HL Deb 25 July 1990 vol 521 cc1544-7

7.45 p.m.

Lord Reay rose to move, That the draft order laid before the House on 13th July be approved [24th Report from the Joint Committee].

The noble Lord said: My Lords, the order, when made, will give effect to the immunities and privileges set out in chapter VIII of the articles of agreement and attested to by all signatories as necessary to enable the bank to fulfil its purposes and functions. All signatories are required to give effect to these basic immunities and privileges.

Your Lordships will acknowledge the extraordinary changes in eastern Europe which provide new opportunities and allow the disciplines of the free market to operate. The free world must react quickly to this process if it is to help and influence events. A clear example of quick reaction and long-term commitment is this new European Bank for Reconstruction and Development (EBRD).

In December last year, when meeting in Strasbourg, the European Council decided to establish as soon as possible a new European bank to further the implementation in central and eastern European countries of democracy and economic reform. The discussions, begun in Paris in January this year, culminated in the signing on 29th May by representatives of its 42 prospective members of the articles of agreement establishing the bank. Signatories include the world's leading economic powers—all members of the Organisation for Economic Co-operation and Development (OECD), including of course all member states of the European Community. All members of Comecon have signed and are potential recipients. Other states have also signed—Egypt, Israel, the Republic of Korea, Mexico and Morocco. It is truly an international effort and we must ensure that the impetus of this effort is maintained.

The purpose of the EBRD, as set out in the articles of agreement, will be to foster the transition towards open market-orientated economies. Equally, it is to promote private and entrepreneurial initiative in the central and eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics.

The functions of the EBRD include, among others, the implementation of structural and sectoral economic reforms, including demonopolisation, decentralisation and privatisation; the promotion of the improvement and expansion of productive, competitive and private sector activities; the mobilisation of domestic and foreign capital and experienced management; fostering productive investment; providing technical assistance for the preparation, financing and implementation of relevant projects; and encouragement for the development of capital markets.

The articles of agreement, signed by the Chancellor of the Exchequer on 29th May, were presented to the House as Command Paper 1116 on 28th June. These articles will come into force only when ratified by signatories representing two-thirds of the total voting power, including at least two countries from central and eastern Europe. It is imperative that ratification be completed quickly. As host nation, the United Kingdom plans to be among the first to ratify. The president-designate, M. Attali, expects the agreement to enter into force early next year. Such is the pace of development in Europe, however, that we must hope the necessary processes are completed as soon as possible to enable the bank to start operating at the earliest opportunity. Your Lordships will, I am sure, agree. Thus, it is important that the draft order be approved now so that we can ratify the agreement to establish the bank.

The principal privileges and immunities to be conferred on the bank by this order, under the provisions of the International Organisations Act 1968, as amended, are legal capacity, certain immunities from seizure of its property and assets, inviolability of its archives, exemptions from taxes on income, capital gains and other direct taxes, certain exceptions from Customs and Excise duties and restrictions on goods imported for official use, and relief from VAT. Officers and employees of the bank will be exempted from taxation on salaries paid to them by the bank, although there will be an internal tax for the benefit of the bank, as well as immunity from suit and legal process in respect of their official acts.

Your Lordships will be aware that the new bank is to have its headquarters in London. It will be the first multilateral development bank to have its head-quarters here. I am delighted that the advantages of London as the location of the bank's base were clearly acknowledged when the final choice was made.

Accordingly, a headquarters agreement is to be negotiated with the bank which will set out in detail the immunities and privileges of the bank and its employees within the limits imposed by the International Organisations Act 1968, as amended. Approval by your Lordships of a further order will be sought later when negotiations are completed. This process must be finalised before the bank is ready to commence full operations here.

The reform process in central and eastern Europe poses one of the great political challenges of our time. Political courage and fortitude from within and firmness of purpose from without have combined to end the political impasse of the cold war. The European Bank for Reconstruction and Development can now help to provide the economic prosperity necessary to underpin political freedom. I commend the order to your Lordships.

Moved, That the draft order laid before the House on 13th July be approved [24th Report from the Joint Committee].—(Lord Reay.)

Lord Bruce of Donington

My Lords, we are happy to associate ourselves with the general sentiments expressed by the noble Lord. As the noble Lord says, recent developments have presented all western nations with an opportunity to assist in the considerable reconstruction which must take place in the wake of the abolition of the old dictatorial and centrally planned states of eastern Europe. Of course it is to be hoped that their courage is matched by our imagination and that we concentrate, possibly rather more altruistically than we may have done in the past, on bringing constructive assistance rather than on the making of a quick buck—our principal preoccupation. However, we welcome the instrument, which is in standard form.

We welcome the fact that the bank will be in London. We commend the Chancellor of the Exchequer and his fellow Ministers for their initiative in this matter.

There are one or two points in the order on which I should like illumination. I do not raise the matters in any querulous spirit; I do not intend to make an issue of them. Paragraph 8 states that the bank shall have, relief from rates on its official premises". I do not know to which kind of rate it would otherwise be subject. Would it be the business rate at the standard rate or the rate which is being levied following the institution of the poll tax? I am not sure what relief is afforded to the bank.

In paragraph 9, in regard to the importation of goods and services, the order states that the bank is exempt from taxes subject to such conditions as the Commissioners of Customs and Excise may prescribe. What kind of conditions will be prescribed? It will be useful to know that because the bank's directors must know in due course.

Paragraph 10 states: The Bank shall be exempt from prohibitions and restrictions on importation or exportation in the case of goods and publications imported or exported by the Bank and necessary for the exercise of its official activities". Do the authorities or does the bank itself determine what is necessary?

At paragraph 14 one sees the reference to which the noble Lord referred: As from the date on which an internal effective tax for the benefit of the Bank on the emoluments paid to him by the Bank is applied". Employees and directors are exempt from taxation in this country as the noble Lord described. I am fascinated by the term "internal tax". It is rather novel for an institution to levy a tax upon its employees for its own benefit. I know that that is done in the European Commission. British employees of the Commission do not pay any income tax in the United Kingdom. They pay considerably reduced income tax in the EC which is then applied to a reduction of the Commission's own vote for expenditure. That is rather a novel way of going about it. Is the noble Lord quite sure that that is the best way to proceed? I note that the emoluments can be taken into account for the purposes of determining total income for other purposes. Perhaps the noble Lord will expand on that.

These are small matters. I raise them only to enable the noble Lord to provide a little more information. On this side of the House we are more than willing to expedite the progress of the order through the House in the hope that it will achieve the objectives which the Government have so ably set out.

Lord Reay

My Lords, I am grateful to the noble Lord for the general welcome which he has given to the order. He has quite properly raised one or two points which he described as being small matters. He was kind enough to give me advance notice of them; so I hope I shall be able to throw some light upon them.

The noble Lord asked about the exemption of rates of the bank's premises. My understanding is that the bank's premises will be subject to exemption from all but the beneficial portion of the non-domestic rate. The beneficial portion is 20 per cent. of the rate operative in the borough in which the premises are situated. That is my understanding.

With respect to paragraph 9, the noble Lord asked if I could explain the conditions which the Customs and Excise might prescribe for the protection of the revenue. I believe that those are yet to be determined in respect of this organisation but they will be for the protection of the revenue.

With regard to paragraphs 9 and 10, the noble Lord asked who was to decide what is necessary for the exercise of the official activities of the bank. In any dispute that would be for initial discussion between the bank and the relevant United Kingdom authorities; for example, Customs and Excise. Guidance is available from Customs and Excise, and ultimately in any dispute it would be a matter for interpretation by the United Kingdom courts.

The noble Lord asked a number of questions regarding internal tax. An internal tax is one levied by the international organisation for its own benefit. The revenue generated serves to reduce the contributions payable by member states. I understand that in international practice that is the treatment normally accorded to emoluments paid by an international organisation.

I hope that that deals with most of the queries raised by the noble Lord. Once again, I thank him for his general reception of an order which it is hoped marks an important step forward in the welcoming back of eastern and central Europe into the fold of the western world.

On Question, Motion agreed to.