Ireland Loan (Revised Agreement)

Greg Clark Excerpts

Monday 15th October 2012 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

I have today placed in the Libraries of both Houses revised copies of the agreement providing a credit facility to Ireland of £3,226,960,000.

This agreement was negotiated between HM Treasury and Ireland and originally signed on the 22 December 2010 following enactment of the Loans to Ireland Act, which received Royal Assent on 21 December 2010.

Parliament will be aware that in July 2011, following the euro area’s commitment to lower the interest rate on their loans to Ireland, the Chancellor committed in principle to lower the interest rate on the UK’s bilateral loan to Ireland. The Chancellor took the view that the UK had been unable to lower the interest rate on its loan to Ireland before that point without effectively subsidising the higher interest rates applicable to the European financial stability facility (EFSF). Changing the rate now ensures that all of the benefit goes to Ireland and not to higher interest rates paid to euro area Governments.

The UK’s loan agreement has now been revised to reflect this change in the interest rate, in which the UK has more than covered its costs of funds. The new rate that will apply to each tranche of the loan represents the UK’s cost of funds plus a service fee of 0.18 percentage points per annum. The UK’s cost of funding is defined as the weighted average yield on gilt issuance in the six months prior to the disbursement of a tranche.

The new interest rate will apply retrospectively to those tranches of the loan already disbursed, to ensure Ireland receives the full benefit of the lower rate. The rates, which apply to the tranches already disbursed on 14 October 2011, 30 January 2012, 28 March 2012 and 1 August 2012, are 3.373%, 2.559%, 2.546%, and 2.534% respectively.

The revised loan agreement also contains further minor amendments, which include taking account of changes made to Ireland’s agreements with other financial support facilities. These amendments maintain the effect of the provisions in clause 7 of the original bilateral loan agreement, on prepayment and cancellation of the loan.

HM Treasury has provided a further report to Parliament in relation to Irish loans as required under the Loans to Ireland Act 2010 alongside this statement.