§ As I stated in my reply to my hon. Friend the Member for Essex, South-East (Mr. Braine) on 20th July, 1955, Her Majesty's Government having examined with the Maltese Government their estimates of revenue and expenditure for the year ended 31st March, 1956, recognised that it would not be possible for the Maltese Government to provide from their own resources the budgetary services that were agreed to be necessary. Her Majesty's Government therefore undertook, subject to the approval of Parliament, to provide funds to the Governments of Malta in respect of that financial year on the basis of an agreed budget. The contribution took the form of a grant of the sum which proved necessary to maintain the balance in the Consolidated Revenue Fund of Malta at a figure of £1 million at the 31st March, 1956, subject to a maximum grant of £2 million.
§ 2. On the basis of accounts produced by the Maltese Government last month, provision will accordingly be made for a contribution of £1,974,232. This amount is additional to the funds already being provided in respect of war damage and reconstruction, the net cost of the services of the Maltese Imperial Government and grants under the Colonial Development and Welfare Act. The total financial assistance provided or to be provided by Parliament for the year 1955–56 will thus be £4,257,538.
3. As hon. Members are aware, some general considerations concerning the economic development of Malta and the implications in terms of United Kingdom financial aid were examined by the Malta Round Table Conference, whose Report was presented to Parliament in December last year. The Conference heard evidence on these questions from the Maltese Government Delegation and its Economic Advisers and from my right hon. Friend the Financial Secretary to the Treasury and myself. On the subject of United Kingdom aid, the Conference stated (paragraphs 59 and 60 of their Report, Cmd. 9657):
59. Her Majesty's Government in the United Kingdom is this year providing between £4 and £5 millions towards Malta's capital and current needs. In the agreed statement on economic policy issued at the end of the June talks (see Appendix G) Her Majesty's Government undertook to continue financial aid over the next few years; first, to promote new capital development and, secondly, to assist, as may prove necessary, towards balancing the budget and improving social services. Although the amount of this aid has not yet been determined, we understand that a continuation of aid at about present levels for the next few years if not considered by Her Majesty's Government to be unreasonable. It seems to us to he unlikely that more money could be spent productively in Malta during these years because of the limits set by the skilled
labour force available, and the building and constructional capacity of the Islands. The rate of needed assistance towards capital expenditure may possibly increase gradually thereafter; but a decision on requests for assistance towards recurrent expenses will have to depend on the success which is achieved in promoting productive development in Malta and hence in increasing local taxable capacity. It is important that care should be taken that increases in social expenditure do not run ahead of Malta's ability to support it, in the longer term, from her own resources. The new schemes referred to in Appendix E will throw a burden on Maltese resources and, therefore, will have to be introduced gradually.
60. Assistance from the United Kingdom Treasury will necessarily be subject to control by the Parliament at Westminster. The form of that control is a matter which should be settled between the two Governments. There should be, at the outset, a clear understanding about the maximum amount of assistance which could be given annually by the United Kingdom Exchequer over a period of years. This would assist the Maltese Government in drawing up its annual budget and would reduce the possibilities of friction in the annual examination of Malta's requests for assistance towards meeting recurrent costs.
§ 4. The Report of the Conference was not debated in this House until 26th March. Before that date it was necessary to reach some understanding with the Maltese Government about the budgetary arrangements for the current financial year. In discussions held in the Colonial Office during March, interim arrangements were agreed for the continuation of recurrent expenditure to maintain existing services at existing levels for the first three months of the new financial year, for the introduction of the National Insurance scheme, and for the initiation of certain capital works during the same period. My advisers explained that agreement to this interim provision for capital expenditure did not commit Her Majesty's Government to accepting that expenditure on the agreed capital works should be continued at the same rate during the rest of the current financial year. My advisers also explained to the Maltese Prime Minister, whom they understood to agree, that in order that further discussions of the whole year's budget and of financial arrangements for subsequent years, proposed for late May or early June, might proceed on a proper and informed basis, it would be necessary for me to be furnished with the draft Maltese five-year development plan one month in advance of the discussions and with the Maltese Government's draft estimates for 1956–57 at least a week or ten days in advance.
§ 5. The Report of the Malta Round Table Conference was debated on the 26th March. In the course of my opening speech on that occasion, I said further, on this financial aspect, we accept the proposals in the Report regarding economic assistance, including the need for a clear understanding at the start about the maximum amount of annual assistance by Her Majesty's Government over a 863 number of years. Thus acceptance of integration would not involve Her Majesty's Government in any obligation to provide financial assistance to Malta in excess of the levels envisaged in the Report. This statement was not challenged during the debate nor at the time by the Maltese Government.
§ 6. On 5th May, 1956, I addressed a despatch to the Governor of Malta on the subject of the financial arrangements for the year 1956–57 and subsequent years. This despatch drew attention to the recommendations of the Report and to my statement, of which I have just reminded the House. It stated that I hoped to be able to inform the Governor very shortly, in advance of the proposed talks, of the level of assistance beyond which Her Majesty's Government would not find it possible to go in the light of the recommendations of the Round Table Conference and the United Kingdom's current financial position. As the Maltese Prime Minister himself has said, the Maltese Government reacted violently to this despatch. The Maltese Government preferred to deal with the arrangements for 1956–57 separately from, and independently of, the considerations which should govern assistance for the first few years after the new Constitution came into force. At the same time, they made it clear that the proposals for the current year would include, under both ordinary and capital expenditure, new services which involved recurrent commitments in future years. Moreover, they reiterated their attachment to the principle of "economic equivalence" on which Her Majesty's Government had already entered reservations at the time when the Maltese Government's referendum proposals were under discussion and again in the debate on the 26th March.
§ 7. Although Mr. Mintoff had meanwhile committed himself publicly, in a speech to the G.W.U. Congress on the 13th May when Sir Vincent Tewson and other distinguished trade union officials from overseas were the guests of that union, not to accept integration unless it was agreed to include economic equivalence in the Constitution and had talked about "integration not being the only solution for Malta." Her Majesty's Government fell in with the suggestion that the financial arrangements for 1956–57 should be discussed on an ad hoc basis. Pending discussions between the Maltese Prime Minister and myself later in the month on the budget for the whole year, a Maltese Government delegation therefore began discussions in London on 6th June with the object of securing Her Majesty's Government's concurrence in financial provision for a further two months, which would include some of the proposed new services. In support of their proposals, the delegation produced a skeleton outline of their five-year plan, the full details of which were apparently not yet available for consideration by Her Majesty's Government. It soon became clear that the rate of expenditure envisaged in the proposed provision for a further two months would, if extended over the whole year, result in total expenditure involving financial assistance from Her Majesty's Government far in excess of what was contemplated in the Report 864 of the Malta Round Table Conference and in the despatch to which I have already referred.
§ 8. It was not possible to reach agreement on any of these matters and at that point the Maltese Prime Minister came to London, on my invitation. Before coming, he asked for an assurance that the budget would be discussed on its merits, that is, without any prior conditions. I made it clear to him that I was ready to discuss the budget with him on that basis, but that in Her Majesty's Government's view the merits of the budget inevitably included the estimates of revenue as well as those of expenditure.
§ 9. In this connection, I should make it clear that the budget for the full year envisaged a total expenditure of £13,516,727. The proposed expenditure on the ordinary budget was £9,443,000, which included certain new services and involved a total increase of £1,727,000 as compared with the actual expenditure under corresponding heads last year. The total estimated expenditure on the capital budget was £4,495,000, which represented an increase of £2,495,000, as compared with actual expenditure in 1955–56. Thus expenditure was to be increased by nearly £4¼ million; no new taxation or new source of revenue was proposed and the total revenue estimate, at £7,796,000, showed a net increase of only £¼ million over last year.
§ 10. The Maltese Government's proposals would thus have involved a commitment on Her Majesty's Government to increase their financial assistance from £4,250,000 for last year to over £8 million for this year without any increase, either by way of raising additional revenue or public loans, in the efforts of the Maltese Government and people towards meeting the cost of the services which the Maltese Government wished to carry out.
§ 11. In the course of further discussions, I was obliged to draw the attention of the Maltese Government to the disparity between this proposed level of assistance and that envisaged in the Report of the Round Table Conference and previously accepted by Her Majesty's Government. I was bound to point out that their proposals envisaged an increase in the deficit on the ordinary budget, as well as a large increase in the deficit on the capital budget. Both of these increases would involve continuing and increasing commitments in future years, since although the Maltese Government were proposing that the estimates for this year should be dealt with on an ad hoc basis, the services included would have to be carried on in future years. The Maltese Prime Minister frankly acknowledged that the total assistance required from Her Majesty's Government would probably rise even further in the next two to three years, although it might diminish thereafter. I was, moreover, bound to criticise the Maltese Government's proposals as envisaging the starting up of too many new capital development schemes all at once and to draw their attention to the fact that certain items of expenditure were more suitable for financing by means of public loans than from grant-in-aid, both from the economic point of view and in order that the Maltese Government should face up to the obligation they assumed in the agreed statement of last July and on which the Conference laid special 865 emphasis. This was that the Maltese Government and people should make the best possible contribution from their own resources. I did my best to convince the Maltese Prime Minister that, subject to a further examination of the budget, it should be possible to reach agreement on a level of assistance within the figures envisaged in the Report which would he sufficient to maintain employment and to carry out a certain measure of priority development.
§ 12. The Maltese Prime Minister maintained throughout our talks that he could not accept the offer of assistance on the basis I had proposed and that it was impossible for him to rephase or cut any of his proposed expenditure, except in respect of certain proposals to the extent of about £500,000. Mr. Mintoff argued his case very skilfully, but I regret I cannot accept his contention that his arguments, particularly on the question of increasing the local contribution to revenue, were conclusive or that I was at any time convinced by them.
§ 13. Despite further conversations between the Maltese Prime Minister and myself and with my Rt. Hon. Friend, the Prime Minister, on 22nd June, it was not possible for the Maltese Government to accept the views put forward by Her Majesty's Government. The Maltese delegation returned to Malta on the 23rd June. Before his departure, It was made clear to the Maltese Prime Minister that it was hoped that the situation would be dealt with in a moderate and calm manner. It was therefore with great regret that I noted that he had, without further consultation with Her Majesty's Government, introduced a Bill in the Maltese Legislative Assembly involving expenditure for three months which, if concurred in by Her Majesty's Government, would involve them in a contribution for the whole year of £7 million. I have placed in the Library a copy of Mr. Mintoff's speech, from which it is apparent that this figure of £7 million has been arrived at by rephasing some of the proposed development expenditure, although a new sum of £500,000 is included for contingencies, among which are listed wage and salary increases in Malta, a subject on which the Report of the Conference had also in paragraph 57 urged caution and restraint.
§ 14. The Maltese Prime Minister has indicated that Her Majesty's Government must accept or reject the implications of this action by the end of this week. This means, of course, that the Maltese Legislative Assembly is confronting this House with a decision which would commit this House, without prior agreement, to providing a total sum of financial assistance for the current year, and by implication in subsequent years, very considerably in excess of the levels envisaged in the Report of the Conference and accepted by Her Majesty's Government when the Report was debated last March. Despite Her Majesty's Government's willingness to accept unconditionally the recommendations of the Report of the Round Table Conference and to introduce into this House and pass through all its stages a Bill giving effect to a most notable innovation in our Constitution, namely representation of Malta in this House, I cannot in all the circumstances recommend that this House should submit to this demand.