Mark Reckless
Main Page: Mark Reckless (UK Independence Party - Rochester and Strood)Department Debates - View all Mark Reckless's debates with the HM Treasury
(12 years, 9 months ago)
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Good morning to you, Mr Caton. In raising concerns about the UK’s liability to the eurozone bail-out via its contributions to the International Monetary Fund, I will ask various questions of the Minister. I will question the assumption that we always get our money back, whether the IMF’s policy will work and why the IMF should be getting involved at all.
That we are talking about large sums of money cannot be denied. Our liability through the European financial stabilisation mechanism totals some £6.5 billion. Our liability through the bilateral loan to Ireland exceeds £3 billion. Despite Government assurances to the contrary, it does not stop there. Our IMF liability to the Greek, Portuguese and Irish bail-out packages announced before May 2011 totals some £3.5 billion, and that does not include the latest Greek bail-out. Adding in our additional contributions, which are almost doubling—from some £10 billion to nearly £20 billion—it is obvious to all that we are soon talking some big figures. I do not think the Minister can deny—I shall welcome his intervention if he thinks otherwise—that some of the additional IMF money will be routed through to the eurozone crisis. Therefore, the Government’s claim that our liability stops with the EFSM and our bilateral loan to Ireland simply does not wash.
Let me be clear: I support the IMF’s work. IMF programmes can and do work under certain conditions. However, there are real risks to those IMF contributions routed through to the eurozone crisis.
The Government take great comfort from the fact that no country that has lent money to the IMF has ever lost that money. However, this recession is very different. Having been a fund manager in the City of London, running pension funds, charity money and funds for private clients, I know that it is always dangerous to say, “This time it is different,” but economic history makes that clear. Recessions since the great depression have always been de-stocking events, where the problem has been a fall in demand. In response to that, the Keynesian approach of stimulating the economy through additional demand—if necessary, by borrowing—has by and large done the trick. This recession, however, is a deleveraging recession, which has been built on excessive debt. Governments and consumers have taken on too much debt. Demand is not the issue; excessive debt is. The only remedies for this recession are to pare down the debt and attain greater growth through increased competitiveness.
I worry that the Government are underestimating the scale of the debt. There is £300 billion-worth of Italian debt to be rolled over in the coming 12 to 18 months. The eurozone went to the Chinese, who have massive reserves, but the Chinese did not want to know. The fact that the IMF wants an additional £10 billion from us clearly suggests that it does not have our original £10 billion. The Government would be foolish to ignore the omens. Does the Minister accept that there is at least some risk that the UK could lose some of the money routed through the IMF to the eurozone crisis? Again, he is welcome to intervene if he so wishes.
My hon. Friend refers to £10 billion and another £10 billion. I understand that when the issue was discussed in the Joint Committee on Statutory Instruments, the Minister said that, broadly speaking, our liability to the IMF would be £20 billion. However, I understand that another funding source exists that may mean that our liability is already £40 billion. Can my hon. Friend enlighten us?
My hon. Friend is right to raise that issue. There is an additional liability that we know relatively little about, because the Government have not come to the House to explain it. I hope the Minister will take the opportunity in this debate to address that concern. Is that true? What is the extent of the liability? How would it be called upon in the event of certain contingencies?
It is a pleasure to participate in this debate. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on his good sense in calling for it. It is fantastically well attended, and it is a pity that it is not longer.
At business questions on Thursday, I raised with the Leader of the House the issue of the loan to Ireland. He said that he would tell the Financial Secretary to the Treasury of my interest in the subject, and that my hon. Friend would come to this debate with the answers to my questions. I hope that he has had due warning.
The loan to Ireland goes to the heart of the issue of trust, to which my hon. Friends have referred. The people in this country do not understand what is happening in their name. The Chancellor announced that we would give a £3 billion loan to Ireland. That is £50 a head for every member of the UK population. He announced that the rate of interest would be about 6%, in round figures, and that that would give the British taxpayer a healthy profit.
It then emerged in late July that the interest rate was likely to be lower, but had not yet been decided. The first tranche of the loan was paid to Ireland on 14 October. Even as we speak, the rate of interest on that loan has not been agreed. It is still being negotiated downwards. At the same time, the Irish bond rate has remained pretty constant, at more than 8%. Why are we negotiating the rate downwards? Why, indeed, are we lending all that money to Ireland when our own small businesses are crying out for money?
Is my hon. Friend aware that it is not just the interest rate that is uncertain but the priority of the loan? When addressing the Committee considering the Ireland and Portugal bail-outs and loans, the Financial Secretary stated that the loan to Ireland ranked broadly the same as those of the IMF and other international institutions, when actually it ranks below the IMF and the EFSF.
My hon. Friend makes a good point. We were told that the IMF would help Ireland and that we could help Ireland and influence its economic policy through the IMF. We were also told that we needed to give Ireland a £3 billion loan so that we could have even more influence, but I do not think that it is written in any agreement that to have yet more influence we need to reduce the interest below the rate agreed at the outset. The fact that the Irish have drawn down on the loan shows that they do not look a gift horse in the mouth. They realise that this is a great opportunity.
Let us consider the opportunities in Ireland. I got my assistant to research the interest rates available to small businesses in Ireland at the moment, so this information is from yesterday. Allied Irish Banks is offering loans of up to €100,000 to small businesses at a “competitive rate” of 4.4% variable. New and early-stage businesses under three years old can get that money. Now, I do not know what it is like for my hon. Friends, but in my constituency it is almost impossible for businesses to get a loan from the bank at a rate of 4.4%, if they can get one at all. We know that Allied Irish Banks is the beneficiary of a £3.5 billion bail-out. We are giving Ireland money that it is using to subsidise its banks, which in turn are subsidising its small businesses to compete unfavourably against ours.
I am saying that I accept that the IMF will make a bail-out to the eurozone. On that basis, one of the best solutions for the eurozone is for a number of countries to be allowed to leave the euro. The IMF will therefore need to fund the cost of the dislocation of those countries leaving the euro to give them any hope, attendant with their devaluation, of an economically sustainable future.
I notice that I have gone on rather longer than my five and a half minutes. I had a number of other points, but thank you for the opportunity to speak this morning, Mr Caton.