§ Lord Glenarthur
asked Her Majesty's Government:
When they will make an announcement on the future of the Export Credit Guarantee Department.
§ Lord Trefgarne
My Lords, based on the findings of the Kemp Review of future status options of ECGD businesses, that is the Cardiff-based insurance services (covering exports on short term credit) and the London-based project group (handling exports of projects for capital goods on medium term credit) should be split and run as separate organisations. The Government's intention is that insurance services be converted into a company and that private capital should be introduced quickly thereafter. These changes are being made to enable ECGD to take advantage of104WA the opportunities offered by 1992 and to meet the increased competition which will arise. They will also ensure that its intra-Community business is maintained. Equalising the legal and economic framework for credit insurance in Europe, with private sector capital, is a necessary condition for fostering UK trade within the Community.
The company will follow the normal practice of credit insurance companies operating in the commercial market in the use of reinsurance. The Government's aim is that this should be obtained from the private market. However, I recognise that in relation to certain of the political risks currently covered by insurance services there is at present insufficient private market capacity.
Thus in order to maintain facilities for exporters, the Government are prepared to see a transitional period of up to three years from the date of the introduction of private capital during which a reinsurance arrangement will be in place between HMG and the company. During this period the company will work to complete adequate reinsurance arrangements with the private market with the aim of phasing out residual government reinsurance.
When the new company is formed the intention is that staff who transfer to the company should do so on broadly comparable terms to those which they presently enjoy as Crown servants. ECGD staff will be asked whether they wish to remain within the Civil Service or to transfer to the new company. ECGD will use its best endeavours to meet their wishes where these are consistent with the business needs of ECGD and the company.
These changes will require legislation at the earliest opportunity. It is the intention that the new company is established on 1st April 1991. Advisers will be appointed shortly to assist ECGD in carrying out necessary preparatory work.
Over the past three years, ECGD's insurance services has introduced major improvements to the range and quality of its services. It has developed a unique underwriting system and rapid credit limit service designed to meet the needs of its customers in the 1990s, particularly in the single European market. The changes I have outlined for the insurance services group are vital to enable it to meet the challenges which will be thrown up by the single European market and so ensure that we develop further what is a significant national asset for our exporters. I am confident that the changes the Government are proposing are the best way to secure jobs for the future.
In relation to ECGD's project group, the Government have decided that export credit and financing support should continue to be provided.
ECGD's project support activities will remain within the Government, but the precise form of ECGD's organisation —whether it should remain a department or acquire agency status—will be decided as soon as possible.
The Government are anxious to reduce the costs which have been associated with ECGD support for project exports in recent years. It will therefore continue to press hard internationally for 105WA multilateral agreement aimed at eliminating subsidies which distort export credit and aid. In addition, to reduce the risk of losses in the future, radical new methods for managing ECGD's political risk portfolio will be introduced. Substantial premium increases for project business will be necessary, especially for business in the higher risk markets to ensure that ECGD premiums are better matched to risk. I believe that exporters will accept the need for this and will regard it as preferable to the withdrawal of facilities.
The changes I have outlined are essential if ECGD is to be able to maintain and improve the quality of support it currently provides to UK exporters. The overwhelming majority of the representations which have been made by interested outside parties have fully supported these changes.