UK-Ukraine Credit Support Agreement

Lord Grimstone of Boscobel Excerpts

Wednesday 5th January 2022 Grand Committee

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, I join other noble Lords in thanking the noble Baroness, Lady Hayter of Kentish Town, the esteemed chair of our International Agreements Committee, for having secured this debate and for providing the opportunity to debate this important subject. I thank her and the committee for its recent report scrutinising the framework agreement between HM Government and the Government of Ukraine. It is a particular pleasure to have my noble friends Lord Astor and Lord Lansley and the noble Baroness, Lady Liddell, who have served with such distinction on that committee, speaking today.

In line with the thoughts of my noble friend Lord Lansley and the noble Lord, Lord Purvis of Tweed, I am happy to put the agreement into its wider, proper context. The United Kingdom remains firmly committed to Ukraine’s independence, sovereignty and territorial integrity, and the framework agreement is a key illustration of that commitment. We cannot but be concerned about the recent reports of growing aggression from Russia towards Ukraine, with additional forces being amassed on its borders. As noble Lords would expect, we are monitoring the situation closely and are deeply concerned by the pattern of Russian military build-ups on the border of Ukraine and of course the illegally annexed Crimea.

We call on Russia to uphold the OSCE principles and commitments that it freely signed up to and which it continues to violate through its ongoing aggression against Ukraine. We have made it clear to Russia, and will continue to do so, that any military incursion into Ukraine would be a severe strategic mistake and would have a severe cost in response. I say that unequivocally in direct answer to the comments made by the noble Lord, Lord Foulkes of Cumnock. In answer to the noble Baroness, Lady Chapman, and others, including my noble friend Lady McIntosh, I hope they will appreciate that now is not the time to go into the detail of what our response would be and it would be inappropriate to do so, but I assure them that those matters have been worked through and thought about extremely seriously.

[Lord Foulkes of Cumnock (Lab Co-op)]

Can the Minister confirm that among the sanctions that the Government are looking at are financial and economic sanctions and travel restrictions and that they are considering targeting Putin himself, his henchmen, the oligarchs and specific sectors that will harm Russia’s economy, so that there can be no doubt that they will be dealt with severely?

[Lord Grimstone of Boscobel (Con)]

My Lords, I can confirm that a whole range of sanctions and matters are being considered, but I hope that the noble Lord will accept that to give details of them today would not be a sensible thing for Her Majesty’s Government to do.

[Lord Foulkes of Cumnock (Lab Co-op)]

I accept that, but can the Minister just say that the kind of actions I have just mentioned are included in and have not been excluded from the options being considered by Her Majesty’s Government?

[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.