HC Deb 15 July 1948 vol 453 cc1404-10
The Chancellor of the Exchequer (Sir Stafford Cripps)

The negotiations with the Government of India on the subject of the sterling balances were concluded last week and the texts of the letters exchanged between the two Governments are being published today in London and in New Delhi. Copies will be available in the Vote Office this afternoon. It was not possible in the existing circumstances of the two countries to come to any final conclusions as to the balances and both parties agreed to settle the position for three years only on the basis of a continuing temporary arrangement based on the agreement entered into last year and published in Cmd. 7195.

The negotiations covered three main points. In the first place, it has been agreed that India should pay the United Kingdom on behalf of herself and Pakistan a sum of £100 million in respect of defence stores and fixed assets taken over by the Government of India before partition. The Government of Pakistan have concurred in this settlement which I am satisfied is fair and reasonable. The sum of £ million will be found from the joint sterling balances of India and Pakistan.

There has been outstanding for some time the question of the balances due from the United Kingdom under the normal working of the Indian Defence Expenditure Plan. Opportunity has been taken of this occasion to settle this matter and a payment of £55 million has been agreed to be due from the United Kingdom and this will be made from Army Votes. Supplementary provision, so far as may be found necessary, will be made later in the financial year.

Second, it has been agreed that a capital sum in sterling should be paid to purchase an annuity which will be used exclusively to cover India's liability for pensions paid in sterling. A similar arrangement is being made with Pakistan. Under this arrangement the Indian and Pakistan Governments will pay to the United Kingdom Government a sum of 176¼ million out of their sterling balances, against which we have undertaken to provide from U.K. Revenues tapering annuities, covering a period of 50–60 years, to be used for the purpose of the payment of pensions issued in sterling. This arrangement will cover both Secretary of State's and non-Secretary of State's Services and Provincial as well as Central Government pensions. The annuities are calculated, so far as available data permit, to fit the Pension bill in each year: If the actual amount required to pay pensions in any year exceeds the sum provided for by the annuity in that year, the difference will be found by release from the blocked sterling balance accounts, and similarly credit will be made to these accounts in any year in which the sum required is less than the annuity figure.

For the next three years, the present machinery for disbursement of individual pensions will continue, namely, the Commonwealth Relations Office will deal with military pensions which are the great majority, and the Dominion High Commissioners with civil pensions. Before the end of the three years, consultation is to take place as to the arrangements to be made after that period.

The third subject covered was releases from the sterling balances and the limitation on hard currency expenditure. Under this heading I am dealing today only with the settlement reached with the Government of India. I hope next week to make a statement on the negotiations with the Government of Pakistan.

The arrangements already in force with India regarding the control of the sterling balances have been extended for a further period. Experience has shown that inconvenience is caused to both the Government of India and ourselves by short-term settlements and the agreement is therefore to run for three years from 1st July, 1948, but it does not deal with the question of the final disposal of the remaining sterling balances. While we are prepared to contemplate, if necessary, a certain amount of flexibility between one year and another no release is provided for from the No. 2 to the No. 1 Account in the year from 1st July, 1948, to 30th June, 1949. In 1949–50 and in 1950–51 there are to be releases of such amounts, not exceeding a total of £40 million in each year, as are required to prevent the balance on India's No. 1 Account falling below £60 million. The form of this provision provides safeguard against any unnecessary accumulation of sterling in the No. 1 Account.

As regards hard currency, owing to the uncertainties of the world situation, the arrangement made is limited to the twelve months ending 30th June, 1949. In that period, India agrees so to limit her expenditure in hard currency areas that her drawings on the central reserves of the sterling area do not exceed the equivalent of £15 million. This figure has been agreed in the light of India's needs for supplies necessary for the maintenance and development of her productive capacity and it represents a further contraction in the Indian drawings on our central reserves. In 1947, those drawings were of course very heavy, while the agreement for the first six months of 1948 envisaged drawings of £10 million in the half year.

Various other matters are dealt with in the exchange of letters, but the only other point to which I need draw specific attention is that there will be periodical consultation between the two Governments on the working of the Agreement. This of course is in addition to the consultation which will be required in due course to settle both the question of what, if any, hard currency drawings there should be in the years 1949–50 and 1950–51 and the question of what is to be done about the sterling balances after 30th June, 1951.

In conclusion, I would say that the negotiations, though naturally difficult owing to the pressing needs of both countries, were conducted in a spirit of mutual co-operation and understanding which, in my view, augurs well for the future relationship between our countries. I would especially thank the Indian negotiators and their Government for their restraint, despite many pressing demands, in the matter of hard currency drawings and their realisation of the great need to maintain the level of the sterling area reserves. From the financial and economic standpoint, I am satisfied that the agreement which has been reached represents a reasonable interim settlement for the period immediately ahead, without in any way prejudging the eventual settlement.

Mr. Churchill

The right hon. and learned Gentleman would, I suppose, agree that at the close of the war we were said to owe India approximately 1,200 million sterling as a result of defending her from invasion and conquest by Japan. It had always been kept open, as I think he will agree, that we should have the right to put in a counter claim for the immense services which we rendered in saving those 400 million people from being ravaged, pillaged and slaughtered as they would otherwise, to a large extent, have been. In what has been concluded now have we kept open until 1951 the full freedom of reviewing this question—the main question of what is called "sterling balances," which is a euphemism for British debts? Is that position open and can it be raised and examined de novo in the year 1951?

Sir S. Cripps

I have already said that any arrangement that we have made does not in any way prejudge the eventual settlement. Everything is open on both sides.

Mr. Churchill

Even the fundamental issue of setting off the services rendered to India against the debt piled up under the conditions of war?

Sir S. Cripps

Any argument which any British Government wishes to put forward is open.

Mr. Churchill

Thank you very much.

Mr. R. A. Butler

Is the right hon. and learned Gentleman aware of the anxiety of pensioners living outside India about the possible taxation of their pensions under Indian law by the Indian Government, and can he give any assurance that this matter was considered? I have not been able to study the matter in detail, but if the right hon. and learned Gentleman could give an assurance I am sure that he would satisfy the very legitimate fears of pensioners.

Sir S. Cripps

This matter was raised, and it is understood between the Government of India and ourselves that if they should wish to impose Indian income tax on those pensioners who have hitherto enjoyed exemption from such tax—and we have no indication that they do—there would be consultation between the two Governments in order to avoid inconvenience or hardship to the individual pensioner.

Mr. Walter Fletcher

Can the Chancellor say what, during the three years' currency of this Agreement, it will mean in terms of unrequited exports from this country?

Sir S. Cripps

It means that there is a maximum possibility during the three years of £80 million sterling being drawn.

Earl Winterton

In view of the anxiety at this rather poignant time, on the part of the uncovenanted servants about their future, will the right hon. and learned Gentleman say whether these provisions relating to pensions cover the question of compensation?

Sir S. Cripps

These provisions, so far as the undertakings which the Indian Government have given are concerned, and which have been stated to the House, cover the finance for these undertakings They do not, extend any undertaking made by the Indian Government, but provide the sterling for it.

Mr. Thomas Reid

Is it not a fact that the pensions of public servants in India are being paid out of sterling balances, and, therefore, is there any reason why Income Tax should be levied by the Indian Government?

Sir S. Cripps

I do not know of any reason, any more than I know of any intention.

Mr. Godfrey Nicholson

In view of the rise in the cost of living in this country and the consequent alteration of British pensions, will these Indian pensions, which I now understand will be paid in England from the sterling balances, be deprived of any possible increase?

Sir S. Cripps

This is a matter for the Indian Government, which now takes responsibility for these pensions, and this is to secure that the money is available for the next 60 years in order to pay them.

Mr. Nicholson

Surely, the whole question is that the cost of living and the purchasing power of the pound may change? Are the Indian pensioners, as distinct from the British public, tied to a fixed sum in sterling for evermore?

Sir S. Cripps

No, they are not tied, any more than the British pensioners are tied. In the one case, it is for the British Government, and, in the other, for the Indian Government.

Colonel J. R. H. Hutchison

Can the Chancellor say whether the talks which he mentioned as about to take place with Pakistan will be limited to the sterling balances question, or will they cover a wider field, such as the supply of raw jute to this country?

Sir S. Cripps

They will cover the whole question of materials, sterling balances and finance.

Colonel Gomme-Duncan

The right hon. and learned Gentleman has already assured the House on the subject of pensions paid to British officers in sterling. What will be the situation under this arrangement with pensions paid to similar people in rupees?

Sir S. Cripps

This does not deal with rupees, but only with sterling pensions.

Mr. Oliver Stanley

Can the Chancellor give any idea of the budgetary consequences to us of this arrangement regarding pensions?

Sir S. Cripps

The budgetary consequence to us is that, each year for the next 60 years, we shall be paying away a certain sum of money—[HON. MEMBERS: "How much?"] It varies, and the figures taper. It starts, roughly speaking, and the figures are given, at about £5,500,000 in the first year and it goes down to nothing.

Colonel Crosthwaite-Eyre

Is the Chancellor aware that, as a result of the statements he made on 29th June and 13th July, he has now made available to other countries from sterling balances in the first six months of this year the sum of £530 million, including working balances, against £156 million for the whole of last year, and can he give us an assurance that this will be the final drain on these balances in the current year?

Sir S. Cripps

I do not know of any other cases except the Pakistan case. Whether we are likely to make any further arrangements in the course of this year I can give no guarantee or undertaking, not can I accept the figures given by the hon. and gallant Gentleman, as I told him the other day.

Mr. David Eccles

The Chancellor has said that the maximum drain on unrequited exports would be £80 million in three years. Does that mean that no interest is being paid on the balances, or that the interest is not freely disposable?

Sir S. Cripps

I was excluding the question of interest, but that applies to all matters on which we pay interest. We receive interest from a number of countries on the other side of the balance sheet.

Mr. Churchill

How much? What is the rate?

Sir S. Cripps

The rate of interest will be exactly the same amount as that which has hitherto been paid. On the large bulk of payments, it is one-half per cent., but there was a certain amount of investment in other securities during the war which are still held, and the agreement is that, whatever sum may be left, it should not carry more than 8 per cent., which is the average of both rates.

Mr. A. R. W. Low

With reference to the question raised by the noble Lord, was the question of the pensions for non-Secretary of State's services discussed, and will it still be open to the Government to discuss a better settlement?

Sir S. Cripps

The matter has been discussed and it is still under consideration.