How cancelling 'made-up' debt could help the UK meet aid targets

Treating debt relief for Sudan as charity will allow aid targets to be met at no cost.

"The UK will not balance its books on the backs of the poorest," David Cameron told the G8 summit in May, reiterating his pledge to spend 0.7 per cent of national income on international aid by 2013. The International Development Secretary Andrew Mitchell has echoed this sentiment, saying it is "absolutely clear that we stand by this commitment". That may be -- but some political sleight of hand could help to meet this target.

Back in the 1970s, the UK government backed loans to Sudan to buy British exports. These commercial loans were given by the little known department UK Export Finance (formerly ECGD) winning business for Britain, and keeping Sudan on side during the Cold War.

However, floods and droughts in the 1980s, along with rising US interest rates, led to the country defaulting on its repayments to the western world. The bill outstanding to the UK was £173 million.

Over 25 years later, the claimed debt has now risen to £678 million, and is increasing by £20 million a year. This huge increase is due to notional interest rates of 10-12 per cent being charged every year on the original debt.

The debt claimed from Sudan is effectively made-up money. Yet it could help the UK meet aid targets in the years ahead.

In June, South Sudan gained its independence. The north of Sudan has agreed to keep all the debt, so long as it is allowed to enter an international debt relief scheme within two years.

If and when Sudan achieves debt relief, the UK will "cancel" the debt. Given no repayments have been received for a quarter-of-a-century, this will cost nothing. The government then intends to treat this cancelled debt as aid, and count £678 million -- or whatever figure has been reached by then -- as a contribution to meeting the target to spend 0.7 per cent of national income on aid.

Counting debt relief as aid is nothing new. In the years following the invasion of Iraq, the UK cancelled 80 per cent of the debt inherited by Iraqi people from Saddam Hussain. The cancellation was counted as aid even though the UK loans had included money for Saddam to buy weapons and parts for a chemical weapons factory.

However, the reduction in Iraq's debt, as well as that of Nigeria, did not count towards meeting aid targets. Under current plans, any debt reduction for Sudan will too.

The UK's approach reinforces a narrative that all debts have to be paid, and it is an act of great charity and benevolence on the part of creditors to cancel them. But questions need to be asked about the origin of loans, and responsibilities of lenders as well as borrowers.

In Sudan's case, the UK government says it does not even know what the original loans to dictator Gaafar Nimeiry were for. The government could learn the lessons of past failed lending by implementing Liberal Democrat policy to audit all debts, something Vince Cable, the minister responsible, has so far not been minded to do.

But in Sudan's case, we know the loans from UK Export Finance were driven by Britain's own commercial interest to win contracts and strategic interest in the Cold War. The repayments then became too high because of drought, flood and global economic crisis. The debt was too big in the 1980s and as with all debts that are too big, needed to be repudiated, cancelled or reduced. Instead the debt was kept on the books and inflated by ridiculous interest rates.

In total, Sudan is said to owe $12 billion to western governments. Mostly due to the same high interest rates charged by the UK. If and when this is formally cancelled, if it is all used to meet aid targets, it could knock 12 per cent off official aid for one year.

Treating debt relief as charity will allow aid targets to be met at no cost. It will also sweep under the carpet a history of bad lending, allowing the same mistakes to be made again.

Tim Jones is policy officer at the Jubilee Debt Campaign

Tim Jones is policy officer at Jubilee Debt Campaign. Jubilee Debt Campaign is part of a global movement demanding freedom from the slavery of unjust debts and a new financial system that puts people first.

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Everyone's forgotten the one issue that united the Labour party

There was a time when Ed Miliband spoke at Momentum rallies.

To label the row over the EU at Thursday’s Labour leadership hustings "fireworks" would be to endow it with more beauty than it deserves. Owen Smith’s dogged condemnation of John McDonnell’s absence from a Remain rally – only for Corbyn to point out that his absence was for medical reasons – ought to go down as a cringing new low point in the campaign. 

Not so long ago, we were all friends. In the course of the EU referendum, almost all of the protagonists in the current debacle spoke alongside each other and praised one another’s efforts. At a local level, party activists of all stripes joined forces. Two days before polling day, Momentum activists helped organise an impromptu rally. Ed Miliband was the headline speaker, and was cheered on. 

If you take the simple version of the debate, Labour’s schism on the EU appears as an aberration of the usual dynamics of left and right in the party. Labour's left is supposedly cheering a position which avoids advocating what it believes in (Remain), because it would lose votes. Meanwhile, the right claims to be dying in a ditch for its principles - no matter what the consequences for Labour’s support in Leave-voting heartlands.

Smith wants to oppose Brexit, even after the vote, on the basis of using every available procedural mechanism. He would whip MPs against the invocation of Article 50, refuse to implement it in government, and run on a manifesto of staying in the EU. For the die-hard Europhiles on the left – and I count myself among these, having run the Another Europe is Possible campaign during the referendum – there ought to be no contest as to who to support. On a result that is so damaging to people’s lives and so rooted in prejudice, how could we ever accept that there is such a thing as a "final word"? 

And yet, on the basic principles that lie behind a progressive version of EU membership, such as freedom of movement, Smith seems to contradict himself. Right at the outset of the Labour leadership, Smith took to Newsnight to express his view – typical of many politicians moulded in the era of New Labour – that Labour needed to “listen” to the views Leave voters by simply adopting them, regardless of whether or not they were right. There were, he said, “too many” immigrants in some parts of the country. 

Unlike Smith, Corbyn has not made his post-Brexit policy a headline feature of the campaign, and it is less widely understood. But it is clear, via the five "red lines" outlined by John McDonnell at the end of June:

  1. full access to the single market
  2. membership of the European investment bank
  3. access to trading rights for financial services sector
  4. full residency rights for all EU nationals in the UK and all UK nationals in the EU, and
  5. the enshrinement of EU protections for workers. 

Without these five conditions being met, Labour would presumably not support the invocation of Article 50. So if, as seems likely, a Conservative government would never meet these five conditions, would there be any real difference in how a Corbyn leadership would handle the situation? 

The fight over the legacy of the referendum is theatrical at times. The mutual mistrust last week played out on the stage in front of a mass televised audience. Some Corbyn supporters jeered Smith as he made the case for another referendum. Smith accused Corbyn of not even voting for Remain, and wouldn’t let it go. But, deep down, the division is really about a difference of emphasis. 

It speaks to a deeper truth about the future of Britain in Europe. During the referendum, the establishment case for Remain floundered because it refused to make the case that unemployment and declining public services were the result of austerity, not immigrants. Being spearheaded by Conservatives, it couldn’t. It fell to the left to offer the ideological counter attack that was needed – and we failed to reach enough people. 

As a result, what we got was a popular mandate for petty racism and a potentially long-term shift to the right in British politics, endangering a whole raft of workplace and legal protections along the way. Now that it has happened, anyone who really hopes to overcome either Brexit, or the meaning of Brexit, has to address the core attitudes and debates at their root. Then as now, it is only clear left-wing ideas – free from any attempt to triangulate towards anti-migrant sentiment– that can have any hope of success. 

The real dividing lines in Labour are not about the EU. If they were, the Eurosceptic Frank Field would not be backing Smith. For all that it may be convenient to deny it, Europe was once, briefly, the issue that united the Labour Party. One day, the issues at stake in the referendum may do so again – but only if Labour consolidates itself around a strategy for convincing people of ideas, rather than simply reaching for procedural levers.