Loans to Ireland Bill

There is a convention that multilateral loans, such as those involving the mechanism and the IMF, rank senior in any loan agreement. Let me reassure my hon. Friend that I have examined this with great care and interest. The convention is pretty clear and long-established in international law that multilateral loans are senior. That means principally the loan from the IMF, but also the loan from the European mechanism, which we stand behind, so it is also in our interest that it is repaid. However, our loan will rank pari passu with the eurozone and the other bilateral loans. That has partly shaped our judgment about the interest rate we will charge and the point at which we will start to disburse our loan. I shall come back to that. We expect full repayment to be made over the term of the loan. Clause 1(8) sets out that repayments of both the principal and the interest will go into the Consolidated Fund. We want the whole process to be as transparent as possible, so clause 2 creates a requirement for the Treasury to prepare and lay before Parliament every six months a report on any payments made by the Treasury by way of a loan to Ireland, any sums received by the Treasury by way of interest or repayment of such loans, and the amounts outstanding, in the period to which the report refers. As I have said, I welcome the agreement across many parts of the House about the need to make this loan, which is in our national interest. I thank the Opposition in particular for their support, and to reciprocate their co-operation I thought we should look favourably on their amendments. I therefore propose to accept in principle the Opposition's amendment 1, which would modify the Government's reporting requirements in relation to the bilateral loans. We have today tabled a more appropriately worded version of the amendment which achieves exactly the effect that the Opposition intended. May I explain to my hon. Friend the Member for Wellingborough (Mr Bone) that this is why there is a manuscript amendment? I am trying not to tempt him, because I am sure that he could speak for even longer, but I want to explain this point because he has raised his concern about it. The manuscript amendment has been drafted by the Government's parliamentary draftsmen in relation to an Opposition amendment that we propose to accept and it has exactly the effect that the Opposition sought. Let me update the House on the terms of the bilateral loan that we have now agreed in principle with the Irish authorities. I apologise that this information was not made available much further in advance, but the terms were agreed only this morning with the Irish Government and I wanted all Members of the House to have this information available to them. The loan will be drawn in eight tranches, each with a 7.5-year term. The length of the loan is in line with the terms of both the European and IMF loans. The first tranche of our loan will be available to be disbursed in September 2011, which is later than for some of the other tranches that are being drawn down from partners such as the IMF and the European Union. The interest rate charged on each tranche of the loan will be fixed specifically for that tranche. It will be set by adding a fixed margin of 2.29 percentage points to the appropriate market-determined interest rate—the sterling 7.5-year swap rate—at the time of disbursement. For example, at the present time, the estimated—I stress estimated—interest rate on the first tranche of the UK loan would be the sterling 7.5-year swap rate in September 2011, which on Monday stood at 3.65 percentage points, plus 2.29 percentage points. That would mean a hypothetical interest rate of 5.9% for the first tranche of the loan. The rate on our bilateral loan will be slightly higher than the estimated rate of 5.7% for the first tranche of the IMF and European mechanism funds, so we are charging a slightly higher rate of interest, but it is lower than the estimated 6.1% rate that the eurozone facility will charge on its first tranche of lending. That reflects the different costs of funding and is a measure of international confidence in the UK's public finances.