Trade and Industry Secretary Patricia Hewitt today announced an ambitious programme of measures to ensure that the Export Credits Guarantee Department  (ECGD) delivers a first-rate service to UK exporters through better customer service, improved pricing and cover.

The new measures underline the Government’s commitment to ECGD continuing to provide support at broadly current levels in the future. The Department will aim to reduce the premium it charges by up to £5 million per annum from April 2005, applicable to deals where the price would exceed international benchmarks.  In addition, the Department for Trade and Industry will invest up to £10 million over two years from 2005 to help ECGD improve its efficiency and to sustain premium rate reductions.

Announcing this outcome in a written statement to Parliament, Patricia Hewitt said: “The deal is a key milestone in ECGD’s history and provides an excellent basis for moving forward.  It took time to get this right because it was both complex and challenging but I believe it is an excellent package which customers should welcome.”

A capital framework of £1.8 billion has been agreed by Ministers which will enable ECGD to take a more expansive approach to cover and should be sufficient to meet current and future levels of business.

Chief Secretary to the Treasury Paul Boateng said: "The establishment of a framework for Trading Fund will introduce new risk management policies and systems based on best commercial practice, to improve value for money for the taxpayer. As part of the Government’s commitment to the future of ECGD, transparent reporting and accounting arrangements for the economic costs of providing export credit support to industry will be put in place."

Customers will be invited to contribute to a consultation on the Trading Fund following the launch of a pilot Trading Fund in April 2005.  It will give them the opportunity to influence how ECGD can deliver a top-class service to UK exporters before the Trading Fund is launched in 2007.

And following the recent appointments of a new ECGD Chairman and CEO, Patricia Hewitt added: “Ministers now have the right expertise at ECGD to meet its future challenges – helping to put the Department on a sound business and financial basis and drive forward the right deal for customers.”

NOTES TO EDITORS

1.The full statement made by the Trade and Industry Secretary Patricia Hewitt to the House of Commons today is attached below.

2.ECGD, the Export Credits Guarantee Department, is the UK’s export credit agency. A separate Government Department reporting to the Secretary of State for Trade and Industry, it has more than 80 years’ experience of working closely with exporters, project sponsors, banks and buyers to help UK exporters of capital equipment and project-related goods and services. We do this by providing:

• Help in arranging finance packages for buyers of UK goods by guaranteeing bank loans;
• Insurance against non-payment to UK exporters;
• Overseas Investment Insurance - a facility that gives UK investors up to 15 years’ insurance against political risks.

3.For more information on ECGD, visit  www.ecgd.gov.uk.

PRESS ENQUIRIES:

Azara Bibi, ECGD Press Office, Tel: 020 7512 7421

(Out of Hours:  07790 887852)

MINISTERIAL STATEMENT on the FUTURE OF ECGD

Further to previous statements to the House regarding Trading Fund status for the Export Credits Guarantee Department (ECGD) (on 22 July 2002, Official Report, columns 779 – 780W, on 17 December 2002, Official Report, column 45WS, and on 26 March 2003, Official Report, column 12WS), I can now tell the House about the measures which my Rt Hon Friend the Chief Secretary and I have agreed to ensure the future stability and effectiveness of the provision of export credits and guarantees to British exporters. These measures will provide greater certainty for ECGD’s future and a better deal for British exporters.

This has proved to be a challenging and complex process. We have listened carefully to the representations made to us by ECGD’s customers. We have also been able to take account of the relevant points made by the Trade and Industry Committee in its timely Report to the House on 15 June (HC 506 – 1) on the work of ECGD. I welcome the Committee’s analysis of the issues and I acknowledge its request to end the uncertainty about ECGD’s future.

The house will be aware that I have begun to strengthen the top management team at ECGD. Earlier this year I appointed Graham Pimlott as Chairman. He has considerable banking experience and helped prepare the plans I am announcing today. On 5 July, ECGD’s new Chief Executive, Patrick Crawford, who also has a strong private sector background, will take up post.

They will be working with the Shareholder Executive, now part of the DTI, to prepare strategic and business plans for ECGD. Consistent with these measures, HM Treasury will adopt a more strategic approach to its oversight role.

We have all been aware of the comparisons made between ECGD and overseas export credit agencies, and we share a determination to see the standard of service rise to the world’s best.

I can announce today that the Chief Secretary and I have agreed on a programme of action which will ensure ECGD has a firm basis for its future operations and enable the new top management team to introduce measures that offer British industry a world class export credit service.  

The key points are:

• ECGD will be authorised to offer its full range of current products and geographical spread of business.
• ECGD will aim to reduce its premium rates to customers by up to £5 million per annum, as from April 2005, whilst complying with relevant international minimum premium benchmarks.
• The DTI will invest up to £10 million over two years from 1 April 2005 to help ECGD improve the efficiency and effectiveness of its operating framework in order to sustain reductions in premium rates.
• The Government will continue to press for the elimination of interest rate subsidy on a multilateral basis. In the meantime, ECGD will continue to run a limited Fixed Rate Export Finance (FREF) scheme within the Trading Fund framework. This will be reviewed after three years in the light of experience and progress internationally.
• A Trading Fund will be established with a capital framework to enable ECGD to take a more confident and expansive approach to cover. The aim will be for ECGD to make cover available at the right price according to the assessment of risk.

The Chief Secretary and I are agreed on the structure for the Trading Fund:

• Trading Fund will have two separate accounts – Realisations and New Business.  They will be capitalised and accounted for separately and have separate financial objectives.
• Capital for New Business will be £1.8 billion. This capital will maintain the risk-reward balance on cover and pricing. There will be adequate headroom to manage both business growth and risk volatility.
• The New Business account target rate of return will be an affordable rate, specifically designed to deliver ECGD’s existing pricing regime. The Government has charged ECGD to continue pricing to break-even, in line with international agreements on export credit, not to maximise profits.  The Government estimates the economic cost of this commitment to be approximately £120 million per annum, and will be publishing budgeting arrangements for this in the 2004 Spending Review.
• Introduction of risk management policies and systems based on best commercial practice.
• Revised Treasury consent giving ECGD greater autonomy on cover and premium policies.

The New Business Account will have four aims:  to provide a good quality of service at a reasonable cost to exporters, to break-even in financial terms, to maintain the current risk – reward balance, and to remunerate its capital at an ‘Affordable Rate of Return’. This has been calculated to ensure it can be met from current premium rates without any across the board increase. Initially, the Affordable Rate will be set at 1.25 percentage points above the current National Loans Fund (NLF) rate of interest. At today’s NLF rate, the Affordable Rate would be just under 5 per cent per annum.

In establishing the framework for the Trading Fund, I had three objectives.  First, it should provide a structure for managing ECGD’s business consistent with the current risk-reward balance and business domain.  In other words, ECGD should be able to maintain its support for current levels of business.  Second, it should help to improve risk management. This is vital to assure taxpayers that they are getting value for money.  And third, there should be transparent arrangements for reporting and accounting the economic costs to Government associated with ECGD’s business.

These provisions will come into effect progressively from today. A period of operating a Pilot Trading Fund from next April will give management the opportunity to test and assess these arrangements before we establish the right level of capital for a Statutory Trading Fund to be vested in April 2007. During this Pilot, we will consult customers on whether the Pilot has achieved its objectives, with the intention of informing Ministers’ decision on the move to a Statutory Trading Fund in 2007-08.  

This challenging programme will put ECGD on a sound business and financial footing for the future. I have every confidence that it will allow ECGD’s staff to deliver the service which its customers expect and deserve.

End

1 July 2004