Nadhim Zahawi
Main Page: Nadhim Zahawi (Conservative - Stratford-on-Avon)Department Debates - View all Nadhim Zahawi's debates with the HM Treasury
Loans to Ireland Bill
Nadhim Zahawi Excerpts(13 years, 4 months ago)
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Mr Douglas Carswell (Clacton) (Con)
The Chancellor suggested that it is at his discretion that he has brought forward this Bill. Is it not the case that the 1932 convention requires him to do so—and does not that, rather than his discretion, explain why this legislation is before the House?
Mr Speaker
Order. We cannot have an intervention on an intervention. We will hear from the Chancellor.
Nadhim Zahawi
I thank my right hon. Friend for giving way. Setting aside the technicalities of why we are debating this measure and how long we shall do so, and getting down to the substantive issue of the loan, can the Chancellor share with the House what the fees and the interest to the UK Government will be over the period of the loan if the Irish Government draw down the whole of the loan?
Mr Osborne
The second intervention draws me back into the rest of my speech, but in response to my hon. Friend the Member for Clacton (Mr Carswell), I have common-law powers to issue the loan and sign the loan agreement. I then have to seek statutory authority, but that could be done retrospectively. I thought it more appropriate to seek parliamentary approval first, and that was a discretionary choice that I had.
I will answer my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) directly a bit later in my remarks, when I get on to the terms of the loan that we are going to consider.
Mr Osborne
I do not think it has materially changed. I have been quite focused on trying to land it at the 5.9% rate, because that sits between the 6.1% and 5.7% rates of the other international parts of the package. That rate reflects some of the circumstances that relate to my hon. Friend’s earlier intervention.
The IMF will charge a floating rate, with a margin above its funding costs, in line with its pre-existing loan terms for an extended fund facility. The European loans, like ours, will charge a fixed rate on each tranche set using a margin above their own cost of funds. We will charge interest every six months and there will be a repayment of the principal at the end of the 7.5-year term of each tranche.
In common with the IMF, we will also charge a commitment fee for making the loan. We will charge half a percentage point on the total amounts that may be drawn on under the loan agreement for the forthcoming 12-month period. If the loan is drawn on, the fee will be waived and effectively replaced with the interest charged on the loan.
There are two conditions, which are set out in terms to which I draw the House’s particular attention. The first is that the IMF, as well as the EU, must be satisfied that Ireland is complying with the agreed restructuring plan. I think that that is a very important safeguard for British taxpayers. The second, crucial, condition is that there must be
“no amendments to the Restructuring Plan that would have a material adverse financial impact on the UK operations of Anglo Irish bank, Allied Irish Banks and Bank of Ireland”.
Given the scale of those banks’ operations in the UK, that second condition is significant, and it shows in a practical way why I believe it was right for us to provide the loan. It allows us to have a say in a restructuring plan that could otherwise have had a major impact on the UK and its banking system, and could potentially have cost the British taxpayer considerable sums of money without our voice even being heard. Making the loan has enabled us to set that condition, and to be part of the discussion about the restructuring plan and its impact on the UK subsidiaries of banks which have significant presences in Northern Ireland. I know that there is concern about the potential impact of the plan on jobs and the availability of credit in Northern Ireland, and, indeed, about its potential impact throughout the UK, given that Bank of Ireland owns the Post Office card account.
Nadhim Zahawi
What the Chancellor is saying is particularly pertinent, given that the Post Office cash machine in Portcullis House was provided by the Irish banks.
May I ask a quick question?
Mr Deputy Speaker (Mr Nigel Evans)
No interventions on an intervention, please.
Nadhim Zahawi
Are we the only lender that is lending in a currency other than the euro?
Mr Osborne
Sweden and Denmark are at this moment finalising their loan agreement, and I do not think they have yet made that decision. As I have said, we decided to lend in sterling so that the exchange rate risk would be borne by the Irish rather than the British Government.
The official advice from the Treasury is that the loan agreement represents value for money for the British taxpayer. As I said earlier, it is also in line with the terms offered by both the IMF and the eurozone. I have laid before the House a summary of the key terms of the agreement, and a final written agreement will be forthcoming in the next few days—or, potentially, weeks—once the European and IMF assistance has also been agreed. I will, of course, keep the House informed.
One thing is clear: Ireland is a friend in need, and it is because our economy is currently in a stronger position than Ireland’s that we are able to offer it such reasonable and sensible terms for our bilateral loan.
Alan Johnson
The hon. Gentleman is right that the single currency gives Ireland no mechanism to devalue its currency, and that that causes it a problem. However, there are two extremes to that argument. The first says that the eurozone is unfinished business; what started as a currency harmonisation needs to move to the next stage. I heard the president of the European Central Bank say on the radio last night that the next stage should be political integration. My party does not agree with that; nor I am sure does the hon. Gentleman’s. Further integration is one extreme that we should not go to.
The second extreme says that if Ireland simply withdrew from the euro or the eurozone, its problems would be solved. I do not believe that to be the case. The eurozone has to recognise the problem that its countries cannot devalue and must find a mechanism that ensures that this problem does not keep happening to country after country. The hon. Member for Harwich and North Essex (Mr Jenkin) has a view, as do many of his colleagues, on the answer to this ongoing problem. I do not agree with him, but I believe that it is central to stop this happening to other countries, and to stop it being a regular event. The fragility of the recovery, especially in Europe, emphasises the need for decisive action to resolve the underlying difficulties faced by eurozone countries.
The situation in Ireland is a huge embarrassment for the Chancellor, exposing as it does his poor judgment and rich hyperbole. At the time of the comprehensive spending review, he claimed that our country was on the brink of bankruptcy. He now proposes a loan of an amount that is well over half the cumulative debt interest savings that he claimed he would make over the spending review period. There is also the paradox of his support for Ireland’s banks, but his opposition to the previous Government’s successful measures to protect British banks.
Finally, there is the Chancellor’s frequently expressed belief that Britain should look to Ireland for inspiration, which he expressed both before the banking crisis, when he urged us to emulate the “Irish miracle”, and since the crisis, with his desire to copy some of Ireland’s painful austerity measures. His gloriously misjudged 2006 article in The Times is now well known:
“Ireland stands as a shining example of the art of the possible in long-term economic policymaking”.
He is in good company. I shall quote from the Prime Minister in the Belfast Telegraph on 26 October 2006.