I beg to move, That the Bill be now read a Second time.
This is a simple Bill which increases the authority of the Export Credits Guarantee Department for a purpose which, I know, will commend itself to all sections of the House—the provision of insurance against the major risks of exporting.
The existing Act set limits to the liabilities which the E.C.G.D. may incur and the Bill seeks to increase these limits to provide for the Department's expanding business. The limits have got to be raised because exports are increasing at a fairly high rate. Exports in the last quarter of last year were about 20 per cent. up on the last quarter of 1964, which is a gratifying increase and amounts to about £70 million a month in value. In addition, the proportion of exports covered by E.C.G.D. insurance is itself increasing. These two factors will result in the present limit for insurance in commercial credits being reached in April, in less than three months' time.
There are two points that I ought to make right away. First, the Export Credits Guarantee Department is intended to operate on a self-supporting basis and has so far been very successful in not incurring any financial losses to be met out of public funds. In fact, there is no reason to suppose that the expansion provided for in this Bill will result in any expenditure of public money. Secondly, these statutory limits to the Department's operations, which rightly provide a useful measure of Parliamentary control, have never in the past caused the Department to turn away any business that was otherwise insurable.
Turning to the provisions of the Bill, the House will know that the Export Credits Guarantee Department's main business is classified according to whether it falls under Section 1 or Section 2 of the original Act of 1949. There were three Sections to that Act, but Section 3, which relates mainly to tied loans to overseas countries, is now inactive because this role has been taken over by the Ministry of Overseas Development, although, of course, existing loans will remain on the books until they are finally repaid.
Dealing, first, with the Section 1 provisions, business under this Section is commonly known as commercial business because it has the recommendation of the Department's Advisory Council that it regards the business as sound by a commercial yardstick. The present liability for this class of business under the 1964 Act is £1,500 million. The Bill raises the limit, if the House agrees, to £2,400 million. At the end of December the actual liabilities under this Section amounted to almost £1,400 million, and at the present rate of increase in the Department's business these liabilities would, as I have said, reach the ceiling by April, in less than three months. In addition, there are further contingent liabilities of about £33 million, so that it will be readily seen that the need for the Bill is rather pressing.
Turning to the Section 2 provisions, Section 2 of the original Act provides for business to be done in the national interest, and that is how this business under Section 2 is generally described. It is the business which does not have the backing on commercial grounds of the Advisory Council, but which, nevertheless, the Government consider can and should be undertaken. It is not unsound business. It is business which is somewhat riskier than the business that comes under Section 1, and the Department's underwriting judgment is still effectively applied here.
So far these operations, like Section 1 activities, have produced a modest surplus—modest, that is, in relation to the size of the business that is conducted and in relation to the Department's liabilities. The present limit under the 1964 Act—that is, for Section 2—is £1,300 million. In this Bill we provide for this to be raised to £1,500 million. At the end of December the actual liabilities here under this Section were £728 million and there were further contingent liabilities of about £136 million. It will be seen that these figures themselves do not suggest that there is any immediate need to raise the limits for insurance cover on Section 2 business.
But we are here concerned with the question of timing. We can assess and estimate the possible rate of growth of exports and the increase that is required in credit guarantees in the years ahead based on the present rate of increase. The real question is: how far ahead shall we go in seeking Parliamentary approval for the limits of this credit insurance? I must explain, therefore, in general terms how the figures in this Bill have been arrived at. As the Department's business has increased over the years there have been successive Acts to amend the limits, in 1952, 1957, 1959, 1961 and 1964. The House, I know, welcomes opportunities to review the work of this Department, and in introducing the 1964 Bill the previous Government fixed the limits in such a way that they expected the Bill to run on for about five years, though, of course, it was made clear at the time that circumstances might shorten this period.
In the event, we have run for three years because of the expansion of exports and the expansion in the Department's coverage of the exports. This expansion is due in part, I am sure, to improvements in the Department's facilities over this period. Anyhow, we now have to consider how long we wish the present Bill to last and to make forecasts on that basis. We have considered this very carefully and propose again to provide for five years ahead on the basis of the recent growth rates. If the rate of growth continues to increase, it will be necessary to come to the House sooner, but I am sure, hon. Members will agree, to come to the House in a very good cause.
Since the beginning of 1965, Section 1 business has increased at a rate of about £170 million a year and it is by projecting this over five years that we arrive at the increase proposed, which is an increase from £1,500 million to £2,400 million. Section 2 business, composed of various and sometimes dissimilar forms of cover, is very difficult to forecast. We expect the financial guarantees for long-term financing to increase at about the present rate of around £100 million a year. There could well be more markets in the next few years that are, perhaps, too chancy for Section 1 cover. We may have to cover, for instance, special kinds of business such as the sale of military equipment and the possible sales of Concord aircraft.?
Taking it all together, We are providing for an increase in liability under this Section of £125 million a year. That is about £650 million in five years, if my arithmetic is correct. As our current and potential liabilities are around only £850 million, we still have considerable room within the present limit. We shall probably need an increase of only about £200 million, and therefore we are bringing the figure up to £1,500 million, which is the figure in the Bill.
These, briefly, are the provisions of the Bill, which will enable the Department to continue its very valuable work in encouraging exports, with no foreseeable expense to the taxpayer.
I turn briefly to the work of the E.C.G.D. itself. At the end of the last financial year, the Department had cumulative surpluses on the Section 1 account of about £60 million and on the Section 2 account of about £19 million. Over the past two years it has been able to reduce premium incomes on average by roughly 25 per cent. I am sure that hon. Members will agree that these are welcome and gratifying developments.
The most important fact—as I am sure that all hon. Members will agree—is that the Export Credits Guarantee Department provides our exporters with the best credit insurance system in the world. Certainly, it is the most envied and the most copied system. We may not hear praise of this kind given to the activities of the Department, but hon. Members who have travelled abroad, as I have been able to do during the last few years, and who have listened to foreign businessmen talking about our methods of financing export credits, of giving credit insurance, will agree that our arrangements, at any rate, are greatly appreciated abroad.
Since the present Government took office we have done quite a lot to broaden and cheapen the facilities which the Department makes available. I have already mentioned the premium reductions. In addition, the basic percentage of cover on buyer risks has been raised from 85 per cent. to 90 per cent. The minimum credit period for specific bank guarantees, which, I suppose, one can describe as the passport for financing on favourable terms, has been lowered from three years to two years. The £100,000 minimum contract value has been progressively lowered and has now been completely eliminated. For bill business below two year's credit, a completely new guarantee for financing banks has been worked out with the clearing banks and is now in full operation.
It is part of our national character that we are all too ready to publicise our mistakes and our shortcomings. Particularly in the field of exports, we should do a great deal more to publicise our achievements. There is no doubt that the E.C.G.D. has served the nation, the exporters, and the business interests very well indeed. I am sure that I will have the support of all hon. Members in paying a well-deserved tribute to the staff of the Department and to the chairman, Sir John Hogg, and the members of the Advisory Council.
Even though the praise is well deserved, we should not fall into complacency. It is not sufficient to feel that we are keeping ahead of our rivals overseas. We have to do everything possible to help our exporters. Debates on previous Bills have provided the House with an opportunity to review the general workings of the Department, and although the attendance in the House today does not suggest that there will be a lengthy debate, I am sure that those hon. Members who are present will want to say something about the work of the Department.
We shall study very carefully all that may be said, and I will do my best to answer any questions which may be raised relating to the work of the Department.
We on this side of the House certainly welcome the Bill, which raises the limit under Section 1 of the 1949 Act from £1,500 million to £2,400 million, and the limit under Section 2 from £1,300 million to £1,500 million.
My right hon. Friend the Member for Taunton (Mr. du Cann), in proposing a somewhat similar measure on 15th January, 1964, which established the present limits pointed out, as the right hon. Gentleman has said, that it was expected that the limits might last for five years. He went on to envisage the possibility that they might not be adequate and said that if a further request were made to Parliament for a new extension of the limits before 1969, and it was proved to be the case, it would be further proof of the E.C.G.D.'s progress and usefulness. He would not have complained were that the case, and nor would the House.
As I say, we are certainly prepared to support the Measure, which reflects the increase in business which the E.C.G.D. is doing. Indeed, the pressure on the limits reflects three things. First, the increase in inflation and the decline in the value of money, because the limits are expressed in many terms. We do not welcome that, but we welcome the fact that exports have increased somewhat, and that the share of those exports which is covered by E.C.G.D. has increased, also.
The support given to the Bill reflects the fundamental recognition by those on this side of the House of the vital importance of exports, because in our present economic situation exports and the balance of payments are an effective restraint on the rate of growth in this country. If we can export more, it is reasonable to suppose that we can operate the economy at a higher level of activity than would otherwise be the case
When one looks at the fact that the policies of the present Government have made it necessary to reduce the level of activity in the country, one can reasonably say that the need for greater exports is more necessary now than it has been at any time since the Second World War. On this, I should like to make one particular point. While this measure does indeed facilitate exports, by covering the credit which exporters need in order to make their sales, there are certain other measures which are run contrary to this policy.
At pages 31 and 32 of the booklet on the E.C.G.D., which is available, considerable stress is laid on the fact that, even with the best will in the world, the complexity of the paper work involved in exporting is very great indeed. Yet we find that because of the imposition of the Selective Employment Tax which falls on people engaged on a large amount of paper work, as a service industry, the cost of implementing the measures which are covered by the Bill have been increased. This is even more so because of the rigid adherence which the Minister of Labour is showing towards the standard industrial classification basis for the Selective Employment Tax and which applies also to warehouses. We should realise, therefore, that Government policy is verging in two different directions, and there is considerable scope for helping our exporters to compete on overseas markets.
The right hon. Gentleman was a little optimistic in quoting from a selective set of figures for the last quarter of the year showing that exports had gone up significantly later. I prefer the latest figures of the Board of Trade Journal published in December which show that the United Kingdom is still at the bottom of the export league. But that is in no way due to the work which the E.C.G.D. has been doing under its chairman, Sir John Hogg, and I am happy to join with the right hon. Gentleman in congratulating the E.C.G.D. on its work.
We also recognise the fact that regarding Section 1, we are rapidly approaching the limit which has been set in the previous legislation, and there is need to introduce this Bill without delay. As this is the only opportunity on which one normally has the opportunity to discuss the work of the E.C.G.D., I should like to make one or two specific points, and to say what an excellent booklet is the one that was revised in April last year and which is available in the Library.
The 1949 Act, as the hon. Gentleman pointed out, is divided into three sections. I wish, first, to deal with one or two points which arise under Section 1, on what the right hon. Gentleman calls the commercial credit insurance side, which I understand is 94 per cent. or 95 per cent. of the total business which the E.C.G.D. carries out. There is a little confusion here, because the matter is described throughout as insurance, which normally one would expect to be done on an actuarial basis with the rates calculated on the basis of actuarial tables, but this is not so. They are calculated on the basis of estimates which are made by the Advisory Committee. The fact that it has been possible to reduce premiums and also to extend insurance reflects the accuracy with which these gentlemen have forecast extremely difficult economic variables. It is not, however, an actuarial basis. It is merely that an attempt is made to break even or to make a slight profit on the operations.
I wish to turn to the question of small exporters. This appears to be an area in which the premium differs considerably from the premium which is charged to large exporters. I think that it would be true to say that the current premiums are on average something like 5s. per cent. under this section, but that the premiums charged to small exporters is about 11s. 6d. This appears to be a considerable variation which would tend to tell against the small exporter. Can the Minister say why there is such a large difference in premium? One might have thought that the lumpier the size of the operation, the bigger the risk rather than the smaller the risk when it is spread over a very large number of transactions by different firms.
It is not clear from the booklet what lower limit, if any, is imposed upon small exporters. Can any exporter, no matter how small, go to the E.C.G.D. for help and ask the Department to cover it? I have in mind a point which was suggested to me by my hon. Friend the Member for Maidstone (Mr. John Wells). Recently, apparently, a horticulturist was anxious to export some roses to Canada. They were certified by our Ministry of Agriculture, but when they got to Canada it was found that there might be some earth attaching to them and they had to be destroyed. As a result, the exporter lost the goods concerned and suffered a loss.
I should like to raise two general points on which I would like answers at the Minister's convenience. First, does an exporter get cover no matter how small the size of the export? Secondly, are risks of that kind involving action by other Governments also covered? We would like to have the position clarified.
My next point concerns the policy adopted by the E.C.G.D. to investments which are effectively leasing agreements. The Minister will be well aware that in certain countries there are tax advantages for particular firms by leasing rather than by buying equipment. There was, however, controversy during the last year or so concerning some exports by I.C.T. and, apparently, the E.C.G.D. did not feel able to cover the transaction. Was this because there is a general objection to financing leasing arrangements of this kind, or were there simply particular factors influencing the decision in the case in question?
I turn briefly to a related question concerning the cost of export credit. The E.C.G.D. has been instrumental in making arrangements with financial institutions in this country whereby credit is provided. I understand that on the shorter-term operations, credit is normally made available, subject to certain conditions, at Bank Rate. Given that the Government underwrite the risk, it would seem not unreasonable that the credit should be available at the rate which the Government normally obtain.
As has been pointed out in previous debates of this kind—for example, in the debate on 15th January, 1964, by the present President of the Board of Trade when talking about the cost of export credit—
British interest rates for export credits are higher even now than comparable rates offered by Italy, Japan and … the American Export-Import Bank."—[OFFICIAL REPORT, 15th January, 1964; Vol. 687, c. 329.]
The right hon. Gentleman on that occasion raised the question, which was raised at a number of points in the debate, of whether the rate at which British exporters could obtain money when financing exports should not be at the same level at that which their competitors overseas can obtain it.
There seems to be strength in that argument because we in this country have suffered from a very high interest rate for a considerable time and, on a more general level, because the rate of interest in a country generally tends to be high when it is in balance of payment difficulties. This means, however, that the cost of its exports to go up at a time when it is in balance of payment difficulties and, therefore, one gets into a vicious circle.
In the light of this and of the Chancellor of the Exchequer's conference between various financial Ministers this weekend, there might be a case for considering whether the effect of differential interest rates on export prices should not be nullified or neutralised by some form of agreement. Perhaps this is a point which, even at this late stage before the conference, the Minister might feel deserving of attention. Certainly, the cost of interest rates raises a number of difficult questions, in particular whether one suddenly gets shifts in the source of finance for British exports from the market where they are being sold back to this country. This takes us into the difficult field of leads and lags in remittances.
I do not wish to weary the House on this matter this afternoon. Those who are expert in it will be familiar with the problem and would agree that there may be a case—but it needs to be weighed carefully on both sides—for having the same rate of interest for all exporting countries. There are, of course, arguments the other way. I do not suggest that this is a cut-and-dried matter, but investigation into it would be justified.
I turn now to Section 1 of the 1949 Act and the question of special guarantees and national interest policy where the commercial risk is not even determined by the Advisory Council, but is simply a risk which the Treasury decides to undertake on its own initiative and on the view that this will be in the interest of the country as a whole.
Is sufficient attention given to the need to guarantee the costs of professional services? Very often our people may be represented in an overseas market by a consultant who makes an appraisal of a situation, and eventually the export order may come to a British firm. Other countries frequently have the two operations integrated. It is, therefore, important that the E.C.G.D. facilities should extend to professional services even when these are not directly related to a particular export order.
My second point under Section 2 is a question which is posed on page 21 of the booklet which states that the E.C.G.D. has gone to great lengths to find out what the risks are in individual countries, that this integral part of E.C.G.D. services is highly regarded and that many unrepresented exporters have asked whether they might be able to receive it. It is not clear from the booklet whether they can.
This is very important because exporters—and, indeed, investors—overseas too often make their decisions but eventually say that there are lots of imponderables in the exercise and they decide on balance not to export or invest, whereas if they had what has been shown by experience to be a reliable estimate of the risks—the risk of remittances being blocked for political reasons, for example—they would be in a better position than otherwise to make an objective appraisal of what the rate of return is likely to be from either the export or, alternatively, the foreign investment overseas. That could be used both by exporters and investors overseas.
I now turn to Section 3 of the 1949 Act. I am somewhat puzzled by the right hon. Gentleman's statement that there were three Sections to that Act. I understand that there are three Sections to it and although the right hon. Gentleman said that it was now proposed to let Section 3 lapse that is not mentioned in the Explanatory Memorandum to the Bill. That raises some very important points. Hitherto, Section 3 of the 1949 Act has tended to cover loans to overseas countries, rather than guarantees to exporters to overseas countries, amounting on previous occasions, I gather, to about 25 per cent. of our total overseas aid programme.
We are now told that this is not to be covered under the 1949 Act, but to be carried under the Votes of the Ministry of Overseas Development. If so, the arrangement now proposed would seem to be singularly untidy. If he catches the eye of the Chair, my hon. Friend the Member for Dorking (Sir G. Sinclair) may have something further to say on that point.
If the responsibility for future transactions is to be transferred from the E.C.G.D. to the Ministry of Overseas Development, is there not a case for getting rid of section 3 of the 1949 Act and transferring the whole thing straight away to the Ministry? We should then know where we stand on the question of aid. To leave the residual of past aid investments under Section 3, plus one or two odd ones still awaiting final transfer under that legislation rather than under new legislation, would seem to be untidy, particularly because the purely financial side becomes rather confused if the arrangement the Government now propose is implemented.
What will happen in the future is that the total amount of loans under Section 3 will not increase, but the previous loans will gradually be repaid. That means that for goodness knows how many years hence the E.C.G.D. will keep getting odd bits of money paid back into it. I understand that at the end of each year they are all paid back to the Treasury anyway, so perhaps that is not very important in some ways. But it means that it will have a very odd balance sheet. On the one hand, there will be its liabilities which are guaranteed by the Treasury—and we all hope that the Treasury will never have to meet them. On the other, there will be a flow of dribs and drabs of repayments of past loans, which will in one sense be the only items to appear on the assets side of the balance sheet. That is an odd way of legislating, but no doubt there are good reasons and I hope that the right hon. Gentleman will tell us then. If not, perhaps it will be possible to make some further arrangement in Committee.
My final point concerns the very great business E.C.G.D. does with regard to shipping. It guarantees a large number of loans on sales of British ships to overseas owners, but that gives those owners a considerable advantage. I understand that if a ship costs about £2 million, the net cost to the foreign owner at rates provided by Government legislation here might be £2¼ million, whereas the cost of the same ship to the British owner could be as much as £2¾ million—£¼ million more.
It is clear from the answers of the Minister of Technology on 17th January to Questions on the implementation of the Geddes Report that this matter is being examined closely, but it is a matter of some urgency. Until they can obtain credit on the same basis as foreign owners covered by E.C.G.D., the British owners, who make very great contributions to our export earnings, will be put in a less favourable position than their foreign competitors. Every day that we delay is likely to have an adverse effect in the long run on our balance of payments. I therefore ask the right hon. Gentleman not to give an answer now but to consider some way of speeding up the proposal.
We welcome the Measure and hope that it will lead to a very great improvement in British exports in the future.
Like the hon. Member for Worthing (Mr. Higgins), I welcome the proposal and add my congratulations to all those who have been involved in the work of the Export Credits Guarantee Department and its very successful results. I also welcome the encouraging increase in our exports, which is to some extent a reason for the need to bring forward this Measure as soon is this.
I particularly want to take up the point with which the hon. Member for Worthing concluded, that is, the problems affecting shipping. There is very real concern about the anomalous situation that has arisen concerning British shipowners. While we all welcome the orders that the special facilities enable British shipyards to receive from foreign owners and would not wish to see anything done that would reduce the numbers of those orders from abroad, British shipowners are competing at a disadvantage. The figures quoted by the hon. Member seem to be realistic.
With the present competition for freight, firms attempting to get freight abroad for the benefit of our export earnings are placed in a very difficult position in competition with foreign owners who have the advantage of the special borrowing facilities we provide. It has been seen recently, rather to our sorrow, that a number of shipowners are placing orders abroad. It may well be that they do so because they cannot get the special credit facilities at home and are taking advantage of certain other facilities available abroad. There is the curious and anomalous situation that we are trying to encourage foreign shipowners to place orders in Britain and appear to be trying to encourage British ship owners to place orders abroad.
As it is clear that the earnings from British shipowners are very considerable and would outweigh, one would think, the advantages of the capital value of orders placed here from foreign sources, this is a matter of most urgent importance. I have an example of this anomaly from Tyneside, one of the major shipbuilding areas. The situation there is that on one side of the river a shipowning firm of the Stag Line placed an order with a large shipyard in my constituency in South Shields, Messrs. Redheads, for a cargo vessel, the value probably being between £1½ million and £2 million. The firm is now having to consider cancelling the order—the matter is still under discussion—because of this very factor. The firm is placed in this almost intolerable position by seeing its competitors abroad getting very considerable advantages in credit terms which are not available to it.
While I fully understand that the Government wish to consider this point more widely in the terms of the Geddes Report and the whole question of reconstruction of British shipbuilding firms, I doubt very much whether we can wait that long. We have had information that the Minister responsible intends to bring in new legislation within a very short period. However, I would particularly ask my hon. Friend to see whether he can persuade the Minister responsible to make an announcement about this matter without any further delay, even in advance of the legislation which he intends to introduce.
I am by no means certain that the proposals that may be included in the legislation will fully cover the point that has been raised. I feel that it is of the utmost importance that, without any delay, we should have a declaration from the Government that credit facilities of comparable order to those being made available abroad will be made available to British shipowners, if necessary for a limited period, which I think would be understood, for one has to take account of the capacity of our shipyards and so on.
It is particularly unfortunate that at a time when we are doing our best to attract skilled workers back into our shipyards there should be danger of loss of orders for this reason which might set back for many years the very important new kind of security that we are trying to build up in our British yards so that we can improve delivery dates and do all the things that are so necessary to improve our competitive position in the world in this field.
I welcome this Measure because of the provision that it makes, but as our object is to increase our export earnings, I appeal to my hon. Friend to realise the close link between this matter and the question of British shipbuilding and to do his best to have an announcement made in the House without further delay.
I join in the tributes paid to the conduct of the Export Credits Guarantee Department, especially over recent years, under the brilliant guidance of its advisory council, and especially in its discharge of its responsibilities under Section 1 of the Act.
However, it is not to that side of the Bill that I wish to address myself. I shall confine myself to the parts of Clause 1(2) that affect overseas aid; that is, the limitation of cover that applies also to the powers of the Export Credits Guarantee Department under Section 3 of the Act.
I know that aid has become somewhat unfashionable in many developed countries. The Government have recently cut our aid effort, and our official overseas aid—I give the O.E.C.D. figure—is running at 0·67 per cent. of our gross national product. The Bill by its cover for export, seeks to promote our overseas trade. The prospects of that trade in developing countries are greatly affected by our concurrent efforts in aid in those countries. And those countries are an important market now for our exports, and they will be an even more important market in the future. In spite of all the setbacks, about which we hear so much, their capacity to absorb overseas trade is increasing at an annual rate of 5 percent., according to the recent Report of the Ministry of Overseas Development. I am sure that the President of the Board of Trade still believes this. This is what he said in the House on 15th January, 1964:
In the course of visiting India and Pakistan last summer it was made clear to me how nowadays in exporting to the less developed countries trade follows aid. That has not been fully realised by many people. If anyone is inclined to doubt this, he should study another excellent F.B.I. report on the Indian economy. That shows convincingly that in the last six or seven years the proportion of aid to India from the United States and Germany has been rising while the proportion from the United Kingdom has been falling. The proportion of India's imports from the United States and Germany has been rising while the proportion of her imports from us has been falling. This throws a new light on a lot that has been said in recent years on the proportion of fall in our trade with the Commonwealth."—[OFFICIAL REPORT, 15th January, 1964; Vol. 687, c. 330.]
In spite of this clear belief in the value to our export trade of aid under Section 3, we learn today that the Government are to raise the limit under Section 2 by £200 million but do not intend that any of this limit shall apply to cover under Section 3, which is now to be held in abeyance. I wonder what action the Government propose to take to support the type of aid covered by Section 3 and which the present President of the
Board of Trade, three years ago, found such a valuable help to our overseas trade.
Since the Minister of State now asks for an increase in the limit of coverage under Section 2, he should, I believe, have taken this opportunity to give the House a great deal more information than he has about the record of the Guarantee Department in the recent discharge of its responsibility under Sections 2 and 3 for "rendering economic assistance to countries outside the United Kingdom".
It is doubtful whether the Department's powers have been used wisely in aid activities. In West Africa, for example, did they not go too far in guaranteeing a number of Government capital projects for which British companies were negotiating? Did they not find themselves guaranteeing a number of projects which have subsequently come to be regarded as absurdly wasteful and unlikely to make any important contribution to the economic development of those countries? Is the Department not now engaged in the difficult task of trying to secure the recovery of these loans? These are facts which the Minister of State should reveal to the House in winding up this function of the Guarantee Department.
These transactions were in the field of aid. Did the Guarantee Department consult the Ministry of Overseas Development closely on the details of these projects and their claim, within the development plans of these countries, to a high enough priority to merit the special kind of support that the Guarantee Department was offering? Did it get any backing from the Ministry for these actions? I hope that the Minister will shed some further light on the recent record of the Guarantee Department in the use of these funds.
When the Government attempted to make such great political capital from the development of the new Ministry of Overseas Development as the coordinator of all British efforts in aid and technical assistance, what arrangements did they make for the Guarantee Department to have close consultation with the new Ministry over its operations in the field of aid? Has there not been a lamentable lack of consultation, leading to a wasteful use of the Guarantee Department's support on many projects of low economic value to the countries concerned?
When the Ministry of Overseas Development was developed by the present Government from the Technical Assistance Department founded by the Tory Government, I asked in the House whether the Government would be able to secure the full co-operation of other Departments whose powers were now to be taken over or affected by the new Ministry. I was given a jaunty assurance and told that the Government had given a high priority to this Ministry and had shown their determination by putting a Cabinet Minister in charge. What is now the Government's attitude towards this new Ministry? Its funds have been drastically cut. Its Minister is no longer in the Cabinet. Its annual report was slipped out at the beginning of the Recess when the House was given no chance of a prompt debate on it. Britain is now no longer the leader in ideas about overseas aid as it was in the 1964 Conference of U.N.C.T.A.D. What arrangements do the Government now propose to ensure that this Ministry remains the dominant voice in overseas aid policies?
I come to this general question of future consultation between E.C.G.D. and the Ministry of Overseas Development.
This affects not only the responsibilities of the Guarantee Department under Section 3, but the whole range of responsibilities for overseas trade.
I have already shown how important is this link between our aid and our trade in the developing countries. I realise that the responsibilities of the Guarantee Department for aid were completely insulated from the guidance of the distinguished Advisory Council. In effect, the aid side of the Guarantee Department has been a Treasury responsibility.
We have been told today that for the future the powers in Section 2 and Section 3 to deal with aid will be absorbed by the Ministry of Overseas Development. But the Government set up that Ministry many months ago. Why has there been all this delay in transferring this responsibility to it? I agree with the transfer. But why has there been the delay and why is the transfer now to be so incomplete?
These responsibilities for aid are alien to the other main functions of the Guarantee Department. Why should they not now be transferred lock, stock and barrel, to the Ministry of Overseas Development? Should not the Bill have dealt with that issue? Should not the Government have done this at a time when they were enhancing the status of the Ministry and not left this action until today when they have just downgraded that Ministry and cut its scope?
I join in the welcome which has been accorded by both sides of the House to the Minister on the way in which he has introduced the Bill and on what the Bill does. I agree with the increases and applaud the fact that the increased guarantees which we are making are proof of our increasing exports.
In keeping with what I have gathered to be the desire of certain quarters to shorten our speeches, I shall seek to make mine as short as possible in view of the importance of what I have to say. I hope that on the other side there will be some co-operation in making short speeches, too.
I want to draw my right hon. Friend's attention to one or two points about exports. Two or three years ago there was much agitation about increasing exports to Russia, China and to the near eastern countries in Europe. How are these exports progressing now? Are they doing well and what is the balance of payments in this connection? What has been happening with regard to China? Some years ago we were able to sell Viscount aircraft to China. Why has that kind of sale suddenly dropped away?
When we were selling those aircraft to China there was violent opposition from the United States, and every sort of device was used to prevent this trade. It was purely peaceful trading, no military aircraft were involved. Can my hon. Friend tell us why we have suddenly abandoned selling to China something which she wants—aircraft? China is a vast country and the use of aircraft is a great help to civil transport, as those of us who have been there are able to testify. Because of the great distances involved an expansion of her aircraft services would be of immense value.
Why is it that trade with the European countries round and near the Black Sea seems to have lessened? In the course of his speech, my right hon. Friend referred to the possible sales of Concord. Last week, I had the opportunity of seeing Concord. By October, she will be in the flying shed and soon afterwards she will be making her proving flights. Her purchase options now amount to 70. That, at £7 million per aircraft represents £490 million worth of business.
These are big orders and mean big business. They are a most important asset to our export figures. The expectation is that after she has done her round-the-world flight the options will amount to something like 400. This is very big business, shared between France and Britain, and, I hope, a sign of better things to come. Is the Board of Trade estimate of possible sales in the region of the figures presented last week?
I read in The Times:
A British Government decision to give five years' credit to Cuba for the building of a £12 million fertiliser plant by the Simon-Carves Engineering Group will be disclosed soon, perhaps today.
I wonder why the Minister did not disclose it Is it too early? The Times tells us:
The Government's Export Credits Guarantee Department will back a £10 million credit arrangement; Cuba finding the other £2 million as a down-payment.
That is good news, and it means more exports, but we read in the next paragraph that we are doing this in face of hostility from Washington. I hope that when we poke our noses abroad, as happened in the Viscount sales and as appears to be happening on these possible Cuba sales, we shall not have them cut off by Washington, or, if it is to become the practice, then I hope that my right hon. Friend will tell our friends in America where they get off.
I said that I welcomed the Bill but that I also regretted omissions which have been regretted by two other hon. Members. The hon. Member for Worthing (Mr. Higgins) referred to the difficulties which face British shipbuilding. It is relevant to welcome what is in the Bill, and I have always understood that it was equally in order, at least on Second Reading, to regret what was not in the Bill. So I endorse all that he said about the difficulty which faces the British shipbuilder. He gave the example of the difference in capital cost between a ship produced in a British shipbuilding yard for a British shipowner and one produced for an owner abroad. He gave the difference as £250,000. This is a considerable handicap in a market which is so highly competitive as is shipbuilding.
In addition to the capital cost, the British shipowner—and the shipbuilder, too—faces the fact that his competitor in world markets has laws which give him cargo preference in his carriage; operating subsidies and building subsidies. That is a very serious burden for the British shipbuilding industry to face. I hope that on this occasion at least we can call attention to this very serious situation facing British shipbuilding.
I speak particularly of two yards in my division, Fairfields, and Linthouse. Fairfields is a great experiment which is doing well—wonderfuly well in the circumstances. Fairfields is backed by the Government but, as the people told me last week, the yard is faced with the problem of getting orders on the world market. Part of the difficulty is precipitated by the handicaps we have been pointing out. How soon can we expect something definite to be done about all the recommendations in the Geddes Report? The onus was placed on the shipbuilding industry and I agree that its response has been a little slow. However, it is beginning to stir and I hope that the Minister will stir it up a little more.
I join hon. Members in welcoming this Measure and saying how encouraging it is to hear that the work of the Department has been steadily expanding. This is one of a series of Measures relating to the expansion of facilities through the Department introduced by successive Governments and it is clear that this is the right way to proceed.
We are, of course, talking about a very small aspect of a very large subject when considering the Bill. We are really talking about a particular side of export development against a serious export background. Exports have been doing quite well, but this is not the side of the Bill or of export credit insurance that worries me. I am more worried about the type of topic raised by my hon. Friend the Member for Dorking (Sir G. Sinclair). Indeed, I find the whole question of Section 3 loans dismaying and I beg the Minister to clarify the position and the impact it will have on our development programme. The aid programme is at present being cut back, despite the hope that the trend would go the other way and despite the optimistic statements of Members of the Government. I hope that this whole matter will be made clear, for it is not made clear in the Bill.
But it is not so much the smaller aspects of the Bill as the broader questions of what part the Measure will play in the overall export strategy of the Government that are all-important. The Minister referred to both past and future trends of exports which should be taken into account when making changes and developing the policy of the Department. This must be considered in the light of many rather over-optimistic statements made by a number of Members of the Government in recent weeks, giving the impression that exports are doing better. Because this is an essential background point to examining the detail of the Bill, we should consider the facts of the export trend.
It immediately emerges that the long-term trend upward in the exports which this country needs if we are to get near to the overall growth rates and restoration of economic confidence we need has not come about, despite those optimistic statements by the Minister. For example, while last year exports rose in volume by about 4 per cent., the now defunct National Plan wanted them to rise at an average of 5¼ per cent. per year—this on the basis of some extremely optimistic assumptions about capital in-flows and out-flows and about the movement of imports during the growth period.
We are, therefore, in examining the Bill, looking at a background which is not at all favourable and which still leaves us a long way from the export figures and kind of export trends and policies we really need. In examining the Bill we must realise that we are still a very long way indeed from the vast increase in the competitive push needed behind our exports if we are to move into the high growth rates on which the present Government's policy has been based and on which all our aspirations rest.
When we look at this Measure against that background, welcome as these things are, it is right to say, as leading commentators have said, that this side of it is tinkering with exports. I am afraid that that is so for two basic reasons. One is that however good export credit facilities are—and I go with the Minister in saying that probably at the moment, as a result of successive Measures and excellent Departmental work, our worldwide information services are good—we are facing a basic problem of profitability of exports. That problem is far greater than can be provided against by any insurance which can be provided in the short term. What we are facing is the problem of profitability in relation to the whole tax system.
While we spend time in debating these chicken-feed aspects of export promotion, the bigger issues will not get the attention which they deserve. The biggest one is a fundamental change in the tax system. That means, not moving towards the unhappy Selective Employment Tax which impinges on the paper work needed for export promotion and also enters into the cost of exports and forces them up, but in the direction of a much more imaginative type of export reform which many people hoped would come from this Government. We need to move to the kind of value-added tax, at any rate the kind of tax reform, which makes the percentage gained from a switch to exports very much greater than it is now and which the most developed and sophisticated credit insurance system could provide.
Secondly, this particular Measure is an excellent way for the Government, the Board of Trade and various Ministries to help exports, but it is of very little avail, and again in the chicken-feed category, unless it is backed up by much more serious attempts by the Government to throw their weight behind particular contracts and undertakings. We have had interesting examples of the way in which neighbouring countries—subscribers to the G.A.T.T. and within the spirit of the G.A.T.T.—have been able to ensure that deals go to their countries by making quite clear that their exporters are fully backed by the strength of the Government and by making clear the possibility that if trade is not done with the country concerned and if contracts are not obtained there will be difficulties for the country concerned when it tries to sell exports the other way.
This seems to be a kind of help to exporters which again was expected from this Government but which has not developed, a direct backing of contracts and the throwing of weight behind the export efforts of particular salesmen. Those are two background considerations which must go with an examination of this kind of development and extension of the Department's facilities. I welcome them. They are right, but they are only a tiny part of what at present appears to be a non-existent strategy. Without far greater vigour and clarification of the Government's export strategy, they will be dished as they have been dished already every time they seek to expand the economy and go for the high growth rate which we want. They will run into balance of payments crises which so far we have not been able to avoid.
I was delighted to hear the reference during this interesting debate to the shipbuilding industry. A feature of both sides of the House is that we share a common interest in the shipping and shipbuilding industry. It is disappointing that the opportunity has not been taken in the Bill to do something about the problems of the industry.
The hon. Member for Glasgow, Govan (Mr. Rankin) dealt with the vexed question of trade with the Iron Curtain countries. I must confess that I have some sympathy with him. I remember the problem of the sale of ships to Russia and the restrictions on speed which were imposed at the behest, I suppose, of the United States Government. Although I imagine that Cuba is perhaps not the best place to please our American allies, there comes a point when we have to beg to differ with them on trade questions, particularly when the trade balance is favourable, as it often is not with a lot of Iron Curtain countries.
I do not wish to get drawn into the question of Cuba; I do not know the facts of the situation. But it is not for the Americans or anyone else to dictate to us as to those with whom we can or cannot trade, because we have difficulties which the United States does not have in our trading relations and we have to trade where it is most profitable.
It is not easy to find new ideas about export promotion. So many of the bright ideas have fallen by the wayside. We are discussing a method of export promotion which has been surprisingly successful. It has been used and developed by succeeding Governments. It has nearly had its fiftieth birthday. The growth in these credits, even since the 1949 Act was passed, is quite staggering. I believe that 27 per cent. of our exports are covered.
I wish to apologise to the Minister of State. I was detained and I could not be present to hear his introductory remarks.
There is no doubt that this is a success story, but I hope that it will not blind the Government to the fact that many other things are needed. It is a very good thing that even on a Friday we should have the opportunity to discuss some of the problems of the export trade. It is sobering to read the grave figures about which we read yesterday showing the downward trend in production which has been going on since August. This makes it all the more important that the production that there is should be channelled into exports.
Those hon. Members who have travelled abroad in parliamentary delegations will have heard various stories about the credit difficulties which our exporters have had. I remember particularly complaints being received in Latin American countries, a part of the world where the population will double in 25 years, where there are many natural resources and where there appear to be great opportunities for our trade. Many examples were given us showing that even the work of this Department had not been sufficient to get contracts against foreign competition. I know the exchange difficulties of most of the Latin American countries. On the other hand, perhaps this is one of the markets, apart from the European market, which has the greatest prospects; but in that respect it has some similarity with the trade with Iron Curtain countries to which the hon. Member for Govan referred.
I wish to say a few words about shipping. It is well known that the order book of many home yards, although it does not look too bad, contains contracts which are likely to be fulfilled only at a loss. Although it is very nice to get export orders, traditionally our yards have built largely for the home market. I would say nothing against the arrangement by which foreign shipowners can order in our yards on, I think, a 20 per cent. down payment and by which they on the rest. That is excellent.
However, our home yards depend on orders from the home owner, who is at a grave disadvantage. It has been shown that on a ship originally costing £2 million the difference between what the foreign owner and the home owner ordering here would pay is no less than £¼ million. Anyone who knows the small profit margins on which our shipping industry operates will realise that that is very serious. It is because of this that our home owners can be expected to order only in the market in which they can get the cheapest ships. The Government must not be surprised if people at home continue to place large orders abroad because they cannot afford to place them at home. It is true that even the £250,000 might not be the deciding factor. There are other things like delivery dates and the margin of cost which might be so great that the difference betwen getting credit at 5½ per cent. or 8 to 9 per cent. would not be a decisive factor.
But I believe the Government are wasting valuable time in this connection. Some time has elapsed since the Geddes Committee reported. I think most members of the Geddes Committee would agree that the situation has altered materially for the worse since they reported and that if the Report were to be written today they might diagnose the situation differently and their recommendations might be even more stringent than those which they actually made.
In fact, on the question of credit the Geddes Committee had something to say. It recommended that money should be made available for a period of three years but only for orders placed in certain yards. I would not have thought that went far enough in the present circumstances. I was delighted to hear a few days ago that the Minister of Technology is giving attention to this question of credits in our own shipyards for our own owners who are patriotic enough to continue ordering here even when in some ways it does not pay them to do so.
I believe there is very little time to be lost. I believe that representations from the Chamber of Shipping have already been received by the Board of Trade. I beg them to hurry up and not to give as an excuse later that they have not got a Bill in which they could put the necessary legislation. I hope that when the Minister replies he will be able to give some kind of assurance and give fresh hope to the shipbuilding industry which is in difficulties and is likely to be in further difficulties before the year is out.
That was going to be my next phrase, Mr. Deputy Speaker. I was going to say that I wish to reply briefly to the debate if I may have the permission of the House to do so.
The hon. Member for Worthing (Mr. Higgins) drew attention right away to the vital importance of exports, and that has been echoed by every speaker. I do not agree with him that S.E.T. has so increased the cost of paper work that it is difficult for people who are seeking cover from the Export Credits Guarantee Department who find this an expensive operation. That apart, I would agree that the whole story of this Department and its valuable work for exporters is a tribute to the accuracy of the Advisory Council's assessment of exporting risks.
I wish to reply briefly to the more important of the questions that have been raised. One of the first questions from the hon. Member for Worthing concerned the small exporter, namely how far, through the Export Credits Guarantee Department, he can be helped. He also asked—at least, this was implicit in his questioning—why the guarantee premium is so much higher than the average rate under the comprehensive guarantees.
First of all, there is no low limit. The small exporter premium can be very small indeed. The small exporter guarantee arrangement is designed to introduce manufacturers—because many of the smaller men have not gone into the exporting business before—to credit insurance. It provides, therefore, a much simplified form of cover that is fair and more suitable to smaller firms than to the big and more elaborate exporters. It allows the policy holder to select which contracts he wishes to insure. Because the procedures are streamlined for the exporter, the Department has to bear higher administrative costs than the standard cover, and these have to be spread over a much smaller turnover if everything is kept within the small exporter arrangements. The small exporters' unlimited freedom to select risks which the big exporter does not have—the whole of his turnover has to be covered—means that losses are higher in relation to turnover under the small exporter guarantee. Although the rates are higher, the cover has run into a small loss. I have taken the point that this might be looked at again. This is something which the E.C.G.D. Advisory Council will keep under review.
Much as I would like to discuss them with the hon. Member, the interest rates for export finance are questions for my right hon. Friend the Chancellor of the Exchequer. As the hon. Member said, this is a very involved matter and, with his permission, I will not embark on it now.
The answer concerning guarantees for professional services is, "Yes". Special forms of cover are available under both Section 1 and Section 2. In addition, the Department gives support for professional services in the form of consultants for contracts that will earn foreign exchange, or where the consultants' activities will earn foreign exchange. Standard policies are available to cover earnings from invisible exports of this kind, where the consultant's services will be paid for overseas. In addition, the Department is always ready to consider special needs in special cases, and to draft covers in appropriate forms, if this is possible without inconsistency with the commercial principles on which the Department is charged to operate.
The hon. Member wanted to know, as did the hon. Member for Dorking (Sir G. Sinclair), why the Bill does not mention Section 3. The Bill is a short one, and it says that the cover for Section 1 and Section 2 shall be increased. We could not very well go on to say in the Bill that we shall not do anything about Section 3. The explanation comes not in the Bill, but in the moving of the Second Reading, as is the case here.
The hon. Member for Dorking has, I think, misunderstood the relationship between the Export Credits Guarantee Department and the tied overseas development loans that were made available under Section 3. It is perfectly true that there are some substantial claims for payments due from West Africa—I do not think I should mention individual countries, as the hon. Member did not—mainly in respect of Section 1 guarantees for supplier credit contracts which were taken out years ago when some of these countries were not in such a serious position as they are today, when the business was acceptable to the E.C.G.D. Advisory Council and the liabilities were assumed under the previous Administration and before the Ministry of Overseas Development was set up. We believe that the bulk of these claims will be met.
The hon. Member drew far too gloomy a picture of this area of activity. It is right for him to say that trade follows aid. He went on to ask pertinently, after quoting my right hon. Friend, why Section 3 was being allowed to lapse. Aid of this type, which previously was given under Section 3, continues and has not stopped. As I have said, however, this is the responsibility of the Ministry of Overseas Development. The E.C.G.D. has never had responsibility for the allocation of aid but has only been the instrument of covering the aid arrangements.
To what extent the aid which is now being provided can be increased—this was one of the questions raised by the hon. Member—is a question for my right hon. Friend the Minister for Overseas Development, who now has this matter under his control. The point is that now both the allocation and the administration of overseas aid are centred in one Department. This should meet some of the criticisms that the hon. Member has raised.
Before I come to shipbuilding, another question was raised by my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) about trade with China and the Communist countries.
I will come to Cuba presently. All E.C.G.D. facilities are available to this trade and we all are doing all we possibly can to increase it. Indeed, within recent weeks we have set up the Eastern Europe Export Council to do everything possible to stimulate this trade there. Any trade that we can do with China will be done, but I do not want at this stage to go into discussion about aircraft because I do not have the information with me.
With regard to Cuba, the Export Credits Guarantee Department has told the exporter concerned—that is, Simon Carves—that cover will be available for this contract. This is what we have today in this debate been calling Section 1 business. The business is acceptable to the Advisory Council as a risk. The Press will be told by the Advisory Council today. It will be in the papers.
Credit facilities for British shipowners to buy British ships are outside the scope of the Bill, as hon. Members who have raised the question will fully understand. The operative word in the Bill is "export". Looking at it from the narrow view of exports, everything that we can do to sell British ships abroad will have the full approval of this House. Therefore, in so far as we make the credit facilities and cover available, so much the better. What hon. Members are complaining about, however, is that British shipping lines which want to buy British ships do not get the same kind of credit assistance.
My right hon. Friend the Minister of Technology, who is now responsible for the shipbuilding side of things, said in an Answer this week that he is fully aware of the situation and is considering the representations which have been made to him by shipbuilders about credit facilities in the light of the overriding need for the reorganisation of the industry. I do not take such a gloomy view as the hon. Member for Dorset, West (Mr. Wingfield Digby) about what will happen this year in shipbuilding, but I will see that my right hon. Friend is made aware of the criticisms and views that have been expressed today.
There are one or two other points—for instance, the question raised by the hon. Member for Worthing about leasing arrangements. If I have not replied to any of these special points, I will see that hon. Members are written to so that they can be covered.