Loans to Ireland Bill

Lord Sassoon Excerpts

Tuesday 21st December 2010 Lords Chamber

[Lord Sassoon]

My Lords, it has been an interesting debate and I am grateful for the contributions. The noble Lord, Lord Davies, referred to the range of contributions made by noble Lords but I think that there has been some polarisation: on one pole, a noble Lord stands in rather lonely isolation, whereas most of the rest of the speakers have been closer to a dramatically different pole.

[Lord Pearson of Rannoch]

The Minister is very generous, but is he aware that the majority of the British people now wish to leave the European Union?

[Lord Sassoon]

My Lords, I was talking about where Members of the House stood on the Bill, which is where I ought to concentrate if the noble Lord will permit me.

I began to feel grateful to the noble Lord, Lord Davies of Oldham, when he started his response to the debate; I thought that he was going to relieve me of some of my responsibilities. However, his comments then turned in a different direction. He went into an analysis of the UK’s economic challenges—an essay that I do not quite share with him—and then he asked some questions. I shall attempt to respond to his questions and to those of other noble Lords.

The starting point, clearly, is that over the past two years Ireland has faced a series of extraordinarily difficult economic and financial challenges which have resulted in the country having debts of more than 90 per cent of its national income, high unemployment and low levels of growth—and the Irish economy, of course, remains on the brink.

The noble Lord, Lord McFall of Alcluith, reminded us of the centrality of the Irish banking situation to the Irish crisis and how the Irish banks became increasingly reliant on central bank funding. In his analysis, the noble Lord, Lord Pearson of Rannoch, referred to trading but made no mention of the interconnectedness of our two banking systems, which is central to the Irish problem and to why it is so important to the UK that we should contribute to finding a solution.

In contrast to Britain’s situation, Ireland’s credit rating remains under threat and its economy continues to struggle. The package we are discussing today is designed to contribute towards Ireland’s solution to its problem. It starts by contributing to the recapitalisation of Ireland’s banks; sets up a contingency reserve to deal with any future problems; and covers the current shortfall in the Irish budget. My noble friend Lord Tugendhat quite rightly questioned whether Ireland will grow sufficiently out of its problems. However, I remind noble Lords that the IMF has been central to the construction of the package and, from its wide experience of similar situations, it understands the importance of growth in an economy such as Ireland’s. I recommend to noble Lords the IMF’s interesting, well written and cogent analysis of the reasons for Ireland getting into this situation, and the logic for the construction of the package which is central to putting the Irish economy back on its feet.

The Bill gives the Treasury the statutory authority to deliver the UK’s bilateral contribution to the package. In this way, the UK will be ready in the new year to help one of our closest international partners in its hour of need. I was particularly grateful to the noble Lord, Lord Bew, and to my noble friends Lord Cope of Berkeley and Lord Tugendhat for pointing out the good will that has been created in Ireland by our response. We are doing this because it is in the economic interests of the UK to do so; nevertheless, it is good that we are doing it for a close friend. The noble Lord, Lord Bew, succinctly put the matter into its Irish historical context. I very much take his point that we need to think about how we build on the good will that has now been created. That point was indirectly touched on by the noble Lord, Lord McFall. It sits somewhat at odds with the stance taken by the noble Lord, Lord Liddle, who painted a picture that I do not recognise. He tried to paint us into an “our problems, their problems” situation. I thought that my noble friend Lord Tugendhat, who has deep and distinguished European experience and contributions to draw on, painted a much more nuanced and balanced picture. Of course, we are at the centre of the European debate. We are engaged with our European partners, not least for the reason that my noble friend gave: that we are one of the largest economies in Europe. Whether it is leading the way on bank stress tests and getting Europe to follow where the UK started on short-term stabilisation, or looking at the other end of the range of issues that needs now to be considered—for example, questions about structural reform programmes, the Europe 2020 vision and the lessons of this crisis—the UK is absolutely at the centre of the discussions.

[Lord Liddle]

What plan have the British Government and the Prime Minister put forward for the eurozone? Why does the Prime Minister keep saying that it is for the eurozone to sort out its problems, while knowing that so much of the growth that is being forecast, which is absolutely essential to British interests and his own prospects of re-election, requires there to be robust export growth to the eurozone?

[Lord Sassoon]

These are all factors that mean that we need, with the EU 27, to make sure that the structural reforms are driven through and that we get the benefits of completing the single market project and so on. However, my noble friend Lord Tugendhat again got it exactly right—I would not agree with every nuance of his analysis, but he got the essential point right—in saying that just because we are very positively engaged at the centre of all those other issues does not mean that there are not critical differences, because we are not part of the eurozone and this Government will not take us into it. It is therefore for the eurozone to sort out its own permanent mechanism for dealing with any other issues that arise out of membership of the euro. That is the fundamental difference between the UK’s position and that of other of our partners in Europe. I genuinely fail to see why the noble Lord, Lord Liddle, seeks to paint the position in such stark colours. The fact is that we are in a different position from that of a number of the largest trading partners in Europe, which needs to be reflected in the permanent arrangements that will be put in place. My noble friend Lord Tugendhat explained that in much more masterly terms than I will ever be able to do.

Some questions were asked about the economic and market analysis of the situation, not only of how we got here but how we go forward. I listened with interest to the exchange between the noble Lord, Lord Davies of Stamford, and my noble friend Lord Lamont of Lerwick. The rather succinct and pithy remarks of my noble friend better encapsulated the situation in which Europe finds itself and in which it is clear that the fact of the euro cannot be ignored. That takes us back to why the eurozone needs to think about the consequences and the lessons of this crisis for a permanent mechanism.

In answer to the specific question of the noble Lord, Lord Davies of Stamford, I restate that the loan to Ireland does not add to our deficit. It increases the borrowing on one side of the UK’s balance sheet, but we have an asset in terms of the money that will be owed to us by Ireland. There will be an increment to the fiscal position by the net interest margin, estimated at current interest rates to be some £440 million. That is the only element that should go through the current balance.

One or two comments were made on the process of the Bill. I am grateful to my noble friends Lord Cope of Berkeley and Lord Tugendhat for their endorsement and recognition of the fast-track approach that we have taken. It is necessary that we give confidence to our European partners and the IMF in putting this package together that the UK is ready at the earliest time to deliver on our commitments. I accept my noble friend Lord Cope’s analysis of the constitutional position in another place.

[Lord Davies of Stamford]

Perhaps may I press the Minister a little more on what he said about this Irish loan not adding to the fiscal deficit. I understand that he is saying that it does not add to the fiscal deficit because he is setting off one financial asset against a financial liability. Will he confirm, however, that it will add to the public sector borrowing requirement? Some £2.5 billion will have to be borrowed on the financial markets and be accounted for as part of the public sector borrowing requirement which otherwise would not.

[Lord Sassoon]

Indeed, my Lords, the money advanced to Ireland needs to be funded, but it is precisely because we have stabilised the fiscal position and secured the UK’s AAA credit rating that this matter is not a cause for particular concern.

I have already said why the Government believe that it is right that we should not be part of a permanent bailout mechanism—indeed, this is recognised in the recent Council conclusions. My noble friend Lord Newby asked about the process for adopting the treaty amendment that will be necessary. Parliament must of course give its approval to any treaty change that is agreed by member states, and ratification in the UK will be subject to the terms of the EU Bill that we are bringing forward. A treaty change will be subject to primary legislation. Since there is no question of transfer of competences in this case, the question of a referendum does not arise.

[Lord Pearson of Rannoch]

I do not know whether the Minister will come to some of my questions later, but this might be a convenient point to remind him that the amendment in fact gives the Prime Minister the opportunity to fulfil his promise that, if there were to be any treaty changes, he would use them to repatriate powers, particularly social and labour policy. Why does he not do that?

[Lord Sassoon]

The position is as I have explained it. There is no question of change of competencies in this case and therefore no referendum is required, but it will be the subject of primary legislation. This is not the time, if the noble Lord will permit me to say so, to start talking about other things that may or not may not be done in our relationship with Europe. We are talking about the Loans to Ireland Bill and its consequences and the position is completely clear. If the noble Lord would like me to give way, it will only eat into the time to answer his questions and other points that noble Lords have made. I am grateful to him.

I will come to his points immediately. The noble Lord, Lord Pearson, questioned the legality of this operation. The first thing that I hope we are completely clear about is that the bilateral loan is being made under domestic UK legislation. That is why we are here today. Provided that your Lordships see fit to give this Bill a clean passage, the question of the legality of this loan will not arise.

If the noble Lord was also, as I suspect he was, harking back to the question of the so-called no-bailout provision in Article 122(2) and the creation of the €60 billion fund, that was agreed by the previous Government. We said at the time that we did not approve of the use of this provision, which was originally intended for natural disasters, to create this mechanism. But it was, and we are where we are. The critical thing is that the current coalition Government have a clear commitment that when in 2013 the new mechanism is put in place this will fall away and not be used again. The question of illegality does not arise. It may be regrettable, but the position is legal.

[Lord Pearson of Rannoch]

My Lords, the noble Lord is being a little unfair to the previous Government. Surely, the decision was taken under Article 122(2) which is by qualified majority vote. That is the very reason the Eurocrats chose the clause that allows mutual support in the event of natural disasters to pass this Act. Through our membership of the European Union and the terms of the treaties that we have signed, there was nothing that the previous Government could do about it. I asked the Minister whether he agreed with the French Finance Minister who said that the whole bailout process is illegal.

[Lord Sassoon]

The noble Lord is possibly putting a spin on Madame Lagarde’s words that she would not entirely accept. If he wished to correspond with her I am sure she would explain her position. All I can do is explain the Government's position. I was not trying to be unfair to the previous Government but merely stating the facts of the situation as to when the €60 billion bailout fund was agreed. Yes, I accept that if the UK had opposed it, it would have been a matter dealt with under qualified majority voting.

I will spend one minute responding to points made by the noble Lord, Lord Davies of Oldham. I am grateful to him for being clear about the Official Opposition’s support for the Bill. He asked about the amount of the loan and why, if we could devote this amount of money to Ireland, we could not devote it to other causes. He quoted one possible use of funds. As I explained, the loan to Ireland does not affect the fiscal position. We are able to make it without in any way affecting the fiscal position. If it did affect it, we might need to look for other savings, but we are in a position that that is fortunately not required.

The noble Lord mentioned the global dimension. We have talked a lot about the need for the UK to be at the heart of the European debate on this. I completely agree that the global dimension is an important one. We have heard about the importance of global growth and we will continue to engage with the G20 and the other international forums which will reinforce the ongoing drive to make sure that we learn all the lessons on fiscal and financial stability.

It has been an interesting debate and it is understandable, given the size of the proposed package, that the importance of what we are discussing to Ireland, to our economy and to the wider European context has been fully debated. The financial crisis has shown just how closely linked the economies of Europe and the world have become. In times of prosperity we reap the rewards but in times of hardship, one nation's problems can quickly extend beyond its own borders. That is why we must act now and early to restore stability to Ireland’s economy. That is why we must be prepared and have been prepared to take the necessary steps including through the Bill. It is good for the recovery and good for growth and I ask the House to give the Bill a Second Reading.

[Lord Pearson of Rannoch]

Before the noble Lord sits down, there was one other important question that I asked him and I have asked it also in a Question for Written Answer. Have the Government made any estimation of the cost of Ireland going back to the punt, and if not will they do so?

[Lord Sassoon]

No and no.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.