§ 5.3 p.m.
§ Mr. John Hannam (Exeter)
I beg to move,That this House, whilst recognising the valuable efforts of Great Britain's exporters, is conscious of the changing attitudes following the imposition of the United States surcharge; believes that if we are to increase our share of world exports, then more assistance needs to be given in the areas of credit finance and investment; and calls on Her Majesty's Government to carry out the fullest possible study.In raising this matter I wish to draw attention to the changing nature of world trade and to suggest measures which, if adopted by the Government, would assist our exporters to recapture our share of world markets which has declined so steadily in recent years. Much is being done by my hon. Friend's Department to assist British firms in selling their goods abroad, but the American surcharge has created new opportunities in areas of the world where hitherto American domination has reigned supreme.
If we are to establish a stronger hold in those trading markets, then a keener edge needs to be applied to our competitiveness, not so much in the techniques of selling but in providing systems of credit financing and investment aids, trade missions and consultancy advice which will fit into new and changing world conditions. My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) has also tabled a Motion relating to investment levels and their effects on exports. I hope that if he succeeds in catching your eye he will contribute some valuable observations on the subject of investment.
As we look at the world trading scene it is apparent that a structural change is taking place. Under-developed countries, totally reliant in the past on the sale of natural resources in exchange for imported consumer goods are beginning to set up their own manufacturing infrastructures and they are in the market not for shoes, plastics and textiles from this country, but for the invisible exports such as knowhow, shared technology, machine tools and financial investment. In Europe our access to that vast high-quality consumer market will ensure a decade of new challenges and opportunities, yet with very little time in hand before in 1973 our manufacturers, large 79 and small, find themselves subjected to the full weight of continental competition albeit within the E.E.C. tariff wall. I feel that there are Government initiatives which can be taken to assist in obtaining a fair share of this great market.
In the United States of America—our single largest exporting market worth over £1,000 million-worth of exports in the last year to June 1971—the threat of recent fiscal protectionist measures is serious enough to warrant the strongest possible protests by my right hon. Friend. The flagrant violation of the rules of G.A.T.T. adds up to an increase in net cost on a £1,000 price of British capital machinery of over £160—in other words, a price preference to the domestic American equipment supplier of over 25 per cent. We would all agree that it is desirable to avoid a trade war developing with ourselves and other trading nations adopting similar protectionist measures. I am sure that the Chancellor has made Britain's position clear, and I hope that in the forthcoming talks between the Prime Minister and the President it is pointed out that one of the major causes of Britain's lack of investment confidence is the continuing instability in world currencies and the uncertainties surrounding our trading relationships with the United States.
In any case the main cause of the United States' predicament is its obsession with and exploitation of overseas investment in industry. Servan Schreiber's fear of the American challenge has proved to be well founded although not in the way he expected. He expected a threat to French and European industrial independence. What has happened has been a threat to America's own financial position—a case of "the biter biting his own hand". In this complex area of world exporting where one country's gain is another's deficit it is essential that our country, an advanced industrial manufacturing nation with limited natural resources must in the next few years produce a substantial gain in real terms in foreign earnings if we are to withstand the effects not only of a certain rise in the amount of imported goods as our tariffs are reduced, following entry into the E.E.C., but also the cost of agricultural support across our balances.
80 The present outstandingly large balance of payments surpluses must certainly be undermined in the near future when the inflation and cost increases of 1970–71 work their way through into export prices.
Looking at the present export situation, one can only pay the fullest compliment to our firms and their overseas salesmen, be they engaged in visible or invisible earnings, for despite changing circumstances and a certain amount of exploitation of international credit arrangements by our rivals, our exports have actually risen sharply since the disastrous year of 1967 when they actually fell back.
Britain's percentage increase of 7.4 per cent. over 1969–70 compares unfavourably with the increase in world exports of 14.1 per cent. The United Kingdom's percentage share of world exports has dropped from 8.1 per cent. in 1964 to 6.2 per cent. in 1970. This continuing downward trend, although hard to reverse, must be at least halted and I should like to submit some suggestions for the consideration of my hon. and right hon. Friends and the House.
First, I wish to deal with the subject of direct visible exporting. On the face of it we see an extremely healthy position with Britain's economy now stronger than at any time during the last 10 years. There is a massive balance of payments surplus—possibly the first time since the Armada, that we have had two successive years of visible surplus. There is gradually reviving demand at home and wage inflation is at last showing some signs of slowing down. Yet, despite the magnificent efforts of our exporters in achieving those increases in real terms, the factors governing our future medium-term export position present an ominiously worrying picture. Industrial investment, a key factor in our future competitive position, is far too low, and has been so for far too long. Industrial investment in Britain declined steadily after the "squeeze and freeze" policy of the early 1960s, revived in 1964–65 under the impetus of the reflationary measures of my right hon. Friend the Member for Barnet (Mr. Maudling). but has been moving sideways ever since. Some revival is evident, but is confined mainly to manufacturers of consumer durable goods.
81 Why does British industry invest so little? The United Kingdom spends about 23 per cent. of its national income on grossed fixed investment; Germany 29 per cent.; France 32 per cent.; and Japan no less than 44 per cent. "Stop-go" must bear some blame for lagging industrial investment. Few things are better calculated to inhibit long-term planning than short bursts of prosperity followed by short bouts of severe restraint.
But the principal cause of Britain's stagnant investment must be the decline in profits earned by industry. Since the middle 1960s, industrial profits have been taking a steadily smaller share of the United Kingdom's income, and this decline must be reversed and must be seen to be reversed before industrial investment will revive. The penalty of low investment is not just recession among capital goods suppliers, which is important enough. The real cost of current low investment lies in the damage being done to Britain's international competitive position, of which the full extent will emerge only several years from now.
If we combine this factor with higher production costs resulting from the wage and cost inflation of the last two years and the protective defences being erected or created around two of the largest consumer markets—America and Japan—it is obvious that if we are to hold our own during the immediate short-term future some adjustments must be made to our present systems of export finances and assistance.
Since the mid-1950s a significant trend has emerged in international trade financing. There has been a growing tendency to conduct export business on the basis of ever-lengthening deferred payment terms rather than on a cash basis. This trend has resulted from a number of factors, the most important being, first, the gradual emergence of a buyers' market for almost all types of goods traded internationally as a result of growing production in developed countries and the increasing industrialisation of a number of developing countries; secondly, ever keener competition among exporting countries to expand their existing markets and open up new ones in order to increase their share of international trade and maximise their foreign exchange earnings; and, thirdly, the difficulties experienced 82 by developing countries in financing imports of capital goods needed for the implementation of their development plans.
During the immediate post-war period developing countries tended to concentrate their efforts on industrialisation of import-substitution industries rather than on export industries. However, with foreign exchange earnings expansion becoming a high priority in many second stage developing countries, the accent has swung towards the creation in recent years of exportable, non-traditional goods, such as chemicals, light engineering products, transport equipment and other capital goods. But with the harsh competition already existing in these export fields, these developing countries have been seeking new, advantageous financing and trading terms which would enable them to compete more readily with exporters in other established countries.
Therefore, there has been a subtle shift in emphasis in our exporting relationship which has not been totally reflected in our own credit financing arrangements and attitudes. The traditional British approach has been one of guaranteed Empire and Commonwealth markets based on a cash basis and, outside that, the reluctant provision of extended credit, always restrained because of our preoccupation with the balance of payments. The consequence was that we missed out badly in many of the developing countries because of our restrictive policies on overseas investment, combined with an obsession with Africa and constant fears concerning the stability of the economies of many other areas of much more rapid growth. The Middle East, South America and Indonesia are good examples.
During the 1950s and 1960s our competitors, with much more determination and hacking, seized many of the opportunities to create new plants and assemblies, often on a fifty-fifty basis with the national domestic companies. In Brazil, which I visited recently, and which was, until the war, dominated by British investment, it was very depressing to see new industries and new cities springing up everywhere with hardly a British firm to be seen. Yet that is a country which is just passing Japan in growth rate, with 95 million people, and an increasingly stable economy since the 1964 peaceful 83 revolution. The one millionth Volkswagen was sold recently. All of those cars were manufactured in Brazil. In the 10 days that I was there I saw only two British cars on the roads of the four major cities I visited, and both were pre-1960 models. There is no open sports car manufactured there, and I can only hope that British Leyland can see its way clear to seizing what might be the last chance to break into that massive market.
In passing, I wish to pay personal tribute to the hospitality shown the parliamentary delegation by the Brazilian Confederation of Industry.
Elsewhere in the world similar rapidly developing nations—for example, Indonesia—are wide open for British trade penetration. Yet we must accept that these areas are not quick, cash-return countries. What is needed is long term finance which must go hand-in-hand with our willingness to share our know-how and technologies with them. It is no longer a question of salesmen turning up with their suitcases of samples such as paint brushes, shirts, and so on; it is a question of skilful presentation of our latest engineering techniques, of our environmental control systems, advanced equipment for infrastructure development, drainage schemes, road and rail systems, industrial pollution control apparatus, hovercraft, Land Rovers, and so on. Many British products should be evident in these markets, but they are sadly lacking.
What can be done to help British exporters? First, I stress that there is already a vast range of services available in this country—from information provided by the Government Export Intelligence Service, from our newly orientated Diplomatic Service, which is fast developing a very keen nose for possible new projects, from our overseas chambers of commerce, the C.B.I. and all the private sector banking houses and the valuable voluntary work of those involved in the British National Export Council, now being replaced by the British Export Board, with its recently appointed Chairman Lord Thorneycroft.
I should like to say a few words about the sudden demise of the British National Export Council in May. From my experience with the Latin-American section, so ably led by James Longmore, I am 84 convinced that the expertise brought into our promotion of exports by the voluntary efforts of the teams of business men in the B.N.E.C. must not be lost. I therefore hope that Lord Thorneycroft and the British Export Board will quickly set about harnessing the enthusiasm of those experts. I also hope that the specialist regional activities of the B.N.E.C. will continue within the ambit of their continuing organisations.
My hon. Friend the Under-Secretary of State will, I hope, say a few words about the rôle of the B.E.B. in maintaining and improving the export drive. What is necessary is a new look at the value of trade fairs and the methods used to bring important buyers and politicians from overseas into contact with our industries and latest developments. Having experienced the hospitality and organisation provided by less wealthy overseas hosts, I am often embarrassed by the difficulties we encounter when endeavouring to reciprocate the hospitality.
Turning to the definition of the role of the B.E.B., such matters as the allocation of funds, the mounting of exhibitions, the organisation of trade missions, and feeding back intelligence information can be handled competently and effectively by our civil servants. I find a growing conviction that the vast trade fair held every four or five years in order to show the flag is not so useful as taking part in technical exhibitions and trade missions of a semi-permanent nature. Often the criticism is heard abroad, "After the fair was over we heard nothing further from you until the next one". In fact, there was a great deal of follow-up by our trade attachés and individual firms, but I feel that more value can be obtained from constant participation in the specialist fairs and exhibitions.
With top-notch sales representatives and the latest technical equipment, a great number of sales can be made. May we have leading members of the Government visiting Latin-America and other rich markets? Royal visits in the past have always stimulated interest in Britain, but now we must talk trade at the highest possible level. I would express the hope that my right hon. Friend the Prime Minister would consider, for instance, a visit to Brazil in 1974 when we shall be holding our next major trade fair in Sao Paulo—and possibly he could bring back 85 a little silverware from the Rio yacht race at the same time.
With information, trade fairs and missions, then, we are reasonably well served. Now I should like to turn to our credit financing arrangements. As I mentioned earlier, important changes have taken place in the international trading scene. A fierce international credit war has been waged with certain other countries sinning against the much battered G.A.T.T. rules. I am not advocating our joining the sinners, but it is, I believe, vitally important that a new set of rules for export credits should be drawn up. The E.E.C. will offer an opportunity for a constructive, collective approach to halting this export credit battle. However, if one talks to British exporters after we have lost a large export order one hears the general complaint that they could have won the order if competitors had not been offering credit terms which were tantamount to bribery. It is an urgent necessity, I would suggest, that we look carefully at some of the restrictions which we impose upon ourselves in this field of capital goods exporting.
Much export credit finance in Britain is very simple indeed, with the manufacturer being paid as soon as he puts his goods on board ship. Our main clearing banks, although providing most of our export finance, are still clinging to their policy of refusing to borrow short and lend long. The Export Credits Guarantee Department was founded to give the banks a secure basis on which to do just that by giving cover against the three main risks involved—the refusal of the buyer to accept the goods exported; the default of the buyer; political risks, which usually mean exchange controls. The E.C.G.D. does not itself provide finance but is an insurance agency. The British Government unlike some other countries, notably France, do not subsidise export finance directly but rather lean on our wide range of British banks to provide an indirect subsidy. The various different forms of banking finance available—there are over 800 export houses of one form or another—mean that in this country we have probably one of the most extensive ranges of facilities in the world. So when we are considering the methods by which we could improve our system of credit finance it is important that we clarify E.C.G.D.'s position.
86 This well-establishment department, the oldest and probably the best of the world's cover institutions, can hardly be faulted in its application of the existing rules and regulations. E.C.G.D. is also assuming new functions, one of which will be administering the new investment insurance scheme which is expected to start operating next spring, but I believe that, bearing in mind the changes taking place in world trading, and the effects of the U.S. surcharge both on our own share of the U.S. consumer market and on the attitudes of the developing trading nations towards this country as an alternative trading partner, E.C.G.D., as our Government's export financing department, needs to be expanding its range of services and speeding up the processes of evaluation of credit applications.
If any criticism can be levelled at E.C.G.D. it is of the slowness of its procedures, and of too much form-filling, and of a lack of flexibility in dealing with the new forms of barter trading developing in East-West and developing countries' trade. The C.B.I. is pressing for insurance against currency risks and a relaxation of exchange control regulations to allow forward cover at the tender stage rather than waiting until a contract is signed.
From accounts I have received from a constituency firm, and another in the constituency of my right hon. Friend the Member for Cambridgeshire (Mr. Pym), and from discussions I have had with trade representatives abroad, I am convinced that there is some justification for such criticisms. My hon. Friend the Under-Secretary of State has been most helpful in dealing with those cases, but my concern remains that, just at the time when this vital exporting department should be gearing up and increasing its staff and facilities, it may be understaffed and over-worked. I hope I shall be given a reassurance that E.C.G.D. will not be under any restraint in this respect. It would be sinking the ship for a ha'pworth of tar if this important department were not allowed to expand its insurance activities through shortage of staff.
The question of barter agreements is also worrying. The growing development of trade with countries which, because of shortages of sterling and other foreign 87 currencies, are having to arrange two-way and three-way barter deals and which, therefore, require the exporter to arrange his credit to cover payment via a third country, necessitates a relaxation of E.C.G.D. rules. Barter is generally effected against agricultural produce or prime minerals. Such commodities are generally sold through the international commodity exchanges in London and some continental centres. Generally, very substantial sums, running into many millions of pounds, are involved in the projects under review, and can represent several harvests or several years' production of the commodity to be bartered. In addition the commodity must be brought to the market in an orderly manner so as to maintain price stability and obtain the optimum income for the developing country.
It will be clear that a time lag generally develops which results from payment to equipment suppliers being due long before full counterpart value has been earned by sale of barter commodities. This basically presents no problem as bridging finance can generally be obtained in the City, the transaction as such being sound, provided that credit guarantee cover can be obtained through E.C.G.D. Unfortunately, as I understand it, such cover cannot be given by E.C.G.D. The case presented to me involved the supply of machinery from Britain amounting to some £5 million for a major irrigation project in Iraq. A barter of sulphur to Australia was arranged but would not be fully shipped till 1974, whereas the British machinery project had to be completed by 1972. The bridging finance was made available, but—and I quote from the E.C.D.E. letter—The Department is not prepared to cover a transaction where payment is dependant for its timing or actuality upon the supply from the buying country of other goods.In the event, after a year's hard work by all concerned, the Russians stepped in with credit, barter and technical assistance, and secured the contract.
The simple request, therefore, is for an amendment in the policy of E.C.G.D. to include barter transactions, even if these are restricted to capital goods sales to Governments of developing countries, and backed by guarantees from the central banks of such countries.
88 E.C.G.D., we can all agree, is a first rate organisation, but its job is definitely that of insurance and not banking, and it needs to adopt a less restrictive approach to the creditworthiness of smaller firms entering into the export field. Although the view is widely held that, because 70 per cent. of our exports are sold by just a few—some 500—large companies, small firms should not be encouraged to export. I do not hold that view. Japan is a clear example of a country which, through its trading houses, has encouraged and developed a high proportion of exports being manufactured by small firms. In the European Community also the small firm has played an ever increasing rôle in exports. E.C.G.D. offers it full range of export credit to the small firm, but I have come across small firms with limited liquid resources and balance sheet assets which have experienced great difficulty in obtaining credit guarantees despite the fact that a true valuation of their assets showed a substantial cover for the amount of credit required. I think, therefore, that generally E.C.G.D. is to be congratulated upon its work. Since 1947 its insurance business has grown from £88 million to £3,225 million last year. With a little expansion, some greater flexibility, and modification of its rules this department can, I am sure, continue to play its vital part in our export successes.
Moving on, briefly, from credit financing and insurance, I should like to touch upon another matter, which was referred to in the Bolton Report, and about which I have recently been in correspondence with my right hon. Friend the Prime Minister and my hon. Friend the Minister of State, Treasury. This concerns the need to give every possible assistance and advice to the small company wishing to expand and extend its activities into Europe. The Bolton Report says this:Small firms will be involved to a greater degree in exporting if we become members of the enlarged European Economic Community, and it is of vital importance that the small firm should continue to be able to obtain its proper requirements if the country is to obtain the full benefit from entry into E.E.C. or indeed from increased activity in other export markets.I have been essentially concerned at the need for an organisation to help British companies invest in Europe, especially the smaller companies which will be, and, 89 indeed, are already, looking for agency or associate company operations, and which will be requiring financing to, say, £100,000 or upwards. These companies will need service, advice, and planning help, combined with corporate finance assistance. So the organisation should not be just a banking organisation. Good local offices would need to be established in the different countries so that central sources of funds can be tapped for the British company.
The technical difficulties involved in starting such a new organisation from scratch would be immense. Having studied the various existing organisations which would be possible candidates for this crucially important task, I found one obvious candidate—an organisation established in 1953 by the Bank of England on Treasury initiative in order to provide means of access to the London capital market for industrial and commercial firms in Commonwealth countries, and generally to act as a lender of last resort in cases where normal market channels were not open to borrowers. This organisation, the Commonwealth Development Finance Company Limited, has just under half of its share capital subscribed by the Bank of England and the rest was raised from various large industrial firms and city institutions.
Here is a company—half Government, half private capital—desperately in need of a new rôole and objectives and ideal for an extension of its activities into helping British firms into Europe. It could be renamed the European and Commonwealth Development Finance Co. Ltd. and could still be financed through industry and the Bank of England, but with a new and dynamic management structure spearheading the development of that middle band of companies with annual turnovers of between £1 million and £50 million
My hon. Friend the Under-Secretary of State probably cannot deal with this proposal today, but I hope that in the context of our general exporting objectives he will discuss this matter with my right hon. Friend the Chancellor of the Exchequer, and inform me at a later date.
Finally, may I touch upon the mainstay of our overseas currency earnings—our invisibles. As we see the surplus from invisible earnings rising steadily 90 from £151 million in 1960 to over £600 million this year, our fullest congratulations must go to all the contributors—banks, insurance, tourism and travel. Yet for a long time our tax structure has not encouraged the growth of our investments abroad—investments which are now necessary in this changing scene of shared ownership of new technologies in the developing countries.
Is it not time now to show our faith in our invisible sector by removing the 25 per cent. surrender requirement on the dollar premium? If ever there was a time when our balance of payments was healthy enough to stand such a change in policy towards overseas investment, now is that time. Under this Government the rush by private individuals to take money out of the country to avoid excessive taxation has ended. Now is the moment to show our confidence in the future and to encourage investment in overseas developments which, in the course of a few years, will reap further dividends for this country. Trade follows investment, and much of our overseas investment which was destroyed in the war can now be built up again.
Drawing together the threads of my argument, I can see the opportunities lying before this country's exporters. Contrary to the famous words of a previous Prime Minister, exporting is not fun—it is hard work, often frustrating, but is exciting and stimulating in the challenge it offers.
With a little more help from the Government, there need not be so many frustrations, and yet we do not have to go further into an international credit rat-race. We can take the lead in the E.E.C. in drawing up a new set of rules for credit financing. But in the meantime, by lowering interest rates, setting up an interest equalisation account, removing the dollar premium, applying our overseas aid with some "credit tags" as the French are doing with their credit mix system, adjusting E.G.C.D. rules to cover barter trade, encouraging the smaller firm with help and advice, and reviewing our overseas sales promotion schemes, we can ensure that our exporters stay in the race.
I have outlined what I hope will be regarded by my hon. Friend and by the House as constructive suggestions and I 91 ask the Government to give them the closest study.
§ 5.33 p.m.
§ Mr. Tom Normanton (Cheadle)
I listened to my hon. Friend the Member for Exeter (Mr. John Hannam) with sincere and deep regard for what he had to say. He struck many notes which I personally have experienced and which bring back memories—some painful, some satisfactory—stretching over the last 20 years—which is the period in which I personally have engaged in business, at a private business level and also in the consideration of policies at a national level.
My hon. Friend posed a number of problems and exposed certain difficulties. I am not certain that he presented all the answers, or sufficient answers, at this point of time. It may well be that his requests for help and guidance, whether related to large firms or small, will find a sympathetic hearing throughout the length and breadth of industry. I hope that this will prove to be the case because I am quite sure that this was in my hon. Friend's mind in drawing attention to various problems and in posing questions to which, one hopes, he will receive satisfactory answers. I do not intend to try to fill the gap by way of giving answers to the questions he posed, but I should like to add a number of problems to the list.
First, he mentioned the way in which British industry has been investing—and investing so inadequately. I do not in any way wish to be partisan on this occasion, although no doubt this is a highly political platform, but it would be unrealistic to let the occasion pass without pointing to the fact that for the last five or six years there has been a continuous erosion of the reserves of industry, particularly in regard to the small companies. It is only out of those reserves and the liquid reserves that investment can take place, again particularly in regard to small firms. In other words, the smaller company, which is inhibited by its structure from appealing to the capital market, must have access to sources of finance which are dependent on the liquidity of the company.
In the last five or six years we have seen, coupled with an ever-declining rate 92 of productivity, an ever-rising level of taxation. The impact of corporation tax on small companies and on all corporate entities is one of the causes for the low investment to which my hon. Friend has referred. It will take a long period of time, especially if we do not get on top of inflation, before we in industry feel that we have a chance to re-establish the kind of liquidity which is so essential for trade, whether that trade be national or international.
I was delighted to hear my hon. Friend pay his respects to John Bolton and the work of his Committee. I hope there will be an occasion when the House will be able to debate the Bolton Committee's Report at greater length because it highlighted many of the problems which affect not only small firms but all companies engaged in trade and industry.
I note one particular point emphasised by the Bolton Committee, which no doubt will find a sympathetic response from my hon. Friend; namely, that the small firm does not ask for treatment different from that which is established and available for all companies in the country. What we want to see is that industrial policies on a national basis are not formulated without regard to the requirements of small companies. Ministers in all Departments concerned in the formulation of such policies could ask themselves, before arriving at a final answer, "How will this affect the small firm?" If it disadvantages the small firm compared with the large one, I hope that Ministers will hesitate and reconsider their policies, and if necessary reconstitute them before officially announcing them as Government policies.
There are clearly areas in which the Government have an important rôle to play. The predominant one is in fiscal policy. In considering the corporate structure, I hope the Government will at an early date give very urgent consideration to redrafting company legislation, on the basis of which corporate entities are formed.
Many people in industry, particularly at national level, believe that the Companies Act, 1967, was either inadequately prepared or rushed through Parliament in advance of adequate preparatory work being completed. I therefore hope that the Minister, when replying to this point made by my hon. Friend the Member 93 for Exeter, will promise to reconsider and resubmit to the House proposals for company legislation.
A point we tend to ignore and one which becomes heavily emotive is the impact of estate and death duties on private companies. There is no sector of industry more adversely affected by this aspect of fiscal policy than the private and small company.
The importance of the small company, private as most of them are, should never be underestimated. We accept that exporting is almost invariably carried out by a small number of large firms, but behind them stands a vast number of sub-contractors and sub-sub-contractors. The vast majority of these are in the category of medium to medium-small firms. This should never be ignored and we should always pay respect to the contribution to our national earnings in exports made by these smaller firms.
In drafting fiscal policy the Government should bear in mind the practical effects of capital gains tax. I am not suggesting that this form of taxation should be abolished. Emotionally many of us might wish that that were done, but it would be unrealistic to suggest that it should or could be abolished. I know from speaking with a number of friends connected with companies—I am thinking particularly of friends in the accounting profession—that capital gains tax operates against the interests of industry generally and small businesses in particular.
It tends to freeze companies, first in the spheres in which they are engaged and second in the scope for mergers and fusions. A merger, takeover or acquisition among two, three or four firms can immediately give rise to a capital gains tax liability situation, and frequently this automatically inhibits the kind of development which may be industrially highly desirable for the British economy in the longer term.
We should not ignore in fiscal policy the question of surtax assessments or the writing back to the proprietor of liability to tax in certain situations which, frankly, I would regard as penalising him not just for having expended by the firm technically for his own benefit but for having invested for purposes in respect of which, in some cases, the inspector of 94 taxes questions whether the investment is in pursuance of expansion.
I hope the Government will lean over backwards in any case of possible doubt and will say that where any expenditure or so-called investment might be deemed to be in the interests of expansion, the benefit of doubt will be given to the proprietor and the company concerned.
What should be the policy of the Government in the area in which they have an enormous part to play as a customer or buyer? It has been the policy of Governments of both parties and of the Department of Trade and Industry to press forward with policies which one might describe as liberal. They have gone in for the liberalisation of international trade.
In some cases many people are influenced by the need more to help developing countries than to help Britain and British industry. Both are laudable motives and must be recognised. At the same time, in implementing policies in terms of international trade, I earnestly hope that the Secretary of State for Trade and Industry will recognise that a viable export industry depends on a viable, energetic and dynamic industry at home. One cannot allow a section of industry to be liquidated—I speak with particular reference to the textile industry—and at the same time expect to see it put up a worthwhile performance in the export market.
I hope the civil servants in the Department of Trade and Industry, who have tremendous influence in suggesting policy and certainly in implementing it, will have a close look at the kind of system which operates among the Six in the Common Market, for one has the impression that much more regard is given to representations from industries within those countries than British industry generally believes is the case in Britain. I do not say that this is the case—only that a wide section of industry believes that more regard is paid by the Commission to Common Market industries than appears to be the case here in Britain.
In this context, I hope that the Government, being the biggest single purchasing agency in this country—I am not suggesting that they should switch to a "buy British only" policy—will, where doing 95 so is not contrary to international interests, be a little more discriminating in their purchases than they have been in certain sections of industry and trade.
My hon. Friend the Member for Exeter referred to the rôle of the British Export Board. I am sure that industry as a whole wishes Lord Thorneycroft every success in the task to which he has set his hand. It is a major task and he will recognise the great contribution played in the past by the British National Export Council and those many men who served it as chairmen, members of Council and members of staff.
I have a suggestion to make about commercial counsellors. Before I entered this House in June I took a deep, active and intense interest in the export activities of my company and the industry in which it operates. I had considerable opportunity to make an assessment of the abilities of the different commercial counsellors in the various offices throughout Europe. There is far too wide a range in the abilities of those men to be completely satisfactory. The best are undoubtedly magnificent. I shall not mention any particular office, but I owe a great debt to the men that I met for the way in which they introduced me to their field, their enthusiasm and for the deep and intense contribution that they were able to make. To them I pay my respects. That is precisely what we should expect to find from these commercial counsellors. But the general run are either inadequately briefed or inadequately trained, and, unfortunately perhaps, because most of them are professional civil servants—with respect to that extremely worthy body, the Civil Service—are not the right kind of people with the right kind of training for that important rôle.
This rôle could be filled far more effectively were men to be drawn from industry, perhaps, on entirely new bases of contract, on the basis of their experience in exporting. Those people should then be posted to the various embassies with briefs which may well be different from those which apply to the Civil Service counsellors who operate from these offices. The net result may well be that there would be losses for commercial reasons; men may be appointed and within a year may use the opportunities for their benefit rather than for the benefit 96 of industry at large. But at the end of the day, with the drawing from industry of export-minded and experienced men and posting them to offices in the various embassies, even if they are lost to the service, in the long run British industry will be the richer for their contribution.
Regarding the British national exhibition centre, it has been said very frequently in this Chamber that Britain has fallen to the end of the race for the provision of a suitable centre in which to hold not just national exhibitions but international exhibitions. Year after year I have visited the exhibition centre at Hanover. I confess to a feeling not of shame but of deep dismay when I look at the facilities available there and the way in which European industry tends to concentrate there, with the magnificent resources and facilities, even though perhaps Hanover could not be compared with the facilities—not exhibition facilities—available in London.
I earnestly hope that the Government will do all that they can to promote the establishment of a major exhibition centre in Britain, not only for national but for international exhibitions, for until we have European international exhibitions moving around Europe and including Britain, so long will Britain be an offshore island of the mainland of Europe. The establishment of the right sort of centre will be a major influence enabling British industry to export to that area to which we are soon to become linked.
Also regarding the E.E.C., visits to Brussels and discussions with officials of the Commission in the last few months have made me deeply aware of the demands which will be made upon our industry and civil servants, upon Government as a whole and upon all the institutions of this country, by our participation in and membership of the E.E.C. I earnestly hope that the Government will encourage industry to be willing to second experienced, energetic and dynamic representatives who could involve themselves in the manifold institutions of the Common Market, because it is in those areas that economic, commercial and financial policies will be developed. Unless from an industrial level there is the right sort of impact brought to bear, Britain will be a loser by participation in Europe instead of a beneficiary. 97 There are two areas calling for a growing attention and concern about Britain's industry and trade. One is the growth of State trading, and the other is the development of the so-called developing nations. The State trading countries and the developing nations are operating on economic formulae for trade which are basically totally different from our basis of costing; in other words, trade in their case is unrelated to cost of production but related to the ability to command a sale, and to command a sale for the purpose of winning foreign currency. I draw the attention of the Government to the urgent need for a reconsideration of the General Agreement on Tariffs and Trade in this context, because there are sectors of British industry from which standards are being demanded, in terms of trading efficiency, by drawing comparisons of prices against which Britain has to compete for exports, whereas the criteria in both markets are completely different. I hope, therefore, that the G.A.T.T., when it is reviewed, will be the subject of reconsideration in the light of the growing expansion of trade between the developing countries and the State trading countries and those who, like Britain, believe in a free economy.
In conclusion, the contribution made by my hon. Friend the Member for Exeter has been valuable and constructive. I look forward very much to hearing the Minister's reply to the points raised by my hon. Friend. I hope that in such reply the interests of the small firm and the private firm will be very much in the forefront of the Minister's mind.
§ 5.58 p.m.
§ Mr. Edmund Dell (Birkenhead)
The hon. Member for Cheadle (Mr. Norman-ton) has persuaded me to take part in the debate by somewhat widening it and introducing a slightly more controversial element than did the hon. Member for Exeter (Mr. John Hannam). I had earlier been content to give the hon. Member for Exeter my silent support. His Motion is a good one and it should command the support of the House. The essence of the Motion is that the Government should stand behind and assist British exporters and that the Government, as far as they can, should make sure that British exporters remain competitive, 98 because by so doing the economy of Britain will benefit. I support that sentiment and I support the use of Government power for that purpose. The proposition that Government power should stand behind national exporters is a not entirely uncontroversial proposition on the Government side of the House. Nevertheless, I am glad to hear it coming from the hon. Member because it is an important point which has to be made from time to time.
I have spent a considerable part of my life in the exporting business, not with a small company but in a rather large company which may have been freer of the need for assistance from Government services than some of the companies to which the hon. Member for Cheadle has just referred. But nevertheless the same principle applies. The Government have a responsibility in this matter.
The hon. Gentleman decided to take the issue rather widely and raised certain questions with a distant relationship to the subject of the Motion. Not all his points were so distant from the essence of the Motion, and I want to make a few comments on what he said.
The hon. Gentleman proposed that there should be new companies legislation. I, too, think that there should be new companies legislation. We are all waiting for the Department of Trade and Industry to produce it. The hon. Gentleman wants the disclosure provisions in respect of small companies to be changed. I should be willing to consider such changes, on condition that the disclosure provisions of the 1967 Act in respect of larger companies were greatly improved. What has been shown in respect of the 1967 Act is, not that it was ill-thought-out, ill-prepared or ill-discussed, but that in respect of financial disclosure by large firms not sufficient was statutorily required. Too much was left to firms to decide in what form the financial disclosure should be made. One of the provisions in the Commission for Industry and Manpower Bill, which was before the House before the General Election, would have made it possible to require a higher standard of disclosure, at any rate from larger firms.
I hope that when the legislation is introduced it will contain something definite to require that improvement. Such an improvement would be very 99 relevant to the Government's competition legislation. Perhaps with good fortune we shall see such a provision in the Government's competition legislation, because such a provision is as relevant to competition legislation as it is to companies legislation.
The hon. Gentleman went on and, confessing that he was introducing a slight note of controversiality, attacked the Labour Government, by a reference to the last five or six years, for the present low level of investment, attributing it to the erosion of companies' reserves. The hon. Gentleman is mistaken. The low level of investment at the moment is a matter of confidence—confidence in future prospects, confidence in future profitability. This is what governs investment.
Whatever the merits might be of the tax allowance system of investment incentives that the Government have introduced as compared with the previous system, if the hon. Gentleman is right that the present difficulty is the low level of company reserves it was a stupid moment for the present Government to make the change. I was interested to observe only recently that a leading official—I think that it was the chairman —of the Engineering Industries Association complained about this change. This association of small companies evidently had found the change to its disadvantage.
§ Mr. Normanton
My criticism was not about reserves in general but about the liquidity position, particularly of small firms. It is the liquidity position about which I am more deeply concerned. It is that, above all, which has inhibited investment. A company cannot invest if it does not have the wherewithal to do so.
§ Mr. Dell
The hon. Gentleman is wrong. I do not think that that is the real difficulty that companies are facing. The real problem of investment at present is one of confidence. Confidence, as we learned so hard, is a matter very much in the Government's hands.
Then the hon. Gentleman talked about the liberalisation of trade and made the perfectly legitimate point that governments, in developing liberal world trading arrangements, must look after the interests of their own people. Indeed, the whole time there is a tension between 100 the requirements of governments to expand international trade, which has all the advantages of division of labour, greater efficiency, and specialisation, on the one hand, and the impact which in certain circumstances liberal trade can have for the home country, on the other. Governments have democratic responsibilities to their own people which can come into conflict with certain of the results or implications of free international trade agreements.
What we want from the Government—after all, these matters have been raised by the hon. Gentleman—is a statement of what attitude they have to the present crisis in international trade. That great power, the United States, although it must import a large quantity of raw materials, and although a certain section of its gross national product is provided in the course of international trade, is nevertheless much more independent of international trade than we are. It has not merely imposed a surcharge but has imposed a tax preference to the benefit of United States capital goods. This has widespread implications for us.
In this situation clearly the Government must defend British interests, but I hope that the Minister will be able to say that he sees the possibility of a settlement of the current crisis shortly which will be consistent with the future development of international trade; because all hon. Members will agree that the development of international trade since the war has been to the benefit of all countries which have taken part in it.
Lastly, both hon. Members opposite referred to the developing countries. I hope that the Government, although appreciating their responsibilities towards the people of this country, who are their primary responsibility, will not forget their responsibilities to the people of the developing countries. Indeed, only the other night the Government showed that they had not forgotten them by introducing the scheme for generalised preferences, which the House adopted, though with expressions of concern by some hon. Members opposite.
There are two matters in respect of the position of developing countries in international trade which the Government should bear in mind. I hope that the Government will be able to adopt the position in dealing with the question of 101 international reserves, which finance world trade, that the creation of new reserves should be linked to the financing of development. This proposition has been put forward in U.N.C.T.A.D. and I hope will have sympathetic reception in Government circles here.
I hope that it will be borne in mind, following the imposition of the surcharge by the United States, that the developing countries may have a part to play in resolving the resulting international difficulties. It is not just a matter of a bilateral balance between the United States, on the one hand, and other developed countries, on the other. It is not just a matter of changing the balance of payments of the United States in its relationship with other countries of the developed world. The developing world could play a part.
Thus, if the developed countries other than the United States were to increase their imports from the developing world this would have a favourable effect on the United States balance of payments. It has been estimated that £100 million worth of additional imports into Western Europe and Japan from the developing countries would produce a £20 million increase in the United States exports to the developing countries. This, multiplied, could have great effect in helping to solve the present difficulties of the United States which the world must face up to.
I therefore hope that the Government will not take—there is no evidence that they are taking—a negative attitude towards the position of the developing countries in influencing a settlement of the present international trading situation.
§ Mr. Tom Boardman (Leicester, South-West)
Does the hon. Gentleman agree that it is not just a question as between one nation and another? It is the mix of the figure of £100 million additional imports as well as the global figure.
§ Mr. Dell
I entirely agree with the hon. Gentleman. The mix has to be considered. Nevertheless what the United States is insisting on is being enabled to deal to some extent—to what extent we do not know; it will obviously come out in the negotiations—with its current balance of payments deficit. I suggest that part of the answer is not just an arrangement within the developed world 102 but an arrangement which would bring in the developing countries and would enable them to increase their exports to the developed world, in that way assisting the United States balance of payments deficit. I hope that the influence of some hon. Members opposite will not lead the Government to forget the part that can be played by the developing world—the generalised preference scheme was one example of assisting the developing world—in the solution of international trading problems generally.
§ 6.11 p.m.
§ Mr. Hugh Fraser (Stafford and Stone)
I, too, congratulate my hon. Friend the Member for Exeter (Mr. John Hannam) on raising these wide issues in his excellent speech. I also thank my hon. Friend the Member for Cheadle (Mr. Norman-ton) whose expertise, added to that of my hon. Friend the Member for Exeter, in addition to the knowledge of the right hon. Member for Birkenhead (Mr. Dell), have been of great value to our deliberations.
I wish to turn to a matter which is mentioned in the second Motion on the Order Paper, namely the burning question of investing in this country. My hon. Friend the Member for Exeter referred to this point. I think that this is no new phenomenon but it has undoubtedly become more serious since 1965. Whichever party has been in office, there is no question but that the rate and the level of investment is now in a serious state.
According to the figures of the N.I.E.S.R., talking of industrial investment, and not of the total—that 10 per cent. of the G.D.P. or 5 per cent. in the case of industrial investment—there has been a grievous fall. In 1970–71 the fall in investment is about 8 per cent. according to the N.I.E.S.R., and in 1971–72 we shall suffer a fall of about 6.5 per cent. These are extremely serious figures and it matters not to me whether it be a Conservative or a Labour Government in office. These are figures which are, or should be, of great alarm to the country.
The situation is reflected in the unemployment figures. In spite of previous Treasury optimism, it is clear that 500,000 people have left their jobs in manufacturing industry this year. The situation is reflected in the longer term, in the number 103 of machine tools which have been purchased by this country, by West Germany and Japan in the last five years. We have purchased or installed about 200,000 machine tools, West Germany 480,000 and Japan well over 800,000. These are some of the indications of the gravity of the situation.
I am sure that everyone with constituents involved in heavy industry, as I have in Stafford, will be aware of the problems which affect heavy electricals, chemical engineering, machine tools and commercial vehicles, and factories are now working four, and even three days a week. These are the immediate impacts if the heavy industry programmes go into decline.
Far more seriously, as my hon. Friend the Member for Exeter said, within a decade unless these trends are altered, our physical finished exports will cease to be competitive in many parts of the world. Secondly, unless investment is now undertaken it is inevitable that our competitive position in the world can be maintained only by reducing the real purchasing power of the workers in this country, as happened between 1968 and 1970, by a series of devaluations.
May I put it in another way? Mr. Wynne Godley, in an article which has been referred to frequently said that a 9 per cent. growth rate in actual investment is needed between now and 1975 if we are to achieve anything like a 2½ per cent. level of unemployment. This is the weight of the problems which face the country. I think they are difficult to compute except in terms of the really great dangers which face us.
It is possible that the adverse trends will be reversed, but what is surely needed now is an acceleration even if the trends start moving in our direction. What is needed now is action by the Government to accelerate those trends so that we get the necessary investment to bring down unemployment and keep ourselves competitive. Even if the trends are in the direction of better profit, a higher rate of investment must be made possible.
I have my doubts that the trends are as good as all that. First, the resolution of the American imposed financial crisis is by no means certain before the next Presidential election. Secondly, far from 104 being good, investment prospects in Europe at the moment are very bad. Clearly from the company reports there is a general down-turn in industry there. Thirdly, as has been pointed out by the right hon. Member for Birkenhead, even if there is a settlement of the currency impasse it will be around the United States demand for a 5 per cent. greater share in world trade, and this is bound to hurt others engaged in world trade. Therefore, the signs are not as good as all that.
Even if they were better than I suppose them to be, I believe that the time has come for the Government to start taking action. Indeed, my hon. Friend the Minister of State, Treasury only a few days ago said:It is indeed remarkable, given the weight of our overall fiscal policies and our public expenditure programmes, that business confidence and investment have not responded more rapidly.…" —[OFFICIAL REPORT, 9th December, 1971; Vol. 827, c. 1545–6.]In the public sector the Government have advanced investment by £300 million net into this year. I believe that we have now got to start moving along those lines for private industry. We need a spark to turn up the economy and get the wheels turning faster.
Even if one looks at the consumer boom, the money is there. Real incomes have increased in the last year or so, but the boom is not booming because people are not spending. They are saving. It is an international phenomenon. Too much money is failing to fructify in the pockets of too many people. Even the phenomenon of a housing boom both here and in the United States is having only a marginal effect on the reinvigoration of the general economy. Fashions change quickly, but the cry issued by the Treasury should be, "Spend now and save later". That would be of some assistance in getting the wheels turning a bit faster.
Rightly or wrongly, I believe that the key is to try to get investment moving in the same way as it has moved in the public sector. It is not easy to inspire confidence. It is not easy to make clear to industry that profits are ahead. But I believe that they are. What we want now is not speeches at the Mansion House or off-the-record chats to leading industrialists; we need action by the 105 Government to bring investment in the private sector forward.
In my view, it would be perfectly possible and proper to set up and make use of an organisation based on the N.E.D.O., where we have an extremely competent director-general in the person of Sir Frank Figgures, bringing in the unions, the Government and management to consider the broad field of investment for the future. These will be difficult subjects, but, much in the same way as my right hon. Friend the Member for Wallasey (Mr. Marples) spoke of the need to consider employment in relation to the avalanche of change, I believe that there is much to be said for using this excellent machinery, giving it a bit more power, and turning our attention to what the French used to call indicative planning such as was very successful in France in the 1950s and 1960s. That is for the long term.
The immediate need is for pump priming and an endeavour to catch up the 18 months which we seem likely to waste. This is what the figures from the N.E.D.C. seem to indicate, that there will be virtually no heavy reinvestment or investment in this country not just in this year but until the end of 1972. If this comes about, it will mean that, when 1975 comes, we shall have a grossly overloaded and overheated economy, and that, I am sure, Treasury Ministers would regard as the one thing which they want to avoid. I hope, therefore, that they will bear with me if I now put forward some concepts, not totally Conservative and not always Socialist, for what I believe we should do. We must approach these questions in a completely undoctrinaire fashion to see what can be achieved in the way of pushing investment forward now into the economy.
My hon. Friend the Member for Cheadle referred to company taxation. In spite of what the right hon. Member the Member for Birkenhead said, I regard this as an important matter. Taken on an actuarial basis, that is, on the basis of actual replacement rather than historic cost, the figures for replacement of assets in this country reveal that many companies in this country are actuarially bankrupt. There must, therefore, be further assistance to the companies concerned. A cut in Bank Rate 106 is long overdue, and I hope that it will come.
Next, I beg Ministers to reconsider the whole question of investment allowances, free depreciation and investment grants. We can no longer afford to be doctrinaire about it. It is not a question of what we said in the manifesto or in our speeches. It is a question of what needs to be done now. I am all the more convinced today that the investment grant, especially if arranged in a more refined fashion, with precise emphasis on new, British, and preferably manufactured equipment, is an instrument which we should use once more.
§ Mr. Fraser
I am sorry—I am rushing along, in view of the time. There should be a term put to the use of investment grants, there must be an element of stick and carrot, they cannot run for ever, but I am sure that for, say, a further three-year term they could be of real value.
Next, there must be tax adjustments to help scrapping and obsolescence, in the same way as there are in Japan and Germany. There must be assistance to firms in respect of the balancing charge to ensure that some of the balancing charge is rescinded or handed back. This also would be of value to investment.
I come now to the question of preference for British goods. Now that the Americans are imposing what amounts to a 15 per cent. charge on, for example, machine tools imported, there is no reason why, until that charge is remitted, there should not be an instruction by Her Majesty's Government to the Departments and the nationalised industries to buy British. That would be a perfectly legitimate and proper thing to do.
In general inducements, we have scope for action which could give a great spurt to investment. I refer here to the sector which I call service, catering and hotels. The time has come to make the second cut in the S.E.T. and get rid of it. I realise that there are problems here related to the V.A.T., but I regard our present problem as far more pressing than wasting our time on the V.A.T., which, for all we know, may never ultimately see the light of day.
107 I come next to the question of regional investment and the Common Market. Far from our projected entry into the Common Market leading to a rush of investment, precisely the opposite is now tending to happen, and it is happening because there are three special areas of uncertainty. The main uncertainty can be resolved only by the "Yea" or "Nay" of the House of Commons, of course, and I shall not speculate about what, or when, that answer may be. But there remain two more precise areas of uncertainty which can and should be resolved by the Government.
First, there is the area of international technical regulations governing vehicle weights, axle loads and so on. Decisions on these matters are urgently needed. Where a decision would be uncontroversial or anodyne, the Prime Minister should give an immediate instruction that Departments should issue specifications for industry to work on now. My current industrial experience leads me firmly to the opinion that these uncertainties are a considerable drag on capital outlay and spending.
Far more important is the wider question of investment decisions to be made by firms contemplating going into the Common Market at this moment. When a British firm, or, for that matter, an American firm, is considering new investment, where should it go—to Glasgow, to London, to the growing areas of unemployment in the Pas de Calais, in the Ruhr or in the brown coalfields of Germany?
This is becoming a question of immediate significance. Figures produced both here and by the United States Department of Commerce show that, over the last few years, there has been an advantage in investing in Europe rather than Britain, and it has been an advantage in investing in Europe rather than Britain, and it has been an advantage after tax—this has been shown by American firms operating in Europe and Britain—in the ratio of 15 to 10 in favour of Europe.
The Chancellor should now remove some of this uncertainty and indecision by declaring that, save in very special circumstances, capital movement into Europe will not be free until after Year 3 in the period of transition. I believe that this would concentrate a great many people's minds and resolve many company 108 quandaries in favour of investing in this country.
Now, the question of regional investment policy. The speech of the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) last week has not received sufficient attention. I believe that the problem of regional investment is permanent in this country, and we must look at it far more vigorously and effectively, and think of it more profoundly, than we have hitherto.
The recent report, "The North-East in the 1960s", shows how much can be done for the nation with comparatively small investment, jobs being created for sums of about £1,750 of Government injection each. This is well worth looking at again until a much wider system is devised. This is where I go along with the right hon. Member for Cheetham in his thoughts about a local development bank or even something like regional taxation levels.
Until we have given much more profound thought to the matter, the regional employment premiums should not be extinguished in 1974. Taking the capital life of a machine tool, for example, as about seven years, I consider that there is a good argument for keeping these allowances going until 1978 or 1979.
Indeed, I would go further. We ought to look at the problem far more deeply than either this or the Labour Government did. To my mind, it is absurd, for example, to leave a city like Edinburgh as a non-development area in Scotland. There is a great deal to be said for the concept of a regional level of tax, especially company tax. We have it already to some extent in the various present allowances. A man making investments in certain areas has a much higher rate of write-off and a higher rate of depreciation than he would elsewhere. This should be further codified.
We need a new organisation to be built around N.E.D.O. to do the type of planning which was so successful in France in the 1950s and 1960s. Even more important is the need for action this day by the Government, faced with a heavy weight of unemployment and a level of investment that is simply not high enough.
Some of the things I have put forward may be controversial, but the subject is 109 no longer a matter of controversy. The fact is that something must be done.
§ 6.30 p.m.
§ Mr. Roy Mason (Barnsley)
I am sorry that because time is so short much of what I had to say will have to be curtailed to be fair to the Under-Secretary of State who is to wind up the debate.
I congratulate the hon. Member for Exeter (Mr. John Hannam), whose success in the ballot gave us this opportunity to debate the problems of British exporters. I agreed with a great deal of what was said by him and by his hon. Friend the Member for Cheadle (Mr. Normanton), in an informative and enlightened speech. I am sorry that it went on a bit too long and therefore reduced the number of Members who could take part in the debate.
We have as a depressing backcloth to the debate the 10 per cent. import surcharge imposed by the United States and the danger that that protectionist measure may remain in force for too long. It is already having an effect on British exports. Our export figures are beginning to decline, noticeably so in exports to the United States.
I believe—and my right hon. Friend the Member, for Birkenhead (Mr. Dell) seems to share this view—that at home the problems of British exporters are uncertainty and lack of confidence in the Government. That uncertainty is caused by a flurry of incoherent Government acts. Most of British industry is suffering from a lack of confidence in the Government's economic strategy and the Government's loss of control over inflation, prices and unemployment. Above all, firms suffer the constant torture of the Government's reactionary industrial policies.
In abolishing investment grants and bringing back investment allowances, the Government slowed down the return to industries in the development areas, and that is bound to affect their investment. The abolition of the Industrial Reorganisation Corporation, which was a sensible organisation, bringing about mergers of small companies involved in exporting, has harmed the regions and the small exporting firms. The phasing out of the regional employment premium has been a further worry for firms in the development areas, many of which were involved in exporting.
110 A series of such acts has harmed the confidence of many of the smaller exporting firms. They have witnessed inflation and unemployment getting out of control, followed by a series of panic measures, through mini-budgets. They have witnessed the high prices they brought, and in their turn a flood of wage demands. British industry is reeling from blow after blow caused by a series of incoherent Government acts. Firms have been unable to steady themselves long enough to take stock, to peer into the future and take sensible investment decisions. That is what the right hon. Member for Stafford and Stone (Mr. Hugh Fraser) was trying to say—that the situation is causing a serious investment backlog.
When I was at the Board of Trade I was very keen to see the development of the Exports Services Division, to which I pay tribute. I still think that it likes to be called part of the Board of Trade, but we must acknowledge the new title of "Department of Trade and Industry". That Division is now more expert and professional than ever. Its well-established home base with its tentacles reaching out all over the world, using the commercial offices of the embassies and consulates, is internationally admired. There may be a difference between those that are highly competent and highly commercialised and those that are not, but the trend in recent years has been good, and the commercial offices are certainly being used.
The computerised export opportunities information system is well known by now. I gather that 5,000 exporters are already plugged into the computer network and are regularly receiving up-to-date information of export prospects. This in turn is helping them in a most cost-effective manner to spend only in areas where there is a distinct sales opportunity. The Export Sales Division should be encouraged. It is doing an excellent job for our exporters.
I only hope that the many thousands of exporters using those services have not felt inclined to withdraw because of the Government's deplorable dealings with the British National Export Council. The Government decided in May to abolish the B.N.E.C. and establish in its place a new British Export Board—first, I 111 gather. to save money, possibly on trade fairs, British Weeks, export missions and so on, and, second, to use more civil servants and be less dependent on British business men and industrialists. I concede that there was a case for looking at the B.N.E.C.'s worldwide operations and its finances, especially to see whether and to what extent major long-term trade drives in specially chosen areas of the world should replace the British Weeks, mini-weeks and the wholesale, widely-scattered export missions. That would have been sensible; it appeared to be a logical next step in our export effort, and it might well have resulted in some pruning of the B.N.E.C.
But instead the Government decided to abolish the B.N.E.C. and create a new export organisation. They told the B.N.E.C. only a few hours before the Ministerial statement was made. There was no consultation. Nearly everyone involved—all the international committees, 400 business men and industrialists, practically all volunteers, giving freely of their time and export expertise—read about it in the Press. It was a most deplorable method, a kick in the teeth to all B.N.E.C. staff. It was most discourteous to all concerned in national export endeavours.
It will be difficult, and it will take some time, for confidence to be restored between the Government and that large band of British business men. Difficulties are already being encountered. It took six months from the announcement of the B.E.B. to find a Chairman, Lord Thorneycroft. I hope that he will do a good job, but he seems to have too many directorships and chairmanships to give it the time it will deserve. Nearly eight months have elapsed, and as yet only four members of the Board have been named. I cannot believe that that is to be the full Board. There have been eight months of indecision. The heart has been torn out of the B.N.E.C. and no other form of organisation has yet been established. The Government did not even have the sense to plot a course for the gradual run-down of B.N.E.C. and the parallel growth of the B.E.B., possibly with the eventual marriage of the best of both organisations, keeping the continuing confidence of British exporters.
112 Therefore, above all we should receive from the Minister a statement about the B.E.B., its total membership, its future rôle and particularly the extent to which it will use the mass of experience available to it in the international committees of the old B.N.E.C. It is also about time the Government told the House exactly how they will deal with the officers and staff of the B.N.E.C.
I have not had time to develop a detailed argument about the future of British exports, but in one paragraph I should like to sum up. The British exporter has lost confidence in the Government. If our trade figures are to remain good—and they are already on the decline—the Government must initiate measures designed to encourage investment in export industries, and above all they must treat the exporter with the respect and encouragement he deserves.
§ 6.39 p.m.
§ The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)
I congratulate my hon. Friend the Member for Exeter (Mr. John Hannam) on choosing the subject of exporters' problems for debate and on the way in which he made his opening speech, which set the tone for the debate. A number of very interesting and controversial points have been raised, and hon. Members opposite will not expect me to agree with everything they have said. I will say a word about the British Export Board if I have time.
Our export performance is very good at present. This year the United Kingdom has continued to show a substantial surplus on current account, with the surplus on visible trade averaging over £20 million a month over the year so far and invisible earnings estimated to have been running at over £50 million a month. In recent months visible trade has shown a surplus averaging over £40 million a month. These figures suggest that the overall surplus on current account for the year will probably exceed £800 million.
Taken at their face value, the November trade figures published today appear somewhat less favourable than in recent months, but this is due to distortions in the figures, and, more than ever, undue attention should not be paid to one month's set of figures. Despite the marked effect of the American dock strike, which 113 affected exports more than imports, visible trade still showed a small surplus of £5 million in November. In the three months, which is more important, from September to November, the surplus averaged £34 million per month.
While imports have increased only slowly this year, exports have been rising strongly. In the last five months, July to November, they averaged over £760 million a month compared with £710 million a month in the first half of the year, and, apart from the recent delays in shipments to the United States, the trend of exports to all main destinations has continued to rise in recent months. Without doubt, our exports will reach well over £8,500 million this year, and this compares with rather less than £8,000 million last year.
There are a number of reasons for this good performance on visible trade. Part of it is due to the restrained level of imports we have had this year, reflecting the level of demand in the economy. Demand and output are already rising, and this may be reflected in higher imports over the next few months.
But there is no denying that our export performance has improved enormously. The increase in value this year has been some 15 per cent. at an annual rate and in volume terms approaching 8 per cent. It is particularly significant that there has been a sharp rate of increase in the volume of exports, over the last five months. Over the previous two years from mid-1969 to mid-1971 there had been no sign of growth by volume and only a small rise, of 6 per cent., in value.
It would, however, be wrong to discuss exports and not to mention those who add greatly to the favourable United Kingdom balance of payments by providing overseas customers with a wide range of services. My hon. Friend touched on this. These invisible exporters as they are called—fortunately, this is a term of art; the exporters themselves are very visible indeed, not only in the City of London, but at any port or airport, in any insurance office, in any consultant's bureau, and throughout industry and commerce—are doing a job which matches up in every way with the splendid performance of those who send so many thousands of million pounds worth of visible goods out of this country every year.
114 For example, my hon. Friend is particularly interested in tourism, and I know that he will appreciate that that industry which contributes very much to our invisible earnings is now eligible for the Queen's Award for Exports, and last year three hotels received awards.
The Government are wholeheartedly behind the endeavours of the Committee on Invisible Exports, which aims to keep the importance of the overseas earnings which this business wields in the public eye. With the Committee's help, the Government are constantly striving to improve their information services which benefit exporters of invisibles. A guide to this Government help has only recently been published. British industry can rightly claim great credit for the improvement in our exports this year. With my hon. Friend, I should like to pay tribute to the valuable efforts of our exporters. But exporting always involves risks and my hon. Friend and other hon. Members have drawn attention to some of the current problems facing exporters.
It remains as true as ever that we cannot relax our efforts. United Kingdom export prices, for example, have continued to increase at a much faster rate than those of our main competitors. Comparing the second and third quarters of 1970 and 1971 our main competitors' export unit values rose on average by 4 per cent., while those for United Kingdom exports rose by 9 per cent. Moreover our share of world trade has shown a more or less continuous decline over a long period. My hon. Friend the Member for Cheadle (Mr. Normanton) made this point. In 1955, for example, our exports of manufactured goods amounted to about 20 per cent. of the world total; in 1970 they were just under 11 per cent. At the same time, world exports have been increasing both in value and in volume, so that we have had a smaller share of a bigger total.
This is a long-term trend, to which we all should pay heed. It is true that after falling from nearly 12 per cent. in 1969 to 10½ per cent. in 1970 the United Kingdom share in the volume of trade improved to 11 per cent. in the first half of this year with probably some further improvement in the third quarter. But this must be set against the long-term trend.
115 I do not think that we can expect to reverse this kind of trend overnight. It is a question, above all, of containing cost inflation and building up our export strengths over a period, concentrating on the things which we can do well, establishing our priorities and pushing them hard. In this matter the Government are pursuing a policy of selectivity for their own export promotion work.
We must all recognise here that the primary task of exporting is for industry. Exporters have to go out and secure the orders overseas. They have to seek their profits in overseas markets. The Government's rôle is one of generalised assistance. It would be wrong to think that any efforts of the Government could be a substitute for the efforts of industry in any way. We seek to interfere less in business, and to give industry more freedom. This is a central part of the Government's industrial and economic policy.
But in the world today, and particularly in the field of international trade, all nations are interdependent. Future prospects for our exports depend particularly on the growth in world demand for manufactured goods. After rising by 16 per cent. in 1968 and 13 per cent. in 1969, the volume growth of world trade in manufactured goods slowed down to about 9 per cent. in 1970. The prospects for world trade in the next year or two should show some improvement over this kind of figure, if there is some recovery in the growth of the industrialised countries. But the future internationally is at present beset with uncertainties, as has been said, and exporters' attitudes are bound to be influenced by this.
My hon. Friend the Member for Exeter has referred to the very important matter of the American measures of 15th August and, in his Motion to the imposition of the surcharge. On 22nd October, Denmark also introduced a temporary 10 per cent. surcharge on a wide range of imports. We are very concerned about the potential damage to our exporters should the United States import surcharge and associated discriminatory tax credit remain in effect for long. We have recognised, too, that in the short term the surcharge could seriously affect some exporters heavily reliant upon the United States market.
116 We are therefore continuing to strive for the earliest possible removal of the surcharge, and have left the United States Government in no doubt about our opposition to it, and to the job development tax credit and the Domestic International Sales Corporation concept which provides a tax deferral on export sales. On the broader front, we have been conscious of the need to avoid escalation of the new situation caused by the United States action into a trade war which would be in the interests of no one.
Therefore, on the question of realignment of currencies, I can tell my hon. Friend that there was progress in the Group of Ten meeting on 1st December towards the international agreement which the United States has indicated would be necessary before the removal of the surcharge and the discriminatory tax credit. Discussions will continue at the next Group of Ten meeting on 17th and 18th December, and of course we all hope that they will be successful.
Looking to the future, our entry to the European Communities will present our exporters with many new opportunities and also, of course, inevitably, new challenges. The opportunities are there for those who earn foreign exchange through the provision of services just as much as for those who send goods abroad. Membership of the E.E.C. will also provide us with a much stronger position in international negotiations on matters affecting trade and commercial policy. Already we have been very closely associated with the Six in efforts to find solutions to the international monetary crises. These are developments which, I believe, will help and encourage our exporters.
Much will depend upon how effectively individual managements prepare themselves for entry and on the initiative which they display in seizing the new opportunities and in meeting the new challenges. Here I again stress the readiness of my Department to help firms in their preparation for entry with information and advice. Only last week, we published a booklet containing a whole series of articles on Britain and the E.E.C.
My hon. Friend the Member for Exeter referred in this context to a possible 117 rôle for the Commonwealth Development Finance Company. He is, of course, engaged in correspondence with my colleagues at the Treasury about the idea of adopting this agency for helping British firms to invest in Europe, but I make it clear—as he himself did—that the company, in which the Bank of England has had an interest since its inception, as have foreign banks and other institutions, is a private sector company and that its sphere of operations is a matter for its management and shareholders to decide. But I am sure that my right hon. Friends will take note of what my hon. Friend has said.
My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) made an extremely interesting and provocative speech, which made me regret that he did not have his own debate, because it would have been extremely interesting. Many of the points he raised are primarily matters for the Treasury, but let us now look at the latest and still provisional figures for private investment, published today.
Industry's capital expenditure at constant prices and seasonally adjusted was little changed between the second and third quarters of 1971. Between the first three quarters of 1970 and the corresponding period of 1971, there was a fall of no more than 1½ per cent. in total investment. I believe that these figures are rather better than, and do not entirely justify, some of the gloomy forecasts, including those by the National Institute of Economic and Social Research. A lot more could be said on this but I believe that the outlook for growing demand, not only over next year but over several years, at a sustained rate, and the prospects of entering the E.E.C.—which, incidentally the National Institute did not take into consideration, I believe—combine to produce a favourable atmosphere for investment.
Of course plans cannot be changed overnight and of course business wants to see more evidence of real expansion ahead, but with prospects of expansion ahead more industrial capacity will be needed if we are to achieve and secure full employment and if we are to maintain and, indeed, strengthen our competitive position.
The Government have recognised the dangers, for employment and for exports, 118 in any decline in the volume of investment. Having recognised these dangers, the Government have taken the measures of reflation to which I have referred, which should limit the decline and encourage an early upturn. The latest figures suggest that the decline in investment up to the third quarter of this year has been small. We accept that there is a continuing need for a reexamination of investment prospects. This will be done, in the normal way, on the basis of the latest information. This regular reassessment will form an important part of the Chancellor's budget judgment.
On the question of investment incentives, I should stress that the Government have given the biggest stimulus to demand for years. We have reduced taxation by £1,100 million this year and by £1,400 million in a full year, and we have abolished hire-purchase terms control. This, more than anything else, can create, I believe, a favourable environment for higher rates of industrial activity and investment.
I turn now to the question of export credits. About 90 per cent. of all our exports are sold for cash or for credit of 180 days or less. This short-term credit is provided at market rates and is readily available. It is to our national advantage to be paid quickly for exports and it is, therefore, helpful that so large a volume of trade is on cash or short credit terms.
But some exports, and particularly capital goods, require longer credit and there are two schemes. The first, undertaken by the Export Credits Guarantee Department, is for credit of less than two years where the rate of interest is a variable one of Bank Rate plus ½ per cent. The second scheme, which has received more publicity, is for credits for periods of two years or over at a fixed rate of interest.
It is interesting to note that about 60 per cent. of this form of cover is for exports to developing countries. It does not wholly justify the suggestion that the developing countries are neglected when the majority of long-term credit goes to them. The House will be familiar with the changes in the rate from 5½ per cent. to 7 per cent. in October last year and to 6½ per cent. from this November. This approximates to about the middle of the international spread of rates, 119 which means that sometimes competitors overseas for particular orders can quote lower rates of interest than our exporters, but in other cases our rates are lower than theirs. We hear quite a lot about cases where our exporters lose business on credit terms—I cannot go into detail on the case mentioned by my hon. Friend the Member for Exeter—but we do not hear so much about the very large number of cases which are successfully concluded.
Credit is only one factor in export competition. Others, such as price, delivery and technical performance may be even more important. We think that a middle rate of credit provides most of our exporters with a reasonable basis from which to compete. Everything will be done to speed the service which the E.C.G.D. grants. I believe that it renders a service which compares very favourably with most other countries.
On the question of investment overseas and in developing countries, I draw attention to the White Paper, "British Private Investment in Developing Countries". The E.C.G.D. will be undertaking an insurance scheme for assisting investment in the developing countries and legislation will be brought before Parliament fairly soon.
The British Export Board will be responsible from the beginning of January next for the direction of export promotion. Lord Thorneycroft has accepted office as chairman, and this has been welcomed by industry. The decision to establish the Board followed a review of the existing services from which it was clear that any new organisation had to be cost effective and closely integrated and that it was necessary that business men experienced in exporting should be actively and closely involved in its work. I believe that the new organisation will avoid a great degree of duplication. It 120 will command the support of industry as a whole. Indeed, the London Chamber of Commerce has expressed itself very strongly in favour of the Board and of the appointment of Lord Thorneycroft. I am sure that the whole House will wish the Board success.
We have had a very interesting debate. I am sorry that it has been so short, because my hon. Friend the Member for Exeter has raised many matters, as have other hon. Members, to which I have not had time to reply. However, I hope that I have been able to reassure my hon. Friend about the great importance that we attach to investment as a means of stimulating economic growth and exports. There are great opportunities for the future—
§ It being Seven o'clock, the Proceedings on the Motion lapsed, pursuant to Standing Order No. 6 (Precedence of Government Business).
§ Colonel Sir Harwood Harrison (Eye)
On a point of order. I ask for your guidance, Mr. Deputy Speaker. On a previous occasion, when right hon. and hon. Gentlemen opposite were in office, I was in the same position as my hon. Friend the Member for Exeter (Mr. John Hannam) in that a Motion stood in my name upon the Order Paper and the then Government had a great many statements to make. Today, for that reason an hour and a half has been lost from private Members' time. Surely there should be some way in which the time of back bench hon. Members can be protected. If Ministers have statements that they wish to make, extra time should be provided at the end of the debate on a Motion which follows them.
Mr. Deputy Speaker
I have every sympathy with the hon. and gallant Gentleman, but I am afraid that there is nothing that I can do. His point must be raised through the usual channels.