HC Deb 06 November 1964 vol 701 cc626-36

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lawson.]

Sir William Teeling (Brighton, Pavilion)

During the last Parliament I managed fairly frequently, in Questions and Answers, to bring up the problem of debts owed to this country by foreign countries. But Questions and Answers were not entirely satisfactory. They did not give the fullest information about what was happening. In the last few days, since this new Parliament has started, we have been especially concentrating on the question of exports and the great need to collect every kind of funds and money owed to us, and I would like therefore to go a little more into detail in this matter and to ask the Minister of State whether he will let us know what has been happening in the last few weeks since the last Parliament ceased.

Though there are many countries concerned, I would prefer to deal only with the Iron Curtain countries. We face the question of the Russian bonds, obviously the biggest and oldest of the problem. I was intensely interested to see that when Lord Thomson had his discussion with Mr. Khrushchev some time back, both men referred to the question of wanting to get a loan of about £1,000 million from this country. As I read it in the paper then, Lord Thomson said: But you are not likely to get it unless you pay off the old debts owed by your country, including the Tsarist debts. But Lord Thomson has since told me that it was the other way round; it was the Russians who mentioned that first. It was Mr. Khrushchev who said: Surely they will not in the City of London give us this money unless we pay off something from the past. At the beginning of the war, when we realised that Russia was about to invade the Baltic States, we, not unwisely, took hold of the gold belonging to the Baltic countries and kept it in this country. Since then there have been keen arguments on this subject. I have myself led more than one delegation from the City of London to the Foreign Office. Practically whenever we went to Russia for discussions the Foreign Secretary or the Under-Secretary got together the people connected with this to find out what the latest details were, because they always felt that at any moment Russia might bring it up.

Sure enough they, and we, have brought it up. When the last Parliament ceased it was established that we were to start discussions in the autumn on the Baltic funds. I believe that by the end of October everybody had to put in the amounts of the claims they had. Then there was the Polish problem. That was settled when about 40 per cent. of the debt was paid. There has been the Yugoslav problem, mainly affecting the United States. The United States have held very firmly to their position, but they are in a slightly stronger position than we are. Because of that they have possibly got more in the long run. There is the Rumanian question which will be settled, I believe, during 1966, and there is the Hungarian problem. Some years back the Hungarians made suggestions of paying off their debt.

We have an organisation called the Council of Foreign Bondholders here. It is the sort of organisation which is not understood by people in the Middle East and the Far East and in the Iron Curtain areas. It is not a Government organisation, as I understand it; it is closely linked with the Bank of England, and it has nominees put on it, but it is at the same time a semi-official body. The Iron Curtain countries do not want to deal with the Council. They want to deal directly with the Foreign Office. Poland, I gather, dealt directly with the Government over the head of the Council, to the annoyance of the Council, but, still, about 40 per cent. was obtained out of Poland.

The Rumanian question is to be dealt with in 1966 and the Hungarian question is to be dealt with now. The last we heard before the previous Parliament rose was that the Hungarians had made suggestions to start again with offers similar to those which they had made several years ago as a basis from which to start. The suggestion was that this should be linked in some ways with the results of trade with this country so that over the years they paid more or less, according to trade profits, and ended like the Polish solution.

The Council of Foreign Bond Holders does not like this idea at all. It wants to link it much more with the American idea. There are, however, many people in Western European countries who have been making arrangements with Hungary and other Iron Curtain countries—although not-too-good arrangements from the point of view of past debts. I suggest to the Foreign Office that we should not just concentrate on what the City wants; not unnaturally, it wants to get the most it can. We should try, as we want to trade with these countries, to be as friendly towards them as possible and to make arrangements with them which are as friendly as we can, at the same time getting at least "fair do's" for the people who put up the money in the past. It will not, of course, be truly "fair do's" because they will have lost a large amount of money.

After all, in a sense these are exports from this country. We are looking very hard for exports, and some of us do not understand why the Board of Trade and the Treasury are always asking that we should reach trade agreements with countries whereby we have to send them certain exports, and possibly to give them loans first, so that they can buy from us, and in return one day they will send us imports.

It is a complicated situation, but people have not too-short memories. They must remember that these were exactly the same reasons why we originally lent the money to those countries—the money which some of these countries say that they do not intend to repay. I am sure that the hon. Member read the article by Harold Wincott in the Financial Times last Tuesday in which he asked why we should go on paying money to these countries and sending our exports to them when we had this money owed to us. If that money were repaid, we should have to make no further production of machinery to send to them. The money would come in, and we should be able to develop our machinery industries to send equipment to other areas of the world.

I have been to an expert in the City on the subject, Mr. Speyer, and I will, because of the shortness of time, read what he wrote to me: Production for export creates cost inflation if the purchasing power placed in the hands of workers, employees, managers, etc., is not absorbed by a corresponding amount of goods imported. The imported goods represent the payment of such exports. If the goods manufactured in this country are exported on long-term credit, the immediate effect must, therefore, be cost-inflationary. Recent exports to Communist countries on medium to long-term credits do not increase the supply of goods available in the home market and therefore immediately create cost inflation; in so far as for the production of these export goods imported materials are used, they affect the balance of payments unfavourably. The same point was raised by Mr. Wincott. Why should we not, first of all, try to get our money back, as we need it back, from those countries before we start lending them fresh money? Mr. Wincott points out in the Financial Times: An important proportion of any country's exports these days must be on credit. There's nothing new in this, of course. In Britain's hey-day as an exporter, the credit was mainly provided by individuals, the people who subscribed for foreign bonds. … Individuals still put up the credit for exports, but mainly only indirectly—as taxpayers, bank depositors, insurance policy holders and shareholders. They haven't a clue that they are doing so, poor dears, but that doesn't destroy the fact that they are. Why, only last week we had the news that we are going to build an ammonia plant in Hungary, which will cost £2.65 million, of which £2.1 million is to be covered by a loan put up by Lloyds Bank and the District Bank and a consortium of insurance companies, repayable over thirteen years, and guaranteed by the Export Credits Guarantee Department (which means you)". I would like to know what the new Government feel about that.

What is the present position on the series of negotiations which are supposed to be starting or have started with the Hungarians? The former Minister of State told me at one stage that nothing had been decided, but that was in the last Parliament and in the intervening weeks, on 6th October, I received a letter from Lord Carrington from the Foreign Office stating: For many years the Council of Foreign Bondholders have had a special role to play in negotiating with foreign governments on matters of default. But most East European Governments, including the Hungarians, have refused to negotiate with the Council, and Her Majesty's Government have therefore accepted the responsibility for conducting the bondholders' case against the Hungarians. We are now actively considering the best way in which to bring the Hungarians to fulfil their obligations; we certainly do not intend to ignore the Hungarian statement that they are prepared to re-open negotiations through the diplomatic channel on the basis of the offer they made in 1956". I was afraid that they would ignore that because it was considered to be so bad at the time. The letter continued: At the same time I think that in replying to the Hungarians we must be sure that we have taken into account the views of the holders themselves and the experience in these matters of the Council, which of course speaks for many of them. That speaks for many of them too and I am trying to speak for the others now. The letter continued: I am afraid that it is too soon for us to be able to forecast whether there is an acceptable accommodation to be made with the Hungarians and, if so, on what basis it will be found. We certainly do not exclude the possibility of a settlement on the lines you suggest"— I suggested that it should be on the basis of our imports and exports and the difference between them over the years. It went on: even though links between trade and debt payments may not always prove the most advantageous solution. But the first thing is to explore all the possibilities with the Hungarians and this … we are preparing to do. That is what I am asking the Government to tell us. What has been done since then and what is being done now?

4.13 p.m.

Commander Anthony Courtney (Harrow, East)

I rise to support my hon. Friend the Member for Brighton, Pavilion (Sir W. Teeling) and to thank him for raising this important subject today. At the same time, I congratulate the Minister on his new appointment, particularly since I have worked with him in Eastern European countries and can think of no one who is in a better position to take on his onerous duty.

I plead, as part of my hon. Friend's submission, for one class of creditor of Imperial Russia, namely, those individuals who suffered expropriation of property and repudiation of individual debts in a period which I would put up to the arbitrary date—it must be arbitrary owing to the circumstances of that time—of 1920.

These debts are now nearly 50 years old and have been discussed ad nauseam with the Ministry and my hon. Friends when they were in Government. For five years I have represented the interests of this type of creditor of Imperial Russia. I should point out that these do not apply to debts incurred through expropriation of land. They concern property of other kinds and the repudiation of individual debts owing to governesses, domestic servants—even jockeys, I am glad to say, in the heyday of British racing in Imperial Russia—many of whom have since died, although the debts none the less remain.

It is interesting that the liability for these debts has been acknowledged by the Soviet Government who took over from their Czarist predecessors, since that Government, as regards the pre-1920 claims, lodged counterclaims in respect of damage caused during the intervention by the allied Powers.

I remind the House that, in considering the pre-1920 Russian claims, there is perhaps an equitable balance represented by certain pre-1920 Imperial Russian assets which were frozen in this country on the analogy of the gold of the Baltic States, mentioned by my hon. Friend the Member for Brighton, Pavilion. It has, as he said, been held—I think rightly—in this country that the settlement of these debts should form part of any permanent trade treaty which may be concluded with the individual countries concerned, and in narrowing this issue to Soviet Russia I have hoped for the last five years that it would form part of negotiations for a permanent trade treaty to succeed the temporary Treaty of Commerce and Navigation concluded with the Soviet Union in 1934.

However, the 1959 agreement which dealt with the prolongation of temporary commercial treaties with the Soviet Union included a clause by which—I believe I am correct about the date—by 30th April, 1960, negotiations should begin for a permanent treaty to replace the 1934 temporary treaty. I think that I will carry my hon. Friend with me in saying that one hopes that the debt settlement negotiations will form part of such talks.

Be that as it may, the annual requirement for these negotiations to recommence has not been honoured by the Soviet Union. This is a point that I took up in the last Parliament and which I hope to take up again in this, in the hope that some explanation can be given to the House, perhaps today, as to why that particular paragraph in the 1959 Treaty has not been carried out.

In view of the short time available, that is all I wish to say, but I hope that the Minister of State will be able to give us some guidance about the future policy of the Government on this very important question.

4.18 p.m.

The Minister of State for Foreign Affairs (Mr. George Thomson)

I thank the hon. and gallant Gentleman for Harrow, East (Commander Courtney) for his kind words and good wishes to me. I remember him at a conference in the Soviet Union discussing, no doubt, some of these matters in fluent Russian with Soviet leaders—a conversation which, I am afraid, excluded me. I am very grateful for his good wishes.

I am also grateful to the hon. Member for Brighton, Pavilion (Sir W. Teeling) for raising this subject and for giving me an opportunity to report on the present state of the various negotiations on these matters relating to the Sterling bond debts and also to give some indication of the attitude of the new Government on this matter.

As the hon. Gentlemen know—they have taken this up so often in the House for a number of years—the Government have been working for a settlement of these bonded debt obligations and have succeeded in achieving settlements covering certain of the Czech and Polish bonded debts. All the Eastern bloc countries, with the exception of the Soviet Union, have accepted that there is an obligation to make an offer on these matters, and that in itself is of some importance. With the Soviet Union itself, as I shall show in a moment, arrangements are in hand for discussion of this question to take place. The policy of Her Majesty's new Government will be to continue these efforts and to seize any new opportunities which may occur to clear these outstanding debts out of the way.

The hon. Member for Brighton, Pavilion, raised the subject of the Council of Foreign Bond Holders. I have discovered that the Council has a rather ancient history. It was set up by Act of Parliament as far back as 1898 and it has been recognised by successive British Governments as the appropriate body for negotiating sterling bond debt settlements. However, as the hon. Member has told us, the Eastern European Governments are not willing to negotiate these matters with the Council. and in view of that the Government themselves have taken over these negotiations, although they consult closely with the Council.

I am bound to say that the Council itself has a very good record of dealing with these matters over the years. Over its history, it has been a party to recovering about £1,000 million in terms of debt settlements. It is still a very active body and has had a good record of looking after the interests of those whom it seeks to represent. The present Government will continue to consult very closely with it on matters relating to the bonded debts of the Eastern European countries.

The hon. Member and the hon. and gallant Member for Harrow, East both asked for information on particular points in connection with the various negotiations. I will give the House some information about that, and first about Hungary. There was an Anglo-Hungarian Financial Agreement in 1956 which successfully covered a range of financial issues between our two countries. In 1956, the Hungarian Government made an offer to settle British claims in respect of pre-war bonds. This offer was rejected by the Council and from time to time the last Government took up the matter with the Hungarians.

The last occasion on which the British Government took up the matter was on 4th May. On 23rd July, the Commercial Counsellor of the Hungarian Embassy, on behalf of the Hungarian Ministry of Finance, said that the Hungarians were willing to resume discussions on the basis of the offer rejected in 1956. Consultations have since been taking place between Her Majesty's Government and the Council. More than one Government Department is involved in these discussions and there has been a General Election in the interval, but the matter is now being actively pursued and we hope that by the end of the year we will be in a position to make a formal approach to the Hungarians and to carry the matter a stage further.

The hon. Member for Brighton, Pavilion, asked for information about the position in regard to the Baltic bonds and this linked up with the point raised by the hon. and gallant Member for Harrow, East, who was raising the issue not of the sterling bonded debts which relate to what is called the post-1939 period, but going back to the earlier debts relating to the period immediately following the First World War. The position that we take on this matter is that we have to deal first with the post-1939 debts. It is these which are under active consideration between the Soviet Government and the British Government. We hope that discussions will begin with the Government of the Soviet Union on all the outstanding post-1939 claims before the end of this year and we will seek to give the hon. Member information about this at the earliest possible opportunity. I am sure that the only way to proceed is to deal with the post-1939 debts before we do anything about consideration of the earlier matters. As the hon. and gallant Member for Harrow, East knows, these raise much wider and more controversial issues.

Commander Courtney

Would the hon. Gentleman accept the point that perhaps as and when the pre-1920 debts are considered the pre-1920 frozen Imperial Russian assets should be considered equitably against those debts?

Mr. Thomson

The first thing to do is to try to get the question of the post-1939 debts moving. A very long period has elapsed in which nothing has been done about that matter. Let us deal with that first and see how we get along.

In the final few minutes which remain to me, I should like to turn to the more general point made by the hon. Member for Brighton, Pavilion and the hon. and gallant Member for Harrow, East, namely, to put it in its most general form, that the question of these various debts should be directly linked with our trading arrangements with the countries of Eastern Europe. This was put rather more sharply by the hon. Member for Brighton, Pavilion in quoting Mr. Wincott's article in the Financial Times, when he said that we should, if necessary, withhold credits to these countries as a means of trying to enforce settlement of these debts. I hope that I have put his argument as accurately and fairly as possible.

We take the view that this is not a sensible way to go about this matter, even from the point of view of the bondholders. Mr. Wincott's article makes entertaining journalism, but it does not seem to me to make very much negotiating sense. I think that it is much better to keep quite separate from the question of these bonded debts the credit and other trading arrangements which we are making in present circumstances with the countries of Eastern Europe. To try to tie the two together would harm rather than help the interests of the bondholders.

The credit arrangements which have been made with a number of Eastern European countries, some of which have been quoted today, are based strictly on commercial considerations. The operations of the Board of Trade and the E.C.G.D. are designed, in the first instance, to help British exporters to increase their exports and to help employment in this country in some of the most important industries manufacturing engineering goods which are in demand in Eastern Europe. I should have thought that this was very much in the national interest.

The full range of these facilities is available for trade with the Soviet Union and the East European countries on exactly the same basis as for other markets. I am sure that the right approach is to treat this as a commercial matter and not to link it with the question raised by the hon. Member for Brighton, Pavilion. He will excuse me from going into more detail, not only because of the time, but also because this is primarily a matter for the Board of Trade, and I must not trespass on their territory.

The hon. Member was inclined to suggest that one of the reasons for not pursuing these trading arrangements with the East European countries was that their record in relation to bonded debts showed that they were not creditworthy. This is a complete misconception of the problem. There is a very sharp difference between the problem of bonded debts and the problem of present trade and credit arrangements, as I think the hon. and gallant Member for Harrow, East knows extremely well. On the basis of this country's experience over the last 20 years with the countries of Eastern Europe, they have had an outstandingly good record in fulfilling their commercial obligations, and it is on this basis that we propose to go ahead with the kind of arrangements I have mentioned.

In my view, the more we build up our trade contacts with Eastern European countries, inculding the Soviet Union, the better will be the chance to settle other outstanding issues, some of them much wider political issues, including the interests of the bondholders for whom the hon. Member for Brighton, Pavilion spoke.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Four o'clock.