Only, therefore, if Bank Rate were to fall to 4 per cent. or lower would the normal overdraft rate be better than the rate now proposed; and even then the borrower might well prefer 5½ per cent. fixed to 5 per cent, fluctuating with Bank Rate.
The participation of the insurance companies in these arrangements will not only, as I have said, provide a significant amount of longer-term finance, but will also ensure that it is available at about 1 per cent. less than is at present the case. They are to set up a special company to handle this business for them.
These arrangements are to run for a period of five years in the first instance. The Government warmly welcome the action of the banks and insurance companies in making them possible. I hope that other institutions, including, for example, those responsible for pension funds, will feel able in time to participate, so increasing the total amount of finance available.
§ Mr. Mitchison
I have three questions to put to the right hon. and learned Gentleman. If this means that the Lazard Consortium, formed in April with the banks advancing, in that case, 54 up to seven years, has broken down, or has proved insufficient, will the right hon. and learned Gentleman tell us whether that situation has arisen over a question of interest or over a question of finding enough money?
Secondly, is it not the position that, if the Bank Rate were anything like what it was before the right hon. and learned Gentleman's emergency measures, exporters would be paying a higher rate of interest under this arrangement than they would be paying on the fixed rate and, therefore, is this not merely a measure for protecting exporters against the Chancellor's own emergency measures and against the Government's continual use of the Bank Rate as a weapon in their financial arrangements?
Thirdly, while we welcome any help that can be given to exporters, and see the reason for it, does this mean that the Chancellor is to do nothing about other suggestions that have been made—such as that, for instance, made by my right hon. Friend the Member for Battersea, North (Mr. Jay) for a central export agency to help small exporters in the exporting and marketing of their products, or for arrangements for dealing with those trades whose reluctance to export is extraordinarily marked?
§ Mr. Lloyd
These new arrangements are meant to improve upon and to supplement existing arrangements. It is not the case that even if the Bank Rate were what it was before I introduced the emergency measures these arrangements would not be advantageous. They will be advantageous even at a time when the Bank Rate is 4½ per cent. This represents a definite step forward. It marks definite progress. The help to exporters is that they will be able to have fixed rates for a period of years. The other important point is that, for the first time, the insurance companies are coming in for the period of from five to ten years.
Certainly, the other proposals mentioned by the hon. and learned Gentleman should be looked at. These arrangements do not exclude a variety of other proposals which are being discussed.
§ Mr. Bellenger
Will the right hon. and learned Gentleman say whether a switching of banking and insurance funds on 55 this scale for export financing means that there will be more limited facilities at home, particularly in the City of London, for money for the large speculative operations that have been going on for some time?
§ Sir J. Duncan
While welcoming the statement, may I ask my right hon. and learned Friend to make it clear that there is no element of Government subsidy in this, so that there will be no reason for foreign countries to extend export credit facilities to their nationals?
§ Mr. Jay
While these rates may perhaps be lower than they were previously under the right hon. and learned Gentleman's régime, does not he agree that they are still higher than those in many of our industrial competitor countries? The right hon. and learned Gentleman, during our last debate on this subject, promised to look into this matter of interest rates. As they still remain a handicap on our exports, cannot he look again at this matter from that point of view? Even if he cannot change his whole interest rate policy, cannot he at least make it not hamper our exports when compared with other countries?
§ Mr. Lloyd
I think that these arrangements will put our exporters in a reasonably competitive position. There are some countries where interest rates for exports are cheaper than in other countries, but I should point out that in those countries the interest rates for home investment are very much higher. It is quite untrue to say that at the present time we are overall, comparatively, a very high interest rate country.
§ Mr. McMaster
Is my right hon. and learned Friend aware that his statement will be welcomed by heavy industry, par 56 ticularly the shipbuilding industry, which often has to face interest rates as much as 2 or 3 per cent. higher than those in other countries? May I ask him whether he is satisfied that the figure of £100 million is sufficient for large capital items which are financed for more than five years?