UK-Ukraine Credit Support Agreement

Baroness Chapman of Darlington Excerpts

Wednesday 5th January 2022 Grand Committee

[Baroness Chapman of Darlington (Lab)]

I begin by paying tribute to my noble friend Lady Hayter for the work that she and her colleagues on the committee have undertaken in considering the new agreement with Ukraine, and for bringing their report to the Committee’s attention. As others have said, it is helpful to have this opportunity to hear from the Minister on issues relating to Ukraine that are clearly of deep concern.

The agreement is of course welcome. However, nobody believes that it is sufficient to meet the pressing and immediate needs that we have heard outlined so well this afternoon. Can the Minister therefore provide us with some milestones for this agreement specifically? It would be useful for the Committee to have an understanding of the answers to the many questions asked by the noble Lord, Lord Purvis of Tweed, specifically on the issue of local content. It is important that we secure public support for the measures that the Government are taking now and as we move into the future because we do not know what is going to happen. Obviously, defence industries are a key employer in this country so it would be interesting to know how local content will be assessed. We have seen many instances in the past, not so much in defence but perhaps in the energy sector, of local content being agreed at the time of procurement but then being found, when the situation is subsequently examined, not to have been delivered.

The build-up of Russian troops on the border is deeply alarming. Like many others—including, I am sure, the Government—we are gravely concerned about the risks of conflict and the risk of miscalculation. Despite what is being suggested by the Russian Government about our intentions and desires for Ukraine, we are absolutely clear and steadfast in our support for Ukraine’s sovereignty, independence and territorial integrity. It is for the people of Ukraine to determine their own political destiny, not Europe, not the US, not NATO and certainly not Russia.

We need to be crystal clear that any attempt to undermine Ukraine’s territorial integrity any further will be met with a strong, consistent and resolute response. At this stage, can the Minister say anything more about what measures are being considered and whether the Government are minded to signal any specific steps imminently? Diplomatic and economic measures are clearly most effective when undertaken multilaterally. With this in mind, it is worth restating that the Labour Party has an unshakeable commitment to NATO. We support steps taken with our NATO allies to strengthen their security and pursue defence co-operation with wider allies in response to growing threats.

Can I take this opportunity to press the Minister on the implementation of the Russia report? As I said on procurement, the Government may need public support for further steps in future. Money laundering and illicit finance cannot be tolerated in the UK or our overseas territories. If we do not deal with this, we will be seen as a soft touch for corrupt elites sustaining the Putin regime.

It does not befit the tone of this debate to start throwing around accusations about political donations but, while we have this opportunity, can the Minister comment on the Aquind interconnector between France and Portsmouth, which is funded by Russian money—I appreciate that it is not Russian state money—and could potentially be a critical part of our infrastructure? It is a cable that will transfer electricity from France to the UK and will, I believe, also be a data cable. There will be significant concern about this, not least among the people of Portsmouth. I believe that a decision about it is imminent, so it would be useful if the Minister could comment on it if he is able to. If not, it is perfectly fine for him to write to me.

We cannot consider these issues without mentioning the Nord Stream 2 pipeline. We should guard against energy dependency in Europe that could disrupt the unity that we need when we consider Ukraine. Can the Minister update us on any discussions that he is having on that topic with our European neighbours?

My noble friend Lady Hayter reminded us— powerfully—of the historical context. Many noble Lords have spoken of their deep concern about the potential for conflict in Ukraine. This is a dangerous flashpoint moment requiring forceful and skilful diplomacy, remembering that that is most effective when achieved with our international friends and allies. It is clearly in the UK’s best interests to play our part. The Government have our support in this agreement, and we would be interested in hearing what they intend to do next on this issue that is of such great concern across all sides of the House.

--- Later in debate ---

[Lord Grimstone of Boscobel (Con)]

My Lords, I think I would like to rest on saying that a whole range of sanctions and other options are under consideration.

I was also asked about co-ordination with allies. I think the noble Baroness, Lady Hayter, referred to how important it is to have full co-ordination with our allies. I can confirm that the UK, the US and our European partners, with which we are in constant dialogue, share a common assessment and are deeply concerned. We are unwavering in our support for Ukraine’s territorial integrity, and we will continue to support it in the face of Russian hostility. I will write to the noble Lord, Lord Purvis, and my noble friend Lady McIntosh in more detail about our contact with allies and on other matters that have come up; for example, my noble friend’s point about cybersecurity.

Noble Lords will have seen that the primary focus of the agreement is on the UK’s provision of support for the Ukrainian naval capabilities enhancement programme—UNCEP. This programme will enable the UK and our industry partners to provide extensive and valuable support to bolster Ukraine’s defensive naval capabilities. As my noble friend Lord Risby recognises, this is important—in passing, I want to thank my noble friend for his services as a trade envoy and for his kind comments about Her Majesty’s ambassador in Kiev. The framework agreement represents a continuation of previous discussions between the UK and Ukraine on its naval development, including the memorandum of intent signed aboard HMS “Prince of Wales” in October 2020 and the memorandum of implementation signed aboard HMS “Defender” in June 2021.

Let me be clear—I think it is important to make this point—that the benefits from the framework agreement are not just for Ukraine and are not solely about regional security, hugely important though that is. The UK’s contribution to UNCEP is consistent with and supportive of some of our key objectives at home. One of the components of UNCEP support will be the design and construction of eight new P50U missile craft, some of which will be built by Babcock in its sites at Rosyth on the Firth of Forth, an area which is well-known to the noble Baroness, Lady Liddell. This work will secure highly skilled engineering and shipbuilding jobs, supporting one of our key industrial sectors as well as contributing to the Government’s levelling-up agenda.

I assure noble Lords that our support for Ukraine as an independent state should not be interpreted as the UK being adversarial towards Russia. While we are providing a range of support to Ukraine, that support is essentially defensive in nature, as the noble Baroness, Lady Hayter, recognised. As the noble Lord, Lord Foulkes of Cumnock, said so perceptively, it is a deterrent; we should emphasise that important aspect. We do not want to undermine Russia, far less attempt to encircle or threaten it. What we want is for Russia to reverse its long-term build-up of forces on or near the Ukrainian border. In doing so, we are not challenging Russia’s sovereignty, which of course does not extend to Ukraine, but supporting that of Ukraine. I emphasise that point to noble Lords.

I note that the committee considered that the provision of UKEF support for the UNCEP represents a “step change” in government policy, given previous statements about not providing “lethal aid” to Ukraine. I should point out—this is more than just a technicality—that the framework is not about the provision of aid to Ukraine; it is about facilitating commercial arrangements. Although it is true that UKEF will itself lend some of the funds to the Government of Ukraine to finance the contracts with UK suppliers, the premium will be charged commensurate with the risks being taken on and the OECD’s commercial interest reference rate will also be charged on the loan. I believe that UKEF support for defence contracts should not be considered a step change but more a continuation of our long-standing approach to support Ukraine.

Our support for Ukraine is important because Ukraine matters, not just as an independent country wanting to enhance its defence capabilities but because of the opportunities it offers. As my noble friend Lord Astor of Hever noted, the UK was the first EU member state to recognise Ukraine’s independence, on 30 December 1991. It was on 10 January 1992, nearly 30 years ago, that UK-Ukrainian diplomatic relations were established. Since its independence, Ukraine has achieved huge advances in freedom and democracy, and our relationship has never been stronger. If we can support Ukraine to become a democratic, free-market success story, we will not just have strengthened international security, we will also have created valuable opportunities for UK businesses. Although much progress has been made on reform, further action is needed for Ukraine to continue along its Euro-Atlantic path and attract further foreign investment. I assure noble Lords that the UK continues to work with Ukraine on the necessary reforms to help it fully realise its potential.

As the Foreign Secretary said last month, we believe that trade is the key to unlocking countries’ potential through new opportunities for investment and job creation—in this case, those advantages accrue both to Ukraine and across the United Kingdom. It was with that in mind that HM Government agreed to increase the amount of support available through UK Export Finance for projects in Ukraine to £3.5 billion. If I may, I will let the noble Lord, Lord Purvis, know the full details of that and some of the other points he raised on the UKEF agreement.

UKEF, a great organisation and the oldest export credit agency in the world, has a mission to ensure that no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer. I clarify, again for the noble Lord, Lord Purvis, that it is not insurance to exporters; it is government-supported lending to Ukraine. I can also confirm that the defence sector does not get any special treatment within the facilities given by UKEF.

Over the last five years, UKEF has provided almost £29 billion-worth of support for UK exports and exporters. I should also add—I know that noble Lords may be concerned about the safety of taxpayers’ money—that UKEF employs a robust risk management framework, as evidenced by the low number of claims on which it has had to pay out in recent years, despite the challenges recently posed by the pandemic and other shifts in the global economy. I can assure noble Lords that UKEF rigorously follows OECD standards and takes all reasonable precautions to avoid supporting transactions that might be tainted by corruption. How important it is to make sure that these standards are maintained and strengthened.

The importance of the framework agreement in this context is that it resolves what had appeared to be an impasse. Before the framework agreement was signed, Ukraine’s national rules governing procurement precluded it from requiring a specified portion of the goods or services that are the subject of a contract to originate from a certain country. Meanwhile, understandably, UKEF’s own rules require that a minimum level of such goods or services be identifiable as UK content before it can provide financing support to a contract. However, Ukrainian law permits for exceptions to its general rule to be granted, but this must be documented through a legally binding government-to-government agreement that is subject to regulation by international law. Hence the framework agreement that we are discussing today enables UKEF to consider the prospective support for the UNCEP, with its mutual benefits for both parties.

Although the effect of this framework agreement will be to enable UKEF to support the UNCEP, which is so important—I stress that again—to enhancing Ukraine’s defence, it is also expected to be the first of a number of framework agreements that will help British exporters access opportunities to trade in Ukraine across trade sectors in addition to defence procurement. I can confirm to the noble Baroness, Lady Liddell of Coatdyke, that this is the first agreement of this sort to be entered into by UKEF.

We know that there are good opportunities in the energy infrastructure sectors for UK exporters. There are opportunities in the field of nuclear energy, which could be worth up to £250 million over four years. Let me say that without the support of UKEF contracts like this will not be able to proceed.

In conclusion, I hope that noble Lords agree that, taking all these factors into account, the framework agreement represents a valuable addition to our range of international agreements, and one that will be of significant benefit to both parties. I thank again the noble Baroness, Lady Hayter of Kentish Town, and the International Agreements Committee for giving us the opportunity to debate this important agreement in advance of its—

[Baroness Chapman of Darlington (Lab)]

Before the Minister resumes his seat, I wanted to press him on the Russian-backed interconnector across the channel. He has not mentioned it. Maybe he intends to write to me; I just wanted to be clear about that.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Baroness for that intervention. I was going to conclude by saying that I would write to her on that. I hope that she finds that acceptable.

I thank your Lordships again for this debate. I think that we should all look forward to the likely ratification of this agreement later this month.