§ (1) For the purpose of local loans there may be issued by the National Debt Commissioners the following sums, namely:—
- (a) For the purpose of loans by the Public Works Loan Commissioners any sum or sums not exceeding in the whole the sum of five million pounds;
- (b) For the purpose of loans by the Commissioners of Public Works in Ireland any sum or sums not exceeding in the whole the sum of six hundred thousand pounds.
§ (2) The sums so issued shall be issued during a period ending on the day on which a further Act granting money for the purposes of those loans comes into operation and in accordance with the provisions of the National Debt and Local Loans Act, 1887.
§ Sir F. BANBURY
This Clause authorises the expenditure, or rather the borrowing, of £5,000,000 of money for the purpose of the Public Works Loan Commissioners and the borrowing of £600,000 by the Commissioners of Public Works in Ireland. This £5,000,000 of money is borrowed by the Public Works Loan Commissioners, and is lent by them to the local authorities. I do not know whether there are any Members of this House who will agree with me, but I most strongly object to this borrowing of large sums of money by the Government or the State and the lending of it to local authorities. What happens? The local authority, not being able to borrow money in the market, because they have already borrowed a great deal too much, comes down to the Local Government Board and asks them to borrow money and lend it to them. When the local authority's finances are in a good position and they can borrow cheaply they go into the City to do so. Everybody knows what is going on. But when their finances have got into such a state that they cannot borrow or have to pay a high rate of interest, then they come and ask the Government, sub silentio, to lend them the money. The result is that investors do not know what is going on. I am well aware that the Local Loans were instituted 816 by Lord Goschen and my side of the House, but another point which ought to be brought out is that the Government will go into the Money Market, borrow this £5,000,000 at 3 per cent., with the result that Consols will be depreciated. The Government therefore depreciate their own securities in order to encourage local authorities in their reckless extravagance. My hon. Friend opposite (Mr. Gibson Bowles), in a very interesting pamphlet he wrote on the financial position of the country, pointed out that the debt of the local authorities had increased, I think, from 1900 to 1906, from £274,000,000 to something like £576,000,000 sterling. Therefore I think that the Treasury ought to put some check upon this continuous borrowing by local authorities. Five million pounds is a very large sum to apply for at the present moment, and though I do not intend to move an Amendment, I think we ought to get some assurance that this system of lending large sums of money to local authorities will not be repeated.
§ Mr. GIBSON BOWLES
I very much agree with the hon. Baronet, and I will go farther. I think the local authorities have since 1898 entered upon a course of borrowing the like of which was never known when they were issuing their own stock and getting good prices, and when these issues had been made trustee securities. I think we require to reconsider the old system under which we had Commissioners to lend small sums of money to corporations and others. All the more so as it appears in this Bill that these Commissioners do not always take sufficient care that their securities shall be good. The Committee must remember, when they authorise these Commissioners to borrow this £5,000,000, what they are authorising the Commissioners to do. I hope I may appeal to the Secretary to the Treasury to reconsider the whole system of these loans. All I would suggest is that the time has arrived when the question should be asked whether the time has not arrived when the Loan Commissioners ought to discontinue doing business for the local authorities.
§ Mr. HOBHOUSE
I think the House should know in regard to the statement made by the hon. Baronet opposite that the Public Works Loan Commissioners are persons entirely independent of the control of the Treasury. All they have to be satisfied upon is that the security for 817 which the particular money is advanced is ample to cover any loan that is contracted I do not think there is any damage to the public credit or public purse by the loans made under this system. As a matter of fact, there is an annual profit—I forget how much—realised, which in the end more than repays the amounts which are lost from time to time. My hon. Friend behind me (Mr. Gibson Bowles) also said a word or two against the principle, but I confess I see no reason why, if the public credit is good, public authorities—harbour trusts and so forth—should not take advantage of that credit in order to get money as cheaply as possible for works of public utility. The amount asked for every year is considerably in excess of any amount taken during twelve months. We never know how much we will require. As a matter of fact, last year we took credit for £4,000,000, but we lent only £3,000,000. The year before we took credit for £3,000,000, and lent out £2,750,000. We think that this year the demands upon us will be a little more than formerly, and that is why we have asked for £5,000,000.
§ Mr. NIELD
The observations of the Secretary to the Treasury do seem to me to indicate that we ought to have some knowledge of what these loans consist. If the Treasury have no Parliamentary control they ought to have particulars furnished to them from time to time. Is it the case that loans are made to others than local authorities? If that is the case I submit that the Treasury should have some control, particularly in view of the passing of last year's Budget which has so materially affected the security for these loans. In the case of any companies or societies interested in the development of land the Treasury should see at once what is the condition of security afforded to the Public Works Loan Commissioners. If one's information is not wrong there is ample ground for fearing that the operation of the Budget has seriously depreciated that kind of security and, indeed, that we may find ourselves personally asked to indemnify the Loan Commissioners in very considerable sums of money in respect of advances made because the Treasury have no control.
§ Mr. C. BATHURST
I should like to ask whether I am right in supposing that this is the main source from which loans are being made to county councils in order to enable them to acquire land for purposes of small holdings.
§ Mr. HOBHOUSE
No; I do not think so. I have no information of the facts and I am afraid I cannot answer the question off-hand. As a rule the loans are made for the purposes I have indicated. Money is also borrowed by the Territorial Associations and under the Housing of the Working Classes Act.
§ Mr. C. BATHURST
The matter appears to me to be rather important, because I am not aware that the county councils are obtaining advances of money locally for this purpose. It seems to me there is no other source from which they can obtain their loans. In any case there is a great development of small holdings at the present time, and an increasing amount of land is being purchased by county councils, with borrowed money for this purpose. If that is so, I am sorry to say it, but it does not appear to me that there is ample security for these loans, and if the security is considered ample today, there is everything to show that it will not be ample security in the future. With a steady increase not merely of taxes upon the land, but of rates, about which increase unfortunately we seem to have so very little sympathy from urban representatives, it seems to me that the capital value of this security is likely to go steadily down in future, and is becoming seriously depressed at present. Of course, if the right hon. Gentleman says that it is not the source from which county councils obtain their money for this purpose, I shall be satisfied, but I rather think it is the source from which most of them obtain it.
§ Mr. HOBHOUSE
I will find out if they get their money from that source. The Public Works Loan Commissioners are the sole authority for deciding whether or not there is security behind the loan. That frees them from any suspicion of Treasury or political control. It is a purely business proposition. If they are satisfied that it is good security they make the advance. If they are not, they refuse it. They are all men of great capacity and knowledge of affairs.
§ Sir F. BANBURY
I am aware that, as the law now stands, it is very difficult for the Treasury to refuse the request of these Commissioners. The object of my remarks, and I have made them for three or four years, has been to endeavour to induce the Treasury to make a change in the law, or, at any rate, to suggest to these Commissioners that for the moment 819 sufficient money has been advanced by the Treasury. Of course, it is perfectly correct to say it is difficult for the right hon. Gentleman to do that at the present moment. He does not tell me that there are no means of impressing on the Commissioners, even without an alteration of the law, the fact that owing to the gnat extravagance of the Government, and the enormous expenditure of all local authorities, it is expedient for the moment rather to restrict the operation of borrowing. If the Treasury were to say, "We consider it is against the national interests to find this money," in all probability these gentlemen would say, "Under these circumstances we shall not sanction the loan." Even if they did not do that there is plenty of opportunity for making a change in the law, and giving the Treasury some power to say, "We do not think the finances of the country are in such a state that large sums ought to be lent upon these securities, and that the nation should be put in the position of having continually to go into the Money Market to borrow money." The right hon. Gentleman is mistaken if he thinks I was not aware that no doubt there is profit—that is to say, they lend at a higher rate than that at which they borrow, but that does not touch my point about the depreciation of Consols by the constant borrowing of local loans at a higher rate than Consols pay. That is a different point altogether. Whether or not they make a profit, which I believe they do, and possibly make up for the losses sustained on Irish land purchase that does not touch my point that the borrowing of money to return interest at about 3¼ per cent., which they are borrowing at now, must depress Consols, which only return 2½ per cent.
§ Mr. JOHN GRETTON
If I understand the right hon. Gentleman aright, the House and the Treasury find themselves in this very remarkable position, that they have no control over the operations of these Commissioners, and they are absolutely free and unfettered agents. However responsible they may be to their consciences, they are not responsible to the Treasury or the House or the Government. I can conceive no matter of higher public interest or more importance to be under the control of the Government of the day than the general financial policy of this country, and it cannot be surveyed as a whole unless the operations of local loans are taken into consideration. I 820 emphatically agree that that state of things is extremely unsatisfactory, and the sooner the policy in the matter of local loans can be brought under the control of the Government of the day and of this House, so that it can be checked, if necessary, in the public interest, the better it will be for all concerned.
§ Clause 2 added to the Bill.