§ Mr. Lidington
To ask the President of the Board of Trade if he will make a statement on the home shipbuilding credit guarantee scheme.
§ Mr. Eggar
In order to assist the competitiveness of the United Kingdom shipbuilding industry, I am introducing a new facility whereby the scheme can guarantee loans of up to 12 years duration for the purchase of new commercial ships from UK shipyards. Small vessels of less than £1 million contract cost will carry shorter credit568W periods. The normal maximum length of loan for ship conversions will be 10 years.
Loans for up to 8.5 years at an interest rate of 7.5 per cent. will continue to be available. If a loan of more than 8.5 years is guaranteed, the component of the lending which represents an 8.5 year loan will carry the 7.5 per cent. interest rate. The additional lending resulting from the extended term will be at the commercial interest reference rate applicable to comparable export credit transactions. This arrangement is necessary to retain present interest rate subsidies while complying with EC requirements.
The premium for 12-year finance will be 1 per cent. of the capital sum guaranteed, and for 10-year finance will be 0.8 per cent. of the capital sum guaranteed. A revised premium of two thirds of 1 per cent. of the capital sum guaranteed will apply in respect of finance of 8.5 years or less, for which application is made on or after 1 April 1995.
The arrangements have been authorised by the EC Commission as consistent with the seventh EC shipbuilding directive. However, the Commission has ruled that guarantees of lending for more than 8.5 years should be considered to carry a subsidy level of 1 per cent. of contract value, for the purposes of the ceilings on shipbuilding support laid down in the directive. The size of this adjustment to the subsidy level is under discussion with the Commission. Guarantees of lending of 8.5 years duration or less are unaffected by the ruling.
These arrangements will apply until the end of 1995, when the OECD agreement on the elimination of shipbuilding subsidies comes into force. The future of the scheme, after the end of the year, is subject to review.