§ Mr. Win GriffithsTo ask the Chancellor of the Exchequer (I) why exchange risk cover for European Investment Bank loans of over $25 million will not be applied to loans made to local authorities which are not538W part of a European Community integrated operation; and what was the cost to the Treasury of the last five years of the operation of the scheme;
(2) why the ½ per cent. interest rate subsidy formerly available for European Investment Bank borrowers has not been reinstated; and, over the last five years of the scheme's operation, how much local authorities in the United Kingdom benefited from the ½ per cent. interest rate subsidy.
§ Mr. Lilley[holding answers 26 May 1988]: I refer the hon. Member to my answer to a question from my hon. Friend the Member for Slough (Mr. Watts) on 2 December 1987 at column 614, which sets out the reasons for the withdrawal of interest rate subsidy available under the official exchange cover scheme. Loans over$25 million made to local authorities, whether or not they are part of a European Community integrated operation, are eligible for exchange risk cover.
In the period to 2 December 1987 local authorities borrowed £570 million under the scheme. During this time, the interest rate benefit available to borrowers has varied from¼ to ½ per cent. However, this does not reflect the true cost of operating the scheme. Local authorities borrow under the scheme for the benefit of the reserves, so any calculation must take into account the interest earned on that part of the United Kingdom's official reserves raised by this means and the cost to the Government of the 539W sterling finance, but the sums involved cannot be hypothecated. Moreover, the calculation would also have to take into account any exchange rate gain or loss made on repayment of the loans and any changes in overseas interest rates in relation to those charged on public sector debt during the life of the loans. These calculations cannot be made until the loans have run their full term.