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they existed. I welcome the opportunity on the Report stage of the Finance Bill to give a small nudge towards encouraging the write-off of debt.One problem that the developing countries face in tackling debt repayment is that there is no single effective body to which they can turn for assistance. They have to cope with several organisations separately--the IMF, the World bank and the individual creditor nations. It is because the thinking of creditor nations is of such importance that when he presented his plan as the United States treasury secretary, Mr. Brady said :
"creditor governments should consider how to reduce regulatory, accounting or tax impediments to debt reduction where these exist." I assume that that is what the new clause seeks to do. I say that because I am honest enough to admit that the clause is so technical that I do not fully grasp how it will work. I am comforted by the thought that nor did the official Opposition spokesman, the hon. Member for Brent, South. Certainly he did not explain how it would work.
In all seriousness, it is important that the House should register its support for any measure, however technically complex, that will have the effect of assisting the banks in relieving third-world countries of some of their debts. That is the object of the new clause, and accordingly it has my support.
In 1990, as the hon. Member for Leeds, West said, the Prime Minister, when Chancellor of the Exchequer, responded to pressure from the House and outside organisations and took a small but significant step in the direction of using tax incentives to encourage debt reduction. Two years later, we are asking the Treasury to take a similar step. I know that the Financial Secretary, who will respond to the debate, was a member of the board of Christian Aid, and I know also that he is genuinely concerned about the issues which have been raised. Perhaps he is more concerned than a standard Treasury Minister. I hope that he will respond positively. It is -- [Interruption.] I do not understand why the Minister smiles ; I am paying him a tribute.
The United Kingdom's record on debt repayment is not all that good. We all cheered in October 1991 when the Trinidad announcement was made. We were told that there was to be a 67 per cent. write-down of all official debt. My party believed that that pledge should be upheld and implemented in full. Two months later, in Paris, it was quietly downgraded to 50 per cent. of the amount falling due in the next three years. Unfortunately, we have gone back on the excellent statements of the Prime Minister when he was Chancellor of the Exchequer. I hope that the Treasury will redeem itself, at least to some extent, by accepting the new clause.
Mr. Tim Smith : The right hon. Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) was honest enough to say that, because the hon. Member for Brent, South (Mr. Boateng) did not explain the new clause, the right hon. Gentleman does not understand it. I do not understand it either, but I understand the general objective behind it.
Does it make sense, whatever one thinks about the growing disparity between the poverty of developing countries and the wealth of developed countries, to use or manipulate the corporation tax system to try to alleviate the debt problem of developing countries? That is the question which the House must consider.
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Much of what the hon. Member for Leeds, West (Mr. Battle) said was irrelevant to the new clause. I agree with his remarks about the terms of trade between developing and developed countries, but they are not relevant to the clause. I agree with his comments about the poorest countries, but they are not much affected by the clause. On the whole, the banks did not lend to the poorest countries. Largely, they lent to middle-income countries. Implementation of the Trinidad terms, to which the right hon. Member for Tweeddale, Ettrick and Lauderdale referred, would benefit the poorest countries the most.Mr. Jeremy Corbyn (Islington, North) : My hon. Friend the Member for Leeds, West (Mr. Battle) said that.
Mr. Smith : The hon. Member for Leeds, West said it all, and I am repeating what he said, but it was all irrelevant to the new clause. That is the point that I am trying to make. The new clause is about lending by commercial banks, largely to middle-income countries. The question that the House must consider is whether it is right in principle to make a distinction in terms of corporation tax between the allowances that companies can have in the ordinary course of lending to domestic borrowers as against overseas borrowers.
Mr. Boateng : It is not true that some of the poorest countries do not have a high proportion of commercial debt. Somalia and Mozambique, for example, have above average debt, even for sub-Saharan Africa. At the same time, more than the proportion of debt attributable to Governments is owed to commercial creditors or multilateral institutions. That is the position in Somalia and Mozambique, countries which have been ravaged by the burdens of famine and continual war as well as the burden of debt.
Mr. Smith : The hon. Gentleman said that those countries are indebted to commercial banks or to multilateral institutions. The bulk of the debt, however, rests with South America and Latin America. That is a well-known fact. I do not want to become involved in a debate about the particulars, because, as I have said, the question of principle is whether it is right in terms of corporation tax to distinguish between domestic and overseas borrowers. I see no reason to make that distinction. To me, there is no distinction. If a lender makes provision against his profits because he does not think that he can recover a debt and the Inland Revenue accepts that, there should be corporation tax relief. If the lender subsequently recovers the money from the borrower, the relief is clawed back. That would happen in the unlikely event that one of the debtor countries repaid the banks, but we should recognise that large sums of money were lent to those countries and they have not been repaid, for whatever reason. In those circumstances, I see no reason to distinguish between that kind of debt and the debt that arises at home in a recession.
Mr. John Denham (Southampton, Itchen) : Whether or not the hon. Gentleman feels that it is right to distinguish between different categories of debt for the purpose of tax treatment, the Government established that principle in the Finance Act 1990. We are not arguing about that principle tonight because it is already enshrined in the law. We are discussing how the principle is further developed.
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Mr. Smith : The hon. Gentleman has misunderstood the provisions of the Finance Act 1990, which do not deny banks the relief but simply deny them the relief in a particular time scale. It is a question of when, not whether, they receive the relief. A formula in the Act means that, whatever the provision in the accounts, the relief is phased over a period of years. I take no exception to that as it seems to be a reasonable arrangement, but it is not right to try to use the tax system to influence our policy in relation to poorer countries. That should come through our aid programme and the establishment of better trade relations through the GATT negotiations.
Those measures would benefit the poorer countries much more than what was described by the hon. Member for Brent, South as a relatively modest new clause. Although the new clause's impact would not be great, it would distort our corporation tax system.
Mr. Denham : The tax treatment of banks' third world provision constitutes one of the biggest but least known public financial scandals for many years. Billions of dollars of tax income have been forgone by Governments not just in this country but across the industrialised world. Banks have been allowed to avoid tax liabilities by claiming relief on provisions made against third world debt but, at the same time, they have largely avoided any commensurate action to mitigate the burden of debt on developing countries.
If we take stock of the international debt strategy in 1992, we must conclude that its whole thrust has been to cushion commercial banks, as far as possible, from the effects of imprudent lending at the expense not only of people in developing countries but of taxpayers in the developed world. The root cause of that scandal is simple. The regulatory systems may vary to some extent in the different industrialised countries but in most of the OECD countries banks have been able to claim tax credits on provisions made against sovereign loans, even though no loss was incurred by them and no reduction in the heavy burden of debt was enjoyed by the developing countries.
The sums involved are huge. A conservative estimate would be that $40 billion of tax credits were generated by banks in the OECD countries by mid -1990, with little debt reduction to match. That is 55 times the annual budget of UNICEF--the respected organisation that estimated that half a million young children were dying each year as a result of the debt crisis- -and twice the annual OECD development aid to low income countries. It is about eight times the extra money pledged in Rio to save the planet, about which we have heard so much in recent weeks.
Christian Aid estimates that, by 1990, United Kingdom banks received some £1.6 billion in tax relief. If my mental arithmetic is correct, on the figures given earlier about £1.8 billion has now been received. But the tax relief that will ultimately be received by those banks will be about three times that figure.
11 pm
Of course, once the debt crisis had been created through imprudent lending, bad borrowing and even worse regulation, it was inevitable that the citizens of northern countries would have to pay a fair part of the cost of resolving the crisis. With the record of generosity of the British people, I believe that they would have happily accepted that burden. It is not acceptable that vast sums of
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money should be used to pad out the banks' balance sheets without any benefit to the debtor countries or their peoples.For years up to 1990, the Government tolerated, endorsed and even encouraged that financial scandal. Year after year, they insisted that nothing could be done to treat sovereign lending differently from other loans, despite the obvious difference in the nature of those loans and the global urgency for a solution. The hon. Member for Beaconsfield (Mr. Smith) missed the central point, which is that the Finance Act 1990 clearly showed that third-world debt provisions could be treated legally in a different category and manner from other provisions. The Government swept aside their pretence and the 1990 Act proved that such loans could be treated differently. The tragedy is that the action was too little, too late.
In the first stage of the financial scandal, the problem was one of allowing banks to claim tax relief on provisions on loans that they still held at face value. We are now in a second and rather different stage of the same scandal. Many banks, certainly many British banks, have disposed of a large part of their loans. They have taken some losses, so what was originally tax relief against provisions is now tax relief gained on the actual losses on the banks' balance sheets. The problem is that those losses and that tax relief are still, in most cases, unrelated to any real debt relief for developing countries. The British banks' balance sheets may look cleaner, but there has been little benefit to the developing countries. Most of the disposal of United Kingdom bank loans has been through sales on the secondary market. In 1989 and 1990, Midland reduced the debt on its books by almost $2 billion, but only $365 million was through out
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and out debt reduction--the remainder was through debt equity swaps, which merely transforms one form of foreign obligation into another, or through simple trading on the secondary market. Other banks such as National Westminster appear to have disposed of virtually all of their third-world debt through secondary market sales.The truth is that having padded the banks to the hilt, the Government have now allowed them to get away with the loot. At that moment in time in the late 1980s and early 1990s when the provisions were high, had the Government chosen to link tax relief to direct debt reduction they could have ensured not only that the banks received the tax relief, but that there was a commensurate benefit in the developing countries.
Internationally, the value of commercial bank debt reduction under the Brady initiative is perhaps at best $30 billion--less than the amount of tax credits that OECD banks appear to have generated. That is appalling. Of course, that is not the only way in which the taxpayers in the north have been asked to help the banks at no benefit to developing countries. In addition to the tax relief, it took vast sums of new official loans and new publicly underwritten loans to developing countries to enable them to maintain debt service payments to the commercial banks throughout the 1980s. The taxpayer has paid twice--through tax relief and through the advance of new official loans.
The sums involved amount to maladministration on a massive scale. The concern of Governments in the north to protect the banks, irrespective of the cost to their own citizens and the damage done to developing countries and their people, is truly scandalous.
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Mr. Jeremy Corbyn (Islington, North) : It is a pleasure to follow my hon. Friend the Member for Southampton, Itchen (Mr. Denham). I welcome the work that he has done, and will no doubt continue to do, in exposing the scandal of banks fiddling around with third-world debt in order to enjoy Government tax write-offs.
When the hon. Member for Beaconsfield (Mr. Smith) rose to speak, he first professed not to understand the new clause, and then went on to say that we should concentrate on overseas aid rather than worry about debt problems. He made one useful admission, which Hansard will obviously record--that there is a growing disparity between the rich and poor in the world.
All the aid increases that are suggested, projected, sought, or demanded will be eliminated at the stroke of a pen by the debt repayment system, underpayment for commodities produced by third-world countries, and the repatriation of profits by multinational corporations. That occurs to the extent that last year the poor in the poorest countries in the world transferred $50 billion to the economies of the richest countries in the world. That wealth went not to the people who are sleeping in cardboard boxes along the Strand tonight, but to the banking systems of this country, the rest of Europe, and north America.
The new clause of my hon. Friend the Member for Brent, South (Mr. Boateng) takes a useful step forward in exposing what British banks have been up to over the past few years. They pretended to the public that they were doing something about the debt crisis of developing countries, when in reality they were enjoying a handout at the expense of British taxpayers.
A new approach is needed. For all the honeyed words at Rio and the other statements that have been made, unless there is a fundamental change in the relationship between the richest countries and the poorest people in the poorest countries, we will be heading for a massive ecological and social disaster.
In many cases, people who are seeking asylum in neighbouring third-world countries are the victims of the debt crisis. They flee to seek a living elsewhere because they have been forced off their land, have nowhere to live, and can get nothing to eat. They are the initial victims.
The debt crisis has its origins in the oil price rises of the 1970s and the funding of inappropriate development programmes. The two crucial elements in any developing country's economy are the prices paid for the commodities that it produces and the interest that it pays on borrowings to develop its agriculture, social infrastructures, or industry.
Neither of those two important economic levers is in the hands of third- world countries. The prices of cocoa, coffee, tea, and other commodities are set not by the producer country but in London, Frankfurt, Chicago-- everywhere except in the countries that produce them. Similarly, interest rates are set not by those who must meet them but be greedy bankers in western Europe and north America. The debt crisis reached its height in the early 1980s, when, basically, Mexico declared itself bankrupt. The response was swift and, in some ways, very clever in the interests of north American bankers in particular. They sought to divide the indebted nations by making one-off agreements, to persuade them to borrow yet more money to pay the arrears on interest payments on existing loans and to accept an alternative economic package.
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If one studies the economics of Latin American countries over the past 15 years, one finds a steady reduction in public spending on the social infrastructure and on social needs. One also finds a steady increase in the repatriation of profits by multinational capital and in the amount of money paid as interest on debts. Very little of the principal has been paid. Mexico, for example, has paid more than all the money it ever borrowed, but it is still a heavily indebted country.In a sense, they are technical points. The reality is that expenditure on the health service, social services and education is cut in countries which cannot afford any reductions of expenditure on such vital services. When we read of increasing infant mortality rates in third-world countries and of the growing cholera epidemic in many parts of Latin America, we should realise that there is a direct connection between those horrible and horrifying facts and the economic restructuring programmes which have been forced on those countries by the International Monetary Fund and by the World bank. This process cannot continue. Tonight we are considering one aspect of that process, in which the British taxpayer is expected to support the British banks in their attitude--their mistaken attitude-- towards third-world countries. The issue is enormously important. Unless there is a serious programme of writing off public and private sector debt in its entirety and of restructuring payments for commodities and trading arrangements with third-world countries, the future will involve nothing but more and more experts stepping off planes from Washington--
Mr. Bernie Grant (Tottenham) : And London.
Mr. Corbyn : And London, telling third-world Governments that they must cut down their rainforests because they are a source of export earnings, that they must produce more coffee, tea and cocoa while, at the same time, the world price for those commodities continues to fall. They must repay increasing sums in debt, sell state-owned enterprises and cut public expenditure programmes. Such countries face horrific prospects.
While I obviously support an increase in the aid programme and support the non-governmental aid programmes, unless we deal with the basic issues of debt, fair trade and commodity prices, the outlook for 1 billion people around the world is not one of improved living standards or increased life expectancy but of the very opposite--of seeing their economies collapse, their life expectancy fall, and infant mortality rates rise.
As a developed country which has made millions or billions of pounds over decades and centuries from the poorest people in the poorest parts of the world, we have a responsibility to play an important role in trying to restructure the world's economy and to base it on social justice, on environmental protection and on paying the people who produce the goods that we consume a reasonable price for them. Instead, we have a cock-eyed financial system under which those who have made the most out of the third world now seek to make the most out of the British taxpayer.
The new clause is a useful step forward, but I hope--indeed, I am sure-- that we shall return time and again to such an important issue as the world situation gets worse and more people suffer because of the rapacious attitudes of the banking systems of western Europe and north America.
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11.15 pmMr. Tam Dalyell (Linlithgow) : At this late hour, I shall confine myself to asking the Financial Secretary three questions. First, can we be clear about whether the £100 million talked about in relation to Rio is new money or whether some or all of it will come out of existing Overseas Development Administration funds? I see my hon. Friend the Member for Cynon Valley (Mrs. Clwyd) indicating that she, too, wants that question answered. Few people know precisely what is the Government's position in the matter. I went to hear the Secretary of State for the Environment make his big statement at the natural history museum in South Kensington and it was far from clear to the roomful of experts just what had been committed by the Government. As another part of the same question, may we be told what money has been given to the Darwin initiative? Is it £2 million or £5 million? I am all for that initiative, but a sign of how little it was thought out is the fact that neither the head of the Royal Botanic gardens in Edinburgh, whose institution was named by the Prime Minister in Rio, nor the head of Kew gardens, Ghillean Prance, knew anything about it beforehand. Dr. David Ingram learned about it from a reporter from the Edinburgh Evening News. Not since Harold Wilson dreamt up the Open university on the night train to Glasgow has such a thing happened.
Secondly, what does the Financial Secretary consider the responsibility of the Government to be in this area ? I listened carefully to everything that my hon. Friends, especially my hon. Friend the Member for Southampton, Itchen (Mr. Denham), said, and I agree that there is a big problem. One or two banks cannot be expected to operate by themselves in the matter.
I went to the rally of the Amerindians in February 1989 and I was in Brasilia at the same time as Sir Kit McMahon, who had briefed me when I was a member of the indirectly elected European Parliament, when he was an official of the Bank of England. He subsequently became chairman of the Midland bank. It was clear that the Midland could not unilaterally take on the responsibilities involved. Indeed, the Midland and Lloyds could not take on those responsibilities, and one could not in those days expect Sir Jeremy Morse and Sir Kit McMahon to take on total responsibility. What does the Treasury now see, in those circumstances, as the responsibilities of the British Government and the responsibilities of the EC as a whole ? My third question, asked in the presence of my hon. Friend the Member for Tottenham (Mr. Grant), is about Libyan sanctions. I hope that in the Consolidated Fund Bill debate one of us will be lucky enough to raise at length the folly and--dare I use the
expression--ignorance of the Foreign Office in relation to that issue.
I am as concerned as anybody about Lockerbie. I saw it. But I also saw, in the company of my hon. Friend, the bombing of the working-class areas of Benghazi and Tripoli. It is a complicated matter. It is generally accepted who were the main instigators of the worst crime against civilians in the western world since 1945, the bringing down of the PanAm airliner over that Scottish village. The police from my constituency had to help clear up the mess, and it was a terrible mess.
We want to know the cost of the sanctions. We talk about the third world, but, frankly, the Gadaffi regime, for all its shortcomings in the middle and early 1980s--
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Mr. Deputy Speaker (Mr Geoffrey Lofthouse) : Order. The hon. Member has been in the House long enough to appreciate that he is straying from the subject matter of the new clause.
Mr. Dalyell : I always accept the Chair's ruling, Mr. Deputy Speaker.
I leave the matter there. What is the cost of the Libyan sanctions, imposed against a regime that is one of the most ecologically imaginative in Africa?
Mrs. Roche : As my hon. Friend the Member for Brent, South (Mr. Boateng) has said, the new clause constitutes a modest attempt to set Britain in the right direction in regard to the debts of the south of the world. It is not nearly enough, but it is a start.
In 1992, UNICEF published its "State of the World's Children" report, which stated :
"A new slavery has shackled the African continent and its name is debt. The countries of Sub-Saharan Africa, including most of the world's least developed countries, now owe a total of approximately £150 billion. Each year, Africa struggles to pay about one third of the interest which falls due ; the rest is simply added to the rising mountain of debt under which the hopes of a continent lie buried. The total inhumanity of what is now happening is reflected in the single fact that even the small proportion of the interest which Africa does manage to pay is absorbing a quarter of its export earnings and costing the continent, each year, more than its total spending on the health and education of its people".
As my hon. Friend the Member for Islington, North (Mr. Corbyn) pointed out, the 1970s saw the beginning of many problems for developing countries. Following the first oil shock at the end of 1973 and the subsequent world economic slump, many developing countries faced financial disaster, and borrowing was one temporary way out. Many of the debts then fell due in the late 1970s, at the same time as oil prices quadrupled for a second time and interest rates began to rise. As we have seen time and time again, it is always the poor who pay the price.
For as long as I can remember, we have periodically seen on our television screens terrible pictures of famines and droughts, and of politicians saying that this must never be allowed to happen again. Yet, time and time again, we see the same pictures and hear the same words.
There were many fine words to be heard at the recent conference in Rio. Of course something must be done. It is frequently said, not only by Opposition Members, but in the House as a whole, that we are not three worlds but one world. As Susan George so ably pointed out in her book "A Fate Worse than Debt" :
"The reality is we are all aboard the same ship steaming towards the iceberg. Even if those of us in the developed countries are travelling first class, and the people of the poor countries are travelling in the most miserable steerage, we all have the same need to navigate away from disaster".
If Brazil is crippled by bank loans and debts, the one world's ecosystem is destroyed and its rainforests are flattened. If India is defenceless against unscrupulous corporations, the one world's atmosphere is polluted by chemical plants.
Our one world is a small world, and the new clause goes only a tiny part of the way towards putting things right. Without action to reduce debt substantially, any form of development in the 1990s simply will not be possible for many developing countries. Of course small steps such as the British Trinidad terms initiative are to be welcomed, but they need to be greatly expanded. Faster and deeper reductions in commercial debt must be achieved. It is
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deplorable that while the Government were proposing the Trinidad terms, they were blocking proposals in Brussels to reduce debt owed to the European Community.British tax regulations encourage commercial banks to set aside provisions against possible default on third-world debts in the accounts, but not to translate these provisions into debt relief for the countries concerned. Many British taxpayers resent the fact that they are subsidising the banks without providing any relief for the world's poor--especially when the tax relief is to the tune of £650 million, as it was in the financial year 1990-91. According to the Government's figures, as was pointed out by my hon. Friend the Member for Leeds, West (Mr. Battle), that is about half of what Britain spends in aid a year. The new clause seeks to offer banks more relief, but it would be conditional on using it for the reduction of debt, either through the sale at a loss of the debt to the debtor country or a swap that had environmental or developmental gain.
When the Opposition tabled a new clause similar to this one during the proceedings on the Finance Bill in 1990, the then Economic Secretary to the Treasury, the right hon. Member for Mid-Norfolk (Mr. Ryder), told my hon. Friend the Member for Brent, South that the relief proposals in the new clause could be very costly. Rather than considering these proposals as costly, we should consider them as a first faltering step which we cannot afford not to take.
The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : The purpose of the new clause is to extend relief against corporation tax to relief, in certain circumstances, of world debt. Two separate issues are tied up in that proposition, as the debate has made clear. That is best illustrated by looking at the transaction from two different perspectives.
First, there is the perspective of the banking supervisor or the banking manager whose proper concern is to ensure that if a debt is in the bank's balance sheet and is unlikely to be serviced or repaid, proper provision is made against that debt within the bank's accounts. The second perspective is what one might broadly term the borrower's perspective : never mind what is going on in the bank's accounts, is the bank going to demand repayment of the debt, whether or not it has been provided against?
There has been a tendency during the debate to assume that the banker's or the banking supervisor's viewpoint is the private concern of bankers and that it need be of no concern to hon. Members, and still less of concern to developing countries. That is not a proper proposition for any hon. Member to accept. The fact is that every hon. Member and everyone working in our domestic economy has a clear and important vested interest in ensuring that banks have stable balance sheets so that they are able to undertake their proper activity of providing credit for the purpose of ensuring the efficient functioning of both the home and the overseas economy. It is not, therefore, something that is an abstruse concern of banking regulators.
What is also striking is the hostility that has been articulated, not so much by the hon. Member for Brent, South (Mr. Boateng) but certainly by his hon. Friends the Members for Islington, North (Mr. Corbyn) and for Southampton, Itchen (Mr. Denham), towards the role of private capital in financing trade and economic activity in the developing world. They made it absolutely clear that they saw no legitimate role for servicing the capital
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provided to third world countries through private banking institutions. In taking that view, they are being left far behind by those in the developing world whose day-to-day responsibility it is to ensure the development of those third world economies and who have moved on from the world of 20 years ago when they regarded every private sector company from the developed world as a multinational company whose sole purpose was to rape their country. That is not the role or the perspective of those people within the developing world who are now interested in ensuring the development of their countries.It was striking to hear the hon. Member for Islington, North rightly stress the importance of ensuring proper and fair terms of trade between developed and developing countries and then, in the next breath, to make clear his hostility to the provision of finance to allow that trade to take place. That seems to me a difficult argument for the House to accept.
Mr. Corbyn : The hon. Gentleman may not have heard all that I said very clearly. Perhaps he has a problem with hearing. The point that I was trying to make was that the money paid for coffee, cocoa, tea and other commodities is less now, in real terms, than it was 20 years ago. The more coffee that is produced at the behest of advisers from the World bank and the International Monetary Fund, the lower, in effect, is the resulting price. Thus, more land is taken up producing export crops, and there is less land available to produce food for the people in the countries concerned. I want the Government and the Minister to address the serious problem of the prices paid for basic commodities produced by poor countries.
11.30 pm
Mr. Dorrell : The one thing I will certainly not do is export on an international scale the kind of intervention price system which is causing us so much difficulty in the context of the common agricultural policy. The interest of those who want proper development to take place and full participation of developing countries in the international trading system, among whom I include almost all the responsible Governments in the developing world, is to see a proper financial structure that allows a free interchange of goods and services between all countries, developed and developing, and to allow that trade to be properly financed.
The Opposition, during this debate, have, not surprisingly and not improperly--I make no complaint about it--concentrated on the borrower's perspective. They have been concerned--it is not fundamentally controversial between the two sides of the House--to ensure that if a debt continues to be shown and to be enforceable against a particular country there should be the realistic prospect of that developing country being able to service and repay that debt. That was, indeed, the point of view that motivated my right hon. Friend the Prime Minister when he promulgated the Trinidad terms, which have been mentioned in the debate. It was also the perspective which motivated Treasury Secretary Brady when he launched his initiative to encourage the banks to recognise in the Brady plan the proper limits on the likely collectability of their debts. He was concerned to make the reduction of the debts outstanding between the banks and the developing countries conditional on the necessary
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reforms, to make the economic benefit of that debt reduction tangible within the developing country in question.It is easy to dismiss, as some hon. Members have done, the practical results of the Brady plan, but I think that it would be wrong to do so. Let us look, for example, at the most publicised headline case of the Brady plan in action--Mexico. Whereas in the 1980s the average rate of growth of the Mexican economy was 1.1 per cent., it has now been projected to over 3.5 per cent. as a direct result of the changes negotiated in the context of the Brady plan. That plan has seen the debt outstanding from Mexico fall from 74 per cent. of gross domestic product in 1988 to 29 per cent. of GDP this year. The Brady plan has seen the Mexican economy relieved of $400 million a year in interest costs. So it is not true to say that the Brady plan has been disappointing in action. It has been quite impressive and has delivered tangible benefits to those countries where the banks have been involved in a discussion about the future economic well-being of their borrower clients.
I move now to the specifics of the new clause and the proposal that is being pressed upon the House in terms of an amendment to the provisions of the Finance Act 1990. It was precisely that recognition of the importance of ensuring that we do not insist on the repayment of irrecoverable debts that motivated the changes to the corporation tax provision that we introduced into the Finance Act 1990. There were three important changes. First, the Finance Act 1990 made it clear that provisions by banks against irrecoverable sovereign debt were indeed tax allowable. Secondly, it made provision to fix the quantum by which allowable reliefs would be decided. Thirdly, it included phasing of that provision to ensure that the tax relief would not all fall in a single year. But the important point that the supporters of this new clause miss is that there is no phasing in terms of the 1990 Act if the debtor is to be released immediately from the obligation to repay the loan.
The clause would simply remove the phasing requirement in three circumstances that are identified in subsection (4). The first of those relates to the release of debt in favour of the creditor state, and the second concerns the reduction of debt in favour of the creditor state. In both those cases phasing is already waived under the terms of the 1990 Act. Therefore, the new clause would only provide the tax relief a year earlier than the present law allows--in effect, a one-year, interest-free loan from the Government to the bank provided that the bank then went ahead and made a "relevant release" of the debt in question.
Mr. Boateng : That is the purpose.
Mr. Dorrell : The Opposition now say that that was their purpose. It was not the tenor of their speeches, which indicated greater concern with the introduction of a new principle into the law. But the principle that if a debt is written off, and the debtor is exempted from servicing or repaying it, there should be no phasing requirement is written into the 1990 Act. The only provision of this new clause that is not in the 1990 Act is the third one in subsection (4)--that the phasing requirement should be waived if an environmental and development plan that has
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been approved by the Treasury is undertaken. That shows a touching faith in the environmental and developmental expertise of Her Majesty's Treasury, and I gratefully recognise it.Mr. Dalyell : Is the Rio £100 million new money? The question of Treasury approval is very unclear.
Mr. Dorrell : I can assure the hon. Gentleman that my right hon. Friend the Prime Minister does not make commitments to put money into the global environmental fund without securing the prior consent of the Treasury. This does indeed have Treasury consent.
The proposal is that there should be exemption in the case of development plans approved by the Treasury. I prefer to encourage the banks to agree to release the borrowers, provided that they undertake the reforms that are necessary to the efficient functioning of their economies. That principle underlies the Brady plan, which has been effective in practice, and I commend it, rather than the one espoused by the Opposition, to the House.
Mr. Boateng : In his speech, which was clearly prepared before the debate, the Minister has not in any way answered the points made by my hon. Friends. He has not addressed the central issue that has dominated this debate--the need to ensure that where relief is given it actually relieves the countries that are so desperately in need. The Minister has not addressed the importance of ensuring that relief given to commercial banks has an environmental and developmental focus. These issues, which are incorporated in the new clause, remain crucial. They are central to the modest proposals intended to lighten an intolerable burden on developing nations, and we intend to press the new clause to a Division.
Question put, That the clause be read a Second time :
The House divided : Ayes 101, Noes 254.
Division No. 55] [11.39 pm
AYES
Abbott, Ms Diane
Alton, David
Ashdown, Rt Hon Paddy
Banks, Tony (Newham NW)
Barron, Kevin
Bayley, Hugh
Beckett, Margaret
Beith, Rt Hon A. J.
Benton, Joe
Bermingham, Gerald
Betts, Clive
Boateng, Paul
Brown, N. (N'c'tle upon Tyne E)
Bruce, Malcolm (Gordon)
Campbell, Menzies (Fife NE)
Campbell-Savours, D. N.
Carlile, Alexander (Montgomry)
Chisholm, Malcolm
Clapham, Michael
Clarke, Eric (Midlothian)
Clwyd, Mrs Ann
Cohen, Harry
Connarty, Michael
Cryer, Bob
Cunliffe, Lawrence
Dalyell, Tam
Davidson, Ian
Davies, Ron (Caerphilly)
Davis, Terry (B'ham, H'dge H'l)
Denham, John
Dewar, Donald
Dixon, Don
Donohoe, Brian
Dowd, Jim
Dunnachie, Jimmy
Evans, John (St Helens N)
Ewing, Mrs Margaret
Foster, Derek (B'p Auckland)
Foster, Donald (Bath)
Fyfe, Maria
George, Bruce
Gilbert, Rt Hon Dr John
Godman, Dr Norman A.
Golding, Mrs Llin
Graham, Thomas
Grant, Bernie (Tottenham)
Gunnell, John
Hall, Mike
Hanson, David
Heppell, John
Hill, Keith (Streatham)
Hinchliffe, David
Hoey, Kate
Home Robertson, John
Hood, Jimmy
Hoon, Geoff
Howarth, George (Knowsley N)
Hoyle, Doug
Hughes, Kevin (Doncaster N)
Hughes, Robert (Aberdeen N)
Hughes, Simon (Southwark)
Hutton, John
Illsley, Eric
Kilfoyle, Peter
Llwyd, Elfyn
McAllion, John
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