§ 7.52 p.m.
§ Lord O'Brien of Lothbury
My Lords, I have learned one lesson during an instructive evening. That is, if you want to make a speech, do not get yourself stuck behind a closed shop. I beg to move that this House takes note of the 21st Report of the European Communities Committee, session 1981–82. on the borrowing and lending activities of the European Communities. In moving this Motion, I must explain that the report was produced by Sub-Committee A of the European Communities Committee, under the distinguished chairmanship of the noble Lord, Lord Plowden. At the beginning of the present Session I succeeded the noble Lord as chairman of that subcommittee, and he, in turn, is now chairman of Sub-Committee D, on agriculture. He does not feel that it 369 is appropriate for him to take part in our debate this evening; but I know I speak for all the members of the sub-committee when I say that the quality of this report is largely due to the noble Lord and to the great skill with which he steered the sub-committee.
The committee was encouraged to examine the subject of their report for a number of reasons. Your Lordships will be well aware that the Community finds it increasingly difficult to finance all its policy objectives within the confines of its present budget. Not surprisingly, therefore, pressure for increased financial resources is growing. On the other hand, there are many who are uneasy about the way in which the present financial resources are being deployed, and, in particular, about the large proportion of them which is devoted to agriculture. This arouses suspicion about the extent and purpose of Community borrowing, which, to some, might seem to offer an all too convenient way of avoiding budgetary constraints. Your committee felt that in this respect it was highly desirable to clear the air.
The committee's comments on the borrowing and lending activities are stated concisely in 41 short paragraphs. The detailed descriptions of the borrowing and lending instruments and the majority of the statistical tables, which are essential to an understanding of the subject, have been placed in seven technical annexes. This division is deliberate. The committee wanted to produce an authoritative source of information and reference on transactions of the kind embraced under borrowing and lending. They wanted to explain in detail how the institutions were created, how they work, and how they are co-ordinated. They wanted also to draw attention to the possible sources of Community loans for United Kingdom borrowers. But the committee recognised that not everyone would wish to know all the details, and that many readers would know them already. Those who simply want to know the committee's opinion can concentrate on the report itself.
As you will see from paragraph 3 of the report, there are now five borrowing and lending instruments. Three of these are Community institutions which were, from the outset, intended to engage in borrowing and lending. Indeed, one of them—the European Investment Bank—could by its nature hardly be expected to do anything else. The other original institutions are the European Coal and Steel Community and Euratom. Each of these provides finance for projects in pursuit of Community policies within its particular field.
The remaining two instruments have been developed more recently. First to emerge were EEC loans to assist members with balance of payments problems arising from the oil price rises after 1973. Unlike other European loans, balance of payments loans do not serve a "structural" purpose. They are granted on condition that the borrowing state takes steps to redress its balance of payments deficit, and these steps must be satisfactory to the Council of Ministers.
The second of the two newer EEC instruments is the New Community Instrument (NCI) or "Ortoli facility", which has operated since 1979. The basic purpose of this facility has been to help stimulate economic recovery by contributing to investment. It 370 has been directed to the reduction of regional imbalances, improving employment prospects, energy conservation and supply, advance factories and housing, and small firms.
The amount of borrowing undertaken by these five instruments has increased steadily. In the last decade, it has risen from 692 million ECUs in 1972 to 3,280 million ECUs in 1981, partly because the advent of balance of payments loans and the Ortoli facility have added significantly to the total. Even allowing for inflation, growth has been much faster during the last ten years than it was during the much longer period from 1954, when borrowing began. This increased scale of Community borrowing, and the corresponding increase in the number and type of channels through which borrowing can take place, prompted the committee to ask in their report: might it all be going too far?
As your Lordships will see from the report, subcommittee A heard a wide range of evidence and paid visits to the European Investment Bank in Luxembourg and to the European Commission in Brussels. The committee concluded that the situation did not give rise to concern at the present time. During this decade of growth in borrowing there was an increase in the lending capacity of the financial markets. That leading capacity has increased faster than Community borrowing. In any case, Community borrowing is really quite modest compared with the borrowing undertaken by individual member states or compared with total borrowing on the international markets. Between 1977 and 1980 the growth in Community borrowing appears large, from less than 2½ billion ECUs to more than 3¾ billion. But as a share of total international borrowing this is in fact smaller than it was—from 2.5 per cent. to 2.2 per cent. More importantly, the cost of servicing EEC debt in 1981 was less than half of 1 per cent. of the EEC annual budget, which the market regards as available, if need be, for debt financing.
So borrowing by the European Communities has so far not by any means been excessively large. It also appears that the money raised, in the main by the European Investment Bank, has been on-lent with great care; so much so that not a single default by an ultimate borrower has so far occurred. Some might feel that this denotes excessive caution in lending policy, but that, I suggest, is not to be discouraged at this stage.
The future of on-lending at attractive rates for desirable Community purposes rests on the ability of the various Community instruments to raise funds in the international capital markets at the finest rates. With the whole Community behind them, and with the ability to call on the budget in case of need, this is assured, provided calls on the market are not excessively large or too frequent.
The Commission, for perfectly understandable reasons, is anxious to undertake creative initiatives, but the Council of Ministers and the board of governors of the bank, both consisting of the national finance ministers, have to be convinced of the desirability of more borrowing. They set the limits. Proposals for increased borrowing must be justified by reference both to the purposes of the borrowing and to 371 the maintenance of the Community instruments as prime borrowers.
Having said all this, it remains the case that Community borrowing and on-lending falls outside the mechanism of budgetary supervision. It will, therefore, be of continuing concern to national Parliaments and perhaps more especially to the European Parliament, which is rightly sensitive about its ultimate responsibility for the financial affairs of the Community. Your Committee, my Lords, were made aware of the strong feelings of our friends in Strasbourg when, last December in Church House, we met the European Parliament's Committee on Budgetary Control, under the Chairmanship of Herr Aigner, to discuss Community borrowing and lending and related topics. I believe this was the first such meeting in London, and the vigour of the discussion showed how worthwhile it was. Clearly, the Members of the European Parliament aspire to a more assertive role in the borrowing and lending field. While your committee did not think it right to get mixed up in any argument between the European Parliament, the Commission and the Council of Ministers, we could not but agree that it was a legitimate area of concern for Parliaments and that it was likely increasingly to engage their attention in the future,
My Lords, before I turn to the position of the UK as a borrower of funds raised by Community instruments, I should like to emphasise that the committee took pains to probe the need for special Community agencies for raising funds in the international capital markets when so much financial expertise was available for this purpose, particularly in London. Our witnesses convinced us that the Commission, and especially the European Investment Bank, which raises funds both on its own behalf and for other agencies, were highly efficient and knowledgeable, both fulfilling an essential role in co-ordinating and implementing Community borrowing and lending policy. Between 1975 and 1981, the United Kingdom took some 26½ per cent. of loans made by the Community agencies. Sometimes such loans were attractive because they were obtained at a subsidised rate, as, for example, from the European Coal and Steel Community; with others, we simply benefited because interest rates in other markets from which funds had been raised were lower than in the United Kingdom. And then, when our foreign exchange reserves were low, both public and private borrowers were encouraged by cheap forward cover to raise funds abroad in foreign currency. As our circumstances have changed, the pressure to borrow outside the United Kingdom has declined and facilities for forward cover have become less concessionary.
At the same time, the question whether community lending ought to be confined to the poorer member states has come to the fore. In this way convergence of levels of development might be more speedily achieved. That is a possible view. It has been accepted up to now, however, that since rich states also have poor regions and Community lending policy has a strong regional element, the present position does make sense. On the other hand, enlargement of the Community will increase the number of member states which are not prime borrowers in the 372 international capital markets. These countries could benefit most from Community borrowing. The report does ask whether those member states which themselves enjoy first-class ratings should in the interests of the enlarged Community, limit or restrain their calls on Community lending.
Another question raised in the report is the diversification of Community borrowing methods. Community borrowing and lending is conducted almost entirely on a long-term fixed-interest basis. There have been understandable reasons for this because the terms of lending need to match those of borrowing. There are times, however, when some borrowers would prefer variable-rate borrowing. This would not be possible in all member states, as official policy in some of them discourages the financing of investment other than by long-term, fixed-interest funds. To match what are sometimes the needs of borrowers not constrained in this way, however, consideration might be given to the diversification of methods of borrowing by the Community instruments. This would also have the advantage of broadening the sources of funds and ensuring that the markets will continue to accommodate increases in Community borrowing.
Finally, I refer to the "global" Community loans to banks or to Finance for Industry. This is a form of "wholesale" lending to a bank or similar intermediary, which then parcels out funds, "retail", to small and medium-sized businesses. It is an operation very much in tune with current economic thinking. I hope that the framework within which it works will be kept as flexible as possible. This applies also to the upper and lower limits within which such loans may be made and to the desirability of the greatest possible simplification of documentation and red tape consistent with proper scrutiny of applications for loans. It would appear that the global loan system is used very much more widely in France, for example, than has been the case in this country. It seems desirable that its use here should be encouraged.
My Lords, in seeking to emphasise a number of points made in this report, I hope I have not simply repeated at too great a length all it says. Although the committee felt that the report was worthy of debate, I doubt whether it has the makings of great controversy in it, and the small number of noble Lords feeling moved to speak on the subject this evening is perhaps sufficient evidence of that. Nevertheless, I hope that the House will agree that this has been a useful exercise and I beg to move.
§ Moved, That this House takes note of the report of the European Communities Committee on Borrowing and Lending (21st Report, 1981–82. H.L. 226).—(Lord O'Brien of Lothbury.)
§ 8.6 p.m.
§ Lord Selsdon
My Lords, I am very grateful to the noble Lord, Lord O'Brien, for introducing this debate and to the noble Lord, Lord Plowden, for the initiatives that were taken. These have led to probably the most authoritative document currently available on the borrowing and lending of the Community and its institutions. Although I am a banker and I declare an interest in that I have arranged the provision of finance for the Community and have arranged 373 borrowing from it, even I was surprised at the extent of the overall borrowing which seemed to have passed unnoticed through Parliament; whereas considerable fuss had been made about budgets. I think that at the moment the total borrowings are around £17 billion or £18 billion—a fairly large amount of money, although small in relation to international borrowing or the borrowings of individual countries. Against that, loans have been made of a similar amount; and those loans have been made, we have been advised, without a single default.
As a commercial banker whose banks have made provisions for bad debts of considerable amounts over time, one wonders how this has come about. One wonders, as the noble Lord, Lord O'Brien, has said, whether perhaps lending was too cautious; and one examines often to whom the Community institutions have lent and, in particular, the countries to which they have lent, countries to which no other commercial bank would have dared to tread. One concludes that there is considerable benefit from these borrowing and lending activities. The question is: to whom does this benefit accrue and how much benefit has the United Kingdom itself had from these activities? It is on this that I should like to concentrate.
Certainly we, the banking system in England, have contributed considerably to the borrowing of the Community. Relations between the private banks, the commercial banks, the merchant banks and the Community institutions are good. Indeed, they are among the most professional borrowers in the world. With a relatively small team, they are very competent, very swift in action and borrow at very fine rates. If anything, they may be criticised for borrowing too finely. It is interesting that, while we were giving evidence, I asked the question whether the United Kingdom was able to borrow at as fine rates as the Community as a whole—to which the response was, "Certainly, as fine today and probably even finer".
So the credit rating of the Community at this moment is of no real value to the United Kingdom in that we have good credit rating worldwide and our public sector borrowing requirement is coming down. In the past, one has noted that Governments often put together their public-sector institutions and nationalised industries; and that when they need to borrow they have used the Community instruments to borrow across the board. In general, the private, or productive, sector in the United Kingdom has not borrowed very much.
One asks why, when in Italy and other industrialised countries full use has been made of the financial resources of the Community institutions, British companies in general have not benefited. From evidence one has found that it was not necessarily the intention of Government that private sector companies should not benefit from these loans. It was more the mechanisms which now have been streamlined and, with the global loan facilities and others, there is a considerable potential for companies wishing to expand when, as we hope, industrial recovery takes place, to borrow money from the Community at longer term than they could borrow from commercial banks. The rates of interest, which historically were wide when our interest rates were high—sometimes as high as 18 per cent.—for borrowing from the 374 Community would have been around 12. Now I gather the differential has risen to about 10 and 9½. Historically, one of the problems for companies borrowing was that they were borrowing in a basket of currencies. That was compensated for by an acceptable exchange risk cover system introduced by Government; but there were many who doubted whether this system of exchange risk cover would continue.
One of the questions I would ask my noble friend Lord Trefgarne is this. In the course of the evidence I got the impression, which I think was the wrong impression, that the Government were not too keen to encourage private sector companies to borrow from Community institutions. Indeed, not only were the Government not too keen in the past but the commercial banking sector was nervous about being involved with foreign public sector institutions which perhaps it saw as competitors in the commercial market. That has proved not be the case. At the moment I think there is considerable potential for the Community institutions in providing a source of valuable finance for industrial expansion in England. But, all in all, our companies have not borrowed very much or made very much use of Community facilities, and in general are probably not as aware of them as they should be.
Therefore, if one takes it further, here is a source of longer-term finance than would normally be available from commercial markets on very acceptable terms and conditions. The problem that we have found is not so much money—because governments and international institutions, as I have said before to your Lordships, often believe that the creation of a pot of money in itself somehow creates economic and industrial activity—but the problem at the moment is perhaps the shortage of propositions. The Community officials themselves will say they are starved of propositions for lending—so much so that the European Investment Bank not so long ago actually set up an office in London and now goes round trying to sell its loans, when we in England have often complained that there is a shortage of finance. So we are not making such good use of the facilities as we might.
The other area I turn to is where the Community lends, because it provides sources of finance in many countries where there are considerable trade possibilities, in addition to the European Development Fund. As your Lordships will know, the United Kingdom in general has failed dismally to take advantage of the contract opportunities and orders generated by the European Development Fund, as it has done in regard to the lending activities of the Community itself.
One can give many reasons for this. Perhaps it is lack of knowledge, but often it is sheer fear at being involved with countries which the private banking sector would regard as being non-creditworthy. More difficult, I think, is a sort of endemic disease in the United Kingdom. We have a public sector; we have a private sector; and never should they mix where money is concerned. The words "public accountability" are stamped on the back and the front of the football vests of all Government employees, and they are nervous of being seen together with any private organisation in taking any initiative. It is as though the 375 public sector looks—if I can remember Tom Jones, whose intentions or designs were strictly honourable—as the phrase is:to rob a lady of her fortune by way of marriage".That is true indeed on the Continent but perhaps not to the same extent. More and more often co-financing takes place between the private and public sectors in other countries of the Community, where the two move happily side by side for the financing of a new development at home or abroad.
These difficulties are not bureaucratic but probably more psychological. It has always been difficult in our country, which fears corruption and the misuse of public funds, for public money to be put alongside private money. Recently we have been encouraging the Commission, the European Investment Bank and other institutions to look more and more to the possibilities of co-financing rather than increasing their own borrowing and lending. Some of us have even queried the point of institutions borrowing from the private sector, which costs money and takes time, having an organisation to administer and lending out again to the private sector, when perhaps greater use of the guarantee mechanism, which might be cheaper and less burdensome, could be organised.
There are many possibilities, but one of the conclusions of the report which I totally endorse, though I was nervous myself in the beginning, is that there is no reason to fear the increased borrowing of the Community. The fact that it doubles every four of five years, I think, is irrelevant because in general the lending has been good apart from the obvious proof—there have been no defaults—and it has stimulated activity which would not otherwise have taken place. I tend to feel that stimulation has been more in other countries and areas involving companies from countries other than ours. But perhaps we should remember that many of them have been in the Community longer than we have and they know their way around the system better. Certainly I have found a tremendous willingness by all Community officials to try to help where financing is a difficult problem in getting a project off the ground.
I am grateful to the noble Lords who have helped with this report and to my colleagues. I hope that we may hear from my noble friend Lord Trefgarne some assurance that it is the Government's intention to encourage the private sector to make use of these facilities, recognising above all the current Government policy to encourage the growth of the small business and the success of the small business scheme.
§ 8.17 p.m.
My Lords, I rise as a member of the sub-committee of the Select Committee responsible for this report to support the noble Lord, Lord O'Brien of Lothbury, who assisted the noble Lord, Lord Plowden, in the conduct of this inquiry and who has inherited the task of presenting this report to your Lordships. He has done so with his accustomed clarity and thoroughness and leave me with little more to do than put a few glosses on what he has said.
The concerns which led the sub-committee to investigate this subject are set out on paragraph 6 of 376 the report. In summary, it was presented to the committee that Community borrowing might get out of hand and put an unacceptable burden on Community resources. Secondly, though this concern was more delicately expressed, it was felt to be taking the bread out of the mouths of British bankers. Thirdly, it was thought that the borrowing and lending might not be properly co-ordinated and managed in view of the different entities which are authorised to engaged in these activities.
At a very early stage in our proceedings it became clear that these concerns—perhaps one could say fears—were groundless. The first concern—that relating to the size, actual and potential, of the borrowing—was effectively dealt with at the second meeting of the committee by some cogent and lucid testimony from Mr. John Nash, now with S. G. Warburg and formerly with the European Investment Bank, and some Treasury witnesses. I refer to paragraphs 16 to 38 of our report. That evidence showed conclusively that the total EEC borrowing in relation, on the one hand to the size of the market and, on the other hand, to the size of the Community resources was extremely small and likely to remain so.
The second concern, which was rather heavily emphasised at the outset in the written evidence of the British Bankers' Association, was not strongly pressed in their oral evidence and did not in my view in the event survive the scrutiny.
The third concern about co-ordination appeared prima facie to have something in it. But, after visiting the European Investment Bank and the Commission, we were, I believe, satisfied that the co-ordination was effective. I personally was left with the impression that some tension existed between the officials in Brussels and the officials in Luxembourg, but perhaps not more than is normal between bureaucracies situated in different places, and certainly not enough to affect efficient co-ordination.
As for the control of the nature and extent of Community borrowing, it is obvious that, since there is almost continuous supervision by the finance ministers of the Community and their principal officials, the risk of its getting out of hand is really minimal. This applies particularly to the loans made by the European Investment Bank, the European Coal and Steel Community and the so-called Ortoli facility. The balance of payments loans made within the European monetary system are quite different, and, indeed, as the noble Lord, Lord O'Brien, indicated, political in character, and do not pose a threat to the stability and efficiency of Community borrowing and lending activity in general.
Since the ghosts were so quickly laid to rest, it could perhaps be asked whether the effort put into this inquiry was worthwhile. The answer, I believe, is in the affirmative and for two reasons. First, there was enough concern to make it desirable to lay the ghosts, and I hope it will be recognised in this House and outside it that the exorcism has been effective. The thinness of the House this evening would appear to bear this out. Secondly, it was an important subject in itself, and I hope the Minister may agree that it was useful to assemble and digest all the information on a matter of public interest which has not hitherto been 377 fully understood and appreciated by people who are not directly involved in it.
Finally, I should like to say a word or two about the United Kingdom's interest. There is no doubt from the evidence which we received that the existence of Community borrowing and lending facilities has been of benefit to the United Kingdom, especially in the public sector, and that the important element of additionality was present. Witness after witness testified to this, with the single reservation that the paperwork involved tended to be cumbersome and tedious. There was, however, nothing but praise for the helpfulness and efficiency of the Community officials dealing with these loans.
It is interesting, if one looks at pages 169 to 182 of our report, to note that in the nine years, 1973–82, the European Investment Bank channelled over £2,500 million to industrial, energy and various kinds of infrastructure development in the United Kingdom, and that this was some 25 per cent. of what the European Investment Bank lent in that period. Over 200 separate loans were made to local authorities, water authorities, the Coal, Gas and Railways Boards, the Post Office and the British Steel Corporation. There were global loans to the Industrial and Commercial Finance Corporation for on-lending to small and medium-sized businesses. Indeed, I personally had the satisfaction of signing the first of these loan agreements as far back as 1973.
There have been loans to individual companies and businesses over an extremely wide range. One finds in the list Express Newspapers, Hiram Walker whisky, Michelin (Belfast), the Co-operative Wholesale Society, British Insulated Callender's Cables and so on. Although, as the noble Lord, Lord Selsdon, has so well explained, the public sector outnumbered the private sector to a very large extent, by any standards this is an impressive list and a substantial achievement.
The committee noted with some regret that, for a number of reasons, Community borrowing in the United Kingdom was now likely to decline. At the time of our inquiry, Her Majesty's Government had just brought in some new rules governing this borrowing, and it was not at all clear what the effect would be on the level of United Kingdom borrowing in the future compared to the past, except that the direction was likely to be downward. By now, enough time may have elapsed to make more accurate predictions and perhaps the Minister will be able to give us one tonight.
It is natural enough for your Lordships' Select Committee and its sub-committees to look first and foremost at the United Kingdom's interest. Indeed, it is their duty to do so. But it is also desirable to look at the Community as a whole. The borrowing and lending facilities may now, and perhaps for some time in the future, be of marginal, though still in some cases welcome, benefit to this country. But the benefit to other Community members, particularly to the recently recruited Greece, and to Portugal and Spain when they come in, could be very great indeed. But it is, of course, desirable to satisfy ourselves that the system is sound, and properly supervised and administered, ahead of these prospective calls on Community 378 facilities, even if we ourselves may no longer be a major user of them. The result has, I believe, been reassuring. In conclusion, I myself certainly found this inquiry of considerable interest and value, and I hope that the Government, and those of your Lordships who have had the time and energy to study this report, will feel the same way about it.
§ 8.28 p.m.
§ Lord Roberthall
My Lords, I also am a member of Sub-Committee A, which was responsible for this report, but I do not feel any misgivings in endorsing what the noble Lord, Lord Sherfield, has said about the excellence of the report itself. Your Lordships' House is much more indebted than it sometimes realises to the Scrutiny Committee, which looks at all the relevant activities of the EEC, and it is well-known that the reports of that committee, of which this is an example, have a very considerable reputation in Community circles. Having had a long experience in my life of reports of this kind, I have no hesitation in saying that that high reputation will be maintained by this report.
The report itself is mainly a very useful work of reference. Anybody who wants to know anything about this aspect of Community activities, anybody who is concerned as a borrower, a lender or a student of the EEC, will find in this report almost everything that he needs, and in a more authoritative and well-informed way than is likely if he goes anywhere else. There is not a great deal to say about it. The committee considered that the lending activities are well-run, efficient and prudent. Looking around the world, one wonders how many of the great international financial intermediaries would be able to say that of themselves. And how delighted they would be if it were said of them.
The report makes only a very few and rather minor recommendations, some of which have already been dealt with by the noble Lord, Lord Sherfield, but in considering the activities of the Community it is interesting to ask what they are achieving in this sense: is anything happening, because of their activities, which would not have happened otherwise? This question has already been dealt with to some extent by the noble Lord, Lord Selsdon, and also by the noble Lord, Lord Sherfield, but it is an interesting subject and I should like to say a little about it.
At first sight, the existence of a new lending organisation will not make much difference if there are already a good many lending organisations. If you live in a town, want to borrow and there are five banks there already, should you hear that a new bank is coming to your town you would be very ill-advised to jump for joy because you would not get much better treatment from it than from the banks which are already there. In order to make a difference, therefore, the institution has to be a little different from other lending organisations. If there were no building society in a town and a building society opened a branch, there would be some reason for jubilation. If you wanted to buy or to build a house, you would get, on the whole, better terms from the building society. I leave aside the incursion a year or so ago of the commercial banks into this field because that activity is, I believe, being phased out.
379 What benefit accrues because of the existence of these organisations? They were established, broadly speaking, to further the aims of the Community. The aims of the Community in the economic field are partly to increase the general prosperity of all members and partly to bring about convergence—that is, to build up the economies of the less well-off states and those in difficulty. Although they are not a very large part of the international market, the lending activities are, of course, quite sizeable. Because the Community institutions have such a very high credit standing they are an important part of that market. In that sense, all lenders and all borrowers will benefit from the addition to the market of a really first-class institution.
But that does not take us very far. What other benefits does it offer? They are of two kinds. First, because of the very high credit standing of the Community and its organisations they can borrow on finer terms than those members of the Community which are less successful but which are most in need of loans. At one time the United Kingdom encouraged borrowing there. They even went a long way towards meeting the main disadvantage of the loans—that is, the exchange risk. They made it possible to insure against the exchange risk of borrowing in other currencies, as you have to do when you borrow from the Community. A number of potential British borrowers were therefore able to borrow on somewhat easier terms.
Moreover, if one studies the appendix to the report which gives the direct experience of a number of borrowers, one finds that the existence of this source was a great convenience to a number of borrowers, although they all admit that they could have got the money somewhere else. The institutions were very helpful to deal with. They made a technical examination of the requests. One thinks of the less fortunate countries, like the underdeveloped countries: how helpful it would have been to them if there had been careful scrutiny of what they were borrowing for—and of the variety of terms. It is particularly interesting to read the testimony of the Shetland Islands. They were able to finance all that they had to do as part of the Community, as part of the oil terminal. They admit that they could have got the money somewhere else but it is quite clear that in a great many ways it was easier for them to do it in this manner. The testimony of other bodies is, I believe, much the same.
The first step, therefore, that the lending facilities take is to offer fine terms which can be of help to the countries which most need assistance. This is what is required if convergence is to be successful. It does not go very far. It would be much better if we were able to help the weaker members of the Community by means of grants or soft loans, like those made by the International Development Organisation. However, it goes part of the way, and it is conducted in a way which turns out to be helpful to the borrowers.
The second aspect, which is connected with the first, is assistance on balance-of-payments questions. Countries which are pursuing an investment plan in order to improve their general economic performance are always anxious to facilitate investment because it is thought, with a good deal of truth, that investment is 380 the most obvious way to achieve growth. But many countries, as we ourselves know only too well, run from time to time into balance-of-payments difficulties. Although, from a long-term economic point of view, it is most unfortunate that Governments should cut their own investment programme in the public sector and put restraints on it in the private sector, politically it is much easier to do so than to cut consumption.
A country which gets into balance-of-payments difficulties ought, in order to make the best of it, to have time to soften the impact. The existence of these Community facilities can be very helpful, not only because of direct assistance for balance-of-payments reasons but also because one can borrow these in foreign currencies which can be added to one's reserves. In a critical situation this can be very helpful. The United Kingdom did that after 1977. Local authorities and nationalised industries were encouraged to borrow there and were able to add this borrowing to their reserves. It helped with this softening process.
What I have been trying to say is that there are real advantages for those countries which are absolutely first-class borrowers and which find themselves constrained in some way. Although there are not many activities in this country which would have been stopped altogether, had it not been for that facility some countries would have experienced hard times. Because the Community arrangements for borrowers on fixed interest rates are so flexible and because of the expert help that is provided, there are real advantages—similarly, from the balance-of-payments point of view. Since one of the main objects of the Community is to help poorer members—and that problem, which has been made worse by the extension to nine members, will be much worse after the extension to 12 members—we ought, therefore, to regard these institutions as, in a modest way, doing something for the broad objectives of the Community.
§ 8.40 p.m.
§ Viscount Chandos
My Lords, in thanking the noble Lord, Lord O'Brien of Lothbury, for introducing this debate I must tell your Lordships that I thought I would have to apologise for missing the noble Lord's speech. But as the debate started rather later than expected I am glad I was able to hear it. Instead, I fear that I may have to apologise for leaving before the end of the debate, in which case I shall read the final speeches with great interest.
I believe that noble Lords on both sides of the House would agree that the capital markets wait for no man, and my working commitments in these markets are the reason for my rather unreliable attendance this evening. On the other hand, it is for the same reason that I have had the pleasure of working very closely, on occasions, with the borrowing entities of the European Community, and therefore with a number of the people who gave such interesting evidence to the committee. Therefore, I should at the outset declare an interest, like the noble Lord, Lord Selsdon, and acknowledge that a continuing and expanding borrowing programme by the European Communities might well keep me occupied in the future, even though many of my fellow bankers would suggest that the profitability of such employment is limited by the 381 negotiating abilities of the officers of the European Commission and of the European Investment Bank.
I was very pleased to read the comments of William Hopper, a Member of the European Parliament, who gave evidence to the committee, and who is a fellow banker. He said he believed that the European Investment Bank was,the one institution of the European Community which is substantially beyond criticism; an exceedingly well run, professionally managed body.".However, I should like to put forward a modified version of that statement; namely, that the staff involved in both the EIB and the Commission in the borrowing and lending activities of the Community have gained the admiration, albeit sometimes grudging admiration, of the vast majority of the bankers who operate in the international capital markets. I should like to support wholeheartedly the comments in paragraph 10 of the report's introduction concerning the skill and experience of those who work in Directorate-General 18 of the Commission. I believe that most bankers have at least as much to learn from the staff of DG 18 and of the EIB as vice versa.
Many noble Lords, particularly those who serve on the Select Committee or on one of the subcommittees, will have a far better idea than I of the efficiency and competence of the European Commission as a whole. I have often been amazed that such a large and often varied borrowing programme can be handled by the Commission and by the EIB with such small teams of people who, whatever their toughness in negotiations, have in my experience never failed to show great courtesy and helpfulness towards the banks with which they work.
I should also like to pay tribute to the noble Lord, Lord Plowden, chairman of the sub-committee which produced this report, and all those noble Lords who played a part in the sub-committee's deliberations, as I found that the report was an interesting and lucid description of what, even to someone who has been involved in the Community's borrowing activities, can still appear to be a confusing affair. I commend the report not only to the banks which aspire to assist the Community in raising funds but also to the potential borrowers of money, public and private sector companies alike.
Perhaps this raises the question of whether the multiplicity of instruments is really necessary and whether the criteria for the Ortoli facility and those for EIB loans are not so close that in the long run a more completely unified approach would increase potential borrowers' understanding and their likely demand for funds. The effective sub-contracting of the lending operations of the Ortoli facility to the EIB represents a major step in the direction of integration. If we look at the context in which the Ortoli facility was originally proposed and ultimately approved, the current position is probably quite satisfactory. Nonetheless, since I suspect that the Commission is constantly looking at new areas of potential lending and at new criteria for such loans—such as those to small companies—I hope that time and other resources will be devoted to developing the most effective overall marketing of Community funds to potential customers. As the noble Lord, Lord Selsdon, has said, as in 382 the case of many sources of finance the greatest obstacle in the way of effective and fruitful utilisation of such funds is the lack of knowledge—and, just as often, the misunderstanding—of the possible finance available on the part of companies of every size.
The multiplicity of instruments is also justified in the report on the other side of the equation, in offering a diversified range of securities for potential investors to buy. With the original borrowers in the shape of the EIB and the Coal and Steel Community joined in recent years by the EEC itself (under two different facilities) and by Euratom, there has clearly been some expansion of the market's potential capacity, compared to the position that might have existed if only two names had continued to be used. On the other hand, investors in many parts of the world attach substantial importance to the liquidity of the securities which they purchase, and this is in some part dependent on the size of individual issues and the total amount outstanding in the name of any one borrower. It is for that reason, among others, that Government bonds in all the major capital markets in the world offer the greatest liquidity. I think, therefore, there is a fine judgment to be made between encouraging the maximum liquidity in the market for paper issued by the European Communities and the EIB, and varying the diet for investors with the four different names that are available.
I believe, therefore, that the Communities, while keeping this balance in mind, can contemplate an increasing financing requirement with some confidence, as both the written and oral evidence presented in the report shows very clearly. At one point two or three years ago, it would be fair to say that some resistance developed among investing institutions towards Community paper, and that of the EIB in particular. If such resistance was justified at the time—perhaps by the very rapid growth of public financing operations by the Community entities—the position has now improved through a greater exploitation of private sources of capital, on the one hand, and a heightened awareness among investors of the community's impeccable credit standing, on the other. I therefore share the views of the noble Lord, Lord Selsdon, that the growth of borrowing in recent years should not cause alarm and is sustainable at a similar rate in the future.
As the hour is late I should like to make only two further points. The first relates to the exchange risk guarantee schemes offered by the United Kingdom Government to public and private sector borrowers. The report highlighted the benefits of the Community's lending policies for countries with deficits on their current account balance of payments, but we should bear in mind that only in the case of one of the two facilities of the EEC is the covering of balance of payments deficits a primary objective. In the case of the Ortoli facility, Euratom, ECSC and EIB loans, the primary objectives are the stimulation of industrial activity, particularly in the areas of greatest unemployment.
While it is therefore understandable for a Government to be less enthusiastic about encouraging the utilisation of Community finance when its balance of payments position is strong, this must be seen as a restriction on the potential benefits to be derived from 383 membership of the European Communities. It was therefore ironic that this Government, at the same time as battling almost constantly for refunds on our contribution to the Community budget, should be gradually reducing the encouragement and assistance available to borrowers in the United Kingdom to make full use of Community funds. An exchange risk guarantee scheme does not necessarily imply any element of subsidy, but could simply make available exchange cover on terms which provide sterling finance in line with the terms theoretically applicable to commercial borrowers.
Even if the terms involve no element of subsidy, I believe that the nature of the funds created by borrowing from the Communities, being medium to long-term funds at a fixed rate of interest, will be of interest to companies, particularly with interest rates now a fair bit lower in absolute terms that for some time in the past. I was, therefore, rather sad to see some of the evidence produced by the British Bankers' Association concerning the usefulness of the Community's lending operations, and I think the BBA has underestimated the potential contribution to the financing of industry that the Community can make, so long as some form of exchange cover is available on fair terms.
I believe that the Government should find it quite possible to apply an increased level of foreign currency borrowing by United Kingdom companies and public corporations to other uses that would enable sterling funds to be supplied to the actual borrowers with no cost to the revenue. The operations, for instance, of the Export Credit Guarantee Department expose the United Kingdom Government effectively to a substantial mismatch between fixed rate lending to buyers of United Kingdom goods and variable rate funding. I believe that there could be real virtue in the Government effectively setting funds raised by United Kingdom borrowers through the Community against such ECGD lending and providing in exchange the sterling funds that the original borrowers really require. I hope that the noble Lord, Lord Trefgarne, will not hide behind the shield of an arbitrary PSBR ceiling in considering such an approach.
I was also rather disappointed that the report did not give more prominence to the lending by the Communities to countries outside the Community, essentially those which are signatories to the Lomé Convention. The noble Lord, Lord Selsdon, mentioned this activity briefly in connection with the European Development Fund, and I believe that there is considerable scope for expansion of this, coupled with an increase in aid both from the Community and from individual member countries.
I hope that the Government will devote greater attention in the future to making full use of the Community funds for the benefit of United Kingdom industry, and at the same time to using the Communities as a vehicle for greater lending and aid to the developing world. I believe that the report presented by the noble Lords, Lord Plowden and Lord O'Brien, will have played an important part in encouraging this.
§ 8.54 p.m.
Lord Bruce of Donington
My Lords, we on this side of the House are most grateful to the noble Lord, Lord O'Brien of Lothbury, for having taken this opportunity of introducing the report by Sub-Committee A of the European Communities Committee under the chairmanship of Lord Plowden. As a mere accountant and economist, I almost found myself in a strange world, listening, as I have, to the contributions that have been made by the learned community of bankers which is so fortuitously represented in this House by the noble Lords, Lord O'Brien, Lord Selsdon, Lord Sherfield and Lord Robertshall, and the noble Viscount, Lord Chandos. After the bankers have spoken, what can one possibly say?
I think the report is extremely valuable. It does, as the noble Lord, Lord O'Brien, indicates, contain a very considerable amount of data which indeed, as he himself said, is most revealing. I find it necesary of course to judge the contents of the report, which, by inference from the noble Lords' speeches, which were largely mutually congratulatory in nature, cast a very favourable reflection on British banks.
I did not detect one morsel of remorse from any of your Lordships in the banking community tonight for the most deplorable mess in which the international banking system has found itself. The speakers rejoiced in the rectitude shown by the Commission's borrowing and lending institutions in so far as operations in Europe are concerned. They were modest enough, of course, to refrain from calling to our minds their most appalling idiocy in the policy of lending to some countries, particularly in Latin America, where their very rash lending—indeed, to a point where in four countries the outstanding interest on the loans exceeds annual exports—has in fact precipitated a banking crisis of the first order. So they come to your Lordships' House tonight and say that, so far as the EEC is concerned, the EEC lending institutions are behaving with perfect rectitude, and indeed, so far as their dealings with the European Community are concerned, the British banking community are behaving with perfect rectitude also.
There is a danger of exaggerating the effects of the European borrowing and lending institutions, though I in no way question the fact that they have undoubtedly been of very great assistance so far as the United Kingdom is concerned, particularly to local authorities, which, a couple of years ago at any rate, were able to obtain funds from Europe at a rate significantly below that which was available to them from the British banking system. I observe that, presumably with an eye to self-preservation, the British banks speedily adapted to policies which resulted in a narrowing of the gap so that their fears that they might be pre-empted at some point by the European lending institutions were to some extent mitigated.
So far as the European Community is concerned, the whole matter should be brought into some proportion, as indeed the report itself points out. Between 1977 and 1980 the Community's share of total international borrowing fell from 2.5 per cent. to 2.2 385 per cent., despite a rapid absolute growth. It goes on to point out by way of comparison that total borrowing in the international market by the United States approximated to 186 billion dollars of which the EEC borrowed 3.5 billion. So let us not exaggerate the extent of the European borrowing and lending institutions.
So far as the EIB is concerned, let us bear in mind that at paragraph 24 of the report it is indicated that:In 1980 it was estimated that the investment projects financed by the European Investment Bank would create some 34,000 permanent jobs and safeguard almost 15.000 more, chiefly in industry; though in the more difficult climate of 1981 these figures fell to 20,600 and 10,600 respectively.My Lords, compared with the millions unemployed in Europe and the rapid growth of unemployment in Europe, and particularly in the United Kingdom, this is encouraging. We are talking now of 15,000 as against 15 million. It is encouraging, but hardly world-shaking. Of course, the fact of the matter is, as the noble Lord, Lord Selsdon, knows quite well, and, as I suspect, the noble Lord, Lord O'Brien, when he rereads the Bank of England quarterly reports realises, this is a very small contribution to the terrible predicament in which the working community in Europe and the working community in the United Kingdom find themselves.
I therefore would not wish to belittle in any way the activities of the European borrowing and lending institutions, but I do assert that if one of their purposes was the progressive redress of the gross disparity between the richer and poorer regions of Europe the effect of the European borrowing and lending institutions has been minuscule. In fact, ever since 1973 the gap between the fortunes of the poor countries of Europe and the richer parts of Europe has been progressively expanding.
I do not want to cast any personal discredit upon the noble Lord, Lord O'Brien of Lothbury, the noble Lord, Lord Selsdon, his colleagues, or indeed the noble Viscount, Lord Chandos, except to say that skilled though their professions may be, obscure though their methods of working may be, highly technical though their operations may be, highly complicated the language in which they express themselves, highly abstruse the reports they produce, highly delightful the artistic charts they produce from time to time, scatter diagrams and all, their impact upon the suffering humanity at large in Europe has not been very large.
I do not wish to be churlish in these matters. It is given to few of us in this House to have even the influence that the noble Lords who are members of the banking community have. After all, bankers, having the money, tend to be listened to by Governments who are incapable of addressing themselves to any intellectual arguments addressed to them, because money always talks.
I hope that the efforts of the European Parliament—and here I agree with the noble Lord, Lord O'Brien—to secure some kind of budgetary control over borrowing and lending operations will eventually prove successful. For many years, even during the time when I was a member of the Budget Committee in the European Parliament and for some time its rapporteur, we raised this problem. It was realised at that time, as it is undoubtedly realised now, that the I 386 per cent. ceiling on the VAT base on which the parameters of European budgets are based would sooner or later prove inadequate to meet the ever-growing rapacity of the farming communities in Europe and in the United Kingdom, who are being progressively featherbedded by this Government in the most scandalous manner when one considers their attitude towards industry.
So, we sought at that time, and I believe the Budget Committee in the European Parliament is still seeking, some measure of control over borrowing and lending operations, mainly, I should think, from my conversations with many of them—and I still maintain personal contact with some of them—with the idea of getting national Governments to pull their fingers out in regard to providing more credit in Europe generally and relieving this miserable waste of human labour and human endeavour which is implicit in the current unemployment figures in Europe. It was thought at that time that an extension of the borrowing and lending operations would in fact help this situation, but, as I say, and as the figures in this report reveal, the real effect, although it looks very nice in ECU terms—and I am not sure how many ECUs there are to the pound, or pounds per ECU at present—is another matter.
There is one recommendation that I most certainly agree with. I do not know whether it is a recommendation, because the only formal recommendation is that the House considers the report, but one can gather that there was some general agreement in the Committee about the attitude of the United Kingdom's banks in regard to EIB projects. If one is seduced, as one sometimes is by the excellent literature that comes out in the promotion of the activities of the various development authorities, one gathers that, in addition to the aids to industry in the special development areas, in the development areas and the intermediate areas that are afforded relief under Section 7 of the Industry Act 1975, European Investment Bank loans are available on very good terms. The entrepreneur, the urgent seeker for the exercise of all that enthusiasm and energy that is implied in free enterprise, pricks up his ears and says, "Ah, I will go to Corby, Cumbernauld or South Wales, or wherever it is, and there I can get not only selective financial assistance under Section 7 but also European Investment Bank loans at a very reasonable rate".
What the Government literature does not state, of course, is that that all has to be guaranteed. The banks have to guarantee it. The commercial banks in the United Kingdom have to guarantee it, as is pointed out in the report with, I thought, an air of complaint. Moreover, if I am not mistaken, the commercial banks themselves in this country, who are so free with the granting of credit to insolvent countries, when it comes to lending in the United Kingdom demand guarantees of the directors or the companies whom they are going to guarantee to the European Investment Bank.
This sounds like rectitude carried too far. I am not complaining of the attitudes of the banks and their general expansion of credit in this country for consumer commodities, although I well recall the time when the only way to get a loan out of a bank was to prove conclusively that one did not need it. That, happily, no longer applies. But I gather there is a 387 complaint in the report, particularly paragraph 40, where the United Kingdom banks consider that when they have given a guarantee to the EIB on a project which is eligible for EIB finance there is no need for the EIB to subject the borrower to the labour and cost of their particular procedures. With that I completely agree.
The other recommendation with which I agree, as do indeed all of us who advocate support for small businesses, is that the limits should be altered. The lower limit should be reduced to £5,000 and the upper raised to £250,000 generally. These are all excellent recommendations.
I must apologise to your Lordships if I have appeared to be a little jaundiced about the significance of the facts that are set out in the report. It does not detract in any way from my admiration for the very calm and meticulous manner in which the report has been compiled. This we have come always to expect of the secretariat of the committee, and indeed the subcommittees, and of its distinguished chairman. I do hope, however, that the lessons from it will be learnt. The principal lesson is this; if national Governments, who control, as indeed is brought out in the report, the activities of the banks in relation to the facilities made available by European borrowing and lending, were to have paid the same attention to their lending to the overseas countries who are now in danger of default, the world would possibly have been a much better place. But it does not detract from the value of the report, however limited we on this side of the House are afraid its impact will be.
§ 9.10 p.m.
§ Lord Trefgarne
My Lords, I should like to add my voice to those of every member of your Lordships' House who has spoken this evening by way of thanks to the noble Lord, Lord O'Brien of Lothbury, for introducing this subject tonight, and to begin by saying that Her Majesty's Government were very glad to note that your Lordships' sub-committee had decided to investigate the subject of Community borrowing and lending, thereby breaking some new ground. The committee's report before us is an interesting and valuable contribution. I should like to pay tribute in particular to the sub-committee's chairman, the noble Lord, Lord Plowden, whose place, as we have heard, has since been taken by the noble Lord, Lord O'Brien, who has moved the Motion tonight.
The Community's borrowing and lending activities do not perhaps catch the headlines. But they are important, nevertheless, and they ought to be better known. The Committee's report, with its supporting material, should help to bring this about. It will be an invaluable source of material on the Community's loan activities to supplement the annual reports from the European Commission and from the European Investment Bank.
This is the first opportunity either House has had to have a general debate in the Community's loan policy. I should therefore like to make a few general remarks before turning to specific points raised in debate. Borrowing and lending was envisaged as part of the Community's business from the outset. The European Coal and Steel Community, set up in 1951, provided 388 for loans to member states. The European Investment Bank was set up in 1958 under the Treaty of Rome, It is natural and appropriate that the Community should want to play its part in helping to distribute capital flows among its members. This represents a valuable adjunct to the other policies of the community, and of member countries, perhaps most specifically by helping to develop the poorer regions of the Community, and thus contributing to the Community's broad aim of achieving greater convergence of economic performance.
The foundation for the borrowing capacity of the Community lies in the credit of the member states. It is on the strength of that credit, which guarantees against default, that the institutions raise money in the capital markets. The two principal questions which I think we should have in mind in the various categories of loan activity are, first, whether the intervention of the Community is desirable and necessary, and, secondly, whether the loans can be raised in amounts and on terms which sustain the Community's credit standing. Specfically, this requires that the member Governments should be satisfied that the purpose for which the borrowing and lending is intended serves their objectives for the Community, supplementing national measures; and that great care should be taken to co-ordinate all the approaches in the name of the Community to the capital markets so as to secure the best possible terms.
So far as the first of these questions is concerned, all the borrowing and lending facilities have the full approval of member states. In the case of the European Investment Bank decisions are taken by the governors, who are Community Finance Ministers and other facilities are regulated by the Council of Ministers. As for the need to preserve the Community's credit standing, I am glad to say that we can be satisfied that European Community operations are handled with care and prudence by those concerned in the Commission and the European Investment Bank. I am glad to see that the committee also felt this to be the case as it reports in paragraph 38. We are not, however, in any way complacent, and the Government will continue to show a careful concern for these matters through our membership of the Council of Ministers and, for the European Investment Bank, through the board of governors of which my right honourable friend the Chancellor of the Exchequer is a member.
Perhaps I could quote two topical examples of the continuing process of co-ordinating progress with prudence. First, the Finance Council is on Monday to begin discussion of the co-ordination of Community financial instruments. My right honourable friend will be stressing the need for continuing care for the Community's credit standing in both the Commission and the European Investment Bank. The second example is that when the Council recently considered the proposals for further lending under the so-called New Community Instrument, or the Ortoli facility as it is more popularly known, and referred to tonight, they expressed their preference for a ceiling on the total available under the instrument, so as to make it quite clear that they would have the opportunity to keep progress under review. This does not in any way mean that the Council calls into question the 389 usefulness of the facility. It simply means that we are concerned that markets should be reassured that the community's operations are well judged and are conducted in as prudent a manner as possible.
The New Community Instrument is, as it happens, also being considered by Finance Ministers on Monday, when it will be discussed with representatives of the European Parliament. As the committee notes in its report—the noble Lord, Lord O'Brien, referred to this—the European Parliament has taken a close interest in Community loan activities. Indeed, they would prefer a bigger role in overseeing them and have talked of integrating them into the Community's budgetary procedure. I think I interpreted the noble Lord, Lord Bruce of Donington, rightly when he spoke in favour of that idea. The Government's view is that the nature of the activities being financed under the various loan mechanisms means that what I might term political control is better exercised through the Council of Ministers. But we entirely endorse paragraph 13 of the report, which states that all these matters are of "legitimate concern" to the European Parliament as much as to member Governments and national Parliaments. Your Lordships will know that very great efforts are now made by the Commission to provide the fullest information each year.
The United Kingdom has in some years benefited from substantial amounts of borrowing from Community facilities. Indeed, since the United Kingdom joined the European Community in 1973 it has borrowed well over £4 billion from these sources. At present we are glad to be maintaining a modest but steady stream of borrowing, and in particular to see that the United Kingdom's private sector is finding the European Investment Bank to be a useful source of funds. So far as the EIB alone is concerned, United Kingdom borrowers have raised some £2½ billion since 1973; indeed, in this period we have been the second largest borrower. The loans have helped to finance industrial, energy and various kinds of infrastructure development in the United Kingdom. Financing in 1982 alone almost doubled with some £274 million being provided from the bank's own resources. That was a matter of particular anxiety to my noble friend Lord Selsdon, and I hope he will be reassured by what I have said.
The Government are particularly encouraging small and medium sized enterprises in this European year of so-called SMEs to look to the Community as a possible source of attractive finance, and this encouragement has recently borne some fruit. In 1982, under the global loans and mandate contracts already in force, 33 allocations, totalling about £20 million, were made for small and medium sized industrial and tourism ventures in assisted areas of the United Kingdom. In this way, we have added a European dimension to the measures we took in the Budget to help SMEs.
I should like now to turn to two specific recommendations made by the committee for improvements to the EIB private lending scheme. These recommendations are in paragraphs 39 and 40 of your Lordships' Select Committee report. I am pleased to announce that we have taken positive action on both these points.
390 First, the committee recommended that the upper limit for the size of EIB loans offered through the agencies operated by the clearing banks and other financial institutions should be raised from £100,000 to £250,000. This we have now done. Secondly, the Committee asked for the maximum simplification of loan appraisal procedures. This is essentially a matter to be negotiated between the United Kingdom agencies and the Community institution concerned, but the Government share the view expressed by all the borrowers who gave evidence to the committee that the documentary requirements impose a considerable burden on loan applicants. We believe that there is room for further simplification of appraisal procedures, and anything that can be done to ease the burden would be warmly welcomed.
For the Government's part, we have looked at the way we operate our own exchange risk guarantee scheme. Let me say first that the Government well understand that the scheme is a vital element in encouraging British enterprises to take advantage of the loan funds available. As for the procedures, we have sought to ensure that these are simplified as much as possible. Indeed, applications for cover for European loans available through the banks are approved in a matter of three or four days. I understand that the banks are entirely satisfied with these arrangements.
I now turn to some of the points that have been raised tonight. The noble Lord, Lord O'Brien, made a number of interesting points in his thoughtful opening speech. Perhaps I could comment on just two of them. First, he floated the possibility that different methods of raising finance should be considered. I can assure the noble Lord that the Government are very much alive to this point. We have, in particular, encouraged the European Community institutions to look at the possibility of raising capital on variable rate terms. Secondly, the noble Lord commented that we have taken fewer so-called global loans than some other countries. I am glad to say that we have recently taken up more global loans—there have been agreements this year with the Midland Bank, National Westminster and the Industrial and Commercial Finance Corporation, and further agreements are currently being negotiated.
The noble Lord, Lord Sherfield, asked me about the prospective levels of United Kingdom borrowing from the Community. The Government's policy at present is to repay official foreign currency debt, so the borrowing of the public sector from Community sources will not be as large as it has been in the past. Nevertheless, the Government expect that the public sector will continue to borrow in significant amounts, although I should not like to try and place a precise figure on any forecast. So far as the private sector is concerned, the Government are happy to see a continuing stream of borrowing and they demonstrate their support through the exchange risk guarantee scheme, to which I have already referred. There was, indeed, a slackening of demand last year, so the exchange risk scheme was modified to provide a more attractive interest rate. We are seeing increasing signs that, as a result, interest is reviving among potential borrowers in the private sector.
391 The noble Viscount, Lord Chandos, suggested that the benefit of borrowing from Community sources went some way to offset the United Kingdom's Community budget problem. The availability of borrowed funds from Community sources can indeed be a great benefit, as many of your Lordships have said tonight, but that does not redress the unfairness of the present size of Britain's contribution to financing the Community budget. Loans, after all, do not involve any permanent transfer of resources.
This has been a valuable debate on your Lordships' Select Committee's report. I can assure your Lordships that the points in the report and in this evening's debate have been carefully noted. The Government believe that the Community's capacity for borrowing and lending can and should continue to be put to good use for the benefit of the Community. We shall continue our support of these borrowing and lending activities so long as the purposes are sound and the Community's credit standing is maintained.
§ 9.24 p.m.
§ Lord O'Brien of Lothbury
My Lords, I should like to conclude by thanking all noble Lords who have taken part in this debate. First, I should like to thank those fellow members of the committee who have joined with me in explaining the report to other Members of your Lordships' House. It is an agreed report, and, therefore, of course, we tended to agree; but I think it is fair to say that each member of the committee illuminated some aspect of the report which others had failed to do.
I am also grateful to the other Members of your Lordships' House who have taken part in the debate. No debate in which the noble Lord, Lord Bruce of Donington, took part could be dull. He suffers from a bad case of the "banks under the bed" bogey, and naturally enough it came up, although it is not very relevant to what we have been discussing tonight. But, never mind, it was interesting to hear. I think he needs a little instruction—perhaps a lot of instruction.
However, our report was designed to illuminate an area which was far from clear and which encouraged many fears. In future, anyone who discusses this subject has no excuse for discussing it on the basis of fear; they have facts. We have revealed that the exercise of European borrowing and lending is small, as the noble Lord, Lord Bruce of Donington, said. In some ways that is reassuring. Many people feared that it was over-large. It will get larger in the future, but I believe that it will be properly supervised, and we ourselves will see that in future it is looked at from time to time so that it does not get out of control. I am particularly grateful to the Minister for his final contribution, which was very helpful in many respects, and I am glad to see that the Government have already responded to the report in so many useful ways. I commend the Motion to your Lordships.
§ On Question, Motion agreed to.
§ House adjourned at twenty-six minutes past nine o'clock.