§ 5.48 p.m.
§ THE MARQUESS OF LANSDOWNE rose to ask Her Majesty's Government what progress has been made with the Government of Malta in the negotiations over aid. The noble Marquess said: My Lords, I put down this Unstarred Question because I have been unable to understand how it is that Her Majesty's Government have run into such heavy weather in the discussions with the Government of Malta over the division between gifts and loans in the second quinquennium of the Agreement on financial assistance which we concluded in September, 1964; and because of a widespread suspicion that the heavy weather is of Her Majesty's Government own making and quite unnecessary.
§
I understand that these discussions, which started in December, 1968, having reached a complete impasse, were broken off on the instructions of Dr. Borg Olivier, the Prime Minister of Malta, at the end of last month. I was glad to read in the OFFICIAL REPORT of the proceedings in another place on April 27 last [col. 885]
283
that the right honourable lady, Mrs. Hart, had stated:
So far as we are concerned, discussions can continue. Clearly, it is only on the basis of discussions that we can find a satisfactory solution.
Later in the debate on the same occasion the right honourable lady warmed to the theme and said [col. 890]:
… the British Government are anxious and eager to continue discusions …
We are all very glad about that. It is certainly not my purpose to make the task of Her Majesty's Government in reaching a satisfactory solution more difficult; but we on this side of the House are very anxious about the turn of events. I sincerely hope that the Minister who is to reply will be able to give a clear explanation of the Government's position.
§
Alas, to-day's debate is taking place while a state of deadlock exists between Her Majesty's Government and the Government of Malta. Very briefly, my Lords, I would outline, as I see it, the background to this unhappy state of affairs. Immediately after Malta became independent in 1964, Her Majesty's Government signed two Agreements with the Government of Malta. One was on mutual defence and assistance; the other was an Agreement on financial assistance. Although these two Agreements were concluded through separate Instruments, the second, the Agreement on financial assistance, was, as stated in the second of its Articles:
subject at all times to the continued operation of the Agreement on mutual defence and assistance.
Those Agreements were entered into when Malta elected to become a sovereign independent State of the Commonwealth.
§ My Lords, 160 years earlier the Maltese people had voluntarily placed themselves under the British Crown. Throughout those years Malta had been an important British base and her economy had virtually been geared to British defence requirements. By the end of the 1950s it was apparent to Her Majesty's Government that it was necessary to reduce British defence commitments in the Mediterranean and that the consequences of this would be a very serious disruption of the Maltese economy, following on the run-down of 284 the British forces in the Island. It was therefore decided that steps should be taken urgently to diversify the economy of the Island and place it on a footing not dependent solely upon British defence requirements. It was agreed to convert the Naval Dockyard to commercial use and to embark on a very considerable programme to attract industry to the Island and to develop its potential as a tourist centre. This was the first five-year development plan to run from 1959 to 1964, and under it Britain provided £35 million in aid including £7½ million towards the conversion of the dockyard. Two-thirds of this aid was by way of grant.
§ My Lords, it was clear in 1964, when Malta decided to become a sovereign State within the Commonwealth, that with the continued military run-down, without a major injection of new capital the economy of the Island could not be viable; that there would be massive unemployment and that the people of Malta would be subjected to a long period of extreme poverty because, owing to the rapid change in British defence requirements, they had not had time to adapt their economy to the new circumstances. I think we all felt at the time that we could not allow such an act of ingratitude to gallant people to be perpetrated, and we accepted our moral obligation to seek to prevent it.
§ It was therefore in this spirit that it was agreed that the sum of £50 million spread over 10 years should be provided by way of grants and loans in order to increase the rate of growth of the Maltese economy; and a further sum of £1 million by way of gift was to be given towards the restoration of historic buildings previously occupied by the Government of the United Kingdom for defence purposes, making a total of £51 million. It was agreed that of the £50 million provided, £18.8 million should be available up to March 31, 1967, and the balance of £31.2 million during the remaining seven years. It was agreed that in respect of the five years ending on March 31, 1969, the division should be 75 per cent. by way of gift and 25 per cent. by way of loan. The division between grants and loans for the second quinquennium was to be the subject of later discussions.
§ LORD SHEPHERDMy Lords, may I intervene? I may have misunderstood 285 the noble Marquess. I was not certain which Agreement he was referring to earlier. To the best of my knowledge there is only one. I think he attributed this particular Agreement to the present Government. The noble Marquess will know that the Agreement was signed in September, 1964, before the General Election, and was in fact signed by Mr. Duncan Sandys. I thought I should intervene now to establish which Agreement we are talking about.
§ THE MARQUESS OF LANSDOWNEMy Lords, the noble Lord is quite correct; and, as he may remember, I was myself personally involved in the drawing up of that Agreement. It was a very large sum of money. It amounted to no less than £18 per head of the population. I am convinced that we were right to agree to it and that it was in no way excessive, in view of the special circumstances of the Maltese people; circumstances for which the British were in fact very largely responsible—I see that the noble Lord, Lord Shepherd, assents to this point of view.
I should also perhaps remind your Lordships that the Maltese, when entering into the defence and financial Agreements concluded after independence, freely offered the defence facilities of the Island to the British forces. Two years after the independence of Malta, that is to say, in 1966, from the Defence White Paper of that year the Maltese people learned to their dismay that the rate of the military run-down was to be considerably accelerated, and that British defence expenditure would in consequence be cut from about £12½ million a year to less than £6 million a year by the early 1970s. Your Lordships will, I am sure, remember the consternation produced by this change of plan and the rowdy demonstrations in Malta that subsequently ensued.
The Joint Mission for Malta, headed by the noble Lord, Lord Robens, published its Report in July, 1966, and suggested a plan which, it was considered, by taking a target of 15,000 new jobs and absorbing the 6,500 people made redundant by the withdrawal of British defence forces, could achieve the full industrialisation of the Island by 1972. It was estimated that that plan would cost £44.3 million—and I give that figure, my Lords, 286 simply to indicate the size of the problem. The present difficulties have, I think, been somewhat complicated by a grant, over and above the £50 million agreed in 1964, of a further £3 million made in 1968 specifically for the dockyards. The £3 million is a grant (I think there is no question about that), but it can be drawn in addition to the £50 million only after April, 1974; that is, outside the 10-year period. If it is drawn before that date (that is in fact when it is wanted) it must be taken temporarily from the £50 million total.
The present position is, as I understand it, that in the negotiations over the division between gifts and loans for the second quinquennium, Her Majesty's Government made an initial proposal that the division should be 75 per cent. loan and 25 per cent. grant; in other words, an exact reversal of the ratio for the first five years. This was unacceptable to the Government of Malta, and after further consideration Her Majesty's Government came forward with a suggestion that it should be 50 per cent. loan and 50 per cent. grant. No one, my Lords, will wish to criticise Her Majesty's Government for efforts to save the hard-pressed British taxpayers' money, but I am bound to say that Her Majesty's Government's whole approach to the second half of the financial Agreement with Malta has the appearance of niggardliness; of being out of line with the assurances given by Mr. Gordon Walker and with the spirit of the Agreement for a £3 million grant for the development of the dockyard, following discussions in March, 1968, with the noble Lord, Lord Shackleton.
In those discussions, and in the Agreement about the £3 million loan, it was specifically stated that this allocation of £3 million would not be taken into account in applying general arrangements relating to the proportion between grants and loans under the financial Agreement. I understand that Her Majesty's Government are now contending that this additional £3 million should be reckoned in terms of a general formula on grants and loans. Will the Minister tell the House whether Her Majesty's Government are now insisting on including the additional £3 million grant within the general formula of grants and loans, and also—and this I can hardly believe is 287 possible—the £1 million gift which was contributed for historic buildings? I should be grateful if the Minister could give me a categorical reply to that question.
Up to March, 1969, £29.3 million had actually been drawn down by the Government of Malta, leaving a balance of £21.7 million out of the £50 million, and no drawings had been made in respect of the second quinquennium. I understand that the offer of the right honourable lady, Mrs. Hart is for a 50 per cent. grant, whereas the Government of Malta are asking for the continuance of the 75 per cent. grant. The right honourable lady has stated in another place that the amount under discussion is £6.75 million—in other words, the difference between what the Government of Malta want and what Her Majesty's Government are prepared to agree to at the moment. Will the Minister explain to the House how his right honourable friend arrived at that figure? I read the official account with great care and I cannot see a clear explanation of how the Minister arrived at that figure of £6.75 million. If the noble Lord could give the House an exact reply, it would be very helpful. If the amount under discussion is in fact £6.75 million as stated by the Minister, we are concerned with whether we lend or whether we give to Malta £1.35 million per annum for the next five years. Of course, if we lend it, that amount will be redeemable in 25 years.
When we entered the original Agreement in 1964 it was thought proper that there should be a review after the first five years. But it seems to me extraordinary that because the economic position of Malta has improved—after all, that was the whole purpose of our financial aid to Malta—Her Majesty's Government should take the line that the terms in the remaining quinquennium should be far more severe than in the original first five years. I hope that Her Majesty's Government will be able to think again. It seems to me that a number of new elements have entered into the picture. One is the accelerated rate of run-down, and I will not deny that Her Majesty's Government have been sympathetic about that. I will not deny that they showed great sympathy over the 288 dockyard. It is for this reason that I find it so difficult to understand what I can only describe as a niggardly attitude over this relatively small sum. I hope that Her Majesty's Government will be able to think again, always bearing in mind the significance of our Agreement on mutual defence.
§ 6.4 p.m.
§ THE EARL OF GLASGOWMy Lords, after the admirable exposé of my noble friend, my remarks on this subject will be brief. I must confess to having some sympathy with Her Majesty's Government in these difficult negotiations with the Government of Malta. The Maltese are hard bargainers. I have had personal experience of this on a considerably lower level than the noble Lord. Nevertheless, this country has a very special admiration and affection for the George Cross Island. There are many champions of Malta in your Lordships' House and in another place, regardless of Party, and I am unashamedly one of them.
With the relaxation of the currency restrictions and a number of other considerations, I do not believe that there is any reason to suppose that the economy of Malta will continue to increase at the remarkable rate at which it has increased over the last five years. If there ever was a case for unqualified generosity, perhaps this is it. There is another aspect. As the noble Marquess has reminded the House, the financial Agreement of 1964 was linked with a defence Agreement, which was, and is, of the utmost importance to this country and to NATO.
I got the impression when I was in Malta four weeks ago that the fortunes of the present National Government in the next election in Malta depended very largely on the outcome of the present negotiations. The Opposition, the Maltese Labour Party, whatever the merits or demerits of their domestic policy may be, have declared themselves neutralist in foreign affairs. I can only assume that this means that they will abandon their support of NATO and will be prepared to accept economic aid from the highest bidder, relying on their skill in negotiation to avoid any strings attached. That I believe to be a very dangerous course. I must take some comfort, I think, from the assurance given last week by the right honourable 289 lady in another place that the defence aspects of this complicated problem will not be forgotten, but I think it must be in the minds of all of us that on a day not too distant there is a possibility that we may wake up and find a Russian squadron lying at anchor in the Great Harbour, by invitation. Should that happen, it would spell a very great danger for this country, for NATO and ultimately for the people of Malta. I would ask the noble Lord who is replying whether he could reassure me that these dangers are in the minds of Her Majesty's Government in the context of the present negotiations.
§ 6.7 p.m.
§ BARONESS EMMET OF AMBERLEYMy Lords, I should like to add a few words in support of the speech of the noble Marquess, Lord Lansdowne. He has gone into the financial side with great clarity and I want to add just a few words on a more general line. So far as I can make out, there has been no payment to Malta since 1969. Discussions broke down completely for some five months. Reading the Questions and Answers in another place, I notice that the replies of the Minister of State give the impression, though I am certain she did not mean to do so, that the total figure is still under discussion. She said:
Clearly, in terms of our very special relationship and friendship with Malta we need to extend as many concessions as possible; but when this comes so sharply into conflict with the developmental needs from our restricted aid budget we are bound to consider what is the right figure to arrive at."—[OFFICIAL REPORT (Commons), 27/4/70, col. 887.]Then she said:… one cannot go beyond a certain point in terms of the merits of development and in terms of the demands on Britain's money." [Col. 888.]I think that we should stress again that the total figure is settled. The only question is the method in which it is going to be paid.It seems to me that in view of the fact that there are going to be elections in Malta in September, the present Government are running the risk—indeed, I have already heard this criticism—of being reproached with playing politics. Because obviously the present Prime Minister of Malta going to an election with the whole of this matter not cleared up 290 will be at a serious disadvantage. For the sake of this small amount of money being given either in grant or by way of loan and the small amount of interest involved, is it worth risking the defence system of the Mediterranean?—because that is what it may come to.
The breakdown of discussions seems to me deplorable. It is at best incompetence, either on our part or on the part of Malta, or somebody playing politics here or in Malta. If one looks at the present situation in the world, at the clouds of every kind that are gathering, and the few friends that we seem to have at the present time, and then at the key place that Malta holds in the Mediterranean, I should have thought that it was of the utmost importance that we should come to a settlement with them as quickly as possible.
It is no good saying that they are better off than they were and that therefore the terms may be altered. I understand from the present Government that we also are better off. And there is no guarantee, as my noble friend Lord Glasgow said, that their prosperity will continue at the same rate. Surely, my Lords, friends are very valuable to us. With the ties that we have built up with Malta—and many of us, including, I feel sure, the Minister who is to reply, have an affection for the Island which has been built up through our war experiences—surely it is our job at the present moment to hurry up this settlement, and to make our ties even stronger in the future than they have been in the past.
§ 6.13 p.m.
THE EARL OF SELKIRKMy Lords, there are two points that I should like to put to the noble Lord. The position of Malta has been adversely affected by factors right outside her control. Malta has been brought up to a certain way of conducting its affairs, largely connected with defence, with no action on its part to change the fundamental basis of its employment and the life of the country. We know that it has done a number of things in the past to try to establish that life. One is the development of the tourist industry, which I believe is having great success, Malta being popular with those who visit it. As international exchange becomes more easy it may become more difficult to attract visitors than it has been in the past.
291 There is another factor that has affected Malta adversely. The reform of the dockyards was really based on the Suez Canal route. Ships coming from Asia would pass close to Malta and it was an extremely convenient place to go into for repairs. This route has been closed—I do not know for how long, and it may be indefinitely—and that has dealt a further blow to Malta's industries. I hope that the Government will bear in mind that the adverse factors which have affected Malta have been wholly outside their control. They have been dependent on us. I do not say that the Government have not been generous; but Malta will continue to depend on us for the structure of life, for which we are largely responsible.
§ 6.14 p.m.
§ LORD SHEPHERDMy Lords, I am grateful to the noble Marquess for raising this matter in your Lordships' House, as I believe this is the first occasion for quite some time that we have had the opportunity to discuss our relations with Malta. I know that whatever may divide us in your Lordships' House this subject does not. Our bonds with Malta are very strong and were cemented, as has been said this evening, by the gallant role that the people of Malta played in the Second World War. It is therefore a matter of exceptional regret to us that we have not yet reached agreement on the terms of the said aid to Malta during the period 1969 to 1974.
The noble Marquess wondered why we were making so much heavy weather of this, and I hope to refresh his memory of what went on during the negotiations in 1964 in which he played a leading part. Before doing so, however, I should like to say to the noble Baroness, Lady Emmet, that I cannot believe there is anyone without a particularly evil mind who would believe that the Government would "play politics" in Malta. We have had to consider our position in the light not only of our connections with Malta but also of the considerable and, in some cases, growing needs of colonial territories and other independent territories which, as the noble Baroness knows well, are in desperate need of money, Clearly, although to-day we are enjoying a balance of payments position which is 292 perhaps stronger than it has ever been in her lifetime (and I will not say how long that is), we still need to keep a careful watch on expenditure, and therefore even a few millions is something that one needs to watch with the greatest possible care.
I hope that I may impose upon the House for a moment by digging a little deeper into the history of the present negotiations. The Financial Agreement was signed in September, 1964, by Mr. Duncan Sandys and was entered into at the time of Malta's independence in order to assist in the diversification and development of the economy of Malta, which for so long had been almost entirely dependent upon its fortress existence.
It was specified in the Agreement that for the first five years aid would be made available in the proportion of 75 per cent. grant and 25 per cent. loan. The Agreement did not specify any fixed proportion between grant and loan for the second five years, but left this to be decided in future discussion.
I think I must make it quite clear that in the original discussions leading up to the Agreement the British negotiators made it plain that the high proportion of 75 per cent. grant agreed during the first five-years period was in recognition of Malta's special economic position at the time. Indeed (perhaps the noble Marquess may care to have his memory refreshed on this) I have seen the record of a meeting which took place in June, 1964, in which the British negotiator said that the aid, even for the first five years, would have had to be on a 50–50 basis—not the figure that was eventually agreed—had it not been for the special difficulties which Malta faced; and that during the second five-year period the British Government would expect a more normal pattern within the 75 per cent. grant and 25 per cent. loan. It was envisaged at that time, when the economy of Malta was in a particularly poor state, by Ministers of the Party of noble Lords opposite that the second period would be within 75 per cent. and 25 per cent. My Lords, let us remember that.
The Maltese representative, quite naturally for his part, reserved his Government's position on the division between grants and loans for the second 293 five years. Discussions on this division of the second five years started in Malta in December, 1968. These discussions took place against an economic situation which was infinitely more favourable than had seemed possible in 1964.
Nearly all the projections of Malta's development plan for the period 1964 to 1969, on which the terms of financial aid were based—and I remind noble Lords opposite of what the Government of the day had in mind—proved to have under estimated Malta's economic capacity. The gross national product, which had been forecast to drop to £45 million by the end of 1968, instead rose to £76.5 million, and has improved in the past year by over 13 per cent. We are all deeply gratified that this has happened. Unemployment, which had been forecast to reach 6,382 by the end of March, 1969, stood then at 3,886; and now is even lower. If my memory serves me correctly, thinking of a piece of paper I saw a few moments ago, it is today at the lowest level for the past 21 years. Here again we must be gratified with the progress made. The gainfully employed forecast of 82,775 for the end of March, 1969, similarly improved to 93,466. Here again we must be gratified. Emigration was also much lower, and per capita income rose over this period by some 27 per cent. Malta's foreign exchange reserves are now £90.2 million—among the highest in the world—and are sufficient to finance some 18 months' imports.
Against this vastly improved economic background, but taking into account the special circumstances of our relationship with Malta, the British Government therefore proposed, when discussions started in December, 1968, that aid for the second five years should be made available in the proportion of 75 per cent. loan to 25 per cent. grant. In fact that was the division that Conservative Ministers had in mind when they entered into this Agreement in 1964. These terms were more favourable than those which would be applied to any other country in similar economic circumstances. In giving aid we do not seek terms which it is beyond the capacity of the recipient to bear, nor do we ignore other relevant non-economic considerations; but we must have some regard for the relative wealth of the recipient. Indeed, by all normal aid criteria Malta 294 would to-day not be eligible for grant aid at all.
The offer that we made was rejected by the Maltese, and in consideration of representations made by the Malta Government in January, 1969, we revised our offer to one of 50 per cent. grant and 50 per cent. loan. Unfortunately, Dr. Borg Olivier remains unsatisfied with this offer. But in the light of the continuing strength of the Malta economy we do not believe that we should be justified in offering any more generous terms, again bearing in mind our responsibilities to other territories. May I say to the noble Baroness, Lady Emmet, that it is true we agreed to a figure, but it still needs to come out of the general aid programme? Therefore, too large a grant to one country means that other countries are deprived of aid.
In an attempt to bring about a resumption in the flow of aid to Malta, which under the terms of the Agreement ceased at the end of March, 1969, the British Government did however propose temporary arrangements which would have allowed the flow of aid to Malta to be resumed. This offer would have made available some £5.6 million in grant and an equal amount in loan for the period 1969–71. Unfortunately this offer was turned down. Our position was re-stated by Sir Duncan Watson, our recently arrived High Commissioner in Malta, in discussions with Dr. Borg Olivier on April 13 and 17. But again, I am sorry to say, no progress has been made. Following the statement by the Minister of Overseas Development in another place on April 23, Dr. Borg Olivier stated that he regarded discussions as at an end. We very much regret that the Maltese Prime Minister has felt obliged to take this view, and I should like to make it plain that the British Government's offers remain open.
The noble Marquess asked me about the £3 million which was a special arrangement to help in the Dockyard. It is true that this £3 million would come by grant out of the total figure of £50 million, but we agreed at the same time that we would pay an extra £3 million in the two years 1974 to 1976. In other words, we have (shall we say?) increased and extended the offer that we have made to the Maltese.
§ THE MARQUESS OF LANSDOWNEMy Lords, I did not think that the noble Lord had forgotten, and I know that he is trying to be helpful; but could he also help me over the question of the £1 million gift for historical buildings? Is that included in the general arrangement about grants and loans?
§ LORD SHEPHERDMy Lords, I understand that this is so. According to my piece of paper, the £3 million and the £1 million for historic buildings were treated alike.
§ THE MARQUESS OF LANSDOWNEMy Lords, this is a matter of very considerable importance, because it was specifically arranged in 1964, as the noble Lord well knows, that this sum should be excluded. It was £1 million outside the £50 million. I cannot see how by any stretch of the imagination it can now legimately be considered with the £50 million. It is for this reason that I am asking the noble Lord whether he can explain to me how his right honourable friend arrives at a figure of £6¾ million as being the sum representing the difference between the Government of Malta and Her Majesty's Government.
§ LORD SHEPHERDMy understanding is that the £3 million and the £1 million to which the noble Lord refers has already been allocated. I believe that in the case of the £3 million this is a figure that will be put on at the end for the years 1974 to 1976. As I understand it, the difference of this £6¾ million arises because my right honourable friend made an offer that for 1969–70 there would be a sum of £5.8 million, and for 1970–71 a figure of £5.4 million, which would readily be made available in grant form if the Malta Government was prepared to resume discussions on the basis of the temporary arrangements proposed in July, 1969. The difference between our 50–50 offer and what the Malta Government have so far indicated to be the minimum acceptable to them is this £6f million. I will certainly look into the point, and if I have in any way misled the noble Marquess I shall be only too ready to write to him and correct myself.
§ THE MARQUESS OF LANSDOWNEMy Lords, I am quite sure the noble Lord has no intention of misleading me or anybody else, but I shall study what he 296 has said with very great care, and if I do not find that I am receiving a clear-cut answer to this question I shall of course return to the charge.
§ LORD SHEPHERDMy Lords, I hope the noble Marquess will.
May I say, in conclusion, that we sincerely hope that the discussions can be resumed at an early date and that our long-standing friendship with Malta and her people, and our common interests—and these go much wider than our military interests—will eventually lead to a fair and a very friendly solution of this problem.
§ THE EARL OF GLASGOWMy Lords, could the Minister please give me some reassurance on the defence aspect?
§ LORD SHEPHERDMy Lords, the Question on the Order Paper is directed to aid. The noble Earl knows I have to speak with many hats, but that is not one of the hats I am prepared to wear to-night. I will look into the matter and will write.