HC Deb 01 July 1965 vol 715 cc831-8
The Chief Secretary to the Treasury (Mr. John Diamond)

With your permission, Mr. Speaker, and that of the House, I should like to make a statement about the foreign exchange cost of maintaining British forces in Germany.

On 28th and 29th June, I discussed with Dr. Dahlgrun, the Federal German Minister of Finance, the question of German payments offsetting these costs. Our discussions covered both the current two-year agreement ending 31st March, 1966, and the extension of that agreement for a further year to March, 1967.

During the current two-year period the foreign exchange cost of our forces in Germany is expected to be about £170 million; in the first 15 months of that period German offset payments have totalled £30 million. The German Government have now agreed to these additional measures:

First, an immediate payment of £42 million on account of sums falling due by 31st March, 1966, in respect of contracts already placed or foreseen;

Second, finance for additional British exports of £45 million. Half of this will come from the release of moneys belonging to the German Government but already held in London: it will not, therefore, represent new money for the reserves, but it will represent additional exports and the cancellation of an outstanding debt. Drawings from this account will be matched pound for pound by new German transfers across the exchanges. Thus, I expect German offset payments in and in respect of the current two-year period now to total about £117 million.

In the third financial year, 1966–67, the German Government will see to it that offset payments total about £54 million. This figure will, of course, be additional to the payments which I have already described for 1964–66.

I hope that the House will share my view that this represents a satisfactory settlement of an issue of the greatest economic and political importance to both our countries. I feel that this outcome owes much to the spirit of good will and real friendship which I found in my discussions with Dr. Dahlgrun and, in particular, to the new understanding and sense of urgency which was imparted to this subject by the Prime Minister's talks with Dr. Erhard in March of this year.

With permission, I will circulate in the OFFICIAL REPORT the text of the Communiqué issued in Bonn on 29th June.

Mr. Heath

May I extend what the Leader of the House described just now as the usual courtesies of the Finance Bill to the Chief Secretary and thank him for making this statement this afternoon?

Will the Chief Secretary confirm that in this statement and in the undertakings of the German Government there are no specific undertakings whatever for purchases from this country during the period of the present agreement, 1964–66? There is, therefore, no change in the position negotiated by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) when he was Chief Secretary.

Secondly, will the right hon. Gentleman confirm that the advance payment of £42 million is for orders already placed or foreseen before these negotiations and, therefore, handled under the agreement negotiated by my right hon. Friend the previous Chief Secretary? So on both the major factors affecting the present period, there is no change whatever.

Thirdly, will the Chief Secretary confirm that the arrangement for finance of £45 million will, as he said, bring no benefit to the exchanges in so far as it is offset by £23.6 million which already exists and, moreover, that these sales depend upon willing private German purchasers and there is, therefore, no firm undertaking that this will result in sales?

Fourthly, will the right hon. Gentleman state whether or not special arrangements for cheap finance, which I understand is involved in this arrangement, conform with the conditions of the G.A.A.T.?

Fifthy, will the Chief Secretary confirm that the figure of £54 million negotiated for the new and third year is exactly the same as that covered for the two years 1962–64 and, therefore, takes no account of the increase in the cost of B.A.O.R. since that time?

Will the right hon. Gentleman confirm that those are the results of his negotiations and that, in fact, there is no real reason to rejoice about any success that he has achieved?

Mr. Diamond

Whether or not the right hon. Gentleman chooses to regard the results of these negotiations as a matter for which patriotic citizens of this country should rejoice is a matter for him to decide. My responsibility is to give the House the facts.

The right hon. Gentleman referred to the question of change and asked whether there is any change in the circumstances. The real change is this. I had to negotiate these arrangements under an agreement entered into prior to this Government taking office, which provided for no real commitment of any kind, whereas there had previously been a commitment by an agreement entered into for the two previous years under which the German Government undertook to ensure that the balance of payments would be relieved annually by DM 600 million, about £54 million. The agreement in operation at the moment provides that the Federal Republic of Germany, "so far as is possible", intends to offset these foreign exchange costs.

The reason why those words are used is that the German Government were not prepared to accept a precise commitment as was desired. I therefore had the difficulty of negotiating against a background under which there was no precise commitment, and the German Government could in all honour, and did, maintain that they were carrying out the agreement fully by the rate of payment which they were making and which amounts so far to £2 million a month. That is the rate of payment so far. The rate of payment resulting from these agreements will be exactly two-and-a-half times that amount. That, I think, is the answer to the right hon. Gentleman's question about change.

As to whether the fund which is at the moment frozen benefits this country, I think that the statement I gave is perfectly clear. I said: … it will not, therefore, represent new money for the reserves, but it will represent additional exports and the cancellation of an outstanding debt. It does not add to the reserves, but, as far as balance of payments is concerned, as the debt is being cancelled it adds fully and, therefore, the whole of the £45 million, the double amount, is of benefit to the balance of payments. The benefit to the balance of payments, therefore, for the two-year period will be £117 million, and for the third year a further £54 million, making a total of £170 million as opposed to the present rate of £2 million a month.

I am bound to say that I regret that the right hon. Gentleman should have sought to criticise me in regard to the previous agreement. The agreement was one for which I should not be regarded as responsible. I voted Labour.

Mr. Speaker

Order. This exchange of the customary courtesies delays our progress.

Mr. Shinwell

Does my right hon. Friend understand that although I appreciate he has done his best in very difficult negotiations, those of us who have taken part in this discussion for many years have always regarded the negotiations, and the results of those negotiations, as distinctly unsatisfactory, and still regard the result as unsatisfactory?

Does my right hon. Friend understand that we have spent vast sums of money in the protection of Europe against possible aggression since the last war, including the defence of Germany, and that we have not yet received a tithe in return for what has been expended? Although we must accept this decision, presumably as the final result of negotiations, some of us regard it as most unsatisfactory.

Mr. Diamond

I am well aware of the feelings which my right hon. Friend holds. In many respects they are fully justified. I am sure that he understands that the agreement I have been negotiating does not deal with costs, but merely with the foreign exchange costs. It would cost us money to maintain troops in England. We are merely dealing with the problem of maintaining troops in Germany and having to bear the foreign exchange costs. These are now being largely offset.

Mr. Boyd-Carpenter

Is the right hon. Gentleman aware that there is no difference between the two sides of the House in the desire to obtain from the Germans as large a quantity of money towards our foreign exchange costs resulting from the strategic disposition of the alliance as is possible? Will the right hon. Gentleman reconsider what he said in reply to my right hon. Friend in a comment on the previous agreement, in which he said that there was no commitment of any kind?

Is the right hon. Gentleman aware that that agreement contains the words: It is the intention of the Government of the Federal Republic, in so far as is possible, to offset these foreign exchange costs. Is not the right hon. Gentleman, in saying that there is no commitment, casting a wholly unnecessary and very unwise reflection on the honour and good faith of the German Government?

Mr. Diamond

I am grateful to the right hon. Gentleman. Of course, I accept that any right hon. or hon. Gentleman who deals with these matters would wish to have the maximum contributions under this agreement towards our foreign exchange costs. But I said that the agreement under which I was negotiating held no real commitment and quoted the words because, and I repeat this, the Germans could, and did, with all honour, say that this agreement was being fully carried out inasmuch as it provides that it can be satisfied by payments of anything from 100 per cent. down to 1 per cent.

Mr. Lipton

I have a simple solution to replace these rather complicated financial manœuvres. Was any such suggestion made to, or by, the German Government that a much simpler way of solving the problem would have been the withdrawal of British troops from Germany?

Mr. Diamond

That is a matter for my right hon. Friend the Minister of Defence, and, therefore, did not arise at all.

Mr. Goodhart

Can the Chief Secretary say whether the financial arrangements that he has just announced are in any way dependent upon the maintenance of British forces in Germany at their present levels?

Mr. Diamond

The figures I have announced refer to the period ending 31st March, 1967, and it was not necessary, as I have just said, to deal with any question relating to the incurring of the costs, but merely to the offsetting of the foreign exchange costs.

Mr. Heath

May I ask the Chief Secretary whether, in saying that what he had got was two and a half times the existing amount of German purchases, he is not giving a true representation of these figures, because he has included £42 million paid in advance for orders, which he himself has stated have already been placed or foreseen under the present agreement? Secondly, the £45 million is not a firm undertaking. It is a special credit facility for Germans who wish to buy British goods of their own free will. Therefore, is he not aware that to tell the House that these are definite purchases for this period does not correspond with the facts which he himself has given? Also, will he answer my question as to whether these special credit facilities are in order under G.A.T.T.?

Mr. Diamond

I apologise for omitting to answer the question about G.A.T.T. The best information we have is that they are in order under G.A.T.T., and that the German Government are wholly satisfied that they are in order under G.A.T.T. It is they who would be making the arrangements.

As regards the rest of the right hon. Gentleman's question, the agreement refers to payments, and although payments follow orders we get into difficulties if we try to add up payments and orders. It is much easier to deal either exclusively with payments, or exclusively with orders. I have dealt exclusively with payments and I repeat that the rate of payment is two and a half times.

Several hon. Members

rose—

Mr. Speaker

Order. We must go on. We have much to do.

Mr. Bruce-Gardyne

On a point of order. In view of the fact that this statement was referred to by the Prime Minister in answer to my Question, No. Q5—

Mr. Speaker

I had forgotten that fact. I am obliged to the hon. Member. If he desires to ask a Question I beg the House to allow me to go back.

Mr. Bruce-Gardyne

Would the Chief Secretary tell us, if some of the contracts foreseen for this year fail to materialise and the £42 million is not used up, what happens to the remainder? Does it return to Federal Germany, or does it go on to count against the £54 million next year? Secondly, does the £54 million cover 12 months, or, as has been suggested in some quarters, 14 months?

Mr. Diamond

The £42 million is a non-returnable, one-way payment. The figure of £54 million refers to 12 months. The accounting date for settlement purposes will be the middle of July. This is a short period after the 12 months, but that merely gives time to add up the figures on the account books. The short answer is that the second figure refers to 12 months.

Following is the text of the communiqué: When the British Prime Minister, Mr. Harold Wilson, visited Germany on the 8th and 9th of March of this year he agreed with the Federal Chancellor, Professor Ludwig Erhard, that the Federal Minister of Finance would meet the Chief Secretary to the Treasury to negotiate improved arrangements for offsetting the foreign exchange costs of the maintenance of British Forces in Germany for the period ending April, 1967. These talks were held on 28th and 29th of June. 1965. The British delegation was led by the Chief Secretary to the Treasury, Mr. John Diamond, who was accompanied by the British Ambassador to the Federal Republic, Sir Frank Roberts, together with representatives of the Treasury, the Board of Trade and the British Embassy. The German delegation was led by the Federal Minister of Finance, Dr. Rolf Dahlgrün, who was accompanied by Ministerialdirektor Dr. Féaux de la Croix and representatives of the Federal Ministries of Finance, Foreign Affairs, Economics, Defence and Economic Co-operation as well as the German Federal Bank. The negotiations took place against the background of the special political and economic importance of solving the problem of offsetting the DM expenditure incurred by Great Britain through the stationing of British troops on the territory of the Federal Republic. They were conducted in a spirit of friendly understanding and ended in complete agreement. The Ministers agreed to recommend to their Governments that the current Agreement shall be extended for a further year, i.e. to 31st of March, 1967. The Federal Government will see to it that the volume of payments for purchases during that additional third year will total about DM 600 million. The two Ministers also examined progress under the current Agreement, considered various ways in which performance under it could be improved and satisfied themselves that with the help of the following new measures this performance would not fall short of expectations. In order to accelerate the implementation of the current Agreement, which covers the period from the 1st of April, 1964, to the 31st of March, 1966, and under which recognised payments so far total DM 336 million under contracts already placed, the Federal Republic will promptly make an advance payment of DM 464 million. This sum is intended to meet payments due by 31st March, i966, under contracts already placed or foreseen. This will enable a beginning to be made with drawings on the Deposit Account amounting at present to 23.6 million (the equivalent of about 250 million DM). These drawings, which will not be transferable across the exchange would be used by the Federal Government together with German payments to finance additional purchases from the United Kingdom amounting to twice that sum in respect of the two year period ending 31st March, 1966.