§ 10.15 p.m.
§ Mr. John Nott (St. Ives)
I beg to move Amendment No. 1, in page 2, line 33, at end insert:Provided that it does not apply to contracts for the sale of arms.I do not intend to go into a long inquiry, as we did in Committee, into the question of how our premiums have either risen or fallen on arms sales over the past few years. We had problems in trying to understand the accounts. Due to the kindness of the Department, these problems were explained to me after the Committee and I now understand how the accounts for arms sales are drawn up. Clause 3 is, or may be, concerned with subsidised interest rates. The purpose of the Amendment is to ask whether it is the Government's intention to subsidise interest rates in cases where this country or a private firm is selling arms overseas.
On Second Reading and in Committee there was discussion about the wisdom of the Government in inserting Clause 3, and whether the Clause, which allows E.C.G.D. to subsidise interest rates, could not lead to an interest rate war between one country and another. The President 1118 of the Board of Trade was sympathetic to the problems which could arise if this country were to indulge in a credit race with interest rates, or by the lengthening of credit, and the Berne Agreement was mentioned. We on this side feel some hesitation about Clause 3, because this country, more than any other, depends upon trade for its prosperity and livelihood, and it cannot be in the interests of the country——
§ Mr. Speaker
Order. Clause 3 is in the Bill. We are not discussing whether Clause 3 stand part of the Bill. The hon. Member must come to his Amendment.
§ Mr. Speaker
I hesitate to bandy words with an hon. Member, but the hon. Member is moving an Amendment to Clause 3. Clause 3 is in the Bill.
§ Mr. Nott
With respect to my Amendment, I am referring to the question of arms guarantees and whether or not they should be subsidised under the provision of Clause 3. If I take my hon. Friend's attitude to this attitude correctly, we have some reluctance about Clause 3 generally, but we have particular reluctance about the Government allowing interest rate subsidy for arms sales abroad. That is my first point, on which I would like the hon. Lady to comment.
My second point refers to comments made in Committee by the hon. Lady which relate to this Amendment. The hon. Lady was challenged about whether Clause 3 applied to commercial business. We were discussing the distinction between commercial business and national interest business. My hon. Friend the Member for Horsham (Mr. Hordern) asked the hon. Lady:Should not that term 'commercial' be inserted in the Bill?The hon. Lady replied:I think not. It is clear in the wording of the Bill as it stands.To which my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) replied:It is not."—[OFFICIAL REPORT, Standing Committee G, 3rd March, 1970; c. 48.]1119 The Bill saysfor the purpose of reducing costs".It does not say anything about "commercial". I was under the impression, as we all were in Committee, that arms sales came under the special guarantee business; in other words, not under the commercial business as defined but under the so-called national interest category. From the accounts, I believe that arms sales come under the special guarantee business, which is normally defined as national interest business and not as commercial business.
May I ask the hon. Lady, with reference to this Amendment, whether she is saying that the sale of arms abroad is commercial business, or whether it is national interest business and is published in the accounts under the special guarantee business? Is it right that E.C.G.D. should be given the power to indulge in an interest rate war when it comes to the sale of arms and, secondly, can she clarify this point about commercial as opposed to national interest and special guarantee business?
§ Mrs. Gwyneth Dunwoody
I have already attempted in Committee unsuccessfully it seems, to allay the suspicions of hon. Members opposite about the use of E.C.G.D.s powers to assist sales of arms. I have also sought to explain that the new powers bestowed by Clause 3 of the Bill will be used very sparingly and only where there is foreign competition for valuable overseas business on terms which cannot be matched under E.C.G.D.s present powers.
If hon. Members are concerned about the use of E.C.G.D.s new powers to support a vast amount of arms business, I can assure them that we have not so far identified any instances of foreign competition on credit-mixte terms for arms contracts. Unless and until we do discover such instances the question of using these powers in connection with arms sales will not arise.
I take the point made by the hon. Member for St. Ives (Mr. Nott) that we are anxious, and he is right when he says that the President of the Board of Trade agrees with him on this, that we should not find ourselves involved in a credit race. We explored this point widely in Committee. It is obvious that 1120 this must be done by international agreement. I pointed out that the occasions when this Clause would be used for anything like arms sales would be very rare. I tried to assure the hon. Gentleman on that point.
We had a considerable discussion about the word "commercial" which does not appear in the 1968 Act or in the Bill. Nevertheless, the grant-making powers in Clause 3 will he used only where there is good commercial advantage to be obtained to Britain in winning business. This relates to the situation which may arise when a contract may lead to further export orders. If there were a question of a contract continuing and bringing with it further orders, we would obviously be prepared to consider that. The answer about the word "commercial" in Clause 3——
§ Mr. Speaker
Order. The debate about what took place in Committee is over. The hon. Lady must come to the Amendment which is:Provided that it does not apply to contracts for the sale of arms".
§ Mrs. Dunwoody
We have endeavoured to reassure hon. Gentlemen opposite that we have not so far identified any particular case in which credit-mixte could possibly be used for arms sales, and we feel that such fears are unjustified.
§ Mr. Ridley
I take it from her reply that the hon. Lady intends to accept the Amendment. She has been loud in her protestations that she has not identified any case in which arms sales could or should have been subsidised under Clause 3. She says that she does not intend to use Clause 3, except for the most lucrative of business, and that she could not envisage a situation where she would be trying to "flog" British arms cheaply and would need to use Clause 3.
The hon. Lady is very sensitive about this. She attempted to get out of it in Committee by saying that arms sales were things like telecommunications equipment and all sort of things which would be in our commercial interest. Very well; let telecommunications equipment and all sorts of things go under Clause 3 and we shall not challenge it, but the Amendment relates to arms, and there is 1121 little connection between telecommunications equipment and arms.
What my hon. Friends feel is that, although we are in favour of arms sales all round the world, except to our enemies, there is no point in subsidising them. This business should not be taken at a subsidised rate. The idea of, perhaps, our engaging in a subsidised credit race with the French, Britain selling cheaper and cheaper arms to the Nigerians and the French selling cheaper and cheaper arms to the Biafrans, is the sort of absurd pickle into which this Government might easily get themselves—indeed, I should not be a bit surprised if they had got themselves into it in the past few months—but the hon. Lady could stop all this speculation by accepting the Amendment.
The hon. Lady says that she can think of no business which would have occurred dealing with arms and she does not expect any to come. So why not 1122 accept the Amendment? It would be the simple and logical thing to do. It would take this difficult decision out of the discretion of the civil servants who administer the E.C.G.D. This is a major political decision. It should not be left to people in the E.C.G.D. to decide whether to subsidise a consignment of arms to go to someone who may well be a "dicky" risk financially. Countries at war very often are. I do not like the idea of leaving to them a decision in a matter like this.
It would be only fitting, if the hon. Lady wants to use Clause 3, that she should deny herself the use of the Clause for the supply of arms since arms can be supplied under Section 2 of the original Act without difficulty. I look forward, therefore, to hearing her say that she will accept the Amendment, for the reasons which she and I have given.
§ Amendment negatived.1123
§ Mr. Kenneth Baker (Acton)
I beg to move Amendment No. 2, in page 2, line 39, after 'contracts', insert 'such'.
§ Mr. Speaker
I suggest that we take, at the same time, Amendment No. 3, in page 2, line 40, leave out from 'Parliament' to end of line 42 and insert—'as in the opinion of the Board of Trade, with the approval of the Treasury, are not detrimental to the United Kingdom in the matter of its balance of payments'.
§ Mr. Baker
As the House will have noted, the material Amendment is No. 3. Under Clause 2, the Government have taken to themselves power to extend, for the first time, what is known as buyer's credit. In other words, they can lend to a businessman in South America money to buy British goods. Under Clause 3, the Government are given power also to make loans for these transactions. They can lend money to an overseas businessman to buy British goods, and they can do it at a subsidised rate of interest. If they lend money to a businessman in Chile to buy British, they can lend at 10 per cent., 8 per cent., 5 per cent., 3 per cent., or no interest at all.
This policy could be summed up in four words—"Soft loans for foreigners". I dare say that the hon. Lady will not describe it in those terms in her election address, for otherwise the good citizens of Exeter would ask, "Why not soft loans for house buyers and newly-weds in Exeter?".
We are concerned that the powers which the Government have taken to give soft loans are too wide, and the purpose of Amendment No. 3 is to apply a sensible limit. Under Clause 3 unamended, the rate of interest could be any figure at all. It could even be negative interest. If the true commercial rate of interest were 10 per cent., the Government could say 0 per cent. or even give a discount below 0 per cent. We think that this is undesirable.
There is no estimate in the Bill of the amount which will be spent for this purpose, but it could literally be limitless. When the businessmen around the world wake up to the fact that the British Government will use British taxpayers' money to provide them with soft loans, I believe that the queue for soft loans overseas will be endless. Therefore, we seek to impose 1124 upon the Government a duty to show that there is a clear case to be made out that it is of benefit to our balance of payments.
The basic fallacy behind the credit race is that export sales are such good things they should be promoted and supported at any cost. This is obviously a fallacy, because sales at any cost are not good. Only sales that are profitable in the widest context are good—profitable to the nation as well as to the British manufacturer and the supplier of the goods.
Is it profitable to the nation to subsidise overseas sales in this way? Does our balance of payments really benefit? We believe that the case has still to be made out. A full cost-benefit analysis of the Government's case is needed. On certain matters the Government have been very forthcoming in producing cost-benefit analyses. The choice of the third London airport is a good example. We would like to see that principle extended to justifying the case for soft loans for foreigners. It is not made out by saying that it is in the national interest, and that if we do not do this the French, the German, or the Canadian Government will do it. To join the Gadarene rush seems to be a weak argument.
For example, if a loan of £1 million is made to a businessman in Chile to buy British goods, what will happen? He will borrow the money to pay for the goods. The actual monetary transfer in the reserves is nil, but the reserves will benefit by the repayment of that £1 million from Chile over the next five or 10 years. Is this the best way of spending £1 million overseas? I doubt it. I think that there would be a much better return to the United Kingdom's balance of payments if that £1 million, instead of being lent for trade, was invested overseas and was actually growing rather than depreciating in value.
Until this has been properly worked out by a discounted cash flow exercise, taking into account the prevailing exchange rate, the risk of devaluation in the recipient country, the rate of interest and the period that the loan is outstanding, we cannot say whether operations of this kind will benefit our balance of payments.
Because we are doubtful we think it right to seek to impose upon the Govern- 1125 ment and upon the E.C.G.D. an obligation to show that we are net beneficiaries.
I repeat, the whole fallacy behind Clause 3 is that sales of goods overseas are so valuable that we must bend over backwards in subsidising them. We believe that this is very short-sighted indeed. The hon. Lady, in our opinion, did not make out a good case in Committee. We invite her to prove tonight that it is to the benefit of our balance of payments.
§ Mr. Ridley
I agree with and should like to reinforce every word of my hon. Friend's excellent speech.
The words of the Amendment are taken from the Industrial Development (Ships) Act of this Session, which, no doubt, the hon. Lady will have studied with care. The Treasury—that all-wise body—assumed that it understood entirely what was in the interests of our balance of payments and, in that Act, provided a long and detailed memorandum on whether the purchase of a ship abroad, under a whole variety of different circumstances, was or was not in the interests of our balance of payments.
I have the memorandum with me. It goes into great detail about discounting cash flow and whether or not to remit profits overseas, and so on. Although some of the assumptions made in the memorandum are a little tenuous, it is clear that the Treasury is now able to say whether or not a certain transaction is in the interests of our balance of payments. The hon. Lady in Committee went so far as to confirm it:However, hon. Members can be assured that the calculations, involving the use of techniques of discounting future payments at present values, are carried through meticulously. The effect of these calculations can be seen in the terms supported for individual contracts, so that, after the event, hon. Members will be able to determine whether the Department is using its powers reasonably."—[OFFICIAL REPORT, Standing Committee G, 5th March, 1970; c. 59]We now have it that the Government are able with their slide rules and log tables to work out precisely whether a contract is in the interests of our balance ct payments, taking into account the risks of devaluation, the risks of changes in reserves, the risks of an alteration in the balance of payments situation and the currency values throughout the country for, say, seven years ahead. If they have 1126 this wisdom, let them be required to use it. But before they indulge in subsidising exports through the Clause it would be nice to know that they are doing so if, in their opinion, it is to the benefit of the balance of payments.
I do not believe that there is any real resistance in the Government to this Amendment. But I suppose they will oppose it out of pique because they did not think of it themselves. The hon. Lady has tried hard to make out that she intends to use the Clause only in a commercial manner, so she will have no difficulty in accepting that it should be used only when it is in our interests to do so.
I suspect that these powers will be used from time to time far beyond what, in fact, is in the commercial interests of the country, namely, to chase business just for the sake of prestige—to be able to say that we have such-and-such a contract even though we will make a thumping loss on it. We already have £370 million of E.C.G.D. credit outstanding across the exchanges and there is no point in increasing that more than we have to in order to secure exports. In the present balance of payments situation, it is not worth picking up business of marginal value by means of a heavy subsidy on the credit terms.
The hon. Lady throughout has shown no understanding of the fact that times have changed since the most desperate days of the Labour Government, when they were scratching round borrowing money through the Gas Council and from the Germans for any conceivable prop they could find to bolster up a tottering balance of payments. That era has passed away, probably only temporarily. We have got to the stage where the hon. Lady does not have to buy her exports quite so dear. Therefore, we must put a little bit of a stiffener into the Clause. The concept of projects which are for the benefit of the balance of payments should be acceptable to the hon. Lady as well as to us.
I hope that the hon. Lady will have the kindness to accept this Amendment, which meets the strong and legitimate criticisms which we have been putting from this side of the House.
§ Mrs. Gwyneth Dunwoody
If I accept or reject any of the Amendments in the name of the hon. Member for Cirencester 1127 and Tewkesbury (Mr. Ridley), it is certainly not from pique. He fills me with great affection, because he resembles ever more Catweazle, the magician from medieval times who suddenly found himself catapulted into the 20th century.
It is rather entertaining that the hon. Member should accuse us of not being aware exactly of what is going on, although he and his hon. Friend have been rather judicious this evening in their choice of words, having entertained us with a very fascinating argument—saying, in effect, "Really, you are not doing well in direct exports, but if you are doing well in direct exports we shall not give you any credit for it. We shall say that you should change the methods by which you have obtained these successful balance of payments and should instantly start doing something else altogether, which would push us back into the situation in which we left you when we went out of office."
Hon. Members opposite have been extremely careful not to say, in public—and they have moderated their tone this evening—that they were not prepared to give British businessmen, or the British Government, or the British people in general, any credit for the excellent balance of payments situation. I thought that their Amendments in Committee were not tremendously helpful.
It is not necessary to instruct these Departments to have regard to the effect on the balance of payments of any decision to use the new powers. I have already made clear that these powers will be used only to match foreign competition in relation to desirable export business. By "desirable" I mean beneficial to the United Kingdom balance of payments, not necessarily the particular contract in question, but, in some cases, possibly from other contracts which it is expected would flow from it.
The proposed Amendment would also remove from this Clause the requirement that the Treasury must approve the amount of any grant, the way in which it shall be made and the terms upon which it may be made. These practical provisions are a more effective control than that proposed by the Amendment and I cannot accept that they should be deleted from the Bill.
1128 The hon. Member for Cirencester and Tewkesbury has made great play of the fact that he has lifted the Amendment almost word for word from the Government's Bill. It is nice to have him pay that compliment to the Government, even if it was in such a roundabout way. It is time that the wording of the Amendment is based on a formula taken from the Industrial Development (Ships) Act, 1970. This Act restricted the powers of the Minister of Technology to make investment grants under the Industrial Development Act, 1966, in the special case of ships. When the Treasury thinks that the payment of an investment grant for a ship wouldoperate to the detriment of the United Kingdom in the matter of its balance of paymentsit may instruct the Minister of Technology not to grant it. In this context the "balance of payments test" is, as has been explained, simply whether the expected financing and operation of the particular ship will have a plus or minus effect on the United Kingdom's foreign exchange position.
Such a test is not applicable to the powers defined in Clause 3. These relate exclusively to export credit. The deferred payments for exports are by definition a plus item for the United Kingdom's foreign exchange position even if they come later than from exports sold on cash terms. The Amendment would thus have no effect on the use of the powers.
I hope that the House will reject the Amendment and that hon. Members opposite, before the Bill has been dealt with finally, will get up and pay tribute not only to the work done by the E.C.G.D.—which, by definition, they have criticised tonight on more than one occasion—but also the excellent job done by the Government in presenting such a comfortable and encouraging picture of our balance of payments.
§ Mr. Tom Boardman (Leicester, South-West)
I had not intended to intervene until I heard what the hon. Lady had to say. I was deprived of the privilege of listening to the debates in Committee, but the hon. Lady said one or two things that brought me to my feet. She said, first, that hon. Members on this side of the House had denigrated the achievements of the Government and industry. It was quite unfair of her to bracket the Government and industry in that way. 1129 Throughout our debates my hon. Friends have congratulated industry on its great achievements, which have been brought about despite the Government.
The hon. Lady also referred to the suggestion that the Government would always apply commercial considerations not just to a contract, but in terms of the global picture. She said that we will sub-sidise or allow loans or guarantees at favourable terms, taking into account the consequences of what might happen in future. My hon. Friend was pointing out the dangers of this, and saying that it allowed the money to run away. The hon. Lady referred, perhaps indirectly, to the commercial wisdom which we can expect to receive from the Government. Those of us who have tried, particularly, in recent weeks, in the case of Beagle Aircraft, to examine the Government's commercial wisdom must feel very nervous about its application to any of these aspects of industry and commerce. support the Amendments.
§ 10.45 p.m.
§ Mr. Kenneth Baker
We cannot possibly be satisfied with the reply of the hon. Lady. She cast my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in the rôle of Catweazle. The only figure from fairy tale and mythology whose rôle she assumes tonight is Humpty Dumpty—or rather Humpta Dumpta—who said that, if he went on saying a thing long enough, it eventually became true.
§ Mrs. Dunwoody
I do not mind the hon. Gentleman criticising my politics, but I wish that he would lay off my figure.
§ Mr. Baker
I would not be so ungallant as to mention that.
The hon. Lady asserted again this evening that soft loans for foreigners must be in the national interest, because they brought sales of British goods, which are, therefore, good for the balance of payments, so soft loans must be good. That was her Socratic reasoning. But this is merely a series of assertions. It does not follow that all sales of British goods are good for the balance of payments. It depends whether they are profitable for the supplier and for the nation as a whole. If we extend soft loans for buying British goods, we may get a short term benefit for the balance of payments, 1130 but this may not be the best way to spend that sort of money.
It may be much better to lend long instead of short, so that the money may fructify over the years. Today, a set sum will be lent to an overseas businessman who will pay it back in instalments over the years. Allowing for the depreciation of money, its value will be much less when it does come back. If that same money were lent and invested in the overseas country, it would grow and would be much larger when it was paid back. This is why there should be a proper cost-benefit analysis of operations of this sort.
The Board of Trade has shown itself progressive and receptive to this kind of analysis in other matters of policy, but they have a mental blockage on this one, because they have been told that it must be good for the balance of payments. Tomorrow, the German Government or the French Government might announce much better credit terms, which would undercut this policy, and the next day we should have to offer even more generous terms. In this rush for soft money across the exchanges, we would suffer immeasurably at the end of the road.
§ Amendment negatived.
§ Mr. Nott
I beg to move Amendment No. 4, in page 2, line 42, at end insert:(3) In any cases when the powers conferred on the Board of Trade by subsection (2) above have been used in the promotion of the sale of armaments overseas, the Board shall make a separate return to Parliament setting out the sums involved and the destination of all arms exports promoted by the use of these powers.Unlike the hon. Lady, I do not regard my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) with great affection—the term she used, I think—but I do regard him with considerable respect. I thought that his speech on the first Amendment was admirable. All I want to say of this Amendment is that as the hon. Lady could not foresee circumstances in which the E.C.G.D. would specially subsidise interest rates for the sale of arms abroad, but, nevertheless, requires powers to do so, she has now got her powers. That Amendment was rejected. Would she, instead, like to tell Parliament what she has done about the sale of arms under the Clause after she has done it?
§ Mrs. Gwyneth Dunwoody
I have explained in Committee the very real objections there are to the disclosure of details of commercial contracts which would be involved in any return showing the sums and export markets involved in sales abroad supported by E.C.G.D. grants under this Clause.
I understand the concern which is felt by hon. Members opposite about the possibility of large sales of arms being supported by E.C.G.D. grants, particularly under Clause 3. But what I have said already should have reassured hon. Members that not only will E.C.G.D. grants not be used to support uneconomic business, but that these new powers will only be used to match foreign competition on credit-mixte terms. We have not so far identified any instances of credit-mixte terms being offered for arms sales, and unless and until we do discover such instances the question of using the Clause 3 powers will not arise.
However, as Easter is rapidly approaching and I am desirous of making hon. Members opposite a small gift to show that there is no ill will, and as, particularly, we have absolutely nothing to hide, I should like to provide hon. Members with more information. The E.C.G.D. annual appropriation accounts will show each year the total amount of grants given under these new powers, and I am proposing that they should be annotated to show the total value of grants, if any, which have been made in relation to arms contracts. This would be an aggregate figure and would not, of course, give any details of individual grants.
But I am sure that hon. Members opposite are not so ungallant, in spite of their remarks, as to look any gift horse too closely in the mouth.
§ Mr. Ridley
After many hours of debate on this subject, I am delighted to hear that the hon. Lady is at last to publish full details of the use of powers under the Clause. Indeed, I feel that Catweazle can almost return the great affection on finding that all his pleadings have not gone unheard. It is a tribute, and a matter of some pleasure to my 1132 hon. Friends, that the rather unsympathetic, but, I think, entirely genuine points which we have been trying to make in most courteous fashion throughout the passage of the Bill should have, at the very eleventh hour, received some recognition from the Government. This will be a great help. We should keep public control over the use of the powers under this Clause, not only in general but also on the particular issue of the sale of armaments which has been troubling my hon. Friends.
I am grateful that the hon. Lady should have given that undertaking. Had it been made at the beginning of the Committee stage, it might have saved one morning and, perhaps, a little time this evening as well. So I thank her. She has made a useful concession. If this were to be my last word on the Bill I would just repeat the tribute I paid to the E.C.G.D. on Second Reading for the way in which it has handled our business. If we have made criticisms, they have been constructive criticisms, and our remarks have, in the main, been about the future and not about the past.
I add my tribute to industry for the magnificent way in which it has increased exports despite the ham-fisted attempts by the Government to hold them back. We wish E.C.G.D. well. We are grateful to the hon. Lady for having met us on this very important point and we hope that the Bill will be some small help towards increasing our export trade in years to come.
§ Mr. Deputy Speaker (Mr. Sydney Irving)
I understand that although the hon. Lady has given an undertaking, she has not accepted the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 55 (Third Reading), and agreed to.
§ Bill accordingly read the Third time, and passed.