HC Deb 12 April 1960 vol 621 cc1120-31

5.12 p.m.

Mr. William Warbey (Ashfield)

I beg to move, in page 2, to leave out lines 22 and 23 and to insert: returned to the International Development Association for use by the Association as supplementary resources in accordance with paragraph (a) of section 2 of Article V of the Agreement". The purpose of the Amendment is clear enough in principle, although for its precise application I shall have to refer to the Articles of Agreement. The International Development Association will be receiving from this country an initial subscription amounting to some £47 million, which presumably will be the equivalent of an undated loan. On this loan we could conceivably be entitled to receive interest, and the purpose of the Amendment is to provide that, in effect, our loan shall be an interest free one or, if interest is actually paid over to the Exchequer by the Association, the money shall be refunded to the Association for use in accordance with the Agreement.

It is necessary to refer to the actual terms of the Agreement in order to see in what category the funds so made available could be used. On page 14 of the Agreement, Section 2 of Article V provides as follows: Financing by the Association shall take the form of loans. The Association may, however, provide other financing … "Other financing" presumably means financing by way of grants or gifts, or possibly technical assistance or other forms of free services. These other forms of financing can be provided in one of two ways

5.15 p.m.

Firstly, they can be provided out of the funds subscribed pursuant to Section 1 of Article III. That Article provides for additions to the initial subscription— either general additions or individual additions. That, as the Economic Secretary pointed out on Second Reading, could only be put into effect by this country by additional legislation. In addition to funds derived by supplementary subscriptions, other funds can be provided, according to Article V … in special circumstances, out of supplementary resources furnished to the Association, and funds derived therefrom as principal, interest or other charges, if the arrangements under which such resources are furnished expressly authorise such financing. It is, I am sure, generally agreed by the Committee that we wish to assist the new Association, when it is established, to carry out its essential purposes— namely, to provide economic assistance to under-developed countries on less onerous terms than those of conventional loans, such as are provided by the International Bank. Such a form of financing could take the form of low interest loans, interest-free loans or outright gifts or grants.

Unfortunately, during the past year or two, the rates of interest charged by the International Bank on its loans have risen quite substantially. In the early days they were at rates of 3¾ to 4 per cent. Since last year they have risen to 6 per cent. I regard this as an atrociously high rate of interest to charge on loans to countries which are in great need of economic help, and it constitutes a very heavy burden for them. On a 20 year loan at 6 per cent. interest, repayment has to be made one and two-thirds times over and the seriousness of this additional burden on the under-developed countries is illustrated by the example of India.

Mr. B. K. Nehru, the Indian Commissioner-General for Economic Affairs, has estimated that for India's third five-year plan external financing of the order of £1,575 million will be required for the purpose of capital goods and equipment. In addition, a further sum of £375 million will be required for payment of external debts.

There is no doubt that for countries in the position of India, the servicing of loans from the International Bank or from other sources can be a very heavy additional burden. That is why it is extremely important that this new organisation shall be in a position to make its loans, as far as possible, free of interest, or at extremely low rates of interest, and, still more, that in certain cases it should be able to make outright gifts and grants.

Under the rather curious constitution of the Association non-loan finance cannot be provided out of the initial subscriptions made by the member countries. That follows from the wording of the Section which I have read out: Financing by the Association shall take the form of loans. The executive directors will not be able to provide any other form of financing except those resources provided—in other words, either by additional subscriptions or by the income from interest on loans which they make. Therefore, the effect of this Amendment would be that we would be able to help to provide the Association with supplementary resources from which it could provide help in the form of gifts and grants to countries in need. I hope that this country will give a lead in this direction. If we were to give such a lead, other countries could be persuaded to follow our example. If the richer countries, those listed in Part I of the Schedule, were all to follow our example, the effect would be that a total of about 760 million dollars would be liberated from any liability to pay interest to the member countries.

That sum could be lent in the form of loans at low rates of interest and then the interest so received could be recirculated in the form of gifts and grants to the under-developed countries. I do not claim that a very large amount is involved in this proposal. If we assume—this is purely hypothetical— that the Association charges an average rate of 2½ per cent. on its loans and retains ½ per cent. to cover its own expenses, the amount of interest which would be forgone by this country would amount at the peak, when all the funds were in circulation, to about £1 million a year. If the other richer countries were to follow our example, the total additional funds available to the Association would be about £5 million or £6 million a year for use for grants or gifts.

That would be a small, but nevertheless valuable contribution and additional help to that which we are already giving to the under-developed countries and would establish a very sound principle, that when we are helping our neighbours, we should do so without thought of any financial gain for ourselves.

Major Sir Frank Markham (Buckingham)

I have listened with great interest to what the hon. Member for Ashfield (Mr. Warbey) said, but this seems to be an occasion when we should not move unilaterally. In a matter like this, we should move only with the support of other countries contributing to the International Development Association.

I have two short questions. Firstly, what guarantee is there that none of the funds of the Association will be used to pay off loan charges on loans from the International Bank? In short, has the body controlling the Association adequate powers to see that the moneys subscribed definitely go to further development and not to the payment of interest on past development subsidies or advances by the International Bank? Secondly, will papers be put before Parliament showing the detailed accounts of the Association so that from time to time we may have a chance in Parliament to criticise its programme?

Mr. H. A. Marquand (Middlesbrough, East)

My hon. Friend the Member for Ashfield (Mr. Warbey) has explained the Amendment so carefully and thoroughly that it does not need further explanation from me. However, I want to add my support to what he has said.

If there is no technical objection to the Amendment, I hope the Government will consider accepting it, even if they are taking a step in advance of other countries, because someone has to begin with this desirable proposal. I get the force of what the hon. and gallant Member for Buckingham (Sir. F. Markham) said about one of the subscribing countries not being taken out of step with all the others. However, it would not be a mistake for us, a prominent country in this matter and one of the principal subscribers, to say that we willingly subscribe our £47 million over the five years and that the House of Commons enthusiastically supports the proposal and that the British people regard it as their contribution to this important purpose of a new affiliate of the International Bank, which will be able to lend or supply money on terms easier than those offered by the Bank; that the British people are in favour of that and that their representatives in the House of Commons have unanimously voted for it and that we do not want our money back. That is what the Amendment proposes. Having subscribed our money, we should leave it revolving in the funds of the Association for as long as the Association continues. We do not wish to receive interest, and we see no reason why the Association should make any form of profit to be divided up among its members.

We all know that the principal purpose of the Bill is to provide funds on easier terms than they can be provided from the Bank's resources. The Bank is in this difficulty because it has to sell bonds to raise its income and is, therefore, bound to charge interest on the loans it makes, as it is responsible to its bond holders, but that does not apply to this fund.

If there are substantial supplementary earnings, why should there be provision in the Articles for disposal of the Association's own income, which could include distribution to Member countries? Why dispose of the net income, if there is a net income, during the existence of the Association and before it comes to be wound up? Why should the Association sit on that income when it could be used for the purpose for which it was originally subscribed? That is the essence of the Amendment, and I hope that even if the Economic Secretary says that it would be inappropriate to introduce the Amendment at the moment, he will at least indicate that the Government accept in principle what we suggest and, with colleague members of the new Association, will seriously consider whether there should be any net income and whether, if there is a net income, it should be distributed to members or used for the purposes for which the Association was established.

The Economic Secretary to the Treasury (Mr. Anthony Barber)

It may be for the convenience of the Committee if I first deal with the two questions of my hon. and gallant Friend the Member for Buckingham (Sir F. Markham) and then come to the substantive issues raised by the hon. Member for Ashfield (Mr. Warbey).

My hon. and gallant Friend asked first what guarantee there was that none of these funds would be used to pay for loan charges in respect of loans made by the International Bank. The answer is to be found in Article 1, which describes the purposes of the Association. I will not read it all to the Committee, because I dealt with it at some length on Second Reading, but it is there stated that: The purposes of the Association are to promote economic development, increase productivity and thus raise standards of living in the less-developed areas of the world included within the Association's membership … It then goes on to particularise.

As I said on Second Reading, the staff dealing with the affairs of the Association will initially, at any rate, be the same staff as that dealing with the affairs of the International Bank. That fact, taken with the expressed statement of the purposes of the Association, should ensure that the funds which are lent by the Association will be used only for the purposes there stated, that is, to promote development in under-developed countries.

5.30 p.m.

Mr. Douglas Jay (Battersea, North)

If I may fortify the Economic Secretary's argument, Article V (1, a) says: The Association shall provide financing to further development in the less-developed areas of the world … Would not those words, which are fairly categorical, exclude any such repayment as suggested by the hon. and gallant Member for Buckingham (Major Sir F. Markaham)?

Mr. Barber

I am grateful to the right hon. Member for Battersea, North (Mr. Jay). I think that is so. That adds to what I said about Article 1.

On the question of reporting, I assure my hon. and gallant Friend that the Association will make an annual report which will be public, and which no doubt will be available for consideration by hon. Members of this House.

Sir F. Markham

There is no guarantee that we shall have a chance of considering that report in the House, is there, other than in the usual Question and Answer time?

Mr. Barber

I think my hon. and gallant Friend will understand that it is hardly for me to say at this stage whether in any particular year a debate could be arranged, or even whether my hon. and gallant Friend would wish to have the matter debated after seeing the report. The matter would have to be considered through the usual channels, bearing in mind the other calls on the time of the House. I think that my hon. and gallant Friend will understand that I cannot go further than that.

The hon. Member for Ashfield described Article V of the Articles of Agreement. He rightly pointed out that the initial subscriptions authorised by this Bill, which would be made in pursuance of the Articles of Agreement, could be used only for the purpose of making loans and not for the purpose of making grants. He went on to say that any supplementary resources which were made pursuant to Article V (2, a, ii) could be used for the purpose of other types of financing including grants and gifts and the things that he had in mind.

I am sure that the Committee will not expect me to disclose what transpired during the discussions, in which more than 60 nations were involved, which led up to these draft Articles of Agreement, but it is right that I should tell the Committee that Her Majesty's Government were not opposed in principle to the making of grants. The fact that agreement was reached in such a short time is something in which we can take some pride. I hope that when the hon. Member for Ashfield hears what I have to say about his Amendment he will ask leave to withdraw it. I assure him that what I have to say is not the result of prejudices on behalf of Her Majesty's Government against aid in the form of grants as opposed to loans.

I hope that the hon. Gentleman will not press the Amendment, for three main reasons. First, if any further sum is to be made available to the International Development Association, in addition to the initiaal subscription, it is reasonable to provide that the House of Commons should be approached once again in the matter. The Bill has been so drawn that it gives no powers to enter into any obligation the acceptance of which is not a prerequisite of the acceptance of the Articles of Agreement. I make no debating point about that because it is not entirely inconsistent with what the right hon. Member for Middlesbrough, East (Mr. Marquand) said today, but it is fair to point out that during the Second Reading debate he said that he was pleased to have my assurance that if the Government needed money for the purpose of additional subscriptions we would come back to the House. I do not make a big issue of that, but I hope that the Committee will feel, in regard to any sums which may come back and be paid into the Exchequer, that the House should have an opportunity of considering the matter again before they are paid out, as they would have to be according to the Amendment, to supplement the resources of the International Development Association.

The second reason why I hope the hon. Gentleman will not press the Amendment is that the purpose of this Association, in comparison with the International Bank, is that loans should be made on very much less onerous terms. From the inquiries that I have made, I believe that the terms of loans will be tailored to fit the individual needs of the various countries, and that the sort of figures which the hon. Gentleman has in mind, which he said flowed from loans, and rates of interest on loans made by the International Bank, will not occur in this case.

There is one important aspect about which I should remind the Committee. I am not sure if I understood the hon. Gentleman correctly, but I should like to make it clear that amounts paid to the International Development Association by way of interest on loans made by the Association to a less-developed country can, without any authorisation in this Bill, by re-lent by the Association to the same less-developed country or to another less-developed country.

The third reason why I ask the hon. Gentleman not to press the Amendment is that, as a practical matter, it is unlikely that we shall be receiving any interest in the near future. The hon. Gentleman himself said that he did not think it would be a very large amount.

For those reasons I hope that the hon. Gentleman, having elicited from me the view of the Government about grants— and I assure him that the Government are not unsympathetic—will feel that it is right and proper to ask the leave of the Committee to withdraw the Amendment.

Mr. Jay

Two questions arise out of the Economic Secretary's remarks. He appeared to say that normally, or at any rate fairly often, interest received by the International Development Association on its loans to under-developed countries would not necessarily be used for paying interest back to member-Governments but might be used for relending for purposes of development. I am not clear, and I am not sure whether other hon. Members are, from the point of view of Governments like the United Kingdom Government making these subscriptions, whether normally interest will be paid on the money paid or lent to the Development Association. Perhaps the Economic Secretary could tell us under what conditions interest will be paid to the British Government on these sums. It obviously must be paid on some conditions, because Clause 2 refers to interest paid. Perhaps the Economic Secretary could clear that up.

Secondly, arising out of the speech of my hon. Friend the Member for Ashfield (Mr. Warbey), may I put this to the Economic Secretary? My hon. Friend suggested that we should omit the words in lines 22 to 23 of Clause 2 which refer to the interest received by the Exchequer being applied towards meeting annual charges on the National Debt. My hon. Friend wishes to substitute words which would involve the returning of these funds to the International Development Association. The Economic Secretary does not want to do that. Would he consider a compromise? Would he consider leaving the Bill in such a form that it would be open to Her Majesty's Government to do either of those things? If they wished, they could use the money for the purpose of paying interest on the National Debt, or, in certain circumstances, as my hon. Friend suggested, they could relend the money to the International Development Association.

Mr. Barber

What I meant to say, and thought I said, was that in fact there is no obligation on the International Development Association to repay to the subscribing countries interest received from the less-developed countries, but this is essentially a matter for the Association. According to the Articles it has the power to relend the interest payments it receives from the less-developed countries.

Mr. Jay

Can we know what the considerations are in which the Association could decide what interest to pay back?

Mr. Barber

I certainly have no information as to considerations the Association might have in mind. The Association is not yet in being. These are only draft Articles of Agreement. This is something which perhaps we shall know more about when we see how the Association functions, but one can get some indication of what is likely to happen from what has happened in regard to the International Bank. As a matter of policy, no dividend has been paid to the member countries by the International Bank, although in the articles of the International Bank, unlike the articles of this new Association, there is provision in specific terms for such payment to be made up to the rate of 2 per cent.

It is perhaps also relevant in this connection, when trying to ascertain whether or not interest will be paid to the subscribing countries, to bear in mind the fact that the intention is for the Association to lend on more lenient terms than does the Bank and it is less likely to have net income for the purpose of paying interest to the subscribing countries.

In reply to the second point, again I put this forward only as one matter which I think is relevant. We thought it right in drafting this Bill—and thought the House would wish this as this is a new Association—that we should take no power in the Bill to enter into any obligation the acceptance of which was not a prerequisite of the acceptance of the Agreement. Having clarified those two points, I hope the hon. Member will now feel able to withdraw the Amendment.

Mr. Warbey

The reply by the Economic Secretary is rather disappointing, but he has pointed out that under the Articles of Agreement the Association is not bound to pay out any interest or dividend to subscribing countries. Therefore, there is no entitlement to their receiving it. He said in his earlier reply that he would not like to put the Committee into the position of forgoing some interest to which we were entitled or making additional funds available to the Association without coming to the House and asking for specific approval, but in fact he has invited the House and the Committee to approve of articles which provide no repayment to this country at all. Although he has written into the Bill a provision that interest shall be used towards meeting the annual charges for the National Debt in the form of interest, nevertheless there is no likelihood, he says, that we shall receive any such payment at all.

Therefore, I suggest that it would help us all very much if the hon. Gentleman could go a little further than he has gone already and say that as a matter of principle—and, indeed, of intention— the Government do not desire to have any interest from the International Development Association, that they are making this subscription and do not want anything back from the Association in any form other than if the Association were wound up and the proceeds distributed. If the Economic Secretary felt that he could make that declaration of intention, either now or on Third Reading, I am sure it would help us all and we should be very satisfied.

5.45 p.m.

Mr. Barber

I am afraid I cannot give that declaration of intention. As I have said, by virtue of the nature of the loans which are to be made by this new Association, it is unlikely that this country will receive interest from the Association in the course of the next few years, but I certainly could not give the undertaking for which the hon. Member asked.

It may help him to make up his mind on the point if I tell him that throughout the Articles of Association there are provisions here and there for a return of capital in certain circumstances. It is for this reason that the Government decided that the finance should be provided from below the line. I shall not weary the Committee with the details, but I have them here. Section 2 of Article IV, Sections 4 and 5 of Article VII, and Section 12 of Article VI—which deals with interest—all provide for certain circumstances in which there may be a return of capital or interest to this country.

Mr. Marquand

Although the Economic Secretary has not gone quite so far as my hon. Friend the Member for Ash-field (Mr. Warbey) hoped he would go, having listened to his explanation one cannot feel that we ought to press this Amendment to a Division. Listening to the three points the hon. Gentleman raised, I felt the one which he buttressed with a quotation from myself was—perhaps not surprisingly—the least effective of the three. Of course, in saying I was glad that the Government would come back to the House for more money, I was thinking of new money, a new subscription, and not thinking for a moment of them coming back to ask permission to put back into the Fund any interest which might have derived from that Fund.

His second statement that any interest which the Association might receive as a result of these operations would almost certainly be used by the Association again in new operations was very reassuring. The final statement that he did not in fact expect any interest would be accruing to the Treasury was the most satisfactory of all. Having listened to his careful explanation, I advise my hon. Friend, although he is disappointed at the reception of his last suggestion, to withdraw the Amendment.

Mr. Warbey

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

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

Bill reported, without Amendment; to be read the Third time Tomorrow.