HL Deb 27 March 1975 vol 358 cc1293-302

11.14 a.m.


My Lords, I beg to move that this Bill be now read a third time. During the Second Reading debate, the noble Lord, Lord Belstead, made two points and I should like to comment upon them since I was not able to comment adequately upon them at that time. The noble Lord asked whether there was built into the recently signed agreement with Russia a trigger mechanism, and he asked whether any information was available on the terms on which this credit is granted to Russia. I am afraid that it is difficult to deal with the question in the terms in which it was posed.

In accordance with normal procedure, the detailed provisions of this agreement regarding interest rates, length of credit and qualifying contract values, are confidential—there is, of course, commercial as well as military security—but the agreement is a framework for the subsequent placing of business up to a maximum of £950 million over the next five years. The business in question is therefore still to be negotiated and contracted. It is impossible to say how much may be placed. Framework agreements of this nature are a feature of business relations with the USSR. Other countries have similar agreements (for example, France, Italy, Japan, Germany). We also had an agreement which expired in mid-1974. The terms of the current agreement take full account of the competitive facilities available from the other countries, particularly France.

I can assure noble Lords that provision has been included in the agreement for adjustments to be made to the level of interest rates and other conditions during the course of the agreement to take account of the situation then ruling. The other point raised by the noble Lord was an interesting one concerning the ECGD's ability to take on foreign exchange liabilities. This is a very complex and technical question. My honourable friend the Parliamentary Secretary has already agreed to meet the noble Lord's honourable friend to discuss this matter, and I suggest that this is the best way to deal with it. I would add, however, that ECGD do have the question of foreign exchange contracting under active consideration. It is important to realise that there are a number of separate problems within this one subject.

ECGD is already working on a scheme to improve its existing cover for contracts expressed in a foreign currency. Because ECGD's statutory limits are, like all Government Departments', expressed in sterling, all its guarantees have to have a stated maximum sterling liability. This does not mean, however, that ECGD cover is not available for contracts which are expressed in a foreign currency and which provide for payment in a foreign currency. Cover is available for such contracts, but the scope of the cover does not include protection against fluctuations in foreign exchange parities. Exporters have traditionally looked to the Forward Exchange Market for such protection. Thus, when the Department covers a contract expressed in foreign currency, the guarantee states an exchange rate for the purpose of conversion into sterling. At the moment, the exchange rate used is, in general terms, that ruling when the guarantee is issued. This means that, if a valid claim arises and sterling has mean-while depreciated against the currency of the contract, the exporter will receive from ECGD insufficient sterling to purchase the foreign currency he may need, for example, to close out a forward contract or to repay foreign borrowing. ECGD is working on a scheme to close this gap in its cover.

Another problem which has been mentioned is that the forward market does not at present extend to the long periods that are involved in most large projects. The forward market in the United Kingdom tends to be more sophisticated than in other countries and exporters can generally obtain the cover they need. I fully accept that it would often be useful and desirable for our exports to be paid for in currencies other than sterling. However, the plain fact is that it is not ECGD which is preventing this taking place. The currency used is a matter for negotiation between buyer and seller, whose interests and wishes will obviously differ. A buyer will prefer to pay in a currency which he expects to depreciate against his own currency. A seller will prefer to receive payment in a currency which he judges will move in the opposite direction. In any case, I am sure noble Lords will agree that the role of sterling as a world trading currency raises much wider and more significant issues than ECGD cover.

Although there has been no real pressure from exporters for a change in procedures on foreign currency transactions, ECGD is continuing to examine this area. I should like to emphasise that, if any noble Lords can supply any information on the problem, I know that the Department would be pleased to have it and to discuss the issues involved. In fact, the ECGD, as noble Lords know, is a Department with highly-developed commercial instincts, and since instincts need hard information on which to feed, any hard information that noble Lords can supply to the Department, either directly or through me, will be most welcome.

The Amendment which was put down in another place would not, I am afraid, have solved the problems, and would have produced difficulties instead. But I trust that as a result of the proposed meeting, further work by the ECGD and the Department's willingness to discuss the issues, a clearer picture of the problems and possible solutions will be obtained. I trust that, in the two points which I have made, I have answered the questions which the noble Lord put to me on the Second Reading.

Moved, That the Bill be now read 3a.—(Lord Winterbottom.)

11.21 a.m.


My Lords, I am grateful to the noble Lord, Lord Winterbottom. On the first point about a Russian trade agreement and the possibility of a trigger mechanism about which I asked the noble Lord, I think he has given me all the information I could reasonably have expected. On the second point, I should certainly like to be one of those who read the report of what the noble Lord has said. It has been quite a long statement and I am grateful to him for the trouble which he and the Department have so obviously taken to get this statement out.

The only comment I would make is that the Amendment which was moved in another place on the point which I raised on Second Reading would of course require legislation. The House is aware that this is a Money Bill and there is no question of amending it, and it is for that reason that I would rather not speak further. But I would thank the noble Lord for meeting me on the point which I particularly raised, which was: Was the Department prepared to carry on discussions about this matter? On this point the noble Lord has met me.


My Lords, after dealing with—


My Lords, I am sorry to interrupt the noble Lord, Lord Barnby, but I believe it is the turn of this side of the House and the noble Lord, Lord Mais, had already risen to his feet. Of course, it is for the House to decide but I suggest that that is the way we should proceed.


My Lords, I did not quite hear the first part of the noble Lord's remarks. It is Third Reading and I believe there is no list of speakers.

11.23 a.m.


My Lords, I apologise to the House for rising at this stage. I had wished to be in the House for the Second Reading of this Amendment Bill, because it is rather close to my own heart. But I could not be here then and I would ask your Lordships to bear with me for a few moments now while I raise one or two matters. I associate myself with those who welcome this Amendment Bill very much indeed. For over the last 40 years I have spent much of my time on overseas projects—projects which possibly involved greater risk and unknown circumstances than other types of export—concerning heavy engineering and the construction industry. I have had some personal experience of dealing with the ECGD. They have provided a considerable service to those of us who go our ways on overseas work. But I do not feel that in the past they have had the power or the authority to give the sufficient volume of help needed. Nor do I think we have always been able to obtain help quickly or at least a sufficiently early indication of the support we were likely to receive should we embark on a project overseas. It is not always realised that heavy expenditure is incurred by companies and consultants long before a contract is commenced. Heavy expenditure is involved in feasibility studies, in sending out large teams long distances, and spending many months preparing a report on a project and deciding whether in some cases it is, in fact, even worth competing for.

On Second Reading I believe that the noble Lord, Lord Kissin, and the noble Lord, Lord Belstead—certainly Lord Kissin—referred to the need for an organisation, which I think was referred to as the Export Council. I think what was meant was that more is needed than just the existing ECGD commitment. Principally, firms needed somewhere to discuss projects and to be able to obtain guidance as to whether the Government supported an effort to get a certain major project overseas. First of all, I believe that this is very necessary but, secondly, I do not necessarily agree that it should be part of the DTI. I am speaking today because I hope that consideration will be given to expanding the ECGD's powers even beyond what is contained in this Amendment Bill, particularly with regard to early consultation with companies when proceeding overseas, so that before they incur very heavy tendering costs they can be given some assurance that they will receive assistance from the ECGD or other sources and be told approximately how much this will involve. They can then decide whether or not to proceed before incurring the heavy costs.

This will be more necessary in the future than it has been in the past, because when large organisations compete overseas they must do so out of profits. An organisation cannot spend hundreds of thousands of pounds on putting in an overseas bid without adequate reserves and adequate profits. In the years to come—indeed, the situation is upon us now—those funds will not be as readily available as they were. Therefore, the load that will fall upon the ECGD will be a good deal heavier even than it has been in the past. I hope that these points will be borne in mind.

I would once again refer to the necessity of having a form of committee within the orbit of the ECGD, composed of representatives of the financial world, the consulting engineering profession, the heavy engineering and contracting industry as well as of the Government and the ECGD. It is absolutely essential that these financial matters are considered and some commitments made at a much earlier stage than has been the custom. Tendering overseas is a bit of a gamble and the big companies today, certainly in the engineering world, are no longer quite in the position to take the risks they used to take, and, as I have said, they will require more help in the future. My Lords, I welcome this Amendment Bill very much indeed, and I would end by once again expressing my appreciation of what the ECGD have done in the past; and I hope they will do a great deal more in the future.

11.28 a.m.


My Lords, I must first express my apologies to the noble Lord, Lord Mais. I was under the impression that I had given notice of my intention to speak in the proper quarter, and I had overlooked the procedure of speakers coming from one side and then the other. As the noble Lord made a personal reference to his long familiarity with this field, perhaps with the indulgence of the House I might match it by saying that my interest also has been a long one. In another place I was a member of the Comimttee which was appointed to consider, and recommended the institution of, the whole of this exercise. That is now a very long time ago. In the interval, while in business, I made copious use of the facilities of the Department and of course in that long period it has expanded very greatly the facilities it offers. It has done so with conspicuous success, and indeed all traders must be grateful for the admirable way in which it has been administered.

In moving the Second Reading, the noble Lord, Lord Winterbottom, gave a most helpful explanation with detail and clarity, and that presentation merited study and reading. It is arising out of that that I now intervene in order to put a suggestion of which I gave him personal notice. Undoubtedly, the terms of the amendment are massive and will give assistance to our traders against the competing schemes of other countries. It is regrettable that, according to the noble Lord, Lord Winterbottom, there has been inadequate acceptance of the attempts on our part to "pilot" more uniformity between the practices of various countries. If I may deal with the terms of the amendment, I wish to refer to the opening which is given by the loans aspect. May I also say a word regarding the provision of insurance against escalation. It might be thought, in this year of rapid inflation, that if the opportunity for insurance is limited to 10 per cent. per annum after the second and succeeding years of, say, a five-year contract, this is inadequate by comparison with the rapid rate at which inflation and the erosion of the value of money is taking place.

However, the point which I wish to urge—and I have urged it before in this House—is that more use should be made of a procedure which, instead of distributing overseas aid from government to government, would permit its distribution through civilian agencies. The reason for my suggestion is that such aid would be more effectively policed. The cost would not be great, because most of our aid is given interest free; therefore, that angle would not arise. As a person who has certain misgivings about the fact that our foreign aid programme for this year has not been appreciably reduced because of the seriousness of our financial position, to borrow money at 12½ per cent. overseas and to lend it for long periods at 2 per cent., or interest-free, looks to me like pretty poor banking. It has been urged upon us, "Oh, but there is the prestige which we gain from giving money away".

Many of your Lordships will be associated with charitable foundations and will know well enough what it costs, on the percentage of total money given, to give money away. The lower you can keep that cost, the more likely it is that the giving away will be worth-while. On the question of interest, a good point was raised in this House the day before yesterday by the noble Lord, Lord Shinwell. His point was not answered by the Front Bench. He asked why we should lend abroad at 2 per cent. loans which often are not repaid at maturity and have to be recycled, while at the same time we charge our farmers 12½ per cent or 14½ per cent. to produce food which would appreciably reduce the balance of payments and our total financial difficulties.

The point I wish to add with regard to foreign aid—and I make it supplementary to the belief that it should be reduced—is that a great deal of it has been given away in the past unfruitfully. The problem with regard to the receipt of this aid by the emerging countries is that it was applied largely to prestige or spectacular projects which certainly could have been deferred. Today they are suffering from having incurred the high cost of servicing those loans and now wish that they had not done so. Under the economic pressures of the moment, there has been a distinct change in the thinking of the emerging countries who are, in the main, the recipients of aid; so that instead of boosting education for sociological purposes and applying aid inadequately to technological purposes, it is appropriate to turn from the former to the latter. By that I mean that instead of concentrating upon administration, teaching or the law they should turn to technical and technological projects, which would include the production of food in those countries and thus lessen the pressure which many of them feel that they are under today.

In the late 1950s and the early 1960s, in seeking the best advice they could get on agricultural production, curiously enough they turned to Israel. There they found the spectacular success of Israel where farming was carried on under difficult conditions. But now, under the pressure of the Arabs or the United Nations, they have rejected the Israeli scientists. They are now finding themselves in difficulty and are looking around for other scientific advisers. This fact emphasises the point that the giving of aid and the purposes for which it is given should be better supervised. That is why I suggest that policing, if any, through private sources would possibly, and probably, be more effective and more to the benefit of the recipient. On the question of agriculture, there are now the techniques of pesticides, insecticides and animal husbandry. The emerging countries are poor in the knowledge of these techniques and are seeking aid. I am not overlooking the high quality of the services which our various scientific missions are giving to countries overseas. It is very substantial.

If I may revert to my original plea to the noble Lord, it should be sought within the amended terms of the Bill which is now before us that more of the aid that is distributed should be distributed through civilian channels instead of from Government to Government, so that it will be better policed and will have more effective results in the recipient countries. May I conclude with a plea for a modification and change of our practices concerning the giving of overseas aid. I believe that the programme amounts to £340 million this year. This is a great deal of money, which we are borrowing at 12½ per cent., to give away at 2 per cent. or interest-free. It is plain that giving away money brings prestige to the giver. However, some people think that the effect of that prestige would be equally well rendered by the mission of a naval vessel flying the flag. That naval vessel would have the dual purpose of raising our prestige as givers and also defending our food channels in the event of another world holocaust. I approve the proposals of this Bill and certainly support the Third Reading.


My Lords, while we appreciate that it is impossible to give the terms of individual credits, may I ask the Minister two questions. First, would the Minister assure us that we are borrowing on as advantageous terms as the terms of credit that we are giving to Russia? Secondly, would the Minister say whether our terms to Russia match those of the Japanese?

11.41 a.m.


My Lords, I will reply briefly to the points raised on this Third Reading debate. I am certain that the Export Credits Guarantee Department will welcome and be grateful for the praise bestowed upon it by the noble Lord, Lord Mais, and the noble Lord, Lord Barnby, I would briefly say to the noble Lord, Lord Mais, that the points that he raised in today's debate I have heard in various quarters and I will bring them to the notice of my right honourable friend the Secretary of State, to ensure that they arc given proper consideration. I am not myself certain at this moment whether the funds available in the overseas project group are in fact really sufficient for financing feasibility studies abroad. Although the powers are there I do not know whether the funds are there, but I will let the noble Lord know.

As regards the intervention made by the noble Lord, Lord Barnby, I will ask my right honourable friend to consider whether the policing of credits to developing countries, if sent through normal commercial channels, would in fact produce the sort of monitoring and policing that one would obviously require when sums of this type are under consideration.

The noble Lord, Lord Rhodes, inquired about borrowing and the general background of the loan to Russia; whether the terms on which the money would be borrowed were advantageous or not, and whether we would be able to compete with the schemes possibly put in competition with us from countries like Japan. As I said in my opening remarks, this sort of information is confidential. I personally do not know the position at the present time, but I will make certain that the noble Lord is informed of the actual background to the negotiations when they begin. I cannot go further than that at the moment.

My Lords, that is all I have to add. I am grateful to noble Lords for their constructive attitude to this measure.

On Question, Bill read 3a, and passed.