§ The Prime Minister (Mrs. Margaret Thatcher)With permission, Mr. Speaker, I should like to make a statement on the economic summit held in Toronto on 19–21 June, which I attended with my right hon. and learned Friend the Foreign and Commonwealth Secretary and my right hon. Friend the Chancellor of the Exchequer. Copies of the economic and political declarations issued by the summit have been placed in the Library of the House.
The Toronto summit marked the end of the second seven-year cycle of these meetings. In contrast to the first cycle, which was characterised by short-term policies and expedients, which led only to high inflation and low growth, this second cycle of meetings followed a different approach. We concentrated on fundamentals, like sound financial policies to get inflation down, coupled with incentives to encourage enterprise and reforms to remove barriers to growth. These policies have led to sustained growth, with low inflation, higher investment and new jobs. The Toronto summit was therefore able to confirm that our countries are achieving unprecedented economic success.
Our economic discussion took place under four main headings—macroeconomic policies, trade, agriculture and the debt problems of the poorest countries.
First, on macroeconomic policies, Heads of Government committed themselves to continue the fiscal, monetary and structural policies which have brought non-inflationary growth. We shall all maintain vigilance against any resurgence of inflation. Countries with budgetary deficits will continue their efforts to reduce them. Those with large external surpluses will continue to sustain the momentum of domestic demand. We shall all continue to carry through structural reforms aimed at removing unnecessary regulations and burdens on business.
Secondly, on trade, the summit Governments renewed their commitments to resist new measures of protection and steadily to reduce the present barriers to trade. We attached major importance to strengthening the General Agreement on Tariffs and Trade itself by ensuring that member states carry out their obligations, and that disputes over trade are resolved speedily, effectively and equitably. We urge the newly industrialising countries to accept more obligations in the GATT.
We committed ourselves to ensure more open markets for the exports of developing countries, many of which need trade as much as they need aid. We want to see progress on all these matters at the mid-term review meeting of the GATT negotiations in Montreal in December.
Thirdly, on agriculture, in furtherance of our agreement at the Tokyo and Venice summits, we pledged ourselves to take further steps to make the agricultural sector more responsive to the needs of the market. We agreed on an approach to international negotiations in the GATT which should steadily reduce agricultural subsidies and protection in all our countries. We hope that this will lead to decisions covering both short-term steps and longer-term objectives at the Montreal meeting.
Fourthly, debt. Our discussions concentrated on the debt problems of the poorest and most heavily indebted countries, particularly those in sub-Saharan Africa.
1272 I pay tribute to the way in which my right hon. Friend the Chancellor has taken the lead over the past 14 months in pressing for action to ease the debt service burden of those countries. His proposals, and subsequent variations by other countries, were welcomed at Toronto and we were able to agree on action to put them into effect.
First, on trade debts, we agreed that creditor countries should choose between concessionary interest rates, longer repayment periods and partial write-offs, with the details to be worked out at the Paris Club. That relief is conditional on the debtor countries agreeing a programme of reform with the International Monetary Fund. It will offer major additional benefits to the poorest countries which could build up to $500 million a year. Secondly, on aid debts, we welcomed the action that the United Kingdom and others have taken to write off old aid loans and we urged countries to give further aid to the poorest in the form of grants, as the United Kingdom already does.
Heads of Government also discussed a number of political issues which are covered in the political declaration. On East-West relations, we congratulated President Reagan on what he had accomplished, together with Mr. Gorbachev, at the recent Moscow summit. We reasserted our belief that our security will continue to depend on a combination of nuclear deterrence and adequate conventional strength. We pledged our continued support for further negotiations to reduce United States and Soviet strategic weapons, as well as to reduce the threat posed by the Warsaw pact"s massive superiority in conventional forces. We urged the Soviet Union to enshrine in law the recent advances on human rights matters and to remove obstacles to emigration. We encouraged the countries of eastern Europe to open up their economies and societies.
The statement also approved important steps to improve international co-operation in the fight against drugs, including measures to deal with laundering of drug money. Heads of Government reiterated the strong stand taken at earlier summits against all forms of terrorism and hi-jacking. We appealed to all countries that are not party to the international conventions on civil aviation security to accede to those conventions.
I should like to pay tribute to the very skilled and effective chairmanship of the summit by the Canadian Prime Minister, Mr. Mulroney.
The message from the Toronto summit was one of achievement and of confidence in the future, coupled with a commitment that the sound policies which have brought us success will continue and that new progress will be made on current problems. Those are the policies that the Government have consistently followed for more than nine years and, as a result, Britain has been able to give a lead in securing rising living standards and a better world.
§ Mr. Neil Kinnock (Islwyn)I welcome the further steps taken by the summit leaders and their countries to co-operate in combating terrorism, in attacking the evil of international drug trafficking and in punishing those who profit by such horrific trade. I welcome the commitment at the summit to continue the efforts to improve international economic policy co-ordination. What will be the consequences of the Prime Minister"s commitment in endorsing the objective of reducing spending in countries with large external deficits, particularly as Britain is now just such a country?
1273 The statement on debt rescheduling for some of the poorest countries is evidence of progress, and I note with satisfaction that the communiqué urged countries to maintain a high grant element in their future assistance to the poorest. In the light of that, will the Prime Minister now reverse the reductions in Britain"s overseas aid development programme, reductions that have cut the value of our programme in half since she came to power?
Why did the Prime Minister insist on weakening the summit statement on the Sharpeville Six by resisting the efforts of other leaders, including Mr. Mulroney, to impose real pressures on Pretoria by including the threat of sanctions against apartheid? Does that not discredit the right hon. Lady"s calls for clemency?
§ The Prime MinisterI am grateful to the right hon. Gentleman for what he said about the points with which he agrees. It is much easier to obtain international economic policy co-ordination when all the members of the summit countries are running their economies soundly —which they are and which they have been. They are running their economies in a way that is very similar to the policy that we are pursuing.
As for the reduction in spending in countries with large external deficits, our external deficit at present is very small indeed, compared with our gross domestic product. It is one of the smallest among all countries. I am glad, nevertheless, to hear that we have in the right hon. Gentleman a convert to reducing public spending. Is that not good? Perhaps the right hon. Gentleman will tell us how he intends to reduce it, or will all the reductions be on defence?
As for a high grant element in aid to the poorest countries, that is absolutely right. The number of loans that have been given could not possibly have been repaid, so it is better to be quite bold and give them that help in the form of grants. What was the last thing—[Interruption.] I am so sorry: South Africa. I must tell the right hon. Gentleman that no proposal for sanctions against South Africa ever came before the Heads of Government.
§ Mr. SpeakerOrder. I have to have regard to the fact that this is an Opposition day and that there is to be an important debate on Wales. I shall allow questions on the Prime Minister"s statement to continue until 4 o"clock and then we must move on to the business statement. Therefore, I ask hon. Members for brief questions, please.
§ Sir Peter Hordern (Horsham)Was there genuine concern at the summit conference about the risk of inflation and was there a general agreement to increase interest rates?
§ The Prime MinisterThere was no general agreement to increase interest rates. My hon. Friend is aware that there are a number of instruments for keeping down inflation. One of the most important of those is interest rates; another is to keep down public spending and deficits—in preference, having a Budget surplus—as my right hon. Friend the Chancellor of the Exchequer has done. My hon. Friend will have seen a sentence in the economic communiqué that states that we must continue to be vigilant and ensure that there is no resurgence of inflation, so we are aware of the problem and we are taking steps to deal with it.
§ Mr. Robert Maclennan (Caithness and Sutherland)While one welcomes any steps that improve international economic co-operation, why did the Prime Minister fail to draw attention to the historic imbalance in current accounts and to the historic yo-yoing of the exchange rates, towards the correction of which this summit appears to have done nothing? While one bears in mind the disparities between the Federal Republic of Germany and ourselves, why is the Prime Minister so hostile to the co-ordination of central bank activities, as she expressed it in her earlier answer at Question Time to the right hon. Member for Plymouth, Devonport (Dr. Owen)?
§ The Prime MinisterThe right hon. Member for Plymouth, Devonport (Dr. Owen) was not asking about the co-ordination of central bank activities. I gave two examples where I thought greater co-ordination could come about. He referred to setting up a European central bank. That can be set up when there is only one Government in Europe. As for the yo-yos of inflation, I am sure that the hon. Gentleman will agree that the revaluation of the yen was one of the very important events that led to the reduction of Japan"s external trade balance.
§ Sir Fergus Montgomery (Altrincham and Sale)Is my right hon. Friend aware of the support on these Benches for the agreement reached at the summit for the continuation of the fight against illegal drug dealers? Will she confirm that the work started at the summit will include greater international co-operation over the confiscation of the assets of drug barons?
§ The Prime MinisterYes, that has been very much in our minds. A new special task force has been set up and we hope that it will make strenuous efforts to trace the ill-gotten gains of those who deal in drugs. We have already signed a number of agreements, including an agreement with the United States and Canada. It is a reciprocal agreement that follows on the powers that we took under the Drug Trafficking Offences Act 1986. Under that Act we can take advantage of the powers in one another"s courts to trace the money of drugs dealers with a view to confiscating it, if they have been convicted. We can also trace the many actions that have led to the laundering of drugs money, which thereby obscures where that money went. The two agreements that we have already signed will help us to achieve these aims We are now negotiating with about 20 other countries, so we should be very much better able to take action against those who deal in this terrible traffic.
§ Mr. A. E. P. Duffy (Sheffield, Attercliffe)May I follow the question of the right hon. Lady"s hon. Friend the Member for Horsham (Sir P. Hordern) and ask, in view of the deterioration in the outlook for inflation and the importance that she clearly attaches to short-term interest rate increases as a means of countering it, why did she not at least encourage a discussion on co-ordinating interest rate increases?
§ The Prime MinisterThe way in which we are dealing with international co-ordination is by each of us running our economies in a sound way; by each of us having as our main objective keeping inflation down; by each of us trying to reduce deficits—we have already reduced ours to nil; by keeping our spending on a thoroughly sound basis; and by structural changes, among them tax incentives for 1275 enterprise. Japan, for example, certainly needs to increase demand in its domestic economy. That is a structural change.
We have a framework of running our economies soundly. We all agree that the most important thing is to keep inflation down. One can use several instruments to achieve that, but one does not make the instrument the objective. The instrument is a method of reaching another objective—the objective being to keep inflation down.
§ Mr. Nicholas Winterton (Macclesfield)While I warmly applaud the amazingly positive contribution that the Prime Minister made to the summit in Toronto, not least on terrorism and drugs, and the example which the United Kingdom has set in dealing with inflation, does my right hon. Friend accept that some people are concerned about interest rates, not least because they penalise industry, which is, of course, a major source of wealth creation? Is she not therefore concerned that increasing interest rates in the United Kingdom could cause a problem for United Kingdom industry?
§ The Prime MinisterAs I said at Question Time, a resurgence of inflation would cause a far bigger problem for industry. That would be the very worst thing, so the objective must be to keep inflation down.
With regard to the actual increase in costs when interest rates rise by a small amount, again, as I have said, a 1 per cent. increase in wage rates costs industry four times as much as a 1 per cent. increase in interest rates. As those who complain now have seen average increases in wages and salaries of 8.5 per cent. during the past year, it ill behoves them to complain about an interest rate increase of 0.5 per cent.
§ Mr. James Molyneaux (Lagan Valley)While writing off the loans will not undo the damage that they have done to the economic and social fabric of Third-world countries, will the Prime Minister assure us that everything will be done to prevent such mistakes being repeated?
§ The Prime MinisterI have described what we are trying to do to help Third-world countries. It was agreed, and we are trying to ensure, that the burden is shared equally between the member countries at the summit. That will be done through the Paris Club. We shall do our level best to ensure that those countries get on a sound economic footing because that is the condition for both writing off their aid loans and for helping them with trade loans. The right hon. Gentleman will be pleased by the degree of co-operation between the Western industrialised countries and the poorest countries of sub-Saharan Africa.
§ Mr. Timothy Raison (Aylesbury)May I warmly congratulate my right hon. Friend the Prime Minister and my right hon. Friend the Chancellor of the Exchequer on the section in the economic declaration on the debt of the poorest countries? What timetable does my right hon. Friend envisage for the implementation of the new measures to relieve debt? Will she confirm that, if there are additional resource requirements from the United Kingdom, they will be provided from funds which are additional to the current aid programme rather than out of it?
§ The Prime MinisterAs my right hon. Friend is aware, the current aid programme is increasing in real terms, although I know that he would like more. The length of time that it will take will, to some extent, depend on the recipient countries themselves because they will have to agree programmes with the IMF. There is no point in giving them extra help if they are just going to continue with the ways that have got them into a great deal of trouble. Some are agreeing their programmes, and some have already agreed them, and it will be quicker to operate with those.
We shall then try to undertake to negotiate—we are prepared to negotiate quickly in the Paris Club—and that should not take a great deal of time. However, if the methods that separate countries choose are very varied, obviously they have to make a coherent whole. It might take some months to make certain that that happens.
§ Miss Joan Lestor (Eccles)Bearing in mind that the initiative to turn loans into grants was started by Dame Judith Hart, as she then was, in this House, those of us who follow this matter closely are pleased that, at last, the Government have taken it on. In the communiqué that the Prime Minister read out, she said that Third-world countries
need trade as much as they need aid.But the reverse is equally true. Therefore, was she not somewhat embarrassed to find that Britain"s aid is at an all-time low at 0.28 per cent., which places us one from the bottom of the countries which were meeting at Toronto? I would have thought that that would have been discussed, since the leader in the Financial Times is highly critical of the promises yet to become deeds.
§ The Prime MinisterWhen the last Labour Government had a higher percentage of their gross national product in aid, they had, of course, a very much lower gross national product. I sometimes feel that Opposition Members would prefer a lower GNP even though that meant lower aid and lower social services. The amount involved now is a slightly lower percentage of GNP, but we are steadily increasing aid. This year"s budget, excluding aid administration, is £1.3 billion, which is scheduled to increase by £70 million next year and by more the following year. Those figures represent an increase over expenditure in 1987–88 of some 4 per cent. in real terms.
§ Mr. David Howell (Guildford)While I warmly congratulate my right hon. Friend on her role in a most successful summit and, through her, my right hon. Friend the Chancellor on his excellent initiative for solving the debt problem, does she recall that it was the failure of communication between some of the Finance Ministers of the Western countries back in October last year that led to the collapse of confidence and the great stock market crash? Will she at least reassure us that, at the Toronto summit, better communication on interest rate policy and monetary policy was maintained and that she will use her considerable influence in the future to see that that co-ordination is further strengthened?
§ The Prime MinisterFirst, I thank my right hon. Friend for what he said about the debt problem. May I acknowledge—I did not do so when answering the previous question, and I should have done—that the 1277 Labour Government started to change from aid loans to aid grants, and also wrote off a considerable amount of debt. We are continuing that policy most successfully.
I do not believe that the October stock exchange crash was caused by a failure of communication between Governments; rather, it was the fundamentally sound policies that we had been following through previous years that enabled the world to ride that sudden loss of price. I remember that my right hon. Friend the Chancellor, myself and many other people—either Heads of Government or Finance Ministers—went on television and radio to say that there was no justification for fear in the future because our policies were fundamentally sound. It was that soundness that enabled us to ride the storm. That soundness has come partly from meeting at economic summits when we have discussed such matters together and from getting all our policies on a sound basis.
§ Mr. James Lamond (Oldham, Central and Royton)When the Prime Minister"s speech writers were preparing her for the meeting, did they remind her of her remarks at Question Time on 8 December 1983 when she was rather angry with the United States because it was running what she described as
a fantastic balance of trade deficit"—[Official Report, 8 December 1983; Vol. 50, c. 462.]which caused high interest rates, which were extremely damaging to this country? She said that she was very glad indeed that this country had a surplus of £1.2 billion, which placed us in a strong position, and she forecast that the United states would be in trouble within 12 months. Did she say that all again to President Reagan, bearing in mind that the situation is very much worse now than it was five years ago?
§ The Prime MinisterThe United States budget deficit is now falling and the trade deficit is also falling, which is good news for us all.
§ Mr. Quentin Davies (Stamford and Spalding)During the years that my right hon. Friend has been attending summits, has she noted a growing admiration for the economic performance of, and an increased national confidence in, this country? Is she aware that throughout the world she is being given a large measure of credit for that remarkable turnround?
§ The Prime MinisterYes, my right hon. Friend the present Chancellor and the former Chancellor and are constantly congratulated on the way in which Britain"s economy has turned around from being the lowest growth economy in Europe to being the highest and one of the strongest. That is because of the sound policies that we have been pursuing. I know that the Opposition do not like them, but they are sound policies and most countries are now following them.
§ Dr. Dafydd Elis Thomas (Meirionnydd Nant Conwy)May I ask the Prime Minister to turn to the third of her economic topics, which has not yet been covered, that of agriculture? Can she explain where she stands as between the United States Administration, which is calling for agricultural support and protection to be rapidly phased out, and the European Community, which is rather more protective both of protection and of the social objectives of agricultural support?
§ The Prime MinisterWe made it clear that we did not think it possible in any way to abolish all agricultural 1278 subsidies in 10 years, or by the end of this century. Therefore, the hon. Gentleman will have noted from the communiqué that negotiators are to set a long-term framework for steadily reducing those subsidies, which are great distortions to trade. Therefore, short-term steps may be taken with those long-term steps in view.
The hon. Gentleman will know that we took steps, in Europe to try to deal with the agricultural problem, and that has reduced surpluses substantially. Nevertheless, he will also know that the subsidies are really very high indeed. We must measure them by the figure for the producer subsidy equivalent—which attempts to look at all kinds of protection, whether subsidies or other forms —and compare them by taking the proportion of income that farmers receive from the subsidy. This shows that, in 1986, the OECD farmer on average received 47 per cent. of his income from some sort of support; in Japan it was 75 per cent.; in the EC it was still 49 per cent.; in Canada it was 46 per cent.; and in the United States it was 35 per cent. Obviously, those figures are such that we still have quite a long way to go to reduce them to a rate that farmers can take.
§ Sir Ian Lloyd (Havant)Shortly before the summit convened, the Congressional Office of Technology Assessment published a most detailed, devastating and convincing report on the so-called star wars programme. Was that subject raised at the summit? Did the President attempt to deal with those attacks on his strategic programme? Was my right hon. Friend convinced by the replies? Is there not a great danger that acceptance of 100 per cent. defence against a missile attack will lead to a massive and dangerous diversion of Western defence resources?
§ The Prime MinisterWe did not, in fact, discuss that report, but I do not know of anyone who would think that the strategic defence initiative would or could be a 100 per cent. defence. I do not know anyone who believes that. It would be a substantial defence, just as a defence weapon has been developed against every attack weapon throughout history. I view the SDI in that light.
We also learned a great deal of new technology and science from pursuing that programme. I think that my hon. Friend will be the first to agree that being ahead on technology and scientific research is a very powerful deterrent indeed. In fact, if that had not been the case in the last war, other people might have had the atomic weapon first.
§ Mr. Eric S. Heffer (Liverpool, Walton)When the right hon. Lady was discussing terrorism with President Reagan, did it cross her mind that perhaps she should have raised with President Reagan the attitude of the United States towards supporting the Contras and the other anti-democratic forces, Governments and reactionary dictatorships that the United States supports? Has it ever crossed her mind that she has a double standard in quite rightly saying that there should be freedom in the Soviet Union, but never asking President Reagan where he and his Government stand in relation to freedom in other countries where they constantly interfere in the internal affairs of people who are struggling for their rights?
§ The Prime MinisterI seem to remember answering a similar question from the hon. Gentleman just a few days 1279 ago, and pointing out clearly that we would not like to live under a Government such as that of the Sandinistas. It hardly equates with his idea of democracy, or mine.
§ Mr. Tony Baldry (Banbury)Does my right hon. Friend agree that anyone who has seen famine in sub-Saharan Africa will warmly applaud the initiative that she and our right hon. Friend the Chancellor of the Exchequer have taken? Will she make it clear that creditor countries not only expect debtor nations to negotiate some of their economic policies in line with discussions with the IMF, but also spend a large proportion of their GNP on arms to prosecute border disputes and pointless civil wars against each other, all of which could be much better resolved by peaceful negotiation? A lot less of the budget in sub-Saharan Africa should go on wasting money on arms, but should be spent on people.
§ The Prime MinisterI understand precisely what my hon. Friend is saying. But he will be the first to know that countries such as Mozambique face a very real problem from RENAMO. Obviously, that country must have the means to resist the attacks from those people, for which they need a certain amount of training and help. We have to consider it case by case.
§ Mr. Nigel Griffiths (Edinburgh, South)Is the Prime Minister aware that people in this country from all backgrounds and supporting all political parties view with great distress her statement on Third-world aid—[HON. MEMBERS: "No."] But facts are chiels which winna ding. [Interruption.]
§ Mr. SpeakerOrder. Will the hon. Gentleman be brief, please?
§ Mr. GriffithsThe facts are there. They were given in the Financial Times today—
§ Mr. SpeakerOrder. Will the hon. Gentleman ask a question?
§ Mr. GriffithsIs the Prime Minister aware that, for the first time in history, overseas aid from the Government has dropped below 0.3 per cent.—to 0.28 per cent.? In the past 1280 year it has dropped by 2.8 per cent. in sterling terms and by 7 per cent. in volume terms, and many people from all backgrounds are concerned that the Government do not care about poverty in the Third world and are doing nothing to alleviate it.
§ The Prime MinisterIn absolute terms, our aid programme remains substantial. It is the seventh largest among Western donors. It is of high quality, it is focused on the poorest countries and it is now growing in real terms. This year"s budget is 5.7 per cent. up on last year in cash terms, and the programme is now scheduled to grow by some 4 per cent. in real terms compared with expenditure in 1987–88.
I have not found anything like the reception that the hon. Gentleman mentioned; quite the contrary. Most people are extremely pleased with my right hon. Friend the Chancellor"s initiative and sad that it took such a long time for other countries to take it up. Not only is it writing off the loans; it is giving substantial help to some of the trade debtors. We are doing so alongside the six other members of the summit seven. That is a very good advance, and it is far greater than anything previously achieved.
§ Mr. SpeakerOrder. As a matter of balance, I shall call one Government Member.
§ Mr. John Browne (Winchester)Does my right hon. Friend accept that one of the greatest challenges now facing Western leaders is the management of strategic peace in an era when the peace of deterrence may be replaced by the peace of detente? Will she accept that one result of the summit is that the risk that any perceived weakness or division on our part, leading to war is now greatly reduced and there is a much better chance that peace will be maintained as a result?
§ The Prime MinisterI think that there is a clear political communiqué, that we must keep up our guard. Weakness is the most dangerous and damaging thing and would put our liberty in jeopardy. We can be highly co-operative with the Soviet Union and what it is trying to do in changing its whole system and giving more personal responsibility and initiative precisely because our defence will be strong and liberty will not he in danger.