NEW CLAUSE.—(Only one borrower to provide financial means to carry out scheme.) (Hansard, 21 July 1924)

§ Mr. FRANKLIN
I beg to move, "That the Clause be read a Second time."
12.0 M.
I want to point out how important a part finance plays in the whole of this 1049 housing question. The Minister of Health may provide the labour and the materials, and may even build the houses, but if by means of competition the interest which has to be paid exceeds a certain percentage, then it is a case of good-bye to the whole scheme. We must remember that every quarter per cent. rise in the interest on the money that has to be borrowed means an extra sixpence per week in the rent of the house. Therefore every possible effort must be made to finance the scheme, both directly or on behalf of the various localities on the lowest possible basis. The basis on which the present scheme has been framed is somewhere between £4 13s. 6d. and £4 15s. per cent. On the last occasion when the Addison scheme was being put into operation, there was a big competition for money among the various local authorities. We ought to take warning from that. We do not want similar wrangling on this occasion. In 1920–21, when the arrangements for raising money was under consideration, one fairly large Cathedral town was offered the necessary cash at 5¼ per cent. It refused it at the then current rate, but finally had to pay between 6½ and 6¾ per cent., and I want to press on the Committee this point that that extra l½ per cent. involved an addition of 3s. per week to the rents. It is, therefore, very necessary that there should be as little competition as possible between those who want the money. The bigger towns and cities, with bigger and more important credit, will be able to borrow money at a reasonable rate, and the smaller local authorities will be left out in the cold unless something is done for them. Another lesson which we may draw from the past is the fact that a large number of local authorities were driven to borrow money at high rates. They either could not use the money, or else, having fixed the period for which the loan was to be made over a long period, substantial profit was given to those who provided the money. I will give an instance within my own knowledge. Money was raised by a locality not very far from Glasgow at per cent. for a period of 60 years. Within two years, 15 per cent. premium was paid to the lucky investor in the first instance: that is to say, £115 was paid for every £100 originally paid. In the present Budget there is 1050 provision for an amount of loss, because certain sums of money were borrowed by one local authority which wanted to pay back its loan, and the loss fell upon the Treasury.
I suggest that in any loan that is made the period should be not exceeding 40 years with a proviso that any time after 15 years that loan may be repaid, because 15 years is the period of the building programme and 40 years is the full period of the subsidy. There will be no difficulty in carrying out the proviso, and at the end of 40 years the local authorities ought to have been able to make such a sinking fund as will repay the whole amount. Given these conditions it is generally thought to be possible that, if there is no very great competition on the part of local authorities to secure the first money, a loan could be issued at 4½ per cent. running for 15–40 years, at a price somewhere between 95½, and 96, which would so operate that if the loan should be paid back after 15 years there would he a certain premium paid so that those who find the money now would not be or should not be in any way damaged. It has been asked whether it would be possible to arrange to borrow this money locally at lower rates. There is at present some borrowing by local authorities of small amounts of money at fairly low rates of interest. One local authority has been borrowing small amounts at 4½ per cent. and paying 4⅞ per cent. for a quarter of a million, and the possibility of various local authorities raising money themselves for their own special purposes has to be qualified by this, that a large number of the places which want houses more particularly are not the places where any large amount of money is pressing for investment, and you could hardly expect localities to have that sort of general love for other localities which would induce them to supply them with money at a lower rate than the current rate at which they can invest their money, and when you consider that labour is getting its full wage, that materials are being paid for at the full rate, and that contractors are getting the full amount which they ought to get you can hardly expect the investor to lend money at less than the current rates of interest.
1051 A suggestion which is possibly worth considering is that money might be raised at 4 per cent. provided that in some way or other by means of a drawing, those people who were lucky enough to have their number drawn should have the first call to the house. That would mean that the subscriber to a £5 security, bearing 4s. interest per annum, should be entitled to a share in the drawing for the privilege of having his houses first of all, and that this might induce people to lend money at a lower rate. The question of gaming, I should think, would hardly come into it because it would mean a decision as to which of those who were providing the money should get the house. It is said that if this were instituted nothing would be done for the discharged soldier or sailor, but if anyone were lucky enough to draw a nomination for the next produced house he could show his public spirit by making it over to the soldier or sailor. I will deal now with other possibilities. It has been suggested that, with a view to raising money somewhat cheaply, the money might be raised in America, but from my knowledge of the conditions in New York I can say that the New York market is hardly educated enough to take foreign loans even—

§ Sir W. JOYNSON-HICKS
On a point of Order. This is a Clause simply to enable one authority to borrow money to lend it to another, and there is nothing in this Clause which deals with nominations for soldiers or sailors, or with borrowing in America, and I submit that reference to these matters is out of Order.

§ Mr. FRANKLIN
May I point out that I am suggesting that there should be one borrower, and I am suggesting how that money could be borrowed at the lowest possible rate.
If any scheme is arranged—I hope one will be arranged—for the purpose of allowing the tenant-owner to purchase his house, then if we have a 15–40 loan, we shall enable the amount that goes to the sinking fund to be used at the same rate of interest as that at which the money is borrowed. The difference between a rate of 4¾ per cent. and the nominal rates of 4 per cent. and 3 per cent., is this: at 4¾ per cent. the house would be purchased by the tenant-owner for 1s. 8½d. a week; if 4 per cent. only were allowed for the 1052 sinking fund it would cost 25. 0½d. per week, and 2s. 6½d. would be demanded if the rate of 3 per cent. were paid. When we are discussing the question of the keeping down of the cost of money, we have to deal with the possibility of having only one authority. I know well that this will be opposed by some of the larger authorities. One of the largest has already said that it would help by borrowing for other authorities. On the last occasion, long after the time when the rate on money had gone up, we came to a sort of grouping under the Goschen scheme. I want this to be taken note of and to be done before we have succeeded in making the burden of the scheme something beyond what this particular rate would bear. I specially commend to the Treasury the utmost consideration of the one important factor, that the whole scheme must depend upon the rate at which money is raised, and that, therefore, any mismanagement of the financial clauses, whether on tile part of the Treasury or the local authorities will practically kill the whole effect of the Bill.

§ The FINANCIAL SECRETARY to the TREASURY (Mr. William Graham)
I regret that a new Clause of such importance has been reached at so late an hour. If I cannot say more than a few words about it, from the point of view of the Treasury, hon. Members will understand that that is not because we underrate its importance in any way. The point which my hon. Friend has in mind is the possibility of competition for money by the local authorities and others under this housing scheme, that the rates for the money will be forced up to such an extent as to impose an additional burden on the Exchequer, on the local authorities and on the taxpayers generally. I need not say it will be the object of the great majority of Members of the Committee, if not of all, to avoid a result of that kind which would impose a very heavy and unjust burden upon housing schemes. May I make it perfectly plain at this stage that the Clause which the hon. Member has put on the Paper, if inserted in the Bill, would not achieve the object he has in view because it is, I think, by common consent purely declaratory in form and does not provide the machinery necessary for carrying a purpose of the kind into effect. While making this statement about the Clause 1053 those who represent the Treasury owe a duty to the Committee to put the case from two points of view—first the point of view of a possible use of the Local Loans Fund in order to meet the difficulty and second from the point of view of a device similar to that of the Goschen Committee which was set up in 1920 to prevent certain abuses in the financing of the housing schemes then under discussion. With regard to the suggestion that there should be a wide extension of the Local Loans Fund, the Committee knows that it is only available in cases of authorities who have a rateable value not exceeding £200,000 and in the ease of Scotland, not exceeding £250,000. If any attempt were made to deal with this difficulty by way of the Local Loans Fund it is plain we should have to effect what would be virtually a revolution in that direction. It is quite true there have been certain large issues to replenish the Local Loans Fund because of housing and other demands, but if the limits of rateable value were taken away we should require to have a very large issue of stock to replenish that Fund in order to place money at the disposal of local authorities at some convenient rate. The whole principle of the Local Loans Fund in the past has been to make the Fund self-supporting as far as possible and the rate of interest to be charged must cover not merely the dividends on the 3 per cent. stock but also the cost of administration and other charges. Quite frankly, if the Committee asked for any Treasury advice on this proposal, I should say at once, that this is not the way in which to meet the hon. Member's proposal.
I come therefore to the second proposal, which is one I venture to recommend to the Committee. Hon. Members will recall that in 1920 a Committee was appointed, under the chairmanship of Mr. Goschen, to consider the general finances of housing schemes at that time and also to consider whether the Local Loans Fund should be extended to authorities which lay outside the limits of rateable value. That Committee was able to adopt the device of grouping local authorities in certain districts and arranging loans on the best terms which in those very difficult times were available. This problem is not nearly so simple as some hon. Members seem to think. In view of the 1054 difference of conditions among local authorities you have the varying securities which they are able to offer and above all you have the problem of grouping together local authorities whose financial outlook has differed materially in times gone by You can only work such a scheme with the co-operation and good will of the local authorities and I have no doubt whatever that on further examination this proposal would get the support of every hon. Member from that point of view. I, therefore, suggest to my hon. Friend who has proposed this Clause, that if he agrees to withdraw it, I will give an undertaking of an administrative arrangement which will be substantially similar to the Goschen Committee device in 1920–21, and, so far as we can secure their cooperation, group these local authorities, get the best financial terms we can possibly obtain, and so safeguard the Exchequer, the taxpayers and the authorities themselves against an abuse, which is admitted, and which we know to be a very real danger unless we take steps to prevent it.

§ Mr. FRANKLIN
On the assurance of the Financial Secretary to the Treasury, I ask leave to withdraw the Clause.