HL Deb 21 October 1991 vol 531 cc1318-25

3.11 p.m.

The Lord Advocate (Lord Fraser of Carmyllie)

My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Export and Investment Guarantees Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill. I beg to move that the Bill be now read a third time.

Although the Bill is relatively short, its importance has been recognised by the thorough debate in this House at both Committee and Report stages, as well as in a number of important contributions and Second Reading speeches. The legislation provides the framework for the most radical change in the way in which export credit insurance will in future be provided within the United Kingdom since the establishment of ECGD over 70 years ago. It is therefore not surprising that your Lordships have wished to understand why the Government believe these changes to be essential, to probe the details of the Bill itself and in particular to be reassured that the changes will not be damaging to the interests of our exporters.

I hope that I have been able to satisfy your Lordships in all these respects and to demonstrate, as I indicated at Second Reading, that the Government's primary motivation has throughout been to ensure that the benefit of the services currently provided to our exporters by ECGD's Insurance Services Group can be safeguarded for the future against current and prospective challenges. The chief and immediate challenge is a commercial one: how to meet the growing competition from private sector insurers for better quality business, the retention of which is essential if the Insurance Services Group is to be able to continue to support the rather more difficult risks and maintain a financially viable scheme. There is also the need to meet the increasing demand from exporters for insurance packages covering both export and domestic business.

The secondary but no less real threat is that of a legal challenge to the continued involvement of the state in the provision of short-term export credit insurance on the grounds that this constitutes unfair competition to the private market incompatible with the Treaty of Rome. I hope that your Lordships were persuaded that the only sensible response to these challenges was to privatise ISG.

At Committee stage, attention focused on two concerns. The first was the desire on the part of a number of noble Lords for the firm ministerial assurances concerning the provision of reinsurance facilities after privatisation which I and my honourable friend the Minister for Trade had given at various stages during the passage of this Bill to be enshrined in the Bill. Your Lordships' concern persuaded the Government to look again at the possibility of writing these into the Bill, and I was pleased to be able to bring forward amendments which met the anxieties expressed and which imposed a permanent new obligation on the Secretary of State to keep the need for these facilities under review. As a result, we will send the Bill back to another place with two important amendments to Clauses 11 and 13. I am sure that these amendments will be considered sympathetically there since they respond to concerns similar to those expressed by your Lordships voiced in that place during the early stages of the Bill's passage through Parliament.

The second concern was to safeguard the interests of those of ECGD's staff who will be leaving the service of the Crown to work in the private sector. I have emphasised the Government's commitment to ensure that these highly regarded staff should be employed in the new company on terms at least as good as those which they enjoy at present. I was therefore pleased to be able to announce at Report stage that 590 of ECGD's staff have now expressed a preference to join the new company on the terms offered by NCM, the Government's preferred purchaser, rather than to remain in the Civil Service. This is the real proof that the Government's objective on terms and conditions has been achieved.

We have perhaps been less concerned about those aspects of the Bill which will provide the Secretary of State with revised powers in relation to the activities of the continuing ECGD. I am sure that this is because the House has recognised that the intention of those powers is to enable the continuing and new ECGD to carry out its primary and vital function of supporting UK project exports even more effectively than is possible under the existing legislation.

I am grateful to my noble friend Lord Henley, who also contributed to the debates from this side of the House, and to other noble Lords who participated. While much of our debate concerned itself directly with I he provisions in the Bill, I have no doubt that my honourable friend the Minister for Trade has also taker clear account of the expressions of concern about the performance of our exports from the United Kingdom if there is not the proper insurance to support them. I commend the Bill to the House.

Moved, That the Bill be now read a third time.—(Lord Fraser of Carmyllie.)

3.15 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble and learned Lord for introducing the Motion that the Bill be now read a third time.

I apologise if I take up rather more of your Lordships' time than he did. If I do so it is because we on these Benches still have serious objections to the Bill which have not been at all alleviated by the debates that have taken place in your Lordships' House. On Second Reading I asked this question: does the Bill help UK exporters or does it hinder them? Even after all the successive stages through which the Bill has passed in this House I am bound to come to the conclusion that on balance it will hinder UK exporters rather than help them. Even with the inclusion of the two government amendments to which the noble and learned Lord referred, it still lacks the assurance of support which UK exporters seek, in that the previous role of ECGD of encouraging exports has been discarded. Furthermore, the Government will not have a role in determining what short-term export credit insurance will be available to UK exporters. The provisions for government-backed reinsurance for the privatised ISG are, in our view, far from adequate. I wish to take these points in turn.

On support for UK exporters, during the passage of the Bill we tried—and I recognise that your Lordships did not accept this—to make sure that the primary function of any export credit insurance activity was to encourage exports, not simply to facilitate them.

Perhaps I may turn to Part I of the Bill as it leaves your Lordships' House. I am sad to see that the noble Viscount, Lord Weir, is not in his place. He supported an amendment that we moved requiring that premium rates charged by ECGD should be subject to annual review. The noble Viscount said: I wish only that it had gone further and not merely sought a review but sought that the review he published".—[Official Report, 14/ 10/91; col. 988.] I am again sorry not to see the noble Lord, Lord Trefgarne, here. He also felt strongly enough to press for a Division on the amendment, presumably to register a protest at the high premium charges currently being levied by ECGD. There is clearly a great deal of support from noble Lords on the other side for our position that there should be a review and that it should be published. Such a review would compare ECGD's premium rates with those offered by other credit insurers. It could examine the effects of those premium rates on UK project exports.

I recognise that the Government have proclaimed their view that they are mounting a campaign to persuade OECD credit insurers to charge rates comparable to those of the ECGD. In the course of time that may or may not achieve a certain measure of success. However, it must be recognised—and noble Lords opposite who are at the forefront of our exporting industries have done so—that most of the major ECGD competitors such as COFACE in France, Hermes in Germany and SACE in Italy currently charge much lower rates. Therefore any increases on their part will still leave UK exporters paying considerably more than their non-UK competitors.

I recognise that ECGD will continue, through the various international export credit for a where it is represented, to campaign for other export credit agencies to charge what they would regard as unsubsidised rates. But I must echo the point made by the noble Lord, Lord Trefgarne, on Report last Monday when he said that exporting was a nasty and difficult business and any disadvantage to which our exporters were put could rebound only in the form of a deficit on our balance of payments which, goodness knows, is bad enough as it is.

I continue to direct my remarks to Part I of the Bill as we have it. The future of ECGD is a matter of considerable suspicion. We still do not have an assurance from the Government that the ideal of what is known as the zero option is not part of the Government's programme. The implication of that, in the light of relatively high current premium charges, is that in future the business of ECGD on project finance could easily be provided on a strictly commercial basis with every effort being made to ensure that the prospects of ECGD having to pay a claim are minimised before ECGD commits itself to providing cover for an export transaction. That is not the way that our competitors operate. I understand that the Government are extremely concerned about the effect of this measure on public expenditure, but our exports are fundamental to our future prosperity. I hope that the Government will give us a further assurance on that matter.

On the subject of support for UK exporters, I should add that we moved an amendment on Report which would have enabled ECGD in its residual form to provide short-term cover on business which might be rejected by ISG when privatised. The noble and learned Lord the Lord Advocate replied that that power was still contained in Clause 1(1) of the Bill as it stands at present. He said that the amendment was unnecessary. That is possibly the case but the question is: How will the Government exercise these powers to require ECGD to offer short-term credit insurance should ISG in its privatised form fail to do so, or not wish to do so, or be unable to do so in the case of bankruptcy? We do not know what would happen in those circumstances. If ECGD is not able and is not instructed by the Secretary of State to provide such short-term cover, exporters are likely to lose the support they need not on OECD markets—those markets are easily insured—but on the riskier markets. It will be perfectly sensible for the new company to concentrate on OECD markets. It is the riskier markets that will be difficult for our exporters. Are the Government prepared to state categorically that the powers contained in the Bill to provide short-term export credit insurance cover will be used? Or is it the Government's intention to allow those powers to remain dormant?

I now turn to the matter of the new company. The noble and learned Lord has rightly said that there have been negotiations between trade unions and NCM, which is the preferred bidder. However, in the staff information pack which has been jointly produced by NCM and ECGD, NCM has stated that its primary objective is to turn ISG into a profit-making company. Apart from reducing staffing levels, other ways in which profitability could be increased are premium rate increases, withdrawal of the less profitable facilities and cover for the least cost-effective markets, tighter examination of claims and even a refusal to take on exporters with poor claims records. Any such measures would be disadvantageous to UK exporters. In support of those remarks I refer to a report which has lain behind the thinking on this Bill. I refer to the report as the Kemp Report for brevity. That report did not, as your Lordships have understood, recommend immediate privatisation. The Kemp Report outlined the problem thus: The private-sector facilities are generally felt to be inferior to those available from ECGD as regards: continuity…accessibility…and underwriting approach". The new company will have no obligation to encourage UK exports. In contrast, NCM's relationship with the Dutch government as its agent on political risk reinsurance places it in a different position with regard to Dutch exporters. I must again state that I regret that the noble Lord, Lord Trefgarne, is not present today. On Report in your Lordships' House he asked time and time again what would happen when NCM was faced with requests for cover from both British and Dutch companies for a single project. He asked which company would have preference, the Dutch company or the British company. I am sad to say that the noble and learned Lord could give no clear undertaking that the British company would receive proper encouragement.

I now turn to the matter of the staff. It is true that there have been negotiations between NCM and the trade unions on staff conditions. However, secondment to the new company—that is secondment from the Civil Service—will only be offered to a small number of ECGD staff who have specifically opted for secondment. I fully understand that staffing flexibility will be required by the new company and that will be achieved by employing on short-term contracts some 80 casual staff currently employed by ECGD. I hope the noble and learned Lord will be able to tell me that the Government will give an assurance that only the staff who had chosen secondment rather than a permanent transfer to the new company will be seconded and that no ECGD staff will be compelled to be seconded.

Finally, I wish to deal with possibly the most vexed question that your Lordships have dealt with which has been the subject of Government amendment. It is the matter of reinsurance. On Second Reading many noble Lords said that the major flaw in the Bill was the inability of the Government to provide reinsurance on political risk. In my view the Government have gone some way towards meeting those concerns. I recognise that that was done under pressure from noble Lords on the Benches opposite who have been vocal on the matter. However, the difficulty still remains that the Government seem to have confidence that their initial placement of reinsurance in the private market will continue. As I said on Second Reading, the reinsurance market in the commercial sector is not a fixed quantity. It is like a concertina; it goes up when business is good but it is the first thing to be retracted when business is bad. I have absolutely no confidence—even after the three-year top-up programme is phased out—that the privatised ISG will be able to secure a reinsurance line in the commercial market that will be satisfactory.

I accept that the Government have gone some way to meet that particular problem and have introduced two amendments which, as the noble and learned Lord said, addressed the problem. However, it is very difficult to know how those amendments will operate. Even those experts who have read the text of the amendments are divided in their opinion as to whether there is a serious and real obligation on the Government to act as reinsurer of last resort or whether it is an optional arrangement subject, as the noble and learned Lord said, to the commercial operation of the scheme, to whether the financial performance of the facility proves satisfactory and to whether the Government consider it essential to meet the reasonable needs of exporters. It is impossible to know how it will operate.

I believe that when the Bill leaves your Lordships' House and goes to another place debate will focus on the government amendments on reinsurance. I very much hope that the Government will recognise that those need to be beefed up.

Earlier I raised the question of whether the tendering process should be reopened. As I have explained in correspondence with the noble and learned Lord the Lord Advocate and to your Lordships, I believe that the Government have a fiduciary responsibility in respect of the sale of this business. I believe that the government amendments already materially change the nature of the business that was originally offered. That being the case, I can only invite the Government to reconsider their position on tendering. It was a mistake to go out to tender even before the Bill came to your Lordships' House. In my view it is a mistake to continue the process now that the Bill is leaving your Lordships' House.

I have referred the noble and learned Lord to the National Audit Office. I am sure that the National Audit Office will wish to examine the matter very carefully. I hope that it will feel able to consider carefully the terms on which the Government are privatising the business. The National Audit Office will have to think very carefully about whether the Government have performed their fiduciary responsibilities under this Bill.

I have taken up enough of your Lordships' time and I apologise. I said at the beginning that I had a great deal to say on the subject. I still believe that this is a bad Bill and that it is a pathetic little thing. The only courtesy that I can pay to the noble and learned Lord the Lord Advocate—which I do with great sincerity—is that he has persisted in defending this pathetic little thing to the best of his considerable ability. I am most grateful for the courtesy that he and the noble Lord, Lord Henley, have shown to the Opposition Front Bench in our debates.

3.32 p.m.

Lord Ezra

My Lords, the noble and learned Lord will recall that when this Bill was debated at Second Reading on 11th June virtually everyone who spoke, apart from the noble and learned Lord himself, was critical of the Bill. Serious apprehensions were expressed about the Bill. Those on all sides of the House who spoke represented exporters or those concerned with export promotion and knew what they were talking about. Many of the doubts expressed then still persist.

The importance of this Bill is that the Insurance Services Group provides insurance services for £13 billion worth of British exports—10 per cent. of our total exports. It is a very material factor in our export business. There is still a feeling, even after the amendments to which the noble and learned Lord referred, that British exporters will be disadvantaged as a result of the changes proposed. Whereas they were fairly secure in the knowledge of the basis on which they would obtain short-term insurance, now that that is moving to the private sector, and particularly likely to be moving to a firm which is involved in assisting exporters in another, competitor country, that certainty will no longer exist.

It is extremely surprising that the Government, having said that they supported the recommendations contained in the Kemp Report of 1989 following its thoroughgoing review of all the activities of export credit, should have ignored the report's main recommendation that a period of at least five years should be allowed before private capital was introduced into the Insurance Services Group. Had the Government pursued such a course very few of us would have objected. We would have said, "Let's have a look at it, over a long period, and we shall see whether or not what the Government now propose is desirable". The Government resisted that. For reasons which never became clear, they were determined to rush into this. They have done so in a way which has provoked a good deal of apprehension and anxiety.

I share the view of the noble Lord, Lord Williams, that the undertaking which was put out to tender initially is no longer the same undertaking as a result of the revisions which the Government have since introduced into the Bill. That matter also needs to be looked at again.

The Government will have one final opportunity to listen to those, both in this House and in another place, who retain serious reservations about this proposition. The best thing that the Government could do when the Bill goes to another place is to say that they will have another look at it.

3.36 p.m.

Lord Fraser of Carmyllie

My Lords, perhaps I may respond briefly to the two contributions to this short Third Reading debate. At Committee stage we spent some considerable time considering the phrase in Clause 1 of the Bill relating to "facilitating" supplies. The noble Lord is still concerned that the word "encouraging" was taken out of the Bill. I hope that the noble Lord and those who are concerned about exports will appreciate that the words "encouraging exports" were replaced with "facilitating supplies" because, legally, the original phrase was considered too restrictive. There was no intention whatever to put out a signal that this Government did not encourage exports.

The position of NCM was also raised, and its desire to make a profit. Indeed it does, and it is to be welcomed that the company adopts such an approach. The noble Lord suggested a number of undesirable means by which it might achieve that objective. I remind the noble Lord of what I said in my opening speech. One important factor in the insurance market at present is that a number of exporters wish to have a package whereby they can combine their export insurance business with domestic business. Under statute ECGD in its present form cannot do that. NCM will be able to do so.

Turning to the question of reinsurance, the private reinsurance market has, contrary to what seems to be understood, received ISG reinsurance proposals very willingly and positively. There is no reason to believe that that will change. I repeat that the Government's power to undertake reinsurance of various kinds for ISG is not time limited.

Finally, the noble Lord returned to what he believes to be an important matter; namely, that given the changes introduced into the Bill with the amendments, the matter should go out for retendering. I stress again that the advice received from all the Government's advisers, is that that is not necessary or desirable. I also stress that none of the companies on the shortlist which the Government approached has made any approach to the Government to suggest that they wish the tendering process to be reopened.

With those few remarks I commend the Bill to the House.

On Question, Bill read a third time.

Lord Fraser of Carmyllie

My Lords, I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(Lord Fraser of Carmyllie.)

On Question, Bill passed and returned to the Commons with amendments.