HC Deb 15 April 1991 vol 189 cc68-72
Mr. Michael

I beg to move amendment No. 3, in page 1, line 21 at end insert— '(3A) The Secretary of State shall ensure that arrangements made under this section are in general no worse in terms of both scope and cost in comparison with those available to persons carrying on business in other OECD countries.'.

Mr. Deputy Speaker (Mr. Harold Walker)

With this it will be convenient to take amendment No. 7, in clause 8, page 5, line 31, at end insert— '(5A) Any arrangements made under a scheme under this section shall in general be no worse in terms of both scope and cost in comparison with those available to persons carrying on business in other OECD countries.'.

Mr. Michael

The amendment would require the Export Credits Guarantee Department to provide export support facilities to United Kingdom exporters at a level and cost equal to or better than the facilities available to overseas competitors. The Secretary of State would have the responsibility for ensuring that that was the case. Would Conservative Members speak or vote against that simple principle? The amendment is intended to establish a level playing field for United Kingdom exporters. Clearly, it would be useful for United Kingdom exporters to be able to tackle the Government if, in their view, the Government failed at any time to provide export support equivalent to that which their rivals were receiving from their Governments or, arguably, from anyone else, although real export support can come only from Governments because they are the only entities likely to subsidise exports.

The Government frequently use the phrase "level playing field", but they usually mean that they intend to tilt the balance against someone in our society. In this case, the measure tilts the playing field against British exporters. The amendment seeks to restore some fairness to British exporters within the legislation.

Amendment No. 7 follows a similar approach. It says that arrangements should be made which are no worse in scope and cost in comparison with those available to persons carrying on business in other OECD countries. Exporters, especially with a current export turnover of less than £1 million, are becoming increasingly worried that privatisation of the Insurance Services Group will result in large premium increases. That is not a new point. It was made in Committee and we have strong evidence from exporting companies of the nature of their fear. They fear that high premiums will place them at a competitive disadvantage with their European Community counter-parts, which will continue to have the benefit of direct support from their Governments.

The privatised company will not be required, as ISG is, to operate on a break-even basis, because profits to shareholders will be the primary motive of its owners. During the passage of the Water Bill through Parliament, we were continually reassured that any private company established as a result of the Government's action would behave in an uncharacteristic manner and would not be interested in the profit motive of its owners. We now know the truth of that matter. The Opposition, not the Government, had it right.

Additionally, the company will be subject to increased costs in the areas of taxation, including VAT, interest on borrowings, Treasury management, reassurance, on payment of dividends to the providers of capital, and on payment for professional and technical services, including taxation advice. All those costs will need to be met through increased premium income from exporters.

We fear that ISG may also incur higher salary costs, although that may be offset by lower staff numbers. The increased costs may be balanced by an increase in interest earned on cash surpluses and investments outside the Consolidated Fund. Reinsurance costs may be balanced by reinsurance benefits. However the new company will require additional professional and technical services, such as taxation advice.

The ISG will also have to recruit new skills into the management teams, such as reinsurance, Treasury management, company secretarial and taxation capabilities. The company will need to remain profitable after bearing all those additional costs. That is the degree to which the playing field is being tilted against exporters by the change that is being introduced.

I remind the House that the Kemp review into the operation of the department made great play of the requirement for a level playing field between official and private export credit insurers in the European Community —the perceived advantages enjoyed by the official credit insurers should be removed and complete parity should be introduced.

The level playing field argument is being pushed by private sector insurers, such as Namur, the Belgian insurer, whose case is before the European Court of Justice, and which is claiming that the European Commission has been dilatory in relation to the first non-life insurance directive, which currently exempts official credit insurers and Trade Indemnity, the current department's major rival in the United Kingdom.

However, in that report Mr. Kemp recognised: the arguments about a level playing-field do not all run in one direction. The state insurers generally provide a much wider scope of cover than do those in the private sector, many of which focus on a fairly narrow area of specialisation in which they are confident of operating profitably. The state agencies, on the other hand, have a responsibility to support national exports generally and a constitutional duty to treat all applicants equally. For these reasons, they regularly have to provide cover for risks or to types of clients that the private sector would reject as not commercially interesting. Advantages such as freedom from corporation tax enjoyed by the official agencies could be seen as no more than reasonable compensation for the more onerous duties laid upon them. As a matter of fact there is no evidence that the official agencies are regularly and significantly undercutting the private companies in prices at the present time. I draw attention to the words: have a responsibility to support national exports generally and a constitutional duty to treat all applicants equally. Is that not something that we in the House would wish to continue following the privatisation of this part of the Export Credits Guarantee Department?

The amendment is concerned with the fact that privatisation will mean that there will not be a level playing field on which United Kingdom exporters can compete with other EC exporters. The ECGD is curtailing its support for short-term exports at a time when none of the department's major EC competitors is moving that far. All of the United Kingdom's major EC competitors are retaining, at the very least, their reinsurance back-up for private or quasi-private export credit insurers. Exporters in many EC countries will therefore continue to have the benefit of direct support from their Governments and United Kingdom exporters will be at a competitive disadvantage, as even the proposed limited United Kingdom Government support, by means of reinsurance and national interest support, will cease three years after privatisation.

Our plea, in these two amendments, is to play fair by British exporters and to allow them to be supported in the same way as our competitors in Europe will support their exporters. We plead with the Minister to accept these amendments and not to press ahead with his declared intention in Committee to place our exporters at a competitive disadvantage.

Mr. Sainsbury

To hear the hon. Member for Cardiff, South and Penarth (Mr. Michael) speak one would think that the Government provided no support to exporters. I hope that he was listening to what I said and that he appreciates that a considerable body of support is provided.

I was somewhat amused, in view of the hon. Gentleman's protestations about the importance that he and presumably his party attach to this issue, that at one moment during his eloquent address there was not one single member of his party on the Benches behind him. Now he has been reinforced—effectively, I am sure—by the presence of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins). However, I would fear for British industry if that were a reflection of the Opposition's interest in these issues.

The amendments that the hon. Gentleman has placed before us would mean that the ECGD would not only be required to give medium or long-term coverage to any country for any project where another OECD country was willing to offer cover for a project, but that the facility to the new company would have to be provided irrespective of the cost and degree of financial risk. In effect, the ECGD would have to give cover on terms as good as those offered by any of the other 23 OECD countries.

As I am sure that the House will be aware, most member countries of the OECD, for a variety of reasons, want to be especially helpful in making export credit available to certain other countries. Their desire to be especially helpful to those countries with which they have traditional close links may show in the extent to which they make cover available in the first place, or in the terms under which it is offered, or both. It would not be sensible to require ECGD to match every competitor in every market all the time. Certainly, no one else does that at present or is ever likely to do it.

Nevertheless, it has been a longstanding policy of successive Administrations that where ECGD is willing to offer cover, it should match the length of credit available from other official agencies when United Kingdom exporters are competing for a specific project. That is an example of the sort of support that the hon. Member for Cardiff, South and Penarth overlooks, because under the fixed rate export finance arrangements —which, interestingly, were introduced in 1972 by the then Minister for Trade and Consumer Affairs, who, as some of my hon. Friends will recall, was my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe)—the ECGD is able to support United Kingdom banks in the provision of export finance to overseas buyers of capital goods and projects sold on credit terms of two years or more in accordance with the terms specified in the international consensus. In practice, that means that the ECGD offers similar terms to other export credit agencies.

Meanwhile, the ECGD has introduced a portfolio management system and changes in the way that it calculates premium rates for project business. In future, rates should better reflect the quality of risk. Premium rates will fall for the better-quality risk, while they will rise for the worst risks.

Looking further ahead, increasing consideration is being given to the general agreement on tariffs and trade regulations, which require that premium rates for export credit insurance should cover the cost of administration and claims.

Only last Friday the OECD export credit group welcomed a paper which has been prepared by the ECGD on that subject. It is now clear that the campaign to eliminate subsidies from premium rates charged by official credit insurers is firmly on the agenda. The expectation must be that we shall be increasing pressure to that end, and that progress will be made steadily to reduce and eliminate subsidies.

In the past, I have no doubt that risks have not been sufficiently differentiated in premium terms and the changes now being introduced will mean that there will be increases—some large—in the riskiest markets. However, ECGD has found that exporters would prefer that some cover is available rather than no cover and price will assist availability.

I stress that premium rates are not being increased to recoup the ECGD's past losses. Perhaps the increases to which I referred should be put into perspective. If we take the ECGD's current average premium rate for project exports—long-term exports—of 5 per cent., a premium increase of up to 15 per cent. would add only three quarters of 1 per cent. to the export price. Other cost increases—increases in the cost of wages and raw materials, for instance—are therefore likely to be much more significant, especially if the long manufacturing delivery period associated with such exports is taken into account.

The drafting of amendment No. 7 shows the same lack of precision as that of amendment No. 3. It would not be realistic, for short-term business any more than for long-term business, to compare the terms and conditions on which cover is made available between the various schemes offering short-term cover.

I believe that the competitive pressures that result from privatisation—which is opposed so strongly by the hon. Member for Cardiff, South and Penarth—will ensure that the exporter is offered a steadily improving service, and that the company will offer a wider range of facilities, on terms that are attractive to its customers; that includes prices. The amendments are neither sensible nor practicable, and I urge the House to reject them.

7 pm

Mr. Michael

The Minister said that it is "neither sensible nor practicable" to make arrangements that are, in general, no worse in terms of both scope and cost than those available to persons carrying on business in other OECD countries. What an admission of failure that is. I note that during his speech few Conservative Members were present. [Interruption.] Welcome back to school. What those Conservative Members have in common is that not one was listening to the Minister's speech. I am glad to note that they are, at least, listening to mine.

Characteristically, the Minister chose to ignore the case that has been made out to him—to ignore the interests of exporters, and to answer a different debate from the one that we had instigated. I did not say that his Department gave no support to exporters; what I do say is that the Government and the Minister give them inadequate support, and that the Bill will diminish that support. The Government are failing to give our exporters the support that our competitors are giving theirs. It is for that that the Minister stands condemned tonight.

We shall seek to withdraw our amendment tonight, because it—and amendment No. 7—will be pursued in another place. We shall, however, proceed to a vote on Government amendment No. 16, and it will be interesting to see whether any Conservative Back Benchers vote with the Opposition to seek to protect the interests of exporters in the United Kingdom.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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