THE AGREEMENT

HC Deb 10 December 1975 vol 902 cc587-97

Question proposed, That the Clause stand part of the Bill.

10.1 p.m.

Mr. Geoffrey Rippon (Hexham)

I do not think there can be any doubt about the importance of this Bill or about the establishment of the OECD Financial Support Fund by the international agreement, as defined in Clause 1 of the Bill. It is a subject of such major importance that, were our proceedings effectively conducted, it would have been the subject of a major economic debate.

My right hon. Friend the Member for Yeovil (Mr. Peyton) drew attention last week to the undesirability of taking the Second Reading of a measure of this kind on a Friday morning, and protested that the Committee in the remaining stages of such a Bill should be put before the House at a late hour. I think we were all grateful then to the Patronage Secretary for having agreed that it should be taken now, at a more reasonable hour.

It is essential that the leading industrial nations should act together to counter disorderly market conditions and exchange fluctuations by helping those members of the OECD who are in balance of payments difficulties from time to time.

I welcome the agreement, because it involves co-operation on a scale over and beyond what we can achieve within the framework of the European Economic Community.

As was pointed out last week, the significance of this fund is represented by the fact that the potential contribution from the United Kingdom is no less than £917 million. That may turn out to be only a notional liability, since we might find ourselves seeking—as we have so often recently under agreements of this kind—to draw out rather more than we put in.

We have, therefore, to consider the agreement now before the House in the context of the wider considerations of our economic policy, for clearly we shall not be able to take advantage of the support fund, and get the agreement of the other contributors to our using it, unless we establish our bona fides in our economic policy.

We are in some difficulty already at the present time over the IMF loan. There is widespread feeling that the high demand we have made on the oil facility, partly as a result of the looseness of the drafting—or, it may be, partly as a result of our lawyers drafting it so cleverly—has meant that our loan requirements are so apportioned as to appear to get us a disproportionate share of the oil facility at the very same moment that we were going round Europe proclaiming that we might become a member of OPEC.

Against this background we have to consider the way in which this support fund is linked with the various agreements which have been made as a result of the Rambouillet Declaration on 17th November.

In particular, I hope that the Minister responding for the Government will give us some indication of how he sees the potential use of this new support fund linked with the rapprochment which has been reported to have been achieved between the United States and France.

We all know that, pending the negotiation of amended articles of agreement of the International Monetary Fund, every floating exchange arrangement has been technically illegal. We have also had to face the difficulty that the Americans, with no significant foreign exchange reserves except gold, have been able to intervene and maintain some degree of stability only by borrowing foreign exchange through the various swop arrangements. So I should like the Minister to give the Committee some guidance how he sees these matters linked.

Can the Minister also tell the Committee how the new agreement will tie up with the establishment of a European exchange stabilisation fund which is much talked about? Is it envisaged by the Government that in future a degree of stability can be achieved under these arrangements which will be more effective than those popularly described as "the snake"? We all accept that the snake is an interim measure. It was Lloyd George who said that it is always a mistake to try to jump a canyon in two stages. This new agreement lays the foundation for a total packet of measures, and we above all need something in the nature of a total packet of measures if we are to achieve a greater degree of monetary stability in the future. That is necessary both generally in Europe and internationally.

I heard a Belgium banker saying the other day that the snake gets first fat and then thin more by accident than by design as countries leave it and as some return to it. In the words of a Chinese proverb, the snake in the bamboo is still a wriggling animal.

We have to see the way in which this new support fund can be linked with a more effective snake. We need a larger snake. We need Britain, Italy and France permanently back. Also we need to include other countries such as Norway and Sweden, which normally follow the operations of the snake, and Switzerland included as well. We need a more stable snake. We want to ensure that the countries which are in, stay in. Do the Government feel that the new fund will enable us to achieve that desirable result?

We also need a more flexible snake—in other words, greater flexibility in the adjustment of parities. If I may employ the bankers' language, if we are not once again to be the principal demandeur on this new support fund, we have to avoid in our general international arrangements both the extremes of "fixed" and "floating" parities. We need adjustable but relatively stable parities which can be expressed either as a "managed float" or as "flexible parities".

Whatever happens, we cannot continue indefinitely to endure the constant depreciation in the value of the pound which is only temporarily and very expensively propped up at the moment by vast borrowings on the security of our future oil earnings. It would be right for us to have an assurance from the Government that we are not entering into this new international agreement to add further to the vast borrowings to which they have committed the British people.

I have no doubt that the support fund will help towards promoting international monetary stability. To that extent, we should welcome this clause and the agreement. But we should not think that the mere fact that we have collaborated with our allies to set up a fund of this kind, for which there are vast potential funds to be made available, is in any way a substitute for our own national measures to control the money supply, to stabilise our economy and to control inflation.

We want an assurance from the Government that, as a result of the establishment of this new support fund, there will be consistent national policies in which domestic monetary operations—whether in the United Kingdom or elsewhere—and external monetary operations support rather than oppose each other. I believe that the way in which the Government handle this agreement and any initial procedures under it, will be once more a test of our good faith. Some anxiety has been expressed about the way in which we have handled the IMF loan. There is also some anxiety about what we may have in mind on the subject of import controls. I should like the Minister to say how he sees the fund linked to the Rambouillet Declaration which was made on 17th November, paragraph 8 of which states: Growth and price stability will be fostered by maintenance of an open trading system. It goes on to say: It is essential for the main trading nations to confirm their commitment to the principles the OECD pledge and to avoid resorting to measures by which they could try to solve their problems at the expense of others, with damaging consequences in the economic, social political fields. Does the Minister think we would have any chance of making the new support fund operate effectively in our interests if we acted in any way in breach of paragraph 8 of the Declaration?

Under paragraph 8 of the Rambouillet Declaration we have clearly and overtly denounced beggar-my-neighbour policies. I ask the Minister whether in the negotiations for establishing this new fund or in the negotiations which took place prior to the Declaration on 17th November, there have been any secret agreements about import controls. I specifically ask him whether he can assure us that there have been no secret dealings of any kind with anybody about the possible establishment of selective import controls on cars, colour television tubes, domestic electrical appliances or anything else. This is a matter of considerable importance in establishing our good faith.

I should like to direct attention for a brief moment to what the Paymaster-General said at a conference organised by the European League for Economic Co-operation in London in September. He said: We ought also to remember that it is not enough to renounce beggar-my-neighbour policies as against each other. One of the functions of intra-European co-operation is, it the long run and in our own interests, to improve world co-operation, so we must equally firmly renounce any beggar-my-neighbour policies, such as those which brought so much disaster and misery on the pre-war world, vis-a-vis other countries whether it be powerful nations like the United States or weaker countries like the less developed countries of the world. I mention this because if we are going to live up to these principles, to which it's not too hard to win ready assent in theory, the present recession is going to have many trying moments. At a time when unemployment is very high by post-war standards, and very high by any sensible and humane standards, I can understand very well why it is being suggested that we should restrict imports from third countries, whether other European countries or countries outside Europe. But this supposed remedy will not cure the disease. Import restrictions and similar measures on a scale that would have any effect to help us or any other country with its unemployment problems will quickly and inevitably be followed by retaliation which will probably be more permanent and wider in scope and will soon more than offset any marginal advantage which the original restrictions may have had on employment. In other words, if we have in mind any policies of that kind we may find that this important agreement would in effect be a nullity and that so much damage would be done to international monetary co-operation that the agreement, at any rate as far as we are concerned, would not fulfil its purposes.

The Paymaster-General concluded: In addition to that, and far more important than the damage done by the actual tit-for-tat that goes on in these circumstances, is that any degree of that activity will result in a general restoration of the pre-war rat-race which can only lead, not to the solution of unemployment problems and our other economic and political problems, but to disaster. I really believe that no other word can adequately describe the consequences of the world reverting to the kind of rat-race policies that so brutally disfigured the pre-war period in which many of us grew up. I ask the Minister to give not only the Committee, but the House, our allies, and those with whom we are acting within the context of the OECD, the clearest possible assurance that the Government will not resort to those disaster policies. If we do not have that assurance, we might as well not debate this agreement tonight.

10.15 p.m.

Mr. John Nott (St. Ives)

I think that the Committee owes a debt of gratitude to my right hon. and learned Friend the Member for Hexham (Mr. Rippon) for raising a number of important points. As he said, this measure involves a commitment for the United Kingdom of £917 million. I am sure that my right hon. Friend the Member for Yeovil (Mr. Peyton), the Shadow Leader of the House, was right to protest initially at the time originally allocated for consideration of this Bill.

We are now in Committee, and I should like to make a few points before asking the Minister to reply. My right hon. and learned Friend the Member for Hexham said that it was essential that the major industrial nations of the world should act together in the manner proposed in the Bill. Yet it is difficult to believe that the United Kingdom is joining in these arrangements purely as a potential lender. I do not think that we would be thought, at the present, to be in that capacity. Therefore, it is right for us in passing the Bill to look at some of the conditions for borrowers.

My right hon. and learned Friend posed a number of questions which came up on Second Reading. I want to ask the Minister of State one further probing question. The agreement, in Article 1, Section 2(a)(i) specifically provides that the objectives of the Fund are to encourage and assist members to avoid unilateral measures which would restrict international trade or other current account transactions". We have heard so much recently about the Government's intention not to interfere in any way with international trade generally, but in spite of this much has been said about the possibility of specific import restrictions for certain goods.

Would a specific import control on shoes, for example, conflict with Section 2? Surely it could be said that we would be acting against the spirit of Section 2 which asks us "to avoid unilateral measures" of that kind. Where in this agreement is the line to be drawn between specific measures of the kind which have been commented upon in the Press and the general import restrictions which are clearly outside the scope of this agreement?

I will not follow my right hon. and learned Friend into the intricacies of the snake—a subject which interests me greatly. My right hon. and learned Friend and I might not wholly see eye to eye on this subject. Therefore, I will leave the matter there.

What exactly is the situation about the security which our oil revenues are providing for borrowings on international markets? After all, if we were to seek the maximum available tranche under this agreement, which I understand would be double what we have put in, we could obtain some £1,800 million. To what extent are we entitled any more to suggest that our future potential oil revenues are providing this country with the kind of security which has certainly been suggested recently by the Prime Minister in his speeches?

My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), in the debate on offshore oil on Monday, referred to a figure of £1,860 million as the potential Exchequer revenues from North Sea oil in 1980. This is relevant because if we were to go for international borrowing or for any borrowing under this agreement, the future oil revenues of this country will be looked at very closely. Is it the case that since the Chancellor of the Exchequer last made an announcement, we are now thinking of Exchequer oil revenues of something less than £2 billion in 1980? If so it is a very significant change. If we are running a deficit, on a Government borrowing requirement this year of £12 billion the interest in one year alone would be £1½ billion. A single year's interest on the present size of the Government borrowing requirement would not be far short of the whole of the net oil revenues in 1980. It would be appro- priate for the Minister to comment on this briefly.

Like my right hon. and learned Friend the Member for Hexham, I would like clarification on import controls. What would be the definition of an import control under Article 1?

Secondly, has the Treasury revised its figures on the net anticipated revenues from the North Sea in 1980 because that is likely to be relevant to borrowings under this agreement in future years?

12.23 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I was glad that the right hon. and learned Member for Hexham (Mr. Rippon) welcomed the Bill, because it is in the interests of the country. Setting up the fund is in the interests not only of this country but of all Western industrialised countries.

The Bill follows an agreement which was an attempt at least to withstand the attack, if that is the right word, on our industrialised societies, by the rapid increase in the price of oil. It is an attempt to get together to try to mitigate the effect of the quadrupling in the price of oil. One should look at the Bill in that light. He reminded us that a fellow countryman of mine warned against jumping canyons. I am not going to jump canyons, especially if they have at the bottom creatures such as snakes, rapprochement and Rambouillet. Nevertheless, they are to be welcomed because they are part of the same process in this agreement; that is, co-operation between countries of similar industrial structures and policies.

Mr. Rippon

I sought an assurance that we stand without reservation for the undertakings which we expressed in paragraph 8 of the Rambouillet Declaration.

Mr. Davies

As a country we invariably stand by our international obligations—perhaps more than some other countries which are members of international organisations. We are very good at it.

I turn to the specific question of import controls and restrictions upon trade. As we have said time and again, we are not in favour of generalised import controls which would affect world trade. That remains our position. On the other hand, we have said that if specific industries are threatened in this very difficult period, we shall consider whether it is necessary to protect them temporarily in this way.

I remind the House that one can restrict international trade otherwise than by import controls. One can do it by a policy of depreciation of the currency. One can do it by a policy of deflation in order to improve the balance of payments. In many ways, these policies can be as restrictive of international trade as import controls. One should make this point when there is talk of beggar-my-neighbour policies. There were many instances of policy in the 1930s which had these effects. They included import controls and deflation.

Mr. Rippon

I was pointing out specifically that paragraph 8 of the Rambouillet Declaration is devoted entirely to open trading and a reiteration of the British Government's pledges. I asked for an assurance that there had been no secret discussions of any kind with our partners.

Mr. Davies

I can give that assurance. We signed the Declaration and stand by it.

Any borrowing from the fund would be subject to an agreement between the governing committee of the fund and the borrowing country. Any conditions would be negotiated at the time and there would be a kind of contract. We subscribe to the principles of the OECD. Hence this Bill.

The hon. Member for St. Ives (Mr. Nott) referred to the speech by the right hon. Member for Wanstead and Woodford (Mr. Jenkin) in the oil debate on Monday. To some extent, the right hon. Gentleman made two different kinds of comparison—the National Debt on internal borrowing, and borrowing in relation to the balance of payments. I was asked about the Exchequer revenues we expect in 1980. We expect that in the early 1980s Exchequer revenues from the North Sea will be £2 billion to £3 billion per annum, so the right hon. Gentleman's figure of £1.8 billion for 1980 may be a slightly conservative estimate. We expect the figure to be somewhat higher than £2 billion.

The right hon. Gentleman threw out a figure in relation to debt interest. He said that the interest on the National Debt, on his figures, would at that time be an additional charge of £3.6 billion on the Exchequer. He contrasted that figure with the estimate he had made for Exchequer oil revenues of £1.8 billion. I do not now want to enter into the question of his assumptions, but the debt interest paid by the Government is not a 100 per cent. charge on public funds. Debt interest enters into the taxation computation. If one assumes a 50 per cent. taxation rate, the debt interest of the British Government is effectively reduced by 50 per cent.

It is too simplistic merely to take the figure of oil revenues and compare it with the gross rate of interest. Debt interest is not a 100 per cent. charge. One cannot enter into too simple an analysis and hope to come up with a concrete figure. As I have said, we expect the oil revenues to be in excess of £2 billion per annum, and I do not accept that one could compare that figure with debt interest charges which are not a charge on public funds.

Mr. Nott

Just to correct the record, I did not do that. I was referring to a £12 billion borrowing requirement this year, which is entirely a public sector requirement, and I based the figure of £1½ billion on that. I accept that the hon. Gentleman is referring to other figures quoted by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin).

Mr. Davies

I apologise if I attributed the figures to the wrong hon. Gentleman, but the hon. Member for St. Ives was asking his question in relation to his right hon. and learned Friend's speech and my point still relates to what he said. Again, debt interest is not a 100 per cent. charge on public sector borrowing when it is paid to people resident in this country. That simplistic comparison cannot be made.

I think that all hon. Members accept that this is a small but important measure of co-operation between the countries of the OECD to try to alleviate some of the difficulties caused by the increase in the price of oil. For that reason, I hope that the House will approve the Bill.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 5 ordered to stand part of the Bill.

Bill reported, without amendment.

Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 56 (Third Reading), and agreed to.

Bill accordingly read the Third time and passed.