HL Deb 16 May 1957 vol 203 cc881-90

4.27 p.m.

Order of the Day for the Second Reading read.


My Lords in asking your Lordships to-day to give a Second Reading to the Export Guarantees Bill, which, although it is a small Bill, and a certified Money Bill at that, is one of considerable importance, I am sorry to say that it is also one that is somewhat complex and technical in nature. I will do my best to be clear and brief at the same time. As your Lordships know, the Government have been actively engaged in the field of credit insurance for some forty years and the Export Credits Guarantee Department has been a separate Department for twenty-seven of those years. I shall a little later on call your Lordships' attention to how successful it has been.

I think your Lordships would wish me to give some indication of the methods by which the Department operates, and indeed I think it is most important that I should do so as clearly as possible as it has a direct bearing on the Bill that we are discussing to-day. If I seem rather to stress this explanation, it is because, as your Lordships will see, it is very necessary to obtain a proper understanding. The statutory authority for the Department's operations is the Exports Guarantees Acts, 1949, 1951 and 1952, of which the Act of 1949 is the main one. It provides for two classes of guarantee: the commercial guarantees given under Section 1 and the special guarantees given under Section 2.

The Section 1 guarantees, as I have said, are the commercial ones and are given in connection with the export of goods, services and so on, to encourage the export trade. We are not in fact concerned to-day with this section, which is operating happily, but it was necessary for me to mention it in order to mark the difference between it and Section 2. Section 2, with its special guarantees, is really subdivided into two parts. Its purpose is, first, to encourage the export trade with places outside the United Kingdom in a similar way to Section 1 but where the desirability of conducting a particular operation is dictated more by considerations of the national interest than by purely commercial factors. In other words, there may well be cases where the Advisory Council would not wish to recommend that they should be undertaken on a strictly commercial basis although the cover of such business would be very much to this country's advantage.

The second subdivision of Section 2 is the rendering of economic assistance to other countries. I think I must clearly qualify this way of putting it because I do not mean that the Department has a kind of philanthropic function; I mean that it is intended to enable other countries to buy British goods and services when they need to. At the present time the maximum liability which the Department may incur under Section 2 is £150 million. At April 30 this year the liability actually incurred was £72 million, but—and this is the important part—there are contingent liabilities of £65 million. It is quite clear, therefore, that if these contingent liabilities were all taken up the Department would be very close to its statutory limit, and therefore I can now come on to Clause 1 of the Bill which applies to this aspect. It simply proposes that the limit under Section 2 should be raised from £150 million to £250 million. I think it is perhaps unlikely that all the contingent liabilities I mentioned will be taken up, but it is most essential that we should safeguard the position to avoid the risk of bringing the Department's operations under Section 2 completely to a standstill.

If this were to happen the effects might be very serious, because, for instance, at the present time only very limited cover is being offered for exports to certain Middle East countries, but we might easily wish in the near future to pave the way for considerable increases in this way. There is also the possibility of large dollar orders which, for one reason or another, may not come under Section 1 of the Act and which we might run the risk of losing if the Department were no longer able to work under Section 2. I must make it clear that the Department is not asking for permission to spend money but only to incur liabilities. There would be an expenditure of money only if the transaction resulted in loss to the exporter and the guarantee had to be implemented. I should like to stress that in the eight years since the special Guarantee Scheme was introduced, the Department has more than covered its claims by the premiums it has earned and there has been no net expenditure of public money.

May I now turn to Clause 2 of the Bill? This deals with Section 3 of the Act of 1949. I have not previously mentioned this section because it is not like Sections 1 and 2, which are what I might call the operative sections of the Act. Section 3 provides a method of implementing those two sections, and it is in the sense of its application to Section 2 that it has been brought into the Bill that we are considering. It provides that the Department may acquire securities which it has guaranteed. This power is needed and has been used to give the economic assistance I mentioned to other countries requiring it for the purchase of British goods and services. The procedure is that the Department guarantees and acquires securities, which are usually promissory notes issued by the overseas Government, and the proceeds are then paid into a special account from which the British exporters are themselves paid.

Unfortunately, in connection with the agreement in 1954 with Pakistan, it appeared that the legality of the procedure that the Department was adopting was possibly doubtful. It seemed that the Department was giving its guarantee after it had acquired the promissory notes, and was, therefore, in effect, guaranteeing securities it had acquired rather than acquiring securities that it had guaranteed. A procedure was then devised which would comply with the legal requirements, and, while I can assure your Lordships that what is being done is quite legal, it is an untidy and highly artificial manner of doing it. The answer is in Clause 2, which is purely and simply a matter of procedural straightening up. The clause is so designed as to remove the artificiality of the present procedure and to clarify the Department's power to enter into these economic assistance Agreements which have a double importance from both the political and the export point of view.

I do not think there can be any doubt that the basic intention of Sections 2 and 3 of the Act was to enable the Department to provide such assistance to other countries by making loans tied to purchases of British goods and services. As a result of this amendment of procedure, the Department will, in future, simply acquire the security from the issuing Government, and there will therefore be no change in the substance of the procedure, while the acquiring of the security will still be related to an approved export transaction.

If I may go on with Clause 3, I would point out that when the Department operates one of these economic assistance agreements, it borrows money from the Consolidated Fund at a rate which is fixed by the Treasury by reference to current interest rates. It lends it to overseas Governments at another rate, and the difference between the two rates normally represents a small premium for the benefit of the Department. There were agreements with Pakistan and Iran in which the rate to be paid by those countries was fixed at 4 per cent. Since then the rate charged to the Department by the Treasury has risen to 4¾ per cent., and for the next two or three years there will be, on this basis, a deficiency in the particular fund called the "Acquisition of Guaranteed Securities Fund" through which the Department operates the economic assistance agreements. I said that, taken overall, the Department has maintained solvency and there has been no expenditure of public money. But there is, unfortunately, no provision for meeting such a deficiency written into the main Act of 1949. It is, in fact, a most technical point, and it seems that the only solution is that the deficiency should be defrayed out of monies provided by Parliament. This is what is done in Clause 3.

I should again like to make it clear that it is estimated that there will still be no net cost to public funds because of this deficiency. I should also like to say again that this applies only to agreements already entered into, and it is estimated that it will involve the sums of £22,000 in the current financial year and £5,000 in 1958–59, and will have dwindled to nothing in 1959–60. It is, therefore, perhaps not an enormous affair, and it is certainly the intention to avoid any such deficiency in the future by linking the rate of interest in any fresh agreements with any variations that there may be in the rate of interest charged by the Treasury. Clause 4 merely seeks to repeal a previously amended subsection which increased the limit on Section 2 guarantees from £100 million to £150 million; and with the new limit increased to £250 million this subsection is no longer needed.

I hope I have said enough, and said it sufficiently clearly, to commend the Second Reading to your Lordships. I hope I have succeeded in making clear the valuable and successful work which the Department has been carrying on and the fact that the Bill provides nothing more than technical measures to assist and further that work. We realise that the Department is not the only pebble on the export beach and that there can be no relaxation in other ways to promote the export drive. The work of the Department is, however, of great value; and if the noble Lord, Lord Lucas of Chilworth, will allow me, I will borrow some words of his when he stood at this Dispatch Box and piloted the Act of 1949 through your Lordships' House. He said it was [OFFICIAL REPORT, Volume 160, col. 1150]: … a wonderful record and a great tribute, not only to the officials of the Department but also to the manufacturers and exporters of this country. I believe that this wonderful record has been maintained and that the sentiments which the noble Lord then expressed can fairly be echoed to-day. So that we may continue that work, I ask your Lordships to give a Second Reading to this Bill. I beg to move that the Bill be read a second time.

Moved, That the Bill be now read 2a.—(Lord Chesham.)

4.41 p.m.


My Lords, surely the noble Lord who has moved the Second Reading of the Bill deserves a word of congratulation on the lucidity and brevity with which he has dealt with a highly complex subject. I would also offer him a word of congratulation on the careful and naive way in which he dodged one or two uncomfortable issues—which shows that in presenting this kind of "covering up" process to your Lordships' House he is acquiring a skill which I must say excites my admiration. First, let me repeat, perhaps in words different from those of mine which the noble Lord quoted from so many years ago, that I think the Export Credits Guarantee Department has always deserved the highest possible praise as being a financial and business department which has, perhaps, done more than anything to increase the export trade of this country. Its work is commendable and deserves the highest praise and congratulations.

If the Department has slipped a little from the strait and narrow path now and then, let us say that it was only in its zeal to work for the country's interest, and not with any malice aforethought; because, after all, one little thing that it has had to do, as the noble Lord said with most charming candour, is to have a little retrospective legislation to make an honest woman of itself for the sins it has committed. It should not have done it; but, as the noble Lord has said, it was only a little sin; and in the light of the Department's outstanding success, I am prepared to forgive it.

There is one matter I shall not quite so readily forgive. I hope it may be a lesson to the Treasury and, perhaps, to Her Majesty's Government. An increase in the bank rate has a rather boomerang effect, so that when a Department such as the Export Credits Guarantee Department have to lend money at a lower rate than the Treasury will let them borrow it, then, of course, they have to come to Parliament for the difference to be made good, even though it is quite a trifling amount. Let that be a lesson to the Treasury not to manipulate the currency and the bank rate in that way, for it not only catches industry; in this case it caught the Export Credits Guarantee Department. Those are two minor points.

A major subject on which I should like to say a brief word is that I sincerely hope that the noble Lord will have to be a regular visitor to that Dispatch Box asking for more money, for I am hoping that our exports are going to increase, especially in those countries where, as the noble Lord has said, Section 2 of the original Act affords what is really "political cover"—cover which does not have to go before the Advisory Committee, but which it is necessary to give our industries, let us say, in the national interest. I very much regret that the noble Viscount, Lord Elibank, is not here this afternoon. He might have had a good deal to say about the desirability of developing our trade with Iron Curtain countries, and particularly with China. I hope that when the Government come to their senses and lift the entirely artificial embargo now imposed on trade with China, the Export Credits Guarantee Department will come into its own and be able to advance considerable sums of money under Section 2 of the original Act.

Perhaps it would be trying your Lordships' patience if I went on with a discussion on the unfortunate Chinese embargo, but all we are doing at the present time is to deny a lucrative market to our own exporters, without bringing to bear on the Chinese that pain and pressure which some people feel should be brought on them; because America is just taking our market. I hope the noble Lord will draw the attention of his right honourable friend the President of the Board of Trade to the many protests that have been made in your Lordships' House in recent months. Let us be realists in this. I am not going to say that this embargo is applied at American dictation, or that America persuaded us to stay out of the Chinese market for the express purpose of going in themselves, but what is happening is that our competitors, including America, are going in. To me, that is not very good business. But I will not I go on with that.

There are two other matters on which I should like to comment. Before we came into the House the noble Lord was kind enough to give me an informative pamphlet and I passed a profitable quarter of an hour in reading it. I am delighted to see that the Department will now give cover as high as 95 per cent. on the invoice price, whereas I believe a few months ago there was an 80 per cent. limit. I should like the noble Lord to see whether it can be arranged for the period of cover to be increased. I believe the present limit is ninety days. In the special circumstances, especially as we all want (I think here I echo the wishes of Her Majesty's Government) to increase our trade with Iron Curtain countries, cover up to ninety days is sometimes not as long as is advisable.

I can find nothing more to criticise, for I am wholly in support of the activities of the Export Credits Guarantee Department, and the noble Lord has been so full and lucid in his explanation that I am left with nothing more to say, unless perhaps your Lordships will allow me to repeat my thanks to him for the manner in which he presented the Bill to the House. We on this side will have nothing further to say except to expedite the Bill's passage on to the Statute Book.

4.50 p.m.


My Lords, I, too, should like to congratulate the noble Lord, Lord Chesham, on the clear and full account he has given of this Bill. I should not have intervened but for the fact that within the last few days two matters have been mentioned to me which have a bearing on this Bill and which. I think, are deserving of some notice. I am not now referring to Clause 1, which is the ordinary commercial form of guarantee, whereby a Government Department takes commercial risks in return for a premium and, fortunately, has made a profit as a result.

In the course of this week I have been told of the complaints, if I may so call them, of one of the heads of one of our Commonwealth partners. He said, according to my informant, that he did not understand why other countries could tender for contracts which were being entered into in his particular country—such countries as Germany, France and Italy were prepared to tender—but there were no tenderers from this country. In this particular case, the man to whom I am referring said he would have preferred English tenders because he understood the mentality of Englishmen and their methods of trading. I can understand why, perhaps, there is some hesitation on the part of English contractors to enter into these particular contracts. Therefore, I am rather hoping that the power which is being sought under Clause 2 of the Bill will enable the Government—even, perhaps, where the risks are not commercial risks—to encourage the obtaining of these contracts, even if, perchance, there should ultimately turn out to be a loss.

The other matter I wish to mention is this. Explorations are taking place in different parts of the world for the purpose of locating valuable ores, and the cost of that exploration, as noble Lords will understand, is very high. It may be that, in order to encourage greater exploration for these ores, risks may have to be taken which, although again, they may not be quite commercial risks, it is in the national interest should be taken. If the powers sought in this Bill enable the Government to further the commercial interests of the country and to obtain for the country the political advantages which that kind of commercial interest would bring about, I think it is right that the Bill should have every encouragement. I have much pleasure in adding my words of approval, minus criticisms, to those of my noble friend Lord Lucas of Chilworth.

4.53 p.m.


My Lords, I feel that I must first thank noble Lords opposite for their kind words. In particular, I must thank the noble Lord, Lord Lucas of Chilworth, because to hear such words coming from him gives me the greatest possible personal satisfaction. I think the noble Lord is most kind. I should like also to say how much I appreciate such good-natured forgiveness of only a very small sin. It is, I think I may say, a small sin, but it is one of some long standing during the time of successive Governments. So far as the implied criticism—again genial—of the bank rate policy is concerned, I think this small setback is a very small price to have to pay for a policy which has had such a good effect on the nation's finances. I hope, also, that I, or some other noble Lord, may come back here to seek further increases in the liability, just as noble Lords opposite have said.

It is the intention of Her Majesty's Government and of everyone to lend all possible aid (and to a certain extent this will, I think, cover Lord Greenhill's question) to the promotion of exports, in whatever direction they may go. I think the Department's attitude in this matter has always been quite sufficient to indicate that it will press—I was going to say every possible loophole, but since one cannot press a loophole, perhaps I may say that it will explore every avenue, and so on, in order to increase exports in every way. With regard to the question of China, naturally I join with the noble Lord, Lord Lucas of Chilworth, in regretting the absence of the noble Viscount, Lord Elibank. Lord Lucas of Chilworth said that we should probably have heard a great deal from the noble Viscount on the subject of China if he had been here. No doubt we should. It is, of course, a complete digression from the contents of the Bill; it is a matter arising out of the application of the Bill and is in no way concerned with the substance of it. I would assure your Lordships that every effort is being made to increase exports generally. I will certainly convey the words of noble Lords to my right honourable friend, and I hope that progress will be made in all directions—not only that of China.

Lord Lucas of Chilworth asked me two questions. With regard to the increase in cover to 95 per cent., I would point out that it was previously 90 per cent., not 80 per cent. As to the ninety days' cover which the noble Lord mentioned, there is nothing particularly magic about that figure: it can, for instance, be two years if required. It is quite a flexible figure. The ninety days is taken merely as being more or less what is usual in the trade. I have no more to add and I hope that you will now give the Bill a Second Reading.

On Question, Bill read 2a: Committee negatived.