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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.
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.
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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