UK-Ukraine Credit Support Agreement

Lord Purvis of Tweed Excerpts

Wednesday 5th January 2022 Grand Committee

[Lord Purvis of Tweed (LD)]

My Lords, it is a pleasure to follow the noble Lord, with his great experience and knowledge from his role within society, but also in the context that he provided for. When the noble Baroness, Lady McIntosh, referred to his support in the campaigns with a majority of 36,000 or 3,000, I was not quite sure which one he was responsible for, but his modesty in his contribution masked that.

The Minister has an unenviable task today because, as the explanatory memorandum to this agreement indicates, this is an agreement from the DIT, but within the scope of negotiations within the Ministry of Defence and the FCDO as the parent body for the strategy. I agree very strongly with the noble Lord, Lord Lansley, that this is an opportunity to hear what the Government’s strategy is. I suspect that the Minister will focus more on export finance, but I hope that he will be able to touch on some other areas; I have full confidence that he will.

Like others, I thank the noble Baroness for bringing this debate to us. I have said on a number of occasions and repeat today that the International Agreements Committee is of great importance to this House, because it often highlights some of the details of agreements that are beyond the understanding of mere mortals such as myself. It also provides a broad sweep on an issue such as this, which has great significance both for Ukrainians and the UK at home. It has been interesting to hear a number of comments, including from the noble Baroness, Lady McIntosh, and the noble Lord, Lord Foulkes, highlighting that we at home have a stake in this also. Therefore, our support for Ukraine is very important. I will have a number of questions later—I think the Minister would be very disappointed if I did not—on some of the technicalities of the arrangement that we will have.

I have, like others in the debate, visited Ukraine on a number of occasions. I was there shortly after Euromaidan and saw the still-charred buildings after the demonstrations. It is a country that is both vulnerable but outward-looking. With our more recent history with Ukraine, it is important to re-emphasise that. Our approach to that area also has the sweep of history from the Victorian times. The noble Baroness, Lady Liddell, talked about the role that the Scots have played there. It is not just current: I read a fascinating biography a few years ago of Thomas Gordon, who was a unique character. He was a military commander in the Royal Scots Navy then, after the union, the Royal Navy. Then Peter the Great poached him to help to establish the Russian navy—so the Scots have been everywhere, as we always say.

As the noble Lord, Lord Foulkes, indicated, there is a competing historical narrative and, in many respects, it is hard to see a way through it. On one visit to Kiev, it was made very clear to me that we have to understand Putin’s approach: he sees Kiev as the mother of all Russian cities. He does not believe that there is a Ukraine; he believes that Kiev and Ukraine are part of Russia and that Ukrainians are Russian. That is a sweep that he takes but, as the noble Lord, Lord Foulkes, indicated, since independence, Ukraine is an internationally recognised sovereign state with borders that we agree with, and we will help to support those areas of the boundary. However, as the noble Lord, Lord Lansley, has indicated, it is not easy to see how this can be reconciled as long at Putin has this narrative approach.

As the noble Baroness, Lady Liddell, indicated, we have 13,000-plus casualties in an area where there is not peace. This is not a case of maintaining peace within the region. As Jeremy Quin, the Defence Minister, indicated at the international Crimea Platform, which the noble Lord, Lord Astor highlighted, it is a case of restoring peace: the de-occupation of Crimea and its peaceful return to Ukraine as part of the Crimea Platform. It was very welcome that a UK Minister was at the inaugural Crimea Platform.

Part of the ambition is also to prevent further human rights violations. On a visit that I made to Kiev as part of Parliamentarians for Global Action, we raised the difficulty for Ukrainians to seek recourse for human rights abuses as part of the conflict. Russia has been blocking the proper reporting of human rights violations that have taken place and continue to take place within that area.

Therefore, it would be helpful if the Government could indicate, as has been asked, what the UK’s overall approach is. We know that three sets of discussions are taking place. There is the French and German initiative, with Jens Plötner, the envoy of Olaf Scholz, and his French counterpart Emmanuel Bonne travelling there at the moment. There will be NATO discussions, and Josep Borrell is also seeking a role for the European Union. However, I do not think any of us is so naive as to think there is any unanimity among certain members of the European Union.

How does the UK see the approach that the EU is seeking under the French presidency? The French presidency is seeking strategic autonomy for the EU, acting increasingly independently of NATO. Are we approaching the discussions regarding Ukraine purely through NATO or do we have a bilateral strand on diplomacy? I commend our embassy in Kiev, but it would be helpful to know what the strategic approach is. The integrated review highlighted the concerns for us at home in the UK, but it was very light on how we will drive forward or work. Do we see ourselves working with France and Germany, in particular, in this approach? Has the Prime Minister spoken to Olaf Scholz since Christmas? I know that he spoke to the Ukrainian president before Christmas, but it would be helpful to know.

On the situation at home, over the break I reviewed the annual report of the Intelligence and Security Committee of Parliament, which it published just before Christmas. Of the Russia report, the committee stated:

“The Report questioned whether the Government took its eye off the ball with regard to Russia, because of its focus on counter-terrorism. The previous Committee found that until recently the Government had badly underestimated the response required to the Russian threat and is still playing catch up … in particular in response to the call for new legislation to provide the intelligence Agencies with the tools they need to tackle the intelligence challenges posed by Russia.”


That highlights the very point made by the noble Baroness, Lady McIntosh, with regard to our capability here at home, while we are also debating the capability of Ukraine itself to defend its own integrity and borders.

So the agreement that we are discussing is part of an overall approach. As has been highlighted, the United States is providing 10 mark VI vessels at its own expense. Another four boats will be paid for through a foreign assistance programme and there are others that can be purchased. What is the Government’s assessment of this agreement, as far as the overall Ukrainian requirements and capabilities are concerned? I do not know, because no contextual element is set out as to whether it is a significant proportion of what Ukraine considers to be its naval defences or whether it is simply a future add-on. While the explanatory memorandum sets the deadline for granting credits under the agreement to be no later than 31 December 2024, when do the Government estimate some of the capability under this agreement being on stream? It is clearly not an agreement that will meet the current needs of Ukraine; it is obviously longer term, so when do the Government estimate some of the procurement being completed? We debated in response to a Statement just before Christmas some of the horrific delays in military procurement, so this is not new. What is the Government’s current estimate?

Moving to some aspects of the export finance agreement itself, the latest UKEF annual report said that defence represents 10% of its liabilities, which currently stand at £1.24 billion. This is likely to more than double the defence proportion of all UK Export Finance liabilities. There is a question about whether arms manufacturers require public insurance, rather than bringing out insurance for themselves. I tend to think that arms manufacturers, compared to others that wish to export to Ukraine, may have a greater capability to seek market insurance for any of their contracts rather than to seek that credit from the taxpayer. Before carrying out this agreement, did the Government assess the taxpayer insuring arms companies and whether there was a market failure for arms companies obtaining that insurance themselves?

The noble Baroness, Lady Liddell, highlighted the good point that there is a lack of wider context about the scale of export finance. That annual report says that the £1.24 billion is made up of an agreement with Qatar for £1 billion and an agreement with Indonesia, so this is now likely to be the biggest export finance agreement for the defence industry. If the businesses operating under it are going to be in partnership with Ukrainian businesses, can the Government estimate the likely breakdown in the proportion of manufacturing? The press statement on the agreement suggested that it would all be UK-manufactured. The explanatory memorandum in the agreement highlights that it simply requires

“at least 50% UK content.”

That could be just 50% plus one, as far as this is concerned so, again, the UK taxpayer will be subsidising insurance for Ukrainian manufacturing. I am not necessarily against that in principle, but a business case would have helped to indicate why it is important.

My final question on export finance is that, if the Government now believe that defence taking a much greater share of export finance guarantees will be a major strand of their policies going forward, it would help to know what kind of financing clarity is in place. As the committee highlighted, there was a lack of certainty on the specific contracting in the finance arrangements that are likely to be put in place. Of course they will be negotiated but, as it stands, when we ratify this agreement, the borrower will be the Government of Ukraine, who will enter into credit agreements with UK Export Finance and

“a bank or consortium of banks guaranteed by”

UK Export Finance, but what is the Government’s preferred route? This could set some considerable precedents. As I said, I am not opposed to this in principle, although I have question marks over why our defence industry should have special treatment.

This is my final point. Given the agreement that was announced in October 2020, the Government had already agreed export finance to Ukraine of £2.5 billion. Is this over and above that or part of the export finance for Ukraine that was already announced? As was indicated, the export finance for Ukraine that was previously announced included defence, but also agriculture, infrastructure, energy and healthcare. If this £1.7 billion is part of that £2.5 billion, there is not much left for some of these other critical areas. Can the Minister say whether this has now increased the total UK export finance to Ukraine to £4.2 billion or if it is still £2.5 billion?

I hope, as others have indicated, that tension in the area will not escalate. The international Crimea Platform is a good basis for further work. I hope we will see the talks make progress, because the vulnerable people of Ukraine deserve stability and peace.