EXPORT GUARANTEES BILL (Hansard, 16 July 1959)

§ THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)
My Lords, I do not think I need take very long in explaining to your Lordships the purpose of this Bill, which is simply to raise the maximum liabilities permitted to the Export Credits Guarantee Department under the Act of 1949 as amended in 1952 and 1957. Before 1949 the only business of the Department consisted in insuring British exporters against the risk of not being paid, on ordinary commercial principles, and that is still the larger part of the Department's business.
In the 1949 Act the limit which the Department was allowed to guarantee on this commercial insurance business (that is, business under Section 1) was fixed at £500 million, and in 1952 it was raised to £750 million, which is still the limit. But if we take the Department's actual and contingent liabilities together at the present moment we see that they are coming very near indeed to that limit. On June 30 of this year, which is the latest date for which there are figures, their actual liabilities were £553 million and their contingent liabilities over £189 million, making a total of over £742 million. This is within £7½ million of the permitted limit, so that it will obviously have to be raised if the business of the Department continues to expand. We have taken the figure of £1,000 million as a convenient round number, which will give a margin of £250 million over the existing liabilities.
The reasons for the increase in these liabilities are probably fairly numerous. One, I think, is the change from a sellers' market to a buyers' market, which means that a great many commercial contracts now have to be arranged on the buyers' terms, which often means a much longer period of repayment, and naturally the exporter is therefore more anxious to protect himself against future risks of default. But another reason is that the Department itself is spending £20,000 a year on advertisement; it does everything it can to advertise itself and to bring its business to the notice of British exporters because we believe that that is very much to the advantage of British trade.
144 All this Section 1 business (that is, the commercial business) is done on the advice of the Export Credits Advisory Council. That is a body of about sixteen persons: Sir Geoffery Gibbs is the Chairman and the members are all people of standing and ability in business or commerce. The Department submits all proposals for insurance to their judgment and acts on their advice. They do not receive any remuneration and the Government are grateful to them for this public-spirited service.
Section 2 of the 1949 Act sets the upper limit for "national interest" business at £100 million. That was raised to £150 million in 1952 and to £250 million in 1957, £250 million being the present limit. The business done by the Department under Section 2 of the Act is of two kinds. One is insurance involving "special guarantees" for insurance business in cases which are not considered to be commercially justifiable because the risk of non-payment is too great. Therefore, they cannot be recommended by the Advisory Council, and they cannot be dealt with under Section 1; but they can be dealt with under Section 2 if the Department and the Government consider that, in spite of the risk, it is nevertheless in the national interest that the transaction should be covered. For instance, it might be thought that, in spite of the risk of non-payment, if you take a long view of the future of British export trade it would be a very good thing that the particular contract in question should be accepted and given to a British firm; and on that ground it might be covered under Section 2 of the Act. The amount of outstanding liabilities in respect of these special guarantees is a little over £48 million at the present moment.
The other kind of liability under Section 2 of the Act is that incurred by the issue of export credit loans to foreign Governments who wish to help their own nationals who want to buy British exports for which they cannot immediately pay. These loans are issued in the form of sterling credits in Great Britain; the British exporter is paid in sterling in this country out of those credits; the borrowing Government—that is, the Government of the importing country—at the same time undertakes to repay to the Export Credits Guarantee Department the amount of the loan, with interest, in sterling, at whatever date may be agreed; 145 and the borrowing Government makes its own financial arrangements with its own nationals who are purchasing the British exports. The amount of liabilities under that heading at the present moment is about £46½ million.
Now, my Lords, the present ceiling is £250 million, and the present liabilities do not come nearly so close to it as they do in the case of commercial business. The actual liabilities, which are about half in the shape of loans and half in the shape of special guarantees, are about £95½ million; and the contingent liabilities—that is, liabilities which are now being contemplated and are likely to be entered into—are another £71 million. That gives only £167 million-odd altogether, leaving a margin of £82½ million before you get to the limit of £250 million. And yet we are proposing in the Bill to raise the limit from £250 million to £400 million. The reason is that there is ground for expecting that this Section 2 business will increase much more rapidly than Section 1 business. In fact, it has been increasing much more rapidly since the Montreal Conference last September. It was agreed at the Montreal Conference that Commonwealth assistance loans should be given, and this Export Credits Guarantee Department machinery is one way in which that can be done. At the same time, of course, similar loans can be given to countries which are outside the Commonwealth.
In the last six or seven months, since September, the loans which have already been published are a general loan of £28½ million to India; another of £10 million to Pakistan; another of £5 million to the Sudan; and another of £3 million to Yugoslavia. There is also a special loan to India, which your Lordships may have seen announced lately, of £23 million by the Burma Oil Company and the Export Credits Guarantee Department together, to enable the new pipeline to be installed from Assam. The Burma Oil Company put up some £20 million, and the Export Credits Guarantee Department the balance of £3 million. There are many other loans in contemplation; and I am sure your Lordships will agree that since, when a Colony attains full sovereignty within the Commonwealth, it ceases to be eligible for a loan from the Colonial Development Fund, it is therefore particularly desirable that facilities for loans from other sources should be made avail- 146 able. I think, my Lords, you will all hope that if our own foreign exchange position continues to get better we may be able to do more than we have been doing up till now for economically backward countries who cannot be expected to pay immediately for the capital goods which they so urgently need for their development but who are anxious to buy British goods while we are equally anxious to help them both to raise their standard of living and to progress along the road to political stability and freedom.
It may well be that this limit of £400 million which we are proposing may, before long, prove to be too low; but we do not want to ask Parliament to authorise a maximum which might appear to be excessively greater than the actual liabilities at the present moment. And, of course, it is always open to Parliament at any time to raise the limit as the business of the Export Credits Guarantee Department expands. My Lords, I beg to move that this Bill be read a second time.

§ LORD STONHAM
My Lords, would the noble Earl allow me to ask a question? Is there any intention to subdivide this £400 million in any way between the two forms of loan under Section 2—that is, the first form of loans with an extra risk, and the second form of loans to Governments?

§ THE EARL OF DUNDEE
My Lords, they are not two different kinds of loan. One is an ordinary insurance transaction which is called a special guarantee because it is not regarded as a good commercial risk: but it is, nevertheless, covered because we decide that coverage is in the national interest. This is insurance. The loans are quite a different kind of business from that.

VISCOUNT ALEXANDER OF HILLS-BOROUGH
My Lords, we are obliged to the noble Earl for his explanation of the situation, although as some of us knew perhaps a little about the previous Acts we followed it with ease. We welcome very much the idea of the Government to expand the limits to which this business can be carried by the means of granting the extra backing of the Government for the credits. That it 147 is still needed is shown by the latest survey issued by the Federation of British Industries at the end of May, which shows that there is a considerable volume of industrial capacity still unused; and the idea of expanding our exports with a view to assisting those particular industrial undertakings to come back into full production is always a very good one, and all parties have always been agreeable to this form of export guarantee.
There is, however, something that I should have liked to know. The noble Earl very kindly gave us a list of the new arrangements which have been made in the last year or two with the countries within the Commonwealth after the Montreal Conference; and tacked on at the end is Yugoslavia. Perhaps it just happened to follow after the Montreal Conference. But we have had many cases—such as that pressed by the noble Viscount, Lord Elibank—of countries with which we seem to have only limited trading arrangements. How far will these credits be available for the increase of British export trade to countries behind the Iron Curtain? We do not include Yugoslavia now in that class. Wherever the opportunity is afforded for export business, then I think that it would be a good thing in helping to improve relations.
I dare say that when the Prime Minister was in Russia things were said and done which have influenced an increase of trade during recent months. I may say, from my own experience with the Co-operative Wholesale Society and their arrangements with the Soviet between 1921 and 1935, on a system of revolving credits, that never a penny piece was lost, and great good will was established. I think that that is something to go upon. Therefore, I hope that when the noble Earl comes to reply he will say a word or two on how far this part of the Government's policy dealing with export credits may be applied on a wider basis, as opportunity arises, in such countries as Russia and the Chinese People's Republic and other countries in a similar position.

§ LORD GRANTCHESTER
My Lords, in connection with these guarantees, perhaps I may raise a matter of procedure. If the matter needs further in- 148 vestigation, I shall be happy if the Minister replies to it after this debate. An exporter makes an application to the Department, and if he is given the guarantee for which he applies, he goes, as is the practice of many exporters, to the bankers to finance the transaction. It seems desirable that the banks should be able to register their interest with the Department in the same way as the interest of a mortgagee is noted on an insurance policy. I understand that the Department is not willing to do this; and so far as it is not done the bankers have no protection against a creditor borrowing beyond the guarantee which has been given; nor is there any way of establishing priority of claim against the guarantee. I think that it would be helpful if normal insurance procedure could be followed by the Department in this matter.

§ THE EARL OF DUNDEE
My Lords, I am glad that your Lordships are so ready to give a Second Reading to this Bill without a prolonged discussion. The only question which the noble Viscount asked, I think, was about the Iron Curtain countries, with particular reference to Russia and China. Of course, there is nothing to prevent export trade loans from being given to countries behind the Iron Curtain, if they ask for them and if it is thought a good thing by both Governments. It has been announced already that there is no question of giving these loans to Russia, because Russia is a lending country; and as she is lending a great deal of money to other countries, obviously she is under no need to borrow money for the purpose of paying for imports from this country. But Clause 1 of the Bill, under which individual exporters can insure themselves against loss in any country, will apply to trade with Russia as much as to that with any other country. So far, I think that the only loans which have been published are those which I have mentioned to your Lordships and I think that probably it will be found that priority in this matter is likely to be given to the undeveloped countries in the British Commonwealth.
I will look into the point raised by the noble Lord, Lord Grantchester. I cannot honestly say that I can see what his difficulty is, because I do not see how 149 a mortgage holder could be prejudiced either by an export credit loan or by an exporter insuring himself against the risk of not being paid. I do not know whether the noble Lord was suggesting that if an exporter insures himself under Section 1 and pays a premium to the Export Credits Guarantee Department, the payment of this premium might have an adverse affect on his other creditors.

§ LORD GRANTCHESTER
NO, my Lords, that is not the point. The benefit of the guarantee should be assigned to the people who finance the export.

§ THE EARL OF DUNDEE
My Lords, the point seems to be that if an exporter has other creditors and if he should become bankrupt, the benefit of the guarantee should be assigned to them. I will certainly look into that. I do not know whether they would have any legal claim upon it or not. I imagine that if he went into bankruptcy, his insurance payments, from all sources would be included as part of his assets.

§ LORD GRANTCHESTER
My Lords, if done by an insurance company, the benefit of that guarantee would be assigned. I only want to see that this would happen where these guarantees are financed by someone other than the exporter.

§ THE EARL OF DUNDEE
My Lords, I think that it possibly does, but I will let the noble Lord know. I think that those were the only two questions to which noble Lords wished me to reply, and I hope that we shall now have the Bill read a second time.

§ LORD STONHAM
My Lords, my noble Leader asked me to apologise because he had to leave before the noble Earl replied to the question which he had addressed to him, but Business has run later than expected and he had to get away to an appointment. We are glad to know that there are no restrictions on the use of any of this money for trade with Russian and China. I gather that it was the idea to give sufficiently long credit to facilitate that business. On this side we are very glad to know that the bulk of the loans will be going to undeveloped countries.

§ THE EARL OF DUNDEE
My Lords, I think that I did say that it had been 150 announced that loans would not be necessary for Russia.