HC Deb 23 July 1969 vol 787 cc1727-33

The following Question stood upon the Order Paper:

104. Mr. CAROL JOHNSON

To ask the Secretary of State for Foreign and Commonwealth Affairs what progress has been made towards new Anglo-German offset arrangements for the current financial year; and if he will make a statement.

The Minister of State, Foreign and Commonwealth Office (Mr. Fred Mulley)

With permission, Mr. Speaker, I would like now to reply to Question No. 104.

We reached agreement yesterday with the Federal German Government on offsetting the foreign exchange costs of British forces in Germany during the two financial years 1969 to 1971.

These costs are currently expected to be about £198 million over the two years and the Federal German Government have undertaken to bring about offsetting payments to the United Kingdom during the two-year period to the current equivalent of about £106 million.

This sum will be made up as follows. Purchases of defence equipment and services will account for about £47 million; German public authorities will purchase at least £36 million worth of goods in this country and the Federal Government will help to promote certain civil private sales to a value of about £23 million.

In addition, the Federal Government have agreed to offer Her Majesty's Government a Government-to-Government loan denominated in dollars of DM 500 million—£52 million—on the very favourable terms of 3½ per cent., repayable after 10 years.

Taking all these measures together, 80 per cent. of the estimated foreign exchange costs of our forces in Germany over the two year period will be covered, the same percentage as in the case of the United States-German Offset Agreement.

The agreement we have reached represents an improvement in a number of respects over the last agreement which, in turn, was an improvement on the one before. The House will notice, in particular, the provision for a higher rate of purchases of defence equipment and services and the important contribution represented by the favourable terms for the loan, which involve direct Federal budgetary payments.

I would add that over the next two years we expect to benefit to the extent of about £17 million from the expenditure in this country of United States Air Force units transferred here in 1967–68. Taking this contribution into account, as we did for previous years, over 88 per cent. of our estimated foreign exchange costs in 1969–71 will be covered.

Mr. Johnson

While thanking my right hon. Friend for that statement, and congratulating him on what he has achieved, may I ask how it compares with a similar agreement which, I believe, has recently been concluded between the German and United States Government, and, secondly, how the loan terms of this new agreement compare with those of last year?

Mr. Mulley

On the second point, the loan terms this year—it is a Government-to-Government loan; not a bank loan— are 3½ per cent. interest for 10 years, against last year's interest of 5¾ per cent. for a four and a half year term. Compared with the United States-German agreement, the total amount covered is the same, 80 per cent.

We have a slightly higher proportion of budgetary contribution, but on the United States side they have a higher percentage of defence purchases, because, as is well known the German Air Force is re-equipping with Phantom aircraft which come in this accounting period.

The trend of our defence sales to Germany is upwards. We have allowed rather more in the next two years than last year, and I think that the trend, with the technological collaboration with Germany, will be for a higher proportion of our future agreements to be of defence sales.

Mr. Maudling

The Answer referred to offsetting foreign exchange costs. May I ask questions on two points? First, as regards the loan, surely this is a question not of offsetting foreign exchange costs, but of postponing the foreign exchange bill? Secondly, on the purchases, surely these are only offsetting foreign exchange costs in so far as they are purchases which would not otherwise have taken place? Will the right hon. Gentleman say how much of these purchases, in his calculation, would not otherwise have taken place, in particular referring to private purchases which presumably will be made on commercial terms, anyway?

Mr. Mulley

As to the first point, it is clear that a loan is not offset in the same way—[HON. MEMBERS: "Or in any way."]—as defence expenditure, but there is a substantial offset element this year for the first time, a substantial budgetary contribution for the first time, because the loan is at a rate of interest very much below the current market rate, and to that extent it incurs an acceptable offset arrangement.

On the question of purchases—the right hon. Gentleman made this point last year—in the negotiations I made it quite clear that we could not accept the full amount that will be shown by the accounting of the purchases. The £36 million is the sum that will be reckoned, but both sides expect that this sum will be very much exceeded, because I made the point that we could not put in the whole of the purchases by public authorities, because many of them will go on in any case. We had to allow for this point of additionality. It is impossible to say what percentage would not be bought when we were taking only £36 million of what might be £50 million of purchases.

Mr. Maudling

The right hon. Gentleman did not answer my question about private purchasing. What estimate has he made? The right hon. Gentleman says that they do not take into account the whole of these figures of £47 million, £36 million, and £23 million. What figures do they take into account?

Mr. Mulley

The private sales are not a case of German private industry buying from us. It is the case of the Germans assisting sales by British firms, for example, of aircraft, to third countries. This is the purpose of the civil private sales which is, I repeat, an item which has been in a number of previous years.

Mr. Dickens

Is my right hon. Frined aware that few of us on this side of the House are deceived by this miserable ragbag of arrangements with the West Germans which are designed to hide the true foreign exchange costs of the B.A.O.R.? Is my right hon. Friend further aware that the only effective way of reducing these costs is to make a phased military withdrawal from Western Germany as part of a European security pact?

Mr. Mulley

I agree that one could reduce costs by withdrawing our forces, but that does not happen to be Government policy. Unhappily, we do not as yet have the European security arrangement to which my hon. Friend referred.

Mr. Grimond

I am sure the right hon. Gentleman will agree that it is impossible for the House to know whether this arrangement is good or bad unless we can be told, first, whether the extra purchases by Germany are substantial. What is the rate of purchases for the comparable current period? Second, is £23 million a certainty, or merely a hope that German private sources will spend this money? Third, when he says that it is covered what all this means is that he has put off payment. He is now borrowing 500 million Deutschemarks at 3½ per cent. and we eventually have to pay this back.

Mr. Mulley

I agree that the loan means that the money has to be paid back. As I said last year, this is, unfortunately, obvious, but our main concern is to relieve the military foreign exchange costs and borrowing money at 3½ per cent. is an effective way of doing that. It involves a substantial subsidy by the Federal German Government who will have to borrow the money at a higher rate.

It is impossible to say what extent of the German public purchases or private purchases will take place without the agreement, but the amount has gone up each year and I am satisfied that without the very considerable accounting procedures and checking that goes on these sales would be much less than they will be under the agreement.

Mr. Moyle

Would not my right hon. Friend agree that without waiting for the European security pact or a phased military withdrawal from Europe it would be possible in these days of air travel to save a substantial amount of money by stationing more of the Rhine Army forces in this country?

Mr. Mulley

That is a different point, but I think that one has to make the point that our presence in Germany is part of our N.A.T.O. commitment. We are not there only or mainly at the wish of the German Government.

Sir Ian Orr-Ewing

Will the right hon. Gentleman make sure that the loans being provided this year and next are shown separately in our balance of payments figures and are not just lumped in together so that the figures look rather more favourable than they are? Last year, we undertook a commitment to pay back in four and a half years. Now we have undertaken a commitment to pay back in 10 years. Is not this one more case of mortgaging the future?

Mr. Mulley

All these excellent doctorings about the evils of borrowing are known to us all in our private as well as our public capacities. One realises that if one borrows money, one mortgages the future. The methods of the Opposition in this field accounted for many of our difficulties when we took over. The question of the figures in our balance of payments position is a matter for my right hon. Friend the Chancellor of the Exchequer. I shall draw his attention to the point made by the hon. Gentleman.

Mr. John Mendelson

While understanding that my right hon. Friend does not take kindly to the jeers and attacks from the other side of the House which supports the policy of keeping full the force of the B.A.O.R. in Western Germany, and make criticisms of the way in which this Government are not succeeding any more than the Conservative Government did in making a good offset agreement, may I ask my right hon. Friend to direct his attention to the essential point?

Has he considered the more limited action of withdrawing a certain number of these troops, not the whole of the B.A.O.R., in the face of the really absurd policy of taking on another loan against the possible background of the revaluation of the German mark and the dangers of having further commitments for payment in the future. Does it not make sense to agree to some reduction which the previous Chancellor announced in the House two and a half years ago?

Mr. Mulley

Some reductions have been made in the size of our forces in Germany in previous years, but our present position is part of our N.A.T.O. commitment and what my hon. Friend suggests raises questions way beyond the offset agreement. On the question of repayment, I repeat that for practical reasons the money has been borrowed in dollars.

Mr. Kenneth Baker

May I press the Minister on the question of how the £52 million will be shown in the balance of payments figures? If it is to be taken as credit this year and next, this is the old accountant's trick known as teeming and lading, which is basically taking all the credits this year and leaving the liability to one's successors.

Mr. Mulley

I cannot compete with the hon. Gentleman on accountancy terms. I must take his word for these techniques. This is essentially a matter for my right hon. Friend, but if I had any desire to conceal the matter I should not have taken the first opportunity, since we had word only this morning about the final agreement, to inform the House of what had been done.

Mr. Michael Foot

Why should we have to borrow the money to carry out an extremely foolish pledge which the Conservative Government made in 1954 and which many of us protested against at the time—the extremely foolish pledge to keep troops in Western Germany until the end of the century? When will the Government carry out the statement made by the previous Chancellor of the Exchequer, that we were not prepared to go on paying out this money?

Mr. Mulley

I have already said that the question of our troops being there is part of our N.A.T.O. commitment, and it is a much wider question than the question of this offset agreement.

Mr. Doughty

I am sure that the House will be grateful to the Minister for having made this statement by means of answering Question No. 104, which would have had no chance of being reached in the ordinary way. The same consideration applies to two other Questions which were grouped with Question 20. Nobody knew that the Minister would make his statement. If he had made an ordinary statement notice would have been given. Could not the practice be changed so that when Ministers, quite properly, take advantage of answering Questions after half-past three, information can be given to hon. Members in the Lobby previously?

Mr. Mulley

On that point of order, I apologise if any discourtesy has been caused to the House. We were not sure that the German Government would endorse this arrangement until this morning and, therefore, to give prior notice would have been very difficult. I thought that the House would want for once to hear it first and not read it in the newspapers tomorrow morning.

Mr. Doughty

May I make it clear that in this matter I am criticising or attempting to have changed the general practice?

Mr. Speaker

The hon. and learned Member is making a useful suggestion which I think will commend itself to most hon. Members.