HL Deb 19 November 1992 vol 540 cc777-88

7.24 p.m.

The Earl of Kinnoull rose to ask Her Majesty's Government whether they will review the present arrangements for the guarantee of export credits.

The noble Earl said: My Lords, there are two reasons why this short debate on ECGD was postponed last Thursday. The first is that 11 o'clock at night is not a particularly popular time to debate an Unstarred Question after punishing legal discussion. Secondly, and equally important, was the fact that the Autumn Statement had been made that day and the delay has given those who are to take part, and my noble friend who is to reply, time to reflect and to obtain further information on the effect of that Statement on this particular issue.

The delay has cost us a few speakers. Sadly, the noble Lord, Lord Ezra, is unable to participate, but we have gained my noble friend Lord Selsdon. I am delighted that he is able to take part in view of his expertise. I should also like to thank those who have indicated that they are to speak as I shall not be able to do so at the end of the debate.

The last occasion on which this subject was discussed in this House was the passing of the Bill reforming the ECGD and privatising its short-term business. That day, 11th June 1991, was a notable day for two reasons. First, my noble friend Lady Denton was introduced as a new Member of this House. She is now an established and valued member of the Front Bench. Secondly, the Second Reading debate attracted one of the most powerful all-party groupings of barons of industry, who collectively exhorted the Government to give better support to our export companies and who cast doubt on the wisdom of reforming the ECGD.

That was an illuminating debate. My noble friend Lord King summed up the matter very well when he said that it was the responsibility of government to establish for the exporting companies of the United Kingdom an environment in which they could compete on terms that are both fair and reasonable. I support that concept wholeheartedly, as I am sure do other noble Lords. I am sure that my noble friend will also support that concept when she replies to the debate.

The purpose of my Question tonight is to examine what has happened since 11th July 1991. The ECGD —in fairness to its considerable experience—has been governed by the policy known as the portfolio management system. As noble Lords will be aware, that system was introduced in January 1991. It was a radical change. Some may say that it was a victory for the Treasury in openly reducing the cost of support to our exporters by charging increased premiums. It was justified on the back of increasing claims on the Exchequer arising from the international debt crisis. It was argued, as all good bank managers would argue, that it was a prudent way forward and that other countries would follow our lead.

I do not believe that anyone, from the board of ICI to the smallest export company in the country, believed that other countries would follow suit, despite the endless talks in Brussels. Each country values its export drive in different ways. All recognise the value of competitiveness in the support they can give.

The balance between the national interest in terms of our exporting projects versus the potential costs to the Exchequer has been an issue since the establishment of the ECGD in 1919 by Sir Winston Churchill. Unless the cost of debt has risen out of all proportion to the amount of business written and in comparison with other credit agencies that cost is, in my view, a good investment. To penalise exporters looks more and more like a thoroughly bad policy.

The CBI has disturbing evidence, which it has submitted to the Government, of lost export opportunities due directly to the PMS. I find that very disappointing. The PMS had its first annual review last April. Despite the chorus of pleading from exporters, the overall rates did not move very much downwards. They were still uncompetitive. Exporters still find premiums, cover and capacity unfavourable compared with what their competitors in other countries are offered. That is so much so that British companies with foreign subsidiaries are now considering whether those subsidiaries should bid for exports to benefit from the support offered by other countries' national credit agencies.

I submit to my noble friend that this is a sad by-product of the PMS. I think there is a very strong case for the Government to review the PMS and to accept that other countries will not follow in the near future and revert to competitiveness. This does not mean that the objective to harmonise the system in Brussels need be lost. But let us not jeopardise our exporters at a time when a drop in the pound opens up a window of opportunity and when everything possible should be done to fight out from the recession. Our export policy deserves this special priority.

Turning to the privatising of the short-term business, about a year ago the NCM took over the business. It offered 550 jobs for staff who previously were employed by the ECGRE. I think it has worked from the staff point of view very well. Britain has this year the same level of business as the previous year —about £14 billion—covering both commercial and political risk. That is, I believe, a very healthy sign. But the arrangement with the Government at the time of privatisation was that they would underpin the political risk business certainly for up to three years. That is what other governments do anyway. But there is a need for this Government to underpin political risk because it results in lower premiums. I hope my noble friend will take this opportunity to confirm that the Government do not intend to opt out of supporting the private sector in that key risk area.

I turn briefly to the Autumn Statement. The £700 million earmarked to increase the cover availability, the capacity, over the next two years for ECGD not only sends out a very encouraging signal, and indeed indicates support by the Government, but it will greatly help to satisfy the demand in important markets. There is some question as to what are important markets. Obviously, China and Indonesia are two examples. But I hope success in those countries in that area will not penalise the capacity just because the cover is judged to be too concentrated.

At the other end of the scale, it is equally important for ECGD to promote UK exports where there is no significant presence at the moment. My noble friend will no doubt take this opportunity to clarify more precisely points under the Autumn Statement.

Finally, I turn to the ATP (the aid and trade provisions under the aid programme). I am sure my noble friend will agree that ATP is a necessary support for the major projects in developing countries. It is a concessional finance that is essential for tendering processes. Without it, in fact, there is no tender. As the House will know, the ATP budget was exhausted a few months ago. This is a very important market in the developing countries where our contracting companies over the years have thrived and where we have won good reputations. Also, I hope my noble friend will have something positive to say about ATP. It is an important area of the whole subject under discussion tonight.

In conclusion, I hope my noble friend will take this opportunity to reassure us that the Government take very seriously the balance of support needed for our exporters and the vital role they play in our economy.

7.35 p.m.

Lord Selsdon

My Lords, I shall begin by declaring an institutional and maybe a commercial interest. I am grateful to the noble Lord, Lord Williams, for allowing me to join my Scottish kinsman in the list of speakers. My interest in this subject is great. I wish your Lordships to know that I shall promote my self-interest this evening. I am president of a body called the British Exporters' Association. I am also chairman of the export side of the Engineering Industries Association which represents some 2,000 small engineering companies in the manufacturing sector. I was chairman of the CBI Export Credit Committee. I was on the British Overseas Trade Board. I was chairman of the Committee for Middle East Trade and served on the East European Trade Council. I had the privilege of serving with my noble friend Lord Aldington on his committee on manufactures. With that background I recognise that I am a has-been, because all that is in the past.

Let me first make a form of upbeat statement on where we are now, not where we have been. Those of us with an economic background may well disagree about how we got to where we are. But that is history. Where we are now is extremely interesting. Ten years ago things were different. I shall concentrate my efforts not on lawyers charging £350 an hour but on manufacturers who cannot afford to pay their staff almost the going rate for the job. Today we find industry slimmed down dramatically. In a moment I shall refer to one sector of industry where one company in Northern Ireland used to employ 18,000 people and now employs 350. I shall refer to other sectors where in the past our skill and technology, when we were prime producers, led to machinery that was unbeatable in the world.

Today those companies which were uncompetitive 10 years ago and were going cap in hand to government demanding subsidy, grants and aid in order to compete no longer need to do so. They are competitive. They are probably also more competitive at this point in time than they have been at any time in the past 50 years.

I should like to issue a few caveats and warnings because the Government will say that, although manufacturing industry has been slimmed down, it is more efficient and we have a strong manufacturing base. But many of the products that we manufacture have a high import content and therefore, as our currency has weakened, so the cost of purchases rises —not so much of raw materials but semi-finished products or things which are not made here.

We have always asked for stability. We need stability of currency at whatever level because we are a buyer and a seller. Instability causes problems. I know that my noble friend will give us the assurance that we now have a stable pound, albeit at a lower level.

We also need competitiveness on all fronts. If we are to be competitive in manufacturing industry today, we must have with us a government who are competitive. Ten years ago it would have been reasonable to say that in terms of support for trade our Government were as competitive as any other government in the world. Today it is reasonable to indicate that, as the manufacturing sector has become more competitive, our Government have become less and less competitive and are perhaps the least competitive government among the OECD nations in terms of the support and encouragement that they give to trade. It is as though the Department of Trade and Industry was felt to be no longer necessary. Perhaps we do not need Ministers of departments if they do not provide any support and there is no government involvement in trade.

There were thoughts that perhaps the Government would wish to close down export credit departments entirely. With our presidency of the Council of Ministers, it was hoped to stop the beggar-my-neighbour attitude among the developed nations. Be that as it may, we go into the end of this year and the start of the single European market in a position that is potentially strong if the Government can recognise that they have a role in international trade, as they have had for 1,000 years.

I should like to give a number of examples and make several suggestions. Through what I call my own usual channels, I happen to know that the Government are currently reviewing all matters relating to export credit and to trade and are being more and more positive.

We are asking not so much for subsidy as for support to permit us to trade with the markets where there is a real demand. At this time among the G7s or, if we were to leave soon, the G6s there is not real demand because we are in recession. That real demand exists in countries which have primary products and plant and machinery could help them to give increased value without creating competition for the United Kingdom.

The Government are now looking at which countries should have a priority for our trade. The support is there. The British Overseas Trade Board, on which I served, has many weapons at its disposal and the Government have always set out to try to provide support and encouragement. We do not really need the Government except for their political skills and in the field of what we call political risk. The three areas of activity which I wish to talk about are declining industries—but they have stopped declining.

The first is the textile machinery industry, where, from high production and a large number of manufacturers, there are now perhaps only 110 companies and 6,000 employees. The industry is creating a wide range of jobs with total sales of about £400 million a year, of which £300 million-worth are exported. That is not bad even in this climate. Of those exports, approximately 85 per cent. go to OECD nations. That is significant because it indicates that we can compete with other industrialised nations without government support or subsidised credit.

Today those companies are looking to expand in the OECD countries but, more importantly, in the third or the second world, where there are raw materials such as cotton, wool and so forth. I shall give as examples two countries to which I shall return: Vietnam and Iran.

The second group is the mining machinery manufacturers. There are some 50 major companies employing about 23,000 people and creating jobs down the line. Their annual sales are about £900 million, of which £400 million-worth is exported mainly to the OECD nations, where they have not required government support.

The textile machinery industry had to live with a decline among our manufacturers of textiles as we ceased to be competitive with lower labour cost countries. The mining machinery industry has had to suffer a decline in mining. Perhaps I may refer in not too serious a way to the fact that the mining industry in the United Kingdom looks set for further decline and therefore the home market will be eroded still further. Those industries themselves need support, encouragement and development.

The third sector covers the oil and gas industries. As a result of the North Sea discoveries we have developed perhaps the most advanced technology of its kind in the world as regards oil and gas. But, if we are to believe some of the projections, as oil and gas run out the home demand from our industrial manufacturers will fade away and we shall need to fill that gap or we shall once more have a declining industry.

Those three sectors together represent a large chunk of the most important companies in the United Kingdom. They are able to compete on price, perhaps even more readily at present. But, when some of them have to import foreign plant and machinery because what is needed is no longer available at home, problems begin to emerge if we do not have a stable currency.

The Government should now be looking at manufacturers and how in co-operation with specific industries we can help to sell products to people and countries where there is a genuine need to create added value. We are not talking about subsidised orders; we are talking about the ability to provide credit to countries which have the raw materials to which our plant and machinery could add value; and could do so today.

I return to the subject of Iran. Only today I have had discussions with the Iranians. Although I represent these bodies and was a merchant banker I prefer to regard myself today as a merchant and, if I dare add to that, a venturer. Iran is a country to which, when I chaired the committee on Middle East trade, we sold almost £1 billion of goods per year. Let us ignore its politics; let us look and say that it is a country producing oil, gas, cotton and textiles. It would like to place orders with us for some £200 million-worth of textile machinery and has already made provisional indications for orders of perhaps £20 million. An exhibition is taking place at the end of this month which is sponsored by Her Majesty's Government—in the shape of the British Overseas Trade Board—and which will be attended by all the manufacturers. They will receive good orders but, if we cannot have ECGD backing for loans by banks, those orders will go to our industrial competitors. Of that there is no doubt. As anyone who goes out there will tell your Lordships, all our industrial competitors have been more successful and more active than us.

As regards mining machinery, an agreement has been signed in principle with the Ministry of Mines and Metals to set up a venture which will lead to the supply of £200 million-worth of mining plant and machinery, beginning with a £20 million order. There are £400 million-worth of orders available, and again I declare my interest because I am involved in that.

If one moves further down the oil and gas field and asks where are the potential markets, one can look at the markets of central Europe. There, our know-how fund, which is an extremely innovative and excellent idea of Her Majesty's Government, is already providing support for development in those fields. If we are providing that kind of support, we must be able to provide the covenant to permit the loans to sell the machinery to help develop oil, gas and coal in those areas and, again, textile and mining machinery.

The market in those areas and the demand is genuine. There may be political reasons why we should not work and trade with those countries but in the past the Government always bowed to trade. I for one should prefer us to devote all our attention to reversing a scenario which, when I was on the BOTB, arose for the first time when defence equipment sales outstripped all sales of manufacturers world wide. That to me seemed wrong and still seems wrong. The sale of manufacturers' plant and machinery must relate to genuine demand which exists in the Middle East and in central Europe. If one moves on to countries such as Vietnam, which has a big rice production and textile potential, or to Indonesia and to the whole of South East Asia, one sees that the potential is enormous.

I cannot speak for the whole of British industry but I genuinely believe that today we have a very productive manufacturing base. However, the Government have ceased to be competitive in trade. I ask once more that they give thought to recognising how serious these issues are at this time. As I have asked previously in this House, will the Government agree to call a meeting of the Board of Trade at once? I suggest that the Department of Trade should ask the Prime Minister whether it would not be appropriate for the Minister for Trade and the Minister for Industry to he made members of the Board of Trade. In the Autumn Statement and in some of the information relating to it, the Government called for closer co-operation between the private sector and government in the redevelopments at home. We do not need to call for that co-operation abroad. All we need to do as a result of this debate is to ask Her Majesty's Government to give serious consideration to performing their covenant, with all their knowledge and experience of politics and political risk, to support manufacturing industry with genuine demand in countries where good added value can be created.

7.49 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Earl, Lord Kinnoull, for raising this subject tonight. It is one that we have moved around a number of times during the past few months. Nevertheless, if the noble Lord, Lord Selsdon, is right and there are new developments in government, I look forward to what the Minister has to reveal about them. My intervention will be relatively brief because I have made so many speeches on this subject in your Lordships' House that I do not wish to repeat what I have said.

I make only three points. First, we must recognise that we are running a balance of payments deficit of £1 billion per month. Therefore, the promotion of exports must be a major government objective. If it is not, I should like to know what other objectives the Government have.

Secondly, the noble Lord, Lord Selsdon, says that we need a stable pound. Clearly, we have not had a stable pound since Black Wednesday. It is right that industry needs a stable pound. I should like to know what view Her Majesty's Government have on the exchange rate so that exporters can plan properly for their future.

Thirdly, I believe—and I have said this more times than I can remember—that the Government must ensure that, whatever our obligations are, under whatever treaty it may be, we must be competitive in our support for our exporters. It is no good saying that the Treasury says we cannot do this and we cannot do that. We must ensure that if we are competing, even with our colleague countries in the Community, our competitors are not getting better terms than we are.

There are two areas within that where I believe we are at a disadvantage. I believe that COFACE and Hermes give better support for long-term projects—not short-term projects—than ECGD. I should be grateful if the noble Baroness could assure me that I am wrong, but I believe that to be the case.

Secondly, as noble Lords will know, we were opposed to the privatisation of short-term credit insurance. I ask the noble Baroness whether the privatisation, to which the noble Earl referred, has resulted—because a Dutch company now provides the bulk of our short-term credit insurance—in any preferential terms being offered to Dutch exporters as opposed to UK exporters. That was the fear that I expressed when we debated the Bill to privatise short-term ECGD arrangements. I hope that the noble Baroness can confirm that my fear was unjustified. If she can so assure me, I shall be grateful.

It is quite essential, as the noble Lord, Lord Selsdon, said, that we afford our manufacturers proper and sensible credit arrangements for exports. It is equally essential that we afford our long-term construction industries proper credit in order for them to gain their fair share—not more than their fair share —of third world projects. That can only do us good and do them good.

I hope very much that we shall have a positive response from the noble Baroness this evening. As I said when I started, I have been on about this—and other noble Lords have been on about it—for a long time. We feel that the United Kingdom has been disadvantaged by the Treasury's attitude. I hope the reply of the noble Baroness will sound a different note.

7.55 p.m.

Baroness Denton of Wakefield

My Lords, first, I thank my noble friend Lord Kinnoull for bringing this matter again to the attention of the House. As all speakers have said, it is of absolutely key importance to the economy. The Government give this matter the highest priority. I thank my noble friend for changing the date of the debate so that at least the hour is somewhat more reasonable, but I share my noble friend's anxiety that we have lost some valuable contributions to our debate. However, there can be no doubt about the quality, if not the quantity, of speakers. It is always a great pleasure to hear my noble friend Lord Selsdon on these matters. His contribution is based on enormous experience. It was kind of my noble friend Lord Kinnoull to point out the notability of 11th June 1991. I must confess that it now seems a long time ago.

As your Lordships know, earlier this month the Government revealed their present arrangements for making available export credit guarantees. I am pleased to announce that, following the review, the President of the Board of Trade was able to announce, in conjunction with the Chancelllor's Autumn Statement last Thursday, arrangements under which some £700 million of additional export guarantees are to be made available for a number of important markets. As your Lordships recognise, that is a significant statement. It will provide a welcome increase in the amount of cover available for UK exports of projects and capital goods in markets where ECGD exposure is already high and closely controlled. I am delighted to say that those countries include China, Indonesia and Hong Kong.

However, I should point out that ECGD's £3 billion deficit with the Consolidated Fund serves to highlight the very real risks in this business, and we need to continue to exercise prudence in underwriting. I can confirm for my noble friend Lord Kinnoull that the Government attach great importance to aid and trade provision and will continue to allocate significant resources to it. Detailed decisions will be taken shortly about the future outline of that scheme.

Together with substantial reductions in ECGD premiums which were announced in April following the last annual review of premiums, I believe that those measures will serve to raise the competitiveness of UK export credits relative to those credits provided by other countries. That is tangible evidence of this Government's commitment to ensuring a viable export credit regime.

Export credit insurance is also critical to companies outside the project field selling on cash or short credit terms the vast bulk of UK exports. The Government are no longer involved in the direct provision of export credit insurance for exports sold on short terms. However, that does not mean that they are any less active in their support for exporters. ECGD is providing 100 per cent. reinsurance support to the new company to enable it to maintain facilities in those few countries where the risks are simply not acceptable to the private market in the present circumstances. As a result, there are only three countries for which short-term cover is unavailable; that is, Iraq, Libya and Zambia.

In addition, although well over 90 per cent. of the new company's requirements for reinsurance have been met by the private market, the Government are providing top-up reinsurance support to the new company to supplement the cover obtained in the private market. As my noble friend said, that top-up cover is being provided for a transitional three-year period in order to ease that move into the market.

While continuing to enjoy the benefit of government support in that way, UK exporters have been able to take advantage of the increase in flexibility which the new company enjoys in the private sector. An example of that is the new company's facility providing not only export but also domestic credit insurance under a single policy—a facility which small companies in particular appreciate.

In addition to its continuing support for export credit insurance, the Government continue to assist the efforts of UK exporters by providing a range of export promotion services. Without those many exporters, especially small firms, might be unable to benefit from profitable export opportunities.

The debate provides me with an excellent opportunity to pay tribute to the achievements of British exporters in difficult markets. My noble friend Lord Selsdon singled out three areas where there is much to admire. In 1991 UK exports reached record levels and it can be clearly seen that Britain continues to be one of the world's great trading nations. Visible exports in 1991 amounted to £104.8 billion, equivalent to some 19 per cent. of our total GDP, a higher proportion than in the USA, Japan and France. At more than £117 billion, Britain's earnings from invisibles were second only to the USA. Our share of world trade in manufactured goods rose for the third successive year, outstripping the performance of both Germany and Japan. That points to the great credit of British manufacturing, and although my noble friend Lord Selsdon rightly identified that, I would suggest that some slimming down was part of companies remaining globally competitive. Enormous strides have been made. But the Government are certainly not complacent; hence the extra finance announced last Thursday.

Without taking up too much of your Lordships' time, I should like to answer some of the points raised. Perhaps I can reassure my noble friend Lord Kinnoull that the ECGD is not seeking to recoup past losses by increasing premium rates on new export business, and good progress is being made in the EC and OECD discussions on premium rates. Agreement has just been reached to create a special expert group so that work can he accelerated.

The Government have said that the national interest reinsurance facility is not time limited. It will continue, subject to satisfactory financial performance, for as long as the Government consider it essential to meet the reasonable needs of exporters. I hope that that reassures my noble friends.

In the annual review which resulted in the introduction of new rates last April, 36 countries showed rate falls of substantially more than 25 per cent. Those included important countries for manufacturers such as Malaysia, Taiwan, Mexico and also Iran. The opportunity for our people to offer their skills and products to those markets is important. There were also further countries such as Indonesia where the rates fell by at least 10 per cent., and even in the more marginal areas, which included the important new market of China, there was a fall in rates.

I appreciate the noble Lord's anxiety regarding the competitiveness of our rates as against other European countries. As regards the OECD premium initiative on political risk-only premium rates in the USA, the most expensive Community country is Germany; in Israel the most expensive is France and in South Africa it is Italy. There are several other countries where the UK is certainly not uncompetitive.

The noble Lord, Lord Williams, was anxious in regard to the support from Hermes and COFACE. The ECGD premium rates are towards the top of the international league for some high-risk countries but the average premium rate is around the same as Hermes. For some countries COFACE rates are higher than ECGD's. They are different market assessments. I am delighted to say that there is no question of NCM operating to the disadvantage of UK exporters by favouring the Dutch customers. NCM UK is fully committed to its UK customers and has expanded its facilities available to them.

Turning to the question of Iran, ECGD reopened medium to long-term cover on Iran some time ago. However, discussions between the Iranian authorities and all the major export credit agencies are taking place over payment security to be offered by Iran for those projects. The discussions will need to be satisfactorily resolved before export credit agencies as a whole will be able to support export credits at a substantial level to Iran. It is that and not ECGD's unwillingness to give cover on Iran which is causing delay.

I can confirm that the Government see stability in currency, inflation and interest rates as the message we hear strongly from industry as a major requirement. I am pleased to say, and I hope that my noble friend Lord Selsdon will be pleased to hear, that part of the important reorganisation of the DTI was to open a division focused entirely on identifying what made a nation competitive, where we were less so than other member states, and what we would need to do not just to become level with them but to overtake them. We know that it is not a short-term activity but we shall have the information on which to build those facts.

We are determined that when our manufacturers go overseas to negotiate major contracts it will not be a French, German or other nationality adviser sitting next to the purchaser. It will be a British adviser; an expert who will understand the needs and be able to act as a communicator. I shall take back the message, delivered by my noble friend Lord Selsdon before in this House, that the Board of Trade should be put into action. I can assure him that the door of my honourable friend the Minister for Trade will always be open to him to discuss some of the special needs he identifies. I am sure that he will be delighted to take benefit from his enormous experience.

The noble Lord, Lord Williams, identifies the problem of the balance of payments. I can assure him that not only are we determined that the promotion of exports shall stay at the top of our priorities, but also that we will encourage the quality and design which means that goods manufactured in this country will attract from the purchaser the pound out of his or her own pocket so that we work at the problem from both sides.

Perhaps I may conclude by referring to what my noble friend Lord Selsdon said in the debate held on 11th June last year. He said that if the Government reduced inflation to 5 per cent. by the end of the year and no longer had interest rates at more than double the rate of inflation, then the need for such historic support would begin to fall away. We are not taking support away even though much has been achieved. We have just added £700 million towards export credit guarantees. I believe that we have got our priorities right.

House adjourned at ten minutes past eight o'clock.