§ The Minister for Trade (Mr. Michael Noble)
With permission, I should like to make a statement about new arrangements for financing exports on credit of two years and over and for home shipbuilding. These arrangements are the result of a joint study by the Government and the clearing banks of two related problems; namely, the rate for this finance and its availability.
Under the new arrangements, the banks will continue to provide credit for exports and ships at fixed rates of interest, but from tomorrow the rates will be decided by the Government alone. The rate for exports other than ships is currently 6½ per cent. I am reducing this rate to 6 per cent. for all contracts signed from tomorrow. This change will put British exporters in a better competitive position as regards the cost of finance and 536 will open the door to valuable export opportunities, particularly for the capital goods industries. The rate will be kept under review by the Government. The fixed rate of interest for shipbuilding contracts, both home and export, will remain at 7 per cent., in accordance with the established agreement in O.E.C.D. to which all the major shipbuilding countries subscribe.
All finance at fixed rates will continue to be provided initially by the banks. The banks will be refinanced for any such lending beyond 18 per cent. of their current account deposits. The agreed rate of return on their lending will be calculated by reference to market rates. On current calculations, this return will be in the region of 6per cent. Any difference between the fixed rate and the agreed rate of return to the banks will be adjusted through the refinancing. The adjustment will be in favour either of the banks or of the Government, depending on the level of rates.
The new arrangements for export credit will be undertaken by the Export Credits Guarantee Department under the powers conferred by the Export Guarantees and Payments Act, 1970. The previous Government informed the House that it was their intention to use these powers to match foreign competition. The powers will continue to be available for this purpose, but I intend to use the Act for refinancing as well. I am sure that the House will agree that the powers should be used for these wider purposes for the benefit of our export trade.
The E.C.G.D. will be seeking the approval of the House as soon as possible to a Supplementary Vote for this expenditure in 1972–73, but in the meantime some of this may need to be met temporarily from the Contingencies Fund. It is the intention that refinance for home shipbuilding should be provided by the Department of Trade and Industry and legislation will be introduced shortly to obtain the necessary powers, the Issue Department of the Bank of England continuing to provide refinance for home shipbuilding until these are available.
The volume of refinance required will depend on the future growth of the banks' current acounts and of the amount of export and shipbuilding business undertaken. The amount estimated for the first full year is of the order of £350 million 537 to £400 million, but I assure the House that this will not involve any additional burden on the economy or any addition to the public sector borrowing requirements greater than would have occurred under a continuation of the existing scheme. The arrangements will be reviewed after three years' operation, or earlier at the request of either the banks or the Government.
§ Mr. Benn
I thank the right hon. Gentleman for his statement, which will be very welcome. Since it is so important, we are glad that there will be an opportunity to debate it on the Supplementary Vote and on the legislation forecast.
First, how do the facilities now to be made available compare with credit facilities available from other countries? Do the Government still intend to match foreign competition? Second, why is there to be a continuing higher rate for shipbuilding credits than for other exports when the O.E.C.D. agreements appear to be under considerable stress?
Third, what is the cost of refinancing to the Exchequer in a full year? What will the size of the Supplementary Estimate be? When shall we have the major statement on subsidies for the whole British shipbuilding industry which was forecast by the Secretary of State at a meeting of the Conservative back-bench Committee yesterday and reported in The Times today, given the fact that the British shipbuilders, until they know how big a subsidy—whether £100 million or £200 million—the Government are prepared to give, simply cannot quote for ships and do not know where they are?
Is the right hon. Gentleman aware that this statement emphasises the need for a full and early debate on the Government's industrial policy, which at the moment it is impossible for the House or the country fully to understand?
§ Mr. Noble
I am most grateful to the right hon. Gentleman for welcoming this statement. I think this will be the view of most hon. Members on both sides of the House. I cannot anticipate when my right hon. Friend will make the statement on the shipbuilding industry. I hope it may be soon. On the question about the comparability of these rates with those of other countries, it is difficult to get an exact comparison. It is fair to 538 say that our rates will be a little better than the German rates and about the same on balance as the American, French or Japanese. But their systems are such that they straddle the 6 per cent. rate according to the nature of the export.
The reason why the rate for shipping is above the general rate is that this is an agreed rate accepted by all the major shipbuilding producers of O.E.C.D. If we could get that agreement brought down a bit, this would be to our advantage. There would be no benefit in our trying to drop this rate unilaterally. It is difficult to give an accurate estimate of the cost of the refinancing because it will depend very much on how rates go during the coming year.
§ Mr. Wingfield Digby
Do I understand correctly that there will be no question of considering the 7 per cent. rate for shipbuilding for three years? Second, how much of the revolving shipbuilding credit is outstanding?
§ Mr. Noble
If the other countries in O.E.C.D. decided to bring down the rate for shipbuilding, we would certainly follow, but we see great advantages in keeping this at a level so that there are no fluctuations or cheating on these rates. As to the revolving amount, I am afraid that without notice I have not the answer to that question.
§ Mr. Noble
The simple answer is that in the past the rate was one that the Government had to decide—I am sure the right hon. Gentleman remembers this in his day—with the banks which were providing the finance. The previous rate was maintained for a very long time and became well below what was available either outside or in any other way. Therefore, it was put up. It was brought down when the circumstances, I believe, justified it.
§ Mr. McMaster
Why is the rate that which has been fixed by the O.E.C.D.? How does this compare with the rate offered by our greatest competitor, Japan? Also will the limit of funds 539 available be sufficient, in view of inflation and the increased building capacity of our modernised yards, to cover requirements as far ahead as three years?
§ Mr. Noble
There is no magic about the period of three years. As I have said, the arrangements can be varied in general at the request either of the Government or the banks. I understand that the Japanese adhere to the shipbuilding rates of the O.E.C.D. agreement. There is, therefore, no competitive advantage simply from the point of view of the rates.
§ Mr. Joel Barnett
Will the right hon. Gentleman confirm, following the Hill-Samuel Report, that the original policy of giving aid only to industries and companies which are commercially viable has now been reversed and is no longer Government policy? Will he therefore confirm that the new policy will apply to other industries which are not commercially viable but are seen to be in the national interest and should receive aid?
Mr. Edward Taylor
Is my right hon. Friend aware that various views have been expressed by experts in shipping and shipbuilding about the rates offered by our competitors, like the Japanese, in connection with hidden subsidies being available, along with incentives, to people in the country of the shipowner? What measures are being taken internationally to ensure that there is no cheating in this matter?
§ Mr. Noble
A few years ago when I was responsible for Scotland I spent a great deal of time trying to get evidence about that sort of cheating. If my hon. Friend is able to obtain some, I am certain that my right hon. Friend will be only too glad either to match it or to stop it. Those involved with this problem have only too frequently received complaints from industry about apparently unfair competition, but it is exceedingly difficult to get the necessary evidence.
§ Mr. Millan
Does not the right hon. Gentleman realise that on shipbuilding it is not just a question of shipbuilding but 540 of what happens in regard to interest rates in other O.E.C.D. countries? In other words, there is a much wider range of subsidies and assistance. Is he aware that before judging whether what he has done about interest rates is reasonable, we must have the general review of Government assistance to the shipbuilding industry which was promised a very long time ago and which is becoming increasingly and desperately urgent?
§ Mr. James Hill
Will my right hon. Friend confirm that specialist shipbuilding yards, such as Vosper Thorneycroft, which build almost entirely warships and are suffering from a lack of orders, will be in on this generous rate?
§ Mr. Tom Boardman
Is not one of the problems the fact that some exporting countries give special rates for foreign exchange, so that interest rates by themselves are not the only important factor? Is it not a fact that this can be a method by which they can exchange their foreign currency and so give a subsidy which is not enjoyed here?
§ Mr. Noble
My hon. Friend is absolutely right. There are a number of ways in which matters of this sort can be contrived, and some of our competitors mix aid with credit. Wherever this is so we do our best to match them, and if it is outrageously unfair we do our best to bring the matter to the attention of the country concerned, and in this way we hope to maintain our competitive ability for our own yards.
§ Mr. Pardoe
Is the right hon. Gentleman aware that in an industry which is involved in a world market of a highly 541 competitive nature everything depends on international comparisons between exchange rates? The facts in Germany do not accord with his remark that German shipbuilders will be able to get approximately the same rates. The German bank rate is 3 per cent. and the prime lending rate is 4½ per cent., which makes nonsense of his statement in this context.
§ Mr. Noble
I would not say that. I accept that there are variations in exchange rates which are quite separate from the question of credit. Nevertheless, it is important to keep credit on a competitive and comparable basis in the main areas. The question of exchange rates is, however, totally different and does not bear directly on my statement.
§ Mr. Benn
Will the right hon. Gentleman look seriously at the last part of my supplementary question? Do the Government intend to make a statement about their policy towards the shipbuilding industry? Is he aware that his statement today, which we shall need to study, does not go to the core of the problem, which is the fact that no British shipbuilder is in a position to tender for orders until he knows how much hard cash the Department will make available to the industry in this country? This is a vitally important point.
§ Mr. Noble
I was not trying to deal flippantly with the right hon. Gentleman's question. I was simply pointing out that I could not forecast when my right hon. Friend would make that statement. I accept that the two points are connected, and I expect that my right hon. Friend will make a statement quite soon.