Overseas Borrowings (Repayment) (Hansard, 6 June 1978)

§ Mr. Robert Sheldon

The table below shows figures for the repayment of overseas borrowing by the Government and individual nationalised industries from 1978 to 1987. The figures in the first line for each borrower have been converted to pounds at current exchange rates; those in the second assume a 5 per cent. depreciation of sterling against all other currencies; those in the third assume a 10 per cent. depreciation of sterling. The figures take account of all overseas borrowing up to 31st March 1978. They also take account of all early repayments carried out to date.

The method of calculating the figures necessarily involved some rather artificial assumptions. For instance, where a depreciation of the pound against the dollar is assumed, it is necessary to make some assumption about the value of other currencies' rates against the dollar. In this calculation the assumption made is that other currencies' dollar rates re- 114W main unchanged so that sterling depreciates equally against them all. Similarly, it is necessary to make an assumption about the timing of the depreciation of the pound. It has been assumed to happen instantaneously. Neither of these assumptions is likely to match any actual developments.

Comparison of the three lines for each borrower shows the difference between the sterling value of debt to be repaid over the next 10 years at current rates and the sterling value, assuming depreciation of the pound. This difference cannot, however, be directly related to any cost to the Exchequer of such depreciation, for several reasons. First, in the case of borrowing by Her Majesty's Government, the foreign currency proceeds are taken into the reserves without being converted into sterling, and, assuming they are retained in the reserves until repaid, there will be no cost to the EEA if sterling depreciates. To this extent, the difference in value after depreciation is merely a book value change.

Second, in the case of nationalised industries, around four-fifths of their total outstanding overseas borrowing was drawn under the exchange cover scheme. Under this scheme the exchange equalisation account (EEA) guarantees the nationalised industry foreign currency for payments on overseas loans at a fixed exchange rate. The sterling liability of the nationalised industry is therefore fixed, and the EEA bears any additional cost or benefit deriving from exchange rate movements. However, any such cost may be wholly or partly offset by the charge paid by the industry to the EEA for the use of the scheme for each loan. It is not practicable to calculate the cost or benefit to the EEA resulting from the operation of the exchange cover scheme for each loan; to do so would require arbitrary assumptions about the use of the foreign currency proceeds accruing to the EEA from loans, and about interest payments which it might receive from investment of the proceeds.

Third, in the case of nationalised industry borrowing not covered by the exchange cover scheme, the industry bears the additional sterling cost deriving from a depreciation of the pound. The cost to the Exchequer will depend on the individual industry's financial relations with the Government.

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REPAYMENT SCHEDULE OF OVERSEAS DEBT 1978–87
£ million
	1978	1979	1980	1981	1982	1983	1984	1985	1986	1987	Total
Her Majesty's Government:
Current rates	617	413	767	1,325	1,163	735	890	71	72	83	6,136
5 per cent. £ depreciation	653	427	803	1,365	1,183	737	937	75	76	88	6,344
10 per cent. £ depreciation	669	443	844	1,410	1,205	739	989	79	80	93	6,551
Nationalised industries:
Electricity Council:
Current rates	401	150	245	384	238	165	49	22	23	16	1,693
5 per cent. £ depreciation	422	158	258	404	250	174	52	23	23	16	1,780
10 per cent. £ depreciation	445	167	273	427	264	183	55	24	24	17	1,879
South of Scotland Electricity Board:
Current rates	26	61	8	50	9	9	7	7	8	5	188
5 per cent. £ depreciation	27	64	8	52	9	10	7	7	8	5	198
10 per cent. £ depreciation	28	67	9	55	10	10	8	8	9	5	208
North of Scotland Hydro-Electric Board:
Current rates	1	2	107	4	54	4	2	1	1	1	176
5 per cent. £ depreciation	1	2	113	4	54	5	2	1	1	1	183
10 per cent. £ depreciation	1	2	119	4	54	5	2	1	1	1	190
British Gas Corporation:
Current rates	177	133	72	59	51	18	16	15	2	—	542
5 per cent. £ depreciation	186	140	75	62	54	18	17	15	2	—	570
10 per cent. £ depreciation	196	147	79	66	57	19	18	16	2	—	602
British Steel Corporation:
Current rates	3	27	102	92	110	142	207	33	48	23	787
5 per cent. £ depreciation	4	29	107	96	116	150	218	34	50	24	828
10 per cent. £ depreciation	4	30	113	102	122	158	230	36	53	25	872
British Airways:
Current rates	18	58	9	18	11	12	10	9	7	6	157
5 per cent. £ depreciation	19	61	9	19	12	13	11	9	7	7	166
10 per cent. £ depreciation	20	64	10	20	13	13	11	10	8	7	175
British National Oil Corporation:
Current rates	—	—	—	53	106	106	106	53			423
5 per cent. £ depreciation	—	—	—	56	111	111	111	56	—	—	446
10 per cent. £ depreciation	—	—	—	59	118	118	118	59	—	—	470

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£ million
		1978	1979	1980	1981	1982	1983	1984	1985	1986	1987	Total
Post Office:
Current rates	…	125	170	137	312	75	15	16	18	26	2	895
5 per cent. £ depreciation	…	131	179	144	328	79	16	17	18	27	2	942
10 per cent. £ depreciation	…	139	189	153	347	83	17	18	19	29	2	995
British Rail:
Current rates	…	31	4	22	17	8	9	5	3	3	1	103
5 per cent. £ depreciation	…	32	4	23	18	9	10	6	3	3	1	108
10 per cent. £ depreciation	…	34	5	24	19	9	10	6	3	3	1	114
National Coal Board:
Current rates	…	4	23	89	114	41	89	65	19	30	48	523
5 per cent. £ depreciation	…	5	24	93	120	44	94	69	20	31	50	550
10 per cent. £ depreciation	…	5	26	98	127	46	99	72	22	33	53	580
British Shipbuilders:
Current rates	…	—	—	—	—	—	—	—	—	—	6	6
5 per cent. £ depreciation	…	—	—	—	—	—	—	—	—	—	6	6
10 per cent. £ depreciation	…	—	—	—	—	—	—	—	—	—	6	6
Total Nationalised Industries:
Current rates	…	784	627	790	1,103	704	569	485	178	146	106	5,493
5 per cent. £ depreciation	…	827	661	825	1,159	738	601	510	186	152	112	5,770
10 per cent. £ depreciation	…	872	697	878	1,226	776	632	538	198	162	117	6,091

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