GUARANTEES COVERING PARTS OF CONSIGNMENTS (Hansard, 23 March 1970)

§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I beg to move, That the Clause be read a Second time.
This Clause touches on a matter which was not raised in Committee, but which I should like to raise now in order to hear the strength of the argument both ways. I admit that it is not an open and shut case, but it is one which was put to me on a recent visit to some industrialists who felt strongly that the policy of the E.C.G.D. was wrong in this particular respect.
The Clause would empower the E.C.G.D. to give guarantees covering only part of a consignment of goods, whereas at present the E.C.G.D. insists on what it calls a comprehensive approach whereby the whole of a firm's exports have to be insured and the exporter cannot identify some parts of his exports, on which he would rather carry the risk himself and allow other parts to be covered by E.C.G.D. This practice results in some odd situations. I admit that unless an export credit guarantee were given, the exporter would not be in a position to obtain 5½ per cent. finance. But even then, as the person who put this matter to me said, nearly the whole of his export business—and he is quite a considerable exporter—was safe business that he did with old and valued customers on the Continent which carried 1113 no risk of any sort and which he had no wish to insure because he did not think the premium was worth it.
On other hand, he had intended to increase his export business by extending his sales to other countries where the creditworthiness was less successful. He had been offered E.C.G.D. guarantees only on condition that the whole of his business, and not just that part which he wished to use as an extension to his activities, was covered by E.C.G.D. This seems to be a deterrent to firms of that sort increasing their exports and, on the face of it, seems undesirable.
I studied the E.C.G.D. document which contains a couple of useful pages on the advantages which it is claimed stem from the comprehensive approach. While I accept those arguments for what they are worth, I must take into account the other side of the question. It seems to me that really risky projects should bear a higher premium than really safe projects. Really safe projects should not be insured at all. The analogy from the normal world of insurance is that if one is a very bad driver one pays a very high premium, or perhaps one does not get insurance cover at all except on the most constrained terms.
It would seem contrary to all domestic practice to insist on insuring all risks at the same rate, whether they be good or bad. I am sure that the Minister will agree that if one tries to insure one's possessions in a house which is open to burglars, one will find it much more difficult than if one has a complicated system of burglar alarms and bars to stop burglars entering. Therefore, it seemed curious on the surface to insist on all projects being brought into the net.
The E.C.G.D. argues this on the basis that unless it can take all the business it will not be able to reduce its rate of premium enough to provide a really cheap service, and does so in the most surprising way. It wants as much business as it can to increase the range of our exports covered by guarantees, which is debatable. It seems to me that the greater the proportion of our exports which could be done without guaranteeing them the more satisfactory the position would be, because it involves a greater volume of cheap credit from the banks, a greater amount of credit out- 1114 standing across the exchanges and, therefore, a worsening of the balance of payments. On the whole, I would think that the best thing was to reduce the quantity of exports covered by E.C.G.D. to the minimum necessary, even if it means charging higher rates.
There is a sort of empire-building feeling about this page of the E.C.G.D. report. Although otherwise I think that it performs an excellent service, it seems to have an ambition to try to take into its account all the export business it can get, whereas if it were more specific and insured only those risks which needed insuring, and charged a higher rate of premium for those risks which required it, it would be extending more of the sort of service many exporters want.
The selective approach, which I am rather tentatively putting forward so as to hear what the hon. Lady says, is embodied in Clause 3, under which only selected projects can be given special help and the amount of the help is to be levelled to that available from competing countries. Here is an example of selectivity in the use of export credits. The Clause raises the whole question of selectivity. There is something to be said for moving to a slightly more selective basis in deciding the premium for various consignments of exports and deciding to allow only part of a firm's export effort to be covered by E.C.G.D. as opposed to the whole of it.
I should be grateful if the hon. Lady would put the arguments as she sees them. Perhaps she will agree with me, but I rather doubt it. I have studied the E.C.G.D.'s case against our proposal as set out on page 20 of its booklet, and I find it rather unconvincing. I hope that the Minister can adduce slightly more powerful reasons against the Clause if she wishes to resist it than those on which the E.C.G.D. has so far rested its case.

§ The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody)
I would not like to disappoint the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), and, therefore, I must tell him firmly that I do not agree with him. Apart from anything else, the Clause does not add anything to E.C.G.D.'s powers under the 1968 Act, which already enables it to cover all or part of an export contract 1115 or of an individual consignment if it wishes to do so. It is difficult to envisage circumstances in which an exporter would wish to insure only part of a consignment to a buyer, even though I listened to the hon. Gentleman's argument with great attention.
One possibility might be that some goods were being sold on short credit and the rest of the consignment was being sold on long credit terms. As a matter of policy, the Department is not normally prepared to let an exporter offer for insurance only a part of a contract or consignment, because this would leave him free to insure only the riskier elements of his business.
Coming from an hon. Gentleman who has argued throughout the Committee stage of the Bill that we must insist on commercial principles, some of the hon. Gentleman's arguments on the Clause were rather surprising to me. To allow such selection would run counter to the commercial insurance principles on which E.C.G.D. operates, and operates so successfully. E.C.G.D., in practice, operates on the basic concept of whole turnover, and spread of risk, which have been fundamental to the success of the credit insurance scheme. They have enabled the E.C.G.D. to cut its premium charges, and cut them quite dramatically. To allow exporters to select to insure only the bad risks for cover would inevitably lead to higher premiums all round. It would be detrimental to the general body of policy holders and, therefore, harmful to our exports.
The Clause seeks also to give the E.C.G.D. specific power to make different charges for parts of a consignment. But the 1968 Act says nothing about the way in which the E.C.G.D. may make its charges, and it is already free to make different charges if it wishes. In practice, for business insured under its whole turnover policies, the Department will always charge a uniform premium rate for the whole of a contract, but for capital goods exports underwritten specifically the rate of premium may vary for the different components of the contract price if they are on different terms—for example, if local casts overseas are to be paid for on shorter terms than have been agreed for the United Kingdom goods. But the E.C.G.D. has not 1116 encountered any need to make different charges for different parts of one consignment.
If the hon. Gentleman knows of a case in which hardship has been suffered by an exporter, I suggest that he should give me details of it, but I must say to him that, since the E.C.G.D. has been very successful not only in cutting its rates and providing precisely the sort of insurance cover that exporters are very much in need of, I hope that he will withdraw the Motion, because the Clause would not do what he seeks and would not improve the Bill in any way.

§ Mr. Ridley
I do not think that the hon. Lady gave a very helpful reply. The commercial thing to do is to charge a premium in accordance with risk. If she accuses me of making non-commercial noises I rebut it entirely because, the more the risk, the higher the premium should be. That is the normal way in which insurance business is conducted. For example, if the hon. Lady has a bad driving record she will have to pay more for her driving insurance than if she has a good one. That is the commercial thing to do. It is not commercial to penalise really safe contracts by a higher premium than would otherwise be necessary and to subsidise really risky contracts by a lower premium than would otherwise be necessary.
I must rebut the hon. Lady's suggestion that what I am putting is noncommercial. I gave her an instance of a firm suffering as a result of this policy. I think that it cannot be a very common occurrence, although I do not know, since I am not able to get the evidence from the E.C.G.D., but I will ask my informant for his permission to put the circumstances to the hon. Lady because he was being discouraged from increasing his export effort in that he did not want to have to bring the E.C.G.D. premia to bear on the 90 per cent. of his exports which he considered perfectly safe.
I think that the hon. Lady's argument is weak in the respect that all exporters who consider that they can manage without the E.C.G.D. escape having to pay any premium at all, to the obvious detriment of those who have to incur premia by insuring with the Department. The net is, therefore, already full of holes. But it seems to me that the more holes in the net the better, because this is not 1117 a case of trying to push everyone into the E.C.G.D.'s cover but of trying to identify where the help is needed and of the E.C.G.D. being more specific and more flexible.
I will withdraw the Motion because the argument is not conclusive either way, but I hope that the hon. Lady will ponder a little more carefully on what I have said and on the commercial rightness of my argument, because it is clear that perhaps this blanket approach of the Department is rather non-commercial and may be due for a change of attitude. I hope that the hon. Lady will look at this matter again, because her argument against my case was not as strong as she thought. I beg to ask leave to withdraw the Motion.