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Volume 886: debated on Thursday 20 February 1975

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The Secretary of State for Trade and President of the Board of Trade
(Mr. Peter Shore)

With permission, Mr. Speaker, I should like to make a statement about new measures to encourage British exports.

These measures are particularly directed towards reinforcing our export drive in markets where large capital contracts can be obtained. The Prime Minister's recent visit to Russia and my own visits to Iran have left me in no doubt that a great expansion of our exports to these highly attractive markets is within our grasp. British capital goods exporters, however, face two major difficulties and the Government have accordingly decided to give special help. The difficulties are at their most acute in the Middle East but the new measures are not confined to exports there.

The first of these difficulties relates to increases in manufacturing costs on capital goods contracts. Overseas buyers, particularly in the Middle East, want firm prices. In present circumstances, our exporters are unable to absorb all the increases in costs that can occur during lengthy manufacturing periods. A Government amendment will accordingly be introduced to the Export Guarantees (Amendment) Bill, to give the Export Credits Guarantee Department the necessary powers partially to insure exporters against a higher than expected rate of inflation.

The scheme will provide cover for contracts with an individual value of £2 million or more with manufacturing periods of two years or more. Exporters or buyers will be expected to bear cost increases up to a minimum level of 10 per cent., but the Government will cover 85 per cent. of cost increases within a 10 per cent. band above that minimum level. In the case of cash contracts, which are particularly desirable on our present balance of payments situation, the band will be widened to 15 per cent. and 90 per cent. of cost increases within it will be covered. The scheme will not be available for contracts within EEC markets. A premium will be chargeable.

This scheme is designed to meet the temporary and abnormal difficulties of cost inflation. It will be available for up to two years only, though power will be sought for extending it year-by-year thereafter if there is a clearly demonstrable need. Settlement will be made after completion of the manufacturing period. Clearly, there would be no justification for this step if it led to an increase in exports which was simply offset by greater imports of engineering goods. The Government will be seeking satisfactory evidence from engineering exporters that this assistance will lead to the required expansion in their productive capacity.

The second major problem facing exporters is that in many markets, but again particularly in the Middle East, buyers often insist upon performance bonds. This creates particular difficulty for exporters in times of financial stringency. We hope to use the experience and encourage the growth of the commercial market, and ECGD is exploring how it might share in the risks of raising bonds commercially. Meanwhile, it will make full support available under the Export Guarantees Acts, applying normal standards of underwriting judgment, in respect of cash or near-cash contracts with a minimum United Kingdom value of £20 million where bonds cannot otherwise be raised. Also, where in such cases a number of firms are involved in a major project and where the acceptance of joint responsibility under the bond would pose difficulty, ECGD will help by taking recourse on each firm only to the extent of its individual share in the contract.

These are two major innovations in this country's export insurance facilities. They will take their place alongside the measures of support already available to exporters of capital goods, including the extensive range of ECGD's insurance and financing facilities, the operation of the Overseas Projects Group and the vigorous promotional services provided by overseas posts and the British Overseas Trade Board.

I think that the Government can fairly claim to have responded quickly and effectively to the calls for assistance which industry has made in these contexts; and I believe these measures will give our exporters renewed confidence in seeking major capital contracts in the Middle East markets, the USSR and elsewhere.

First, is the right hon. Gentleman aware that we favour measures which encourage exports and that we welcome his enthusiasm for the commercial market? Does he agree that meeting credit competition is second best to discouraging credit competition as it drives export interest rates far below domestic interest rates? What international discussions has the right hon. Gentleman had on that matter, particularly with the French?

Secondly, is the right hon. Gentleman aware that compensation for the effects of inflation on exports is a poor substitute for beating inflation? As the latest figures for wage claims show that the social contract is a shambles, what action will the Government now take?

Finally, as a premium is to be charged to exporters insuring against inflation, what expected rate of inflation over the next two years will that be based upon?

I do not think anyone would disagree that it would be a better and more desirable course if the rate of inflation in this country—I am sure that this view would be echoed by many other countries—were lower than it now appears to be.

That is why I have made this statement. I am determined to see that whilst our other policies are operating we are able to give a measure of encouragement and assistance to our hard-pressed exporters. That is the major aim of this statement.

The hon. Member for Worthing (Mr. Higgins) asked me about discussions with the French. In the past year we have had many discussions with the French and with others operating export credit schemes. My original purpose was it possible to persuade them to drop their own form of cost-escalation scheme, but that did not prove to be possible. That being so, it seemed to be the right course for ourselves to help our exporters in broadly the same way as the French Government help their exporters.

Finally, the hon. Gentleman asked me about the anticipated rate of inflation Of course, I cannot give him a view on that any more than I can estimate in detail—

Does my right hon. Friend realise that this incentive to exporters will be welcomed by industry and by the trade union movement? There is serious unemployment in many parts of the world and if we can encourage industry to export we shall have a reduction in unemployment in this country. At the same time as my right hon. Friend encourages exporters, will his Department consider encouraging the British people to buy British goods rather than imports from abroad? In that way we could get back to the 1970 position when we were tackling the balance of payments problem. The situation has deteriorated since 1970.

I thank my hon. Friend for his remarks. I hope that this statement will be broadly welcomed by British industry, particularly by British exporters, and that, as far as the scheme enables British firms to take up large export orders, it will greatly help over the next year or two with the maintenance of employment in this country. I also respond to my hon. Friend by saying that I think that it is up to all of us, private consumers as well as industry, to look carefully at the import content of what we buy.

Is the Minister aware that these two steps towards catching up with our enterprising overseas competitors will be a welcome stimulus in the great exporting areas of this country? To make the first of these measures fully effective, would he undertake to set on foot an investigation into the demarcation between capital and non-capital items for his purpose? Under the system at present, light trucks are capital goods but durable motor cars are not, a small hospital steriliser is labelled a capital good but an equally durable surgical instrument is not. This system is giving rise to considerable frustration.

I agree that there has always been a problem in drawing a boundary line. I would rather not respond to the hon. Gentleman's invitation to try to establish that boundary line now. This is, of course, a matter of which we shall seek to give a more precise definition when the clauses are presented on Report.

Is my right hon. Friend aware that both his Under-Secretary and I are particularly satisfied with the assistance that this statement will give to engineering firms in our constituencies to help them to export and meet the problems which inflation has created for them in the past? Is he further aware that we are a little upset by the rather churlish reception of this tremendous aid to our exporting industries extended by the parties opposite? We put this down to the fact that, presumably, they do not like the Government interfering in the operation of the market any more, even if it is to help our private enterprise firms.

I agree that it would be nice occasionally to have a little enthusiasm from all parts of the House when measures are presented which I genuinely believe are helpful to the whole country and to the whole of British industry and all our people. I have also noted what my hon. Friend said about employment in Hull. I believe that there are great opportunities in a number of markets which we are opening up now. If we can get in with our exports, that will be of great benefit to employment here.

Is the right hon. Gentleman aware that I can give him a little enthusiasm for this interim measure but that we cannot give a full measure of enthusiasm until industry ceases to be convinced that this Government are its sworn enemy?

I am afraid that that attitude is due more perhaps to subjective considerations and states of mind than to the objective realities. Whatever the feelings of some industrialists may be—I think that this is the view of a decreasing minority—I am sure that the great majority will recognise that this is a genuinely helpful act.

In view of our serious adverse balance of payments with the EEC, has my right hon. Friend discussed with the Community authorities the possibility of extending this scheme to Community countries? Also, will it apply to EFTA countries?

The answer to the second question is, "Yes". As for the European Communities, there are already two EEC countries which operate partial schemes of a similar kind—France and Italy—but they do not themselves operate the schemes within the EEC. There is a general agreement under the established rules of competition that these schemes will not operate there. Given the reciprocity involved in this arrangement, I feel that that is one agreement that I must abide by.

The Secretary of State speaks about the need for our exporters to look carefully at the import content of what they are exporting, and I would agree. Will he ensure that that advice is carried also to Government Departments, because, certainly in my experience, they are among the worst offenders in this regard? I believe that the Treasury lies at the heart of it. Will he please see that something is done about this?

I know the hon. Gentleman's interest in this matter and I recall having had some correspondence with him. I am very much aware of the point, but I think that he is doing a little less than justice to the Government's general concern and to the whole public sector in this matter.

In conjunction with the Foreign Office, the Scottish Office, the Department of Industry and the Ministry of Agriculture, with my right hon. Friend look at the whole question of agricultural exports and our arrangements for such exports to the Middle East? In particular, would he get some of his most penetrating civil servants to look at the case at issue of my constituent, Mr. Cadzow, of Glendevon Farm, Winchburgh, who tried to export sheep in a major way to Kuwait, Iran and Egypt, and who has found himself in appalling financial difficulties? This man did research and made an effort to export where there was an enormous potential, but he has come to grief through a fault which was only partly his own. Could a case study be made of this?

I will gladly consider any case that my hon. Friend refers to me. Certainly, we should recognise his major point. We tend to think as a nation mainly of financial and industrial services, but we should recognise that we have a tremendous potential for earnings from British agriculture abroad, since our agriculture deservedly has a reputation higher than that of any other country.

Is the right hon. Gentleman aware that in Committee this morning on the Export Guarantees (Amendment) Bill, we were assured that no information had passed from the ECGD to the Daily Express, which yesterday forecast his statement with uncanny accuracy? Why were these proposals not introduced into the Bill in Committee, since it is some time since he returned from Iran?

The proposals were brought forward as soon as we had reached agreement upon them. I should obviously have liked to be able to present this matter a little earlier, so that the Committee stage could have taken account of the new clauses, but that was not within my power. I can only regret that that piece of informaion became available to the Daily Express. I shall always do what I can to see that that does not happen, because I believe that the House has always the right to hear first.