EXPORT GUARANTEES AMENDMENT BILL

HC Deb 10 February 1975 vol 886 cc105-62

Order for Second Reading read.

7.0 p.m.

The Under-Secretary of State for Trade (Mr. Eric Deakins)

I beg to move, That the Bill be now read a Second time.

The Bill has two purposes. First, it proposes that the Export Credits Guarantee Department should be empowered to make loans and grants for specified purposes connected with exports. Second, it proposes that the two limits on the Department's commitments set out in the export guarantees Acts be combined and be subject to increase by order.

In the Written Answer which my right hon. Friend the Secretary of State gave on 21st November to the Question put by my hon. Friend the Member for Norwich, South (Mr. Garrett) he referred to the Government's intention of introducing legislation in connection with the refinancing arrangements between the Government and the banks. It is to this that the first proposal is basically directed. The second proposal is simply an administrative change designed to give greater simplicity to save parliamentary time.

Before discussing these proposals in greater detail, I should like to make some general comments to set the background against which the Bill might perhaps best be considered. This debate comes at a time when we are facing a very difficult and rapidly changing world trading scene. There has been a significant shift in the balance of economic and commercial power and in the terms of our international trade. Inflation is an international problem which has still to be solved.

One feature of this spreading inflation over the last two or three years which is of particular relevance to this Bill has been the dramatic rise in interest rates. Competition for export markets can scarcely ever have been fiercer, and we cannot afford a return to the kind of protective or beggar-my-neighbour policies of the 1930s. No more can we contemplate with equanimity the kind of world trade recession from which we and almost all other countries could only lose. We face a daunting balance of payments challenge, a key feature of which is the need substantially to increase our exports.

These are the stark facts of the present situation, and they mean that the support and assistance which we give to out exporters must be broadly comparable with that available to exporters in other countries. To do less than this would mean placing British exporters at a significant competitive disadvantage. I take this opportunity to assure the House that it remains Government policy to maintain the position in which the package of facilities available from the Export Credits Guarantee Department stands comparison with those available from any other credit insurance institution in the world.

I recognise that one or two institutions may offer individual facilities which are not available from ECGD. I should, I think, comment on this in three ways. First, it is necessary to look at the whole range of facilities and services involved in order to judge whether United Kingdom exporters are at a competitive disadvantage. Second, ECGD is constantly reviewing existing facilities to see whether they might usefully be extended or amended. The Department is also considering new forms of cover and new facilities. Indeed, following discussions with industry and the banks, several such possible new ventures are currently under very active consideration.

Third, when considering whether a new facility should be introduced we must consider not only the benefits expected to flow from such changes but also the costs and expenditure likely to be involved. This is of particular importance when public expenditure is involved or where losses on one new facility mean that extra charges have to be raised from other ECGD policyholders who will have no share in the benefits of the cover. It is also important to draw a distinction between commercial credit insurance and aid.

I should, therefore, stress that support for exporters and efforts to ensure that they can offer internationally competitive facilities are not cost free. Second, I have referred to the general package or range of facilities available from the Export Credits Guarantee Department, but I have not said that we should seek fully to match each and every facility which one or other overseas credit insurer may offer. Third, there are limits beyond which it is simply not worth going in order to support exporters in their search for exports.

Let me turn now to the detailed purposes of the Bill before the House. An essential competitive feature of exports is the financial arrangements or terms offered to overseas buyers. Over the years ECGD has played an increasingly significant rôle in this, whilst never actually financing exports or acting as an export bank. On balance, we believe that it is probably right for this to remain the position.

For many years now the clearing banks, with the backing of the Export Credits Guarantee Department, have made available special financing facilities for exporters. In 1972, as part of these facilities, the banks agreed to new arrangements under which they would provide finance for exports sold on two years credit or longer, and for home shipbuilding, at fixed rates. The Bill is concerned only with the export side of the arrangement. These fixed rates have been set within a range in the light of the rates available from our major overseas competitors, and for some time the rates have been below commercial and market interest rates.

The clearing banks could not and cannot be expected to lend vast sums of moneys for long periods at rates below market rates. Therefore, as part of the package or scheme agreed with the banks, in return each bank participating in the refinancing scheme was to receive refinancing loans to cover that part of its total fixed rate lending in excess of 18 per cent. of its current account balances. It was agreed that the banks lending at fixed rates to exporters could receive an agreed rate of return on unrefinanced fixed rate lending based on commercial rates.

In very general terms, this scheme represented—and represents—one aspect of the cost of keeping British exports competitive. However, I want to stress that it was, of course, never the intention that the cost of operating the arrangements should become a charge on ECGD's premium income. Indeed, it was expected that the interest supplement in respect of the difference between the fixed rate and the agreed rate would not be large and that it would be offset by adjusting the interest due from the banks on the refinancing loans. In practice, however, this has not in fact happened.

There are two main reasons why this has been so. In the first place, due largely to the unprecedented rise in commercial interest rates and the continuing need to keep fixed export rates generally in line with our overseas competitors so as to ensure that our exporters are not placed at a serious competitive disadvantage, the gap between the fixed rate and the agreed rate has widened. At the same time, the banks' current account balances increased faster than expected so that the amount of fixed rate lending required to reach the 18 per cent. threshold was higher than anticipated. Thus smaller amounts became eligible for refinancing, while the agreed rate of return was earned on a larger volume of lending.

Inevitably, therefore, the interest supplement payable to the banks from ECGD far exceeded the amount of interest due from them to ECGD on the refinancing loans. As ECGD does not have the necessary statutory powers to make grants to the banks, substantial arrears of interest supplement accrued. By October of last year these amounted to approximately £86 million.

In the light of this developing situation, a review of the fixed rate scheme was commenced some months ago. Modifications to the scheme came into effect on 17th October 1974. The modified scheme will have broadly the same framework as the previous one in that banks will continue to finance exports at fixed rates set by the Government, but with the important difference that when commercial rates are at a high level the agreed rate of return which the banks receive on their unrefinanced lending will be subject to a taper.

The precise effect of this taper will depend on a range of factors such as future levels of interest rates, the level, size and profile of future exports and the total amount of current account deposits. It is possible, however, that if interest rates remain at their present level the financial benefit to the Government of the modified arrangements over the next three years will be of the order of £30 million.

I gave full details of how the return to the banks is calculated, and of the rates which have applied for the last 12 months, in a Written Answer to the hon. Member for Tonbridge and Mailing (Mr. Stanley) on 23rd January. An integral part of this modified scheme is that arrangements are made to ensure that no arrears arise in the future. The House is already aware that provision was made in the winter Supplementary Estimates to pay the banks the arrears, and these have now been paid.

Mr. John Stanley (Tonbridge and Malling)

Will the Minister confirm that the dimensions of the taper are not wider than 1¼ per cent.?

Mr. Deakins

Indeed, and I hope to give more details in my concluding speech if hon. Members wish to know more of the facts that the hon. Member has been seeking to cover in the Questions he has been asking.

The main purpose of the Bill is to provide ECGD with the necessary powers to operate this scheme more effectively. One is the power to make grants in respect of the interest supplement. This will enable us to ensure that further arrears do not accumulate in future. The other is to enable ECGD to make loans to refinance part of the banks' fixed rate lending. ECGD has until now been providing refinancing loans under an existing power. These powers are not wholly satisfactory. The Bill will provide a more satisfactory basis on which to operate refinancing.

It is the Government's intention to ensure that United Kingdom exporters are able to compete with their overseas competitors, and the fixed rate finance scheme has played a vital part in this respect. In 1970 ECGD sought more specific powers to enable it to assist United Kingdom exporters in competing with unusual credit terms offered by foreign competitors. The need arose because of the use by some overseas competitors of a mixture of commercial credit and so-called aid which led to an overall softening of the credit terms for some contracts.

The United Kingdom has always opposed these arrangements since it believes that aid and commercial credit are two separate matters, that these should be kept separate and that this separation is in the interest of both the developing and aid-giving countries. In addition, ECGD and commercial credit are not suitable vehicles for aid giving.

However, in order to ensure that United Kingdom exporters were able to compete with these terms if necessary, the ECGD needed to be able to match this competition by providing grants in respect of interest payable in connection with such contracts. But, in view of the Law Officers' advice that the 1970 Act does not provide the necessary power, the grant-making powers in the Bill are wide enough to cover this use as well. I confirm, however, that it remains our policy that these powers will only be used sparingly and only where there is a clear national interest in doing so. They do not in any sense represent an escalation in the international credit race.

Clauses 2,4 and 5 contain certain technical amendments to the ECGD Acts. These are the necessary consequential changes following from the taking of the specific loan and grant powers in Clause 1. I shall of course be dealing with these clauses in detail in Committee.

I stressed at the beginning of my speech that support for exporters is not a cost-free process. The size and scope of the refinancing arrangements perhaps serve to reinforce this point. It is, therefore, essential that there should be a continuous watch and detailed scrutiny on all resources used to assist exporters. On the one hand there is the continuing—indeed increasing—need for exports and the clear need for support to exporters to be of a kind and at a level to ensure that our exports are fully competitive in terms of credit.

But on the other hand, the cost and length of credit is only one factor, particularly for the majority of goods which are sold for cash or on short-term credit, in export competition, and we need to be clear that we are not making our exports too cheap or unnecessarily competitive, or supporting exports which will not be paid for. In other words, we must ensure valuable resources are not used to provide open-ended support or support which is not required.

Of course, the balance between these two extremes is not easy to find. But the difficulties involved in trying to reach it cannot be avoided. The modifications to the refinancing arrangements are one result of attempts to reach a balance. It is not, however, the only one.

For some time now, the United Kingdom has been playing a very active rôle in international discussions and negotiations designed to rationalise competition between supplying countries on the terms, cost and length of export credit. In particular there is general agreement on the need to put export credit to other developed and rich countries on a more realistic footing. These discussions have taken place within a number of international fora, but I should stress that they are not intended to set up some kind of cartel between supplying countries, simply to shift some of the competition away from what has, perhaps, become an undue emphasis on credit terms. Competition paying regard to price, delivery dates, quality and after-sales service can scarcely be against the interests of overseas buyers.

These international discussions have already borne some fruit and agreement has been reached between a number of major exportinig countries on a minimum interest rate of 7½ per cent. for business involving more than five years' credit. Perhaps I should repeat an assurance which has been given before that there is no question of the United Kingdom unilaterally restricting terms in advance of international agreements and thus putting our exporters at a competitive disadvantage.

The prerequisites for us are that we are satisfied that it is in our general interests to implement any agreement and that it is signed and implemented by our main competitors. The negotiations have been in progress for some time. However, the difficulties are such that it is not possible to anticipate their outcome, either in terms of timing or content. In view of this I cannot speculate on what results may emerge.

There is one minor adjustment to interest rates. At present, for business on credit between two and five years, ECGD guarantees to banks make finance available at a fixed rate of 7 per cent. I am proposing to vary this arrangement to the extent that 7 per cent. should become the minimum rather than the fixed rate. Thus where it is clear that it would be possible to charge more than 7 per cent. without any significant risk of the business being lost, ECGD will have freedom to use a higher rate. This is not, of course a very significant adjustment to the present arrangements, but it will give ECGD some useful discretion.

Mr. Tom King (Bridgwater)

The Minister has commented on efforts which have been made to equalise competition between different countries. Those efforts are most important. He will be aware, however, of the difficulty of comparing assistance when some of the aids are distinctly opaque in certain countries. Have the Government studied aid which is palpably not opaque, and have they examined the study by Professor Jones which has shown that British companies are taxed four times as heavily on exports compared with the situation in Japan? Is he aware that this is a most significant factor in the investment potential of Japanese industry compared with British industry?

Mr. Deakins

The hon. Member has raised a very much wider question about the way the Government manage the economy.

Mr. King

This is a most serious point.

Mr. Deakins

I accept that it is and can be serious for exporters, and one has to consider not just the ECGD facilities but the whole package of Government economic measures. I do not wish to cross swords with the hon. Member on this point since it would take me and the debate rather wide of the purposes of the Bill. I take his point that we cannot consider ECGD in isolation, but the Bill is concerned only with the ECGD part of what might have to be a total package for exporters. That package must include the taxation of companies, the investment sources available to companies, general incentives which are given to firms and so on. All these will have to be taken into account, but they are not within the ambit of the Bill.

Mr. King

The hon. Gentleman has extensive ministerial responsibility for exports. Professor Jones's report was apparently made to the Secretary of State for Industry. Has the Secretary of State for Trade asked for this matter to be further investigated?

Mr. Deakins

The hon. Gentleman can rest assured that we have a close relationship with the Department of Industry, not least because we are at opposite sides of a couple of corridors in Victoria Street. Secondly, in view of the prime need to increase British exports and the efficiency of British firms exporting to the rest of the world, my Department is increasingly taking an interest in what goes on in industry in this country. That takes us into the ambit of the Department of Industry. We have a close and harmonious working relationship with the Department of Industry. I believe that the relationship will have to get a lot closer in view of what is being proposed in the Department of Industry and elsewhere.

Mr. King

There is an argument for amalgamation.

Mr. Deakins

At this stage I shall not argue about whether or not the Departments should be put together. A number of changes have been made in Government Departments during the past 10 years. Some of them have come full circle. Some Departments have been separated, amalgamated and then separated again.

I now return to my speech. I have earlier referred to the fact that not all exports are worth while, for it cannot make economic or commercial sense to export at any price. In spite of this, some kind of ECGD cover is available, for exports to virtually every country in the world. However, it must remain the case that whether or not ECGD cover will be available for a particular contract to a particular overseas market will depend on ECGD's underwriting judgments based on the circumstances applying at the point in time. There will always be a few cases where there is no point in ECGD giving a credit guarantee since the risks of non-payment are so high that they cannot be insured at a reasonable premium. An exceptionally high risk of non-payment makes the export itself unattractive from a balance of payments point of view. Indeed, if we are not paid, there has not been an export in any real sense no matter what the trade accounts may say. We have merely given goods away at the expense of ECGD or, indirectly through ECGD premium charges, at the expense of the general body of exporters.

The recent history of ECGD has been characterised by the continuing rise in business. This is the main reason for the second provision of the Bill, namely, the need to adjust ECGD's statutory limits.

This increase in business has not only reflected the rise in United Kingdom exports but also represents an increase in the proportion of exports covered by the Department. In the first six months of this financial year ECGD covered £3,018 million of United Kingdom exports representing 37 per cent. of the total. This was a 40 per cent. increase on the volume of business covered in the same six months last year. Most of the increase was in the short-term field. This has been of particular benefit to the balance of payments and illustrates the competitiveness of United Kingdom export prices. Because of the rise in the volume of the Department's business it would have been necessary to seek an increase this year in one of the two existing statutory limits on the amount of liability that the Department may undertake. This would in itself have necessitated further legislation.

The two limits on ECGD's liabilities are, first, £6,200 million in respect of Section 1 business—that is, commercial business undertaken with the advice of the Export Guarantees Advisory Council. The other limit is £6,000 million for Section 2 business which is underwritten in the national interest. Although these are revolving limits against which only live liabilities are counted, new liabilities have built up faster than old ones have run off. It now seems clear that the Section 1 limit will be reached this year.

Both limits have been increased at fairly regular intervals in the past by legislation. However, it has nearly always been the case that limits which were expected to last five years have needed to be increased after only some three years. Inflation makes this all the more likely to be so. Therefore, the second proposal in the Bill is that the two limits should be combined into one of £12,200 million. This, of course, represents the total of the two existing limits and no increase in this limit is thus proposed.

The Bill also provides that increases may be made by affirmative resolution of the House up to a total not exceeding £21,200 million. Although this may seem a high figure it represents a volume of business which could well arise over the next five years. I wish to stress that this is simply an administrative change. It will not change the way ECGD underwrites business, nor the relationship between ECGD and Ministers and ECGD and Parliament. The provision for increases by order will of course provide the opportunity for debate if the House should so wish.

In referring to the ECGD's Section I business, I mentioned the Export Guarantees Advisory Council. It would not be right to let this pass without placing on record the Government's appreciation of the valuable work carried out over the years by this body whose members are drawn from business and the City. Their skills and experience help the Department to react positively to the changing exporting world with which it is faced.

The ECGD has a high reputation—I think a deserved reputation—for the range and quality of the facilities and services which it offers to exporters. However, this is not to say that the Department is perfect or that its facilities cannot be improved and extended or that it never makes mistakes.

ECGD is constantly looking for ways of speeding up the processing of the enomous number of cases put forward each week. In this connection, an extensive computerisation programme will soon be under way. The new computer which will be sited in Cardiff should be operational by 1977, and this should help to speed up decisions on individual overseas buyers. In addition, a major reshaping and rationalisation of the Department's regional organisation has recently been completed. This has represented a departure from traditional practice, but one which it is hoped will bring important advantages to exporters all over the country. Instead of virtually all the business decisions being made in the London headquarters of the Department, many are now going to be made in the new regional centres. This should mean a quicker and more direct service from ECGD. And it will be a service from officers who are based in the regional centre and who thus have an intimate knowledge of the exporters in the area and the problems which they face.

This decentralisation of work to regional offices does not mark the end of the changes. Indeed, the Department will shortly face one of its biggest changes and challenges for many years. Plans are now in hand for the implementation of the decision announced to the House on 30th July last year that 800 jobs from ECGD Headquarters in London are to be dispersed to Cardiff. The aim is to complete the move by the end of 1979. Much of the planning will of course be concentrated on organising the move without any disruption of services to ECGD's customers.

Some Members of the House will no doubt be aware of the increases in ECGD's premium rates for short-term business which were announced last autumn and come into effect on 1st April this year. I should perhaps stress that these increases—and, indeed, ECGD's premium income as a whole—are in no way affected by or related to the refinancing arrangements which I have earlier discussed. These arrangements are a distinct function from the credit insurance operations with their charging of premium and are accounted for separately. There can, therefore, be no question of premiums having been raised or need to be raised because of the cost of operating the refinancing arrangements.

In general terms ECGD in its credit insurance operations is charged to operate at no net cost to the Consolidated Fund. This is becoming an increasingly difficult thing to do. Not only is ECGD faced with rising costs, but the risks it accepts are increasing as both individual buyers overseas and whole markets are hit by inflation and by the general uncertainties which have followed in the wake of the oil price rises. The Department expects these increased risks to be reflected in the pattern and level of its claims payments. Claims paid in respect of private buyers' insolvencies and default under ECGD's Section 1 commercial underwriting account are an interesting example.

In the financial years 1971–72 and 1972–73, these claims payments were between £8 million and £9 million in each year. In the last financial year they rose sharply to over £16 million. I think few of us can be under any illusion that in the foreseeable future, the international trading world is likely to be an increasingly uncertain and difficult one. It is important, therefore, that ECGD is equipped to meet this situation.

The short-term premium increases are put into perspective when I tell the House that the changes still leave premiums lower than they were 10 years ago. Even including the increases, an average rate would be less than a third of the rate which applied in the late 1940s, when the form of cover available to exporters was much more restricted.

I should stress that in raising some of its premium rates, the ECGD is seeking to make prudent provision for a developing situation. It should be borne in mind that many of the risks underwritten in one year will remain on the ECGD's books for many years ahead, and the premiums received in one year and credited to its underwriting accounts in that year will need to reflect these risks—risks which stretch over a decade and for which no additional premium will be received. It is partly for this reason that the ECGD is re-examining the form of its accounts with a view to providing a clearer picture of its financial position than is to be obtained from the present simple annual cash flow accounts.

The ECGD's notional operating balances are sometimes quoted as proving that the Department is charging too high premiums or is taking too conservative an attitude. Perhaps I can best illustrate how misleading this kind of allegation is by reminding the House that, at the end of the last financial year, the ECGD's Section 1 commercially underwritten commitments stood at £4,922 million, whilst the Section 1 balance stood at £111 million. It is, I think, against the background of the total liability outstanding and the developing nature of the risks involved that the size of the balances and the level of premium charges can best be viewed.

The proposals in the Bill are designed to make a number of technical adjustments to the ECGD's powers. The pro posals all have the same objective—namely, to enable the Department to continue to react flexibly and with imagination in a rapidly developing situation to the changing needs of United Kingdom exporters. This is not an easy task. However, the post-war history of the ECGD has been characterised not only by a steadily rising stream of business, but also by a steadily developing range of facilities and activities. The Bill will, I hope, enable this to continue.

7.32 p.m.

Mr. Terence Higgins (Worthing)

The House rarely has an opportunity to debate the question of export credits. The last occasion was in 1970. Since then, there have been significant developments both in the trade pattern and in finance for international trade, especially in the breakdown of the Bretton Woods system, and now in the régime of floating exchange rates. All of these have tended to transform the picture, and it is appropriate that we should therefore examine both the principles of the Bill and, as the hon. Gentleman has done, the general environment within which we expect the provisions of the Bill to operate.

First, I express our appreciation to the hon. Gentleman. His notes were perhaps a little copious, but I have rarely heard copious notes read so clearly. The technical points were explained very clearly—and they are pretty complex. I join him in some of the points he has made, particularly in relation to the Governments' attitude to the avoidance of beggar-my-neighbour policies. That is a view shared on both sides of the House.

I also agree with the hon. Gentleman's point about not financing exports that will never be paid for. There is sometimes a great danger, and perhaps even more temptation, that one is so concerned with the problem of exports that one overlooks the question of payment. That is certainly true as far as the figures are concerned. I am sure that the hon. Gentleman is right in saying that the important thing is to strike a balance between promoting exports, on the one hand, and the cost to the taxpayer on the other. I want to concentrate on that question in a moment, but first I must declare an interest, to the extent that I am a director of an engineering firm some products of which are exported.

I shall deal first with some of the more general points raised by the hon. Gentleman. The first is that one must clearly look at the package as a whole. Export credit is only one of the items which determine whether firms find it advantageous or desirable to export. In this context, we are in a critical situation. We have had the effect of the so-called "J" curve which followed depreciation of the sterling exchange rate. This made our exports, in particular, more competitive, or, alternatively, enabled firms to sell them at the same prices but at a higher profit margin. This position has since been eroded significantly, if not entirely, by the increase in domestic costs, which, in turn, has affected the profitability of exporting.

All of us must have been concerned by the Press statement issued by the Department on 15th January, which showed that in the fourth quarter of 1974 exports averaged £1,333 million a month—4 per cent. lower than in the previous quarter. We are in an extremely difficult balance of payments situation—the three-months' trend is not favourable—and therefore we need to look at the whole question of the package which determines whether our exports are competitive.

In this context, the hon. Gentleman distinguished between the insurance aspect of the ECGD and the refinancing function. It is true that although the two are to some extent inextricably mixed this Bill is concerned largely with the refinancing function, and I am sure that it is on that aspect that the House will wish to concentrate tonight.

A number of questions arise. We have to ask, first, whether the Government should guarantee—or, at any rate, subsidise—export credits at all, and if so—this question has not arisen very clearly on previous occasions—to which countries or groups of countries. The hon. Gentleman made an interesting distinction in mentioning that we should consider to what extent credit was extended to developed or rich countries. The second question is at what rate of interest exports should be financed. The third is where such financing fits into the general pattern of export promotion.

There are other questions—for example, whether the supply of export credits should be used in any way as a bargaining counter to eliminate some of the undesirable practices which may be followed by some of our trading partners to whom we export. A case that springs to mind in this context is flag discrimination in shipping.

Finally, there is the whole question whether the innovations in the Bill are necessary and desirable, and whether the information which will be provided under the Bill is going to be adequate. We may well have doubts about some of these aspects, and I hope that we shall be able to persuade the Government to change their minds about some of them.

First, then, should the Government guarantee exports at all, or subsidise them? We all agree, of course, that a system of export credits is desirable, and we appreciate the points made by the hon. Gentleman concerning that aspect of the ECGD being self-financing, or at any rate intended to be so. The question of whether the rate of interest should be below the market rate is more difficult, and one needs to put it in the context of the extent to which export credit is outstanding.

It is not just a question of saying that our exports in some cases are not going to be paid for, but also that some of them will not be paid for for a very long time. Constant increases in the amount of export credit outstanding at a time when we are in balance of payments difficulties, as distinct from the balance of trade situation, is a matter we need to consider. I had some difficulty in distinguishing the figures, but I understand that the total amount outstanding of more than six months to maturity is some £556 million. It would be helpful to know, if not on this occasion then in Committee, the extent to which credit is paid out, through both time and duration.

I understand that a sample survey in 1972 in the construction industry, for example, showed that 41 per cent. of the exports were on terms longer than five years, and that about £1,000 million of exports last year which were insured were for periods of greater than six months. The whole question of how the commitments are spread through time and how soon we are going to be paid is a matter to which in Committee we will perhaps want to give greater attention. We must take into account the fact that, through time, the exchange rate may change, which may mean that the amount we are eventually paid in terms of sterling is different from the figure which originally appeared in the trade statistics on an immediate basis.

That brings me to the question whether we should distinguish between the countries to which we export. The Minister referred to the terms we give to developed or rich countries. It would be a little paradoxical if we extended credit to oil-producing countries at a low rate when at a time they were depositing funds here at a higher rate. Even from their own point of view there may be an argument for saying that even for a large industrial project, which is typically the kind which is paid for over time, payment should be made on a very short-term cash basis rather than deferred, since the extent to which we shall transfer real resources to the oil producers over time is limited. Therefore, there are complex arguments which alter the picture from that which existed in 1970, when we last debated this matter, and to which we should give some attention.

As regards the rate of interest, I see the case against a credit war. However, we must be careful to ensure that we do not in any way precipitate such a credit war, since that will alter the balance between the cost to the taxpayer and the gain to the balance of payments. We shall wait to see what will arise from the enigmatic statements that the Minister made about the new forms of cover and facilities.

For many years, export credit was provided effectively at market rates. Although I am sure that the Opposition want our terms to be reasonable and competitive, we ought to consider whether we should be doing more to ensure that all exporting countries do not tend to provide credit at a lower rate, which is justified in terms of the cost to the taxpayer, because the differential is being made up by the taxpayer. Therefore, it is not just a question whether the rates are comparable but whether the rates, in relation to domestic rates, are in any way too far out of line. We shall need to consider that.

There is the question whether some countries are engaging in practices which are suspect. I believe that my hon. Friend the Member for Tonbridge and Mailing (Mr. Stanley) drew attention to that in a recent Question about the French and the so-called inflation-proofing clauses. The right line is to take an extremely tough position in ensuring that that kind of competition, which will tend to produce repercussions, is not engaged in. However, we need to debate that at further length.

Regarding our position vis-à-vis other countries, there has been a tendency for us to find ourselves at the bottom end of the interest rate scale. Perhaps the Minister will give us greater details about where our rates stand in relation to others—although we note with interest his announcement this evening that the ECGD rate will not now necessarily be fixed but that there may be scope for raising it in certain circumstances, thereby reducing the cost to the taxpayer, though that must be done in relation to the danger of losing orders which may be important to both employment and the balance of payments.

I turn to Clause 3, and the related parts of the Bill. Here, we wish to take issue with the Minister because he has pointed out that the previous limits which have been imposed—£6,200 million for Section 1 advances and £6,000 million for Section 2 advances—are to be amalgamated into a single limit. The Minister argued that that would be administratively more convenient and would save the time of the House. If there is one argument which the House views with more suspicion than the fact that something cannot be done because it is administratively impossible, it is the argument that the House should do it because it is administratively convenient.

There is a case for separate limits. If we are up against the limit in one category, the House will view sympathetically the argument that we should raise that limit. However, it is a curious argument to say that the way to deal with that problem is to amalgamate all the limits into one homogeneous mass. That would be the wrong way of setting about it. We ought to leave the division as it is now. There is probably a strong case for giving rather more consideration to the possibility of breaking down the figures into the various categories, so that we know how much is commercial guarantees and how much is special guarantees. A breakdown of the figures is contained in the statistics provided, but there is no breakdown of the special guarantees case in any detail.

There were exchanges about the relationship between the Department of Industry and the Department of Trade. I notice that the name of the Minister for Industry appears on this Bill, although it does not appear as a sponsor of the Bill concerned with travel agencies. We view that with some suspicion, because the Secretary of State for Industry may feel that an industrial enterprise should be provided with additional facilities because he, in his wisdom, has decided that he wishes to support that enterprise. In those circumstances it may be possible to use the powers in the Bill to give additional special help to one of those firms.

It does not appear from the Bill whether the statistics to be provided, which will enable the Secretary of State to make grants to cover areas of self-financing, will be used, perhaps for political reasons, within a domestic context. We hope that provision can be made to ensure that, if there are any special cases of that kind, they are reported annually to Parliament and that it is made clear that the Secretary of State for Industry is not using the provisions in the Bill to secure ends which were not envisaged by the House of Commons at the time when it passed the legislation. We shall wish to pursue that matter in Committee.

I have discussed the possibility of using the export credits provisions to ensure that discriminatory trade practices are removed, and I mentioned flag discrimination. I understand that some of the trade with Eastern bloc countries is conducted on the basis that the deal goes through only if the arrangements are f.o.b. rather than c.i.f., and effectively there is flag discrimination to that extent. Perhaps, as a result of that, our balance of payments loses, since we do not provide the shipping services, even though they may be more competitive. We may pursue that matter subsequently to ensure that in providing export credits we do not agree deals which are discriminatory against other sections of British industry. That is a sensitive area, and we need to take into account the possible repercussions. In the present context, that is worth examining.

I come finally to the technical matters referred to by the Minister. He pointed out that new provision is taken to make grants effectively to the clearing banks. That raises the question whether the terms on which these arrangements are negotiated are satisfactory, again from the taxpayer's point of view.

Obviously we need to strike a balance. Obviously we need to examine in some detail the provisions which are made for the taper. As I understand it, the need to pay some £86 million to the clearing banks arises from the fact that the operations for the past two years or so have resulted in the leads and lags between the ECGD and the clearers being other than those which were expected in the first place. It is that factor which accounts for the £86 million which we are asked retrospectively to validate.

The £86 million is not the total amount of the differential between all payments of interest at the export rate and the normal market rate. The provision is essentially to deal with leads and lags problem and the fact that there may be future changes of that kind, rather than the overall question of the differential rate.

Nevertheless, if we take the picture as a whole, we shall need to probe carefully the extent to which there is a cost to public funds and the extent to which the profits of the clearers are higher, presumably, than they would otherwise be. The Bank of England is presumably providing the credit base on which the clearers provide the credit. This is a matter of judgment and balance. We do not wish to inhibit desirable exports. At the same time we ought to examine this carefully, and we propose to do so in Committee.

Subject to those qualifications—and some of them are important—I do not intend to urge my hon. Friends to oppose the passage of the Bill. In the overall context, especially the difficult balance of payments situation that we face, it is a desirable measure, but we shall need to look at the detail, and I hope that we shall scrutinise it carefully in Committee.

7.53 p.m.

Mr. John Cockcroft (Nantwich)

I agree that the terms of the Bill are unexceptionable. There is no doubt that over many years the ECGD has offered favourable terms to exporters. By any rational standards, it compares favourably with almost any comparable organisation in the world.

My fear, however, is that we may be getting to a situation where every country is competing to provide almost unlimited credit terms and that the beggar-my-neighbour policies of the 1930s could arise again. There are certain risks which cannot be insured against. I think that it would be a mistake if what used to be regarded as the richer countries of the world insured their own exporters against political risks to a greater degree. If that happened, it would only encourage countries which are nationalistic and, even by our standards, Left-wing to nationalise more than they would otherwise. There is a limit to the process which we see in train of encouraging exporters by cheap State loans, and so on.

Turning to the wider scene, I seek not to make partisan points. The poor export performance of the country over many years going back to 1945 and the end of the Second World War has many causes. They include poor delivery dates, poor quality, bad invoicing, strikes, slow delivery at the ports and so on. This has been caught up in the vicious circle of competitive devaluations by this and other countries, making it essential for us to earn more foreign currency.

At the same time, our price is depressed in sterling terms. We are in a very serious vicious circle and, in the short term, it is difficult to see how to get out of it. In the longer term, the solution lies at home in higher investment, in more machinery behind each worker and in creating a climate of optimism which has not existed for some time. Above all, it lies in avoiding the kind of taxation policies which discourage exporters from doing their best.

There is a limit to what any Government can do to encourage exports. Companies can do it themselves as long as they are provided with the right environment. In the longer term, we shall have to concentrate more on import saving rather than on exporting more. But, to the extent that we can export more, so much the better.

I speak from memory, but I think that in volume terms our exports have doubled since the beginning of the First World War. There is a limit to how far the process can go in a country which, apart from North Sea oil, which is heavily mortgaged already, is almost devoid of natural resources. Increasingly, the emphasis should be on import savings.

I want to suggest one possibility which has been canvassed before but from which nothing very much has come. Since importers have been encouraged over the years to export more by means of cheap loans from banks, ought not we to think seriously about encouraging import savers such as farmers, by offering them cheap or subsidised loans? The theme of the future must be import saving rather than increasing exports. We must be almost at the limit of that process.

7.56 p.m.

Mr. Michael Morris (Northampton, South)

We all agree that this is an important Bill concerned with the important area of exports, not least at a time when our deficit is running at about 4 per cent. of our gross national product.

The Minister and my hon. Friend the Member for Worthing (Mr. Higgins) were right to pull out the fact that this is only part of the general support for export services which needs careful scrutiny. We should never forget, especially in the context of the ECGD, that we have in the City a very sophisticated area of financial activity which in itself is very much engaged in the export markets. That is an advantage we have as a nation.

Although the Minister was fairly emphatic in suggesting that we did not want a return to beggar-my neighbour policies and that there were only minor areas in which we were at a disadvantage, I suggest that the disadvantaged areas are not of such a minor nature. Although we rebate VAT, simply because our level of VAT is lower than the levels of Germany and our other continental friends, the benefit is less.

We see a situation where in France, Italy and Japan there are varying forms of exemption from or delayed payment of corporation tax or its equivalent which give major exporters a significant advantage.

Mention has been made of shipping, and we know in current terms that there has been comment that our pre-shipment insurance rates are not as competitive as those in other countries.

The Minister said that we should not export to places where we could not be sure of getting payment for our goods. As a professional marketing man prior to coming to this House, I know that the most costly time for any exporter is when he is opening up a new market. It is when someone is opening up markets of great potentiatl that he looks for flexibility in the ECGD and in other areas.

I suggest that in recent months in the Middle East offered a case in point. Had the ECGD really been sharp as a pointer to exporters, or perhaps through the BOTB or some other organisation, there could have been some competitive advantage to our exporters in terms of insurance rates in opening up the new ground areas, we might have benefited a little quicker. The French, and to some extent the Japanese, seem to have achieved the ability of getting greater Government involvement in large projects. That is particularly so in the capital goods and construction area. There is no doubt that when the BNEC was set up we were in the forefront of ancillary services. It is the general view of people in the exporting world that we are no longer in the forefront, and attention should be paid to this.

I know that the Queen's Award is being reviewed. One must ask in this general context whether it is right that the time taken over the review should be so long. As the Minister said, it is an area of considerable urgency. One wonders whether the review should not be brought forward. Could we not consider implementing it for this year's awards rather than the following year's awards?

Lastly in the general area of credit, the French have a system of crédit mixte in which ancillary orders alongside a main Government project are pulled into the net. The French have been very successful in this area, and Italy and Japan seem to have learned the tricks of the trade. I hope those general areas will be taken into account, because they are of great importance to a number of exporters.

I come specifically to the Bill. It is right that Opposition Members should raise the question how it is that given all the circumstances we are having to pay off £85 million—or a figure substantially in excess of that, although that is just a rumour. I should like to have reassurance that the figure is only £85 million. How has that amount been allowed to run up in considerably over a year? It should have been brought to our attention a little earlier.

Correspondence has appeared in the Press, and I draw to the Minister's attention letters which have appeared in The Times, one of which was dated 16th December which contained complaints of the mechanics of the ECGD. Like many other hon. Members I am full of praise for the general running of the ECGD, but specific complaints were made in that correspondence, and I hope that the Department will see what can be done about them.

The Minister has not mentioned performance bonds. They are particularly relevant to the Middle East where our exporters, particularly those in the heavy capital goods and construction area, are being asked to provide between 10 per cent. and 30 per cent. performance bonds on demand. The net result is that there is some difficulty in laying off that risk and our sub-contractors working alongside the main contractors are laying off performance bonds one against the other. That is a problem area which should be looked at quickly, otherwise the situation will get out of hand.

There are a number of detailed aspects of the Bill which we shall want to consider in Committee. I have tried to look at some of the overall problems of the credit and export promotion area and to pick out particular instances where the ECGD will have to look sharply at its performance.

I echo what my hon. Friend the Member for Worthing (Mr. Higgins) said about reporting back to the House, particularly on the question of who is being granted what. I respectfully suggest that an annual report is hardly adequate. If we are to have quarterly returns on the money side we should have quarterly returns saying where the money has gone.

If the Minister cannot cover all these questions in his reply tonight, I hope that he will give an indication that they are recognised and that some action will be taken.

8.5 p.m.

Mr. Geoffrey Dodsworth (Hertfordshire, South-West)

May I, first, declare an interest as director of a London merchant bank? I have responsibility for its export finance operations and can claim to be involved day to day in the details and problems involved in trying to secure financing arrangements. That work is done because exports are achieved by manufacturers and exporters, and finance is the handmaiden or servant, albeit an important one, of that operation. In the course of those activities from the ECGD point of view I have had long, interesting and detailed negotiations in London and overseas. I add to the tributes which have been paid to the work of the ECGD. The Department has an expertise and dedication which is admired throughout the world, and rightly so.

I understand the meaning of the comment that perhaps we do not have quite the same leading position as we did, but I do not share the view that our credit operations are not still looked upon as the foremost in the world. Many countries look at the way in which the ECGD arranges its operations before deciding how to carry out their own. The ECGD is an interesting and happy example of co-operation between industry, financial institutions and Government. That is why we are being so successful with it. There are lessons to be learned from this area of co-operation. When we seek to improve our industrial performance and to decide what rôle Government should play we should do well to look at this example and to see what lessons can be learned.

Each side has mutual respect for the other's rights and the Department's reputation throughout for professional expertise and knowledge put it in a dominant position in the world. It is because of that respect that industry and the institutions are able to work so closely together. The Department has managed to ally the strength of Government to the business acumen of the credit insurance industry, so that thousands of individual firms have been able to carry out work of national importance. That must be a valuable experience, and it suggests assistance and support rather than interference with independent business operations. There is no interference, but there is co-operation, mutual confidence and trust. Those are the factors which generate business and export performance.

I turn to the question of exports and their success or otherwise, and of course the situation is affected by world inflation. A document has been produced by the Government showing provisional results for 1973–74—and, incidentally, I noticed in the Minister's remarks a promise to improve the methods of presentation. That document has one interesting passage which runs as follows: As is usual with Government Department accounting, the figures in this report have been prepared on a cash flow basis … That is a very nice way of saying that the document is incomplete—in other words, that the system used is similar to that employed with golf club accounts. "Receipts and payments account" is perhaps a kind way of putting it. It is a sad reflection on much Governmental accounting that it is carried out on a purely cash basis. We do not attempt to reflect the true expenditure or asset position. That is perhaps a topic for discussion on another occasion, but it is an important and serious matter.

I suggest that when a similar document is next produced, my hon. Friends who have some marketing knowledge and experience might apply their minds to it. It is difficult to follow through the descriptions in the document, although the explanation is valuable and no doubt accurate, but it does not differentiate clearly between the different types of finance. I hope that we shall, see an improvement in future. There is a great deal to be proud of in what is reported, but it would suggest that a little more time and effort in reporting would be well repaid.

It might be helpful to examine some of the figures in the Bill. Parts of the Bill's provisions come back to me like an old friend. For example, on Clause 3 we are given the familiar reassurance that all is well and that it is just a matter of administrative convenience. When I hear that phrase, I am immediately on my guard. I ask myself "From what are we being protected, and why is it better that we should not know?" I recollect experience of the Public Works Loan Board which involved a doubling of the sums of money which were being made available and the extra amount was to be brought about by affirmative order. Well sure enough, here it is—another affirmative order. Last time with the board the figure was only a modest £4,000 million. This time the figure being governed by affirmative order is an extra £9,000 million—

Mr. Deakins

May I put the hon. Gentleman right on details? There will be provision for up to three orders and there will be tranches—I prefer to use the words slices or portions—of up to £3,000 million each time.

Mr. Dodsworth

I am grateful to the Minister. He has saved me having to come to the next part of my explanation as to how the tranche works. I accept that the £9,000 million is to be divided into three parts. But the fact is that there is a total lending capacity written into the Bill of £9,000 million and it is to be doled out in appropriate pieces. What is astonishing is that there is no time interval or limit on the amount of the pieces. In some of the other provisions I believe there is a reference to the provision taking effect at a certain date. Therefore, we should examine the Bill in Committee and look at the intervals which will occur.

I went to the Library to try to ascertain the number of orders now going through the House and I sought to carry out some sort of monitoring operation. It was a hard task and difficult to know where to begin. If we are to rely only on "administrative convenience", I suggest that we should have the matter in a different form from this. The method proposed in the Bill appears to envisage far too lax a control of the expenditure of sums of money through the House. This is not a method that commends itself to me. I understand the excellent motives and ideas lying behind the Bill, but the method of control leaves something to be desired. Perhaps we can pay some attention to that task in future.

I refer to two other detailed matters. Let me deal first with import savings. We have a curious situation in this country in which we support the export of goods as commendable and desirable, but we also have an international arrangement and convention which allows similar levels of credit and interest rates. What is the situation that faces the British manufacturer? If he wishes to choose to buy a piece of equipment, he is able to obtain from some other country five years' credit at 7½ per cent. or 8 per cent. interest rate which is far too competitive for him to buy goods produced in his own country. We are all on a carousel and it is difficult to get over the situation. There is entirely different international market operating on a different scale from the home market, and that is a most unfortunate and difficult circumstances.

The Government's policy is to have a level of interest rate which reflects about 13 or 14 per cent. per annum compared with a supported rate of 7½ per cent. in foreign competition. The shipbuilding industry has had support of this nature and it has been very successful in supporting British export orders and British shipbuilding orders. It will be helpful if we address ourselves to that matter.

I refer to one last detailed question which might be helpful in aiding our export performance. Delay is caused in the short-term financing of export orders by the bureaucratic structure. I tried to make a procedural manual on the steps which were required. I found that there were 11 documentary stages required for a person to get the benefit of the supported interest rate funds. It may be worth going through those stages very briefly to indicate the frustrations which can be involved for people seeking to support an export order.

The first step is the application to the Department for cover for the transaction. Second, there is the receipt of the approval of the cover; third, the receipt of the notification of an application for a bank guarantee; fourth, the issue of the necessary bank guarantee forms; fifth, the completion of the forms and their return to the bankers; sixth, the draft facility letter issued by the bankers for ECGD approval; seventh, confirmation by the Department of that approval or any amendments that are required; eighth, the issue of the draft guarantee agreement by the Department; ninth, the recourse agreement from the Department for signature; tenth, the return of the recourse agreement to the Department; last but not least, the guarantee and the opportunity for the exporters to get the benefit of the supported funds. That process may take between two and four months.

I have carried out a census and an operation to identify the cause of the delay. One of the principal reasons for it concerns the issue of the forms by the Department. It seems to me that that could be easily overcome if instead of treating the items separately there could be an omnibus approval for the supplier by the bank concerned so that they could be covered up to a certain amount and we could thereby expedite the export transaction concerned.

This is a matter which is worthy of the Department's attention because delay is genuinely experienced and it seems to be across the board. The effect of the delay is that an exporter does not know exactly what the cost will be of supporting or financing the operation until the receives the subsidised funds. I reiterate my praise for the work of the Department for which the country and all the people who use its services have need to be grateful.

8.18 p.m.

Mr. John Stanley (Tonbridge and Malling)

I should like to deal with the implications of this Bill for the profits of the clearing banks and the rate of return which the banks get under the ECGD arrangements. In February 1974, at a time which coincided with a General Election, much interest was expressed by the Labour Party about the question of clearing banks' profits, which contrasts somewhat strangely with the almost total absence of Labour Party Members.

We are dealing with a Bill under which £86 million will be entered in the profits of the clearing banks. As parliamentarians and taxpayers we have an obligation to examine the extent to which the rate of return which is being secured by the clearing banks under the ECGD scheme represents a fair balance as between the national requirement to boost exports and the charge which is being made on public funds. The calculation of the rate of return to the clearing banks is one of the more obscure areas of public accountability and it may be helpful if I detail my understanding of the position so that the Minister can correct me if I am wrong.

I understand that there are three components of the rate of return to the clearing banks. First, there is the observed rate, which is calculated monthly and which represents the mean of the average yield on Treasury bills and the lending rate to the nationalised industries. That would seem to be a perfectly reasonable basis from which to start. That is topped up by a second element, known somewhat euphemistically as the unmarketability margin. I have never understood why the clearing banks should seek to top up their rate by an unmarketability margin, because I cannot conceive of a circumstance in which they would want 100 per cent. liquidity of their assets. Under this head there is a further addition to the agreed rate of return up to a maximum of 1¼ per cent. which, as the Under-Secretary said, is now subject to a taper when the observed rate is between 7½ per cent. and 14½ per cent.

It is worth recalling that that adjustment in the agreed rate to the clearing banks was secured only after a fairly thorough investigation by the Public Accounts Committee, which was reported in its report for the 1974 Session. It was as a result of the Committee's investigation that the Treasury decided to make the tapering arrangement concerning the so-called unmarketablity margin of 1¼ per cent.

This produces—here I have the Under-Secretary's most recent figures given to me in a parliamentary Answer of 23rd January—a monthly agreed rate of return to the clearing banks. In the last month for which the hon. Gentleman was able to give figures—December—that agreed rate was about 12½ per cent. I understand that it was reproduced incorrectly in Hansard and that there is a letter in the post to me making the correction. That rate is not particularly out of line, bearing in mind that this is the most secure possible banking one could have, because effectively it is lending on the back of a Government guarantee.

It is difficult to compare that 12½ per cent. with what might be obtained in other types of lending, because it is impossible at present to obtain long-term fixed-rate finance. There is, however, one comparison in the £75 million issue announced last Friday by Finance for Industry, which offers a redemption yield of 13.1 per cent., with a redemption date in 1981. It would seem, therefore, that the combination of the observed rate with the tapered unmarketability margin is more or less in line.

But that is not the entire story, because there is a third element in the overall return which represents the icing on the export credit cake concerning the clearing banks—this is the commitment fee which the clearing banks have agreed with the Department of Trade and which is payable on the conclusion of all loan agreements for export finance. I understand that the commitment fee is 1 per cent. on the maximum amount of credit offered. It is in excess of the normal standard international financing commitment fee, which is ½ per cent., not on the total amount of credit offered but on the undrawn balance. This represents an important increase in the rate of return to the clearing banks.

I recognise the need to encourage the clearing banks to continue to participate in the scheme. I also recognise that they lock 18 per cent. of their assets on current account into the scheme. But this is attractive business for the clearing banks, and from a public accountability point of view the overall rate of return which they secure needs to be kept under review. As an overlap to that, I suggest that there is a case for considering whether it is right to continue the monopoly position of the clearing banks.

Mr. Higgins

Perhaps, for the sake of completeness, my hon. Friend should bear in mind the point to which I made reference in my speech, namely, that we shall need to consider whether the advances made by the clearing banks in this context are, so to speak, at the expense of other advances or whether the credit base is being expanded by the central bank and that, therefore, there is no opportunity cost to the clearers. I am not wholly sure whether that is the right way of looking at the matter, but it may be worth putting as a footnote to what he said and as a marker to be considered in Committee.

Mr. Stanley

I am grateful to my hon. Friend for his additional remarks. I think that we should consider whether the monopoly position of the clearing banks in the ECGD context should be continued.

The Under-Secretary will know that the accepting houses have for some period—extending over a number of years—considered that they could make a contribution to the provision of export credit. I have seen recent Press reorts to that effect. It would seem to be in line with the competition and credit control policy that, if members of the Accepting Houses Committee are able to provide facilities, they should in principle be encouraged to do so. In that way we can ensure that the best possible use and advantage is made of our financing facilities in order, as far as possible, to diminish the liability on the taxpayer whilst not in any way inhibiting our export effort.

I should like to make three points about the ECGD system. Earlier the Minister said that we wish to be able to offer an overall package of export credit which would stand comparison with that provided by any other exporting country, but at the same time we did not feel that it was incumbent upon ourselves to match every individual facility that was available elsewhere. The hon. Gentleman was no doubt alluding to the practice of the French export credit agency in providing insurance against inflation.

I suggest that the absence of any inflation insurance on our export business is seriously threatening our competitiveness in a number of key export areas. I refer particularly to the two areas referred to by my hon. Friend the Member for Northampton, South (Mr. Morris)—major capital plant exports and construction. By not being able to offer insurance against inflation we are seriously disadvantaging ourselves in competing for fixed price contracts. That is the important point. The Minister will know that today fixed price contracts are insisted upon all round the world. Therefore, this represents an increasing handicap to us. Will he therefore particularly consider introducing a contingency scheme for insurance against inflation which could provide that cover in those localised areas of our export business which are fairly easily definable but at the same time represent areas in which some of our largest export orders, in money terms, are being registered? Indeed, they are areas in which we still have companies which are leaders in their spheres taken worldwide.

Secondly, will the Minister consider the position that he has been taking in the exchanges that we have had through the Written Answers columns in Hansard on the question of the historic practice, which is still continued, of not disclosing to buyer countries the amount of insurance premium that is being paid in their export credit arrangements? We have the practice of adding to the contract price the insurance premium of ECGD. This has the effect of inflating the actual declared contract price to the buyer, with an obviously disadvantageous impact on the British exporter.

The traditional justification for continuing with that practice is that if we disclose to the buyer exactly what insurance premium is being paid we shall reveal to a foreign country Her Majesty's Government's credit rating of that country. The traditional Foreign Office position has been that that would be diplomatically embarrassing and therefore we should not contemplate it.

My reply to that is that many other countries have no difficulty at all and apparently suffer no diplomatic embarrassment in revealing the amount of insurance premium that their export finance agencies require. The insurance premium is disclosed by ExImbank as far as the USA is concerned, and by COFACE as far as French exports are concerned, and it does not inhibit the export efforts of those countries. I therefore ask the Minister to reconsider the position, because as long as the insurance premium is not being disclosed it means that British exporters are competing on the basis of a contract price which is artificially inflated, and that must be against the public interest in this country.

Thirdly, will the Minister explain why the public expenditure White Paper shows a sharp reduction over the next five years in the sums allocated for the refinancing of fixed rate export credits? I cannot believe that this must imply a declining expectation of the amount of export credit that we shall use, but the figures are dramatic. From the figure of £450 million for 1974–75, the White Paper shows a decline every year down to £157 million in 1977–78, and remaining at that figure in the following year, 1978–79. Perhaps the Minister can explain why the White Paper shows a considerable decline in export credit refinancing.

Finally, I welcome one clause of the Bill to which the Minister referred, I thought, rather diffidently. He appeared to be somewhat embarrassed by the clause, but I do not feel there are grounds for embarrassment. In fact, I welcome Clause 1(2) in which the Minister is taking power to be able to supplement existing credit arrangements by the payment of a grant direct to buyers. It is a growing practice, however much it may be deplored, to blur rather than to define more clearly the distinction between export credit and foreign aid. The French have developed a system which is called crédit mixte, which is merely the bringing together of COFACE export credit and French foreign aid. It seems that the British Government have decided that they must have a similar ability to be able to bring together export credit and foreign aid.

I see nothing to be apologetic about in that. In fact, I welcome this initiative, and I hope it is symptomatic of a thoroughgoing readiness to be truly competitive in exports and to go out and compete aggressively, with the backing of the Government, in a difficult and intensely competitive market. I hope that Clause 1(2) is a symptom of a new aggressiveness towards British exports which is sweeping through the Minister's Department and will shortly be sweeping, though it is not evident now, through both the Department of Industry and the Treasury.

8.34 p.m.

Mr. Geoffrey Pattie (Chertsey and Walton)

It has been said many times before, but not so far in this debate, that British exports would increase by a large measure if the companies concerned were able to operate in a healthy domestic market, and this would seem to be somewhat out of reach at the moment.

The present economic difficulties are, however, posing certain problems which I wonder how far ECGD will be able to assist. It has been suggested to me, for example, that certain companies in this country are finding considerable difficulty in being able to afford the cash to buy components—this was touched on by one of my hon. Friends—and are therefore unable to meet certain export commitments.

I should like to put a series of points to the Minister. It has been suggested to me that the Government should be prepared to share the risk of unpredictable cost escalations to a rather greater degree than they are at present. This is particularly important for capital goods exporters. Although they may be a small share in terms of the total amount that we export, individually the contracts are for very large sums of money indeed. It is very important for the Government, through ECGD, to take the necessary action in these very inflationary times in which we live.

It has also been drawn to my attention that a scheme which was introduced last year for pre-shipment finance, whereby banks will allow larger overdrafts—has been spoken of in very complimentary and laudatory terms; I understand that it is a good scheme—though it is described as being too restrictive in its terms. The Minister may discover that the take-up under the scheme is not as high as it might be. I gather that it is a scheme which is extremely beneficial to companies who have a long manufacturing lead time. Therefore, it might be worth looking at the scheme to see whether it can be improved so that there will be a higher takeup.

In the Third Report of the Public Accounts Committee last year, there were certain references about which I would like to remind the House. One in particular was: The Department told us that the fixed rate of interest charged to exporters was determined primarily by the rates charged by foreign competitors because the object of the scheme was to enable British exporters to compete against foreign exporters. It seemed to us that this might lead to competition among the major capital exporting countries, so we were pleased to learn that discussions were taking place at government level to try to diminish uneconomic petition in this field and arrive at a more rational basis by fixing a minimum rate of interest to which all would adhere. Can the Minister say how far such discussions have progressed, if at all?

Secondly, further on in the same report, there was an exchange about the way in which the precise rate of interest was fixed for our exports, taking the comparison with other countries. I quote: Currently, from January of this year, we changed our rates to a range of 6 to 8½ per cent. If we add the bank charges to that we get a range that we are using of 6.4 to 9 per cent. That is the British interest rate. I speak, obviously, of the time when this report was published. The current Japanese rate in the same field on the same basis is 6.25 to 8.77 per cent. The current French rate is 6.6 to 6.95 per cent. We simply take these rates and try to see how we compare with them. I go back to a point raised by some of my hon. Friends. How competitive are we? I share the suspicion that has been voiced both here and in other places that very often other countries are using various ruses to advance the cause of their own companies. I should like to feel that the Minister could give us the assurance that we are being strictly competitive.

Finally, in the same Public Accounts Committee's Report, dealing with this very vexed question of the precise interest rate that ought to be fixed, I quote again: One has to have regard to the fact that if one were to stop providing credit at, say, 7 per cent. for particular purposes and said that the rate should go up to 10 per cent. or that it should be left to find its own level, it could have a very severe short term effect on several industries. Shipbuilding would be one; some of the heavy plant manufacturing would be another. We have looked into this and there is a fair economic case for saying that it makes sense to provide credit … for situations in which the export element may make all the difference between economic capacity and noneconomic capacity for the particular industry concerned. Will the Minister say something about what I regard as this extremely grey area, when we move from the precise sensible return on the sums of money being advanced to the necessity to make a sale for not only industrial considerations but also even strategic, military and tactical considerations? I have in mind here the question of the possible sale of Jaguar aircraft made by the British Aircraft Corporation to the Indian Government. Here we have a classic case, where the Indian Government wish to have whatever terms they may get spread over what might be even infinity. I am sure that they would like something along those lines. Obviously, however, we must take a different line. But how far is consideration being given to the necessity—desirability would, perhaps, be a better way of expressing it—of making a sale, possibly albeit rather reduced on the initial order involved in this particular case, but with the possibility in mind that subsequent sales could follow, hopefully when the Indian economy has improved? One cannot necessarily assume that everything will always be as bad as it now is. We should also bear in mind the further possibility of extending out from such an economic bridgehead.

One is very aware that on a strictly actuarial basis that particular deal, and many others like it—I give that deal only as an example—could look particularly unattractive. But how far is there an over-rider from a trade consideration which says, "Although this looks rather tough in the sort term, if we once get a foothold we shall be able to develop and extend it and have the spates, training and all the things that go with it." I look forward very much to hearing what the Minister has to say about that matter.

8.42 p.m.

Mr. Peter Viggers (Gosport)

I had not thought to intervene in the debate. It has been an interesting debate, with speeches of a uniformly high calibre. I am sure that the fact that all the speeches have come from the Opposition side of the House and none from the Government back benches is not connected with the high calibre of the speeches. Indeed, if there had been hon. Members on the Government back benches they would have appreciated the debate and may, perhaps, have been urged to take part in it.

It must be right to give increased flexibility to our export credit guarantee system. It would be quite inappropriate to try to criticise or cavil at the manner in which the Bill seeks to do that.

Timing can cause a problem in export credit. I ought to declare an interest. I do not think it is relevant, but I shall declare it anyway. I am a director of a merchant bank which does export business. I know that timing in the preparation of documents can cause difficulty, although I pay tribute not only to the staff of the Export Credits Guarantee Department but also to the comparative simplicity of their documentation. Anyone who has sought to make his way through a National Insurance form will appreciate the nature of the export credit guarantee forms. Although the matter and system with which they deal is complicated, the forms are not too complicated.

Will the Minister comment on the manner in which multi-national companies with operations in the United Kingdom use British export credit guarantees? This is a subject upon which I cannot urge any particular views, but I want to draw the attention of the House to the fact that a number of multinational companies which operate within this country find that it is quite useful for them to use the British system of export credit guarantees rather than the system of other countries in which they operate. One suspects that there is a point here and that the British system gives certain advantages which, perhaps, may be to the detriment of the British economy as a whole, rather than to its benefit. This point needs to be followed through elsewhere.

As I have mentioned, the debate has been of a high standard. One might well have been in a non-political arena. It is with some diffidence that I lower the tone. One might have been in a Chamber in which politics did not exist. But in the area of exports the factors which are relevant are price, delivery, and certainty of performance. On price, export credit guarantees are relevant. They are not particularly relevant to delivery, but they are very relevant to certainty of performance. Not only does the exporter know that he has a certain market and a certain payment, but the customer knows that the contract has the backing of the British Government.

It simply is not good enough for a debate on export credit guarantees not to raise the major subject of the suspicion in the City of London and among exporting companies that the Government are using the system for doctrinaire purposes. I must make the point that the Government use and are seen to use a number of weapons in their battle to do business with countries they like and to discourage business with countries that they do not like. It is not good enough for the Government to hide behind a shield of anonymity on this subject. Every time the British Government behave in a selective way, it diminishes the stature not only of the Government but also of the companies which have worked so hard to build up a reputation for reliability.

One of the reasons that this country does quite well in international trade is that it is respected for standing by its word and because it is thought not to be selective in its use of measures such as export credit guarantees. It is appreciated that the Bill is a detailed and sophisticated weapon, but it is right that the cruder terms of export credit guarantees should be brought into the debate as well. I hope that the Minister will be able to comment on this.

8.47 p.m.

Mr. Tim Renton (Mid-Sussex)

My hon. Friend the Member for Gosport (Mr. Viggers) referred to speeches from the Opposition back benches as having been of uniformly high calibre, and his own certainly fell into that category. Speeches by my hon. Friends have been excellent—short in time but full of knowledge and expertise on the subject of ECGD. It is unfortunate that they have been totally unmatched by speeches by Government back henchers or by the Liberals. With their well-known interest in international trade, one might have expected some contribution from them. I am disappointed that there has been none from the Government side, because I know of at least one Labour Member who has been asking questions about the cost escalation policies to which my hon. Friend the Member for Tonbridge and Mailing (Mr. Stanley) referred, and to which I should like to refer later.

Like my hon. Friends, I should like to pay a tribute to the ECGD on the skill and the depth with which it handles the many complex problems presented to it. I too had a good deal of experience with the ECGD over the years, often at one remove. It is very good indeed on general principles. If I have a criticism it is that often, after it has given a go-ahead to a project on a general basis, when it comes down to the detailed permission on the buyer's creditworthiness and the detail of his credit, the delays start to build up.

I too must declare an interest, as a director of a London-based overseas bank whose customers, I am glad to say, make extensive use of ECGD facilities.

The Under-Secretary said that the Bill brought about a number of technical adjustments. He was being a little too modest. In some ways the Bill is more noticeable for what it does not tell us than for what it does. In fact, over the past five years, since the Second Reading debate on what became the 1970 Act, a great deal of change has taken place in the export world and in the rôle of the ECGD itself. To give just one example—the fixed interest rate offered by the banks at that time to exporters was a mere 5½ per cent. During the debate that followed considerable reference was made and compliments were paid to the clearers on the substantial subsidies that they were giving to British exporters. But there was no thought whatever, five years ago, of there being any need for relief from the Treasury.

In 1972, as the Under-Secretary said, refinancing of long-term fixed interest export loans commenced. But, again, at that time no thought was given to supplementary interest having to be paid by the ECGD to the banks. It was thought more likely that the flow of interest would be the other way. That is why, in this Bill, it is necessary to make formal legal provision for this payment of £86 million of supplementary interest to the clearers and, as we have been told, a further £20 million in the next financial year.

I was pleased to hear confirmation that the fixed interest rate now payable by exporters is a minimum of 7 per cent. As the Under-Secretary said, this can be varied upwards. The real answer is not to have a credit war but to try, on the question of fixed minimum interest rates, to have a credit peace. If this could be achieved, and if every major exporting country were to agree to jack up the basic rates further, we should not have to consider this supplementary payment to the clearing banks today, with a further provision in the year to come.

I am sure that in a world of rapidly changing interest rates and changing demands among consumer countries, it is necessary that the ECGD should be flexible. But it is equally right that the House should look carefully at what is happening. Very large sums of money are involved. My hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth) referred to the size of the tranches. Since, at the end of the day, after these three tranches have been approved, the ECGD may have total footings of over £21 billion, it is clearly right that the House should have ample opportunity to consider the figures involved. This is a matter that we may wish to refer to again in Committee.

The Under-Secretary said that the ECGD had not become an export bank. I wonder whether that is right. I have the impression that first through the bank guarantees and then through the refinancing facilities that are now extensively offered to the clearers, the ECGD has in many ways become an export bank in all but name. Let me take the House through what has happened in the past four or five years. First, we had the bank guarantees by which exporters could secure post-shipment finance to back their export credit. This was developed so that new major British firms could use this device—for want of a better word—to secure large sums with which they financed their own overseas operations without any effect whatever on their balance sheets.

The Department's liability in this field is now around £500 million. Out of this grew the bank guarantee which brought forward finance at the concessional rate of interest that we have been discussing for credits longer than two years. Both sorts of bank guarantee were and are given by the ECGD at 100 per cent. and quite unconditional to the clearing banks involved.

Out of this came bigger credit and other developments, so that we now have the ECGD giving 100 per cent. unconditional guarantees, fixing and subsidising where necessary the level of interest rates for medium-term credit, fixing the terms of these credits, and refinancing the clearers for a large part of their holdings of export paper, a refinancing commitment which appears at present to involve the Government in some £450 million a year.

In short, what was originally an export credit insurance business has in this respect developed an entirely separate wing, the growth of which depends more or less on what business on a longer-term basis the ECGD is prepared to accept.

I state the position thus not in any way to criticise the past operations of the Department's wide powers in this respect but to question on two counts whether the Department has the right controls for the future. The first question arises from the matter so well raised by my hon. Friend the Member for Hertfordshire, South-West—I hope that we shall have confirmation from the Minister on this—when he pointed out that the accounts of the ECGD do not now by any means properly represent or reflect the increased scope of the business. The cash flow accounts and profit and loss accounts of the ECGD are now totally inadequate, especially for the banking business which it is doing. For the future, we should like to see a split-down of the liabilities and assets of the Department both in terms of the market and the length of the operation, and all the other details which one would normally expect to see from what is becoming a large-scale banking business.

I go on from there to ask whether the ECGD is properly geared to act in this way as, I believe, very close to an export bank. Is the Minister satisfied that it has proper and adequate staff for the purpose, that it has the right sort of organisation, and that there is within the Department a proper financial mechanism to control the immense sums of money which it is now receiving from the Treasury or from the Bank of England?

The sums of money involved will grow larger. In the debate on the Consolidated Fund Bill on 4th December, my hon. Friend the Member for Croydon, North-West (Mr. Taylor) pointed out that the refinancing long-term fixed interest business was up from £315 million on the original Vote last year to £450 million, a rise of £135 million in one year. Plainly, with inflation and with, I suspect, a lesser growth in the money supply and, therefore, a slower growth in the banks' volume of current accounts, more business on this basis will be offered to the ECGD in future, and its volume of refinancing business is bound to grow. The finance for this will have to come out of the public sector borrowing requirement, and it is important to know that the ECGD is properly staffed to handle it and that its accounts will fully reflect the banking business in which it has become involved.

Arising from that, we want an assurance that, in judging whether to commit public funds, the ECGD will above all be guided by the commercial credit worthiness of the propositions put to it. My hon. Friend the Member for Worthing (Mr. Higgins) wanted confirmation that grants would not be used for political purposes, or, if they were, that a Minister would at the appropriate time make it absolutely plain so that the House knew.

I feel that exactly the same comment applies to any loans being made by the ECGD which are strictly in the national interest but in respect of which there is not proper commercial viability. We should have an undertaking from the Minister that on such occasions he will tell the House about it at the earliest opportunity.

I should like to refer the hon. Gentleman back to no less a person than the present Prime Minister who, when he was President of the Board of Trade, said in the Committee stage of the appropriate Bill on 8th February 1949, that no "undue hazardous" or "crazy risks" business would be undertaken by ECGD. "Crazy risks business" may not be parliamentary language, but our concern today is very real that we should have a formal assurance from the Under-Secretary or from the Secretary of State that the same constraint applies.

We have spoken tonight almost entirely about the arrangements for longer-term credit, the refinancing arrangements under bank guarantee. It is, however, worth reminding the House that it is the short-term business of ECGD—the whole turnover business—which it takes on and backs with comprehensive guarantees which forms the staple part of ECGD's business. It is the old Section 1 business, of which about £4,000 million was written by ECGD in the last year. I am not at all certain that it is right to amalgamate the Section 1 business with the Section 2 business in one overall limit. I think the House would still like to know what was the individual limit for commercial business under Section 1 and what was the business undertaken in the national interest under Section 2 or the old Section 3.

In the Scholey Report, Review of Export Credits Guarantee Department March 1972, many recommendations were made and I understand that many of these have been adopted, but this report, in Recommendation 10, specifically saw the need for modernisation of the comprehensive guarantee policy. I was interested, therefore, in the Minister's remarks that he was expecting the computerisation of the Department to be fully in operation by 1977. The computerisation will affect particularly the whole turnover or comprehensive guarantee business, and I believe it to be most important for the British export effort that there should be no delay in this computerisation taking place.

I referred earlier to the difficulties that I had found in years past in getting specific answers from the ECGD about the credit worthiness of overseas buyers. Once the computerisation is under way and there is access from the regional offices directly to the central computer, I trust that a number of these delays will be wiped out. I should like an assurance that the present constraints on public expenditure will not delay this computerisation programme. I think it is most necessary for the continued success of ECGD in short-term business.

This leads me to the question of the range of new policies being offered by the Department on both short-term and long-term credit. My hon. Friend the Member for Tonbridge and Mailing referred to cost escalation policies and I shall await with interest the Minister's further answer on that point. It should be borne in mind that if we do introduce these—and I am aware of the competition from the French which makes it a matter of considerable interest to some of my hon. Friends—it is right that the manufacturer should continue to bear a share of the escalation costs, and that the split between the manufacturer and the Department should be in the ratio of, say, 30–70 rather than that the Department should take on the whole burden.

My hon. Friend the Member for Chertsey and Walton (Mr. Pattie) referred to pre-shipment finance. I particularly endorse the remarks of the hon. Member for Northampton, South (Mr. Morris) about recourse underwriting by ECGD on the performance bonds that have to be put up by consortia. These often take the shape of joint and several liability bonds to which each member of a consortium has to put his name. This involves severe potential liability on the member of the consortium, and since in almost every case these members have separate banks it is very difficult, if not impossible, for one bank to come into the middle and put up a consortium bond on behalf of every member. It is obviously time consuming and expensive for members of a consortium to obtain cross-guarantees from each other. The amount of cover available from the private insurance market is limited, and therefore this is an appropriate area for the ECGD to examine. It falls directly into the business of credit insurance rather than banking. The sums involved are very large, but it will take British companies into those large tenders and orders for whole plants in, for example, Middle East countries where we wish to build up our export effort.

Clearly the United Kingdom has a propensity to import manufactured goods. When incomes are rising here, the country's incomes elasticity of demand for the import of manufactured goods appears to be nearly 50 per cent. higher than in France and West Germany. This can be compensated for only by a higher volume of exports.

My hon. Friends referred to the decline which is shown in the latest available statistics on our quarterly export performance. It is sad that our average annual percentage increase in exports between 1968 and 1973 was only about two-thirds that of France, West Germany and Japan expressed in dollar terms. I believe that the policies of ECGD play a vital part in helping industry to try to rectify this export gap.

I hope that the Secretary of State for Trade's pathological dislike for the Common Market will not stop his considering all means by which the ECGD can help to expand our export trade both within and without the Common Market. It is only in this manner that we shall be able to help British industry to improve its export performance compared with other manufacturing nations.

I do not urge my hon. Friends to vote against the Bill. I support it in principle, but there are a number of points that we shall wish to probe much more deeply in Committee, particularly on Clauses 1 and 3. Britain must export to live, and we wish to be sure that the Minister, with his right hon. Friend, is doing all he can to ensure an upward momentum in our exports on a completely commercial and creditworthy basis.

9.8 p.m.

Mr. Deakins

With the permission of the House, I should like to reply to this interesting and useful debate. It has illustrated the recognition in the House of the importance of ECGD's rôle in the nation's export effort. May I begin by congratulating the hon. Member for Mid-Sussex (Mr. Renton) on what I understand to be his first appearance at the Dispatch Box. He put up a remarkably impressive performance, if I may say so as one who has himself only recently been "blooded", and I hope that we shall hear a lot more from him on this and other matters. I was very impressed by his expertise, as I was by that of a number of other hon. Members who have spoken. At one stage I thought that I was the only non-banker taking part. I am grateful, as I am sure my colleagues in the ECGD will be, for the compliments which have been paid by most of the speakers to the work, facilities, expertise and general efficiency of the department.

The need for additional exports has been emphasised often enough, but I reiterate that not all exports are necessarily profitable to the country. As far as possible we must concentrate our efforts on worthwhile exports which result in as quick and large a net return to the United Kingdom as is possible. Export sales on excessively long credit and at unnecessarily low interest rates, or exports which will not be paid for, are of doubtful value when world-wide inflation is running at such a high level.

The ECGD will therefore be continuing to play its part in the negotiations to try to reach international agreement on more realistic levels of interest rates and on a reduction in the length of export credit terms. Many of those who have taken part in the debate have alluded to the desirability of taking such action. I assure them that their views on that matter are fully endorsed and shared by the Government, who are trying to take action. However, in doing so the Department's primary objective will be at all times to ensure that United Kingdom exporters continue to be able to compete on equal terms with foreign suppliers for worthwhile business.

Against the background of world-wide inflation and a rapidly changing trading situation, special and sometimes temporary measures may be necessary from time to time to maintain our effective exporting capacity and competitive position. The Government will not hesitate to take any necessary or urgent action in this direction.

A number of hon. Members have referred to the problems facing exporters and contractors involved in very large projects overseas. The problems fall into three main categories. First, there is the need for finance to meet costs during the manufacturing period when the sheer size of the contract may throw severe strains on companies' liquidity. Second, there is the increasing call from some overseas buyers—the Middle East has been mentioned—for performance bonds or guarantees which the present commercial bonding market does not seem fully able to meet. Third, there is the problem of cost increases and the difficulties which our exporters and contractors face, both in estimating price increases where manufacturing periods are long and in competing with exporters from other countries who are able to obtain some measure of protection or cost-escalation cover.

Mr. Stanley

Will the Minister make clear that it is usually impossible to obtain exports contracts unless fixed-priced contracts are offered, and it is the need to go into a fixed-price tender against inflation at home which represent the real risk to British exporters? The real exposure, if they are unable to get insurance cover against inflation, is the fixed-price requirement, which is absolute. That is what makes inflation insurance imperative.

Mr. Deakins

That is one of the most important factors which will be taken into consideration before the Government reach a decision. It is one of the factors underlying much of the pressure to which we have been subject in recent months from British exporters. The Government are well aware of the problems which have been mentioned. The ECGD and other departments have for some time been in discussion with industry and with the banks about these problems, and they are actively working to check whether there are possible solutions.

In the general area of preshipment finance the ECGD has already agreed with the banks—this was a matter that was alluded to by the hon. Member for Chertsey and Walton (Mr. Pattie)—on an outline scheme which would make pre-shipment finance available for large projects with a long construction period. As this finance would be guaranteed by the ECGD and could represent lending over and above what the banks would otherwise make, the scheme obviously presents many difficulties. In general terms it will be restricted to large projects which are regarded as having a special national interest.

The ECGD is discussing with the banks and other bodies both the extent and the nature of these problems and needs in the general area of preshipment finance. Until this has been done, possible solutions cannot sensibly be considered. Some means of trying to help are already being considered but it must be recognised that the provision of working capital has been the traditional rôle of the banks. In addition, preshipment or manufacturing finance difficulties are usually the symptoms of wider and often structural problems of liquidity and under-capitalisation. It would be wrong for me to suggest that quick, easy and wide-ranging solutions are about to be produced by the ECGD. This is a difficult area, and the problems are of such a nature that it will take time for decisions on viable solutions to be made.

The hon. Member for Northampton, South (Mr. Morris) alluded to performance bonds. The Department is drawing up a scheme of cover which should help in what has been found to be the area of greatest need—large projects. Details have still to be finalised, but the new cover should make it easier than in the past for exporters and contractors to obtain performance bonds and issue performance guarantees. But again I must stress that very difficult problems arise when the Department moves into this area, which to some extent cannot but involve the Government in guaranteeing the contract performance of individual firms.

Then there is the problem of cost-escalation cover—a subject alluded to by the hon. Members for Tonbridge and Malling (Mr. Stanley), Chertsey and Walton, and Mid-Sussex. I have frequently answered questions about it in the past, and the House is aware of the difficulties the subject produces. However, the Government are well aware of the increasing problems that the present situation is producing for exporters. The matter is in the final stages of consideration, and my right hon. Friend the Secretary of State for Trade will be making a statement about it in due course.

I now turn to the large number of individual and detailed points raised in the debate. I should apologise, perhaps, for the length of my reply on these points, but I hope that I shall be forgiven, since there were such very good speeches and nearly all who took part asked a reasonable number of intricate and detailed technical questions, apart from making general political remarks.

The hon. Member for Northampton, South asked about special facilities in the Department, possibly to help us do better in the Middle East. The Government do not think that that would be the best way of improving our export performance in that area of great opportunity. We believe that the best way of going about it is to strengthen our commercial representation in the area, which we have done, to concentrate the attention of home exporters and businesses on the tremendous potential opportunities there are in the area, and, in general, to strengthen our own internal organisation in the Department of Trade, which we have also done, in that we now have a special division devoted entirely to the Middle East.

The hon. Gentleman also mentioned the possibility of Government involvement in large projects, which are sometimes called "jumbo" projects—that is becoming the technical expression. I cannot say much at the moment on this, but we are looking at it closely, as is the British Overseas Trade Board.

The hon. Gentleman also deplored—he was the only hon. Member to do so—the demise of the British National Export Council. We have recently revised our arrangements for export promotion services. We have, we hope, added to them and improved them without substantially altering the basic structure. We have announced the setting-up of the British Overseas Trade Board Advisory Council, and hope that this will strengthen the links between the Government and the top level in industry concerned with exports.

The hon. Gentleman also mentioned that the review of the Queen's Award might not be ready just yet. I am afraid that this matter is out of my hands. A committee is looking into it. I shall do my best to see that it reports as quickly as possible, but we must await its report. I do not think that it is a matter on which my Department can help very much. The hon. Gentleman also asked about the build-up of the £86 million. Others mentioned it, so I shall deal with it later.

I turn now to a point raised by the hon. Member for Worthing (Mr. Higgins) and the hon. Member for Mid-Sussex—the payment of arrears to the banks. I should make it clear that in the Bill we are not seeking approval retrospectively for the payment of these arrears. Payment was made under the authority of the winter supplementary estimates and in the subsequent Appropriation Act. The Bill is designed to give continuing powers to prevent arrears arising in future.

The hon. Member for Worthing asked why the £86 million was not disclosed earlier. I was also asked about the comments of the Public Accounts Committee on the matter. Much of the £86 million was accumulated under the previous Government. I say that not in a partisan way but merely to make the point that this has happened over two years. I cannot say why the previous Government did not announce the losses. Equally, the report of the Public Accounts Committee did not prompt the renegotiations with the clearing banks, which started under the previous Government and which we have carried to a satisfactory conclusion. I am sure that would have been done equally by the previous Government.

The hon. Member for Worthing asked whether we should not think of distinguishing between countries, especially the richer countries. I have much sympathy with that point of view. It is a pity that we cannot insist on cash payments for exports to a number of countries which are able to pay cash down. We live in a competitive world. If there were no assurance of cash but an insistence on credit, and if that were the reason for our losing a vital contract, we could not go so far as to insist on cash. That is the present situation. With the down turn in world trade in the OECD countries there is greater rather than lesser competition among the industrialised countries for exports to the rest of the world.

The hon. Gentleman raised the possibility of obtaining an international agreement on export credit rates, so as to bring them nearer to the market rates of interest. I assure the hon. Gentleman that that is Government policy. It would be the policy of any Government in the present circumstances. But there is no telling when commercial rates of interest will come down. Therefore, it is in the interests of the taxpayer and of the international business community generally to try to put up export interest rates. However, one can only push them to the extent that the international market will bear.

The hon. Gentleman also asked why we should give credit to wealthy oil-producing countries rather than insist on cash. I have alluded to that. The best way of rationalising the position vis-à-vis the wealthy oil-producing countries must be through international agreement.

On the subject of our rates in competition with those of other countries, when export credit was offered at market rates, market rates were much lower than they are now. Overseas rates vary in different ways from ours. In general, German, Canadian and American rates are higher than ours, Italian rates are about the same, and French and Japanese are lower.

Several hon. Gentlemen asked whether we had a valid case for abolishing the separate limits in the Bill. I do not want to go into details here. I am sure that we can deal adequately with this matter, to the satisfaction of hon. Gentlemen, in Committee.

The hon. Member for Worthing asked about the financial limits and their makeup. I am advised that Clause 3 relates neither to loans nor to money. It concerns the total volume of risks or the potential liability that the ECGD can assume. The extra total of £9,000 million is estimated to last for up to five years. That is the usual practice. In 1949 the total limit was £450 million, since when liabilities have risen to £9,000 million, which is a twenty-fold rise.

Mr. Stanley

Will the hon. Gentleman confirm that though the figures that he has quoted do not represent the total cash liabilities of the ECGD but the total risk liabilities, they are also exclusive of the interest due?

Mr. Deakins

I am advised that that is the case. They exclude interest. They are concerned with capital sums.

I come to the matter raised by the hon. Member for Worthing about the amounts of export credit outstanding. In May 1974, it was £4,843 million. By November 1974, it had risen to £5,506 million. That is a fantastic rate of increase in five or six months.

The hon. Member for Nantwich (Mr. Cockcroft) spoke about our poor export performance and gave some reasons for it. He went on to speak about the necessity to concentrate on import savings by means of cheap loans. If I went into that subject, it would take me wider than the general area of debate on the Bill. But if we extended cheap loans to home industry or even just to home agriculture it would represent another very big cost to the Exchequer. In view of the size of the Government's present borrowing requirement, we would wish to avoid that.

Several hon. Members spoke about the qualities of the ECGD as insurers, compared with other insurers. It is fair to say, as a broad generalisation, that our premium is generally lower, that our percentage of cover is generally higher, and that our claims waiting period is generally shorter than anywhere else.

We cover a higher percentage of our national exports than any other country except the Japanese. Our scheme is so good that we have helped Australia, Canada, India, Pakistan, Hong Kong and even the United States to set up credit insurance scheme. Currently, we are helping Cyprus and Iran.

I turn now to a major point raised by the hon. Member for Worthing and the hon. Member for Mid-Sussex, who was kind enough to quote some words of my right hon. Friend the Prime Minister when he was President of the Board of Trade. In February 1949 my right hon. Friend said: We have no intention of trying to guarantee exporters against unduly hazardous or quite crazy risks."—[Official Report, 8th February 1949; Vol. 461, c. 259.] That has remained the policy of successive Governments. It is the policy of this Government, just as much as it was in 1949. There can be no question of the Bill's being intended or used to enable the Government to circumvent assurances previously given to the House about ECGD operations and the avoidance of unduly hazardous risks.

The purpose of Clause 1 is not to enable the ECGD to undertake the direct financing of exports. Some powers of this kind already exists in Sections 2 and 3 of the 1968 Act, as amended. By contrast, Clause 1 is concerned with giving the ECGD a clearer and therefore more satisfactory refinancing power, which enables the ECGD to make loans to persons who provide financial facilities in respect of export contracts. Those persons will almost always be banks. The clause is not limited specifically to banks, however, in case opportunities should arise to finance British exports from sources other than banks. Refinancing of such loans under this power would be no less appropriate and possible than under bank lending.

I turn to the speech of the hon. Member for Hertfordshire, South-West (Mr. Dodsworth). He talked about the need for a proper accounting system and accounts presentation. I shall return to that presently, because another hon. Member referred to it. However, we are well aware of it and of its importance.

The hon. Gentleman was also worried about the higher limits. We can have an interesting and, I hope, useful discussion in Committee about the necessity for them.

Then the hon. Gentleman referred to the need to have some relationship between export credit interest rates and internal interest rates. Here again, if we were to try to bring the two closer into line it would not help in the safeguarding of public expenditure or, for that matter, of taxpayers' money. It would involve the ECGD in doing something which it has no power to do.

Mr. Dodsworth

I accept that when we are raising capital for finance for industry, for example, it may be a more suitable application of Government funds to ensure that investment is aided on an import-saving basis rather than a general basis. I am suggesting that there is an illustration in the shipbuilding industry of that happening already, and that the Government might explore it.

Mr. Deakins

I am grateful to the hon. Gentleman for saying that. On that aspect of export credit and internal credit he is preaching to the converted. I personally believe that we should move away from the general macro-economic approach in many areas, particularly in helping exporters and in enabling our industry to re-equip itself so that it competes more effectively in world markets. I hope that in the next few years we shall move on to a much more selective basis, and that will probably meet the hon. Gentleman's point.

The hon. Member for Worthing spoke about flag discrimination and the use of ECGD facilities in that connection. That problem, if necessary, can be examined in Committee, but the Government's position remains the same. To condition the Department's guarantees in that way would be an unacceptable use of the Department's facilities. Credit insurance should not be used as an instrument to fight flag discrimination. That is a matte: to be dealt with in normal trade negotiations.

The hon. Member for Chertsey and Walton referred to interest rates on exports under Section 2. In no circumstances should we encourage exports which will be a dead loss to the balance of payments and the Exchequer. If the hon. Gentleman does not mind, I should prefer not to make any public comment on the specific deal he mentioned, which has been under fairly detailed consideration.

I certainly accept that we have to weigh up the balance of trade considerations against other considerations, but in the present state of the national economy and with our balance of payments deficit and the likely expected deficit over the next couple of years, increasing our exports and ensuring that we get paid for them must be priority number one for any Government. Therefore, if the possibility should arise of doing a deal which will not benefit the balance of payments we must look askance at it, consider it in a detailed way and perhaps even decide not to do the deal, although there may be a possibility that some of our competitors will be tempted to do it. Our national economy cannot stand the strain of deals like that.

The hon. Member for Gosport (Mr. Viggers) spoke of multinational companies which were using our ECGD facilities. We are happy that multinational companies operating in this country should use our ECGD facilities. As long as they are exporting we want to encourage them to go on exporting. If they want to set up manufacturing plants in this country, those plants, like native British firms, will have access to all ECGD facilities.

The hon. Member for Gosport also suggested that the Government were using ECGD facilities for their own purposes. I give him a categorical assurance that that is not so. My right hon. Friend the Secretary of State for Trade, has already given assurances to the House in this connection. The matter arises in connection with so-called sensitive markets, and several questions on this subject have been asked in the past few months. The hon. Member for Tonbridge and Malling pursued it not long ago. I repeat my right hon. Friend's assurance to the right hon. Member for Stafford and Stone (Mr. Fraser), when he said: I am happy to give the right hon. Gentleman that assurance. If, with my colleagues, I decide to restrict ECGD transactions in relation to particular countries, I have no doubt that I shall want to make a statement to the House about that. He went on to say: The right hon. Member for Stafford and Stone (Mr. Fraser) made the perfectly reasonable request that if we made changes in ECGD we should inform the House. I shall be glad to do that."—[Official Report, 10th June 1974; Vol. 968, c. 1208.] I hope that these assurances are considered satisfactory by the hon. Gentleman who raised the subject.

Mr. Viggers

In view of the importance of this matter, I am most grateful for the Minister's categorical assurance.

Mr. Deakins

The hon. Member for Tonbridge and Mailing raised a number of points. He asked whether the overall rate should be kept under review. I can tell him that we keep the overall rate under review, as, indeed, we keep under review all other aspects of ECGD operations.

The hon. Gentleman asked about the taper of the agreed refinancing rate. I confirm that the maximum margin is 1¼ per cent. The taper runs from 1¼ to ½ per cent. The minimum ½ per cent. margin applies when the agreed rate is 14½ per cent. or more.

The hon. Gentleman also asked about the commitment fee, and said that it was higher than that of our international competitors. I can inform the House that the commitment fee was taken into account when the arrangement was drawn up. It recognises that the banks earmark funds up to the total of the ECGD facility. Some such charge figures in overseas banking transactions. Their charges may be lower than ours, but our credit insurance premium charge is generally lower than that of our creditors.

The hon. Gentleman then mentioned the extension of the scheme to non-clearing banks. I do not wish to say too much about that matter in detail, but a possible extension of the refinancing scheme to non-clearing banks is under active consideration. This raises problems of compatibility between existing arrangements and any extension.

Mr. Stanley

I do not want to draw the Minister too much on what is obviously a delicate commercial matter, but his last remarks presumably refer to the fact that the 18 per cent. ratio on current account balances would not be applicable to non-clearing banks.

Mr. Deakins

That is one factor which has to be taken into account and it is making the task of extending the facility to non-clearing banks rather more difficult than was envisaged.

The hon. Gentleman asked about the disclosure of premiums. Disclosure abroad is not automatic. We have had experience of the fact that difficulties arise over demand by foreign buyers for disclosure. Therefore, we prefer at present to stick to the generally accepted practice of not disclosing the amounts of premium which reffect our assessment of the risk involved. We do not think that it would be in our export interest to alter the situation. Insurance premium forms part of the contract price and I am not aware that this gives rise to uncertainties.

The hon. Gentleman referred to the public expenditure White Paper. The figure of expenditure which he quoted represents the balance between new loans and repayments and also the balance between the contribution of the banks and the contribution by the Government. They also are at 1974 prices, with no allowance for inflation. This explains why the Government's annual expenditure is expected to go down while the total amount of export credit outstanding will go on increasing.

I should like to turn to the points made by the hon. Member for Mid-Sussex, who concluded the debate for the Opposition. The whole House will share his hope that we need a period of international credit peace, not credit war. I assure him that the present Government are striving for that aim in every available international forum, of which there are a number.

Several hon. Gentlemen referred to the subject of the ECGD accounts. Following the Scholey Report recommendations, we have revised our accounts substantially in a way which has already been referred to. I do not want to delay the House on that point now, but perhaps in Committee we shall have an opportunity to go into it in more detail.

The hon. Member for Mid-Sussex asked whether our organisation, staffing and financial control were satisfactory. I said earlier that the ECGD was not perfect, but in so far as we keep a constant look-out for what our competitors are doing and for what our City and other business advisers tell us we ought to be doing, we are in control of the situation and flexible enough to adapt when the need arises.

The hon. Gentleman also asked for assurance that there would be no delay in computerisation. I can assure him that we in our Department shall resist strongly any attempt to delay computerisation, but I do not think there will be any such attempt.

I have dealt with most of the points that were raised by the hon. Gentlemen opposite. If I have not covered every point I apologise, but I am sure there will be an opportunity in Committee to return to these matters.

The ECGD will certainly face a number of challenges in the coming years. Continued negotiations in the EEC on the form of export credit insurance, negotiations on export credit terms with our major exporting competitors and in the OECD, and participation in the activities of the Berne Union will involve the Department in important and demanding discussions. The changing world economic situation will undoubtedly affect buyers in many countries, as well as firms in the United Kingdom. Any increase in claims and related problems in assessing buyer and country risks cannot but make the Department's work that much more difficult. At the same time, extensive computerisation, which has already been mentioned, will be taking place and planning of the partial dispersal to Cardiff will be reaching its final stages.

All this will put a considerable strain on the ECGD, but it has dealt successfully in the past with many difficulties and I am sure it will do so again. The new powers proposed in the Bill are technical amendments to the ECGD's powers, which will enable it to carry out its funtions more satisfactorily.

The ECGD has often been a pioneer in the export credit insurance field, and, as I have noted, has helped many countries in the establishment of their own schemes. Its package of facilities stands comparison with those of its competitors and it is our firm intention that this should continue to be the case. The Department should have the ability to react speedily and flexibly to the changing export situation and it is our aim that it should have the powers and the resources to do so.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).