§ 4.20 p.m.
§ VISCOUNT HAILSHAM
My Lords, with the permission of the House, I would respectfully repeat here a statement which must by now have been made in another place by my right honourable and learned friend the Chancellor of the Exchequer. My Lords, the statement is as follows:
§ "With permission, I wish to inform the House that as a result of discussions between the Bank of England and leading banks and insurance companies, details are being announced to-day of new arrangements for the finance of export contracts which are covered by a direct bank guarantee given by the Export Credits Guarantee Department. The London clearing banks and the Scottish banks have agreed to provide finance for export contracts at a fixed rate of 5½ per cent. for terms between three and five years, while a group of member companies of the British Insurance Association have agreed to lend up to a total of £100 million at a fixed rate of 6½ per cent. where finance in excess of five years is needed.865
§ "The effect of this arrangement is two-fold. First, it means that medium-term finance for exports will now be available at fixed rates more favourable than the present rates. Second, it means that substantial funds will be available to fill the gap between the period of up to five years post-shipment, which the banks are normally prepared to cover, and the longer terms which are normally more suitable for insurance companies.
§ "These arrangements represent a notable advance on the present position. For the first time the banks as well as the insurance companies will adopt a general practice of providing export finance at a fixed rate, irrespective of fluctuations in bank rate. Moreover, the rates will be markedly better than those obtainable at present. Thus, whereas bank credit would at present generally cost 1 per cent. over bank rate and would change as bank rate changed, it will, if it is provided under these arrangements, cost 5½ per cent. fixed. Only therefore if bank rate were to fall to 4 per cent. or lower would the normal overdraft rate be better than the rate now proposed; and even then the borrower might well prefer 5½ per cent. fixed to 5 per cent. fluctuating with bank rate. The participation of the insurance companies in these arrangements will not only, as I have said, provide a significant amount of longer-term finance, but will also ensure that it is available at about 1 per cent. less than is at present the case. They are to set up a special company to handle this business for them.
§ "These arrangements are to run for a period of five years in the first instance. The Government 'warmly welcome the action of the banks and insurance companies in making them possible. I hope that other institutions, including, for example, those responsible for pension funds, will feel able in time to participate, so increasing the total amount of finance available."
§ My Lords, that is the statement that my right honourable and learned friend has made.
VISCOUNT ALEXANDER OF HILLS BOROUGH
My Lords, I feel sure that the House will welcome any approach towards more stability in the financing 866 of export trade, which certainly is in need of help to-day. However, I shall want a little time to study what are the actuarial consequences of this fixed rate for five years, and whether the suggestion in the statement is correct that, on the whole, people might prefer this fixed rate of 5½ per cent. right through as against taking the chance of a lower rate. But one thing is quite certain. Stability will be welcomed by the trade, but certainly the banks, as usual, will win, whatever happens to industry.
§ VISCOUNT STUART OF FINDHORN
My Lords, might I ask my noble friend whether the insurance companies have actually guaranteed this great sum of £100 million?
§ VISCOUNT HAILSHAM
My Lords, they have agreed to lend up to a total of £100 million at a fixed rate of 6½ per cent. The distinction is between the banks, which lend for a shorter period at 5½ per cent., and the insurance companies, which lend for a longer period at 6½ per cent.