§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has today made the following Written Ministerial Statement.
§ Further to previous Statements to the House regarding trading fund status for the Export Credits Guarantee Department (ECGD) (on 22 July 2002, Official Report, cols. 779–780W; on 17 December 2002, Official Report, col. 45WS; and on 26 March 2003, Official Report, col. 12WS), I can now tell the House about the measures which my right honourable friend the Chief Secretary and I have agreed to ensure the future stability and effectiveness of the provision of export credits and guarantees to British exporters. These measures will provide greater certainty for ECGD's future and a better deal for British exporters.
§ This has proved to be a challenging and complex process. We have listened carefully to the representations made to us by ECGD's customers. We have also been able to take account of the relevant points made by the Trade and Industry Committee in its timely report to the House on 15 June (HC 506–1) on the work of ECGD. I welcome the Committee's analysis of the issues and I acknowledge its request to end the uncertainty about ECGD's future.
§ The House will be aware that I have begun to strengthen the top management team at ECGD. Earlier this year I appointed Graham Pimlott as chairman. He has considerable banking experience and helped prepare the plans I am announcing today. On 5 July, ECGD's new chief executive, Patrick Crawford, who also has a strong private sector background, will take up post. They will be working with the Shareholder Executive, now part of the DTI, to prepare strategic and business plans for ECGD. Consistent with these measures, HM Treasury will adopt a more strategic approach to its oversight role.
§ We have all been aware of the comparisons made between ECGD and overseas export credit agencies, and we share a determination to see the standard of service rise to the world's best. I can announce today that the Chief Secretary and I have agreed on a programme of action which will ensure that ECGD has a firm basis for its future operations and enable the new top management team to introduce measures that offer British industry a world class export credit service.
18WS§ The key points are:
§ ECGD will be authorised to offer its full range of current products and geographical spread of business.
§ ECGD will aim to reduce its premium rates to customers by up to £5 million per annum, as from April 2005, whilst complying with relevant international minimum premium benchmarks.
§ The DTI will invest up to £10 million over two years from 1 April 2005 to help ECGD improve the efficiency and effectiveness of its operating framework in order to sustain reductions in premium rates.
§ The Government will continue to press for the elimination of interest rate subsidy on a multilateral basis. In the mean time, ECGD will continue to run a limited fixed-rate export finance (FREF) scheme within the trading fund framework. This will be reviewed after three years in the light of experience and progress internationally.
§ A trading fund will be established within a capital framework to enable ECGD to take a more confident and expansive approach to cover. The aim will be for ECGD to make cover available at the right price according to the assessment of risk.
§ The Chief Secretary and I are agreed on the structure for the trading fund:
§ The trading fund will have two separate accounts—realisations and new business. They will be capitalised and accounted for separately and have separate financial objectives.
§ Capital for new business will be £1.8 billion. This capital will maintain the risk-reward balance on cover and pricing. There will be adequate headroom to manage both business growth and risk volatility.
§ The new business account target rate of return will be an affordable rate, specifically designed to deliver ECGD's existing pricing regime. The Government have charged ECGD to continue pricing to break-even, in line with international agreements on export credit, not to maximise profits.
§ The Government estimate the economic cost of this commitment to be approximately £120 million per annum, and will be publishing budgeting arrangements for this in the 2004 Spending Review.
§ Introduction of risk management policies and systems based on best commercial practice.
§ Revised Treasury consent giving ECGD greater autonomy on cover and premium policies.
§ The new business account will have four aims: to provide a good quality of service at a reasonable cost to exporters, to break even in financial terms, to maintain the current risk-reward balance, and to remunerate its capital at an "affordable rate of return". This has been calculated to ensure it can be met from current premium rates without any across the board increase. Initially, the affordable rate will be set at 1.25 percentage points above the current national loans fund (NLF) rate of interest. At today's NLF rate, the affordable rate would be just under 5 per cent per annum.
§ In establishing the framework for the trading fund, I had three objectives. First, it should provide a structure 19WS for managing ECGD's business consistent with the current risk-reward balance and business domain. In other words, ECGD should be able to maintain its support for current levels of business. Secondly, it should help to improve risk management. This is vital to assure taxpayers that they are getting value for money. And thirdly, there should be transparent arrangements for reporting and accounting the economic costs to Government associated with ECGD's business.
§ These provisions will come into effect progressively from today. A period of operating a pilot trading fund from next April will give management the opportunity 20WS to test and assess these arrangements before we establish the right level of capital for a statutory trading fund to be vested in April 2007. During this pilot, we will consult customers on whether the pilot has achieved its objectives, with the intention of informing Ministers' decision on the move to a statutory trading fund in 2007–08.
§ This challenging programme will put ECGD on a sound business and financial footing for the future. I have every confidence that it will allow ECGD's staff to deliver the service which its customers expect and deserve.