Mr.
McFadden: A chastened Minister rises, Mr.
Illsley. I apologise for my mistake, but if I referred to the wrong
Chairman, I fear that the hon. Member for Huntingdon may have been
talking about the wrong order, because this is not one of the orders to
which he was referring, and which requires that periodically we come to
Parliament to seek permission to increase the ceiling under the
Industrial Development Act. This is a specific request for permission
to spend sums more than the £10 million dealt with under the
Act, so it is not quite the same thing. The hon. Gentleman made a
number of points, but let me be clear about the costs—this also
relates to the comments made by the hon. Member for
Bosworth. The
total potential amount that the Government would be covering under the
scheme is £5 billion. That raises a fair and important point,
which has been part of the public debate for the past year or so: there
is a difference between acting as an insurer for that amount and
spending it. When someone insures their house for however much they
insure it, they pay a premium of a few hundred pounds, but the
insurance company would be liable for the full amount only if the house
burned down or was no longer there for whatever reason. There is a risk
of default, but the sum involved would be incurred only if there was
default throughout.
We are
protected in a number of ways—this relates to the question asked
by the hon. Member for Bosworth about sharing risk. Under the scheme,
if a credit insurance company decided to withdraw 60 per cent. of a
firm’s cover and to provide only 40 per cent., the Government
would provide no more than 40 per cent. of the previous cover. In other
words, we would not take on more of the risk than the private sector
under the scheme, which clearly illustrates what I meant about sharing
risk.
The hon. hon.
Member for Huntingdon asked about European consents, but they are not
required for the scheme. He also asked about timing, and, as I said,
the scheme will go live on Friday. If he looks at the Business Link
website and the credit reinsurers’ websites, he will see that
that is the case. The hon. Member for Solihull asked about eligibility.
She asked specifically whether the scheme is open to insurance
companies other than the main three that cover the market, and the
answer is yes. She also asked how the division of cover would work. To
use a different example from the 40-40 example, if a trade insurance
company withdrew 20 per cent. of a company’s cover, it would be
open to the Government to insure that 20 per cent., with the trade
insurance company carrying 80 per cent. of the burden. Quite how much
the Government’s exposure will be will depend
on the degree of insurance risk assessed by the companies, and that is
important. The hon. Member for Bosworth asked who assesses risk, and it
will continue to be the insurance companies in this case. There are
parallels with the small firms loan guarantee scheme—now the
enterprise finance guarantee scheme—under which the Government
underwrite some of the risk, but decisions on individual applications
are still taken by the insurance companies or, in the case of the
enterprise finance guarantee scheme, the
banks.
Lorely
Burt: It is absolutely right that the insurance company
should assess the risk. However, I am a little concerned about one
point. Insurance companies have been under pressure to renew trade
credit insurance, but might not their ability to withdraw such
insurance in the knowledge that the Government will provide at least an
equal percentage of the cover requested encourage them to become a
little more risk averse and leave the Government to take a greater
share of the risk than they might otherwise have
done?
Mr.
McFadden: We have been working closely with the credit
insurance companies to try to ensure that that is not the case.
Inevitably, the Government are taking a risk because they are entering
a field where a market problem is affecting trade. An important
principle of our market interventions over the past year has been that
we do not intervene to replace markets, but to help them work. The
market problem here is that trade credit insurance has been withdrawn,
so we will of course take more of the burden of risk.
Several
features of the scheme are designed to protect the taxpayer’s
interest. For example, there is a cap on the overall level of the
Government’s exposure and a £1 million limit
for each company involved, which would have to be matched by the trade
credit suppliers, as I said. There is therefore a limit on the
taxpayer’s exposure per company which, with other features of
the scheme, should protect the taxpayer’s interest.
The hon.
Member for Solihull asked about timing. If someone had their trade
credit withdrawn or reduced before 1 April, they would not be covered
by the scheme. We have to have a start point somewhere, and the scheme
will run from 1 April to the end of the year. The cover will last for
six months, so it can go beyond December, but decisions can be taken
about cover only up to that point. I cannot say what we would do if we
reached the end of the period and had another decision to make; I can
set out only the terms of the scheme before us.
The hon.
Member for Bosworth asked about exports. The export credit guarantee
scheme is being amended in a way that we hope will be helpful to
exporters under the terms of the measure to which the hon. Members for
Huntingdon and for Solihull referred. We understand that exporters have
problems, but the scheme that we are discussing applies to UK trade. We
have been asked to introduce a scheme along these lines for some
months, and we believe that it will be an important step forward in
helping business to cope with the downturn and the exceptional economic
conditions that we face.
David
Tredinnick: Before the Minister concludes, may I ask him
about something that was raised by my hon. Friend the Member for
Huntingdon? Will he comment
on the size of the difference between £10 million—the
original figure—and £5 billion? Does he agree that it is
a staggering sum of money and that it is very much in tune with the
trillions that we read about in the papers? The Government seem always
to be giving vast sums of money when financial prudence is perhaps the
future.
Mr.
McFadden: Let me explain the two figures. Under the 1982
Act, the Government must seek the permission of the House to spend more
than £10 million, which is why the £10 million figure is
in the order. The £5 billion is the total amount of potential
insurance cover. The Government will not be spending that amount unless
the defaults are complete on exposure. I explained the difference
between the two figures using the example of insuring a
house—there is a difference between the insurance premium and
the cost of the house burning
down. I
agree with the hon. Gentleman that a number of our market interventions
in recent months have been about underwriting risk. Often, the risk
that we have been underwriting potentially adds up to a large sum of
money. That does not mean that we are spending that money in a one-off
way, as a Government would if they spent money on a school, hospital or
new road; it is potential exposure. It is important to be honest about
the exposure, even if the sum that we expect to spend on the scheme is
substantially
less.
Mr.
Djanogly: I am grateful to my hon. Friend the Member for
Bosworth for bringing that point up again, and I should like to test it
further. Admittedly, because it is an insurance scheme, there will not
necessarily be a liability, as the Minister said. However, the
liability could well be more than £10 million—it could be
£20 million, £30 million or £40 million. If it was
Parliament’s intention that Ministers should return to it when
the figure reached £10 million, £5 billion clearly sticks
out a mile, because it is so much more than £10 million. Should
there be a mechanism whereby at a certain amount—it could be
more than £10 million but less than £5
billion—Ministers have to return to Parliament?
Mr.
McFadden: The hon. Gentleman is entitled to make that
point, but I believe that the order is in line with the permissions
that we must seek. We must seek Parliament’s permission when we
wish to spend more than £10 million under the scheme. I have
explained the difference between direct spending and our insurance
exposure. He is right that we expect our exposure to be substantially
less, but in seeking permission as we are doing today, we will allow
ourselves to introduce the scheme, for which there have been calls for
months, as I said. If we receive parliamentary approval, the scheme is
ready to go in very quick order.
Question
put and agreed to.
Resolved,
That the
Committee has considered the motion, That this House authorises the
Secretary of State to undertake to pay, and to pay by way of financial
assistance under section 8 of the Industrial Development Act 1982, in
respect of the Trade Credit Insurance Top-up Scheme, sums exceeding
£10 million and up to a cumulative total of £5 billion to
credit insurance businesses for the assistance of credit insurance
policyholders. 5.10
pm Committee
rose.
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