HOUSE OF COMMONS
Third Standing Committee on Delegated Legislation
DRAFT EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (FURTHER PAYMENTS TO CAPITAL STOCK) ORDER 1996
Tuesday 2 July 1996
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The Committee consisted of the following Members:
Chairman: Sir James Hill
Atkins, Mr. Robert (South Ribble)
Bellingham, Mr. Henry (North-West Norfolk)
Bruce, Mr. Ian (South Dorset)
Bruce, Mr. Malcolm (Gordon)
Canavan, Mr. Dennis (Falkirk, West)
Conway, Mr. Derek (Lord Commissioner to the Treasury)
Cope, Sir John (Northavon)
Corbyn, Mr. Jeremy (Islington, North)
Fenner, Dame Peggy (Medway)
Foulkes, Mr. George (Carrick, Cumnock and Doon Valley)
Gapes, Mr. Mike (Ilford, South)
Godsiff, Mr. Roger (Birmingham, Small Heath)
Hanley, Mr. Jeremy (Minister of State, Foreign and Commonwealth Office)
Hanson, Mr. David (Delyn)
Livingstone, Mr. Ken (Brent, East)
Madden, Mr. Max (Bradford, West)
Shaw, Mr. David (Dover)
Speed, Sir Keith (Ashford)
Townsend, Mr. Cyril D. (Bexleyheath)
Mr. E. P. Silk, Committee Clerk2 3 Third Standing Committee on Delegated Legislation Tuesday 2 July 1996
[SIR JAMES HILL in the Chair]
The Minister of State, Foreign and Commonwealth Office (Mr. Jeremy Hanley: I beg to move, That the Committee has considered the draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 1996. I welcome you, Sir James, in your new guise. Your title is richly deserved. To many of us, you have always been Sir James. The order will authorise further United Kingdom support to a multilateral development bank which is playing an important role in transforming the economies of central and eastern Europe and central Asia. That support will further three of the main aims of the British aid programme: to encourage sound development policies, efficient markets and good government; enhance productive capacity and conserve the environment; and promote international policies for sustainable development and enhancement of the effectiveness of multilateral institutions. The bank was established in 1991 to foster the transition to open market-oriented economies and to promote private and entrepreneurial initiative in the central and eastern European countries. It is unique among development banks in being able to operate both in the public and private sectors. The demand for bank services is currently increasing across its region. To respond to that demand, the bank plans a gradual increase in new commitments, reaching at least 2.5 billion ecu in 1999. An ecu currently stands at about 80p. The bank has already committed more than 6.5 billion ecu, and total outstanding commitments are expected to reach 10 billion ecu—its initial capital base-in 1997. Subject to parliamentary approval, the United Kingdom will subscribe to 85,175 additional shares in the bank, bringing its total shareholding to 170,350 shares. We hold an 8.5 per cent. share of the initial capital, as do France, Germany, Italy and Japan. The United States of America holds 10 per cent. of the initial capital. All existing shareholders are expected to subscribe to the new capital. Our additional subscription to the bank will be for 851.75 million ecu—about £684 million. The paid-in element will be 191.6 million ecu—about £154 million—and the remainder will be callable. Payment will be spread over 12 years, commencing in 1998. I commend the order to the Committee.4
Mr. George Foulkes (Carrick, Cumnock and Doon Valley): I agree. Sir James, that your title rolls off the tongue most appropriately. We welcome the order and the Minister's eloquent and concise introduction to the debate. I could, as Conservative Members know, speak at length on this, as on any subject. However, the Committee—including my hon. Friends the Members for Newport, West (Mr. Flynn) and for Delyn (Mr. Hanson)—who I am pleased to see forming a united opposition—will be relieved to know that I shall ask only two questions. At the annual general meeting in Sofia, the president of the European Bank for Reconstruction and Development warned that there was a danger of the bank's expenses getting out of hand again—shades of Jacques Attali and the glistening bank, as it became known. Can the Minister confirm that there will be careful monitoring of the money spent on administrative expenses to ensure that the maximum amount will be used for development. The bank promised to put forward a policy proposal by the end of the year, to tackle the over-funding of successful countries. We are glad that countries become successful—something that was, I think, christened graduation by the bank. Will the Minister tell us how matters stand in that regard? I am sure that the entire Committee wants the money to go to the most needy—not to continue to go to countries that are no longer in dire need. On behalf of the Opposition I welcome the doubling of capital in an institution that we believe is doing an effective job in development. Provided that we receive satisfactory answers to the two questions that I have put, we shall have no difficulty in giving the order a smooth passage through the Committee.
Dame Peggy Fenner (Medway): Much as I hesitate to say so, if the hon. Gentleman thinks that he would be in trouble if he speaks too much, he should imagine what would await me from my hon. Friends, if I do so. I debated the present subject last week, because I have the honour to serve on the Council of Europe, which is now a parliamentary forum for the European Bank for Reconstruction and Development. For the first time, Canadians—founder members of the bank—came to visit the splendid establishment and were full of worries about white glistening marble. They wanted to make certain that, as the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) said, its business would be monitored well. The fact that 60 per cent. of the relevant banking activity is now conducted in private and 40 per cent. in public shows both the ability to run a mixed economy system and success in financing small and medium-sized enterprises—which, as we all know, are often the catalyst for good trade in the other countries with which we are concerned. As was said in Strasbourg last week, we have got the right Jacques—this Jacques is all right. The other one put in the white, glistening marble, but Jacques Larosiere has made tremendous changes during the 5 reorganisation. We in Strasbourg watch the board closely, and demanded a place because the money, after all, comes from the taxpayers of the contributing countries. We felt that the elected members should have some right to see how the money was being spent. I support the comments of my right hon. Friend the Minister of State, and—for today—those of the Opposition spokesman, the hon. Member for Carrick, Cumnock and Doon Valley, about keeping a watchful and monitoring eye on matters.
Mr. David Shaw (Dover): I will return to the issue that was raised by the hon. Member for Carrick, Cumnock and Doon Valley and by my hon. Friend the Member for Medway (Dame P. Fenner). It would be desirable, from the point of view of the British taxpayer, to hear from the Minister how the Foreign Office will manage the taxpayers' interest and ensure that expenditure in the bank is responsible. and properly controlled. As the Minister is a fellow chartered accountant, I am sure that matter will be as much of interest to him as it is to me. Will any coupon or interest be payable on the stock that we are considering? While we do not necessarily want to squeeze the relevant economies when their businesses will need all the money that they can get to finance expansion of the economy, sometimes it is useful to keep a modest coupon on stocks of that nature. That encourages the proper and sensible running of businesses, albeit allowing for the fact that some businesses may occasionally fail and be unable to make the necessary contributions.
Mr. Anthony Steen (South Hams): I welcome the order, but it will be the 8,096th statutory instrument to have been passed by the Government since January 1994. That number is really quite a record. Is the Minister aware that the Government's intention is to reduce the number of statutory instruments, as well as to reduce regulation and bureaucracy? While the order is welcome, in the sense that it will accomplish a task that we all support, it has all the ingredients of those things that the Government oppose, such as the ever-increasing rules and regulations that will be passed by the bank. Will the Minister say something about the process of making those rules and regulations? How does the bureaucracy run? How much of the money that we are giving will be spent on the bureaucracy? Those are questions that we should properly ask. Bearing in mind that we are so opposed to all those things, I hope that the Minister will explain why we have to make this the 8,096th statutory instrument. Why do we have to keep passing more and more statutory instruments? Could he direct his mind to that matter, because it flies in the face of everything for which the Government say they stand?
Mr. Hanley: In reply to the hon. Member for Carrick, Cumnock and Doon Valley, Jacques Larosière has imposed strict financial disciplines on the bank. 6 While I agree with him and the chairman that one should always keep that matter under careful review, the bank was set up not just to give people jobs but to benefit people who need help with the graduation from one economy to another. The budgetary process is well established and effective. Running costs have been kept constant in real terms for the past three consecutive years. The hon. Gentleman asked whether the developing world should need the assistance more. I can assure him that the fact that the UK gives assistance to central and eastern Europe and central Asia does not mean that we are neglecting the needs of developing countries. Africa has been and remains a high priority for British aid: over 40 per cent. of our bilateral aid—that was £386 million in 1994–95—goes to sub-Saharan Africa. That compares with about 14 per cent. for eastern Europe. India and Bangladesh have for many years been the largest recipients of British aid. The UK is also a major contributor to multilateral development organisations, and we should never forget the sum total of bilateral and multilateral donations. They also treat Africa as a priority. In the 1990–95 EU aid programme for sub-Saharan Africa, we spent £7.6 billion—with a UK share of £1.25 billion. In reply to my hon. Friend the Member for Dover (Mr. Shaw), no coupon is attached to the particular stock but I am grateful for his contribution today. I will say one thing about graduation in closing. We must always remember that the bank exists to foster the transition of its members from two open market economies. Transition is by definition a process with a beginning, a middle and, obviously—
Mr. Steen: An end.
Mr. Hanley: My hon. Friend is so right. Bank services are still much in demand in all 26 member countries but as some join the Organisation for Economic Co-operation and Development and prepare for accession to the European Union, it is not too early to begin thinking about graduation from the bank. Graduation is, after all, another word for success. During the capital replenishment negotiations, shareholders agreed that the bank should establish a policy on graduation, including the development of graduation criteria. The board will be discussing and establishing a policy on graduation later this year. Lastly, the day-to-day control of the bank is in the hands of the board of directors. All shareholders, including the United Kingdom, are represented on that board. The senior management under the president is there too. The bank's governors—in the UK case the Chancellor of the Exchequer—meet annually. This year, as my almost hon. Friend the Member for Carrick, Cumnock and Doon Valley said, it was in Sofia in April. About 36 per cent. of the total staff are British, so we have a fair representation there.
Mrs. Teresa Gorman (Billericay): My right hon. Friend said that 36 per cent. of the hank's staff were from the United Kingdom. Presumably, that means that their salaries ultimately come from our taxpayers. He said that the Chancellor of the Exchequer's time was taken up on the bank's board of directors so that we can 7 get our four pennyworth in. Does my right hon. Friend the Minister agree that this country has such a proud record of assisting overseas countries directly from our own chancellery that the idea that we should spend time and money in contributing to some European bank is completely unnecessary? Is my right hon. Friend aware that more than 8,000 statutory instruments have passed through the House since January 1994, of which about 600 have been repealed? When we extend our activities into such European institutions—
The Chairman: Order. This is meant to be an intervention. Will the hon. Lady bring her remarks to a close?
Mrs. Gorman: Yes, Sir James. Does my right hon. Friend the Minister think that by extending our activities into foreign institutions, we are duplicating work, and wasting taxpayers' money and the time of civil servants and the Chancellor himself?
Mr. Hanley: I much regret that my hon. Friend the Member for Billericay (Mrs. Gorman) was not with us when I opened the debate, because she would have heard me say that it was not a purely European institution. Japan, the United States and many other countries are involved. The bank is trying to help the countries of central and eastern Europe in their transition to new economies. One would have thought that my hon. Friend would have welcomed not only that central and eastern Europe would be stronger economically, but that the defence of the United Kingdom would be made stronger because of the bank's work. My hon. Friend the Member for Billericay referred to nearly 61,000 statutory instruments, but she will have missed that that point was made by my hon. Friend the Member for South Hams (Mr. Steen) just before she came into the Room. My reply is the same as it was to him.
Mr. Steen: Which is what?
Mr. Hanley: Fascinating.
Mr. Foulkes: I just wanted to record that the Minister has received a warmer reception from the 8 Opposition than from his own Back Benchers. I am sure that if Pavlov had been present today, the intervention of the hon. Member for Billericay would have proved his findings correct.
Mr. Steen: I asked my right hon. Friend the Minister one or two questions about bureaucracy in the bank and the way in which it runs its affairs. Will he describe how the bureaucracy functions and how we know that taxpayers are obtaining good value for money? How can we justify contributing large sums of money unless we are satisfied that it is being spent for the purposes for which it is meant?
Mr. Hanley: I assure my hon. Friend that the money is as well spent as we can gauge. Together with our partners and fellow shareholders in the bank, we are satisfied that we are obtaining good value for money. Otherwise, we would not have agreed to double the bank's capital. I said that nearly 37 per cent. of the bank's personnel were British, but I must explain that that figure refers to all grades—including support grades. The bank's location means that the support grades are likely to be British. However, 19 per cent. of senior and middle management posts are British, and the highest ranked United Kingdom staff are Nick Stern, the chief economist, and David Hexter, deputy vice president and head of the financial institutions team. The bank is well controlled. After adjusting for inflation, its expenditure has been constant for the past three years, and that record is one of which most institutions would be proud. I recognise that we must always ensure that the money is well spent. Most people regarded the bank's original expenditure as a disgrace, so the bank is particularly sensitive to criticism and is probably under more scrutiny than many other institutions. We can be confident that the bank is doing what it should in trying to improve the economies of the nations with which it deals. I am most grateful to members of the Committee for their assidous attendance.
Question put and agreed to.
Resolved, That the Committee has considered the draft European Bank for Reconstruction and Development (Further Payments to Capital Stock) Order 1996
Committee rose at ten minutes to Five o'clock.
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Hill, Sir James (Chairman)
Bruce, Mr. Ian
Fenner, Dame Peggy
Shaw, Mr. David
Townsend, Mr. Cyril D.
The following also attended, pursuant to Standing Order No. 102(5):
Flynn, Mr. Paul (Newport, West)
Gorman, Mrs. Teresa (Billericay)
Steen, Mr. Anthony (South Hams)