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West European Defence Agreements (Financial Commitments)

Volume 531: debated on Wednesday 27 October 1954

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With your permission, Mr. Speaker, and that of the House, I will make a short statement on the financial aspects of the agreements entered into at the London Conference, and formally confirmed last week in Paris. In rising for the first time in my new office, I hope I may be permitted to express my sense of the heavy responsibility which I have undertaken in following one of the great figures of the British Commonwealth and Empire, Field Marshal Lord Alexander.

There are three aspects of this matter. First, the effect of the end of the occupation. Second, the cost to our defence budget of keeping these forces in being and stationed abroad. Third, the effect on the balance of payments of their being posted outside the sterling area.

As to the first aspect, the agreements entered into in Paris mark the last and culminating stage of a policy which has been pursued by successive British Governments. When the agreements are ratified the occupation will cease and Western Germany will return to freedom and sovereignty. Naturally, this means that we cannot expect the Germans to continue indefinitely to pay for our Forces.

On the second point, the additional amount which will fall upon the defence budget in terms of money in the foreseeable future as the result of keeping our troops in Europe is not large.

Now I come to the third point—the effect on the balance of payments. Whatever we spend will, of course, have to be met in foreign currency. It is for this reason that the agreements provide that if the discharge of what we have undertaken to do puts too heavy a strain on our external finances, we can invite the N.A.T.O. Council to review the position.

Since, however, the present rate of payment by the Germans—namely, £50 million a month to all the allied Forces—continues until ratification, and since in the next 12 months' period Germany has undertaken to provide to all the Powers about £270 million, it will be seen that the financial effect will be correspondingly delayed. After the 12 months' period there are to be negotiations as to what further financial support will be forthcoming from Western German sources.

Finally, I should perhaps make it clear that the acceptance of our new commitment does not of itself impose a direct addition to defence expenditure at its present level. Our defence expenditure will continue to be determined in the light of all the political, strategic and economic factors year by year, and this new commitment will constitute one of the elements—admittedly a large and important element—for which the Government must allow in fixing the total figure.

While welcoming the fact that we now have a Minister of Defence who can make statements in the House of Commons, may I ask the right hon. Gentleman to give us rather more information in future? I should like him also to try to add a little more information this afternoon.

First, will the right hon. Gentleman say how much of the £50 million which the German Federal Government at present pays to all the allied Forces is received by our Government? Secondly, how much of the £270 million which the Federal German Government is to pay in the next 12 months will be received by our Government? Thirdly, is it the intention of Her Majesty's Government to press for a more equitable share of the burden which this new change imposes upon the Allies, or are we to be expected to take the whole strain of the reduction and eventual elimination of the German contribution?

I am grateful to the right hon. Gentleman for the questions he has put and the courteous way in which he has put them. The answer to his first question is that in the past, of the present total of £50 million a month, about one-quarter has come to this country. It is difficult to be precise as to exactly how much of this has been spent upon cash and how much is upon capital account; as the right hon. Gentleman probably knows, some of the expenditure has been in the nature of capital expenditure for long-term capital projects; but about one-quarter is our share. The answer to the second question is the same: about one-quarter of the £270 million will be available to us during the year that follows ratification.

In answer to the third question, I think I can do no better than to repeat what my right hon. Friend the Foreign Secretary said on Monday, when the right hon. Gentleman asked him the same question, and to say—I know that the right hon. Gentleman has great sympathy with this, because he took some part in it originally—that the problem of the defence burden which each member of the North Atlantic Treaty Organisation ought to bear in equity is always being considered by N.A.T.O., but that the annual review is more particularly the machinery through which an attempt is made to make that share as equitable as can be arranged.

May I ask one further question for clarification? Do I understand from what the right hon. Gentleman has said that we have been receiving support from the Germans to the extent of about £150 million a year and that since this will be reduced by about half in the next 12 months, the additional cost falling upon us will be about £75 or £80 million a year?

That is a perfectly fair question and perhaps I can answer it in this way. The share which we have received is something of the order of what the right hon. Gentleman has stated. Some of it is on cash account for current expenditure, and in recent years a very large part—almost half, I think—has been on capital projects. These capital projects are continuing; there is some carry forward to cover them, for the payments we have received have been in the nature of a vote on account, although perhaps not on quite the same system as our own. Therefore, part of the money is spent in cash and part is a credit which can be carried forward towards projects still under construction. In calculating what will in future fall upon us, we have to consider only the current cash payments for maintenance and not those large amounts for capital construction which is now largely completed.

I am sure the whole House will understand the difficulties that face the Government in making a more specific and detailed estimate of the charges that will fall upon the Exchequer, but I am sure equally that the whole country is anxious to know what those charges will amount to ultimately. When does my right hon. Friend think that he will reasonably be able to be more specific?

I have tried to differentiate between the character of the charges. In so far as the costs are costs of maintaining an Army or an Air Force, they have to be paid for anyway and I do not think anyone could expect that, whatever has been the agreement, the Germans should continue for long after the occupation ends to pay for our Forces. The more serious part of it is not the payment as such but the money which we have to pay in Deutschmarks. It is the balance of payments problem which, I would say, is more difficult than the actual cost, which we could not expect the German Government to continue to pay, for our Forces.

Will the Minister of Defence clear up an apparent discrepancy in his original statement? He said, on the one hand, that he did not think that the extra charge upon us would be large, but in the second part of his statement he evidently considered that it might offset our balance of payments. How could that be?

I will try my best to answer, but the right hon. Gentleman is such a learned economist that it is rather difficult. I think it is a fairly simple matter. I said that where we stationed our troops did not make very much difference to their cost in terms of money, although it might cost a little more to travel backwards and forwards. What mattered was in terms of the kind of money, that was the differentiation I tried to make. In terms of money it does not make very much difference, but in terms of the kind of money it does make a difference.

The Minister has told us that up to now the current cost of keeping our troops in Germany has been borne by occupation funds but included in that sum there have been certain capital payments. Can he tell us the amount for capital payment and the amount for current payment, so that we may know what we have to pay on current account for our troops? Secondly, can the right hon. Gentleman tell us about German servants? We under- stand that there are about 25,000 German servants in our employ, but paid for by the Germans. What is to be our intention with regard to those people. Thirdly, does he suggest that, at the end of the occupation, the capital payment will stop altogether and that there will be no further building and construction work?

Perhaps I may be allowed to say that one of the advantages of these arrangements, negotiated in London and Paris by my right hon. Friend the Foreign Secretary, is that we have first the period up to the ratification. Then we have a full year's period of payment. Then we have a further payment the amount of which and the period over which it will be paid has still to be negotiated. It would be very unwise for me at this moment to try to make an estimate of what will be the actual amount involved in regard to balance of payments. In terms of money, we shall do our best to save in every possible way.

Can my right hon. Friend, broadly, indicate to the House anything about the statistics from the German point of view? Will it cost them more or less than the cost of occupation to raise 12 divisions?

The hon. Member for Coventry, East (Mr. Crossman) asked a question of history. Cannot the Minister tell us now the total amount received in any recent year from the Germans in respect of occupation costs, how much was in respect of capital equipment and how much on current account? That should be susceptible of a simple arithmetical answer.

It is not really as simple as that, because, with some of these payments it is a question of whether we should charge it truly to capital or current account. Some of the capital expenditure we have incurred has not been for ourselves; some of these things have been built up and handed back to the Germans, or built by the Germans for one ally and handed to another. I repeat my statement that in recent years it was something of the order—and I shall not tie myself, because of the nicety of these calculations—of half and half.

When the right hon. Gentleman says that it is unwise to give an estimate now, does that mean that the Government has not any idea of the cost that will be involved?

I am still saying—and I think that the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), who is a former Chancellor of the Exchequer, sees my purpose—that in terms of money the additional cost of keeping these Forces in Germany will be very small. If one speaks in terms of the balance of payments, of course it makes a great deal of difference where we keep the troops. Now, of the sum at present spent on current account a large amount is in the hire of labour, and a large amount is in the purchase of goods and materials which we shall do our best to purchase from home. When we have to pay for them ourselves we shall make what saving we can.

I confess that I still find this very obscure. In view of the obscurity, may I ask the Minister whether, at any rate, he will make an effort to put in the White Paper a good deal of the information which has been asked for this afternoon, particularly such as relates to the past? May I also ask whether this really all boils down to saying that, unless we get some rearrangement of the burden, we shall have to meet an extra cost of between £75 million and £150 million a year, according to the period of time of which we are speaking? The Germans are at present paying £150 million; eventually they are to pay nothing, and presumably that burden falls upon us. Further, can the right hon. Gentleman say whether it is the intention of Her Majesty's Government to press in the councils of N.A.T.O. for some rearrangement of the burden which otherwise will fall upon us?

I must repeat that the right hon. Gentleman, being a fair-minded man, has put very clearly what I tried to say, and I shall try to answer him just as fairly. I say that these agreements make no substantial additional cost in regard to British Forces unless it were supposed that the British Army and Air Forces should be permanently maintained out of German funds and that there was a permanent occupation of German territory. Therefore, the answer is no. The commitment to station them in Germany will mean that there is an addition to the amount of money to be spent in foreign currency instead of our own, and that is really the main problem that concerns us.

With regard to the right hon. Gentleman's question about the burden on us I will, of course, give an undertaking, because it is part of the normal procedure. In the annual review of the N.A.T.O. Powers, of which, if this goes through, Germany will now be one, we shall try to get the best equitable adjustment of the burden between the now 15 Powers who will be carrying this joint responsibility.

The Minister, understandably, has concentrated mainly on the balance of payments question, but what puzzles me is the extra cost to the Exchequer which falls on the British taxpayer. I am not pressing for an immediate answer, but can my right hon. Friend tell the House when he thinks he will be able to give a more specific answer?

I will try to answer again as I have already done. The cost falls, not as a result of these agreements in particular, and certainly not as a result of the commitment to keep Forces in Western Europe, but as a result of some part of our military expenditure having been paid by our past enemies, and which we cannot expect them to go on paying indefinitely. What the cost amounts to is extremely difficult to disentangle, because of the method by which these payments were made.

From his last but one answer does the right hon. Gentleman now agree that whether the extra charge turns out to be £75 million or £100 million, it will fall on the British Exchequer as against the present position—it is a net addition to our own budgetary payments as well as a net addition to our balance of payments?

There will be over a year's delay before it happens. As I said at the end of my statement, we shall have to have regard to this consideration in fixing the total budgetary expenditure.

Could we not have a little more precision? The Minister has said that the total increase will not be very large. He then indicated that it will be £150 million a year, which is very large. Could he, therefore, say whether he expects the total eventual additional cost to be under £100 million or over? Could he further say whether the final increased figure is still subject to negotiation with the Germans themselves?

The hon. Member—I am sure unintentionally—misrepresented what I said. I said that the difference between the cost of the troops stationed and paid for in this country and their cost abroad was not very large—merely the cost of their travelling to and fro. With regard to the £150 million, I explained that a very large part of that was on capital account—perhaps nearly half in recent years. With regard to the rest of his question, since the whole of the period up to ratification is settled, the period for the year after that is settled, and the period for which German support will be given after the 18 months—or 14 months—is still subject to negotiation, it will, perhaps, explain my difficulty in making precise estimates, because an estimate would depend on the character of that negotiation.

Can the right hon. Gentleman give the House any comparison between the cost of the financial obligations to which he refers and the cost of the commitments into which this country had agreed to enter in the event of E.D.C. being ratified?

In the much narrower sphere of expenditure, I would say that there is no substantial difference in cost. The great difference was the moral effect of the commitment and the entry of Britain into Europe for the first time on this new and solid basis.

Does the right hon. Gentleman realise that we all understand that the main additional cost falling upon us is the result of the end of the occupation? That is perfectly clear. In view of the confusion which surrounds the subject, will the right hon. Gentleman put into the White Paper as much information as he possibly can, both about the past and the future in this matter?

I will willingly do so, because it will perhaps make it easier for these questions to be answered.

What puzzles me is why, with the exception of the former Chancellor of the Exchequer, hon. Members opposite do not know the basic facts when they negotiated the original terms.