Loans to Ireland Bill

Peter Bone Excerpts

Wednesday 15th December 2010 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

I beg to move, That the Bill be now read a Second time.

Two weeks ago I told the House that it was my intention to ask for authority to make a bilateral loan to Ireland as part of the multinational assistance programme for that country. I said that I judged it to be in our national interest, given our country’s close economic, financial and political connections to the Irish Republic, to be ready to help, and I want to thank all parts of this House for agreeing with that judgment.

Let me directly address the question of why we are taking this legislation through today, and why we are seeking to do it rapidly. The reason is that this week we expect the International Monetary Fund board to meet and agree the assistance package, the eurozone to sign off on its contribution, and the Irish Parliament to accept the international help that is offered. Let me say this to hon. Members in reference to the previous debate. I actually have the authority to make, under common law, a loan to Ireland and to seek at a much later date retrospective authority from Parliament. I decided—[Interruption.] Let me say that I decided that that was a wholly inappropriate thing to do, and that I should come to Parliament to seek its authority before signing the loan agreement. The loan agreement may be signed at any moment.

[Mr Peter Bone (Wellingborough) (Con)]

I am grateful to the Chancellor for giving way, but has he not let the cat out of the bag? He has just said that there is no urgency, because he had the power to do this anyway. If that had been said in the previous debate, the result of the vote might been different.

[Mr Osborne]

From what I could tell from what my hon. Friend was saying in the previous debate, he thought it important to have parliamentary scrutiny. It is true that I could have issued the loan under the common-law powers available to me, and come back at a later point to seek parliamentary approval. I thought the House would prefer me to seek parliamentary approval first, before making the loan—but there we go; you can’t please everyone.

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[Mr Osborne]

As I explained to the House previously—my predecessor, the right hon. Member for Edinburgh South West (Mr Darling) is here, and might at some point want to give his own version of events—my understanding is that in the period between the general election and the formation of the Government, an emergency ECOFIN meeting was held to address the Greek situation and to provide confidence that the European Union and the eurozone stood behind other member states that were potentially in difficulty.

My predecessor ensured that we stayed out of the eurozone facility—I have acknowledged that in the House —but acquiesced in the use of article 122 of the treaty, which allowed the European Union to disburse funds when a natural disaster, such as an extreme weather event, was affecting a member state, to create a mechanism that could stand behind countries that got into difficulties. The decision on the use of that mechanism is taken by qualified majority voting, so although we could vote against its use in this situation, I did not think that that would achieve anything. I am focused, in a way that I shall describe, on trying to extricate the UK from the EU-27 mechanisms that stand behind eurozone countries. If hon. Members will bear with me, I shall talk about that later, and if people want to intervene at that point, that would be more sensible.

Let me move on to the connections between our banking sectors. Our banking sector has a considerable exposure to Ireland, but I should stress that in the opinion of the Financial Services Authority, the UK banks are sufficiently well capitalised to more than manage the impact of the situation in Ireland. For a long time now the devaluation in Irish asset values has been accounted for and priced in.

One thing is clear. It is undoubtedly in Britain’s national interest to have a growing Irish economy and a stable Irish banking system. In the judgment of both the Irish Government and the international community that was not going to come about without the assistance package we debate today. I would now like to explain to Members the principles of the Bill, and then take them through the heads of terms of the loan agreement.

The Bill has two substantive clauses. Clause 1 sets out the parameters under which the Treasury may make payments under UK loans to Ireland. As I explained earlier, the total international assistance package, including our contribution, is denominated in euros. However, we are making a bilateral loan in sterling so that Ireland bears the exchange rate risk over the coming years. Subsection (3) of the clause includes a cap on the total size of our bilateral loan. It is written on the face of the Bill that

“the aggregate amount of payments made by the Treasury by way of Irish loans...must not exceed £3,250 million”.

In other words, the £3.25 billion we originally agreed will be the maximum total size of our bilateral loan to Ireland. A sunset clause is also, in effect, built into the legislation. The period over which the loans may be offered begins on 9 December 2010, when the Bill was published, and ends on 8 December 2015.

[Mr Bone]

Subsections (4) and (5) seem to say the opposite. They seem to say that the maximum amount may increase because of differences in the exchange rate. Is that not what they mean?

[Mr Osborne]

My hon. Friend is pre-empting my speech. I shall get on and explain exactly what those two subsections mean.

As I said, there is no expectation that we will have to make further loans to Ireland in the future. Subsection (4) is intended to prevent an increase in the size of the loan, unless an order is made by statutory instrument, but because the loan is denominated in sterling, a mechanism is needed to accommodate potential changes in the exchange rate in the period between the publication of the Bill and the signing of the loan agreement—that answers my hon. Friend’s point—which could happen in a matter of days. This is not about the exchange rate risk over the coming years—that risk is borne by Ireland—but merely a mechanism to deal with the fact that we are publishing the Bill before we sign the loan agreement, for the reasons that I set out earlier.

The Bill allows the Treasury, under subsections (5) to (7), to make an order once the Bill is in force to increase the limit, as long as that is done solely to take account of exchange rate fluctuations between now and 30 days after Royal Assent, without further Parliamentary procedure.

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[Alan Johnson]

This may be news to the hon. Gentleman, but his party is in government now. As I said, my party ensured that we contributed nothing—not a penny, not a euro, not a drachma—to the Greek bailout. The Chancellor is coming before this House with a £6.6 billion contribution to Ireland, which we support, but the various aspects of the mechanism need to be explained and understood.

[Mr Bone]

The shadow Chancellor is on to something here. It is bizarre that less money is being taken from the €440 billion fund than from the €60 billion in the EFSM. Would he have encouraged the Government to vote against the use of that €60 billion?

[Alan Johnson]

We have the €60 billion fund, about which the hon. Member for Dover (Charlie Elphicke) intervened, and we have a second fund of €440 billion. I am simply pointing out—the public deserve to know this—that only 4% is coming from the larger amount and 37% from the smaller amount. I am curious about that, and we need to understand the logic of it.

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[Mr Chope]

I am grateful to my hon. Friend for his observations.

None of my constituents, particularly those in the business community, understand how or why we can justify increasing our national debt to help Ireland. The line is that the Irish are friends in need, but I remind the House that there is a strong argument to suggest that the Irish Government exacerbated the original banking crisis. When we had problems with Bradford & Bingley and Northern Rock, and our Government limited the deposit guarantee to £50,000, the Irish increased their guarantee to all deposits. That helped the run on Bradford & Bingley and Northern Rock accounts, thereby developing our banking crisis. We did not get much help from the Irish when we were in need in that situation.

We must also not lose sight of the fact that the Irish people have received enormous sums of British taxpayers’ money through our membership of the EU. We make big net contributions to the EU, and a lot of that money was subsequently pushed into Ireland, enabling the Irish people to sustain for a time a much higher standard of living.

[Mr Bone]

Will my hon. Friend confirm that our net contributions to the EU over the next five years will be £41 billion, which is £21 billion more than in the previous five years?

[Mr Chope]

I am sure that my hon. Friend is absolutely right. We are contributing to Ireland through our EU membership, so the Irish people should be very grateful.

When, on behalf of my constituents, I weigh up whether we can be pleased with how Ireland conducts its affairs, I must express renewed disappointment that Ireland caved in on the Lisbon treaty, with the consequence that this country has been landed with it.

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[Mr Peter Bone (Wellingborough) (Con)]

It is a great pleasure to follow the right hon. Member for Belfast North (Mr Dodds). He made many powerful points, especially his last one. I note that the Bill is called the Loans to Ireland Bill, not the Loans to the Irish Republic Bill. I wonder whether the Government have had some foresight, and whether some of the loans will actually be provided to Northern Ireland, to help to reduce corporation tax there. Perhaps there is some hope in that regard.

I want to start by saying that we have an excellent Chancellor of the Exchequer and a first-class Treasury team, including my hon. Friend the Financial Secretary, who has the misfortune to be at the Dispatch Box to listen to my remarks. On this particular issue, however, I think that they have got it wrong for a number of reasons. Everyone in the House wants to see the Irish Republic prosper, but the question is: which is the best way to help it? Its problem is that it is part of the euro. Government Members have always argued that the United Kingdom should not be part of the euro, because it cannot possibly work. It is not possible to have one fixed interest rate and one fixed currency covering a number of different countries. What we are witnessing is a crisis in which that problem has come to light.

If Ireland were not part of the eurozone—if it had its own currency—it could change its interest rate, but more importantly, its currency could depreciate, which would make it more expensive for exports to come into Ireland and cheaper for exports to go out. It is a market mechanism for self-righting an economic collapse, and because Ireland is part of the eurozone, it cannot do that.

I take the view that in the next few months the euro will collapse. It will not just be Ireland and Greece; it will be Spain, Portugal and possibly Italy. At that stage, it will be necessary to abandon the euro entirely or have two eurozones. If I am right in that assumption, it is a mistake to give £3.25 billion to the Irish at a time when it will do no good at all and that money will never be repaid. If we were paving the way for the Irish to have their own currency again, which would be part of the sterling area, we would be more of a help to Ireland. My argument is that we are sending the money in the wrong direction.

The second issue we have—to be fair to the shadow Chancellor, I think he was on to it—is that we do not know how the figure has been arrived at. Nobody has explained—at least, I have not heard anyone do so—why we have settled on £3.25 billion, but I think the Chancellor was arguing that that is the sort of amount we would have had to provide through the European financial stability facility if we had been part of the eurozone. Well, we are not part of the eurozone, so why should we be contributing to something that eurozone countries should be providing on their own?

[Sajid Javid]

Is my hon. Friend aware that recently the Prime Minister of Luxembourg made a proposal that the EU should issue EU-wide bonds, and does he agree that Britain should have nothing to do with such a proposal?

[Mr Bone]

Of course; I thank my hon. Friend for raising that.

I disagreed with the shadow Chancellor when he said that there were two extremes. One was to have a unified eurozone with central controls over taxation and spending. It is one option, and I accept that such a model would work, but I reject it completely. However, no one can pretend that the current system will ever work. We would just end up putting billions and billions more pounds into a system that will eventually collapse, and, in my view, that will happen earlier rather than later.

Let me return to how the €85 billion package is made up. We have €17.7 billion from the facility and €22.5 billion from the mechanism. The mechanism was designed for natural emergencies; it was never designed for this purpose, and yet we are taking more out of the mechanism, which has a total pot of €60 billion, than out of the one that has €440 billion. Why? The simple answer is that the United Kingdom has to contribute to the mechanism, but we do not contribute to the facility because it is all eurozone money. In my view we do not need to make this £3.25 billion loan; it should come entirely from the €440 billion that is available for exactly this reason. That is why the facility was set up.

I also did not follow the Chancellor’s argument when he said that because of qualified majority voting, we would not have voted against the use of the mechanism because we would have been overruled. I have to say to him that on a number of occasions I have voted on measures on which I know I will not win, but it does not mean that one should not vote that way; one should vote as one sees fit. I think on that small point the Chancellor has also made a mistake.

Many hon. Members will refer to the man on the Clapham omnibus, but in my case it is the man on the Wellingborough 46 bus, and such people make the following very simple point. My county council has announced that it will fire all its lollipop ladies and close a number of libraries, and those people say to me, “If we’re having to do that because we’re not allowed to increase the national debt, how on earth can you provide £3.25 billion to a country that is in the eurozone?” It is very difficult for me to give an answer. In fact, the answer I give is, “We shouldn’t be doing it.”

If the House divides on the Government’s proposal, I will, reluctantly, have to vote against it, not because I think the Government’s aim is wrong—because, yes, we want to have a prosperous Ireland—but because of the way this is being done and the way it is being funded. Nobody is suggesting that because we trade a lot with the United States of America, if there were a crisis there, we would suddenly lend it money. Ireland is a grown-up country. It decided to become part of the euro. The problem lies in the eurozone, and it should sort this out, not us.

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[The Financial Secretary to the Treasury (Mr Mark Hoban)]

This has been a good debate about the principles underlying the Bill, and I welcome the Opposition’s support for it.

I am sorry that the shadow Chancellor is not in his place. He made a typical speech: a couple of jokes, a few quotations and then a shaky grasp of the facts. I shall not match him on jokes, but let me give the House a couple of quotations. He talked about the views on Ireland, but let me quote a former member of Labour’s shadow Cabinet, who said:

“The whole purpose is to bring the Welsh economy up to the standards of those of other countries in Europe, so that we can follow the lead of the Irish economy and become, in a matter of 10 or 20 years, one of the most successful regional economies in Europe.”—[Official Report, 28 February 2002; Vol. 380, c. 868.]

The right hon. Member for East Ham (Stephen Timms), when he was Chief Secretary to the Treasury, said:

“The Irish economy has enjoyed a good deal of success over the past few years. The corporation tax regime has contributed to that, but there have been a number of other factors”.––[Official Report, Finance Public Bill Committee, 8 May 2007; c. 19.]

There we go: a record of Opposition Members’ hymns of praise to the Irish economy.

It struck me as remarkable, however, that the shadow Chancellor did not understand the mechanisms being used to support the Irish economy. He seemed to think that the UK would bear a higher share of the bail-out costs than other European Union members, such as France and Germany, and that they do not contribute to the IMF or to the stability mechanism. Let me make it absolutely clear to the House that the UK is contributing through the IMF, the stability mechanism and a bilateral loan. Other European countries are contributing through the IMF, the stability mechanism and, if they are members of the eurozone, the stabilisation facility.

Owing to their share of the contribution to European Union funds, Germany and France are contributing more than the UK: some 27% of the contribution is through the facility. France contributes 20% through the facility, compared with our 14%. And through the mechanism, the UK’s contribution is 14%, Germany’s 20% and France’s 17%. It is a pity that the shadow Chancellor does not understand how the package actually works. The right hon. Gentleman also seemed to deny that the euro made any contribution to the crisis facing Ireland. However, the right hon. Member for Edinburgh South West (Mr Darling), who made a very thoughtful speech about the challenges facing the European Union, punctured his view that the euro had nothing to do with it.

My hon. Friend the Member for Chichester (Mr Tyrie) asked whether we considered buying bank assets. We have in place an agreement by the Irish Government to repay our loan in full, but that could not have been guaranteed if we had sought to buy individual assets of Irish banks. He also asked whether Ireland could repay early without a penalty, and the answer is yes, but the Irish Government would have to make break payments.

The right hon. Member for Belfast North (Mr Dodds) and the hon. Member for Belfast South (Dr McDonnell) talked about the impact on the Northern Ireland economy of what is happening south of the border, and we recognise that. We recognise also that more work needs to be done to strengthen the Northern Irish economy, which is why we are in discussions with the Northern Ireland Office about the issues to do with enabling the Executive to set their own corporation tax rate. There is another part to that deal, however, because, if they have that power, they will need to bear the risk with the revenue and see a reduction in their block grant.

A number of hon. Members, including my hon. Friends the Members for Wellingborough (Mr Bone) and for Kettering (Mr Hollobone) and the hon. Member for Nottingham East (Chris Leslie), asked how we can afford to do this, given the fiscal position that we are in. Let me make it clear that we are not paying for the loan out of revenue or capital expenditure; we are going to borrow the money. The measure will not lead to a reduction in the money we can spend in my constituency or theirs. In fact, as my right hon. Friend the Chancellor said, we will end up making a small profit on the loan because of interest rate differentials. The loan will not affect how much can be spent in our constituencies, and if that is the only reason hon. Members are opposing the measure, I ask them to think again.

[Mr Bone]

I entirely agree with what my hon. Friend is saying. However, the measure will increase our debt, which is something we are trying to get down. In addition, his comments are based on the assumption that the loan will eventually be repaid.