Lords Sitting of 11 June 1991

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Guildford.

Lord Marlesford
Mark Shuldham Schreiber, Esquire, having been created Baron Marlesford, of Marlesford in the County of Suffolk, for life —Was, in his robes, introduced between the Lord Norrie and the Baroness Carnegy of Lour.

Baroness Denton of Wakefield
Jean Denton, CBE, (formerly Mrs. A. Denton), having been created Baroness Denton of Wakefield, of Wakefield in the County of West Yorkshire, for life -—Was, in her robes, introduced between the Lord Hesketh and the Baroness Blatch.
The Marquess of Linlithgow The Marquess of Linlithgow —Sat first in Parliament after the death of his father.

The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, before the commencement of business I take the opportunity to inform the House that, with the approval of Her Majesty the Queen, I have accepted an invitation to attend an informal meeting of European Ministers of Justice in Ottawa, Canada, between 15th and 19th June. Accordingly, I trust that the House will agree to grant me leave of absence from Monday. 17th June, to Wednesday, 19th June.

Belgian Courts: Sentencing Policy
3 p.m.
Lord Monson Lord Monson asked Her Majesty's Government:
What conclusions they draw from the length of sentences passed on three Irish IRA supporters convicted in Belgium on 29th April of conspiracy and possession of weapons in connection with planned attacks on British army personnel on the Continent.
The Minister of State, Foreign and Commonwealth Office (The Earl of Caithness): My Lords, the sentences passed must be a matter for the Belgian court.
Lord Monson: My Lords, I thank the Minister for that understandably diplomatic reply. The Belgian courts, like our own, are fully independent of political control; arid rightly so. Nevertheless, he will doubtless be aware that the court in this case imposed lenient sentences upon the convicted men on the curious grounds that their motives were idealistic rather than mercenary. Does he agree that Lenin, Hitler and Pol Pot were all idealists in their way, as have been the
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perpetrators of every religious massacre throughout history? While fully continuing to support the principle of judicial independence, will Her Majesty's Government do everything in their power to convince educated opinion on the Continent of Europe that idealism can never be even a partial excuse for acts of terrorism?
The Earl of Caithness: My Lords, I totally agree with the noble Lord that the courts must remain independent and so must their sentences.
Lord Cledwyn of Penrhos: My Lords, is the Minister able to inform the House of the extent to which Scotland Yard's anti-terrorist squad was involved in this case? Are the Government satisfied with the co-operation that we receive from our West European allies in matters of this kind?
The Earl of Caithness: My Lords, co-operation between the United Kingdom security authorities and their counterparts, including Belgium, is already good. No doubt it could be further improved and we continue to search together for ways to do that.

Nuclear Weapons: US Report
3.2 p.m.
Lord Jenkins of Putney Lord Jenkins of Putney asked Her Majesty's Government:
Whether they have studied the report from the United States Congress which concluded that "unintended nuclear detonations present a greater risk than previously estimated"; and, if so, with what result.
The Parliamentary Under-Secretary of State, Ministry of Defence (The Earl of Arran): My Lords, I can confirm that the report to which the noble Lord refers has been studied carefully by our officials and independent advisers and we regard it as a useful contribution to the consideration of nuclear weapon safety issues. I can also confirm that the Government remain satisfied with the safety of both our own nuclear weapons and US nuclear weapons that may he present in this country.
Lord Jenkins of Putney: My Lords, one is grateful for the Minister's rather reassuring answer. However, is it not a fact that in the case of the United States nuclear weapons, some replacement has taken place because of anxiety about the reliability of older ones? Have Her Majesty's Government considered similar action so far as this country is concerned?
The Earl of Arran: My Lords, the safety record at Aldermaston has always been extremely good and even after vesting day—indeed, as well as after vesting day—we consider that it will be just as successful, with the most stringent precautions taken into account.
Lord Skelmersdale: My Lords, does my noble friend agree that the report bears out the total idiocy of Labour councils declaring nuclear free zones?
The Earl of Arran: My Lords, I could say that my noble friend makes a very good point.
Lord Mackie of Benshie: My Lords, will the noble Earl tell the House whether there have been unintended nuclear detonations?
The Earl of Arran: My Lords, to the very best of my knowledge, no.
Lord Williams of Elvel: My Lords, will the noble Earl confirm that the Trident warheads which we are about to make operational suffer from the defects that were noted in the Drell Report? Will the Government pay serious attention to the conclusions of that report as regards warheads manufactured in this country?
The Earl of Arran: My Lords, as to lessons to be learned from the Drell Report, we always take into account any suggestions that we believe could improve our safety record. I remind noble Lords that we have an extremely good track record. We are completely satisfied with the safety of the Trident nuclear missile system. The missile and its United Kingdom warhead will undergo a comprehensive series of trial assessments and formal safety approval procedures before entering service with the Royal Navy.
Lord Williams of Elvel: My Lords, is it not the case that the US is considering a redesign of the Trident warhead because of the comments of the Drell Report? Are not the UK Government considering the same redesign?
The Earl of Arran: My Lords, the United Kingdom Government are not considering a new design. They consider the design as it always has been and, one hopes, will prove to be, completely safety proof.
Lord Jenkins of Putney: My Lords, will the Government keep the matter under very close review having regard to the completely disastrous consequences which could follow an unintended explosion?
The Earl of Arran: My Lords, the Government are never complacent about the extremely important matter of safety precautions.
Lord Trefgarne: My Lords, is it not the case that Trident warheads to be deployed on Royal Navy missiles are designed and manufactured in this country and that therefore the questio~ put by the noble Lord, Lord Williams, does not arise?
The Earl of Arran: My Lords, my noble friend is quite right.
Lord Williams of Elvel: My Lords, does the noble Earl agree that the Trident warheads come from US nuclear technology? We can specify the US Congress and Drell Report numbers for those warheads. It is not simply a question of UK design. Is it not the case that they are basically of US design?
The Earl of Arran: My Lords, yes, that is true to some extent. However the point is that the Drell Report did not conclude that US nuclear weapons were unsafe. On the contrary, all three members of the Drell panel testified that in their opinion the US nuclear stockpile is safe.
Lord Trefgarne: My Lords, does my noble friend recall that these warheads are wholly United Kingdom
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designed and United Kingdom built? There is no question of any United States input into British nuclear warheads.
The Earl of Arran: My Lords, I shall have to make quite certain about that point. I shall write to my noble friend and to the noble Lord, Lord Williams.
Lord Jenkins of Putney: My Lords, the noble Earl is to be congratulated upon his caution.

Overseas Aid: GNP Percentages
3.7 p.m.
Lord Hatch of Lusby Lord Hatch of Lusby asked Her Majesty's Government:
What were the percentages of GNP allocated to overseas aid in 1979 and 1990.
The Earl of Caithness: My Lords, official development assistance as a percentage of GNP was 0.51 per cent. in 1979 and 0.31 per cent. in 1989. The figure for 1990 is not yet available.
Lord Hatch of Lusby: My Lords, does the noble Earl agree that those figures represent a substantial reduction in the overseas aid contributed by this Government at a time when it may never have been more necessary?
Is he aware that the following countries provide a greater proportion of their GNP in overseas aid than the United Kingdom? I refer to Norway, Sweden, the Netherlands, Denmark, France, Finland, Belgium, Canada, Italy, Germany, Australia and Japan. If they can attain a higher percentage of GNP why cannot we?
The Earl of Caithness: My Lords, as the noble Lord well knows, the Government accept the target in principle but, in common with previous administrations and many other major donors, they are not able to set a date for achieving it.
Lord Taylor of Gryfe: My Lords, is the Minister aware that our aid budget has important implications for our export trade? Because of the limited amount of aid, our aid-trade provisions were exhausted in April and there is no more money for export subvention until next April. Does that not have serious consequences for the manufacturing industry?
The Earl of Caithness: My Lords, the noble Lord asks an important question which I believe is slightly more specific and therefore wide of the Question on the Order Paper.
Baroness Gardner of Parkes: My Lords, will the Minister inform us whether the assistance given by the ODA through voluntary agencies such as Plan International—of which I am the UK chairman: it is a child sponsorship body—is in addition to the amount that he quoted or is part of it? Will he also inform the House about the difficulties of helping countries such as the Sudan where that Government are unwilling to co-operate in receiving help?
The Earl of Caithness: My Lords, the answer to the first part of my noble friend's question is, yes, it is

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included in the figures that I mentioned. What is not included is the type of aid to which I referred in the debate held in the name of my noble friend Lord Aiding ton; namely, economic assistance to Eastern Europe and the USSR. That is a separate item.
My noble friend also touches on an important point. Though we might be willing to give aid to certain countries, the conditions in those countries are such that it is impossible for us to give that aid.
Bareness Ewart-Biggs: My Lords, is the Minister aware that the aid budget, which is now stagnant, has fallen by 12 per cent. in real terms since 1979? Is he also aware that people will be disappointed that he did not take the opportunity today to announce a rise in the aid percentage of GNP? Is he further aware that Britain is one of only three countries in the OECD which has not yet set a timetable for reaching the UN official target of 0.7 per cent. of GNP? When will the Government set a timetable to increase our aid towards reaching that target?
The Earl of Caithness: My Lords, the noble Baroness is incorrect in saying that our aid provision has been static. It has increased in real terms during the past, few years and the projected planning totals show a further increase. I am sure that the House will welcome the initiative taken by my right honourable friend when he was Chancellor of the Exchequer which became known as the Trinidad Terms. The initiative was designed to relieve the debt of third world and developing countries—the most important issue that they face—by approximately 18 billion dollars. The UK share will be 900 million dollars. We hope that the terms will soon be agreed because this country will be proud to have been involved.
Baroness Ewart-Biggs: My Lords, does the Minister agree that in real terms aid has decreased by 12 per cent. since 1979?
The Earl of Caithness: My Lords, yes, it has decreased in real terms by 12 per cent. since 1979. However, it had decreased by more than that in previous years.
Baroness Robson of Kiddington: My Lords, is the Minister aware of the reply to a Written Question on 15th May by the Minister for Overseas Development in another place? The reply stated:
"In 1990 ODA spent over £21 million on activities directly related to population concerns".—[Official Report, Commons, 15/5/91; col. 192.]
Does the Minister agree that aid in that form is the best way to help the under-developed world? What percentage is that £21 million of the 0.31 per cent. of GNP that we presently spend on overseas aid?
The Earl of Caithness: My Lords, I am unable to give the noble Baroness the percentage of GNP. As regards her first question, I said in a recent debate in this House that the aid that we give towards population and family planning is important and for that reason it is an increasing percentage of the ODA budget.
Perhaps the noble Baroness, Lady Ewart-Biggs, would care to confirm that the Labour Party intends
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to increase the share of government expenditure on ODA to 0.7 per cent. What will the terms be and what will that mean in increased taxation?
Lord Annan: My Lords, does the Minister agree that one of the reasons why we lag behind other countries in this respect is the inordinate demands made daily, even in this House, for an increase in public expenditure? Is it a fact that we cannot do that until our economy improves and inflation falls?
The Earl of Caithness: My Lords, the noble Lord makes salient points. I am sure that when dividing on a matter concerning public expenditure your Lordships will take careful note.
Lord Peston: My Lords, is the Minister saying that this paltry sum is the most that we can afford because of the economic difficulties that the country is now facing? That is what he appears to be saying by agreeing with the noble Lord's question.
The Earl of Caithness: My Lords, it is of serious concern to this country if the noble Lord believes that our annual aid programme of more than £1 billion is a paltry sum.
Lord Peston: My Lords, the key point to bear in mind is that 0.31 per cent. is three-tenths of one penny in every pound of our earnings. We are led to believe that ours is one of the more affluent countries of the world. Does not the Minister agree that that is not a large sum of money compared with that given by other countries?
The Earl of Caithness: My Lords, I do not agree. It is a large sum of money but the question is not only that of money. If I were to go to King Charles's Street, obtain from the Treasury an increase to 0.7 per cent. and burn that sum of money in King Charles's Street on my way back to the Foreign Office, I am sure that the noble Lord would be thrilled because we had obtained the right percentage. The important point is the way in which one utilises the aid. The House will be well aware that in a recent report the United Kingdom was commended for the way in which it provides its aid.
Lord Stoddart of Swindon: My Lords, is the Minister aware that some noble Lords are puzzled by the answers that he has given? He says that the Government accept the United Nations target of 0.7 per cent. of GNP and therefore one would believe that we should be aiming towards that. However, we appear to be aiming away from it because the percentage of GNP has reduced since 1979. Does that not show absolute complacency towards the problem?
The Earl of Caithness: My Lords, the answer to the noble Lord's first question is, no, because the amount is increasing in real terms.
Lord Hailsham of Saint Marylebone: My Lords, are not the Opposition muddling themselves by the false statistical use of the word "percentage" instead of concentrating on real figures?
The Earl of Caithness: My Lords, I agree with my noble and learned friend that the Opposition appear to be totally confused.
Lord Harris of Greenwich: My Lords, which recent report congratulated the Government on their record?
The Earl of Caithness: My Lords, it was the OECD report.
The Earl of Onslow: My Lords, is my noble friend aware that a large amount of foreign aid is totally wasted? Is he further aware that we give £85 million per year to India, which manages to run an army four times the size of our army in India in 1936, and which also has an ocean-going navy and a nuclear defence weapon? I see no reason why the English taxpayer should subsidise that form of expenditure. India can well afford its own development aid and there is no need for this country to waste taxpayers' money in that fashion.
The Earl of Caithness: My Lords, I have carefully noted my noble friend's comments and I shall pass them on to my right honourable friend.
Lord Hatch of Lusby: My Lords, perhaps the noble Earl would like an answer to his question. Is he aware that the Labour Party is committed to attaining the target of 0.7 per cent. of GNP within the lifetime of a parliament? It is publicly committed to that figure. The Minister talked about moving towards that target, but surely we are moving away from it. Is it not the case that during the first part of the 1980s overseas aid was drastically cut and we were told that it would be restored when the economy recovered? We have been told about an economic miracle so where is the increase in overseas aid? Will the Minister now answer my question: how is it that the countries on the list that I gave to him are able to provide a higher percentage of GNP? Why can we not attain the same level'?
The Earl of Caithness: My Lords, it is our aim to reach the target of 0.7 per cent. It is also important that we utilise the aid in the best way; and that is why the OECD has recommended that other countries should follow our lead.
Lord Hatch of Lusby: My Lords, will the Minister answer my question? Why is it that those countries can attain a higher percentage of GNP than we can?
The Earl of Caithness: My Lords, if the noble Lord is talking about the expenditure of other countries he is well advised to address his remarks to the countries concerned.

Prison Education
3.18 p.m.
Baroness David Baroness David asked Her Majesty's Government:
Why there is no reference to prison education in the White Paper on education and training published on 20th May 1991, and what implications the White Paper will have for prison education.
The Minister of State, Home Office (Earl Ferrers): My Lords, reference to prisons was not made in the White Paper because the changes proposed will not make a significant impact on prison education.
Baroness David: My Lords, is it not the case that many further education colleges and LEAs provide a great deal of prison education and that that will be an important consideration when the legislation is drafted? Does the Minister agree with the report of the Select Committee on Education, Science and Arts of another place which was published in March? It stated that many prisoners become more violent and dangerous while in prison but that others who are helped by NACRO and similar associations which offer educational provisions abandon their criminal practices and settle down as useful citizens. Are the Government committed to putting more money into prison education as was proposed by Lord Justice Woolf in his recent inquiry?
Earl Ferrers: My Lords, I agree that the colleges of further education provide a great deal of the education in prisons. The proposal is that colleges of further education will be removed from local authority control and will become corporate bodies funded by central funding councils. Therefore, the relationship between the colleges of further education should be at no greater distance from the prisons than it is at present.
The amount of prison education has increased from 5.5 million hours to 7.5 million hours between 1987-88 and 1989-90. I give the noble Baroness an assurance that my right honourable friend the Home Secretary wishes to see more prisoners taking educational courses and training in skills in order to ensure that they have a better chance of leading a life free of crime.
Baroness Sharpies: My Lords, can my noble friend say how many writers in residence there are in different prisons?
Earl Ferrers: My Lords, not without notice.
Lord Richard: My Lords, will the noble Earl tell us whether he accepts the statement in Lord Justice Woolf s report on this aspect of his inquiry that:
"We met many prisoners … who told us that … educational provision was woefully inadequate. There were long waiting lists to join classes. Even those who succeeded in being accepted for a class could not be sure whether they would be able to attend it—classes were frequently cancelled because, prisoners were told, there was no prison officer to escort them to the education rooms … Prisoners were particularly resentful that, in their view, education was not given a high enough priority".
Will the Minister accept that that is a very damning criticism of the present situation? While we on this side of the House do not expect miracles, economic or otherwise, will he tell us what the Government are doing to move in the right direction?
Earl Ferrers: My Lords, Lord Justice Woolf made a number of proposals about prisons. The Government are studying those proposals and will give their reply to them in a White Paper in due course.
Lord Hailsham of Saint Marylebone: My Lords, have the Government considered the availability of

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correspondence courses in this connection, which may be particularly suitable for prison inmates? If so, will he give the House some information on the subject?
Earl Ferrers: My Lords, I do not have any information as to the number of correspondence courses which are at present undertaken in prisons. However, I shall find out and write to my noble and learned friend about it.
Lord Harris of Greenwich: My Lords, will the Government's response to Lord Justice Woolf's report be published before the Summer Recess?
Earl Ferrers: My Lords, it will be published either before the Summer Recess or after it.
Lord Richard: My Lords, I congratulate the Minister on his perception and accuracy. Will it be possible to have a debate on the Woolf Report before the Recess? The Leader of the House told us some time ago that the Government are anxious that there should be a debate on the subject. Will the noble Earl give us an assurance that, when the White Paper is published, it will deal with the provision of education in prisons?
Earl Ferrers: My Lords, whether we have a debate on the Woolf Report is a matter for the usual channels, to which I have no doubt the noble Lord, Lord Richard, will direct his attention. I advise the noble Lord to wait and see what the content of the White Piper will be.
Baroness Masham of Ilton: My Lords, does the Minister know that many prisoners can neither read nor write? Therefore, remedial teaching is very important and, as a member of a board of visitors, I congratulate the teachers who carry out that very important work with prisoners.
Earl Ferrers: My Lords, I am aware of the very important point which the noble Baroness makes about some prisoners not being able to read and write. That is why it is very important that special educational needs should be protected, and it is our intention that they will be. I agree also with the noble Baroness that the work which the teachers do is quite remarkable.
Baroness Carnegy of Lour: My Lords, will my noble friend to it the House who decides on the level of education provision in individual prisons and, therefore, who it is whom the Government and noble Lords must influence in order to achieve an increase?
Earl Ferrers: My Lords, it is the responsibility of the governor of each prison. He is advised by the head of inmate activities and the education officer. Of course the majority of education is provided by the local education authority, usually through colleges of further education.
Baroness David: My Lords, is the Minister aware that the chief education officer of the prison service praised a report last November on the work of the local education authorities? Will that be remembered
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when the legislation is finally drawn up so that there continues to be local education authority involvement?
Earl Ferrers: My Lords, the work of the local education authorities in providing education in prisons has been substantial. The proposal is that, from 1st April 1993, the colleges of further education will be removed from local authority control and will become bodies funded by the central funding council.
Lord Peston: My Lords, will the noble Earl clarify what I thought was a very helpful opening Answer? He said that the reason that prisons were not included in the White Paper is that it is the Government's view that FE colleges, whoever controls them, will have as large a role to play as they had in the past. Do I understand him to say that that role will not be diminished, whatever new arrangements are made?
Earl Ferrers: My Lords, I did not say that, but that was the basic drift of what I intended to imply. Although there is a change in the funding of colleges of further education, involvement with prisons is not expected to change.
Lord Winstanley: My Lords, in response to an earlier question the noble Earl told us that the Woolf Report would be published either before or after the Summer Recess. Therefore, are we entitled to assume that under no circumstances will the report be published during the Summer Recess?
Earl Ferrers: My Lords, the Woolf Report has been published. It was the Government's response to it to which I was referring. The likelihood is that that will be published either before or after the Recess. It is unlikely that it will be during it. However, I should not care to give a totally cast-iron guarantee.

Police custody (Time Limits) Bill [H.L.]
3.26 p.m.
Lord Harris of Greenwich: My Lords, I beg to introduce a Bill to place limits on the length of time for which prisoners may lawfully be held in a police station or on court premises. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Lord Harris of Greenwich.)
On Question, Bill read a first time, and to be printed.

Water Industry Bill [H.L.]
3.27 p.m.
The Lord Chancellor: My Lords, I beg to move that this Bill be now read a third time. This is the first of five Bills in my name on the Order Paper. I shall speak briefly to all five Bills together. As I explained to your Lordships on Second Reading, this consolidation results from the Water Act 1989 which substantially restructured the law of England and Wales relating to water. The consolidation is substantial and I am sure that I have the support of the House in expressing

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appreciation for the work of the Law Commission, of parliamentary counsel who made the consolidation possible, and of the Joint Committee which has carefully considered these Bills.
I hope that I also have the support of the House, or at least its forbearance, as I move the remaining stages of each of the five Bills. Since separate Motions are necessary for the Third Reading and passage of each Bill, your Lordships will observe an element of ebbing and flowing on each occasion.
Moved, That the Bill be now read a third time.—(The Lord Chancellor.)
On Question, Bill read a third time, and passed, and sent the Commons.

Water Resources Bill [H.L.]
Read a third time, and passed, and sent to the Commons.
Statutory Water Companies Bill [H.L.]
Read a third time, and passed, and sent to the Commons.
Land Drainage Bill [H.L.]
Read a third time, and passed, and sent to the Commons.

Water Consolidation (Consequential Provisions) Bill [H.L.]
Read a third time.
The Lord Chancellor: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(The Lord Chancellor.)
Lord Williams of Elvel: My Lords, perhaps this would be an appropriate moment to congratulate the noble and learned Lord on the elegance of his footwork.
The Lord Chancellor: My Lords, I am grateful to the noble Lord.
On Question, Bill passed, and sent to the Commons.

Crofter Forestry (Scotland) Bill
3.30 p.m.
Read a third time, and passed.

Welfare of Animals at Slaughter Bill
Lord Soulsby of Swaffham Prior: My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
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Moved, That the order of commitment be discharged.—(Lord Soulsby of Swaffham Prior.)
On Question, Motion agreed to.

Export and Investment Guarantees Bill
3.32 p.m.
The Lord Advocate (Lord Fraser of Carmyllie): My Lords, I beg to move that this Bill be now read a second time.
The Bill has two main objectives. The first is effectively to rewrite the powers contained in the relevant existing legislation (the Export Guarantees and Overseas Investment Act 1978) in a way which will clarify and update these powers to the benefit of UK exporters and the taxpayer. The existing Act will as a result be repealed. The second is to provide the legal framework to transfer the insurance services business of the Export Credits Guarantee Department to the private sector.
Before I describe the Bill in more detail I hope your Lordships will find it helpful if I describe the role of ECGD, which under slightly differing names has been the vehicle through which the Secretary of State has exercised the trade encouragement powers enshrined in this Bill and in preceding legislation. ECGD has been protecting UK exporters against the financial risks of selling abroad for over 70 years and in the process has encouraged over £250 billion of UK exports. ECGD's operations fall into two distinct parts. That is reflected in its organisation and management. The project group, based in London, handles major project and capital goods exports sold on medium and long-term credit. In 1990-91 the project group issued guarantees valued at over £2.3 billion. The insurance services business, based in Cardiff, insures business sold on short-term credit. Those exports comprise the whole range of consumer goods but also extend to machinery and equipment. In 1990-91 it insured exports in excess of £13 billion.
Despite some fundamental differences in the nature of ECGD's London and Cardiff operations, both have been run as businesses subject to the same overall financial objective; that is, that they should operate over time and taking one year with another at no net cost to the Exchequer. That objective has been confirmed to Parliament by successive administrations. It is also a requirement of the GATT that official export credit schemes are not subsidised by governments. That means that for all its trading operations ECGD seeks to charge premium rates and adopt underwriting policies which will secure the desired financial outturn.
The need for the legislation derives from a review of ECGD's status and structure commissioned in August 1988 by my noble friend Lord Young, the then Secretary of State for Trade and Industry, to identify whether any changes needed to be made to enable ECGD better to meet the needs of UK exporters after 1992 and the completion of the single market. This report, known as the Kemp Review, recommended, after extensive consultations with ECGD's customers, bankers, brokers and trade associations, that ECGD's

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insurance services business should be separated from ECGD and converted into a government-owned company before being transferred later to the private sector. It also concluded that support for project business should continue to be provided by government through the residual ECGD. That recognised that the nature of project exports—high value contracts, usually in developing countries and presenting a financial exposure often spreading over decades meant that credit insurance risks were inherently uncommercial and required continuing government involvement through ECGD. The report was ma de public.
At the same time, the House of Commons Select Committee on Trade and Industry carried out a short inquiry on the future of ECGD and the vast majority of the evidence submitted to it from interested parties supported the recommendations in the report. On 18th December 1989 the then Secretary of State for Trade and Industry, the right honourable Member for Cirencester and Tewkesbury, announced that the Government had broadly accepted the Kemp Review recommendations.
The review had concluded that the status of insurance services needed to be changed quickly for a number of reasons. By far the most important of those is the need to enable insurance services better to meet the increasing competition which it faces from private sector insurers for its better quality business. That competition is provided by insurers based in the UK and else where within the European Community. This process can only intensify as the single market become; an even greater reality and as the distinction between export credit and domestic credit risks become; more and more blurred.
The Second Non-Life Insurance Directive which came into force in July of last year has freed credit insurers in the private sector to offer their services throughout the Community. Some EC insurers are already successfully marketing their facilities in the UK. At the same time there is the move to insurance policies which bring together cover for domestic and export credit risks in the one document. Through restrictions in ECGD's existing governing legislation and by virtue of the exclusion of official export credit schemes from the scope of the EC insurance directives, the insurance services group is unable to respond effectively to any of these opportunities or challenges. The risk is that this process will result in the loss of its better quality business leaving it with an unviable portfolio of only those risks which are unattractive to its competitors.
Privatisation represents the most practicable and sensible means of allowing insurance services to meet those challenges and opportunities. It will enable insurance services to compete freely with other insurers in Europe and to meet the needs of UK companies by allowing them access to packages of credit insurance covering both their domestic and export business.
A secondary, but nonetheless important, factor leading to the Government's decision was the threat of a legal challenge to the continued operation of official export credit schemes on the basis that in certain
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respects they could he regarded as constituting unfair competition to the private sector insurers incompatible with the Treaty of Rome. Clearly the greatest risk of such a legal challenge is in respect of business where there is an overlap between the activities of the private and public sectors. In practice this is the lower risk business connected with exports to the EC and OECD markets representing about 75 per cent. of insurance services' total business and much of its best business. Any legal ruling which prevented insurance services undertaking this activity would leave it with a totally unviable portfolio.
It is not only this Government who are taking this threat seriously. With a few minor exceptions every other EC government are taking steps of one kind or another to lessen the degree of state involvement in export credit insurance operations in this area.
I am well aware that, while the proposal to privatise insurance services continues to be welcomed in principle by those most closely concerned, anxiety has been expressed as to whether the overall arrangements post-privatisation will ensure that our exporters continue to have access to facilities which are equivalent to those available to their competitors in other major exporting countries. While I can state quite unequivocally that there are no grounds perceived for such anxiety, it would obviously be helpful if I were to describe in some detail the steps which the Government propose to take to deal with the one issue on which most attention has focused. That is the question of continuing Government support for business which is unlikely to be immediately acceptable to the private insurance and reinsurance markets.
Although the Government's aim is that as much as possible of insurance services business should in future be handled in the private sector, it has all along recognised that some of insurance services' business could not immediately he so accommodated and that there would therefore be a need for some ECGD reinsurance facilities to supplement the capacity available in the private market. That would avoid any reduction in facilities following privatisation. This was indeed foreshadowed in the announcement of 18th December 1989.
The need for ECGD to provide such reinsurance facilities to the privatised insurance services has been anticipated in the drafting of Clause 1 of the Bill. This clause enables the Secretary of State to give guarantees which indirectly encourage exports. That would obviously be the case where ECGD reinsured a primary insurance policy issued by the privatised insurance services. So the general enabling powers will be in place.
The question is: to what extent will they need to be exercised? Placing ISG's portfolio of risks in the private reinsurance market is an event probably unique in the market's experience. We are talking of the commercial and political risks attaching to some £13 billion of UK exports annually. This is an enormous amount by any measure and it is a credit to the skill and the flexibility of the market and to ECGD and its advisers that the capacity has in fact been found to meet virtually the whole of this requirement.

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However, there could be a small shortfall and the Government intend to fill this through ECGD becoming, in effect, a member of the reinsurance syndicate providing support to the new company.
This "top-up" support, if I may so describe it, will be transitional and will be made available to the company for a period of up to three years after privatisation. Given the successful placing of so much of the company's requirements in the market even before it starts its operations, the Government are confident that, once the market has familiarised itself with the new company and its management, it will be able to meet the company's full reinsurance needs within this three-year period.
I emphasise that quite separate from that the Government will provide a facility to ensure that cover will continue to be available on business with a few countries in respect of which the management of insurance services considered that to have offered the risks to the reinsurance market could have prejudiced the market's response to the total book of business put to it. This cover will be delivered through ECGD giving 100 per cent. reinsurance to the privatised company. By definition, the countries coming within this facility are those where the company and private market reinsurers are not at present happy with what they see as the political and commercial risks. Over time this will no doubt be a changing picture.
However, based on the private market's current view of the insurance services portfolio, that is likely to be a relatively minor facility and is likely to be needed for only a handful of importing countries involving, it is calculated, about 2 per cent. only of the current total turnover of insurance services. It could well be that most of these markets will become reinsurable in the private market so that the need for this facility will fall away. The likelihood of that however, is rather less clear than it is for the top-up arrangements which I have just described. For that reason, it was not considered appropriate to apply to it the same time formula as that attaching to the top-up arrangements.
In order to meet concerns that this so-called national interest reinsurance facility might be withdrawn prematurely, my honourable friend the Minister of State gave the assurance during the Report stage of this Bill in another place that this facility would not be time limited; that the requirement for the facility would be kept under review and that the Government's intention was that, subject to its performing satisfactorily as an ECGD trading facility, it would continue for as long as the Government considered it essential to meet the reasonable needs of exporters.
I am aware that, despite the strength of these assurances, there have been calls for them to be given statutory force and to be included in the Bill itself. I should therefore explain that the Government's preference for dealing with this issue on a non-statutory basis does not proceed from any wish in any sense to weaken its undertaking but rather reflects the legal and technical difficulties of reproducing those assurances in a statutory form. This in turn reflects the
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fact that, despite their extreme firmness, the assurances have had necessarily to contain an element of conditionality to enable the Government quite properly to retain the right—which it does of course have in relation to the generality of ECGD's facilities —to make decisions about maintaining the facility in the light of experience.
The Government must also remain free to exercise their judgment as to the acceptability for cover of any individual contract in the same way as any other insurer or reinsurer. I therefore believe that what are shared objectives between the Government and exporters in this area are effectively served by the assurances which Ministers have so far given to Parliament and which are now firmly on the public record. My honourable friend the Minister for Trade has given them in writing to many members and representatives of the exporting community. I take this opportunity to add one further reassurance. I undertake that, when assessing exporters' needs as part of any future reviews of the facility, the Government will consult exporters and their representative associations in order to take their views on this important point. Through your Lordships I wish to assure them that these views will be fully taken into account before any final decisions are reached.
These new arrangements will usefully bring together the private and public sectors in a constructive partnership: a privatised insurance services, supported by the reinsurance market, capable of providing an even more efficient and comprehensive service to the customer, with ECGD bringing its expertise to bear on the national interest facility.
I have naturally concentrated so far on the arrangements for the change of status of insurance services. I would now like to turn to the provision of ECGD support for project exports. Although, under the post-privatisation reinsurance arrangements which I have just described, there will be some continuing ECGD involvement in short term export credit, ECGD will obviously primarily be concerned in future with support for project exports. It is to enable this support to be provided in a more effective and up-to-date manner that we are proposing to change ECGD's current governing legislation in the way proposed in Parts I and III of the Bill.
The original decision, emerging from the Kemp Review, to continue to provide Government support, through ECGD, for project exports and our subsequent recognition of the need to provide ECGD with more new powers to do that job more effectively are all, of course, clear evidence of the Government's commitment to this sector of industry. However, it can hardly be surprising that, when announcing their decision to continue with this support, the Government also signalled their intention of taking steps to reduce the costs associated with it. This reflects in particular the huge strain the international debt crisis has imposed on ECGD's financial position with the near certainty that this will result in the taxpayer having to meet substantial net losses. ECGD's last published trading accounts—for 1989–90 —reveal a £3.9 billion cumulative deficit and an

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expectation that its cash borrowing from the Consolidated Fund would rise to £3.4 billion by the end of the 1990–91 financial year.
ECGD has obviously been far from alone among the international financing institutions—including other official export credit agencies in its experience. It may be—and we obviously all hope that this will be the case—that a debt crisis of the severity of that experienced in the early 1980s will not be repeated. Nevertheless, it would have been quite irresponsible and a denial of our obligations to the taxpayer not to have learnt the lessons of this experience and sought to avoid it being repeated in the future, however remote the possibility. That is exactly what has been done. The result has been the introduction by ECGD of the so-called portfolio management system, announced by my right honourable friend the Secretary of State for Trade and Industry in January this year. Through a more prudent and disciplined approach to the underwriting of sovereign risk and by better matching ECGD's premium to risk, this system will provide greater confidence that we will not suffer similar losses in future and will thus ensure that a better balance is drawn between the national interest case for supporing project exports and the risk of loss to the taxpayer.
The Government are well aware that some aspects of this system have not been welcomed by exporters, especially the increases in premium rates which we have had to introduce for exports to the higher risk markets. We recognise, too, that many of these rates are no by higher than those charged by ECGD's equivalent in some other countries. However, not to have taken these steps would have been to deny the hard lessons of the past and to renege on long-standing ministerial assurances to Parliament that ECGD's activities should not become a charge upon the taxpayer. However, we are working vigorously in the appropriate EC and OECD fora and in our bilateral negotiations with other governments to ensure that other countries take similar steps to ensure that their official support schemes do not operate as surrogate subsidies. I am pleased to report that this initiative is making good progress. Indeed, directly arising from this United Kingdom pressure, the communique issued following last week's OECD ministerial meeting contained a specific reference to this issue, indicating a general recognition among OECD ministers of its significance.
I now turn to the details of the Bill. ECGD's current Act of 1978 is beginning to show its age. There are often occasions when there is doubt about whether ECGD has the actual or implied powers to pursue a particular course of action. This has become noticeable in relation to ECGD's need to manage more effectively its existing portfolio of assets and liabilities. This Bill has therefore been drafted in a way which clearly sets out ECGD's primary powers for the encouragement of exports and overseas investment but adds explicit new powers to enable it to control or reduce costs associated with its business. The existing Act is therefore to be repealed. Parts I and II of the new Bill will be a complete replacement of the old powers.
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Part I is a restatement of the existing powers to enable guarantees to be issued in order to encourage British exports and overseas investment. I wish to emphasise that no fundamental change of any kind in ECGD's role is intended. In that respect the word "facilitate" has been used in relation to the export of goods and services from the UK since the word "encourage" in the old Act was found to be restrictive on occasions. In less legal and more understandable terms the Government's objective through these powers will continue to be to encourage exports. The new description of this power will, however, allow a wider range of export business to be encouraged.
Clause I provides the powers to enable ECGD to facilitate the export of goods and services. It has been drafted in the widest possible terms. Clause 2 continues the powers that enable ECGD to give guarantees on investments made in overseas enterprises. An extra provision has been included to extend cover in relation to associated companies which should make the scheme more attractive to UK companies.
Clause 3 provides the explicit statutory authority to make arrangements which are in the interests of the proper financial management of the portfolio; that is, all the assets and liabilities built up in the normal course of business. This will allow ECGD to take full advantage of appropriate financial market techniques to manage its portfolio more cost-effectively. ECGD has already achieved some useful public expenditure savings by these means, but the scope of its operations has been limited by the terms of the existing Act.
Clause 3 will enable the entire ECGD portfolio to be managed more effectively and significant public expenditure savings should flow from this in time. I should emphasise that these powers will confer upon ECGD the capability of mounting a fully fledged internal treasury management operation. They will therefore neither impinge upon nor be to the detriment of exporters. Indeed, to the extent that they succeed in reducing overall costs, they should be to the advantage of the community as a whole, including exporters.
ECGD has acquired much useful general market information and expertise in its credit insurance activities. Clause 5 gives ECGD the opportunity to market some of this information and skills and to charge for so doing. In making that point I wish to emphasise that it is not the intention to start charging customers for the information it provides in respect of particular transactions where it is asked to provide a guarantee.
Clause 6 places limits on the level of commitments that may be assumed in respect of the operations covered by Clauses 1 to 3. At present the sterling statutory limit is set at £35 billion and no change is proposed. The foreign currency limit currently stands at SDR 25 billion and it is proposed to reduce this limit to 15 billion so that it corresponds more closely to the department's current foreign currency commitments. As noble Lords will no doubt have observed, the Government have also thought it appropriate, given the need for parliamentary

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accountability, to introduce separate statutory limits for financial management arrangements under Clause 3.
Clause 7 provides for a return to be laid before Parliament giving details of the department's sterling and foreign currency commitments as soon as practicable after 31st March each year. It is also appropriate to mention here that the Government have agreed that there should be a statutory obligation to produce and lay before Parliament an annual report. Provision for this has been made in Clause 4.
Part II of the Bill provides the legal framework for the transfer of the insurance services business to the private sector. The text here follows a pattern established by earlier privatisations whereby the Secretary of State is given authority under Clause 8 to set up a scheme for the transfer of the assets and liabilities of the relevant business into a so-called vehicle company.
Clause 9 provides for the Transfer of Undertakings (Protection of Employment) Regulations 1981, known as TUPE, to be applicable to the transfer. Clause 10 is the essential mechanism to enable the sale process to proceed and allows the Secretary of State to acquire or be issued with shares in a vehicle company.
Clause 11 allows the Secretary of State to transfer to the new company that part of the existing insurance services business which the new company will be able to operate in the private sector. The major advantage is that under the proposed reinsurance method existing policyholders will retain all their rights against ECGD. There will thus be no immediate change for customers. Their policies will remain with the Secretary of State until they expire. Clause 12 provides the Secretary of State with the authority to delegate certain of his functions.
Part III deals with financial and administrative matters. At this point, it might be helpful if I were to report on the progress that has been made for the sale of insurance services. This has been proceeding in parallel with consideration of the Bill in Parliament. In all these negotiations it has been made absolutely clear that completion of the sale will be dependent upon the successful passage of the Bill through Parliament to Royal Assent.
Following a good response to a pre-qualification questionnaire, the Government announced on 5th March a shortlist of six potential bidders for the business who met the Government's key criteria of commitment to, and understanding of, the business, financial robustness and willingness to take over the business broadly on the terms proposed by the Government.
My right honourable friend the Secretary of State for Trade and Industry announced on 1st May that responses to the invitation to tender had been received from AG, NCM and Trade Indemnity. These are serious and positive responses from respected private sector insurance companies. The Government are currently evaluating those proposals and it would of course be inappropriate for me to comment on them before that evaluation is complete.
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Through this legislation, and other non-statutory initiatives, the Government are engaged in the most radical restructuring of ECGD in its over 70 years' history. We recognise that because the services of ECGD have come to be so highly regarded by exporters such changes are bound, quite rightly, to be closely scrutinised and to give rise to some concerns. I seek to assure your Lordships that the Government's primary motivation throughout has been how best to ensure that the benefit of these services can be safeguarded for the future against the challenges which currently confront them. It is from this perspective that we have concluded that the only truly effective way forward is to privatise insurance services so as to provide a comprehensive, flexible and even better service to our exporters.
As for project exports, our proposals will mean that, almost uniquely within the EC, our exporters will continue to have the benefit of a government department dedicated to the provision of support for such exports. I believe that this combination—the maximum privatisation of short-term support coupled with the retention wholly within the public sector of support for project exports—represents a solution to the problems of 1992 which will be unique to the United Kingdom but which, by making the best use of the experience and skills in both the private and public sectors, will represent the best possible deal for exporters. I commend the Bill to the House.
Moved, That the Bill be now read a second time. —(Lord Fraser of Carmyllie.)
4 p.m.
Lord Williams of Elvel: My Lords, the House will be grateful to the noble and learned Lord the Lord Advocate for introducing the Bill. I have a certain sympathy for him, first, because the Bill is extremely complex and, secondly, because it deals with matters which are difficult for those who are not in the business fully to understand. Nevertheless, there is a clear test for the Bill which I must state at the outset. Does the Bill help United Kingdom exporters or does it hinder them? The answer, I am afraid, has come back loud and clear from every organisation involved in exporting. It hinders them. I shall give various reasons why I believe that to be so.
I have one point of agreement with the noble and learned Lord. I believe that the Export Guarantees and Overseas Investment Act 1978 needs to be amended and updated. But it needs to be amended in a manner wholly different from the way the Government propose. What do they propose? First, as the noble and learned Lord told us, they propose in Part I to institutionalise the portfolio management system. I notice that the noble and learned Lord insisted that the Government are trying to encourage exports, but the Bill, as he rightly pointed out, refers only to facilitating exports. We shall want to come back to that point at a later stage.
Exports must be encouraged. Will the portfolio management system encourage exports? If the Government wish to answer yes to my question, they must demonstrate that the portfolio management system will not penalise existing United Kingdom

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success We shall in my view be penalised in those countries where our exporters have done well because of traditional trading patterns. I refer in particular to Commonwealth countries. Those trading patterns are now being constricted under the portfolio management system as ECGD believes that it is overloaded on those risks. The Government will have to demonstrate that I am wrong. Will the portfolio management system give rise to a further increase in export credit premia? I think I shall be able to show in Committee that we are not only unfavourably compared with other European export credit agencies in the premia that ECGD charges at the moment but that PMS will lead to further increases where we least need them.
Furthermore, the Government will have to show that tae better risk business, because of the Government's preference for bank guarantees, will not go to the forfeiting market and be outside the whole Insurance Services Group even when it is privatised. The Government will have to show that the aid and trade provision will not suffer as a result of the portfolio management system. As the noble and learned Lord is aware, the aid and trade provision operated by the Overseas Development Agency requires ECGD cover. The provision is for less developed countries. If, as appears to be the case at the moment, the portfolio management system reduces overall ECGD exposure to less developed countries, the aid and trade provision will correspondingly suffer. We shall want a good many reassurances from the Government on that matter.
Finally, we have to ask ourselves a question; I put it frankly to the noble and learned Lord. Is not the portfolio management system a herald for what is known as the zero option, whereby the Treasury would like to be out of the business of supporting exports altogether? I want a complete and categoric denial of that from the noble and learned Lord when he comes to reply to the debate. There is a good deal of suspicion that that is the basic government attitude.
Part II of the Bill relates to the privatisation of the Insurance Services Group, which, as the noble and learned Lord quite rightly said, is based in Cardiff. He pointed out that the Kemp Report of June 1989, entitled Review of Status Options for ECGD, came to certain conclusions. The main conclusion was that the Insurance Services Group, which I shall call ISG for short, should become a 100 per cent. government owned company, with the intention that private capital is introduced within three to five years, depending on the progress of possible European Community legislation. In other words, Kemp concluded that there may in the future be a case for introducing private capital into ISG but there was no case at that moment. Kemp also concluded that there was no pressure from the United Kingdom exporting community for a change in the status of any part of ECGD. He further concluded that the private sector does not and cannot provide services equivalent to those currently provided by ECGD. That was particularly true, he said, of the small and medium-sized enterprises which look to our counselling on their exports through the ECGD regional organisation.
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It could well be that Mr. Kemp was right. There may well be a directive on this matter within the next three to five years. All we know is that there is none at present and there is none in contemplation. There may well be a legal challenge, a point to which the noble and learned Lord referred. All those are hypothetical matters. They do not lead to immediate privatisation. Why are the Government ignoring the main recommendations of the Kemp Report? What is wrong with the report? Would it not be much better to increase competition—I believe that there should he increased competition—but to allow ISG to insure exports from other European Community countries and indeed to allow ISG, if it is appropriate, to insure domestic credit? Should there not be a much closer relationship between the short-term insurance and the longer-term project insurance handled out of London?
Perhaps I may explain why I think that that should be the case. Let us suppose that one of your Lordships runs a company which manufactures radar installations. Let us suppose that he sells a radar installation to, for the purposes of the argument, Zimbabwe. The main installation, the main project, will be insured by ECGD London. But that is not the end of the matter. There is then a succession of maintenance contracts and spare parts contracts. These require short-term insurance that needs to be arranged through Cardiff rather than London. To separate them means two entirely different contracts between the seller of the radar station to Zimbabwe and London and between the seller of the radar station to Zimbabwe and a privatised ISG. Would it not be much better to make the two much closer even than they are at the moment? They are under one hat at the moment but they should be made much closer.
The noble and learned Lord went on to talk about the method of privatisation. How will this be done? It is to be done by a trade sale. Of course there was a long list of potential purchasers for this business, but that list has now been whittled down to just two companies. One is NCM, which I remind your Lordships is a Dutch company, and the other is Assicurazioni Generali, which is an Italian company. So far as concerns trade indemnity, they have not offered to buy the business for the very simple reason that they cannot afford to do so. Last year their losses were considerable. They have offered some sort of arrangement whereby they might take over the management and in the end come round to doing some sort of deal where they will take it over.
Therefore, realistically there are two candidates for the purchase of this business: one is Dutch and the other is Italian. Is the noble and learned Lord really trying to persuade the House that a Dutch or Italian owner of the Insurances Services Group will go out of his way to encourage British rather than Dutch or Italian exports? If I may say so, I find that a curious argument.
However, it is by no means certain that even the Dutch or the Italians will stay in the race. There are three problems to which the noble and learned Lord referred indirectly which may well cause them to drop out in the way that the major British purchasers have

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dropped off the shortlist. First, they may not know it yet—although they will find out soon enough—but the United Kingdom Inland Revenue requires the equalisation reserve of the privatised ISG to be constituted out of post-tax profits rather than, as is the case in the Netherlands, out of pre-tax profits. Therefore, the price-earnings ratio which they will have to pay may be much higher than they initially thought. Secondly, there is no guarantee that the skilled staff who work in ISG in Cardiff will stay with a privatised ISG unless they are compelled to do so. I shall return to that point later. Thirdly, there is the Government's treatment of the whole problem of political risk.
As regards political risk, there was, as the noble and learned Lord pointed out, considerable debate in the other place about what all that meant. The Minister in that place assumed that no one understood—that is, apart from himself—what the issues were. He was fairly cavalier in his treatment of another place. He said that it was all insignificant, and anyway the reinsurance slip had been wrapped up and there was no real problem. Further, he stated:
"The countries that are regarded as requiring political risk reinsurance are few. Press speculation about the identity of those markets has been wide of the mark. The proportion of ISG business at present involving exports to those markets —not the proportion of total business in British exports—is still less than 2 per cent. of the total business insured in 1990-91. That is still a worthwhile amount of exports—about £300 million worth—but it is a small proportion of the total insurance book of ECGD and a fractional proportion of the total non-oil visible exports from Britain".—[Official Report, Commons, 15/4/91; col. 54.]
It seems that £300 million is apparently subject to political risk reinsurance. Let us contrast that figure with the one stated in the final draft of the interdepartmental report on the Kemp Review:
"Government withdrawal from political risk associated with short-term trade credit is likely to have an adverse effect on UK exports generally because shortage of capacity of political risk reinsurance would leave a gap in the market. At present, the ISG provides political risk cover of around £1.7 bn per year".
So what is the figure we are talking about? Is it £300 million or £1.7 billion? I suspect that it is £1.7 billion.
I understand that the noble and learned Lord is saying that a large proportion of that sum of £1.7 billion will be wrapped up in this great reinsurance treaty which is being negotiated, apparently at this moment, with the company and Lloyd's market. ECGD will supply a top-up facility for a maximum of three years. But anyone who understands how the reinsurance market works in London—and, indeed, the Swiss Re, the Munich Re or any other major reinsurance company—knows that reinsurance treaties are completed for one year. Political risk reinsurance acts rather like a concertina, if I may use that expression, in that in some years insurance companies and underwriters are interested in political risk reinsurance and in others they are not. That reinsurance treaty has to be renegotiated from year to year. That is why the Government cannot come to any Dispatch Box in either House and say, "We have got it all wrapped up for all time". That simply is not consistent with the nature of the reinsurance market.
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Then the noble and learned Lord went on to say that ECGD would provide national interest political risk reinsurance for those companies which the market will not accept. Apparently the main objection to what I would call the "Hampson" amendment in another place was that it was quite unreal for the Government to be committed for all time to supply political risk reinsurance and that projects might be too risky. If ministerial assurances are to be believed, the Government are about to commit themselves for all time to provide national interest reinsurance. So what is wrong with the Hampson amendment?
There is no doubting the fact that this is a major impediment to the privatisation of ISG. Moreover, when they look closely at what the Government are proposing, I am not sure whether even the Dutch or the Italians will remain in the race. It will certainly be of no benefit to United Kingdom exporters. The solution is that ECGD must stand as a political risk reinsurer of last resort without time limit. Whether it is through the reinsurance treaty or on its own, it makes not a whit of difference; the Government must stand behind it. That is the only way to ensure that this is viable.
I said that the third reason why the Dutch and the Italians may drop out of the race is that they might find that the staff are unwilling to go along with privatisation. If privatisation is implemented, it will directly affect about 600 civil servants based in Cardiff and the regional network. While at this stage the proposal is to transfer to the government company —that is, the vehicle company—on a voluntary basis, in my view and in that of the trade unions involved, the most likely outcome is that insufficient staff will volunteer and coercion will prove necessary. Both the volunteers and those forced to transfer will lose their Civil Service status and be subject to the terms and conditions of employment offered by the purchaser of the company.
We understand that the TUPE regulations to which the noble and learned Lord referred will apply. But they exclude pensions and, as the Civil Service Pension Scheme is generally considered to be better than those available in the private sector, it seems inevitable—it certainly seems so to the trade unions—that the staff transferring to the privatised company will have to accept an inferior scheme.
I very much hope that the noble and learned Lord will reflect seriously on the Bill which he has put before the House. The recommendations of Mr. Kemp have been ignored. The only takers for the business are either Dutch or Italian and they may in any event have gone by the board. The national interest appears to be of no account. There are grave suspicions in all exporting industries throughout the length and breadth of the country about the Government's attitude towards exports. There are grave suspicions that the Treasury is running the whole thing and wants to get out of it; there are grave suspicions too that Ministers are trying to wrap up what they have to say in weasel words and are not coming out with the truth about the problem.
So my advice to the noble and learned Lord is that he should think carefully before he pursues the Bill

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and before he becomes mixed up in the difficult problems which will come before your Lordships if the Bill goes forward into Committee. If he feels, as I believe that he should, that this is not a proper Bill to bring forward now, in view of all the objections that have been made, he should do the proper thing, withdraw it and put it in the waste paper basket where it properly belongs.
4.21 p.m.
Lord Ezra: My Lords, due to a prior engagement which made at a time when I believed that this debate would take place on another day, I may not be able to be here for the final stages of the debate, and that I regret. I speak as someone who over the years has played quite a part in export promotion. For the first 10 years of its existence, I was a member of the British Overseas Trade Board, a large part of that time under the able chairmanship of the noble Lord, Lord Thorneycroft I was also chairman of the European Trade Committee.
Like the noble Lord, Lord Williams, I approach this issue on the simple basis of whether the proposal will aid exports. To understand the motivation behind the submission of the Bill for our consideration, I did a little research. In particular, I hit upon the report of the Trade and Industry Select Committee of another place, dated 6th December 1989, in which it commented upon a memorandum prepared by the Treasury on the ECGD. It says:
"The content of this memorandum is alarming and gives the impression that the Government is moving towards withdrawing Government support not only from the short-term export insurance business but also from long-term and project business".
We know that the Government have said that the latter is not their intention. The committee also says that a logical extension of the argument used by the Treasury for what appeared to be short-term savings,
"would be that a total collapse of the UK's export trade would relieve the economy of the burden of paying for Commercial Councillors in British embassies throughout the world".
That is what the report from another place had to say. It bearing such motivation in mind, I regret to say, that one has to approach the Bill. Is it intended merely to institute short-term savings at the expense of long-term export prospects?
With respect to the projects group, there must be grave suspicion about the introduction of the so-called portfolio management system. That has already been accompanied by a substantial increase in premia. The premia quoted by major British exporters have been shown in many cases to be twice the level as those of our major competitor countries and there is every prosper: that they may increase further. That does not seem to be following the level playing field philosophy. It is putting our exporters with major projects in those markets at a grave disadvantage.
The question also arises as to what will happen to our capital goods exports. Although the amount of project finance is relatively limited in terms of our total exports, nevertheless it represents some 15 per cent. of our capital goods exports. The capital goods
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industry in this country is already in sufficient difficulty not to have thrown at it this major disadvantage when it is promoting its exports.
When one turns to the Insurance Services Group there are even more questions to be asked. Here we are talking about a much larger proportion of exports. It is some El 3 billion, as the noble and learned Lord pointed out, which is just over 10 per cent. of our total exports. What I find as puzzling as the noble Lord, Lord Williams, is that the Government, although saying that they accept the Kemp Report, have nonetheless departed from one of the major recommendations contained in that report.
In talking about the separation of the Insurance Services Group, paragraph 15 of the Kemp Report states:
"Such a radical change would need to be thoroughly prepared and carefully carried through: four to five years would probably be needed before the introduction of private capital. This would allow time for the alternative ways of doing this to be explored and evaluated, and for the course and case of market developments to become clearer".
I cannot for the life of me understand why the Government have ignored what appears to be one of the most important conclusions of the Kemp Report. Kemp is saying that there may well be a case for separating off the Insurance Services Group but that it should be done by stages. Let us first separate it off under government control; let us see how it establishes itself; let us see how we need to modify its operation while it is under government control; and, then, if all goes well, in a period of four or five years, let us see whether it is desirable to introduce private capital.
Such a proposition may have received some support from the House. We may not have agreed that ultimately we wished to see private capital introduced. But a period of four or five years allowed before that were done would not seem unreasonable. Instead, the Government are bent upon telescoping the whole operation, and immediately the separate company is formed, they wish to privatise it.
The noble Lord, Lord Williams, spoke about the two overseas firms which are now the remaining effective bidders. I am not opposed to the involvement of other Community countries in our affairs—we are moving into the single market—but what disturbs me, especially in the case of the Dutch company, is that, as I understand it, it is the recipient of special financial benefits from the Dutch Government designed to facilitate and encourage (if I dare use that word) Dutch exports. I do not see how a Dutch company, which has a special relationship with the Dutch Government, the object of which is to stimulate Dutch exports, can at the same time take over a major insurance operation in the UK with the apparent object of facilitating exports from here. That seems to present a problem.
I agree entirely with the noble Lord, Lord Williams, about the confusion that has been created by the question of political risk reinsurance. I too read carefully the debates that took place in another place and the exposition of the whole subject by Mr. Sainsbury, the Minister for Trade. I found it difficult to follow the gist of his reasoning. At one stage I thought that he was saying that the Government were

1023
effectively providing political risk reinsurance, but when I read on I formed the impression that the Government are opposed to it. All I can say is that that point was mentioned in the Trade and Industry report of another place to which I have referred. The report said that HMG should continue,
"to provide a political risk reinsurance facility".
That is clear. What is unclear is what the Government are putting in its place and what its duration should be. As the noble Lord, Lord Williams, rightly stated, it requires substantial changes in the reinsurance market before what the Government say they are doing can be brought about.
I have considered the matter carefully. I have read all the attendant documents I can lay my hands on. I fear that the answer to the crucial question of whether the Bill will help stimulate exports must be that it is most unlikely to do so. It could indeed harm our export prospects.
4.30 p.m.
Lord Kissin: My Lords, when I came to the House 17 years ago, I thought of a non-controversial subject for my maiden speech. I chose ECGD because I thought that nobody would have a second opinion on the subject. I was heartily commended on what I said, but the Government took no notice and I do not think that they will take any more notice of what has been said today.
Throughout both the developed and developing world, there is widespread recognition of the value of government supported export credit schemes to insure credit risks that would otherwise not be covered. For many years, governments in this country have in my view quite rightly adopted a responsible and realistic policy; namely, to maintain and support a system of government-backed export credit and insurance to ensure that at any time British exporters are competitive with the rest of the world.
Our scheme was forward looking and well administered. Other governments wanted to copy it. Members of the ECGD were invited, when the noble Lord, Lord Bottomley, was Secretary for Overseas Trade, to help Coface in France and Hermes in Germany in developing their schemes. At the same time, governments were seeking through multilateral negotiations to reduce or eliminate the use of subsidies which can distort the operation of market forces and lead to wasteful and costly beggar-my-neighbour policies. They were perhaps not perfect, but systems of official export credit and insurance have survived and have been accepted. However, since the announcement of the privatisation of ISG in December 1989, the Government have overturned that policy. Fired by what would appear to be a narrow and obsessive view of market economics, the Government seem hell bent on a unilateral dismantling of our system of export support.
The trend suggested that this should be done gradually. As the noble Lords, Lord Williams and Lord Ezra, pointed out, no one has taken any notice because it is being done today. I shall not call them subsidies because they were, and are, additional
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facilities offered by governments to underwrite risks for exporters to help them to build up valuable business in difficult markets.
I am pleased to see that the process of privatisation in this country has not gone as smoothly as hoped. In my view, the justifiable criticism from British exporters has helped to influence political opinion in both Houses. Already damage has been done by the uncertainty created by the Government's action. Before our competitors have the pleasure of seeing United Kingdom plc shoot itself in the foot, I believe that the Government should withdraw the privatisation Bill and continue to develop our previous policies.
Since the decision to privatise the insurance services division of ECGD was announced in 1989, a number of contradictory, misleading and damaging statements have been made. At the time, it was meant to continue for five years. Now, however, that has been scrapped and replaced with a bland reassurance that the need for a national interest facility would be kept under review. Even the most ardent supporters of the Bill believe that some government reinsurance facility is essential. It is therefore not surprising that most of the bidders for ISG decided not to pursue the matter once the Government's continued involvement was in doubt.
Earlier this year, there were six interested bidders, we were told, including Trade Indemnity. I believe that Trade Indemnity has excluded itself as a bidder and as a negotiator for a joint enterprise. Those that remain, as the noble Lord, Lord Williams, rightly pointed out, are the Dutch NCM and the Italian export earnings department. A week ago the Minister said that the Government were evaluating the offers before them. What is being evaluated —the purchase price or how two foreign, partly government-subsidised companies will support British exports? In short, we now have a situation where no right-minded UK company wishes to buy ISG.
Last year, the Government also announced a new system and powers for managing the exposure of the projects division of the ECGD, which is not being privatised. The scope of these new powers is wide and there are justifiable fears that the abolition of the projects division is an ultimate policy objective. In February, the ECGD announced that its provision for bad and doubtful debts primarily related to the projects division had risen from £3.5 billion to £7.2 billion. However, provisions are not actual losses and the ECGD is almost alone among the export credit agencies in the world in making and announcing such provisions. Our exporters fear, quite rightly, that the provisions may encourage debtors to default and reinforce the Government's desire to make cuts in ECGD services which are not being privatised. While appreciating the likely net cost to the taxpayer, we must bear in mind what it would mean if we did not export and if we did not pursue our export schemes. That is apparently not part of the consideration for our policy.
Finally, at the end of April, UK capital goods exporters were quite rightly alarmed when it was announced that the £97 million ODA budget for aid and trade provisions, used successively to help UK

1025
exporters to secure valuable contracts in countries such as China and India, had been fully committed and that no new money would be available until April 1992.
I consider that the Government's policy on the export credit support is in disarray. Their persistent negative attitude in supporting exports further will only serve the interests of our overseas competitors.
At the outset, it is vitally important to remember that ECGD has an excellent track record. In the 45 years of its life the agency has traded at virtually no cost to the taxpayer, and during that period some £250 billion of exports have been achieved. All our major competitors provide significant levels of export credit and insurance, and not one has shown itself prepared to dismantle its system of export support.
The insurance service, the ISG of the ECGD based in Cardiff, is primarily concerned with providing short term cover. The noble Lord, Lord Williams, pointed out clearly what short term cover really means; what is short term; and when it becomes long term.
Apparently the main argument put forward for privatisation is that ISG's services overlap with what is provided by private insurers such as Trade Indemnity and that the Government have no right to run a commercially competitive insurance company. Secondly, ISG could be free to develop new business in the area of domestic credit facilities and expand into Europe to take advantage of the single market after 1992. Ii is my view that those arguments ignore the realities of the export credit insurance market in the United Kingdom and in Europe. In particular, ISG cannot be a commercial underwriter. It must also provide a range of cover for political and economic risks and quality of cover, advice and support which, because of government backing, cannot be matched by private underwriters.
Further, without availability of government backed insurance or reinsurance, many exporters would be unable to secure the bank finance they require to fund credit facilities. Premium rates would rise sharply, and there would be a substantial reduction in cover of political risks in a number of important export markets.
We are trying to predict how 1992 would affect the export credit insurance market, but that is an extremely difficult prediction to make. With each country having its well established private or official export insurance underwriter, the prospect of a privatised ISO being able to build a significantly broad client basis across Europe is more than questionable.
Further, given the high level of government involvement in export credit insurance, that is, Coface in France and Hermes in Germany, the organisation of the ECGD as a whole to support exports to third world countries can only be thrashed out on a political level. Unilateral action by the United Kingdom must hurt British exporters and our economy.
The arguments for privatisation of ISG at present are very weak. However, the risks to UK exporters are very significant. Continued government support is essential, and until a formula can be thoroughly worked Out over a period of at least three to five years
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all thoughts of privatisation should be postponed. Private capital can be introduced only if it is clear that UK exporters will not suffer from a reduction in both the range and quality of insurance cover provided.
No one argues that the work of the ECGD projects division in providing longer term credit and insurance could be carried out by a private sector underwriter. However, the projects division has come under attack for the following reasons: first, that the support it provides makes an insignificant contribution to the UK balance of payments; secondly, that it represents a growing burden on the taxpayer; and thirdly, that we should not mindlessly follow the practice of other countries and support the sale of capital goods to countries which are unlikely to pay for them. Once again those criticisms have no basis of reality. Having spent all my working life in international trade, I can say with a certain amount of authority that what might be nice in theory—that is, a world without subsidies—cannot work and never has worked in practice.
In particular, as regards ECGD's projects division, it is argued that ECGD's credit insurance policy covers only about 2 per cent. of the UK's non-oil export business, and that it makes no important contribution to the balance of payments. But 2 per cent. represents between £2 billion and £2.5 billion of exports of our strategically important capital goods and defence industry. About 20 per cent. of exports in this sector are probably supported by ECGD. Such sectors depend on exports to sustain capacity and to compete economically for domestic business. If the Government's export credit support fails to match that of our competitors, then multinationals operating in the UK will move their procurement and business abroad, which will adversely affect both domestic employment and imports.
It is true that 40 per cent. of ECGD's project business is concentrated in only six markets—China, South Africa, Indonesia, Hong Kong, the Soviet Union and India. But those developing markets represent a large proportion of the world's population, with significant economic potential. In view of the substantial export credit support which is provided by Japan, the USA, France and Germany, we cannot afford to place our exporters at a disadvantage vis-à-vis our competitors.
It has been claimed that the activities of ECGD's projects division is costing the taxpayer £1 billion a year, made up of some £400 million in subsidised interest rates and £600 million in net claims, and that the recent increase in debt provisions automatically means that the net cost to the taxpayer will rise. Therefore it is argued that the ECGD activities should be severely curtailed and premiums raised. But debt provisions are not trading losses and those figures need to be put in perspective. What happens if we do not have such exports, if the factories and workers who are employed directly and indirectly are out of work? Can anybody prophesy how many of our factories and export businesses at home would close, and how many unemployed people the taxpayer would have to pay for?

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Throughout its life, ECGD has traded at very little net cost to the taxpayer, and there is nothing in ECGD's trading history to suggest £600 million of net claims on a continuing basis. Secondly, the losses of the 1970s and 1980s, associated with a sharp rise in market interest rates and sovereign debt rescheduling, could surely not have been foreseen. Thirdly, the so-called losses are likely to fall as interest rates fall and because the relatively lax lending policies of the past have been tightened. No exporter expects government support for exports that are not going to be paid for.
As regards the premiums, ECGD's rates are already significantly higher than those in Europe—that is, Coface 3 per cent., UK 8 per cent.—while ECGD's actual losses are lower than any of its competitors, who, unlike ECGD, are not compelled to make massive public provisions.
What I have said should demonstrate that if the Government continue to pursue their present policy they will do untold and permanent damage to the UK economy which is dependent on its ability to export to the rest of the world.
Export credit insurance and export credit is a complex business. Both the UK and overseas governments have traditionally been very pro-active in supporting their exports and ensuring that their exporters are no worse off than their competitors. The current Government's radical and unilateral approach is both inappropriate and dangerous. If pursued it will damage our industry and employment merely for the realisation of some abstract economic principle. We can never calculate the cost of losing our export industry.
As a way forward I strongly recommend that the privatisation of ISG is postponed, or preferably thrown out of the window, until a more workable alternative combining private capital with continuing government insurance or re-insurance is found, possibly through the creation of a separate entity owned by the Government initially and administered by the ECGD for a period of time in a way that could attract private capital and be expanded into Europe.
Secondly, the Government should actively explore the possibility of ECGD creating a central reinsurance agency as part of the Department of Trade and Industry which could help to harmonise rates and services within the EC and shift some of the burden from national governments.
Thirdly, the Government should continue to give ECGD every possible support for its projects division and ensure that the range and quality of its services are no worse than those offered by other agencies. The Government should focus their attention on supporting multinational initiatives by the EC to achieve over time a reduction in support for exports.
Governments have two main tasks; first, as an "enabler", to create an environment which allows for the free movement of people, capital and the operation of market forces, and, secondly, as a "protector", to maintain and promote the national interest. In the case of export support the latter option is the only sensible way forward.
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Let me make it clear that at the moment I see no other solution but for the ECGD to be embodied within or linked to the Department of Trade and Industry, whose prime concern should be the promotion of UK plc in world markets. We can learn a little from the Japanese and what they have done via MITI to create a body that plans, organises and implements export support schemes. Are the UK Government determined, naively, on such feeble arguments, to make decisions which will prejudice our export business for years to come?
4.53 p.m.
Lord King of Wartnaby: My Lords, since I speak from this side of the House your Lordships will know that I am a supporter of this Government. However, perhaps I may begin by declaring an interest. British Airways, of which I am chairman, is involved in negotiations in the USSR in which the availability of ECGD cover may be material. I am also chairman of Babcock International, whose business in several overseas markets is materially affected by the availability of ECGD cover and ATP financial support.
I am less concerned with what the Bill says than with what the Government are doing and are failing to do to provide support for the export industries of this country. Your Lordships would not expect me of all people to quarrel with proposals to bring government-controlled businesses into the private sector. I have frequently urged the Government to privatise all those industries which were nationalised by the first post-war Labour Government. Those nationalised industries have cost the British taxpayer scores of billions of pounds. It is to the credit of this Government that they have restored most of those industries to the more efficient organisation of private ownership.
I welcome the proposal to separate from other functions ECGD's function in providing insurance cover for short-term credit and to make the insurance services a stand-alone business in the private sector. I have no doubt that that reorganisation will make possible greater operational efficiency in the provision of cover for short-term credit.
At the same time it is disappointing that only one British company apparently remains on the shortlist of bidders and that insurance services may be sold to non-UK owners. I sound this note of caution: although privatisation is one of the central policies of this Government, that policy and philosophy are not shared by all the governments of the European Community. France, for example, has made clear its intention to continue with both public and private ownership in its industrial organisation. A privatised UK company may find itself competing against organisations in Europe which are owned or part owned by governments.
As we move towards the promised land of the single market one is forced to ask how competition can be perfectly free and perfectly fair between such differently owned entities. What happens if ownership of a privatised UK company passes into the hands of another EC but non-UK company or group of

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companies? What is to stop that second company at some future time being purchased by a company which is owned in part or wholly by a government of one of the twelve member states?
The Secretary of State has tried to guard against the risk of back-door nationalisation by referrals to the Monopolies and Mergers Commission. He has pursued that policy with singular lack of success. The clearance of Elf Aquitaine's bid for Amoco was the fourth such clearance in less than a year. In the circumstances it may be wise for the Government to be granted the power to establish the Cardiff-based insurance services as a separate company to be sold to private shareholders but to defer the exercise of that power until they can satisfy Parliament that British companies which rely on short-term credit insurance services in competitive situations will not be disadvantaged.
This country has to earn its living in the world at large. It can do so only if the Government allow and enable the export industry of the country to compete on reasonably equal terms with its overseas rivals. Credit and credit insurance are important factors, sometimes critical factors, in that competition. This Government are committed, very properly, to bringing inflation down to or below the level in other EC and OECD countries. The same must apply to the price of credit insurance. Yet ECGD premium rates in many instances are already higher than those of our competitors and the Secretary of State is threatening to increase them further.
The higher price which this Government are charging for export credit insurance compared with competitor countries is costing this country business and employment at the very time when we are experiencing a deeper business recession than most of our European neighbours.
The construction and capital goods industries are major contributors to the national economy. They have proved by their performance over many decades that in design, quality and delivery they are equal to the best in the world. It should not be necessary to remind the Government that capital goods are not produced or marketed in the same way as fast-moving consumer goods. Ten years may elapse without a single order being placed in this country for electric power generating plant. The industry has been sustained and the technological capability preserved by the orders won overseas against foreign competitors.
There is no longer a narrowly-defined UK domestic market for our manufacturers of capital goods, as the award of the Humberside power station last year to a German company demonstrated. Our companies must compete with their European competitors on equal terms in this country. The Government must ensure that they are able to do so on similar terms in more distant markets.
The Government must stand behind the breadwinners of our major industries. There is worrying evidence that they have failed to do so and that exporters in commercially competitive countries, including Italy. Germany, France and Japan, receive
1030
from their Governments more widely available financial medium-term support and at lower prices than their British counterparts.
We are not asking for subsidies. We are not asking the Government to buy contracts for us. We ask and insist that the Government should deal as effectively with other governments as we are required to deal with other companies. It is the responsibility of the Government to establish for the exporting companies of the United Kingdom an environment in which they can compete on terms which are fair and reasonable.
Export orders, which are vitally important to our manufacturers of capital goods and to the thousands of people who are employed by them, are being lost because the Government refuse to extend insurance cover in some of our successful and promising markets. It is tragic that British construction groups, having invested great effort and expense to qualify for airport development and other projects in the USSR, are now being forced to surrender opportunities to other European competitors because the Government refuse to extend ECGD cover. In Malaysia British firms are bidding for important capital goods projects. To succeed, they must be given a level of Government support which approaches that enjoyed by their competitors.
In the background of this debate, but no doubt in the forefront of ministerial minds, is the international debt crisis. The ECGD accounts laid before Parliament earlier this year revealed that total sovereign provisions had risen to £7,248 million. The Minister has repeatedly stressed the importance of underwriting risk on more prudent terms and of reducing the cost of export insurance.
It is of the greatest importance that the Government should not confuse remedies which are available only through international agreement with those within their own gift. The international debt crisis, which plunged so many third world economies into despair, was the result of a lamentable lack of co-ordination amongst the governments of the world's creditor nations. There is no substitute for such co-ordination.
The Government are pressing for international agreements to eliminate export credit aid and subsidies. That is fine, but in advance of securing such agreement there is no merit in penalising British industry by placing our exporters at a disadvantage with their competitors.
When the Privy Council Committee for Trade was reorganised in 1696, it was charged to work for the removal of obstacles to trade and for the employment of the poor. The committee and its successor, the Board of Trade, have pursued those policies with some success for 300 years. Our present-day Department for Enterprise has not been relieved of those duties.
The Government have a choice. They can meet the cost of providing ECGD insurance and ATP finance at levels adequate to support the efforts of exporters in bidding situations which are often determined on something approaching a government-to-government level. Alternatively—they have a choice—the Government can leave the exporters to fend for

1031
themselves and find the cost of additional employment benefit and assistance for factory closures which lost market opportunities will bring as surely as night follows day.
In an address to the Institute of Directors in April the Secretary of State said that one of the two great national weaknesses was a tendency to take a short-term view. That is precisely what we are asking him to avoid as Minister responsible for the provision of support for our export industries. I commend to the Secretary of State St. Luke, Chapter 4, verse 23—Physician, Heal thyself!
5.7 p.m.
Lord Taylor of Gryfe: My Lords, like the noble Lord, Lord Ezra, I have an engagement tonight which may not permit me to remain throughout the debate. Having made that apology, I want to thank the noble and learned Lord, Lord Fraser of Carmyllie, and congratulate him on dealing with the Bill, which is somewhat outside his normal province. I understand that the Minister concerned, being a Name at Lloyd's, has excluded himself from the debate. It must be one of the few compensations these days for being a Name at Lloyd's that one does not have to feel responsible for this piece of legislation.
I should like to say first how pleased I am to follow the noble Lord, Lord King of Wartnaby. I wish to relate to the House an experience that I had when visiting his factory at Renfrew. That factory belongs to Babcock International. I had some responsibility for a number of years for dealing with export project finance with a large British merchant bank. One of our clients, with whom we worked successfully, was Babcock's, so I decided that I would go down to Babcock's and not simply sit in the City office. I walked through the factory and the manager who accompanied me said, "Lord Taylor, the workers in the factory have observed your interest today and the shop stewards would very much like to have a word with you". I said, "I am not sure that I want to be involved in the internal industrial relations problems of Babcock International, but how do you feel about it?", to which he replied, "Meet them by all means".
The shop stewards, who were assembled around the table in the board room, simply said, "Lord Taylor, we understand that you are responsible for putting together the financial packages on some of our export bids. We should like to ask you why we are losing some of those contracts. Is it because we are not equalling our competitors in productivity or is it because of the export finance that supports our bids?". One of the shop stewards, who was a shop-floor man, said, "Explain for us the comparison between Coface, Exim Bank and the export support agencies in different parts of the world". Those people were concerned about competitiveness and about jobs. They realised that if British export industry was carrying unnecessary burdens that put it out of line with its competitors, it could cost them their jobs.
I congratulate the noble Lord, Lord King of Wartnaby, who, when his company was bidding for export orders overseas, took with him not only his
1032
sales manager, finance director or technical engineer but frequently a shop steward. So the shop steward realised just what international competition meant. That had impressed itself on the shop stewards to the extent that they were critically examining the facilities for export finance. I am delighted to see the noble Viscount, Lord Weir, sitting opposite. I look forward to his contribution to the debate because the same kind of discussions arose in visits to Weir's of Cathcart.
The point is that if our export industries requiring project finance have not secured the level playing field about which the noble Lord, Lord Young, used to tell the House when he was in office, I am afraid that it will be extremely difficult to achieve success in manufacturing industries. The Treasury may calculate that it is saving some pounds here and there. But in terms of the national interest and their contribution to maintaining a manufacturing industry, the Government must exercise their responsibility for ensuring that we have a level playing field.
In this debate a great deal has been said about the Kemp Report. I suppose that it was the Kemp Report that encouraged the present Bill. I have a copy of that report, although there are not many of them around. On page 9 it states that:
"the national export credit scheme may be seen as a business unity but one that is too important as an instrument of national economic policy not to be kept under Government control".
It goes on:
"For reasons already indicated, industry is insistent that any change in the existing system should not result in any diminution in the level and scope of the service they are used to from ECGD".
It adds that there is no pressure from British business or British industry to make such changes no pressure at all. Sedgwick, the large insurance brokers, conducted a survey in this connection and 90 per cent. of the firms questioned in the manufacturing industries indicated that they saw no good reason to make the kind of changes that are indicated in the Bill.
In its recommendations the Kemp Committee, to which reference has already been made, states that:
"The minimum time needed to legislate for and run in an Insurance Services Group reconstituted as a joint-stock company is four years; this might prove insufficient".
I do not understand why the Government quote the Kemp Committee in support of their case and at the same time reject what in my view is a basic recommendation.
Sometimes I like to hope—I do so particularly today when there are so many representatives of British industry in the House—that we judge these matters not on a party or doctrinaire basis. I never believed in the arid argument of privatisation versus nationalisation. That is in the past. We must answer the question and the challenge that the noble Lord, Lord Williams, presented. Is this good in the national interest? Is it good for British industry? If noble Lords were sitting in their boardrooms rather than in a political forum, I am quite sure that they would come to the conclusion which the noble Lord, Lord King, had the courage to express this afternoon.
Is it good for industry? The first thing to do when selling off the assets in any business is to assess the

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market. If six feelers are put out to leading companies which it is thought might be interested in buying those assets and only two positive replies are received, both of them foreign, one would say: "The market has collapsed. Why should we sell assets, for doctrinaire reasons, when it is quite obvious that the market has very little interest in acquiring those assets and at the same time by selling these assets we are jeopardising an important element of export and financial support?" So I plead with a number of the speakers who are to follow me, who have a long and distinguished record in industry in Britain, to make the kind of judgment that they would make if they were sitting in their own boardrooms and discussing the disposal of an important asset.
How much will we get out of this? Originally it was thought that we might realise £100 million in the disposal of this particular branch of ECGD. The City seems to believe that about £25 million might be the appropriate figure. Considering that in the transition period to the privatisation the Government will need to liquidate certain responsibilities and that there will be transitional payments to the new companies—what are now called sweeteners—it is unlikely that at the end of .he day the nation will finish up with anything realised from the disposal of this branch of ECGD.
For all those reasons this course is not worth pursuing. ECGD has a statutory obligation in the Act,
"to encourage UK trade and provide insurance and related export support facilities for UK exporters".
The new privatised organisation will not accept that specific obligation. It is an obligation of a UK government-owned institution. The new organisation, quite sensibly acting in the interests of the shareholders, will calculate the return to its investors. It will not be moved by national considerations or by a consideration to keep British manufacturing industry in business. It will calculate its premiums in a way to give a reasonable return. That is the risk that we run with this legislation and I think that we should avoid it.
It has already been said in this debate that one of the problems of the present Government is that the hand of the Treasury is obvious in this legislation and in the general conduct of ECGD. At the moment our premiums are the highest in Europe. No other country in Europe with which we compete —neither the Germans nor the French—carries the burden that we have to meet on ECGD financing. In addition, there are the aid provisions, which are very important on export deals. They are a kind of sweetener. If one can provide an element of aid in the bid and so reduce the total price on a particular project, that can be helpful. The French are experts at improving what is called the credit mixte.
Under the present arrangements of this Government we exhausted this year's aid trade provisions in April. They will not be reviewed for another year—until next April. That means that no British exporter bidding for an overseas contract can include any element of credit mixte or aid provision, whereas our competitors still have in their pockets a large amount of aid-trade provisions.
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I know that the tradition of this House is that we do not move for a rejection of legislation at Second Reading. However, I hope that heed will be taken of the critical comments made by the noble Lord, Lord King, and other important leaders of industry who are present today so that at Committee stage we may avoid some of the worst excesses of this rather poor piece of legislation.
5.21 p.m.
Lord Prior: My Lords, I declare an interest. I am very proud to be chairman of GEC, one of Britain's largest exporters and, I am informed, the largest single user of the ECGD. I begin by paying a tribute to the ECGD. We find it an organisation which has worked manifestly well in the interests of the nation through its exporters. It does not blindly follow our wishes but provides objective, pragmatic assessments of what is possible.
I turn to the Bill. My noble and learned friend on the Front Bench does not seem to have many friends. In fact, looking through the list of speakers I do not believe that many of his friends will speak. I hope that he takes that seriously. I know that my noble and learned friend is not an exporter. I do not blame him for what he said today. It is probably a good thing that he does not know much about exporting because if he did the words would not have come out of his mouth in the way that they did. It would not have been possible to have made such a speech if one had to deal with the problems of the ECGD day after day, as some people do.
It is sad that from the assurances underlying the Bill, the general view is that the Treasury does not regard British exports or ECGD as being of great significance or importance. That was pointed out by the noble Lord, Lord Taylor of Gryfe. That is the crux of the matter. That is why the assurances are given. That is why the views that have been expressed were so strong and were stated with so much feeling. It is sad that at this time, in the depths of recession with an adverse trade balance of over £1 billion a month, we should consider any action which might cut back exports, or the possibility of exports. I do not refer only to exports. Unless one has a strong capital investment business in capital goods, the investment is not available to provide the goods at home and imports flood in.
Considerable problems face the Government if they proceed with the Bill as drafted. Your Lordships are sometimes critical of British industry. I wonder whether noble Lords realise that even the Government acknowledge that ECGD's charges are the highest of any export credit agency in the world by a considerable margin. The level of premium which exporters were called upon to pay, even before recent increases, were sometimes up to two or three times higher than those asked of our competitors. It is to our certain knowledge that in the case of South Africa the premiums charged by the German and French credit agencies were a third of those offered by ECGD. We are referring to a very considerable difference in premium costs and, on a large project, a substantial sum of money which may run into tens of millions of

1035
pounds. That sum has to be included in the tender price; it cannot be separated. It can mean the winning or losing of a contract.
The noble Lords, Lord Ezra and Lord Taylor, spoke about a level playing field. Yes, of course we want a level playing field, but sometimes we do not even get out of the pavilion. The level playing field is a long way off.
The level of short-term premium is also rising. In some cases it is rising to more than 10 per cent. of the total cost of a project. That makes no sense. Sometimes one feels that it is part of a deliberate attempt by the Treasury to get out of the business of ECGD altogether. We are told that the Government are doing their best to get other countries to follow suit and put up their premium rates. I do not understand why the Minister for Trade proposes unilateral disarmament for our exporting forces. Surely the policy of this Government has always been one of multilateral disarmament. Currently there is absolutely no evidence that other countries are following us in putting up their premiums.
Before I leave the subject of long-term credit, perhaps I may say that it is not only the bigger companies which are worried by these problems. The big companies employ a myriad of sub-contractors. They need cover too. They are the people who perhaps employ the bulk of labour. As has already been said, perhaps we see the hand of the Treasury in the Bill. During the review of ECGD operations carried out in 1989 the Treasury pushed for the so-called "zero option" which was in effect the complete abolition of ECGD cover. Fortunately, it did not succeed in persuading the Cabinet of the wisdom of such a move. Instead of a single blow by the executioner's axe, as the Treasury originally wanted, it is administering death by a thousand cuts by increasing premiums and restricting the availability of credit. It is because those assurances which we have been given before have not been kept that we have such difficulty in accepting similar assurances now on the future of ECGD at Cardiff.
I turn to the short-term credit, which is the main subject of the present Bill. My noble and learned friend states that the private sector is better able to meet the needs of exporters than the ECGD. I simply do not recognise that argument. I believe that I have his words down reasonably correctly, but I do not understand them. Nor do I understand the second reason given: that the position is unfair to private sector insurers. It is not as though they are jumping over each other to get into the market. The only two bodies which have shown any interest are an Italian firm and a Dutch firm. It is hard to understand why it is unfair to private sector insurers.
I do not mind the privatisation that this measure provides if I felt that it took the Treasury out of the argument. That is what most of the former nationalised industry chairmen used to say to me: "We want to be privatised. We do not wish the Treasury to have anything to do with us any longer". I follow that argument. But the problem with regard to this measure is that the Treasury cannot get out
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altogether. The political risk argument has to be met, as has the top-up facility for credit which lasts for more than a short period of time.
As drafted, the Bill does not deal with points about political risk and top-up facilities. The Minister has told me that re-insurance can be obtained internationally. He must be aware that that is already taken into account by underwriters. The insurance sector in the United Kingdom, considered by many as one of the strongest in the world, has taken a terrible bashing in recent years. Hurricanes, Piper Alpha and asbestosis have all taken their toll. Lloyds is not in robust health, as many noble Lords may know from bitter personal experience. Indeed, one of the previous bidders for the ISG—namely, Trade Indemnity—made an operating loss last year of £28 million. It is not surprising that insurance companies are now taking a prudent view of risk.
None of us can say what will be the case three years from now as regards top-up assurance. However, it seems clear that a commitment of cover for up to three years will not suffice. The Minister has no crystal ball so why endanger the future of many companies in this manner?
I turn to the political risk and to deal with the extraordinary business of what NCM, a Dutch company, is able to do. It was privatised in 1932 but it receives an enormous amount of government backing. In a press handout from NCM dated 24th April the company made clear that it still receives from the Dutch Government a degree of cover for political risk. At the end of 1989 the commitment of the Dutch Government under those policies of political risk amounted to 40 billion guilders (£12.3 billion). On account of political risks that year the Dutch Government paid out no less than £229 million.
My noble friend said that the agency was only a minor facility that was needed on a handful of occasions. That is not the way in which the Dutch have used it throughout the years. If we had used the facility in the same way we might now be in a stronger trade position. It is evident that the term "political risk" is one of elasticity. Many people who deal in the export market have come to recognise that fact only too well; in particular the French, Italians, Japanese, Germans and many others.
It is quite clear that many noble Lords are puzzled about the Bill. In the middle of a bleak recession and with a massive deficit in our balance of payments the Government have introduced a Bill which has produced a strong reaction from Members of this House and from industry. Like my noble friend Lord King, I wish to be a strong supporter of the Government; I believe in them and wish to see them succeed. However, I beg the Government to listen more carefully to industry, on whom the future welfare of this country depends. We are talking not about small matters but about immensely important consequences for the future of our country. There is an understanding on both sides of the House—and perhaps the same exists in another place—that unless we can improve our industrial performance we shall

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never be able to reduce the unemployment figures and give the people of this country the prosperity that we all wish to see.
I hope that the Government will take seriously what has been said. This is not just a bleat; it is not just industrialists using the same old words to try to cover up some of our inefficiencies. We recognise the fact that we have our part to play; but please listen to us because a great deal is at stake. We wish to help and we can do so only if we in turn feel that our views are receiving a reasonable and correct response from the Government. That is what matters and that is what we shall look for in tabling a few amendments in Committee. I hope that the Government will not try to stand behind the view that nothing can be done. Something must be done otherwise confidence will not exist and that could be disastrous for us all.
5.35 p.m.
Lord Selsdon: My Lords, it was only to be expected that the debate would broaden out to be one on the future support for ECGD rather than on the Bill. But that is symptomatic of the times in which we live because we all fear the dead hand of the Treasury. It appears that somebody has forgotten that ECGD was established in 1919 by Sir Winston Churchill to encourage and promote exports after a difficult time. It was a time when the Board of Trade, like the Archbishop of Canterbury and others, had power and teeth and before the role of the Department of Trade was set aside and became one to restrict and control.
During the past 10 years we have seen a shift from ECGD year on year costing taxpayers nothing to the heavy burdens imposed as changes have taken place. Those changes, or third world debt, were not of the making, of the. countries concerned but were due to a number of factors that we failed to recognise. In part they were due to the rising cost of energy, to the floating, of exchange rates for a longer period than was necessary and to rising interest rates.
In the debate today on the Second Reading of a Bill to privatise a small part of ECGD one detects an underlying fear that it is the thin edge of the wedge and that someone has said, "Get rid of this at any price, even to foreigners". Those of us who believe in British trade find it difficult to understand why on the one hand the Government oppose having EC legislation thrust upon them while on the other hand they hide behind it when they find it convenient, and we wonder more about the second aspect.
I declare no financial interest but I have chaired a number of export bodies and have had the privilege of serving on some with the noble Lord, Lord Ezra, my noble friend Lord Limerick and others. Over time one has detected the commercial sector pushing government to support trade. My noble friend Lord King referred to the original Privy Council Committee for Trade. Its Charter of Trade still hangs in Hogarth frames n a number of offices of senior officials. They look at it with longing for the days when trade was declared to be an activity in which Her Majesty's Government should be actively involved; there was protection of our trade upon the high seas.
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The protecting of trade today revolves to an extent around GATT; but it also revolves around protecting ourselves against the advantage taken of us by a number of our competitors. If the Treasury had time to think long term it would realise that this must be one of the worst possible times to begin such a movement in legislation because it has not yet got its act together. If our interest rates were down to the level of those of our industrial competitors, if our inflation was also down at their levels and if we still had the attitude that trade, whether at home or overseas, was good and beneficial, we should have no problem. There might then be only a minor need for an Export Credits Guarantee Department.
But today we have the Government attacking the major banks in the City for the outrageous charges that they place upon small businesses, while the premiums charged by ECGD are even more outrageous in reality. It is the pot calling the kettle black. But the change that must come is difficult to forecast. If, as we hope and anticipate, the Government can reduce inflation to 5 per cent. by the end of the year, and if they no longer have interest rates at more than double the rate of inflation, the need for such historic support for trade will begin to fall away. There is no doubt that in order to retain any semblance of a manufacturing industry we need the support that was historically available.
Of the 7,500 exporters who hold ECGD policies, some 6,500 are in the manufacturing sector. I served with pleasure on a committee chaired by my noble friend Lord Aldington. I remember that the Government reacted strongly when the committee asked what would happen if we had no manufacturing base in the future. That question is still asked. However, without that form of historic support we cannot go very much further in terms of capital goods exports.
If we examine where those capital goods or manufactures go, we see that this country more than any other of our industrial competitors is dependent upon the third world or former parts of the British Empire. We have major deficits in manufactures with many of our industrial competitors and surpluses, understandably, with those countries which need manufactured products or plant and machinery to develop their own interests. We must be careful not to throw away much of what has been done in the past.
If our enemy is the Treasury, let us have it out. Numerous reports have been written; for example, by Bob Kemp. He was a very good man, as were almost all the people I met in ECGD. They have had their resources and support taken away from them. The Treasury too produced its reports. It produced the Byatt Report, which many of us felt was almost the death knell of any form of involvement by government in trade or major projects abroad. Those were worries of the past.
Today the Government have a chance. This Bill is not of great significance. It does not relate to a large amount of manufactured business; it is only a small section. However, it is a start. If the Government are to continue with this—and they may have difficulty because there will be a number of amendments tabled

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in Committee on political risk cover and other matters—they should give the assurances that all the bodies with which I have been associated have asked for. They want a firm assurance from government that we shall be at least as well protected as any of our industrial competitors and have an ECGD capable of matching rate for rate, pound for pound and premium for premium what is offered by our competitors on the Continent and elsewhere.
If the Government would make such a firm statement, they would find support more forthcoming in the future. There is this fear and I believe that noble Lords who speak after me will voice it. If such an assurance were forthcoming from my noble and learned friend, I believe he would find more support from these Benches than has been the case so far.
5.42 p.m.
Lord Tombs: My Lords, I begin by declaring an interest. I am chairman of Rolls-Royce, a company which last year—1990—exported capital goods to the value of £2.5 billion, some of it with the support of ECGD.
In my view the privatisation at Cardiff is not necessarily bad although the Government are doing their best to make it so. We gave evidence to the Select Committee on Trade and Industry in another place two years ago supporting proposals for the privatisation of ISG at Cardiff. At the time we hoped for greater availability of finance outside the public sector, more flexible and imaginative insurance policies and, perhaps, more efficient administration. We certainly did not support the privatisation proposals in order to reduce the scope of the cover on offer or to increase the cost of the facilities. I am sorry to say that both of those unhappy results seem likely to emerge from the proposals presently before your Lordships' House.
The reason stems from the grudging and inadequate assurances which the Government have been prepared to give in response to requests for such assurances in another place—assurances relating particularly to the insurance of political risk and top-up facilities. Indeed, it may well be that those grudging assurances have something to do with the fall-off of companies expressing interest and the fact that we are left with only two foreign state-supported insurance companies in serious play.
Very sensible amendments were tabled in Committee in another place but they received short shrift from the Government. If the Bill proceeds, I hope that that unhappy history will not prevent attempts to improve the measure in Committee more or less in the way that was proposed there.
The Bill as drafted is only part of a wider scene. It should be seen in the context of government policy on exports in general and on medium to long term insurance and project finance in particular. Both of those will continue to be the responsibility of government. It may not be known, although some noble Lords have mentioned the fact, that premiums which we pay for medium to long term insurance are often much higher than the premiums on offer to our
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keenest European competitors. The difference in the premium rates can greatly exceed the total margin available on a large project. That is the measure of the absurdity of the competitive situation in which we are currently placed by government policy.
Earlier this year, premiums across the board for medium term insurance rose by 10 per cent. That was said to be only an interim measure until portfolio management—PMS—entered the ring in a more serious way. However, we were advised to expect further premium rises when that happened and to expect cover in those areas where the UK is traditionally strong to be restricted.
There has been over 18 months of uncertainty as regards the application of PMS and the privatisation of ECGD. The only positive decision in that period has been that since the aid and trade provision is now exhausted, there is an embargo on new applications for aid and trade provisions. Therefore, projects which could and should come to Britain will not come to Britain. Loyal customers, who expect from us the same support as our competitors' governments offer, will be disappointed and they are as puzzled about that as we are.
Over a considerable number of years the Government's attitude towards exports, unlike that of our competitors, seems to have been half hearted. I do not believe that that stems from any Machiavellian plot on the part of government or—and I say this with reluctance—the Treasury. It stems from a lack of understanding of fundamentals. It seems obvious to me and, I am sure, to many of your Lordships that exports equal jobs and foreign exchange. One might believe that those are both desirable ends. Apparently they are appreciated more by the governments of our competitors than by the Government in the United Kingdom.
There is a need for an unequivocal commitment by the Government to support exports on terms not less favourable than those demonstrably available to our competitors. As the noble Lord, Lord King, said, we are not looking for handouts or differential subsidies. But we are looking for a level playing field and for terms which our competitors have access to and which they use.
Availability of those terms and a positive statement from government of their commitment to the importance of exports would restore confidence in companies and among our customers. There is an urgent need for a deep re-think of the Government's attitude to exports as an important part of their approach to industrial policy in general. If that leads to delay or to the withdrawal of the present Bill, that would be no great disadvantage.
5.48 p.m.
Lord Trefgarne: My Lords, along with more than one noble Lord who has spoken, 1 begin by declaring an interest. I was a Minister in the Department of Trade and Industry when this Bill first saw the light of day. I am now involved in industry in at least two companies which are regular users of ECGD facilities.
I support the principle of moving the insurance services division of ECGD into the private sector, not

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because of any basic political beliefs but because I see no reason why government should be involved in quasi-commercial business. The fact is that Ministers are nol very good at running businesses.
I see my noble friend Lord Prior and the noble Lord, Lord Weinstock, in their places. What would be the result if every time my noble friend wanted to raise the price of his product, he had to ask the Minister; if every time he wanted to operate in a particular country, he had to ask the Minister; if every time he wanted to extend the range of his products, he had to ask the Minister; if every time he wanted to alter the pay of his employees, he had to ask the Minister? Of course, their great company would not be the proud success it is today.
It is to the considerable credit of the officials of ECGD that they have done so well as they have, despite the fact that Ministers do indeed meddle in the day-to-day running of that enterprise in the way I described. The fact is that Ministers are too fond of digging up the plant to see how the roots are getting on. That never did any plant any good.
We are told that the European Community has designs upon the state-backed credit insurance carried on by member states, at least in so far as it affects the trade between member states. I believe that there has been or e case before the European Court of Justice on the matter. It may be that there are draft directives somewhere in the corridors of the European Commission waiting to be presented to the Council of Ministers. I recall that during my time in the DTI I asked specifically whether there were any draft directives. At that time there were none; maybe there are now. My noble and learned friend can perhaps reply to that point when he speaks later in the debate. Is it truly the case that the European Commission has its sights set upon this activity? If so, we should have better chapter and verse than we have had thus far.
I do not doubt that my former right honourable friend, now the commissioner for competition matters in the European Commission, has been thinking about the competitive aspects of this business also. He is zealous in seeking out what he sees to be distortions of trade brought about by absence of fair competition. If that is the case, I suggest to my former right honourable friend that there are other member states within the Community whose export promotion arrangements are a good deal less fair than those we practise in this country.
I emphasise that I support the basic principle of the Bill. I believe, however, that the proposals suffer from a number of shortcomings. I start from the position which many other noble Lords share. Whatever new arrangements are to be made, the end result must be that British exporters are not placed at any disadvantage compared with their competitors. Perhaps I should say that they must not be placed at any greater disadvantage than they are at present because it is the case, as my noble friend Lord Prior reminded us, that in recent months a number of Treasury-inspired rate increases and restrictions of cover have caused some difficulty for our exporters. We shall see whether there is anything my noble friend can say about that.
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I see a number of difficulties arising from what is proposed. I do not intend to trouble your Lordships with all of them at this stage. Two issues, however. stand out —the political risk and the related but different point of national interest cover. There is cover which, for all practical purposes, is uniquely provided by ECGD against such things as political unrest or political decisions leading to delay or suspension of payment. National interest cover is slightly different. It is cover which ECGD is pressed or on occasions even directed to provide, sometimes by formal ministerial directive, not because of overseas considerations but because of domestic United Kingdom considerations.
No duty is placed upon the new owners to continue that cover, which in many markets is absolutely crucial. The matter was raised in the other place and indeed amendments were proposed in Committee to secure the continued provision of the cover. However, following certain undertakings from my honourable friend Mr. Sainsbury the amendments were removed. I must state plainly that while my honourable friend's words were welcome, they did not go far enough. We should give the other place a chance to consider the matter again. I shall certainly be willing to support an amendment to achieve that at a later stage.
I accept that the Bill appears to provide the necessary power—indeed, my noble and learned friend referred to that in his opening speech—for the Government to continue to underwrite both political risk and national interest cover. However there is a risk that with the Bill as drafted fiscal restraints are likely to dominate ministerial thinking to the disadvantage of our exporters. Indeed, according to my noble friend Lord Prior—and I have some sympathy with the view he expresses--there has perhaps been too much fiscal thinking in ministerial minds in regard to the matter in recent times.
I turn to the second point to which I attach some importance. Others have referred to it. It concerns the nationality of the potential owners. I hope that I am not the last of the little Englanders seeking only to maintain ECGD in UK ownership for old times' sake. I believe that Ministers and Parliament must satisfy themselves that a non-UK owner or a new UK owner will support British exporters no less vigorously than hitherto. It is not self-evident, as more than one noble Lord has said, that an Italian or a Dutch company already involved in this business with its own nationals will continue to ensure that cover is always available on this side of the Channel as it has been hitherto.
I emphasise again that I seek only to ensure that British exporters are not placed at a disadvantage. It may be possible to achieve that by placing duties on the new owners or the Government, or both. It is surely an issue which your Lordships will wish to explore at a later stage. The truth is that the present list of bidders is rather thin. There is only one British company, apparently, that is even remotely interested, a firm called Trade Indemnity Co. Ltd. It is a fine firm with a long record. However, as the noble Lord, Lord Williams, pointed out, the last year or so for that company has not been particularly successful, nor has

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it indeed for the British insurance industry generally. Therefore it is perhaps not surprising that there are no British companies racing to be the first to acquire this part of ECGD. However, in the light of that situation, perhaps the Government should consider whether or not it would be right to re-open the lists in regard to the bidding for ECGD and perhaps extend the competition to later in the year to see whether new and more powerful offers come forward.
There are other subsidiary points about which I do not need to trouble your Lordships in detail at this time. For example, I am worried about the lack of provision for the employees of ECGD to acquire a share of the business. I remember that during my time in the department I sought to see whether that was possible. Under the arrangements then proposed it did not seem to be. I regret that. I hope that the Government will keep an open mind on the matter to see whether some provision can be made.
I am troubled also by the Government's reluctance to publish the prospectus, even in summary form. The document almost certainly, I presume I have not seen it—contains information of a sensitive, commercial nature. Perhaps it would be possible to publish it without that sensitive commercial information if that helps my noble friends.
Another point I shall want to explore in Committee is the current arrangement whereby Treasury consent is required for almost everything that ECGD does. I do not argue against that in principle, but there are times when it is right to ask—the time when some of the recent decisions were made would be such occasions—whether Treasury consent has been unreasonably withheld for some of the things that ECGD should have done.
Those are all detailed points which we can explore in Committee. For the moment I support the Second Reading of the Bill; I hope your Lordships take the same view.
6 p.m.
Viscount Weir: My Lords, before speaking I would like to declare my interest as chairman of an engineering company which is a substantial exporter and which, without its exports, would be much less than half the size that it is. As to project and long-term finance, recent government policy, as we know, has been simply a matter of increasing premiums and of limiting the amount of support. I hope that no Ministers today will waste your Lordships' time by denying that. The Government have given as the reason the poor financial outcome of past commitments to exports.
Like most of your Lordships, I imagine, I sympathise with those losses and I deprecate them. Indeed in a perfect world there would be no reason for any government artificially to support its own exporters against their foreign rivals. But the world of international trade is a far from perfect one. Unhappily it still remains the fact that competition is often as much between countries as it is between companies. Surely therefore it is only realistic for the Government, in setting the terms and extent of export
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support, to look not only at the financial outcome of the UK experience in isolation but also at the overall UK position relative to competing countries.
That is a matter which is not often mentioned. However the analysis carried out by the major British exporters shows that among the export credit authorities of the main exporting countries, ECGD has significantly the highest proportion of its portfolio in good markets and simultaneously one of the lowest exposures to the 10 largest debtor countries. In fact, at a figure of 14 billion dollars, British exposure to the less creditworthy countries is less than half the average of France, Japan or Germany. That suggests to me that by international standards the ECGD is relatively pretty well placed.
Given that situation, and taking again the perhaps over-used metaphor of the level playing field, it seems that our Government, in competing with other governments, believe that they are entitled to play downhill and with the wind behind while they expect our exporting companies to play under precisely the opposite conditions. I applaud the efforts of Government to negotiate for disarmament with competing countries in this export finance contest. What is not reasonable however, is to proceed forward—as my noble friend Lord Prior put it so well—by way of unilateral disarmament and to do so before substantive progress has been made in negotiation. Yet that is just the way in which we are proceeding. It is simply an aid and comfort to our competitors and incidentally a source of puzzled amusement to some of them.
Those of us who are at the sharp end of exports are disadvantaged on premium rates and coverage. We know that because we see the differentials for ourselves. We either lose orders or our profit margins are put under severe pressure if we have to try to swallow those differentials. Therefore we must look for detailed explanations and reassurances as to effective action which the Government intend to take.
As regards the proposed privatisation of the short-term export credit insurance business, I am certainly not opposed to privatisation in principle. I merely remark that the experience of my own business and that of many other exporters whom I know suggests that at the very least the insurance service does a pretty good job. Most certainly there is no evidence of so defective a performance as to justify privatisation for any obvious reasons of efficiency.
At the same time we are all aware of the ghastly position today of our balance of payments. At a time of such difficulty is it surely not imprudent and ill-considered to make so radical a change in export insurance arrangements? Of course the Government believe that what they are proposing will work better, but they do not know that that will happen. It seems to me to be irresponsible and ill-judged to take any unnecessary risk at this difficult time.
If privatisation is to proceed, however, as no doubt it will, as noble Lords have already heard today, there are two very simple matters that need attention. First, there need to be proper, firm statutory arrangements for covering those risks which are largely political and which lie outside the scope of the normal commercial

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insurance market. Such arrangements must be put in place for a sufficiently long time. Vague phrases which we have heard like "up to three years" or "will be kept under review" are insufficient. Secondly, we need a firm and effective mechanism for reviewing the outcome of privatisation once it has been in place for a period.
As I remarked earlier, the Government do not know how well privatisation will work. In case they fall down on the job and in doing so seriously disadvantage our exporters, there must be a system established in the Bill to review the position and to make such changes as circumstances show to be necessary. I am not alone among your Lordships in feeling severe unease at the very few commercial insurance companies which have come forward to bid for the business. That would seem to indicate some lack of confidence or certainly a lack of enthusiasm on their part, as to just how successful the whole exercise will be. Those doubts are surely sufficient reason on their own for requiring more effective review procedures than anything in the Bill as it now stands.
In conclusion, I look today, as British industry does, for proper reassurances of effective support for long-term export finance. On the privatisation of short-term activities, I look for no more than those concessions which simple common sense would suggest.
6.8 p.m.
Lord Jay: My Lords, the longer I listen to the debate this afternoon the more I become convinced that the motive of the Government in introducing a Bill involving a measure of privatisation of the ECGD is not so much any desire to help industry or exports but, partly, a narrow desire held by the Treasury to save money at all costs. The motive is also partly a doctrinaire belief in privatisation for privatisation's sake regardless of the facts and the merits.
The Government having already laid a heavy burden on exports by fixing our exchange rate at a considerably overvalued level—which of itself is a tax on exports—is now hitting exporters again by watering, or withdrawing altogether, the longstanding and valuable support for exports. I do not think anyone who has listened to the debate this afternoon will disagree if I say that industry and the exporters in this country, far from supporting the Bill, are almost unanimously opposed to it.
Harm is bound to be done. As we know, premiums will rise. They are rising already. To handicap exporters in that way is surely exactly the opposite of what a modern government should be doing. After all, for the United Kingdom exports are the support of all our other economic aims. The only surprising fact is that one has to say so at this stage. Nowadays, other governments—notably, those of France, Japan, and others—assist their exporters directly with an array of devices. 'They do not rely on a hidden hand to support their export trade. In my view, these days export promotion ought to be the chief activity of the DTI, as it has been in the past. Indeed, the 1964 Government expanded a whole range of export services, mainly through the ECGD and based on low interest rates,
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low premiums and an assurance that the department, by and large, would match any advice which other competitor governments were offering. That was of very great assistance to exporters and to their confidence. Incidentally, the volume of UK exports rose by more than 25 per cent. in the four years after 1964 when that policy was in force.
The ECGD was, after all, founded 70 years ago by a Conservative Government in the days when conservatism was much less doctrinaire than it is now. Since then it has not only been supported on an all-party basis by every government in this country, but it has been copied by virtually every major industrial country in the world, including the United States. As the Kemp Report states, the ECGD has been a highly valuable instrument of government economic policy. When all is said and done, what reasons do Ministers give, including the noble and learned Lord today, for these proposals? Having looked around rather desperately to find an excuse for the proposals, Ministers now say that the Treaty of Rome, by reason of Articles 92 and 93, may detail our possessing a publicly-owned credit authority. Incidentally, as the British public were assured repeatedly 15 or 20 years ago that the Treaty of Rome would not in any way interfere with public ownership of industry, I hope we shall not hear too much of that argument.
The Kemp Report states that,
"there is nothing in the … 1992 legislation nor in any other proposals for legislation … which in any way affects the ability of the state agencies to carry on business".
The Kemp Report did not recommend immediate privatisation even of the short-term group of services. Thirdly, I ask the Minister again, as has already been asked this afternoon: if the Rome treaty is really the obstacle, why are other EC members helping their state credit enterprises and keeping them under public ownership and control?
Next we are told that as a state institution the ECGD has incurred very heavy losses in recent years. As we know, that is perfectly true and is a result of the world debt crisis. However, although that is an argument for privatisation one has to take note of the fact that our great clearing banks have also incurred the most enormous losses in overseas loans during the past few years. I do not blame them for that, but I do not think that that is an argument that can be raised for privatisation, particularly as the ECGD was specifically created to deal in political risks.
To whom are the Government going to sell this business and entrust these valuable national functions? The only domestic candidate, as has been said, is the firm of Trade Indemnity; virtually the ECGD's only competitor in this country. However, I gather from the Minister that it is no longer a competitor. Is it really true that the only choice now is between Dutch and Italian bidders who are, in the Government's mind, possible recipients of these interests and functions? I find it extraordinary that the Government are seriously contemplating handing over a large section of the ECGD to overseas companies.
During Question Time on 4th June, the noble Lord, Lord Reay, said:

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"There is no reason why the nationality of the owner should be seen as a key factor".—[Official Report, 4/6/91; col. 539.]
Can we really expect an Italian-owned company to show great enthusiasm for helping the British motor car industry to export to Italy in competition with Fiat? I find that very difficult to believe. However, if this sale goes to a private company whether British or foreign, how can the Government continue the policy of matching the aid that foreign credit institutions give with similar offers by the British company, or whatever company takes over these functions?
In my eyes the whole proposal bears all the marks of having originated in the unseemly rush of the noble Lord, Lord Young, to privatise everything in sight regardless of the effect that it will have on exporters and our trade deficit. That has done a great deal of damage elsewhere—for instance, in the shipbuilding industry. For those reasons, I hope the Bill will be drastically amended before it leaves this House.
6.16 p.m.
The Earl of Limerick: My Lords, I hesitated before adding my name to an already long list of speakers. However, I did so on account of an even longer involvement with the subject. Like my noble friend Lord Trefgarne, at one time I held ministerial responsibility for export credits; in my case in the mid-1970s. Also, for 25 years, both before and after that time, I was involved as a banker in arranging credit for exporters; precariously also successively as chairman of the British Overseas Trade Board and what is now British Invisibles. I have had a more than casual interest in the success of our export trade. Throughout that period I have had a high regard for the leadership and commitment of ECGD. It has laboured in recent years under certain disadvantages, one of which is addressed by paving provisions in this Bill.
We have come a long way since the debates in 1978 on the Export Guarantees and Overseas Investment Bill. It used to be contended that our exporters, or at least significant classes of them, needed, deserved and/or could not manage without some government subsidy. Today one seldom hears that argued. It would of course run foul of the GATT provisions, the EC competition rules and the Berne Union, if that line were to be pursued.
The fundamental requirement, however, is quite unchanged. I express it in this way: it is to ensure that British exporters, whether selling capital goods, consumer goods or services, whether selling for cash, on short-term or long-term credit, shall not be disadvantaged in terms of insurance cover or financing costs compared with exporters from competitor countries. There will always be an element in that of "by-and-large" or of "swings-and-roundabouts" but if we cannot respond to overseas competition, by and large we shall suffer where it hurts very much—in our balance of trade. That would matter to our inflation rates and thus to our interest rates. Above all, it would matter to employment.
How does the Bill match that fundamental requirement? I leave aside the renewal provisions of
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the Bill and come to the clauses paving the way for the privatisation of the Cardiff-based short-term ISG business. Will this help or hinder? The Kemp Report pointed to no clear conclusion. Since then there have been few voices against the principle of privatisation. The noble Lord, Lord Williams, argued cogently for some competition in this short-term market place and for a government-owned ECGD to offer insurance to exports from third countries. That is beguiling, but it would not work well for the same reason that the ISG business itself is now, in its elements, unsound. I stress that that is no criticism of the dedicated people who manage it to the best of their ability. It is unsound for basic commercial reasons.
First, it has never had an equity capital base as a cushion against a bad underwriting period and thus could not resist the most uncommercial of all controls when its accumulated surpluses were exhausted at the end of the 1970s; that is, control by the Treasury. Secondly, ECGD is not empowered to reinsure in the commercial market when conditions would so admit with advantage. Likewise, ECGD is not empowered to hedge the sterling part of its portfolio that is, much the greatest part—against interest rate fluctuations. The taxpayer would have been saved a few hundred million pounds if that ability had been available. No underwriter can operate efficiently without those fundamental advantages. If the Government are unwilling to afford them to ECGD, then it is right in principle to privatise the ISG. I have no equivocation in saying that.
The timing, however, could be another matter. The likely bid price today is only a fraction of what it was assumed to be when the idea was first mooted. Any of us individually may decide resolutely to sell something, but hold our hands notwithstanding in a bad market. That is not to say that even at a low price it might not be a good decision if it achieved its objectives, took a load off the taxpayer and left the exporter with no worse a service.
I have a slightly mischievous thought. As we know, NCM enjoys reinsurance rights in respect of Dutch export business with the Dutch Government. Should NCM be the successful bidder for ISG, could political risk reinsurance with the Dutch Government be denied to British exporters? It raises a nice question for the experts on EC competition rules.
I believe that there are real issues here for the Government but, except for those who have doctrinaire objections to the ISG privatisation, they are only marginally raised by the Bill itself. The Bill makes many useful or necessary provisions and I give it a general welcome, though I hope it will be strengthened in certain particulars. In the words of the Kemp Report, there should be no diminution in the level of support compared to the facilities available to exporters in other countries. Exporters are realists and are as aware as anyone else of the macro-economic issues. Those engaged both directly or indirectly in our export trades—and more are indirectly engaged, as subcontractors, component manufacturers or suppliers of services than we or they often recognise—have genuine concerns. The Bill offers a test of

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credibility and of genuine government commitment in support as much for what is not in the Bill as for what it contains.
I believe that the questions which need to be addressed in the course of the wider debate about ECGD's future are these. First, where, along the spectrum from zero option to covert subsidy, do the Government stand in their commitment to our export success at anything approaching its present level? Secondly, if ISG is to be privatised and the development of PMS results in premiums at an internationally uncompetitive level, what do the Government remain prepared to do to match the support offered by other governments to their exporters in those circumstances? Thirdly, and more specifically, by what means will the sometimes essential political cover remain available? Cannot a timeless commitment, at least in this regard, be made plain?
Likewise—my fourth question—what commitment will remain to support contracts which can be justified in the national interest? Fifthly, how confident can we be about adequate private reinsurance capacity? Some indication of indigestion is already appearing in the market place, and widespread treaty arrangements should be a cornerstone of the underwriting capability. Sixthly, what will be the reaction if evidence accumulates that long-term premium levels under PMS mean that our exporters regularly come second, third or last in price terms for major contracts? As we all know, there are no prizes except the first prize. How long do we pursue what the noble Lord, Lord Prior, referred to as unilateral disarmament? I.. is a fact that in a major contract the difference between the financial terms may represent a significant part of the total cost to the purchaser of the package that he is buying; a part so significant that it may outweigh even sizeable differences in the cost of the underlying goods and services.
The high moral ground of free trade and market forces is a splendid place to stand, so long as one does not starve in isolation. I am reminded of the sad epitaph on the yachtsman's headstone:
"Here lies the body of Edward Day
Who died defending his right of way
He was right, dead right, as he sped along
But he's just as dead as if he'd been wrong".
My Lords, we have to get it right.
6.27 p.m.
Lord Carr of Hadley: My Lords, I must first apologise for the fact that, owing to a commitment which long pre--dates my knowledge of the date of this debate, I shall have to leave shortly after I have spoken. I shall be brief.
I do not feel any need to add to the many detailed arguments put forward from all sides of the House but I wish briefly to record my immensely strong support for the seriousness of the doubts and worries expressed about the way the Government are heading over export credit guarantees. Those doubts and worries have been expressed from all sides of the House. I do not think I have ever heard in either
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House of Parliament a debate in which there has not been any support from the Back Benches in any part of the House for the Government's proposals.
I am not opposed to privatisation of the short-term credit insurance business; I am strongly in favour of it in principle. But it needs, in substance and in timing, the most careful preparation. I cannot believe that it has had such preparation. I say that because of the position we are in today of there being apparently only two contenders, both foreign owned, for the prospective privatised company. I am not opposed either—far from it—to the Government seeking by their international action to bring about a more sensible pricing policy and a more economic policy in other ways—policies that have been applied by all governments to the provision of export credit guarantees for their industries. But I find it incredible that this Government of all governments should embark on what my noble friend Lord Prior so rightly described as a policy of unilateral disarmament. Do we really believe that other governments will follow in our steps? Will they not merely take advantage of what we do, much to our detriment?
I shall not go into details. I merely want to express my very strong fears and add them to those which have already been expressed. In order to amplify what I say, I should like to press upon the Government what I regard as an economic and moral imperative that flows from their ruling economic and industrial doctrines.
This Government have based their industrial policy on giving the maximum power to market forces as the driving force of our economy. Although I have sometimes thought that they have carried that excellent doctrine to rather an excessive degree in odd corners—indeed, most good doctrines do not usually gain by being pressed too literally and too far—by and large, I strongly support them. But the point I want to make is that it is by way of the opposite side of the coin that they must effectively pursue their regulatory function to ensure that competition is fair. They try hard; never perfectly, but they try hard—indeed, no one can do this perfectly within the domestic field—by their fair trade policies, about which some of us may sometimes have doubts, but they are there and they are strong.
But the Government need to do exactly the same over foreign trade. They have a duty, especially following on from their doctrine of market forces, to provide the same help for our exporters with export credit guarantees as is given to companies in competitor countries. That is a duty which they cannot surrender—although they appear to be doing so. So it is not only what is in the Bill but what they are already doing that matters. We hear many examples where our suppliers and exporters are already in a hopelessly uncompetitive position vis-à-vis their competitors in other countries. It cannot go on; it must stop. We cannot, and I hope that we will not, put up with the situation.
I beg my noble friends in the Government to listen carefully to what has been said today. I ask them not to resile from the principles of privatisation and of trying to get this whole business internationally on a

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sounder economic and cost-effective footing but also not to sell British industry down the river, which is what they are in danger of doing at present.
6.32 p.m.
Lord Donoughue: My Lords, I cannot compete with the great experience in trading and exports of many noble Lords who have spoken today. Therefore, I shall make a few general points in support of what has been an impressively near-universal opposition to this curious Bill.
Perhaps I may begin with a general point on exports, which are the context of this Bill. We know that Britain needs to export a higher percentage of its output than most of its main competitors. Therefore, it obviously requires a favourable export climate. Historically that has been achieved—though not entirely satisfactorily, since our export performance has been patchy and our balance of payments deficits have, in recent years, been intolerably high—mainly through the efforts of our manufacturing industry and our invisible exporters. But it has been greatly assisted by two factors: first, a willingness to adjust our currency to preserve competitiveness (without saying that that is a good thing); and, secondly, by the official assistance provided by the state through a whole range of incentives from, at the most general, investment incentives to, at the most particular, the export support services such as the export credit guarantees which we are discussing today.
Against that background we must accept that the scope for currency adjustments to preserve competitiveness is now, and will be, less available within the European exchange rate mechanism. That is not insignificant. In the post-war period, under governments of all persuasions, sterling has been allowed to depreciate massively against the deutschmark, the dollar and the yen. That has been an export assistance but it will diminish—certainly to the benefit of controlling inflation, but a relatively high currency will make exporting harder.
In that situation, the Government are proposing, effectively, to diminish one of the most important export services. That is a puzzling and a damaging move which, I must confess, I do not fully understand and which I can only believe derives either, as has been suggested, from the Treasury's pursuit of even the smallest savings or from some primaeval ideological opposition to government intervention. We had been led to believe that that kind of ideological luggage went out through the door with Mrs. Thatcher, but obviously that is not so.
The timing of this move is also strange. At present, Britain is in a deep recession which, theoretically and historically, should be the most helpful time for the trade balance, as imports normally fall in a recession. Yet, even now, we have a massive trade deficit. When the domestic economy revives—and I am sure that the Government will try to achieve that before risking an election—the pressure to export will diminish relatively and the pressure to import will increase. The prospects for the balance of trade in the future are, accordingly, not good.
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In that situation, this Bill is a gratuitous blow to our exporters. It can only make the prospects for our trade balance worse. I have used the word "gratuitous" because I believe that it is gratuitous, unnecessary and an unreciprocated surrender of an important instrument of export policy. Our competitors will say "thank you", but they will not imitate this taste for self-inflicted wounds.
As has been recognised, the widespread opposition to the Bill is not party based. Wide sections of industry have joined the opposition. That is not surprising when one considers that almost one quarter of the UK's exports are presently insured by the ECGD. Few people believe that after privatisation the export sector will receive the support that it has at present and which it needs. There are no guarantees in the Bill that reinsurance will be provided against short-term political and economic risks in the future. It is the small firms that are already under the hammer of high interest rates which have the most to fear. I ask the Minister: do we want the small firms sector to withdraw entirely from the export field?
The new private insurers which are envisaged—and I must say that they are a curious cocktail—will have no real commitment to insure British exports. They will simply have the opportunity to do so; but there will be no obligation or commitment. They will have the opportunity to insure where they see a profit—that may not often be the case in the present depressed private insurance market. Why should they insure risks which the state, with a much greater commitment and liability, will not take on? The Government's promise to "top up" insurance during the transition period offers little to industrialists planning to invest in new and often risky export markets over the next 20 years. The Minister's suggestion that there may be "a small shortfall" may prove to be the underestimate of the year.
The Minister may reply that this Bill deals only with short-term insurance. That is little consolation. Short-term insurance by the ECGD is very important. However, the precedent being set for medium and long-term project cover is very worrying. The unavoidable conclusion is that this Government maintain their long-standing prejudices: that industry does not really matter; that exports do not really matter; and that government can certainly do nothing, or should do nothing, to help them.
The whole post-war history of our most successful competitors, especially Germany and Japan, shows that that approach is unfounded. Their governments work to create advantages for their industrialists. Why are our Government creating disadvantages for our exporters? The ECGD at Cardiff has an excellent record of servicing industry, as has been said many times by others with more experience than I have. I believe that it made a profit every year until last year during the most difficult decade afflicting all insurers. It is being sacrificed on the altar of outdated dogma and prejudice. It is not a good Bill. As my noble friend Lord Williams and the noble Lords, Lord King and Lord Prior, said, the only question is whether it will

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help British industry and British exporters. The answer has come from all sides of the House; and the answer is no.
6.40 p.m.
Lord Wade of Chorlton: My Lords, I am taking part in the discussion to draw your Lordships' attention to what I see as the fundamental problem that Western Europe has to face: how we move from what has been a confrontational approach to Eastern Europe to one in which trade and the movement of goods will grow. We have discussed that previously in the House. The Government have moved forward and said that we must develop our trade with Eastern Europe. It is as that trade develops that risks to business will increase. It is from businessmen and entrepreneurs that that trade and business will have to come.
In the past 45 years we have protected our interests in the world with our armed forces. We believed it to be appropriate that the Government should fund the defence of the country and use a large proportion of our GDP on that defence. The Government have a role to play. They must do what individuals cannot do.
In the Bill we remove short-term insurance from government control and transfer to private enterprise those activities which individuals can undertake and which it is not necessary for government to undertake. We look to the Government to look after our defence and run our Army, but, when we look to trade rather than force to bring peace, is it not reasonable to expect government to contribute to that aspect of the nation's interest since it is something that only governments can do and individuals cannot?
As an example, I should like to draw your Lordships' attention to one case. The Carroll group of companies undertakes developments. I have no association with Carroll and speak independently, but I have great admiration for its entrepreneurship and ability to undertake large projects. It had the opportunity to work in Moscow. After a long period of negotiation, it was agreed that Moscow City Council would draw up a 99-year lease with the Carroll group of companies. That lease was signed in your Lordships' Dining Room. It was the first 99-year lease entered into by the Russian Government since 1917. It had a number of beneficial effects. It will result in the construction of a British trade centre in the heart of Moscow. It will be operated by a British company. It has drawn the attention of the Russians to what business leasing and commercial opportunity are all about. Since being involved in such a commercial operation the Russians have changed their law s so as to take advantage of that type of business opportunity.
As a result, we shall see two massive towers on the Moscow skyline. They will compete with the trade centre in New York, and the development will be British. Moscow City Council has been so impressed that it his offered the company a further 14 acres surrounding the Kremlin for further development and for the renovation of existing properties. The towers will cost about £150 million to build. It is a commercially viable operation. There is no question of
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the company looking for government support for that part of the operation. What it faces, as so many noble Lords have already said, is the political risk. Is it worth it for a hank to provide the company with the commercial resources necessary unless the bank knows that the company has the full support of the British Government?
That is what leadership is about. People look to governments to do what individuals cannot do. It is one thing for a small businessman to say, "I am British"; it is another thing for him to say, "I am here with the full support and the enthusiasm of the whole of Britain. I have the leaders of the country behind me. We all want to see it happen, and it will happen, because they are behind it". That is the issue at the heart of the debate, which has been mentioned by so many experienced industrialists. We look to the British Government to give that leadership; to say, "Here is Britain. We believe in this and we as a nation will support it, thrust for it and give the company the support it needs to go forward with confidence".
My involvement in exporting is in a small business only. As my noble and learned friend knows, I started a cheese export business. Ministers, Members of Parliament and government officials do not know what exporting is about. You fill your handbag and off you go. You arrive at some out-of-the-way place where you feel alone. By God, you do feel alone! You knock on a door. You do not know whether you will be let in. You wonder to yourself whether you should be doing this: is it really worth it? You may succeed and see your British sign up in a big store. You see your name on the wall and you think, by God, it was worth it! You see your name there and the British goods with it. One day the ambassador might come along and say, "We are glad you did it". Ambassadors occasionally visit, but not often. You then feel that what you have done has been worthwhile.
It is important to those poor little guys. I was one of them, and I know what it is like to be out there alone and sending your men abroad. That is the aspect of the matter that lies behind the Bill. I understand that the Government want to make things more efficient and take things out of public control. The more things we take out of government control the better! But there are certain responsibilities that governments have which cannot be left to the individual. I hope that after listening to the debate the Government will understand that point and consider it carefully when they go forward with the Bill.
6.48 p.m.
Lord Sefton of Garston: My Lords, I make no apologies for not putting down my name to this debate. When I saw the subject I thought that I should be too terrified to speak. The noble Lord, Lord Wade, spurred me on. He has not claimed, and I do not claim, to be as knowledgeable about the subject as many noble Lords who have already spoken. Everyone has expressed grave anxiety about the Bill and the effect that it may have on our exports. I should have thought that this was one occasion when the House ought to decide to vote against the Second

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Reading. However, I do not press that, because I know that there is not the faintest chance of anyone doing so.
Having listened to expert opinion and seen what has happened to British industry over the past 10 years, perhaps I may express a simple, fervent wish. I saw industry move out of Merseyside long before it suffered its current problems. That was done at the behest of private enterprise. It had nothing to do with the Government. I hope that all the fears expressed about the Bill and for our welfare as a nation economically and industrially will be felt in the future. I hope that when all those who have spoken, especially those who have moved most recently from the nationalised sector into the private sector consider their actions in relation to international trade and commerce, they will not be so keen to sell parts of their industries to foreigners. I am not satisfied that, with the industry which is being privatised, the Government will not be prepared, at the drop of a hat and in pursuit of achieving a cheap book, to sell off our birthright and heritage in industrial matters to people on the Continent.
6.50 p.m.
Lord Holme of Cheltenham: My Lords, this has been an extraordinary and memorable debate, ably introduced by the noble and learned Lord, Lord Fraser of Carmyllie. It will not have escaped his attention that not one voice in the debate has been raised in support of the Government's position, unless it was the highly qualified support of the noble Lord, Lord Trefgarne. The Minister may wonder, with noble friends like that, who needs noble enemies on this issue.
First, I sincerely hope that the Government will stop praying in aid the Kemp Report. Kemp gave three alternatives for the ISG and the noble and learned Lord relied in his remarks on the third alternative. But Kemp did not propose outright privatisation. What he proposed, as my noble friend Lord Ezra pointed out earlier in the debate, was a joint stock company owned and controlled by the Government, operating for at least three years before private capital was brought in. Kemp recommended that time be taken for the government controlled company to find out what it was doing and to understand the market in which it was engaged. He certainly did not recommend a hasty sale. Therefore, the House is entitled to ask, "Why the rush?"
As the noble Earl, Lord Limerick, pointed out, the rush certainly cannot be on grounds of timing. The timing could hardly be worse. As has come out in this debate and as is a matter of common knowledge in the House, British industry is struggling. This is not the time to impose fresh handicaps. The prospect of that hallowed ground of cliché, the level playing field, has been exposed to our view several times during the debate. The high insurance premiums that we oppose mean that we have already tied together the bootlaces of some of our best players; let us not go one stage further and deprive our whole team of boots altogether.
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Nor is it a good time to find serious offers for the new privatised company. The insurance and reinsurance market is hardly in a state of robust confidence. That is why the Government have found only two potential bidders. Like my noble friend, I do not believe that the fact that the bidders are respectively Dutch and Italian is prima facie a reason to oppose their bids, but I wish to ask the Government a specific question about the Dutch company which is bidding. As the noble Lord, Lord Prior, identified, the company, NCM, has substantial government backing. I wish to ask the Minister this: am I correct in thinking that on another matter involving the Department of Trade and Industry, the involvement of the French Government in some would-be bidders for British companies has been prima facie grounds for the Secretary of State to block those acquisitions? Will he take a similar view in this instance and will the involvement of a Dutch company in a potential bidder for the insurance company block them from taking part? If that were to be the case, or if for any other reason only one of the two bidders were left—and it is turning out to be the story of the seven little Indians; there are now only two left will the Minister say specifically whether the sale would go ahead? A competition in which there was only one bidder would be no contest. In those circumstances I urge him to recognise that the sale should not go ahead. I shall be interested to hear the Government's view on this, since it is a possible contingency.
I wish to explore the motives of the Government in bringing forward the legislation. I agree with the noble Lord, Lord Jay, on this, if not on the question of European bidders. He said that the motive was a mixture of ideology and Treasury meanness. Several noble Lords have mentioned the hand of the Treasury in the matter. Regrettably, it often seems that the hidden hand is that of the Treasury around the throat of those in the DTI and BOTB who wish actively to encourage our exporters.
What industry needs, in this as in other matters, is intelligent pragmatism, not ideology; practical encouragement, not Treasury penny pinching, and an attentive ear, not an arrogant persistence in a wrong cause. It may seem harsh to use the word "arrogant" of the Government's course, but how else can we describe their removal in another place of an extremely sensible amendment made in Committee which would have rendered the Bill somewhat more palatable?
The noble Lord, Lord Kissin, said earlier in the debate that the Government would not listen to what we had to say here. I hope he is wrong. Of course, I do not suppose that the Government will listen to these Benches or the Labour Benches, it is not their habit to do so. However, I hope that they will listen to the wealth of good advice based on hands-on experience in the leadership of British industry offered to them from all sides of the House this afternoon. Many years ago, the party opposite used to be scornful of the superior wisdom of the gentlemen in Whitehall. Let us hope that the Government recover their bearings before we reach the later stages of the Bill.

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One final word on political risk. As we approach the end of the century, we live in a world which is in flux. Many of the changes in South Africa, in East and Central Europe and in the Soviet Union are extremely welcome. However, there is risk—great risk. I am one of those who believe that international trade plays a part in building one peaceful and prosperous world. As a Briton, I want Britain to take a leading role in that trade. The future of the British economy and our public services depends on our playing a leading part in that trade. However, the risks involved are so large that only government can stand behind political uncertainties of this kind. I urge the Government to do so at reasonable rates and on a stable, long-term basis.
6.57 p.m.
Lord Clinton-Davis: My Lords, for me this has been an utterly remarkable debate. After a number of years in another place and a relatively short time here, I have never seen a situation where no one on either side of the House has supported the Government on such a measure.
I feel some degree of sympathy with the noble and learned Lord, Lord Fraser. He has taken on this brief. He is a distinguished advocate and probably has had to take on all kinds of briefs, but I do not imagine that he could have expected that his advocacy would fall on the stony ground that it has today. The prosecution has in no way been an ordinary prosecution; nor has the indictment been ordinary. It has come from people who have a lifetime of experience in industry and from distinguished former Ministers on both sides of the House. I know how passionately my noble friend Lord Jay feels about the issue. As a deliberate act, as he explained, he used the ECGD back in the 1960s as an important instrument of trade policy. He is not the only Minister to have done so. Ministers on both sides of the House have quite rightly engaged in that activity.
This huge weight of experience has been in almost total conflict not only with the Bill but with the whole policy o the Government in relation to export trade—perhaps failure of policy would be a fairer way of putting it.
The Treasury has come in for a great deal of condemnation in the debate, and the fingerprints of the Treasury are all over the proposal. The noble Lord, Lord Prior, in a quite remarkable speech in my judgment and I think that of others, referred to it as unilateral export disarmament—for that is what it amounts to. The trouble is that we are dealing not only with the government measure but with something introduced back in January which then caused industry bewilderment, confusion and deep anxiety. That bewilderment, confusion and anxiety have persisted notwithstanding every explanation that has been given in another place and now by the noble and learned Lord. It is against that backcloth, against the deep recession, often denied as even existing by the Government—disastrous, unprecedented trade deficits, the appalling plight of our balance of payments and worsening unemployment—that they have chosen to put forward this misbegotten measure.
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The Government have argued on the one hand that the ECGD has been efficient, forward-looking and entrepreneurial despite the deliberate activities of the Treasury to undermine those purposes; yet on the other hand they seek effectively to dismember it. I thought when I first read the speech of the Minister in another place, which was reflected in what the noble and learned Lord had to say, that when the Government opened the debate they were arguing for the maintenance of the ECGD, but we now know that that is not the case.
I can explore only some of the arguments. What is it that the Government insist makes them move in the direction of change? It is the Treaty of Rome, Articles 92, 93 and 94. I should like to consider the position for a moment. Ministers here and in another place are saying that they are bereft of legal argument, notwithstanding all the legal talent that is available among the Law Officers and here in this House, to resist any charge that might be made by the Commission that we, almost in isolation, were in breach of Articles 92 and 93 of the Treaty of Rome. With respect, that is patent nonsense. It would be the first time in my experience, after four years in the Commission—I suppose I should declare that—that the Government would have behaved in that way vis-à-vis the Commission. My experience is that for the most part they were deliberately obstructive. They have certainly been anxious, and often successful, to resist the activities—sometimes they think predatory —of the Commission in the use of the competition articles. They therefore cannot suggest that they are bereft of legal argument.
If one looks at Article 93, paragraph 2, one finds that:
"On application by a Member State, the Council, may, acting unanimously, decide that aid which that State is granting or intends to grant shall be considered to be compatible with the common market".
So it is perfectly possible to argue under that provision. I shall not weary the House with the entirety of that because noble Lords can look at the paragraph themselves.
If one looks at Article 94 one finds:
"The Council may, acting by a qualified majority on a proposal from the Commission, make any appropriate regulations for the application of Articles 92 and 93 and may in particular determine the conditions in which Article 93(3) shall apply and the categories of aid exempted from this procedure".
That can work both ways, but the fact remains that for the Minister to abdicate total responsibility in terms of legal argument is patent nonsense.
Then the question has been asked, and we have to ask it again of the Minister, what draft directives there are in the alternative to the use of those articles to which I have referred appearing on the legislative timetable of the Commission. The question is relevant because the Government have said that they have to act with great haste to anticipate either of those potential or real situations. I also have to ask the following question of the Minister. Is he seriously saying that the Commission is suddenly going to depart from a policy of recognising the various aids to

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export trade after having accepted the situation over many years? What evidence is there to support that proposition?
The approach to this Bill also reflects the following fact which has not been mentioned today. Either there is a misrepresentation of the position vis-à-vis the Commission or there is a failure totally to understand how the Commission operates. I do not believe that it is inclined to stamp all over the flower beds. When it comes to a situation of this kind it will tread warily because there is a great deal at stake for the whole of the European Community.
Against that background one has to ask why the Government have single-handedly decided to lay all their cards face upwards on the table before the others have even begun to play. I do not think that the House welcomes that form of capitulation, and we do not believe that it is the real scenario at all. But if it were to be true, at the very worst—if the Government were truly incapable of adducing any argument on the legal stage—is it seriously suggested that they would then be told by the Commission that they would have to stop their activities with the ECGD unilaterally and forthwith? That in itself is a question which has only one answer. The Commission does not behave in that way and the facts of life are not like that either.
I therefore charge the Government with producing a hopelessly flawed argument as regards this position. It is hopelessly flawed in another way too, because the Government have said that they are proposing to go on giving some support over the next three years, and perhaps even longer. How is that consistent with their arguments in relation to the Commission's proposed activities or Article 92? I suggest that the Government find themselves in difficulty on that score as well.
What about Kemp? This afternoon and this evening the Government have relied heavily on a selective approach as far as Kemp is concerned. I do not propose to cite all the arguments about that, but if one looks at the introduction to Kemp, page iii, paragraph 9, one sees:
"The regime for export credit facilities to support trade with third countries will have to be thrashed out by agreement amongst member-states at political level. The idea of a single Community scheme seems impracticable".
It goes on:
"There are no proposals for new legislation … although this is being challenged in the European Court by two Belgian private-sector insurers. However, irrespective of the outcome, there are good policy reasons why the Government should support"—
I hesitate to use this term—
"a 'level playing field' for all insurers, private sector or public sector".
Opposition has been reflected by noble Lords on both sides of the House. That opposition has come from industry—from Hawker Siddeley, Vickers, the Credit Insurance Association, the Federation of British Electrotechnical and Allied Manufacturers' Associations, the chambers of commerce, the trade unions and elsewhere. It is difficult to ascertain who is in support of the measure.
A number of your Lordships have referred to the narrow base of bidders—two foreign companies and one British company, which has chosen to tender on
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grounds which do not reflect what the Government requested it to do. A number of important questions have been already posed by your Lordships which I do not need to repeat now.
From these Benches we are asking for assurances that the Government will think again. They ought to think again because a great deal is at stake. I believe that they would be thanked by industry if they were to reflect again. Their prestige is much less important than the potential damage to industry which will flow from the measure. That was well said by the noble Lord, Lord Wade, whose speech reflected his keen interest in relation to the Soviet Union in particular.
What of the political risks, which are so unattractive to the private sector? That was a point made forcefully by Kemp. Where do the Government stand if nobody is prepared to pick up those political risks? More importantly, where do our exporters stand in such circumstances? The crunch was put by my noble friend Lord Williams at the beginning of the debate and has been repeated by other noble Lords. Will this measure help or hinder our exporters? That is the acid test.
Perhaps I may say a word about the workforce. They were not consulted and their views have been ignored. People have major doubts about their future employment and their pension rights. They should not be left in a state of anxiety and doubt in that regard.
I do not propose to repeat all the arguments again. As a result of this debate the Government are left with serious questions to answer, even more so than after the debate which took place in another place. There is another way. It is a way which the Government should choose and one which was put forward by my noble friend Lord Williams at the beginning of the debate. Yes, increased competition for ISG services is a reasonable proposition. But why could that not be achieved by extending the range of ECGD's activities to enable it to insure exports from other European Community countries and United Kingdom domestic trade? Is there anything so radical and remarkable about that proposition? Is it so offensive to suggest that the Government should embrace it?
ECGD is an efficient operation. That is conceded by the Government. It has done well by the exporters of this country in furthering our national interests. It has given its employees reasonable conditions and security. Why undermine it, and particularly at such a difficult and dangerous time in our country's history?
The noble Lord, Lord Prior, begged the Government to,
"listen more carefully to industry".
He was right. The noble Lord, Lord Selsdon, said that British industry should be at least as well protected as others. That is a matter which has given rise to serious anxiety on all sides of the House.
The burden of proof for the need for change rests fairly and squarely on the shoulders of this Government. It is a burden which they have significantly failed to discharge here and elsewhere over many months. Consequently it is our view, as my noble friend Lord Williams said at the beginning, that the Government should take this Bill away. I dissent

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only from his proposition that it should be put in the dustbin because one can take things out of the dustbin. It should be buried, once and for all.
7.15 p.m.
Lord Fraser of Carmyllie: My Lords, as I listened to the debate I am not sure what was more uncomfortable, the rifle fire from in front of me or the heavy artillery which boomed away from behind. If I draw any consolation, it is that one or two pieces of heavy artillery listened assiduously to the debate but, to my relief, did not contribute.
The noble Lord, Lord Ezra, indicated that the matter could be dealt with simply by asking the question: does this help exports? As he knows, it is too simple 3 question to pose. The greater part of the debate has been concerned not with matters contained within the Bill, which we are considering at Second Reading, but with wider concerns, which have been forcefully and eloquently expressed, relating not only to the role of ECGD if the Bill reaches the statute book but, t the approach that is followed at the moment.
What I found disappointing about the response from the Opposition Front Bench was that, while I readily understand why leaders of industry should have those concerns and express them forcefully, one would have anticipated that we ought to be looking at this subject in the calm and dispassionate context of successive governments which have repeatedly given assurances that ECGD should break even and should not become a charge on public funds. We should be considering it in the context that until the recent increase:; ECGD has not increased project and capital premium rates since 1984 and since 1984 has paid out claims equal to about eight times its premium income on projects. As I indicated, ECGD currently has a deficit with the Consolidated Fund of about £3 billion. The premium rates now established are not set to recover chose past losses but are set solely in relation to the perceived risks in the new business. ECGD's claims and losses cannot be pushed around and mislaid. The bill for that enormous cost has to be met by someone. If ECGD is in deficit, is there a question of the bill being passed to the taxpayers?
The noble Lord, Lord Williams, shakes his head but much of the debate covered that area and—I shall not give way—he readily anticipated that that would be the case. He spoke at some length about project management; perhaps he would like to look at his own speech. If he is proposing an uncosted addition and saying that in future premium rates should be restricted and someone else should take them on I am sure that. at Committee stage he will have ample opportunity to tell us exactly what he has in mind.
Lord Williams of Elvel: My Lords, I am most grateful to the noble and learned Lord for obeying the conventions of the House in the end and giving way. Does he understand the difference between provisions and losses? That is important. ECGD or any company may make provisions, but whether those provisions are realised into losses is quite a different question.
Lord Fraser of Carmyllie: My Lords, of course I appreciate that. If the noble Lord likes to read what I
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said in my opening speech he will appreciate that I did not suggest that none of what was built up as a deficit was recovered. However, he knows perfectly well that there was a significant change as the 1980s developed. I may be wrong—the noble Lord will doubtless put me right—but I would have thought that if he were in government, he would be indicating that ECGD should not become a charge on public funds.
Lord Prior: My Lords, I am grateful to my noble and learned friend for giving way. Before he leaves that point, have not some of the losses that the Treasury has suffered through the operation of ECGD on long-term financing occurred simply because it lent long and borrowed short? As a result, has it not found itself with interest rates rising, having lent at much lower rates of interest, and is it not now trying to regain that money? Is not that one of the problems? It falls under Part I of the Bill, so it is relevant.
Lord Fraser of Carmyllie: My Lords, as I said, those premium rates which are set now and to which my noble friend has indicated his disagreement are set not to recover past losses, but are set solely in relation to perceived risks in new business.
I appreciate that when those engaged in the important business of exports are talking to trade Ministers and there are no law officers sucking their teeth indicating their anxiety, it may be suggested that short cuts with regard to the sternest of our international obligations should be taken. However, we are dealing here with primary legislation. As I said, there are serious matters to be considered with regard to our obligations under GATT and, notwithstanding what the noble Lord, Lord Clinton-Davis, said, with regard to our obligations within the European Community. It is extraordinary that, as we deal with this primary legislation, there should be any question of asking why we are approaching it in this way. Why should we not look to matters of illegality which we believe are widely followed by others throughout the world? I say to my noble friend Lord Wade that, if it is a matter of dealing with a need, that is right. If we see that there are imperfections in the international system, it is no discredit to us that we should make every effort to get the system to work efficiently and fairly.
Lord Jay: My Lords, GATT has been in existence for 40 years, as has ECGD. So far as I know, there has never been any clash between them.
Lord Fraser of Carmyllie: My Lords, as I indicated to the noble Lord, we are dealing here with primary legislation. What seemed to me to be suggested about illegality was, to say the least, rather curious.
The noble Lord, Lord Williams, asked me whether PMS was seen as being in some way the first stage in the process towards what has been described in shorthand as the zero option; namely, the withdrawal of ECGD support for capital goods and project exports. Perhaps I may confirm, if it is not already clear to others, that that suggestion is without foundation. I stress the Government's firm commitment to a stable and viable framework of ECGD support for project exports.

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The noble Lord, Lord Kissin, referred to the prudent and substantial provisions made by ECGD in its 1989-90 accounts which were published in February. As I understood him, he suggested that ECGD is the only export credit agency to make such provisions against political losses. As I understand matters, that is not true. Exim Bank now makes such provisions and a number of other major agencies are reviewing their practice in that area.
I have dealt with the matter of portfolio management as it has taken up a major part of the debate. It has been said by some noble Lords that there is no support for the provisions in the Bill. Although I accept—I can hardly do otherwise—that there have been expressions of considerable hostility towards the Government's position on export credits at present, when one analyses—I hope that this will be done with regard to all the speeches—the degree of hostility to the provisions in the Bill, it will on examination be found to be considerably less. If I understood him correctly, my noble friend Lord King was not particularly concerned with what was in the Bill. My noble friend Lord Selsdon said that it was of no great significance. The noble Lord, Lord Tombs, said that the privatisation of the services was not necessarily a bad thing. My noble friend Lord Trefgarne supported the principle of moving the insurance services to the private sector. My noble friend Lord Weir was not opposed in principle to what was being done in the area of privatisation. However, all those who spoke obviously had other criticisms to make.
My noble friend Lord Limerick went further. He said that not only did he support what we were doing but that there were flaws in the existing ECGD arrangements for providing business that was modern and that met the needs of the market. I am grateful for the way in which he so carefully set out that point. Perhaps I may add to the three arguments that he made; indeed, I made the point in my opening speech. Statutorily, the organisation is prohibited from providing in a single document, or at all, both domestic and export credit insurance. Judging from the nods on the Opposition Benches, that is accepted as being my one good point and something that should be encouraged. If it is not encouraged, it will happen whether we like it or not. That is what people appear to wish. I ask my noble friends behind me whether if we were to correct the position to allow Cardiff to offer in a single package export credit insurance, they contemplate any advantage in taking into the public sector an element of domestic insurance.
The question of whether Kemp offers support for the Government's position has been widely debated. All the evidence submitted to Kemp and to the Select Committee on Trade and Industry favoured the Kemp recommendations for the privatisation of insurance services. As was indicated in the debate, most interested observers continue to support that principle of privatisation.
Lord Taylor of Gryfe: My Lords, I apologise for interrupting the noble and learned Lord. What
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justification has he for his comment about universal support for the privatisation of insurance services among the export community or major businesses?
Lord Fraser of Carmyllie: My Lords, when one analyses what has been said in the debate today and what was said in evidence given to Kemp and to the Select Committee in another place, it appeared that there was support. It is plain from the face of the Bill that the Government do not entirely follow the Kemp proposal; namely, that the insurance services should operate as a government company for up to two years. As I understand it, the basis for the Kemp Report proposal was that the private sector reinsurance market would require some time to study the track record of the new company before making available sufficient reinsurance capacity for the insurance services portfolio. I sought to indicate in my opening speech that, whether Kemp was right or we were right, it appears that the reinsurance market has shown itself ready to take on the vast bulk of the portfolio without that transitional, government company stage.
Kemp also believed that a period of operation as a government company would be necessary in order to convert insurance services into a saleable proposition. In the Government's view, that remains an unnecessary step because the Government have received serious bids to purchase the insurance services immediately.
Anxiety has also been expressed in the debate that foreign ownership is dangerous, although those like my noble friend Lord Trefgarne were careful to preface their remarks by saying that they were not to be regarded as the last of the little Englanders. But undoubtedly we have to be careful that behind the concerns, there may be something of that lingering mentality.
I do not wish it to be taken as an indication or reply that the Government's preferred purchaser will be a foreign institution. However, while I understand that fears continue to be expressed that the United Kingdom's national interest might suffer, I believe that the fears are misplaced for two reasons. First, the vast majority of insurance services business represents a fully commercial proposition. It is not national interest business and never has been insured under the national interest powers in Section 2 of the Export Guarantees and Overseas Investment Act. It is good business which the new owner, irrespective of nationality, will be anxious to maintain.
Secondly, in relation to that small element of insurance services business which is uncommercial, but where the Government wish to encourage exports in the national interest, the privatised insurance services will provide cover to exporters under the national interest reinsurance facility which I have described. Although the new owners will be required to provide that facility, the contractual arrangements should mean that it will be to the mutual advantage of the Government and the new owners, irrespective of nationality, for them to do so. The national interest will thus be safeguarded.
Particular concern seemed to focus not so much on the Italian company, which had been indicated as being a prospective company, but on the Dutch

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company. The noble Lord, Lord Ezra, was concerned that N CM could be used by the Dutch Government to help promote Dutch exports. He asked how could they do so and at the same time own a company whose job was to promote United Kingdom exports. All three companies that I mentioned are in the private sector and independent of governmental control. As I indicated, the national interest reinsurance facility will provide the mechanism by which the national interest exports can be encouraged. Whoever are the new owners, they will be required to operate that facility on the Government's behalf.
In winding up for the Opposition, the noble Lord, Lord Clinton-Davis, focused on what was essentially the reason for the privatisation of that part of the ECGD activities at this stage. In large measure he focused on what I had to say about the possibility of some future legal challenge from Brussels to state involvement in credit export insurance matters. I am sure he is aware that a working group of the EC Council of Ministers in Brussels has devoted much of its time to considering the implications for official export credit insurance schemes of the advent of the single market. There is a recognition, shared by all member states, that in the area of activity in which the official and private credit insurers compete for business, it is essential to ensure that fair competition exists between the two.
However, if the noble Lord is not persuaded by, as it were, a legal consideration of these points, let me put to him that France, Belgium, Spain and Italy are all restructuring their operations in anticipation of change. In Germany and the Netherlands, the major export credit agencies are already based in the private sector. Thus, by making the change that we propose in the Bill, far from being out of step with the rest of Europe or being in advance of the field, the United Kingdom is simply part of the mainstream of EC development in this sector.
A large number of detailed points were put to me. I regret that I may have insufficient time to answer them all. Perhaps I may deal with two specific points. My noble friend Lord Prior referred to some very large figures in relation to the political risk reinsurance and claims paid by the Dutch Government to NCM. On re-examining those figures, he will find that they relate not to the short-term business which is to be done by the IS group. The vast bulk of the Dutch Government figures relate to medium and long-term capital goods and project business which, as the noble Lord will appreciate, will remain within the United Kingdom, in accordance with the advice that Kemp gave us, and within the remit of government and will not be privatised.
My noble friend Lord Trefgarne asked why no prospectus for the sale has been issued. There is no prospect us because this is a trade sale by competitive tender and not a public flotation. A short list of companies was provided with a confidential invitation to tender which comprised a large body of documents concerning the business and the proposed sale
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arrangements. Two volumes of extracts and summaries of the ITT were placed in the Libraries of both Houses of Parliament as well as being made available to ECGD staff and representatives.
My noble friend Lord Wade made particular reference to the Carroll British trade centre project. It is true that ECGD medium-term cover for the USSR is under review. That is quite reasonable, given ECGD's existing high exposure and the current economic and political problems there. However, the facts of the Carroll case are not as described in the newspapers. It is not true that the export credit cover offered by the French was better than that which was available at the time from ECGD. I shall write further to the noble Lord about that matter.
In a very careful contribution, my noble friend Lord Selsdon asked for a broad assurance from me on behalf of the Government that the Government would always make available through ECGD facilities and support which match in every respect, including premium rates, facilities which might be available from other countries to competitor exporters. While doubtless his words will be studied with great care by both my right honourable friend the Secretary of State for Trade and Industry and my honourable friend the Minister for Trade, I must point out—as I did earlier in the debate—that to date it is not and never has been the policy of any British Government to match premium rates; nor do I believe that any government could give an open-ended promise to provide support, whatever the cost or whatever the risk, simply because for whatever reason one other country may have done so elsewhere.
This has been a complicated debate and not the easiest discussion in which to have been the centre of attention. Nevertheless, in reply I have sought to focus upon the fact that although there have been deep concerns expressed, I have no doubt whatever that my right honourable friend the Secretary of State for Trade and Industry will pay the closest regard to what was said. However, I come back to the fact that the ambit of this Bill is much narrower than the discussion that we have had today. No doubt there are a number of important points which will be discussed in Committee and I look forward to the opportunity to debate them.
I have already dealt with the matter of the political risk and the national interest assurances which were given. I do not propose to repeat them. I trust that what I said in opening will be carefully studied before we get to Committee stage. With that expression of hope, I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Agriculture and Forestry (Financial Provisions) Bill
7.38 p.m.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington): My Lords, I beg to move that this Bill be now read a second time.

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The main purpose of the Bill is to deregulate the Agricultural Mortgage Corporation and the Scottish Agricultural Securities Corporation. It also contains certain other financial provision. But before I go into those in more detail, I should perhaps add that the Bill is hybrid. That is because the deregulation provisions will make one change to both corporations' memorandum of association. This change is purely consequential to the main deregulation provisions. It has the full support of the corporations and their shareholders and it does not affect any other private interests. In all other respects this is a straightforward public Bill although we have obviously complied with the relevant standing orders for private business. I hope that clarification is helpful.
The Agricultural Mortgage Corporation and the Scottish Agricultural Securities Corporation were set up in the inter-war years to provide farmers with long-term credit. Both corporations have always been registered limited companies; but because they were established with Government support, certain statutory restrictions were imposed on their activities and on the type of loans they could offer. These restrictions are simply not appropriate in the very different farming conditions of the 1990s. When we consulted the industry last year about the future of the AMC, the response was firmly in favour of deregulation. Equally important, both corporations are very successful organisations which no longer need Government help or the controls that inevitably go with it.
That raises the important question of how deregulation will affect their future activities. I repeat what was said about that when the Bill was considered earlier in another place because that statement was discussed very carefully with the corporations' shareholders and it fully reflects their views.
The AMC itself intends to remain firmly in the business of providing long term loans to the agriculture industry. That forms the basis of its current, very successful operations and is where its expertise lies. But deregulation will allow the AMC to be more flexible—for example to lend on security other than land, to help farmers finance diversification projects and to offer loans outside England and Wales. The AMC will also be able to consider joint ventures with organisations providing other financial services if that would offer the farmer a better overall package. So while we believe that deregulation will help the AMC to adapt to the needs and challenges of the coming decade, we are satisfied that in the main the AMC will continue to do what it has always done best —to provide medium and long term loans to the agriculture industry.
I now turn to the AMC's shareholders—the Bank of England and five of the major clearing banks—because they will have an important role in helping to make the transition to deregulation as smooth as possible.
The Bank of England and the AMC's other shareholders do not in any way guarantee the AMC's borrowings, but their involvement has clearly been a major factor in building up the confidence on which
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the AMC has successfully developed its business over the past 60 years. The shareholders are determined to ensure that the move to deregulation goes smoothly and efficiently.
The Bank of England is particularly concerned to see that the changes sought by the commercial bank shareholders and the AMC are made in an orderly manner and readily recognises that it has a special and positive role to play in ensuring an orderly adjustment to the new market situation. The Bank will only dispose of its shareholding when it is satisfied that this adjustment is assured. While we cannot commit the Bank of England, we would expect that to take a number of years.
The position of the clearing banks is a little different. Over the years they have increasingly entered the markets in which the AMC operates and they and the AMC now compete to provide a similar type of service to the agricultural industry. So it makes increasingly less sense for the clearing banks to continue to hold an investment in what is a competing company.
At the same time, the clearing banks are genuinely anxious to ensure that the move to deregulation goes smoothly and efficiently. Apart from any wish to protect their own investment, the AMC's customers are their customers too. So while there is likely to be some disinvestment, the clearing bank shareholders have assured us that it will happen in an orderly way. Precisely how and when will, of course, be a matter for discussion between the AMC and the clearing banks, but we are certain that the AMC will be able to attract new capital. It is a very successful organisation and it can, and should, stand on its own reputation like any other very successful private company.
The SASC is owned by three Scottish clearing banks, which are fully involved in the formulation of its current and future plans. Unlike the AMC, the SASC only lends at a fixed rate of interest and so it is not in direct competition with its shareholders, whose lending is predominantly at a variable rate of interest. For the future the SASC's primary objective will be to provide a first class service to the Scottish farming community through its competitive mortgage facilities. We understand that there are no plans for any of its shareholders to sell their holdings.
Clause 1 of the Bill will repeal the legislation which enables agriculture Ministers to lend money to the two corporations and sets out the conditions which they must satisfy to qualify for financial support. The clause also makes some minor consequential repeals. Existing mortgages and debentures issued by the AMC and the SASC will not be affected by any of these repeals.
The repeals will be brought into force by commencement orders. This will ensure that the repeals affecting the AMC are not implemented until the outstanding government loan has been repaid. In practice it will probably be possible to make the necessary orders later this year.
Clause 2 will allow agriculture Ministers to recover the costs involved in supervising Community carcass grading schemes. A system of pig carcass grading was introduced in all member states on 1st January 1989.

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Beef carcasses will be subject to a mandatory grading scheme from 1st January 1992 and we are currently consulting the industry on the detailed arrangements. The Commission also has plans to introduce a scheme for lamb. Grading can be carried out either by the slaughterers or by the Meat and Livestock Commission on their behalf but in either case it is supervised by our fatstock inspectorates.
Our intention is to recover the total costs of this supervision in Great Britain from 1st January 1992, which i the date on which beef carcass grading will be introduced. We shall of course consult the industry before any charges are introduced and in fact Clause 2 specifically requires us to do that.
Clause 3 provides the statutory authority to make national payments under the Community's suckler cow premium scheme. This scheme was introduced in 1980 tc help maintain the incomes of specialist beef producers at a satisfactory level. Producers who keep suckler cows for rearing calves for beef can qualify for a headage payment from the European Agricultural Guarantee and Guidance Fund. Member states also have the discretion to top up this Community premium with an additional national payment and the United Kingdom has always done so. Because these national payments are discretionary they cannot be authorised by regulations made under the European Communities Act 1972, which would be the normal way to do it. At the moment, the authority for payment therefore rests solely on the annual appropriation Acts. We fully accept that this is not a satisfactory state of affairs and Clause 3 is intended to put that right.
The clause enables agriculture Ministers to make regulations providing for the payment of the national premium under the Community scheme. The regulations may also set out appropriate conditions for such payments. I emphasise that the operation of the scheme will not be affected in any way. The national payments will simply be put on a clear and appropriate statutory footing.
Turning to Clause 4, I have taken a particular interest in the New Forest since taking on Ministerial responsibility for forestry matters in England. Last year, at Lyndhurst, I presided over the launch of the Government's response to a report into the future of the New Forest. I am very much aware, therefore, that the New Forest Verderers form an integral element in the administration of the forest. The Verderers' present-day functions include important responsibilities relating to the conservation and recreational use of the forest, which attracts a positively enormous number of visitors each year.
To help meet the administrative cost of these responsibilities, in 1973 the Treasury agreed to the Forestry Commissioners making an annual grant to the Verderers from the forestry fund. Clause 4 will simply put this grant on a firm statutory footing. We are not talking of huge sums of money. The grant has never exceeded £10,000. But without some support the Verderers cannot respond effectively to the growing pressure on this very lovely and important part of our national heritage.
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Finally, Clause 5 deals with the geographical extent of the Bill. Since carcass grading and the suckler cow premium scheme are devolved matters, the Bill does not extend to Northern Ireland. However, there will be separate parallel legislation on these matters.
Clause 5 also provides for the commencement of Clause 2. As I have already indicated, the Clause 1 repeals will be brought into force by order and Clauses 3 and 4 will come into force immediately the Act receives the Royal Assent. That is normal practice where the payments concerned are already being made under the authority of the appropriation Acts.
This has perforce been a long speech to explain a short but useful Bill. I commend it to the House.
Moved, That the Bill be now read a second time. —(Baroness Trumpington.)
7.52 p.m.
Lord Gallacher: My Lords, I thank the noble Baroness for explaining the Bill clearly and in detail. I also thank her for her kindness in sending notes on the Bill's clauses. Like the dedicated people that we are, we have read them with considerable assiduity. Between the two explanations we are reasonably clear about what the hybrid measure is about. We support the provisions of the Bill in all respects as we did in another place. However, I wish to ask several questions about Clauses 1 and 2, although not necessarily to be answered this evening as some are of a technical nature.
Clause 1 converts the Agricultural Mortgage Corporation in England and Wales and the Scottish Agricultural Securities Organisation into bodies unsupported by Her Majesty's Government. Former support was of a limited kind. Nevertheless, in the mind of certain members of the public both bodies were government backed. In effect that gave added security to lenders. That was never so but it was thought by some to be so.
As the Bill gives both bodies greater freedom, including wider lending powers, can the Minister say whether there exists in either body any scheme for the protection of depositors which is comparable to those in existence for bank and building society depositors? If not, are any such schemes contemplated when changes take place in the Memorandum and Articles of Association of both bodies?
Does the Bill's special proposals to continue present exemptions under Section 16(i) of the Consumer Credit Act 1974—an exemption also enjoyed by banks and building societies—confirm that the AMC and the SASC are regarded by the Treasury as being of equivalent status to banks and building societies? In another place the Minister spoke of powers to offer loans outside England and Wales. In how many other countries does the AMC intend operating once the Bill has been passed?
On the face of it the proposals in Clause 2 to allow Her Majesty's Government to recover costs incurred in supervising the statutory grading of carcasses to European Community standards are innocuous. However, the notes on Clause 2 lead me to think that there are several matters to be discussed with representative organisations to cover pigs, for which a

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charge is already being made, and cattle, for which a charge will be introduced on 1st January 1992, as well as any future scheme for sheep. The variability factors about charges contained in Clause 2, such as throughput exemptions, give cause for interest if not concern. When discussions with the industry are concluded, I hope to the satisfaction of all, will the Minister be prepared to give details about those charges in a press release or in answer to a Written Question?
Clauses 3 and 4 relating to suckler cow premium and grants by the Forestry Commission to Verderers in the New Forest respectively are in the nature of bookkeeping amendments. Bookkeeping was never my strongest subject; in fact after such a distance of time I can remember only that one debits the receiver and credits the giver. Therefore I take the assurances that the Minister has given about Clauses 3 and 4 as being guaranteed and in those circumstances I have nothing further to say about them.
We support the Bill. It is modest but important and I hope that it has a speedy and successful passage through your Lordships' House.
7.56 p.m.
Lord Mackie of Benshie: My Lords, I too thank the Minister for sending us the fascinating notes on clauses. We too support the Bill but I should like the Minister to explain a number of issues. I understand from her full explanation that the AMC and the SASC will be commercial organisations and that government restrictions will to a great extent be removed.
One of the great virtues of the AMC and the SASC has been that they have lent at fixed rates and at fixed profit margins. I hope that their new scope will not mean that they will follow the clearing and commercial banks into a form of usury and encouragement of spending. That has resulted in what were previously respectable banks putting up notices in their offices to encourage people to take out new loans at what appear to be modest rates of interest in order to go on holiday and so forth. However, when one examines the APR the interest rates amount to 29 per cent. or 30 per cent. I hope that their plans do not include such lending in the pursuit of profit following the less respectable and less useful financial organisations which lend money.
The recovery of fees does not appear to promise a great deal of money to the Treasury. Clause 2(4) states:
"Before making any decision as to the total fees to be recovered under this section or the method of apportioning them between the persons liable to pay them the Minister shall consult".
I hope that the Minister will take note of the fact that the farmer's obligations should end at the farm gate. Already there are disputes in Scotland about who should pay certain fees in respect of slaughtering, and that is unfair.
I was amused and delighted to note that the Government have admitted that they have been a little out of place in paying the extra money for the suckler premium and are correcting that in the Bill. It was nice of the Government to have paid the money. I hope
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that they will continue and make the national contribution the maximum that they can under the EC regulations, because the keepers of suckler cows need it in these times.
Lastly, as regards the Verderers, that is an example of Treasury kindness which one does not often see. However, perhaps the noble Baroness will explain to me the procedure as regards the right to turn out pigs in the pannage season. Perhaps she will tell me how much extra food they have, how much they put on per day, how much the pigs like being turned out in the pannage season and what the pannage season is. I should be very grateful for that information, as I am sure would other noble Lords.
8 p.m.
Baroness Trumpington: My Lords, I am grateful to both noble Lords for what they have said and for their general welcome for this short Bill. On Clause 1 the noble Lord, Lord Gallacher, raised the question of whether there is any scheme for the protection of depositors. The answer is, no. The AMC and SASC do not currently take deposits from members of the public. If they decided to do that, they would need to seek the necessary authorisation under the Banking Act 1987.
The noble Lord followed that up by asking in how many other countries the AMC will operate. As far as I know it has no immediate plans to operate in any country outside the UK.
I believe that the final question of the noble Lord, Lord Gallacher, was whether the Government will give the details of the results of consultation on carcass classification. The answer is, yes.
Turning to the noble Lord, Lord Mackie of Benshie, he maintained that a farmer's responsibility should end at the farm gate. Charges will be levied on slaughterhouses and not on farmers as such. Whether slaughterhouses choose to pass on those charges to the farmer is a matter for their commercial judgment. Their ability to do so will depend on the state of the market. Farmers benefit from the information provided, because the classification is an indicator of quality.
As regards whether the suckler cow premium is being paid at the maximum rate, the rate for the 1991–92 scheme has not yet been set. It is currently being considered and an announcement will be made in due course. Under the 1990–91 scheme the maximum rate of premium allowable under Community rules was paid in the less favoured areas but a slightly lower rate was paid elsewhere.
I omitted to mention that the noble Lord, Lord Gallacher, asked me about consumer credit exemption. The Bill will allow the Secretary of State for Trade and Industry to exempt the AMC and SASC if he considers them appropriate organisations after deregulation. That will effectively place them in the same position as banks and building societies.
I shall have to write to the noble Lord, Lord Mackie, about the pigs. When I was in the New Forest, there were sheep everywhere but I did not see any pigs. However, I shall have great pleasure, as I always do, in writing to him.
Lord Mackie of Benshie: My Lords, perhaps the noble Baroness will give us some information about the son of new lending to be undertaken by the AMC and SASC.
Baroness Trumpington: My Lords, it is rather early days for that. As I said in opening, it is a question of the existing shareholders doing their thing and the AMC taking on its own life as an independent body. Therefore, I do not wish to answer that question at this stage. I commend the Bill to the House.
On Question, Bill read a second time and committed to a Committee of the Whole House.

Forestry Bill
8.5 p.m.
The Earl of Lindsay: My Lords, I beg to move that this Bill be now read a second time. I am very pleased to have been given the opportunity to introduce this Bill, which has passed through all its stages in another place. It was a Private Member's Bill there and it obtained support from all parts of the House. Also, it was warmly welcomed by the Government. I offer congratulations, which I am sure your Lordships will wish to endorse, to my honourable friend Sir Hector Monro, the Member for Dumfries, for initiating this Bill and for guiding it successfully up to this point.
Before I go further, I declare an interest. I am both a woodland owner and, by profession, a landscape architect involved in design, land use and other environ mental issues.
This Bill is very short but that does not detract from its importance. Forestry represents a crucial part of our countryside and heritage. Therefore, it is important that all forestry proposals are carefully considered and that decisions reached are seen to be fair and to take full account of environmental and other interests. The Forestry Commission's regional advisory committees—also known by the acronym RAC—have an important role to play in this process, and it may hell) noble Lords in considering this Bill if I set out briefly where the regional advisory committees fit into the scheme of things.
When a planting or felling application comes forward to the Forestry Commission, it first satisfies itself that the application contains all the information required and that it is completed to a satisfactory standard. The commission then sends details to the appropriate statutory bodies which are to be consulted. Agreements have been reached between the commission and the authorities concerned on the circumstances in which such consultation will take place. If, during the course of consultations, objections are raised to any aspects of the application, then the. commission will try to resolve these by discussion with the parties involved. When it is not possible to resolve objections and the applicant wishes to continue with his application, it will be referred to the commission's appropriate regional advisory committee to assist in trying to find a solution acceptable to all the parties concerned.
It is important to stress that the regional advisory committees' role is purely conciliatory and advisory.
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They do not take decisions; nor do they perform any executive functions. If no solution emerges, then the case is referred to the forestry commissioners together with the committee's advice. I should mention that, until recently, the committees' advice in disputed cases was not made public. However, my right honourable friend the Secretary of State for Scotland announced in April that that is to change. In future, an account of the committees' deliberations, together with their advice to the forestry commissioners, will be made public by way of a press release.
After taking account of the RAC discussions with all the parties, if the commissioners decide that an application should be refused, they may refuse it without reference to Ministers. In all other cases, the commissioners are required, before overriding any objections, to seek the endorsement of Ministers. There are thus important safeguards to ensure that the views of other land use interests are taken fully into account before decisions on planting or felling applications are reached.
The system works well in practice. Between 1984 and 1990 only 113 cases out of 40,000 applications for planting or felling licences had to be referred to the regional advisory committees. Nevertheless, some of these disputed cases have tended to hit the headlines and to raise questions on the relationship between forestry and the environment. Inevitably, the RACs have been placed in the front line and that has brought their membership into sharp focus.
The RACs are constituted under the provisions of Sections 37 and 38 of the Forestry Act 1967. Their purpose is to advise the commissioners as to the performance of their functions under the Act, which provides that:
"Each regional advisory committee shall consist of not less than seven nor more than nine members, and of those members (other than the chairman) not less than four shall be persons appointed by the Commissioners after consultation with organisations appearing to them to represent the interests of owners of woodlands and timber merchants respectively and organisations concerned with the study of promotion of forestry".
In 1974 the committees were first given the additional task of seeking to reconcile differences of view over grant and felling licence applications. No change was made to the statutory membership of the committees at that time but, within the framework set by the Act, places were assigned on each committee to cover agriculture, planning and environmental interests. For some years a place had also been allocated to a trade union representative, which it was decided should continue.
With all nine places thus filled, it was clear that the planning and environment members could not possibly cover the wide range of environmental interests, such as landscape, recreation and nature conservation, that were involved. That has long been of concern to the forestry commissioners, as well as to environmental bodies, and has given rise to the perception in some quarters that the committees are biased in favour of forestry.
That takes me on to the Bill. It is a straightforward measure to increase the maximum membership of each regional advisory committee from nine to 12. That will enable the commissioners to appoint

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additional members to strengthen the representation and range of countryside interests. I have been given an assurance that the commissioners will allocate the additional three places to environmental interests. There would thus be four members from forestry backgrounds, four covering the broad spectrum of environmental interests, and one member each for the agricultural, planning and trade union interests, and an independent chairman. I am sure that such representation will satisfy the great majority of people, and, indeed, will be consistent with the forestry commissioners' statutory duty to seek to achieve a reasonable balance between the needs of forestry and the environment. It will help to demonstrate that the committees reach their decisions in a balanced way and to ensure that they carry out their valuable work in an atmosphere of public confidence. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(The Earl of Lindsay.)
8.12 p.m.
Lord John-Mackie: My Lords, as an ex-chairman of the commission I should like to say a few words. I congratulate the noble Earl for the way in which he introduced the Bill and the way he covered the detail. He said much of what I wish to say. There is no doubt about the importance of RACs; they do a good job of work and are necessary in the work of the commission, though they are purely advisory and do not make decisions.
In the original 1967 Act the commission is given instructions as to the quality of the four members; no other instruction is given. In the present important one-sentence Bill there is also no question of whether any particular qualifications are required of the three new members.
The noble Earl said that the commission agrees that it would like some environmental strength in the RACs and that it will ensure that that is done. However, I should like to point out that environmentalists are inclined to think that foresters have no environmental know-how. I emphasise that an enormous number of foresters are better environmentalists than many so-called straightforward environmentalists. I hope that the commission will watch carefully whom it appoints and ensure that they are not only environmentalists but also have some knowledge of policy.
8.13 p.m.
Lord Gallacher: My Lords, perhaps I may add my appreciation to the noble Earl, Lord Lindsay, for the able manner in which he introduced the Bill. Had I known that it was to be done in such a competent way, I could have saved myself much time spent on homework; for example, I read the whole of the proceedings of Standing Committee C in another place on 1st May 1991. Nevertheless, it was useful to have confirmation of those proceedings so eloquently placed before your Lordships' House by the noble Earl.
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I understand that the Bill was recommended by the Select Committee on agriculture in another place and that its purpose is to increase the membership of regional advisory committees from nine to 12 members to give greater representation to environmentalists. Generally, my reaction to proposals of this kind has always been that size does not necessarily reflect quality. As the noble Earl pointed out, the regional advisory committees carry out a conciliation role in settling differences between applicants and conservators. The statistics of their performance as conciliators are mightily impressive in that of 40,000 applications to plant or fell in the United Kingdom only 113 were referred to the RACs.
My noble friend Lord John-Mackie said some wise words about who the environmentalists are in the world in which we live. I assume that if the Bill becomes law persons appointed to the RACs will be chosen in an individual capacity rather than as nominees of specific bodies or organisations. That has hitherto always been what the Government have said when people ask how those appointments are made. If so, I hope that in making the appointments in individual capacities the net will be widely spread. We are all environmentalists in one way or another and many people of all ages have the ability to contribute to the work of RACs and to maintain their record in conciliation.
That said, I support the Bill. I hope that it will pass speedily through your Lordships' House.
8.15 p.m.
Lord Mackie of Benshie: My Lords, as so often happens everything that could be said about the Bill has been said, but that will not stop me saying it again. I congratulate the noble Earl on the clarity with which he put forward the case. Like the noble Lord, Lord Gallacher, I am doubtful that increasing the size of a committee makes it more effective. The evidence appears to be that they have been able to settle matters in most cases without trouble.
Obviously, representation of different bodies is important, and I accept that. Like my noble kinsman, I trust and hope that the environmentalists will have some knowledge of the countryside and will want to protect not only the rare species of plants, of which they seem to be enormously fond, but also the rare species of humans in the countryside who often depend on forestry for their living. That said, I support the Bill and I shall be interested to see what the Government have to say about it.
8.17 p.m.
The Earl of Strathmore and Kinghorne: My Lords, I am glad to have the opportunity to welcome the Bill, which was ably presented by my noble friend Lord Lindsay. I should like also to echo his remarks in drawing attention to the important part played by my honourable friend Sir Hector Monro in introducing the Bill in another place and attracting such widespread support.
As my noble friend mentioned, the Government welcome the measure. We share the Forestry Commission's concern that the present balance of

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membership on the regional advisory committees has led to the view that the committees are less than even-handed and are unduly biased in favour of forestry when considering disputed cases, though we have seen no evidence to justify that view. We are satisfied that the committees act in a fair and impartial way and perform a valuable if at times thankless task.
Taken as a whole, the Forestry Commission's consultation procedures, backed up by the environmental assessment regulations and the high standards of forest design demanded by the commission for its grant schemes, represent an effective system of regulating the environmental impact of forestry operations. However, there is no doubt that obtaining an increase )n the regional advisory committees' membership from nine to 12 as proposed in the Bill will be a major step in meeting the criticisms of the present imbalance of representation on the committees. I am sure that that will lead to a wider understanding and acceptance of their work.
As my noble friend Lord Lindsay made clear, it is the intention to allocate the three additional places to those with an environmental background. That, together with the seat at present allocated to environmental interests, would make a total of four, thus giving parity with those members representing forestry on the committees.
The regional advisory committees are not asked to consider many disputed cases. Indeed, some of them have not had any referred to them for a number of years. But I am sure that their deliberations and advice will be made easier by having more members who can provide experience and expertise on environmental matters. The Government are happy to support the Bill.
8.20 p.m.
The Earl of Lindsay: My Lords, I thank noble Lords who have taken part in this debate especially for their kind and generous remarks and for the support which they have clearly expressed for this measure. Such support from all sides of the House bodes well for the Bill's passage through its later stages. The noble Lord, Lord John-Mackie, made the point that foresters are the best environmentalists. I thoroughly agree with him and I believe that the Forestry Commission does so as well. It is because of that point that it has had so few disputed cases passed back to the RACs over the past six years. Nevertheless, that point has been well realised.
The noble Lord's kinsman, the noble Lord, Lord Mackie of Benshie, mentioned that human beings are just as important as rare species. I have no doubt about that. The Forestry Commission intends that out of every four environmental places on each RAC, one of the places should go to someone with some experience of recreation and public access so that the human dimension will not be lost to, for example, the newts or the lesser spotted toad.
The noble Lord, Lord Gallacher, made the point that appointments should not be made on a nominee basis but to those who are qualified to serve in their own right. I believe that the Forestry Commission intends to get the most out of this extra representation on each committee. It has been anxious that out of nine members on each RAC only one has officially stood for environmental interests. I believe that it is anxious to illustrate the much greater breadth of wisdom that it can introduce to the committees. I thank noble Lords and I hope that they will give the Bill a Second Reading.
On Question, Bill read a second time and committed to a Committee of the Whole House.
House adjourned at twenty-two minutes past eight o'clock.