§ 6.5 p.m.
§ Lord WINTERBOTTOMMy Lords, I beg to move the Second Reading of the Export Guarantees (Amendment) Bill. I hope your Lordships will forgive me if my Second Reading speech seems somewhat long, but I think it is important that this rather important measure is put on the Record in a form which has been slightly modified as a result of discussions 938 in another place. Those who believe, and I am one, that the activity of exporting is the basis on which all other policies must be built, will agree on the importance of this measure. For that reason I very much welcome the opportunity to say something about the Export Credits Guarantee Department, whose activities are not very often debated by this House. I believe that other noble Lords will also welcome this opportunity.
The Bill before us is a significant one. It has three purposes. First, it proposes that ECGD should be empowered to make loans and grants for specified purposes connected with exports. Second, it proposes that ECGD should be empowered to make arrangements for the purpose of encouraging trade with other countries for making payments related to certain cost increases in respect of export contracts. Third, it proposes that the two limits on the Department's commitments set out in the Export Guarantees Acts should be combined and be subject to increase by order.
This debate comes at a time when we face a rapidly changing international trading scene. The terms of trade and the balance of economic and trading power are changing, and it is essential that ECGD continues to be able to provide effective support for British exporters. Indeed, a theme to which I shall no doubt return is the need for the ECGD to have the statutory powers, the resources and the flexibility, to be able to offer to our exporters a package of facilities which stands comparison with that available from similar institutions in any of our overseas competitors. I confirm to noble Lords that it remains Government policy that this should be the case.
Another theme which I have no doubt other noble Lords will wish to discuss is the need to avoid any escalation of an export credit war. It is for this reason that the ECGD is playing a full and active part in negotiations in various fora to try to negotiate a basis between the major exporting countries to rationalise the terms of export credit giving. It would, however, be wrong to underestimate the difficulties which these negotiations face.
The Bill before us is a technical one— indeed, the whole field of ECGD operations is technical, and it may, therefore, 939 be useful to noble Lords if, before discussing the proposals in the Bill in any detail, I briefly distinguish between ECGD's credit insurance operations and its refinancing operations.
In its credit insurance operations ECGD receives premium from exporters from which it pays its administration costs, meets current claims and makes provision against future claims. As noble Lords know, the Department in its credit insurance operations is required to break even taking one year with another and thus, over time, to operate at no net cost to the Consolidated Fund. The ECGD has throughout the years met this obligation. However, the present cash flow basis of ECGD's accounts has led some to suggest that ECGD is making too much money! This is misleading. Not only is ECGD faced with rising costs, but the risks it accepts are increasing as both individual buyers overseas and whole markets are hit by inflation and by the general uncertainties which have flowed in the wake of the oil price rises. The Department expects these increased risks to be reflected in the pattern and level of its claims payments. Let me take one example: Claims paid on private buyer insolvency and default under ECGDs Section 1 commercial underwriting account were in the financial years 1971–72 and 1972–73 between £8 million and £9 million in each year. In the last financial year they rose sharply to over £16 million. In addition, where long credit is involved, ECGD will have commitments at risk on its books for many years to come for which it will receive no additional premiums. In a rapidly changing world, the premium originally charged by the Department may not fully reflect the deteriorating situation.
It is perhaps against this kind of back-ground that the increases in ECGD short-term premium rates announced last autumn, and which come into effect on 1st April, should best be viewed. The increases are in fact put into perspective when I tell noble Lords that the changes still leave premiums lower than they were 10 years ago. Even including the increases, an average rate would be less than a third of the rate which applied in the late 1940s, when the form of cover available to exporters was much more restricted. I am sure that the whole House will agree 940 that this fact reflects great credit on the conduct of the affairs of the Export Credit Guarantee Department. Its standing as a Department is high and, indeed, I have heard it said by someone whose judgment I trust that the Department provides the cheapest and best cover available to any exporting nation.
In operating its commercial or Section 1 credit insurance facilities, the ECGD is much helped by the Export Guarantees Advisory Council. I am sure that noble Lords would not wish this debate to pass without me placing on record the Government's continuing appreciation of the very valuable work carried out by this body, whose members are drawn from business and the City. Their skills and experience are of very great importance in enabling the Department to continue to adapt positively to the difficulties of the changing exporting world. I should, perhaps, stress that ECGD's premium income is in no way affected by, or related to, the refinancing operations of ECGD. These refinancing arrangements are a distinct function from the credit insurance operations and are accounted for quite separately. There cannot, therefore, for example, be any question of premiums having been raised or needing to be raised because of the cost of operating the refinancing arrangements.
It has been the policy of successive Administrations to ensure that, in general terms, British exporters are not placed at a disadvantage with their over-seas competitors as regards export credit and export finance. This remains our policy. Export finance in this country has traditionally been supplied by the clearing banks. The ECGD has facilitated the provision of such finance by its guarantees to banks and its support of buyer credit operations. Most major exporting countries operate a system of some kind to provide fixed rate finance for their exporters. In recent years these export rates have not kept pace with other interest rates. Unless our exports were to be placed at a significant disadvantage, our rates have to be kept broadly in line with the rates of others. As noble Lords will appreciate, this is not, of course, a cost-free exercise, and neither would it have been reasonable or realistic to expect the commercial banks to provide fixed rate lending for exports at rates below commercial market rates.
941 It is against this background that the refinancing arrangements were worked out in 1972 between the then Government and the banks. Details of the arrangements were, of course, published. As part of the refinancing arrangements, the clearing banks agreed to provide finance for exports sold on two years' credit or longer and for home shipbuilding at fixed rates. In return, each bank participating in the refinancing scheme was to receive refinancing loans from the ECGD when its fixed rate lending exceeded 18 per cent. of its current account balances. In addition, the bank would receive an agreed rate of return based on commercial rates on fixed rate lending it did not refinance. In very general terms, this scheme represented—and still represents —one aspect of the cost of keeping British exports competitive. It was hoped that the interest supplement due to the banks in respect of the difference between the fixed rate and the agreed rate would be offset by adjusting the interest due from the banks on the refinancing loans. In practice, however, this has not happened.
There are two main reasons for this. In the first place, the unprecedented rise in commercial interest rates and the continuing need to keep fixed export rates generally in line with our overseas competitors, meant that the gap between the fixed rate and the agreed rate widened. At the same time the banks' current account balances increased faster than expected so that the amount of fixed rate lending required to reach the 18 per cent. threshold was higher than anticipated. Thus, smaller amounts became eligible for refinancing, while the agreed rate of return was earned on a larger volume of lending. Inevitably, therefore, the interest supplement payable to the banks from the ECGD exceeded the amount of interest due from them to the ECGD on the refinancing loans. As the ECGD does not have the necessary statutory powers to make grants to the banks, substantial arrears of interest supplement accrued. By October, 1974 these had built up to approximately £86 million.
In the light of this developing situation, a review of the fixed rate scheme was commenced early in 1974. Following negotiations between the Government and the banks, modifications to the scheme 942 came into effect on 17th October, 1974. The modified scheme has broadly the same framework as the previous one in that the banks will continue to finance exports at fixed rates set by the Government, but with the important difference that when commercial rates are at a high level, the agreed rate of return which the banks receive on their unrefinanced lending will be subject to a taper. The precise effect of this taper will depend on a range of factors, such as future levels of interest rates, the level, size and profile of future exports and the total amount of current account deposits. It is possible, however, that if interest rates remain at their present level, the financial benefit to the Government of the modified arrangements over the next three years will be of the order of £30 million. Provision was made in the Winter Supplementary Estimates to pay the banks the arrears and they have now been paid.
Initially the purpose of the Bill was, therefore, to provide the ECGD with the necessary powers to operate this scheme more effectively. One is the power to make grants in respect of the interest supplement. This will enable us to ensure that arrears do not accumulate. The other is to enable the ECGD to make loans to refinance part of the banks' fixed rate lending. The ECGD has until now been providing refinancing loans under existing powers, but these powers are not wholly satisfactory. The Bill will thus provide a more satisfactory basis on which to operate refinancing. However—and this is a most important point—the grant powers have another purpose. In 1970 the ECGD sought specific powers to enable it to assist United Kingdom exporters in competing with unusual credit terms offered by foreign competitors. The need arose because of the use by some over-seas competitors of a mixture of commercial credit and so-called aid which led to an overall softening of the credit terms for some contracts. The United Kingdom has always opposed these arrangements, since it believes that aid and commercial credit are two separate matters, that these should be kept separate and that this separation is in the interest of both the recipient countries and the aid-giving countries. In any case, the ECGD and commercial credit are not suitable vehicles for aid giving.
However, efforts to persuade other countries to drop these measures failed 943 and so, in order to ensure that United Kingdom exporters were able to compete with these terms if necessary, the ECGD sought powers to match this competition by providing grants in respect of interest payable in connection with export contracts. The 1970 Act does not in fact provide satisfactory powers and thus the grant-making powers in this Bill are wide enough to cover this use as well. We shall no doubt consider this point in greater detail in Committee. I should perhaps stress that the existing powers have never had to be used and confirm that it re-remains Government policy that these powers will be used only sparingly, and only when there is a clear national interest in doing so. The new powers do not in any sense represent an escalation in the international credit race. Clause 3 will enable ECGD to provide some measure of protection to major capital goods exporters by partially covering them against unpredictable price increases. This is an important new measure which should help to alleviate the difficulties at present facing many such exporters.
The decision to introduce this kind of arrangement is not one which the Government have taken lightly. British exporters of major capital goods have been at an increasing disadvantage compared with those who enjoy some measure of protection from their Governments against unpredictable levels of price changes. Successive British Governments have long tried internationally to persuade others to discontinue their practice of indemnifying their exporters against rises in costs. Despite making clear in these representations that we might otherwise have to give British firms some similar support, I regret to say that these efforts met with little real success. The Government feel, therefore, that the time has come to provide assistance to those United Kingdom exporters facing the most serious problems.
Clause 3 enables the Secretary of State to make arrangements for making payments to persons carrying on business in the United Kingdom who have entered into export contracts. The payments will relate to such increases in the cost of labour materials or other matters as may be specified by or under the arrangements. These arrangements must be for the purpose of encouraging trade with other 944 countries and can only be made with the consent of the Treasury.
As has been announced in another place, the scheme will apply to major capital goods contracts with an individual value of £2 million or more with manufacturing period of two years or more. Exporters will have to bear or pass on to buyers at least the first 10 per cent. per annum of increased costs but the Government will then cover 85 per cent. of eligible cost increases within a 10 per cent. per annum band above that minimum level. In the case of cash contracts this protection will be increased to 90 per cent. within a 15 per cent. per annum band.
We shall no doubt consider further details of the scheme—perhaps on Third Reading, since this is a Money Bill and has been certified as such by Mr. Speaker —but it is the Government's intention that it should provide some incentive to exporters to try to control their costs and to go for cash contracts, which not only produce a quicker return to the balance of payments but also avoid the need to provide fixed rate finance at the special export rate. The fact that the threshold can float above a minimum level will give the exporter a further incentive to pass on the maximum possible amount of cost increase to overseas buyers. A premium of 1 per cent. per annum will be charged for this facility.
It is almost impossible to estimate with any precision what the cost of the scheme will be. Much will turn on how much industry's costs do in fact escalate over the next few years, on the form of cover taken by exporters and, above all, on the success of the scheme in encouraging additional exports. However, as we have stated in the Explanatory and Financial Memorandum, for the moment provision has been made for expenditure of £50 million in 1977–78, which is the first year in which additional public expenditure will arise, except of course on administration. It must be borne in mind, however, that this figure is based on a number of assumptions; for example, that the value of business covered by the scheme would be of the same order as the business which ECGD underwrote in 1974 and which would have met the guidelines of the new scheme. Noble Lords will appreciate 945 therefore, that this is a very uncertain figure, but I want to stress that the scheme will be accounted for quite separately from ECGD's other operations and payments under it will not, therefore, affect ECGD's reserves or the premium which the users of its other facilities have to pay.
Although cost escalation facilities have existed in other countries for many years, it was inevitable that our own scheme should have produced some adverse international reactions. In particular there has been Press speculation that this move might jeopardise the success of negotiations which have been going on for nearly 18 months for a gentleman's agreement regulating export credit competition— negotiations in which we have played, and continue to play, a very active and positive role and in which we have been and remain prepared to meet the other parties half way, and more than half way, to achieve a successful outcome.
Following recent meetings between the EEC Members and the USA and Japan, we remain hopeful of ultimate success in securing agreement on appropriate minimum levels of interest rates and maximum lengths of credit, although there are difficult problems still to be overcome on important matters of substance. If there is a breakdown now, it will not be because all outstanding points of difference would have been resolved but for the introduction of our cost escalation scheme; it will be because it has not been possible to agree a package on all these differences which meets the national interest of all participants.
This scheme is an important development. It is designed to reduce an unpredictable risk and in a way which will share the costs and benefits between exporters, buyers and the scheme. It represents a positive response to the many and urgent representations made by industry. The final point I should perhaps stress to noble Lords is that this scheme is not seen as a self-balancing one, nor is it the Government's intention that it should become part of ECGD's normal facilities and services. Indeed, our firm intention is that it will not be retained for any longer than is absolutely necessary.
The recent history of ECGD has been 946 characterised by the continuing rise in business. This is the main reason for the provision of the Bill; namely, the need to adjust ECGD's statutory limits. The increase in business has not only reflected the rise in United Kingdom exports, but also represents an increase in the proportion of exports covered by the Department. In the first six months of this financial year, ECGD covered £3,081 million of United Kingdom exports representing 37 per cent. of the total. This was a 40 per cent. increase on the volume of business covered in the same six months last year. Most of the increase was in the short-term field. This has been of particular benefit to the balance of payments and illustrates the competitiveness of United Kingdom export prices. Because of the rise in the volume of the Department's business, it would have been necessary to seek an increase this year in one of the two existing statutory limits on the amount of liability that the Department may undertake. This would in itself have necessitated further legislation.
The two limits on ECGD's liabilities are, first, £6,200 million in respect of Section 1 business—that is, commercial business undertaken with the advice of the Export Guarantees Advisory Council. The other limit is £6,000 million for Section 2 business which is underwritten in the national interest. Although these are revolving limits against which only live liabilities are counted, new liabilities have built up faster than old ones have run off. It now seems clear that the Section 1 limit will be reached this year.
Both limits have been increased at fairly regular intervals in the past by legislation. However, it has nearly always been the case that limits which were expected to last five years have needed to be increased after only some three years. Inflation makes this all the more likely to be so. Therefore, the third proposal in the Bill is that the two limits should be combined into one of £12,200 million. This of course represents the total of the two existing limits and no increase in this limit is thus proposed. The combined limit will also include commitments incurred by ECGD under the Cost Escalation Scheme which I have already mentioned.
The Bill also provides that increases may be made by Affirmative Resolution 947 laid before Parliament up to a total not exceeding £21,200 million. Although this may seem a high figure, it represents a volume of business which could well arise over the next five years. Fears have been expressed in another place that the combination of the Section 1 and Section 2 limits has some sinister purpose. I can state quite categoricaly that this is not the case. The proposal is one designed to save Parliamentary time and to enable ECGD to react flexibly and positively to changing circumstances. It will not in any sense change the way ECGD under-writes business, nor the relationship between ECGD and Ministers, or between ECGD and Parliament. The other clauses of the Bill contain certain technical amendments to the ECGD Acts. These are the necessary consequential changes following from the taking of the specific loan and grant powers in Clause 1 and cost escalation powers in Clause 3.
One theme to which I have returned throughout this speech has been the speed and fundamental nature of the changes taking place in the exporting world. In a mass of uncertainties, the one certainty I should isolate would be that these changes will produce challenges for ECGD. Risks will become more difficult to assess, new facilities and forms of cover will be sought, and the increasing pressure for export markets cannot but throw great strain on international discussions to rationalise export credit giving. The shadow of the "beggar my neighbour" policies of the 'thirties hovers in the background. However, I believe that many noble Lords will agree with me when I say that the history and development of ECGD gives cause for some confidence that the challenges will be met by positive responses. ECGD would not, I know, claim to be perfect. Mistakes and delays do occur—but it is constantly reviewing its procedures to try to ensure that the needs of exporters will be met as quickly as possible. The new computer which should be in service by 1977 should speed up decisions on individual overseas buyers.
The Department certainly does not feel that its facilities cannot be improved or extended—indeed, a number of new facilities are currently under review, including assistance to enable exporters to raise the performance bonds which are increasingly required for large projects overseas. We 948 must continue to seek a better balance in export credit through international agreement. Competition must be rationalised so as to restore some proper emphasis on quality, price and delivery. Any reliance on excessive and cheap credit is, in anything but the short run, in no one's interests—either buyer or seller. Similarly, if other countries are prepared to consider stopping their cost escalation scheme we shall later be prepared to consider doing the same. However, our aim at all times must be to ensure that our export interest is not harmed. It is vital, therefore, that any moves to rationalise export support should be carried out on a multilateral basis, and not by the United Kingdom alone.
However, in all these areas there remains the difficult but inescapable problem of drawing a balance between promoting and supporting British exports and the cost of doing this. Both the refinancing and the cost escalation schemes throw this problem into sharp focus. In these and other contexts there will always be room for dispute over whether the balance is perfect. I do not think that this kind of precision can be obtained. However, we believe that in both cases the balance between costs and benefits is about right and we shall certainly keep the position under review, not least because of the public expenditure implications. I assert that Britain needs exports and exporters need ECGD facilities. I wonder whether either statement can ever have had more force than it has today? The Bill before your Lordships' House is designed to give ECGD the powers it needs to continue flexibly, imaginatively and positively to fulfil the important role it will have to play in the difficult years ahead. Its Statutes already make clear that it exists to encourage trade with other countries. All of its efforts and activities are directed to this end. It has, I think, proved that it can do the job. It now needs new statutory tools! I beg to move.
§ Moved, That the Bill be now read 2a— (Lord Winterbottom.)
§ 6.33 p.m.
§ Lord BELSTEADMy Lords, when this Bill was introduced into another place the main purposes of it, as the noble Lord, Lord Winterbottom, has explained, were to amend the refinancing 949 arrangements between the Government and the clearing banks, and to increase the limits on the Export Credits Guarantee Department's possible commitments. But it then became clear that Clause 4 —which is the one which increases the limits—has some elements of controversy in it. In addition, on Report in another place, the Government moved Clause 3 into the Bill, giving the new power to the Government for the payment of grants to exporters in respect of cost increases, which the noble Lord has also explained. I am therefore grateful to the noble Lord, Lord Winterbottom, for his explanation of a Bill which is certainly not without its complications. May I also express my regret that the list of speakers has been so arranged that I am speaking before the noble Lord, Lord Kissin. I have a feeling that if the speaking order were reversed I might, with the benefit of having heard the noble Lord, be able to make a rather better speech. I am aware that the noble Lord comes to the House with very wide financial experience and, with other noble Lords present, I greatly look forward to hearing him speak.
My Lords, the trade figures issued last week showed two things—first, that this country is making every effort to maintain our export trade at its highest possible level. In saying this, may I join with the noble Lord in recognising the vital part played by the ECGD and by the Export Guarantees Advisory Council. But the figures also show that we remain in a most critical balance of payments position, and therefore anything which can be done—anything which this Bill can do—to improve our foreign trade position in real terms must be of primary importance to the future of all of us.
May I turn immediately to the Bill and to the speech made by the noble Lord, Lord Winterbottom? Clause 1 provides power for the ECGD to make grants in respect of the interest supplement, which the noble Lord has explained, and which has been built up in the past two years until, in October, it stood at £86 million. May I ask how the Government see the need for this grant-making power developing? The noble Lord said that the Government felt that it would mean an improvement, from the Government's point of view, of £30 million. Am I right in thinking that this means 30 million 950 taken away from £86 million? Rather more generally, I wonder how the Government see this interest supplement going as this year, and perhaps next year, go by?—although I realise that here the noble Lord's reply must depend on factors which are very difficult to forecast. Even though the new general grant power—which is also in Clause 1—is to be used, as the noble Lord said, sparingly, I cannot help but wonder whether it may not be a temptation for us to join in the acceleration of international credit rates. However, this is a matter about which I feel I am not competent to speak. The noble Lord who is to speak later may wish to allude to it and, if he does, I will certainly listen with the greatest interest.
My Lords, I should like to ask the noble Lord about Clause 3—the new grant-making power to assist exporters with a 10 per cent. or 15 per cent. band of their cost increases. There is no doubt that this provision will be of considerable encouragement for exporters. But Government assistance with the costs of inflation is really no cure for inflation itself. The two costs specifically mentioned in the clause are labour and materials. They are both costs which are governed by wage inflation—the former wholly and the later partly so. Thus, in this Bill we find yet another compelling reason for the Government to find a policy which they are prepared to stand by, to reduce the really appalling inflationary levels which we are feeling in this country at present.
The noble Lord said that Government support under this clause may run at something in excess of £50 million per annum initially, but, naturally, the Government do not know for certain what the figure will be. I trust that when the noble Lord replies he will join with me in expressing the hope that the need for Clause 3 will not last very long, and that he may have something constructive to say about our current national rate of inflation. I have one specific question to ask on this clause. I gather that under Clause 3(2) premiums are to be charged for the services of this scheme and, as I understood the debate in another place, the premiums will be at 1 per cent. Perhaps the noble Lord can tell me, in writing if he is not able to answer now, of what is it to be 1 per cent. Is it to 951 be 1 per cent. of the contract price, or 1 per cent. of the cover which the Government will be giving? After all, the amounts will differ very considerably, according to what the answer is.
In another place, a Government spokesman said that those of our exporters who are going to avail themselves of the terms of the recent Russian agreement will be able to take advantage of the cost escalation scheme which is set out in this clause. I accept that the Government are unwilling to give more details of this trade agreement, and I am not asking the noble Lord for any statistics on this subject. But I am sure that it must be common ground among all your Lordships to want to see the promotion of our export trade, on a basis which is genuinely profitable for this country.
The question I should like to put is this. Have the credit terms which have been offered under the Russian agreement any trigger mechanism within them? I have understood from what I have read that about £1 billion credit is going to be available to the Russians to be taken up during a five-year period at un-disclosed interest rates. I am not asking questions about that. I am asking this. If the credit terms for a contract were not to start until, say, 1980, taking up the credit at the end of a five-year period, and then the credit does not begin to run until the completion of the contract, another three years, it could be 1983 before the credit facilities agreed by the Prime Minister in 1975 actually become operative for dealing with the Russians. What will be the level of commercial credit by 1983, no one can possibly say. Therefore, without asking the Government what is the percentage of credit offered or the length of the credit allowed, may I ask whether there is a trigger mechanism in the credit agreement under this main agreement to insure us against violent movements in world interest rates in the years ahead?
There was one important Amendment moved in another place (col. 706 of the Official Report) which I should like to refer to even though this is a Second Reading debate. It would seem to be an Amendment which was designed to help substantially with our balance of payments. It became clear that both sides in another place did not realise that this was a Money Bill and was not going 952 to have a Committee stage in this House. If the noble Lord will forgive me, I will refer to it. In essence this Amendment would have given ECGD power to give guarantees in currencies other than sterling for loans being made by the banks. I regret that I am no expert on this subject, but even to me one thing appears obvious. At a time when sterling is weak, surely we could gain very considerable amounts of foreign exchange if loans are made in certain foreign currencies; whereas at the moment it is the fact that we are liable to lose many millions of pounds for precisely the same reason.
I have asked before I came to the House this afternoon whether buyers from, say, West Germany do not take into account that a loan in sterling is liable to depreciate against the Deutschmark and that buyers in West Germany under those circumstances do not jump at British contracts for that reason. My information is that this is by no means so; and that usually overseas buyers disregard the long-term advantage to them of the weakness of sterling as far as the take-up of loans is concerned. Therefore it drives me to this conclusion. It seems that this country is not on any count gaining by having our loans guaranteed in sterling. They do not in themselves attract greater business apparently, and when business is gained there is a liability of considerable loss because of the weakness of our currency. The proposal in that Amendment in another place to give ECGD power to make its guarantees in currencies other than sterling would in no way oblige the Department to do this. It would leave the Department to make its choice. There is little doubt that it would be a power which would be of advantage to exporters and of benefit to our balance of payments. I hope the Government will look carefully at this matter again in the near future.
Finally, I turn to Clause 4. Obviously there is a need to increase the limits on ECGD commitments for the reasons the noble Lord has explained. But the problem posed by the Bill's provisions in Clause 4 to amalgamate the two limits is that Parliamentary control over this very substantial public expenditure is being reduced. That is by no means the end of the story. Under Clause 4(2), the ECGD commitments made by Affirmative 953 Order are further increased to the really astronomical total of £21,000 million. As, presumably, the increased grant-making expenditure under Clause 3 will fall within the Clause 4 limits, I have no doubt that the ECGD will be making use of these new commitment limits in the near future.
This House would have no control over this increased expenditure. I do not question that. The important point is that neither will another place. No longer will there be any need to distinguish between what was called Section 1 business and Section 2 business, which was included in the 1968 Act because it was considered right that there should be this check on the activities of the Government. By the mere presentation of three Orders the Government are going to be able to increase by about 75 per cent. the level of the Department's commitments. This cannot be wise. It removes almost completely the proper Parliamentary control which previous legislation has afforded.
Although I am critical on this point, and I think many other noble Lords would be, too, I welcome the announcement made in another place (but I do not think the noble Lord referred to it) that henceforward the London head-quarters of the Department is to devolve many business decisions to their new regional centres. I am an East Anglian. In my own area, with its close trading links through the East Coast ports with Europe—a matter which I am sure the Minister of Trade will be delighted to hear about—our exporters and potential exporters will welcome the new arrangements which will give the Department more local knowledge of the potential and the problems of the regions. This is a necessary Bill coming at a crucial time. I regret the inclusion of Clause 4 but, otherwise, may I give the Bill my support.
§ 6.48 p.m.
§ Lord KISSINMy Lords, I thank the noble Lord, Lord Belstead, for his very generous and kind remarks. After his remarks I do not think I need disclose my interest in the Bill before the House. I will in the tradition of maiden speeches abstain from commenting on those parts of the Bill which I think are controversial. In the first place, I am sure that 954 any steps that Her Majesty's Government can take to improve our competitiveness in the field of export credits must have our unreserved support. I particularly welcome the clauses of the Bill which increase the flexibility of the Export Credits Guarantee Department. One has to remember that it was the United Kingdom which after the war was leading the international community in the development of the export system. Our export credit philosophy was universally accepted in Europe and overseas and our experts were called to many parts of the world to introduce the export credit concept.
In recent years, however, every exporter and every banker in this country concerned with international business has been very conscious of the competitive edge which other countries seem to have over us in the matter of export terms. It is true that we have had a number of international agreements. We started at Berne and we have had agreement after agreement and, finally, the "mini-agreement" at Washington in October, 1974, limiting competition in interest rates and credit periods. In spite of assurances made in another place and here tonight that we are continuing our discussions with other countries in order to end the international credit war in the export trade, I cannot share the optimism of Her Majesty's Ministers in regard to the outcome of these discussions. My experience goes back over too long a period to be optimistic.
Nevertheless, one must be glad that the system of the French credit mixte, in other words, the provision of export credit allied to Government-to-Government loans, has now been recognised in this Bill. Such Government-to-Government loans have always posed special competitive problems, and the power taken by this Bill for ECGD to be able to match these facilities is one which I hope will not be neglected. I have every confidence that, when utilised, these powers will be handled selectively and prudently and in the interest of maximising the benefits that this can give to the country.
There are many other problems in the direct and indirect export trade which we have to face in our effort to be competi- 955 tive. In recent years, it has always been some other country which has introduced credit terms which we have then tried to match. While we are discussing this new Amendment to our Export Credits Guarantee Bill today, France announced yesterday her intention to extend the terms of its credit arrangements for exporters and its credit support, and I believe that it is essential that we should not, as we have in this particular case, wait until other countries have scooped the market before we come out with our so-called matching efforts.
We have many grave problems to face in exports. Exports begin very often long before the export shipment takes place. They begin with the expenditure on the feasibility studies many years or months before the shipment. They involve investment in know-how, in machinery, in the purchase of raw materials, in manpower and in all other kinds of expenditure. For this the exporter needs support, and this support he gets from the Treasury, the Department of Industry and the Department of Trade. They are all involved in this problem. This is particularly important at the present time, when there are massive opportunities for our capital goods exporters to sell in the oil producing countries. But these countries have adopted very stringent methods.
To take a case in point, Iran is not only seeking fixed price contracts, but is demanding bid and tender bonds and performance bonds from suppliers. I am glad to know that ECGD is planning to give help to exporters to hold their prices and this can make a critical difference to our success in that area. I was equally delighted to know that ECGD is planning to provide performance bonds in appropriate cases, although I regret that the Minister in another place appeared to indicate that these facilities are limited only to the largest contracts. I think the Minister said the same thing tonight. In this event, I do not think our action can be quite as significant as it could be if we were a little more flexible.
In these circumstances, I wonder whether the concept of export credit guarantees that we developed some thirty years ago is still as valid as it was immediately after the war. Competition is very strong indeed. Strong competition, as the Minister has indicated, comes 956 from France where the Banque de France is intensely involved in the Coface problems. Strong competition comes from the EXIM Bank in the United States and the most serious competition comes from Japan, which has been one of the most successful exporting countries in the last 25 years. Japan and London are buying rubber from the same origin, and yet Japan today is in a position to sell rubber to certain third countries on credit terms at cheaper prices than we can sell from London on cash terms. The Japanese have evolved a new and comprehensive mechanism in order to be competitive in international trade. Their export insurance is provided by the Japanese Government through the Trade and Development Bureau of a special Ministry of International Trade and Industry.
I think I am correct in reminding your Lordships that before the war we had a Department for Overseas Trade. After the war this Department became a Division of the Board of Trade, and the Board of Trade was responsible for the Export Credits Guarantee Department. Today, the Export Credits Guarantee Department is part of the Department of Trade, but, as I have stressed before, many other Departments have contributions to make in solving the increasingly sophisticated problems that are faced by the exporter of today. I should like to put it to the Government that the time may have come once more to set up a separate and autonomous Department for International Trade, which co-ordinates the functions of the Treasury, the Department of Industry, the Department of Trade, so far as the direct and indirect export trade of this country is concerned, and would take over the functions of the Export Council and the Advisory Council to the ECGD.
I am not in any way criticising the enormous contribution which the Export Credits Guarantee Department has made to our export performance. This Department has provided excellent service to the exporter; but the functions of the Department, dependent as they are increasingly on other Ministeries, have less flexibility and are of necessity, on large-scale contracts, slower than they need or should be in support of the exporter's efforts. I suggest that this is an appropriate time to review the structure of our Export Credits Guarantee 957 Department in relation to the other international organisations with which it has to compete; to consider whether our postwar concept is still as valid now as it was in the past, or whether we need today a more authoritative Department that would represent the export problem even in Cabinet, and embody all the functions and have all the powers that are required to give the exporter the maximum support that he needs to achieve the position that this country is striving for.
My Lords, I have been trying to be non-controversial in the circumstances, but I hold strong views on the subject because I feel that we are in danger of falling behind when great opportunities exist. I feel now that time is of the essence. We required a new approach to the totality of the problem that we are trying at the present moment to meet by Bill after Bill, by Amendment after Amendment, in 1968, 1970 and 1974. Our efforts must do justice to the potential that I consider is within our grasp.
§ 6.58 p.m.
§ Lord WINTERBOTTOMMy Lords, if this Bill needs any further justification, it is that it has tempted the noble Lord, Lord Kissin, to make his maiden speech. He speaks with such authority that I am sure we all hope to hear him more frequently on this and related matters where his counsel can be of great value. He may also be tempted to mention the Arts, and I dare say this will be the case.
May I first of all try to answer some of the points made by the noble Lord, Lord Belstead. I wish to thank him for his very constructive attitude to the Bill. Before answering his questions, may I thank him for touching on the point which I failed to mention in welcoming the decentralisation of the operations of the ECGD throughout the country, and also the proposal to set up a computer system in Cardiff, which will enable information to be fed much more quickly into the regional offices than is the case at the moment. This is not going to entail an increase in manpower. I think the public service clause in the Explanatory Memorandum indicates that only 13 additional staff are required for the cost escalation scheme, which must mean, with the increased business forecast, a very substantial increased productivity of the staff of the ECGD as a whole.
958 May I quickly try to answer the various points made by the noble Lord, Lord Belstead. If I find I have missed any points, I will make an addendum and we shall have a further opportunity to discuss them when we come to the Third Reading of the Bill. May I first touch on the point on the use made of interest supplement grants over the next few years and how he has tried to make me peer into the future to see how the supplement would move. I am finding this somewhat difficult, because there are so many elements one cannot estimate, as, for example, the future level of United Kingdom exports— which of course we all hope will rise. Another factor is the future trends in world interest rates, which of course we hope will fall; and also there is the future level of banks' current account balances. In none of these areas can one say with certainty that we can foresee fixed figures. The £30 million saving that we foresee depends on all these factors and I hope the noble Lord will not tie me down to anything more exact. This is the best guess we can make at the present time.
The cost escalation scheme I found very interesting, but, as the noble Lord has said, these are not in any way a cure for inflation. All we can do is to try to mitigate the disease of inflation, which is accepted as one of the major economic dangers we are now facing. I completely agree that here, as elsewhere, it is the duty of the Government to combat inflation by every possible means.
Turning to Clause 3(2), the 1 per cent. mentioned is 1 per cent. of the eligible cover and not 1 per cent. of the contract price. The noble Lord also asked about the Russian credit proposals. With his permission, I should like to try to comment on that at a later stage of the Bill: I may say I know very little about this particular matter. The noble Lord particularly asked whether there was a built-in trigger mechanism, and I will try to satisfy him on this point.
The noble Lord later touched upon the use of foreign currency for guaranteeing overseas business and expressed the belief that other countries might be sceptical about sterling in relation to guaranteeing currency. May I tell him that the ECGD can guarantee contracts which are expressed in foreign currency: indeed it does this. What it cannot do is to give 959 foreign exchange cover—but there has been no real pressure apparently for this to be done. In fact exporters normally obtain foreign exchange cover from the forward exchange market although I believe from my own experience that there are certain currencies (such as the Saudi Real) in which no form of cover is possible as yet. Perhaps that is a matter which the noble Lord, Lord Kissin, could confirm for us.
§ Lord KISSINThat is so, my Lords.
§ Lord BELSTEADMy Lords, before the noble Lord continues, would he give me an undertaking that he will at least draw this matter to the attention of his right honourable friend? I apologise to your Lordships for bringing it up, and I am no expert in these matters, but I know there are many people, including my honourable friend who raised this on Report in another place, who feel keenly about it. So when the noble Lord says there is no real pressure for it, may I say there is some pressure in another place and I would ask the Department concerned whether they would be so kind as at least to negotiate and conduct discussions upon this point. If the noble Lord could give me that undertaking, I should be content.
§ Lord WINTERBOTTOMMy Lords, I undertake to say something positive about this during Third Reading. Turning to limits, and a feared loss of Parliamentary control over expenditure, the figures seem astronomical, but I suppose we should really welcome the fact that such figures are possible, since they represent goods exported from this country which are being guaranteed. Really, the higher the figure goes, the better we should like it. But of course the figures do seem astronomical, and while I accept the fact that your Lordships' House has no power even to comment upon this during the procedure of Affirmative Orders which will be laid in another place, nevertheless what goes on in another place will not go on unnoticed by your Lordships. However, the facts will not be obscured or lost in a sort of omnium gatherum set of figures.
May I stress what I said earlier; namely, that the combination of existing limits into one list does not involve any 960 changes in the Department's underwriting practice. Here I can give the noble Lord an undertaking: separate returns will be published for Section 1 and Section 2 business. They will not be lumped together but will be clear to see. Separate accounts will be prepared and published, and separate estimates will still be made: so there will be no "coverup" operation in putting these two types of credit in one lump sum. The build-up of the final figure will be open to anyone to examine and the only reason why the step has to be taken at the appropriate stage of the Bill is that Section 1 is nearly up to its limit, but Section 2 is very far from being used to its limit. Bringing them together is simply a convenience in the use of Parliamentary time. The facts will always be available to both Houses of Parliament.
Turning now to some points made by the noble Lord, Lord Kissin, in his most stimulating and provocative speech, he seems slightly sceptical about our capacity as a country to move as fast as our competitors—and I must say that judging by some of the things they do we have to move very fast indeed. He mentioned the credit mixte which is really, in cricketing terms, something of a "bumper"; but we have in this Bill powers to match it.
One of the things I have noticed in my studies leading up to the presentation of this Bill is the way in which the ECGD is trying to develop flexibility and the capability of quick reactions. The computerisation of information, which is there as part of the machinery, enables the Department to react more quickly to information given by firms exporting overseas and indeed by its own organisations.
The noble Lord made one extremely interesting point, which I will bring to the notice of my right honourable friend, He posed the basic question: is the concept of the ECGD still valid? I think his argument was that because of the strength and nature of the competition particularly from Japan, the ECGD— because it is not really a major Department but a body responsible to and sponsored by the Department of Trade—is not able to react quickly and immediately but must have some sort of bureaucratic brake upon its speed of reaction. For this 961 reason, as I see it—and I hope the noble Lord will confirm that I have correctly understood him—what he would like to see is an autonomous department for over-seas trade co-ordinating all the Departments who are linked with exporting, and presumably possessing powers of decision greater than those at present possessed by the ECGD, so that when reports are coming in from overseas posts and decisions need to be taken rapidly, such decisions can be taken rapidly and need not depend on going through the machine, however much it is buffed up and improved.
962 The noble Lord says that this is an appropriate time for review. I have tried to put to your Lordships the drive that exists within ECGD to achieve flexibility and speed of action and its determination to give the British exporter the same support and terms which will enable the British exporter to compete successfully with his very aggressive opponents. It is for this reason that I commend the Bill to your Lordships' House.
§ On Question, Bill read 2a: Committee negatived.
§ House adjourned at twelve minutes past seven o'clock.