§ 2.57 p.m.
§ Order of the Day for the Second Reading read.
§ THE PARLIAMENTARY SECRETARY, BOARD OF TRADE (LORD WALSTON)
My Lords, I beg to move that this Bill be now read a second time. The purpose of the Bill is to extend the ability of the Export Credits Guarantee Department to assist exporters by insuring them against credit risks. The existing Acts under which the Department is authorised to operate lay down a limit to the total liabilities which the Department may assume at any time. In recent years there has been a considerable increase in exports and a considerable growth in the proportion of exports insured with E.C.G.D. The Department, therefore, would, in the absence of the present Bill, soon reach a position where it would be obliged to turn away business which otherwise it would consider to be sound, because it had no money with which to cover its liabilities.
Before dealing with the separate clauses of the Bill there are a few general points I should like to make. First, and most important, there is no question of altering the basis on which E.C.G.D. conducts its business. It will be expected, as it is expected and as it does now, to operate on a self-supporting basis, subject to the proviso that it must give the fullest possible assistance it can to the whole of the British export trade. It will continue to apply exactly the same criteria to the business offered to it, and this Bill does not in any way seek to extend its powers, other than to extend the volume of business it may transact. The type of business remains the same.
Secondly, the Export Credits Guarantee Department at present shows in its accounts a surplus of some £60 million in respect of operations under Section 1 of the main Act, and of some £19 million in respect of operations under Section 2. Later on I will explain to your Lordships, for the benefit of those who do not know already, the differences between Section 1 and Section 2. These two figures make it perfectly clear that the business has in the past been prudently run and that any mere extension of the volume of 526 insurance is unlikely to result in any financial misfortune. On the other hand, we must remember that E.C.G.D. is not intended to be a profit-making organisation. When one remembers that this surplus has been accumulated over a period of very nearly forty years of operation, I think one would agree that the management of E.C.G.D. has been highly successful and deserves a great deal of credit for avoiding, on the one hand, loss from its business and, on the other hand, the accumulation of an undue surplus.
The third point I should like to make is that although Parliament has set these limits as a measure of control on the Department's activities, it has never obliged the Department to turn business away or intended that it should do so. A long series of amending Acts, similar to the Bill which is now before the House, has provided from time to time for elbow room for a further few years' expansion. Having given your Lordships these assurances and this brief description of the purpose of the Bill, may I say this: because I know that your Lordships would wish to allow a successful trading Department to continue its valuable help to exporters with no foreseeable loss of public funds, and because I know that the Bill has received, on the whole, a kind reception in another place, I am confident in commending this Bill to your Lordships.
Now I should like to turn to the technicalities of the Bill. As I have already mentioned, the Department carries out two classes of insurance, under Section 1 or Section 2 of the basic Act, the Export Guarantees Act of 1949. These two kinds of business are more commonly known and perhaps can be better described as commercial business and national interest business. The former, transacted under Section 1, is business on which the Department has consulted, and in practice has always followed the advice of, the Advisory Council. The Advisory Council is an independent Council of eminent bankers and business men, appointed by the President of the Board of Trade, with the duty of advising the Department as to which business they regard as insurable by sound business standards.
The second kind of business, transacted under Section 2 of the original Act, is 527 business which does not carry the recommendation of the Advisory Council and which in fact has never been referred to the Advisory Council, but which the Government are satisfied should be transacted in the national interest. Broadly speaking, the main uses of this section are to maintain a foothold in markets where the prospects are not good enough to justify cover on commercial grounds, to provide forms of cover which are experimental and to cover cases where the risks are heavily concentrated on certain large projects. It is clear that this business, lacking the endorsement of the Council, must be marginally more risky. Nevertheless, the E.C.G.D. still recognise an obligation to underwrite soundly and to balance its books, and up to the present it can be claimed that it has succeeded. As I have already told your Lordships, there is a surplus on Section 2 operations of some £19 million.
Let me now come to the detailed provisions of the present Bill. The Bill proposes to increase the maximum permitted liabilities under Section 1 from £1,500 million, as it is at present, to £2,400 million. When the present limit was set in 1964, Section 1 business was growing at a rate of approximately £100 million annually, and the Act then passed allowed for five years of growth at that rate, although it is fair to add that at that time, as some of your Lordships will remember, it was foreseen that this rate might well increase. I am glad to be able to tell your Lordships that this is exactly what has happened, and in the past two years, greatly helped no doubt by the numerous improvements and cheapening of the Department's facilities during the tenure of the present Government, it has been growing at an annual rate of around £170 million, in place of the foreseen £100 million. The result of this is that the limit is being reached much sooner than the five years originally envisaged. At January 31, 1967, liabilities under Section 1 stood at £1,399.5 million and when account is taken of moral commitments on business still being negotiated—business totalling £44 million—your Lordships will appreciate that if no action is taken the ceiling will very soon be reached. This we must not allow to happen, because we cannot envisage E.C.G.D.'s being forced to turn sound business away.
528 In looking at the figure by which the limit should be increased, the Government have felt that it should aim at a further five years' elbow room on the basis of present growth. If we find that we are mistaken and that growth increases still more rapidly, we shall have no embarrassment whatsoever in coming back to your Lordships' House with an other Bill after a shorter period than the five years. What we have to do is to strike a balance between dispensing with effective control, on the one hand, and, on the other, burdening Parliament with too frequent legislation. I think your Lordships will agree that a five-year target is about right, even though we may find that we have to come back more often.
As to the business under Section 2, there is no imminent problem here at all. Current liabilities and potential commitments stood at £888 million on January 31, 1967, and the rate of in crease is expected to be about £125 million a year. There is therefore plenty of room under the limit for some time to come, but not for five years, on the basis of our estimates of existing growth. In order to avoid the likelihood of a "leapfrog" Bill, when we should have to come to Parliament because we were right up to the limit under Section 2 although we still had plenty of room under Section 1, we propose to increase the limit of liabilities under Section 2 from £1,300 million to £1,500 million.
I hope your Lordships will agree that this is a simple and straightforward Bill which deserves your support. I should add that debates on similar E.C.G.D. Bills have in the past afforded an opportunity, which does not come too often, for a broader discussion of the work of this somewhat technical but altogether vital Department. There are many services and inducements offered to the British exporter, many of these by Her Majesty' Government. Take any of them away and the exporter would be that much less effective. But if we were to remove E.C.G.D. facilities a great volume of exporting would not be undertaken at all on credit terms, and if it were not offered on credit terms there is no doubt at all that much of it would be lost to competitors who did offer credit.
529 It is vital, therefore, in the competitive world of to-day, that our exporters should have the best possible service of credit insurance that we can give them. It is not often that one finds something which has halved in price over the last ten years. It is still rarer to find that quality has been improved during that period. But that is the record of the E.C.G.D. In this field I would claim that our exporters are at least as well served as any of their overseas competitors—and that, I think, in many cases may be an understatement. I hope there may be several noble Lords this after noon who will wish to discuss aspects of the general work of the Department, and I shall certainly listen with the greatest attention to what may be said. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Walston.)
§ 3.10 p.m.
§ LORD DRUMALBYN
My Lords, first, I should like to thank the noble Lord, Lord Walston, for his explanation of this Bill and to make clear from the start that, far from having any objection to the Bill, we welcome it. The Bill reflects the growth in the liabilities which the Department is called upon to assume. That growth is, in the main, a matter for satisfaction and represents the increasing success of the Department in performing a very useful service for our exporters. I say "in the main", merely because there has been a declining value in money, and this is a tendency which continues. But, as a result of this success in persuading an increasing proportion of our exporters to buy cover for the whole of their exports on short-term credit, the Department, as the noble Lord has said, has been able to offer them lower rates and to increase the proportion of both buyer risk and market risk covered. I do not think the noble Lord would wish it to be said that these reductions in rates have taken place only during the period of office of the Labour Government, although this might have been understood from one of his remarks. The House will know very well that rates have been reduced from time to time. They were reduced substantially twice in 1933, for example, and they have been reduced twice since then.
530 The review of rates for specific guarantees on individual contracts for the export of capital goods was carried out at the instance of Mr. Maudling and resulted in substantial reductions in 1961, and there were further lesser reductions in 1963 and 1965. As the noble Lord said, new forms of cover are introduced from time to time, the most notable, perhaps, being the small exporters policy and the financial guarantees to banks lending to overseas buyers, which were also introduced in 1961. The growth over the past twenty years in the proportion of total exports covered by the Department from 8 per cent. to 27 per cent. is a remarkable testimony to the wisdom of the Advisory Council and the skill and salesmanship of the Department.
The requirement in the 1949 Act limiting the total of liabilities that may be incurred by the Department means that from time to time Parliament is given an opportunity to take a look at the working of the system when a Bill is introduced to increase the maximum of liabilities, whether it covers insurance under Section 1 or insurance cover afforded in the national interest under Section 2. The requirement gives the Government the opportunity of telling Parliament of developments and trends, and Parliament an opportunity of expressing to the Government not only congratulations to the Department on its achievements, but any doubts and anxieties that Parliament may feel, and of making suggestions for the future.
To some extent, the need for the Government to tell Parliament about developments when introducing these periodic Bills is reduced by the admirable booklet on E.C.G.D. services, first issued under the Conservative Government, and reprinted in 1966. The Board of Trade also recently published a handbook for exporters on credit insurance. It appears from the form of the booklet, called "E.C.G.D.", that it is intended to reissue parts of it yearly—that is, Part IV—the blue section of the book, dealing with facilities, and the pink section giving the composition of the Export Guarantees Advisory Council and statistics about the Department's operations. Useful as these documents are, it seems to me odd that the 1949 Act does not require the publication of an annual report giving the 531 financial results of the previous year's operations and an account of changes in policy in the scope of business that the Department is prepared to undertake, and in the terms and conditions on which it is willing to undertake it. The Act, I think, merely requires a quarterly return to be made by the Board of Trade of the aggregate of guarantees under Sections 1 and 2 of the Act during the previous quarter.
I would ask the Government, in view of the enormous increase in the scope of the activities of the Department, whether they would consider the issue of an annual return with acounts annexed to it. After all, the E.C.G.D. is essentially a business undertaking, even though it is a Government institution; and in addition, of course, its activities result in placing the taxpayer atrisk—a risk which is all the more difficult to quantify because it is so hard to predict the future antics of Governments in interfering with international trade.
Since the E.C.G.D. is essentially a business undertaking, the question has been raised from time to time whether it should continue to be a Government Department. The question was considered by the Niemeyer Committee in 1929 and by the Speed Committee in 1958. Both recommended that it should, for three main reasons: first, because public money was at stake; secondly, because it was, to some extent, an instrument of national economic policy; and, thirdly, because it depended to some extent on information from Government sources. But time has gone by, and things are changing. In particular—a point which the noble Lord did not mention—I understand that responsibility for overseas assistance loans has now largely, if not wholly, been assumed by the Ministry of Overseas Development.
The main obstacle to turning the Department into an independent Corporation lay in the fact that part of the business done consisted in giving insurance cover, not on a strictly commercial basis, but on some test of encouraging trade or providing economic assistance in the national interest under Sections2 and 3. Section 3, it appears, is now a dead letter, so far as E.C.G.D. is concerned, and I understand also that part of Section 2 now comes under the Minis- 532 try of Overseas Development or is operated by them. Yet the opportunity has not been taken to tidy up the statutory position in this Bill. I would ask the noble Lord to say whether any tidying up is necessary, or whether things are satisfactory as they stand.
That leaves Section 2, under which cover is said to fall, broadly, into two categories: first of all, guarantees of credit on exports to dubious markets which the Advisory Council consider offer too uncertain a prospect to justify cover under normal commercial tests—that is, that the risk is really uninsurable; and, secondly, selective cover such as that given under financial guarantees and the small exporter policy (I think the noble Lord described them as experimental forms) where the Department considers that the risk is heavily weighted against it.
I venture to question whether small exporter policies really come into these categories at all. They are, after all, in the nature of special introductory terms, applied with the object of encouraging the policy holder to become a regular customer on standard commercial terms. Secondly, it is not clear that most risks which the Advisory Council consider too uncertain to justify cover under Section 1 are necessarily uninsurable at commercial rates; and, in so far as they are uninsurable, it is doubtful whether exporters should be encouraged to deal with such markets at all, except for strategic reasons. They may wish to, but it is doubtful whether they should be encouraged to do so. Certainly the results of business under Section 2 do not suggest that there is any essential difference in the nature of business from Section 1. No doubt the risks are greater—the credit is longer, cover is given on the individual transaction and not only all the exports of the exporter, and so on. But a balance on these transactions, which the noble Lord mentioned, of £19 million has accumulated all the same. So insuring credit on these cannot be all that uncommercial.
The fact is that it is open to doubt whether it is really in the national interest in the present state of our balance of payments, to give long-term credit to countries that are perfectly capable of financing their own development. With the long-term tendency of money to 533 decline in value, we are lucky if we get back two-thirds of the value in purchasing power of capital goods sold on 15 years' credit. I readily concede that there may be particular circumstances where it is desirable to give employment to industries in this country which are temporarily short of work, especially when the reason for lack of orders is directly due to Government policy, as is the case with the steel plant producers at the present time. In such cases, not only the credit insurance but at least part of the credit could, in my view, properly be provided by the Government.
It so happens that the market in which there is the best immediate prospect of getting orders is precisely the one which caused the E.C.G.D. the heaviest losses it has ever had to suffer. It is plainly in the national interest that we should continue to have a steel plant production industry in this country, but it does not follow that the E.C.G.D. should be called on to carry overseas risk on that domestic result. Whatever guarantees are necessary should surely be provided under Section 5, or in some other way, but not at the expense of other insurers with E.C.G.D., as it has to be, of course, if E.C.G.D. is overall to balance. If that kind of risk is excluded, then the only remaining objection to turning the E.C.G.D. into a corporation seems to be access to Government information. This is one I find hard to understand. Exporters are constantly seeking, and obtaining, information from Government sources, quite apart from E.C.G.D. Why should not an insurance corporation, set up by the Government, have access to Government information in the same way?
Considerable as have been the achievements of E.C.G.D., the Department has not been free from criticism; of course it has not. In referring to some points of criticism I do not mean in any way to detract from its achievements, but it may be that some of the criticisms have some substance and that they might be less likely to arise if E.C.G.D. were not a Department of Government. The main criticism—this is the recurrent one—has always been that because of the rigidity of the Department's methods export orders are sometimes lost. For example, the Department insists that the whole of an exporter's regular short-term result 534 business should be insured with E.C.G.D. under a comprehensive policy which may allow for more than six month's credit if it has an extended terms endorsement. In other words, it is all or nothing. But it is not quite all. For E.C.G.D. may refuse to give cover on what it regards as a bad risk. The exporter himself may be satisfied with his customer's credit and the prospects of the market; and he may turn out to have been quite right. But meantime he may have lost the order. The Department says, rather blandly, I thought, in its booklet that the exporter can of course proceed at his own risk. But it is a bit hard to compel the insured to cover exports on which the risk is infinitesimal and then to refuse him cover on risks which are somewhat greater than average.
Sometimes an order is lost if it is not accepted forthwith. The Department says that nearly 70 per cent. of applications for buyer approval are cleared within 48 hours. That is very commendable, but it means that over 30 percent. take longer. Then, again, for some markets E.C.G.D. rations the amount of cover it is prepared to give. Once the quota is filled the exporter must carry the risk himself or lose the order. I would suggest that it might be better at least to give the exporter the chance of obtaining cover at an enhanced price. Another oddity is that there seems to be no way of getting insurance cover to enable the exporter to recover the value of the goods from a defaulting buyer; yet E.C.G.D. may refuse to pay a claim if the exporter has not taken court action when the Department thinks he should have done. I suggest that this is a point which might well be worth looking at to see whether cover cannot also be given for the expenses of the court action.
My Lords, for all its faults (and it is bound to have some) E.C.G.D. is rightly acclaimed as giving as good cover as the noble Lord said, as having as good export credit guarantee arrangements as any organisation in the world—and I would say it has the best. Yet it may well be that it could be still better if it were a corporation instead of a Department. In my view, it is fundamentally wrong that the flow of trade should be determined by Government Departments. By all means let Governments give aid to each other, but let them leave trade 535 to the traders, except where trade is with Communist countries and where it is often necessary for Government to come in. By all means let the Government give help, but not direction.
Besides, there is something odd in a Government Department doing as the noble Lord said and following the decisions of an Advisory Council. The Advisory Council could easily be converted in to the board of the corporation, and it would be much better, because the decisions would then be the decisions of the board. It seems not just odd, but wrong, that the balances which ought to form the reserves are snaffled and spent by the Treasury. It is quite impossible for a body of men to weigh the marginal value of giving or with holding cover properly unless in the long run they are responsible for meeting the claims which may result. That is why a commercial board should decide on commercial cover and leave the Treasury to decide what it is worth to the nation to back certain contracts on exceptional terms. Speaking personally, I envisage the time when one export credit guarantee corporation will serve a whole group of nations. It would help in that direction if we had a corporation rather than a Department giving commercial cover; and we should not be the first. All I am suggesting is that, in view of the changes that have taken, and are taking, place, including the dangerous growth in economic nationalism, it would be worth while considering once again whether we should not get export credit insurance on a sound business footing in this country.
I should like to conclude by asking three questions. First of all, what has been the response to the introductory facilities offered to the small exporter? How many policies have been taken out? In how many cases have those who started in that way gone on to take out the ordinary comprehensive policy for short-term credit cover? Secondly, the 1966 booklet said that up to a year ago 37 financial guarantees of loan and interest, amounting to just under £300 million, had been given to banks lending to overseas buyers of British capital goods, and that 55 more cases involving just over £300 million were under negotiation. I believe that in 1964 only 8 or 10 guarantees were given. Can the noble Lord 536 say what the state of play was at the end of last year, or at some later date, and what progress has been made with the 55 cases, what new projects have come along since last February, and how many have been clinched?
Lastly, why is it that the largest area of complaint, or at any rate the most vociferous area of complaint, continues to be that for big capital projects where British suppliers are unable to offer as good credit terms as some of their rivals? It is all very well for E.C.G.D. to say in their booklet that they are wholly prepared—and these are their words—to put British exporters on level terms with foreign competitors. The problem is to convince the Department and the Treasury about the terms which foreign rivals are offering. In these matters it cannot be a question of documentary proof; that can seldom be obtained. It is a matter of the feel of negotiations. In cases where large and important con tracts are being negotiated, is there really any alternative to E.C.G.D. sending a representative as one of the negotiating team and actually getting the feel of the negotiations?
In this particular field we are dealing generally with clashes of national interest. If the Government really believe that it is in the national interest that a particular British firm should get a particular contract, then the Government must be prepared at least to see that the contract is not lost because the Treasury insists quite unrealistically on documentary proof, and even then cannot make up its mind in time whether the contract is worth getting. If the Government really want the contract to be won, it simply is no good E.C.G.D. insisting in advance on approving the terms to be offered a foreign buyer and insisting on the seller sticking to those terms. Much more latitude should be given to negotiating teams to go up to a certain limit, and beyond that limit the Department and the Treasury should be prepared to match what the negotiators honestly believe to be the credit terms offered by their rivals. It may not be susceptible of proof.
I would suggest the blunt fact is that for most contracts there is a limit (which only the Government can judge) beyond which it is not worth while matching a foreign rival's terms. After all, the longer 537 the credit, the greater the strain on the balance of payments. But I would suggest that there are a few contracts which in the national interest should be won even if the terms are most exceptional. In other words, I suspect that the E.C.G.D. exaggerate when they say they are wholly prepared to put British exporters on level terms with foreign competitors. They should have added, "up to a point". What I should like them to say is that in some cases they are determined to make dead sure that, so far as lies in the power of E.C.G.D., the British exporter is on level terms with all corners. A much more positive approach on the part of E.C.G.D. is needed when getting the order that really matters—in terms of employment and the best use of resources at home. With those comments I should like again to extend a general welcome to the Bill.
§ 3.33 p.m.
§ LORD RHODES
My Lords, before making any comments I should like to ask the noble Lord, Lord Drumalbyn whether his suggestion that E.C.G.D. should be converted into a public corporation is part of the Conservative Party's policy for the future?
§ LORD RHODES
I thank the noble Lord. My Lords, we shall have to be careful about this matter. Apart from the quite good arguments that have been put forward in favour of a public corporation, it is a fact that E.C.G.D. has, without any question whatever, won its spurs, and it is salutary to think that from time to time when a Government Department successfully runs its business people are disposed to criticise it in the hope that at some future time they may be able to hand it over to somebody else to make something out of it. When I heard these remarks my mind went back to the time in the other place when this sort of comment was made about the nationalised road transport industry, which was a highly lucrative section of the whole transport industry; and, of course, it was restored to private enterprise when the Conservative Party came into power. With several of the things said by the noble Lord, Lord Drumalbyn, I agree heartily, and I will come to them in the course of 538 my remarks. First, I want to say that I think the Department has been well run. It has had its share of praise and we need not overdo it. Sir John Hogg and his Committee have been extremely good; and so, may I say, has the Director, Sir Anthony Percival, and I was delighted to see that he had been honoured in the last Honours List.
I should like to deal with one aspect that has been continually coming to my notice in the last year or two, and that is the restricted liability for certain markets. The noble Lord, Lord Drumalbyn, mentioned the information that was available to E.C.G.D. as a Government Department; how the Report says that there are 140,000 reports on foreign buyers; that information is extracted from sources all over the world (from the Press and otherwise);that the Department also sends its own missions overseas to get information. Here, may I suggest that one such mission should be sent forthwith to South-East Asia, including Indonesia, because I think it is most necessary. On this information, markets are classified and premiums are assessed on the basis of the classification. In some cases, as a result of the information that is disclosed, and so the overall liability which the E.C.G.D. can accept is restricted.
On one or two occasions I have met with complaints that there was not a fair distribution of the available cover among rival exporters. In each case the truth was that the approach was made too late, when the available cover was exhausted. Businessmen cannot expect E.C.G.D. to keep cover in reserve for business which may never come along. I say that because of the cases which have come to my attention. I can assure British businessmen that E.C.G.D. goes to enormous trouble to see that efficient use is made of available cover and that every exporter gets a fair crack of the whip. We may in the future have to revise our thinking and our attitude to this question. In a previous debate in this House I drew attention to the way the Japanese Government had entered into a so-called loan agreement with a country in South-East Asia. In fact the so-called agreement was nothing more than setting a limit to credit against firm orders, but it was heralded in the local Press as being a magnificent gesture by the Japanese. May I ask the Minister (he need not answer to-day; he 539 can let me know later, before the next stage of the Bill), what prevents us from doing precisely the same? What prevents .us from making arrangements between E.C.G.D. and selected foreign Governments?
I now come to the question that was raised by the noble Lord, Lord Drumalbyn, about long-term credit. I do not think this matter is receiving the attention it needs, and people do not realise the dangers inherent in the situation. Since the war, we have turned from a cash to a credit situation—and long credit at that. On page 15 of the Report, where it discusses the arrangements under Section 2 it says that the Department's major function of providing export credit insurance has now largely been assumed by the Ministry of Overseas Development for Section 2 and Section 3. It appears to me that economic assistance loans, which are mentioned in the same paragraph, are out of date now, and it would seem as though we had better be thinking of tidying up this part of the Act, so that we know where we are in terms of long-term credit. Would it not be better if they were separated from Section 2 figures altogether? May I ask whether it is anticipated that any more economic assistance loans will be made under Section 2?
On page 66 of the Report there is a Table and I should like to draw attention to something on it. In the last two columns there is, under "National Interest Insurance (Section 2)", at the bottom, for March 31, 1966, in the second column from the end £54.3 millions, and in the last column £366.8 millions, making a total of £421 million, which was the figure the Minister in another place gave in the context of his speech. It is also in the text of this particular Report. Also figures were given by the Minister of State showing that the actual liabilities are £728 million and there are further contingent liabilities of £136 million, making £850 million in all. So the increase during the last twelve months or less has been £430 million. How much is long-term and how much is short-term credit here? If it is anticipated that financial guarantees will increase by £100 million a year, what is the remainder? And all this is without the benefit of the expert advice of the Advisory Council.
540 The question might be asked whether it matters if these items rocket. I think it does; I believe it is rather a serious matter. The answers to my query can be found in the Report itself, Paragraph 3, Page 23, and it is worth looking at. The Report says:The Government is concerned about the terms upon which goods are sold for export because those terms can affect Britain's balance of payments".Lower down it quotes the words of the Committee on the Working of the Monetary System, the Radcliffe Committee, when it says:In considering whether and how strictly to limit the length of credit which United Kingdom exporters can offer, the Government has to weigh on the one hand these risks of extending longer credit and on the other hand the immediate and long-term consequences of the loss of business which will result if United Kingdom exporters are outbid in credit terms by their competitors.I would also draw attention to the last paragraph on page 26, where it states that a previous President of the Board of Trade, in 1961, when the financial guarantees for long-term credit were introduced, said:Quite apart from the need to apply this new technique only where it is truly appropriate, there are of course severe limitations to the amount of long-term credit which the United Kingdom can afford to give at the present time, and we must remember that these new financial guarantees form only one of several channels by which such commitments are loaded upon our shorter-term balance-of-payments position.The noble Lord, Lord Archibald, when he asked a question here last week was absolutely within the confines of this particular problem; in fact he was on the mark. It is an important aspect, and it is bedevilled by the various interpretations of aid. The Japanese, for instance, call their reparations aid, when they are adding it up, so that they can present an impressive figure to the world. We have our difficulties with it, too, and especially now that responsibility for aid has been taken over by the Department of Overseas Development. What are we doing about this? It seems to me that all this business of long-term credit has got into a state of anarchy.
When a country like Japan can go to the Philippines and say: "All right; we will build a cement works for you; we will give you credit for ten years at 5½ per cent.; we will give you credit for 541 three years for nothing at all, and we will supply the capital to run the place"—if that is not getting to the point of overseas investment in a different form from the one we have known already, what is? And this is happening throughout the world. E.C.G.D. has to listen to scores of pleas for long-term credit when in point of fact they cannot be substantiated; but when they are they are definitely matched by E.C.G.D. But this does not make the long-term position any easier.
There is an organisation of which we are members, which is known as the Berne Union. There are 26 members of that Union and the membership is broken down into three parts. They have agreed on the basis of a five-year period of credit. But if there are only 26 members and individual members from member countries are part of the 26, I should like to know who are the members of the Berne Union and whether all the Western countries who are exporters of capital goods are members of it. What I do know is that the Japanese are not members, and they are most active in an area of the world we are a long distance from and in which we have tremendous difficulty in keeping our end up—I mean the Far East. I notice that the noble Lord, Lord Erroll of Hale, who so successfully led a mission to the Far East from the London Chamber of Commerce in November, is here, and I am certain that he could corroborate what I say: that the Japanese have turned the situation of long-term credit into a state of anarchy. I am suggesting that the Government should, without delay, call a conference of Western countries who are "with it" in terms of the kind of capital goods they export. They should do it at once. Get them together, Bring Japan in. Give them a special invitation. Knowing the mood of a number of the Western countries concerned, we should have a far better response than some people might think. I believe a successful issue could come from this, and I recommend the Government to inaugurate it without delay. The Bill should be accepted. It is necessary, and I wish it well.
§ 3.51 p.m.
§ VISCOUNT ECCLES
My Lords, I wish just briefly to support what the noble Lord, Lord Rhodes, has said. There will always be competition in credit, and in 542 the old days the United Kingdom was considered one of the countries, if not the leading country, which at the Berne Union and elsewhere tried to prevent this competition from getting out of hand. It is a difficult thing to do. But I am bound to say, looking at this Bill, and considering the way in which the total of our guarantees has been rising so sharply, particularly in the last two years (and, as I understand it, within that total the longer-term credit has risen as sharply as the shorter-term credit), that it may be that we are losing our grip, losing our position as the country which did try to put the brake on. This I think would be most serious, because if one looks at international trade as a whole there is certainly a point beyond which it is absurd to export goods on credit when you are not going to get the money back. Somebody has to set the tone. Somebody has to have the character to say, "I am not going to go on in this rat race for lengthening credit, improving terms and all the rest of it."
I am a little worried both by the Bill and by what one learns from the way in which our export credit is being conducted. It may be, for instance, that in regard to the exceedingly good export figures which have just been published, and which rejoice us all, the proportion of that record total which has been sold on credit is larger than ever before. I should think that is true. This situation cannot go on. There must be a point at which it is not worth extending credit for exports, and I hope that the Government have that firmly in mind.
Here, I think I must disagree with my noble friend Lord Drumalbyn. I went through this business in deciding whether the E.C.G.D. should cease to be a public corporation, and I am quite sure that it ought to continue to be a public corporation. The main reason that swayed me then, and would sway me now, is precisely the international character of the credit race. When you have the Export-Import Bank in the United States with the United States Government behind it, Hermes (I think the name is) with the German Government right behind that, and the other great governmental institutions for assisting exporters with credit, we must, I think, concentrate our credit machinery in one place to have the power to answer 543 back, and, I hope, to lead these other people.
§ LORD DRUMALBYN
My Lords, would my noble friend allow me to intervene? That is precisely what I was suggesting; that E.C.G.D. should be a public corporation and cease to be a Department of Government; that it should be like Hermes and so on.
§ VISCOUNT ECCLES
My Lords, I misled my noble friend, and I apologise. By "public corporation" I meant the kind of structure that we have now. After all, we had an excellent gentleman from the Bank of England as Director. He was followed by Mr., now Sir, Anthony Percival. I think that the running of the Department cannot be assessed as anything but pretty good, and it would be difficult to do it if it were split up into different areas of credit. Be that as it may, the overriding reason why, in my view, this must remain really strictly under the Board of Trade is precisely because diplomacy, international affairs, enter into this matter so much. If the noble Lord could give me some sort of assurance that things are not getting out of hand in quantity and length of credit, I should be most grateful.
§ 3.56 p.m.
§ LORD WALSTON
My Lords, I am most grateful to the three noble Lords who have spoken, all of them with such great knowledge and experience, far more than I myself have. They have asked me many questions which I shall try to answer, though they will not expect me to go through all of them one by one. Perhaps I should deal first of all with what is really the most important point raised by all three noble Lords, and finally by the noble Viscount, Lord Eccles, that of the credit race. It is something of which we are, of course, very much aware. Anybody can export anything, provided that he does not want to be paid for it. Our problem is to export our own goods and to get paid for them sufficiently quickly to make it worth while.
We have a constant battle, as all noble Lords who were connected in one way or another with the Board of Trade know well, between, on the one hand, the exporters who come along and say, "We have responded to your urgings. We have 544 got this contract to sell this vast number of aeroplanes, or these ploughs, or tractors, or what-have-you; and now you refuse to give us sufficiently long credit to get the order because country A, country B or country C is beating us to it". That is what happens on the one side, On the other side, we have the Treasury, quite properly, saying to us, "What is the point of selling all these things? It looks very well on paper, but you are not getting any money for them until 10 years hence, when not only will it be worth less, but in any case we need it to-day, or if not to-day, at least tomorrow" We have to hold the balance. Whether or not we hold it absolutely perfectly, I cannot say. I think that, on the whole, we are now making, and have in the past been making, a good show of it.
As the noble Viscount said, in the early days we took the initiative of, in his words, putting the brake on this credit race. We are still quite active in this, with the Berne Union and with Japan, who, although not a member, is co-operating through O.E.C.D. and privately. In bilateral exchanges between Japan and ourselves there is a considerable co-operation in this matter and, like him, I can say that increasingly the exporting countries have come to realise that a credit race does nobody any good at all. Of course there are always certain private companies—large companies, at that—who go off on their own and are sometimes able to obtain extremely successful credit facilities of their own without recourse to Government—or, perhaps I might say, in a somewhat devious manner through semi-governmental sources. We do our best to discourage that, and we do at times—as I know from personal experience, and as Lord Drumalbyn mentioned—get complaints from our own exporters and manufacturers about our slowness, about the fact that sometimes we are not quick enough in giving an answer as to what we can do.
The reason why we cannot give an answer immediately is because they are asking us to grant credit terms which are longer than those we have agreed with the other credit givers of the world. In order to maintain this co-operation between all of us as exporters, we must go and talk to them and tell them what 545 we are doing, in accordance with under takings we have given. That, of course, takes time, sometimes a matter of weeks, which is very irksome for the would-be exporter. But it is purely a matter of using one's own judgment and exercising that judgment, not only in the interests of exports, but also in the interests of getting the money into the country at the time we want it.
Balanced with that must be the ever-present question: if we fail to get this order, are we going to let a competitor into a market which previously has been ours so that we shall never get replacement orders? Is it perhaps better to take this order to-day, even at rather unattractive credit terms, so that we either maintain our place in an existing market or open up a new market for future benefit? Those are all basically commercial judgments of which we are well aware, and matters which we do our best, consistent with our obligations as international credit-givers, to look at realistically.
There is one point that I should like to make to the noble Viscount, as well as to other noble Lords. Fundamentally, when we talk of giving credit it is the commercial undertaking itself which gives the credit. All E.C.G.D. does is to underwrite the risk inherent in that credit. Therefore, this commercial judgment must rest with the supplying firms themselves. If they feel that it is in their business interest to grant credit for ten years for a particular product, that is their own commercial judgment; and presumably they adjust their price to take account of the fact that they are not going to get paid in full until the end of ten years in a somewhat devalued currency. It is not for the Board of Trade or E.C.G.D. to make the initial judgment. It is for the E.C.G.D. to decide whether it is prepared to under write that risk for an exceptionally long period.
I should like now to come to some of the points which were raised. The noble Lord, Lord Drumalbyn, asked whether there could be an issue of annual returns and accounts. In fact, there is something very close to that which I think should satisfy the noble Lord. Although we are under no statutory obligation to publish accounts, we in fact announce the preliminary results of each 546 financial year shortly after its close; and at the same time there is a Press notice issued which comments on any interesting developments which may have taken place during the year. Then, when the final accounts are made up, they are published in the Blue Book in a purely commercial form each year, usually in December, headed Trading Accounts of Government Departments. I hope that that provides the noble Lord with what he wants in the way of information. In regard to overseas assistance, it is true that at present all cases under Section 3 have moved over to the Ministry of Overseas Development, and there will be no more activities in E.C.G.D. on that score at all.
The noble Lord, Lord Drumalbyn, also suggested that there should be some tidying up in this matter. I would suggest that the organisation is a pretty tidy one, and that it works fairly well. I do not say that it is absolutely perfect, and continuously there are some small "loose ends" which are being made more efficient and more effective. But I do not think any large-scale operation is needed, other than the question whether the whole of E.C.G.D. should be turned over to private insurance or a public corporation, or whatever it may be. I would in the first place remind your Lordships that there is no obligation upon exporters to use E.C.G.D. at all. They are perfectly at liberty to go to their own banks, their own merchant houses, to Lloyds underwriters, or anybody they like to insure this risk if they want to. The fact that they do not want to, and the fact that they find it more advantageous to go to E.C.G.D., surely makes it abundantly clear that the services offered to them by E.C.G.D. are more satisfactory to them than those which can be offered by existing insurance undertakings. Therefore, I would submit that that disposes of the argument that it ought to be handed over to private enterprise.
I do not think that that is precisely what the noble Lord meant, and I do not want to misrepresent him; but some people have put this view forward. I think what he was suggesting is a change in nomenclature, but not a change in function at all. We all agree that they must be an organisation which has Government backing, which has access to Government information, which has the services and the experience of private enterprise, bankers and businessmen, and 547 which runs with the maximum degree of autonomy consistent with our position in the credit-giving world, the Berne Union and the other things I have mentioned.
§ LORD DRUMALBYN
My Lords, may I intervene to say that I would not regard this as a change in nomenclature so much as a change in responsibility. It seems extremely odd that the excellent advisers should always have their advice taken—that they should in effect be running the show—and yet that they have not the final responsibility for in fact running it.
§ LORD RHODES
My Lords, may I point out that this is not the case. They do not run the show. The civil servants run it under their very admirable Director. The Advisory Council advises, and in regard to a large slice of the business they do not come into it at all. It goes from the Treasury, through the officials at E.C.G.D., and that is it.
§ LORD DRUMALBYN
According to the official records, on 94 percent. of business the Department follows the Council's decision.
§ LORD RHODES
Yes; it is, of course, bound to follow the Council's decision, because up until recently 94 percent. has been under Section 1, and all of Section 1 comes under the jurisdiction of the Council.
§ LORD WALSTON
Be that as it may, while I am far from being against change (and I am always prepared to have change if it is for the better), I cannot see that, where an organisation combines the expertise of private enterprise and of bureaucracy—the Treasury, the banks, the insurance companies, Government Departments, our overseas missions—and does so to the satisfaction of private enterprise, as is shown by the fact that it prefers to go to E.C.G.D. instead of to other private insurance, a prima facie case is made out for change.
I should like to mention two other things. One is the overriding responsibility of government to prevent the credit race getting out of hand. If we handed it over to private enterprise in any form, or relinquished ultimate control of it, it would be impossible for the Government to step in and say, "You will not give ten years' credit here because the Japan- 548 ese and the Americans are only giving eight years." Therefore, we have to retain that control. Above all, I would remind the noble Lord that the Speed Committee, which inquired into this matter less than ten years ago, reported against it. I think there is no point, when we have had an expert and well-qualified committee making a report within a relatively short time, in reopening the matter as soon as this. That does not mean to say that I have a completely closed mind on the subject, and that we might not have another inquiry into it in, perhaps, five years' time, when conditions may have changed. It is at the moment working extremely well. The experts who have looked into it have said that it should continue as it is, and I think that is sound reason for continuing as we are at present.
The noble Lord, Lord Drumalbyn, also mentioned the heavy losses which have taken place. I am sure he understands this well, but I would make the general point which some people do not appreciate sufficiently. When claims are paid out by E.C.G.D. to insurers that is not necessarily a loss, any more than when you have an unfortunate motorcar accident and go to your insurance company, although it is not your fault they will pay out the claim to you. That is not a loss to them, because they have hopes of recovering it from the man who has caused the damage. In fact, it is confidently expected on very sound grounds, and not only on past experience, although that comes into it, that virtually all the transfer claims which have been paid out in the last year or two will be recovered in full and with interest. So these should not be regarded as losses but rather as claims met quickly, which will over a period of time be recovered.
§ LORD DRUMALBYN
My Lords, I am sorry to interrupt the noble Lord, but of course the losses to which I was referring are losses which were incurred about 15 years ago.
§ LORD WALSTON
My Lords, I beg the noble Lord's pardon for that. But I have no regrets at having made this point clear, for the sake of other noble Lords who are not so well informed.
There is a point which was raised partly by my noble friend Lord Rhodes and partly by the noble Lord, Lord Drumalbyn, on the question of economic 549 aid. I have already said that those cases, which formerly came under Section 3, are now handed over to the Ministry of Overseas Development. But the Section 3 powers, which also allow for the financing of credits guaranteed under either Section 1 or Section 2, will remain on the Statute Book in case of need. There is no point in taking them off. It is unlikely that they will be needed, but they may come in useful at some stage. Section 2 will continue to be used for giving cover in the national interest for risks not acceptable to the Advisory Council. This has always been an important part of Section 2 and accounted—and I think this is one of the figures which my noble friend quoted—for approximately £465 million out of total Section 2 liabilities of £64 million at the end of January, 1967. This part of Section 2 includes the financial guarantees for long-term credits, which is an import ant part of the E.C.G.D. service to British exports. So Section 2 will still remain a vital instrument of cover, even after the transfer of aid responsibility to the Ministry of Overseas Development, and that is why we are asking for this increase in Section 2 loans.
May I now deal with the specific questions which were put to me by the noble Lord, Lord Drumalbyn? He asked, first of all, what had been the response to the offer to small exporters and how many policies had been issued. Up to the present time, approximately 2,000 policies have been issued, but what the future result of those will be remains to be seen. It is a little too early to say. The noble Lord's second question was about financial guarantees. He said that 37 had been issued up to a year ago and 55 were in negotiation, involving another £300 million. At January 31, 1967,there were 52 guarantees actually issued, involving a total loan value plus interest of £338 million, and in addition a further 61 cases, involving a total contract value of £332 million, which had been approved in principle, were in various stages of negotiation.
Then his final question, which covered a fairly long and interesting list, was concerning the problems of capital projects. I think he said that most of the vociferous complaints against the E.C.G.D. came from people and companies involved in big capital projects, 550 where we are said to be not competing with other people, and I believe he asked whether we could not send out people from the E.C.G.D. as part of a negotiating team. The E.C.G.D. does, in fact, do just that. It sends out officials to assist exporters, when needed and when asked for, in negotiations for financial-guarantee loans for long-term development projects. In fact, so far as financial guarantees are concerned, we decide our own terms and do not ask for information about what foreign competitors are giving. The matching policy, of course, applies to the smaller projects, and I have dealt with that already.
We have our actual, positive policy of sticking to the five-year limit or whatever it may be, depending on the case, but we have reached agreement with all the main countries. That is positive in itself, and we take the lead in that. But if evidence is brought to us that others are offering better terms, we are always prepared to match them. But I would warn the noble Lord—as I am sure he knows well—that no firm is very happy at losing a contract because of its own high cost or incompetence or unsuitability, and it is always much more anxious, if it possibly can, to say, "We lost this contract because we were not able to offer the same facilities as other people." That is sometimes the case, but very often, when one investigates rather more closely many of the cases which one hears about, they turn out to be nothing to do with the actual credit terms, but concerned solely with the suitability of the goods or the services which have been offered.
I hope I have dealt with the majority of the questions which have been asked. I thank noble Lords who have taken part for their very well-informed and helpful questions and comments. I also thank them for their support of this Bill, and for the kind words which they have said—wholly deserved, and with which I also associate myself—for the staff of the E.C.G.D., from the very top to the very bottom. I have travelled the world in my previous incarnation going to many countries and meeting many British businessmen and others during those travels. Although there are always some who will complain about the failure of co-operation and all the rest of it, almost universally I found good words being said for the E.C.G.D. and compliments for the 551 improvement and the increase in fluidity and flexibility which is there. So I am grateful to noble Lords, and I hope they will continue to support this Bill and what it stands for.
§ On Question, Bill read 2a;Committee negatived.