International Debt

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 14th January 1988.

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Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington 12:00 am, 14th January 1988

To ask the Chancellor of the Exchequer what initiatives he is taking with Finance Ministers of creditor countries to address the re-scheduling of a share of the debt of Latin American countries.

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

The United Kingdom will continue to play its part, along with other creditor countries, in rescheduling its share of developing countries' official debt at the Paris Club. As for commercial debts, that is a matter for the banks and countries concerned.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

But is it not true that at the end of the day the bill for Third world debt written off by the banks may well be paid by the taxpayer, as banks write off losses against profits? If that is the case, does it not mean that the taxpayer may well be paying for ill-considered and unnecessary projects in some Third world countries? And, if that is the case, would it not be better to spend public money, taxpayers' money, in another way by simply increasing the amount of money available for Third world aid?

Photo of Peter Lilley Peter Lilley The Economic Secretary to the Treasury

The hon. Gentleman misunderstands the nature of tax relief. If banks or other companies fail to make a profit, they do not pay tax. No money is handed out by the Treasury to them, and therefore there is no money available that is now going to them that could instead go to underdeveloped countries.

Photo of John Redwood John Redwood , Wokingham

To ask the Chancellor of the Exchequer what responses he has received to his 1987 initiative to deal with the problem of developing countries' debt.

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

My initiative has been widely welcomed. Many countries have followed the United Kingdom's lead in converting past aid loans to grants and the Paris Club has agreed to several extended reschedulings of official debts. I am continuing to press for interest rate reductions on such reschedulings. Following my initiative, the managing director of the IMF launched a separate proposal for interest rate assistance with these countries' multilateral debts via an expansion of the fund's structural adjustment facility.

Photo of John Redwood John Redwood , Wokingham

While welcoming the excellent initiative of the Chancellor, may I ask him whether he agrees that the World Bank and the International Monetary Fund should go much further in expediting progress in this area by themselves writing off and making adequate provisions against the debts which they are putting on their books at unrealistic levels?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I think that the international institutions, which are backed by Governments, are in a very different position from commercial banks, which have to make sure that, if there are bad or doubtful debts, provision is properly made for them. It is, indeed, a matter of importance to the supervisory authorities in this country and other countries to ensure that that is done. I welcome what the commercial banks have been doing in this regard.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee, Vice-Chair, Labour Party

Is not the truth of the matter that in this financial year the amount of money that will be set against income tax relief in respect of the four main banks in Britain will be of the order of £1,000 million? Will the right hon. Gentleman also confirm that in the next financial year it is proposed that those debt provisions will rise even beyond that figure? Since the British public is of the view that we ought to be helping Third world countries, would it not make sense for the Chancellor of the Exchequer to allow money to go to Third world countries to bail them out, instead of bailing out the British banks?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I am sorry that the hon. Gentleman has wasted the time of the House by asking precisely the same question, based on precisely the same conception as his hon. Friend the Member for Workington (Mr. Campbell-Savours) asked, and which was answered by my hon. Friend the Economic Secretary. If a bank lends money to any borrower, whether an industrial customer or an overseas sovereign Government, and it turns out to be a bad debt, obviously there is tax relief on the bad debt. That is the law of the land. Equally, if, at the end of the day, the debt is paid, the tax relief in unwound.