HL Deb 11 November 1971 vol 325 cc459-62

3.6 p.m.

LORD BROWN

My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government whether they will consider the introduction of a scheme to provide fixed interest rate long-term export credit by the setting up of an equalisation fund into which the clearing banks would make payments when the fixed rate exceeded bank rate, and from which they would draw when the position was reversed.]

THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)

My Lords, the review of the whole matter of export finance arrangements announced by the Chancellor of the Exchequer on January 26 has recently reached a stage at which it was considered useful to set up a joint Working Party. As has been announced, this will consist of representatives of the clearing banks, the Bank of England and the Government Departments concerned. The Working Party will explore on a technical basis the practicability of possible schemes for the financing of export credits of two years and over. There have been discussions and correspondence between the British Export Houses Association and officials about the Association's scheme for an equalisation fund. This scheme and other schemes will be taken into account by the Working Party.

LORD BROWN

My Lords, I am grateful for that Answer and for the fact that progress is being made. Are Her Majesty's Government aware that this is an extremely urgent matter, because the monetary instability in world affairs today means that there is a likelihood of changes in the percentage charged for export credit, and large engineering firms, who are exporting very importantly, are now in a situation of having no stable rate on which to base their quotations for the future? They are in this uncertain condition, which is affecting export effort.

LORD DRUMALBYN

Yes, my Lords, I am aware of that; and the Working Party has already started and is getting on with all due dispatch.

LORD DIAMOND

My Lords, can the noble Lord explain one thing which I did not follow? Why, when the statement was made as early as January, has it only recently been found possible to convert this into a working atmosphere by setting up a Working Party? This is a matter of considerable interest to all sections. It is of great importance for export, and it is a matter which all exporters, in my experience, have always regarded as very relevant to their future.

LORD DRUMALBYN

My Lords, I thought the point of the noble Lord's noble friend was that the recent action of the United States of America had made the question particularly urgent. At any rate, now I can say, in view of that particular urgency, that things are going ahead with all speed.

LORD BROWN

My Lords, are the Government really fully aware of the fact that the Government's economic policies have themselves placed many heavy engineering firms, upon whom we rely for exports, in a very precarious economic and financial position? The Government ought quickly to be leaning over backwards to give any help they can to such firms.

LORD DRUMALBYN

My Lords, I would not agree with what the noble Lord has said. The difficulties have largely come about as a result of the lack of liquidity, and this is what our policy has been designed to relieve.

LORD BROWN

My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government whether, in the light of the current 5 per cent. bank rate, the recent reduction of the interest rate on export credit from 7 per cent. to 6 ½ per cent. is sufficient, in the Government's opinion, to place British exporters in a position to compete, on credit terms, with the exporters of Japan and France.]

LORD DRUMALBYN

My Lords, it is difficult to make precise comparisons with foreign credit rates because most countries, including France and Japan, have a range of rates related to the length of the credit and other factors, and they may change fairly frequently. The new United Kingdom rate of 6 ½ per cent. is above the minimum but below the maximum rates currently in force in France and Japan for medium and long term credits and is about the middle of the range of rates in the main competitor countries. This should place British exporters in a generally competitive position so far as credit is concerned. The United Kingdom rate is fixed both for the life of contracts to which it applies and also in the sense that it does not fluctuate with short term changes, and it is not therefore directly related to bank rate.

LORD BROWN

My Lords, while thanking the noble Lord for that Answer, may I ask whether Her Majesty's Government are aware that the 70 per cent. increase in direct exports which was achieved during the last Government's period in office was very materially assisted by a highly competitive rate on export credits, which has now disappeared? Those concerned are left in a situation of non-competitiveness with a number of other countries, and this is very important to the future export efforts of these very large engineering firms.

LORD DRUMALBYN

My Lords, I am sure the noble Lord is aware that when the export credit scheme originated, the rate was fixed on the average bank rate in previous years and was intended to last for a considerable time. Because the bank rate remained exeptionally high for some time, this borrowing rate of 5 ½ per cent. became out of date and had, in the pressure of circumstances, to be changed to 7 per cent.

LORD BROWN

My Lords, can the noble Lord explain why it was that during the period of the last Government it was possible to maintain a stable rate of 5 ½ per cent while the bank rate was consistently well above that rate. and that during the period of this Government although the bank rate is now down to 5 per cent. the export credit rate is up to 6 ½, per cent.—that is, it is above the bank rate?

LORD DRUMALBYN

My Lords, it is the banks that lend the money, not the Government. The banks were lending at an exceptionally low rate well below the hank rate. That can be done only at the expense of others.

LORD BROWN

My Lords, while the previous Government were able to influence the banks to give this benefit to exporters, is it the policy of this Government to leave the question of export credit rates—which is so important to the national economy—solely to the banks?

LORD DRUMALBYN

No, my Lords. This matter has not been left solely to the banks. The banks agreed to reduce the rate from 7 per cent. to 6 ½ per cent., in view of the fact that there had been a relaxation of lending rates abroad.

LORD HAWKE

My Lords, in view of the economic depression, will Her Majesty's Government not agree that a bank rate of 5 per cent. is too high?

LORD DRUMALBYN

My Lords, I suggest to my noble friend that that is another question.