HC Deb 04 February 1959 vol 599 cc515-28

Motion made, and Question proposed, That the Clause stand part of the Bill.

10.2 p.m.

Mr. John Edwards (Brighouse and Spenborough)

When we considered the Bill on Second Reading, attention was concentrated on the broad questions of convertibility, which had been raised in the Amendment proposed by my right hon. Friend the Leader of the Opposition. Apart from a short exposition by the Chancellor and a short comment by my right hon. Friend, there was scarcely any reference to the actual European Monetary Agreement. Now that we have been able to refresh our minds by seeing the text of Cmd. 9602, which is now in the Vote Office, there arise a few questions which I want to put to the Economic Secretary.

The Clause authorises the issue from the Consolidated Fund of the moneys which are needed for three purposes: first, to meet the calls which may be made upon or in respect of Article III of the Agreement; secondly, to meet any calls which would arise from liquidation of the Fund as set out in the Annexe to the Agreement; thirdly, to provide in the case of default on the part of any contracting party, as set out in Article XII. My first question concerns Article III of the Agreement, under which we and the other contracting parties have an obligation to make contributions. The United Kingdom contribution is 86,575,000 units of account.

The Economic Secretary will remember that on Second Reading his right hon. Friend referred to those contributions and said that it had been accepted that circumstances had changed a good deal since 1955 and that the right relationships of quotas to each other were now to be further examined. Can the hon. Gentleman say any more about that? It is worth remembering that under the Agreement as it now stands our quota comprises a little more than one-quarter of the total amount of contribution, that is to say, we are required to pay more than twice what anyone else is required to pay. Indeed, our contribution is greater than that of France and Germany taken together.

That is a point about which it would be interesting to hear from the Economic Secretary. Does he think that our contributions will be lower or higher in proportion as a result of the discussions which are going on? As I understand, this amount of about £31 million sterling does not necessarily have to be paid all at once. Would the Economic Secretary tell us how much of this he expects would be called upon in the near future, or whether he thinks a great deal of it will not be required for some time to come?

I need not say anything about the liquidation provisions, but I wish to say a few words about the obligation which may fall upon us—in reference to Clause 2—in respect of any default on the part of a contracting party. This is all set out in Article XII of the Agreement. If credits are not forthcoming, or for any other reason, we may find ourselves in a position in which we have to take our share of the amount involved in any default, but for there to have been a default will have meant that the normal system of settlement will have failed. Can the hon. Gentleman tell us anything more about the way in which he thinks the settlement will operate?

Is it seriously suggested that no credits whatever would be available unless all the representatives are in agreement? Are we to face a situation in which one of the countries concerned—no matter who—could veto the granting of credits even if all the rest were agreeable? That is a serious matter and I think it would produce circumstances in which Article XII might have to come into operation although, of course, we would all hope that would not be the case.

If the Economic Secretary would be good enough to answer these questions, that will enable us to see more clearly the definite effect of the Bill. There may be points arising on other Clauses, but these seem strictly appropriate to Clause 2.

The Economic Secretary to the Treasury (Mr. F. J. Erroll)

I shall try to deal briefly with the points raised by the right hon. Member for Brighouse and Spenborough (Mr. J. Edwards).

Our major contribution under the Agreement is the payment involved, to the extent and at the time required, of the contribution we have agreed to make. The United Kingdom's total contribution was fixed in 1955 at 86,575,000 units of account, which is just under £31 million. The contributions of member countries were based in 1955 on their E.P.U. quotas. The relationship between them is now due for re-examination, but I am sorry to say I cannot fully meet the wishes of the right hon. Member because it is too early yet to say what may be expected from the review which is being carried out by the O.E.E.C.

Mr. J. Edwards

The hon. Gentleman would agree that in the new circumstances our quota is high in relation to the rest and we should be aiming at getting a fairer quota in all the new circumstances? Something over a quarter of the total sum seems rather high in view of the changed situation, for example, in Germany.

Mr. Erroll

I appreciate the point the right hon. Member has made, but I should prefer not to comment further on the matter while it is under discussion by the O.E.E.C. The 1955 figure, incidentally, is the maximum authorised by subsection (1) of Clause 2, so there is no question of Parliament finding that we have made a bigger contribution than what was agreed in 1955. The existing maximum may be increased by Treasury order, but only if approved by affirmative Resolution of this House under subsection (2) of Clause 3.

The calling up of contributions to the Fund is a progressive matter, and it would be rather complicated to explain it to the Committee. I have the details of how the contributions will be called up if hon. Members wish to hear more about that during the course of the debate.

The question of default was referred to briefly last night by the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith). The last sentence of subsection (1) of Clause 2 enables us to pay our share of dollars if necessary under the default arrangements mentioned by the Chancellor of the Exchequer during the debate a week ago last Wednesday.

We felt that it was prudent to provide in the Agreement against the possibility of settlement defaults and also to avoid the risk of their becoming an excessive burden on the fund. We are going on no fewer than eight years' experience of E.P.U. and we do not expect that there will be any country likely to default in its monetary settlements, as none has done so during the last eight years. I should mention in passing that the Agreement itself provides severe enough sanctions in our view to deter any member from defaulting if this could possibly be avoided.

The only other point which I should like to make in connection with defaults is that Clause 2 (3) gives the Treasury the power to borrow in order to make the necessary payments from the Consolidated Fund, except in the case of payments under the default arrangements which are separately treated in the following way. We should have to help in bearing the burden of a default. The claims which we should get in return would inevitably be of uncertain maturity, and so we thought it suitable that such payments should come out of the Consolidated Fund as a charge against revenue and not be met by borrowing.

I think that those were the points which were made by the right hon. Gentleman, with one exception. That was the point regarding a single country standing out against an agreement to permit a country to default. That is a matter for the parties to the Agreement. In the first instance, the Board would review the matter and would report to the members, who would then have to arrive at a decision in the light of the circumstances prevailing at the time.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 3 and 4 ordered to stand part of the Bill.

Schedule agreed to.

Bill reported, without Amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.

10.14 p.m.

Mr. Harold Wilson (Huyton)

I certainly do not intend to delay the passage of the Bill, as I made clear last night when the Economic Secretary very wisely and fairly agreed to postpone consideration of the remaining stages of the Bill until this evening. I am certainly also not suggesting to my hon. Friends that they should vote against the Third Reading of the Bill. We had a reasoned Amendment on Second Reading, which was defeated after debate, although we were mostly concerned at that time with the broader issues of convertibility. At the same time, the fact that we are not voting against this Measure should not be misinterpreted.

We recognise that convertibility having been introduced and the European Monetary Agreement having automatically come into force, it would be irresponsible now to vote against the Bill which provides the statutory backing for the Agreement which is already in force. That does not mean to say that we ourselves feel that this is a wise Bill, or that the introduction of the European Monetary Agreement in succession to the European Payments Union was a wise decision on the part of the Governments of Western Europe in which Her Majesty's Government took, as we understand, a very leading part.

Our concern has been expressed fully and frankly by my right hon. Friend the Leader of the Opposition, both in statements outside the House and on Second Reading. Our main anxiety on the narrower point which is appropriate to Third Reading is the fact that, with the disappearance of the European Payments Union, the virtually automatic credits which were in force under the European Payments Union are no longer available to a debtor country, and, furthermore, that there is no automatic restraint on the activities of a persistent creditor country.

The European Payments Union, the negotiation of which was very largely the work of my right hon. Friend the Leader of the Opposition, provided a 50 per cent. automatic credit—50 per cent. payment in gold and 50 per cent. payment in credit. Thanks to the unwise negotiations of the Lord Privy Seal, when he was Chancellor of the Exchequer, the 50 per cent. gold proportion was raised to 75 per cent., which my right hon. and hon. Friends always thought was an unfortunate and, to some extent, a deflationary decision. We always understood that it was Her Majesty's Government who took the lead in proposing the substitution of 75 per cent. for 50 per cent., though that might be unfair to the Lord Privy Seal. Perhaps he can cast his mind back and tell us whether we are right.

We are well aware that under the European Payments Union some countries have exhausted the credit available to them and that a new arrangement would have had to be made to enable the automatic credits to be continued. I feel that Her Majesty's Government could have taken a more active part in renegotiating the E.P.U. so that the credits could continue and so that restraint on the creditor nations could also have been continued.

Under the European Monetary Agreement, negotiated in those long-far-off days between the Lord Privy Seal's election Budget and his autumn Budget of that year, which must seem a very long time ago to most of us, the only credits available, as far as one can understand from reading the White Paper, are those which are agreed unanimously by the committee of management of the European Monetary Agreement. The Economic Secretary will no doubt correct me if I have misinterpreted that.

The unanimity rule is in force, which means that any deflationist has a veto either on the granting of credit to a country which needs a credit or on the terms on which that credit might be made available. We all know that certain countries in Western Europe are very deflationist in outlook. There are certainly signs that Germany would wish to be in certain circumstances. Moreover, I interpret the emphasis of this new agreement, as compared with the E.P.U., as putting much more power into the hands of the central banks and less directly in the hands of Governments; and almost by definition the European central banks are institutional deflationists who tend to take the usual banker's view about Government activities.

It would be over-dramatic to say that we are now back to the days of Montagu Norman or anything of that kind, but, at any rate, it is a move in that direction, just as convertibility is a move in the direction of the international gold standard. I should like to hear from the Economic Secretary some more reassuring words than we have so far had from him or from the Chancellor suggesting that any country which needs credit to expand its trade will be able to have it without this dead hand of the central hankers of Western Europe.

I do not need to tell the hon. Gentleman, or the Lord Privy Seal, because they both know it very well, that the European Payments Union was the means of facilitating or lubricating a very substantial increase in European trade. The liberalisation, which was first proposed to Western Europe by the Government of this country when the Labour Party was in charge of these things, could not have been undertaken with any confidence by many countries in Europe, at certain times even by ourselves, if it had not been for the automatic credits provided by the European Payments Union.

Equally, many countries would not have dared to be expansionist in production—knowing that to be expansionist in production leads to an increase in inter national trade, particularly imports—without knowing that any risks they took would be partially insured by the operation of the European Payments Union. That has now gone, we have this European Monetary Agreement in its place, and some of us are extremely anxious about its effects in Europe. In the last few months, we have seen deflationary trends setting in in Europe and although, for obvious reasons, we shall not vote against this Bill, we fear that this Agreement will intensify the tendency towards deflation.

The only thing about which I want to ask the Economic Secretary relates to that article in the Agreement referring to possible action by the United States Government to revalorise the price of gold. There has been much talk about that. One has heard what are, perhaps, ill-informed remarks about devaluation of the dollar, which some equally ill-informed people have taken to mean that the dollar is likely to be devalued in terms of European currency.

Most of us feel that there is a strong case for an increase in the American statutory price of gold. That would automatically revalorise in a favourable direction, the gold holdings of most of the rest of the world, which would be a good thing for this country and also the sterling area, and would also help our gold earnings. What the prospects of that are, one cannot say, the more so as a decision of that kind would be likely to help the Soviet Union, which is a major gold producer. It would, therefore, be regarded as an unpopular suggestion in the United States at present.

Can the Economic Secretary tell the House whether the reason for this reference in the European Monetary Agreement to a revalorisation of gold is merely an automatic piece of drafting, due to the fact that in Article 24—here I speak from memory—the unit of account so called is expressed in terms of a decimal fraction—I think that it goes to eight or nine decimal figures—of a gramme of fine gold, and that a revalorisation of fine gold would lead to a change in that, due to the fact that, really, when they talk of the unit of account they talk of the dollar?

That may be the situation. The Economic Secretary has, as I have, recently visited China, where he may have found that when they talk of revalorisation they talk in terms of currency units. They express the hope of extending their currency units, and when they are asked what they mean by currency units, they say, rather coyly, that they mean the dollar. Is Article 24 a rather Chinese way of saying that the accounts are to be measured in terms of dollars, but because they do not want to say dollars they talk about grammes of fine gold?

Is that the only reason for this reference to revalorisation, or is it hoped, as some of us do hope, that as a result of pressure by Her Majesty's Government, the South African Government and others, there is an early prospect of the American Government coming to their senses in this matter? There is an important section of the Agreement dealing with this point, and we should like to know from the Economic Secretary—since the Bill is to validate and make effective that European Monetary Agreement—the exact importance to be attached to these references to gold.

Having said that, I repeat that we do not propose to vote against the Bill, although it was right to put on record, as we did in the earlier debate, our anxieties about the way in which this Agreement may work.

10.25 p.m.

Mr. William Shepherd (Cheadle)

have listened to the whole of the debate on this Bill and to the reiteration of right hon. and hon. Members opposite on the merits of automatic credits. I think that one ought to register a protest against this point of view, because it is out-moded, as are most of the ideas expressed by the party opposite.

I would not for one moment deny the value of the E.P.U. arrangement in the conditions immediately following the Second World War, and I do not wish to detract one iota from the credit due to right hon. and hon. Gentlemen opposite for the part they played in those arrangements. Nevertheless, we really must try to progress as things move. We cannot stand still and think that, because the idea was conceived by a right hon. Gentleman opposite, he was a genius and his work must remain for all time.

Economic circumstances change, and certainly the economic circumstances of Europe have changed very considerably since the time when E.P.U. was inaugurated. I am satisfied that it would be utterly wrong for us to pursue a policy of automatic credits, even if we could succeed in persuading the people of Europe to do so. If we had tried to do so and we had succeeded, it would, in my view, have been an utterly wrong arrangement.

What, after all, is the effect of automatic credit arrangements? It is that other people parties to the arrangement are required to underwrite whatever economic policy, whatever profligate policy, another country wishes to pursue. It means that, whatever is done by other parties to the agreement, one has to make good what they have failed to do. We cannot expect that, over a long period of time, anybody should do that. Indeed, I am satisfied that the creditor countries would not stand for it. Even worse is the effect upon the country so aided, If a country is automatically aided, whatever its internal policy is, it will not apply the measures for its own salvation which it ought to be expected to apply.

I am profoundly glad that the Government have been strong enough to stand for this policy of credits based upon the tests of need rather than automatic credits. I am perfectly satisfied that the economic future of Europe would not be aided by a continuation of automatic credits.

10.27 p.m.

Mr. John Cronin (Loughborough)

The hon. Member for Cheadle (Mr. Shepherd) has voiced the completely restrictionist point of view. His attitude appears to be that credits should not be available for countries unless they are prepared, at the bidding of other countries involved in completely restrictionist internal policies, to indulge in restricted credit, unemployment and lower production—the same pattern as we have had over the last few years. However, I will not trouble the House with that further tonight. I wish merely to make certain comments on the circumstances of the debate.

It is very unsatisfactory that we have had such a short time to study the White Paper. I know that the Economic Secretary did agree to this debate being brought forward this evening from last night, hut a few hours is a very short time to study such a complex document with its far-reaching possibilities. Another circumstance which surprises me is that the Chancellor of the Exchequer is absent. My right hon. Friend the Member for Huyton (Mr. H. Wilson) did say that he understood that there were good reasons for his absence yesterday evening, and, no doubt, the Economic Secretary will tell us that there are good reasons for his absence now; but it would be an unfortunate precedent if the Chancellor were frequently absent on major occasions such as this when we debate an important fiscal Measure.

To some extent the absence of the Chancellor is made up by the presence of the Lord Privy Seal, who was the principal architect of the European Monetary Agreement. It is a source of pride to him, and he probably has his own opinions about that at present. The right hon. Gentleman the Lord Privy Seal did, on 26th July, 1955, make a statement about the European Monetary Agreement. His words are reported at col. 1025 of HANSARD, but I shall not weary the House by reading the actual passage. The right hon. Gentleman then said that there were three criteria necessary for introducing the European Monetary Agreement, namely, a strong internal position, sufficient world credit available, and a wider trade policy.

Our internal position is that we have 600,000 unemployed. Production is static. Manufacturing and capital investment are going down. The credits available certainly seem rather unsatisfactory, in spite of the increasing quotas of the International Monetary Fund. As regards a wider trade policy, we are shortly to be up against the European Economic Community. We are up against the protectionist barrier of the United States. Obviously, the Greer's Ferry Dam affair is one instance of that. We are having difficulties of our own in the sterling area because other countries are unable to purchase our exports to the amount they wish, and, of course, we are having the same difficulty with the South American countries as we had before—restrictions and embargoes.

It would seem that, going by the criteria of the Lord Privy Seal, this Bill is not having its Third Reading at a very apt time. My right hon. Friend the Member for Huyton dealt with the excellence of the European Payments Union which this Bill is replacing. That body was originally intended to last for two years, but it lasted for eight and a half years. I think that is some indication of the satisfaction that was felt by most of its members. I think it rather unfortunate that it was terminated, because it could only be terminated by members having 50 per cent. of the quotas. That 50 per cent, could only be made up by ourselves. The other countries in favour—Switzerland, Germany, Belgium, Holland and Luxembourg—could not by themselves have made up 50 per cent. of the quota. Therefore, we are entirely responsible for that position.

I wish to put a few points to the Economic Secretary. First, is there any likelihood under the European Monetary Agreement of security sterling becoming transferable? There is now hardly any discount on security sterling as quoted in the free market, and, presumably, exactly the same argument applies for making security sterling convertible as for making transferable sterling convertible. I should like the Government's view on that.

My point is that under Articles 9 to 12 of the European Monetary Agreement, settlements have been made at the extreme ranges of official rates. One gets the impression that they have got automatically to take place at the rate most unfavourable to the initiator of the settlement. That appears to me to have a very deterrent effect on clearances.

Is this agreement really intended to facilitate clearances, because it seems that its purpose is chiefly to drive clearances through the ordinary foreign exchange channels? That, of course, is entirely in keeping with the Government's strong theoretical views on private enterprise, but it has an unfortunate effect on financial payments.

I would also like to ask why Article 10 is so strictly limited. An answer to these few points will be very acceptable to the House. I will not press the matter further in view of the lateness of the hour, but it seems to me that this is a very ill-timed Bill. There is no doubt that convertibility has, through a combination of circumstances, been quite easily attainable, but the question is whether it is maintainable in the future. The Government have always said that they would defend the £ to the last ditch, but it looks as if the last ditch may be filled with men who are likely to lose their jobs.

10.34 p.m.

Mr. Erroll

I will reply only briefly to the points raised, particularly as the right hon. Member for Huyton (Mr. H. Wilson) appears to be unable to be present to hear the answer to the points which he raised.

I would like to make it plain that while there is a great division between the two sides of the House as to the value of this Measure, we take the view that the new arrangements should prove a strengthening source of credit, more flexible than the automatic credit of the European Payments Union.

It will provide, on a regional scale, a similar type of liquidity to that which we have been working to increase in the wider field of the International Monetary Fund. At the same time, as regards credits—particularly referred to by the right hon. Member for Huyton—the members of O.E.E.C. will be able in each case to decide collectively on the appropriate conditions for the credit to be granted. In addition to that, of course, any individual member country in need of credit will always be able to make a bilateral arrangement with any other European country, or, indeed, any other country in the world, from which it can obtain credit facilities.

Mr. J. Edwards

Are we right in assuming, however, that the granting of the credit will require unanimity on the part of the Council, or is this something that could be settled by the Committee of Management, where the unanimity rule, I understand, does not always apply? If a country wants credit, does this mean that all the contracting parties, through the Council, must agree?

Mr. Erroll

That will depend on circumstances. I do not think it would be possible to lay down a hard and fast procedure in advance.

In addition to what I have just said about a country being able to obtain a credit on its own initiative from any other country, and in view of the remarks which have been made about how difficult it would be to obtain any credit, I thought that the House would like to know that the Council of the O.E.E.C. has just agreed to the first grants of credit from the new Fund. They will be announced shortly on the recommendations by the Fund's Board of Management on the cases for such assistance which have been put forward by the countries concerned. I am not yet in a position to announce the names of the countries, but this should go some way towards reassuring hon. Members opposite who have raised the question of the difficulty of obtaining credits.

For the reassurance of the House, I would like to make it clear that if any calls should be made on the United Kingdom's contribution before the Bill has received the Royal Assent it is our intention to meet this call temporarily from the resources of the Civil Contingencies Fund. Nevertheless, and quite obviously, the sooner we have express statutory authority, where required, for the necessary transactions under the European Montary Agreement, the better for both this country and for our friends in Europe. I therefore invite the House to accord the Bill a Third Reading.

Mr. H. Wilson

I understand the hon. Gentleman's references to the Civil Contingencies Fund. That is probably normal procedure. Under what Estimates will any expenditure in the present financial year be met? As far as I am aware, it is not in the Supplementary Estimates. From the viewpoint of Estimates procedure, how will this be financed?

Mr. Erroll

We would look into that if it proved necessary to make such arrangements.

Question put and agreed to.

Bill accordingly read the Third time and passed.