§ Order for Second Reading read.
§ 4.27 p.m.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. W. S. Morrison)I beg to move, "That the Bill be now read a Second time."
1158 I am aware that there are on the Order Paper certain items of more general interest to hon. Members than this Bill, which provides for the continuance of one of the organs of the State which serves a well recognised and generally useful purpose, so I will try to confine my observations to the minimum in length, and invite hon. Members who wish to raise any points on the very wide area which this Bill necessarily covers to put those points to me later or on the appropriate Committee stage. Hon. Members are acquainted with the general idea of the Local Loans Fund, which was set up by the National Debt (Local Loans) Act, 1887, with Commissioners empowered to lend money for certain purposes. Generally speaking, the loans are made to local authorities—the smaller local authorities. If I might try to compress the function of the Board into a phrase I would say that the Board is intended to make loans to those smaller local authorities who, speaking generally, would find it difficult to come into the money market for small loans. The larger local authorities raising larger sums can look after themselves but there are always obstacles to smaller local authorities with a low rateable value, because of the expenses of promotion, under-writing and so on, in the way of obtaining a relatively small sum. This is the purpose that the Local Loans Board was intended to fill.
The general role of the Board is to make loans to local authorities whose rateable value is not more than £200,000 or in Scotland £250,000. There is no discrimination there against Scotland. The difference is due simply to the fact that the valuation in Scotland is a gross one whereas in England it is a nett one. To the principle that the Board looks at the rateable value of the authority before making a loan there are numerous exceptions into which I need not go at this moment, unless any hon. Member requires information on a particular point in that connection. In particular, a local authority can borrow from the Local Loans Fund up to one-half of the gross proceeds of the sales of savings certificates in their area in the twelve months preceding the month in which the loan is made, regardless of the rateable value. There are other exceptions imposed by statute which enable the fund to lend money without that qualification for a 1159 purpose like the acquisition of small dwellings, certain educational and housing purposes and matters of that sort.
As to the finance of the scheme, it is sufficient to say that the money is found by the Board by the issue of local loans stock, of which there is a very large amount in existence. This stock was issued at 3 per cent. in the days when the Board was first constituted, and when 3 per cent. was considered the ordinary yield. It is all 3 per cent. stock. In the Finance Act, 1935, power was taken by the Government, the Treasury and the Board to modify this rate in order to try to take advantage when an opportunity presented itself of the very low rates of interest now prevailing, and certain provisions of the Bill are concerned with that matter. Having given that general description of what the fund does and how it is financed I might invite hon. Members to look at the Clauses.
Clause 1 sets out the names of the Commissioners. That is necessary in this case because the Commissioners are appointed for five years. The present Commissioners were appointed in 1930 and hon. Members will see from the Clause that their period of office expires five years from 1st April, 1931. The Clause is necessary to secure their reestablishment as Public Works Loan Commissioners. The Commissioners receive no emolument for their services. They are all gentlemen of distinction and experience who can advise as to the investment of money that comes in, and as to the practicability of any proposals for loans that are made to them.
Clause 2 states the amount which the National Debt Commissioners can issue for the purpose of loans by the Public Works Loans Commissioners, not exceeding £20,000,000. It might not be clear to the House that that maximum exists only until another Bill of this character is brought before us. The figure does not remain for all time, but is thought at the present time to be a proper sum, having regard to the calls likely to be made. Clause 3 deals with a feature of nearly every borrowing and lending institution, in which you sometimes have bad debts. The original Act setting up the Commissioners, in 1887, provided that loans should be written off as assets of the fund and hon. Members will see 1160 in the Schedule the loans which are there proposed to be written off. That does not mean that the debtors are relieved of liability, but that the debts are taken over by the Exchequer. It means that the fund can no longer show as assets the sums due from the debtors and mentioned in the Schedule, but the debtors still remain liable to the Exchequer, and the accounts of the fund are corrected to that extent. The assets which are irrecoverable debts do not figure as assets.
It is sometimes the case that it is necessary to go a little further and actually to remit a debt altogether. That is to say that the debt becomes no longer due either to the Exchequer or to the fund. There is one of these in the Bill, the case of Eyemouth Harbour. The circumstances are set out in the Financial Memorandum attached to the Bill. The security for the loan in this case was the surplus herring brand fees mentioned in the Schedule, but we are advised that the hope of obtaining any of those surplus herring brand fees is so remote as practically to have disappeared altogether. Clause 4 remits this debt. Those debts covered by Clause 3 are no longer to be shown in the assets of the fund, but are due to the Exchequer.
I come to Clause 5, which hon. Members might think is a very formidable one. It is a matter of some complication, and it is better described in general terms as an attempt to simplify the accounting of the Fund. Perhaps I may try to indicate briefly what the Clause does and how the procedure arose. The original Act of 1897 provided that if the income account of the Fund showed a surplus, that surplus should be carried to a separate account to be applied as Parliament might direct; or, if there were no direction, the money might be reinvested, or accumulated and used as material for fresh advances by the Fund. The purpose of that in 1887 was that Parliament should keep in suspense any surplus income that came into the Fund so that Parliament might have control over it and apply it either to further loans, or to recouping the Exchequer for loans, or for any other such purpose. Hon. Members will see on the capital side of the Account that one great cause of loss is created by the discount at which it is from time to time found necessary 1161 to issue stocks on the market. They are three per cent. stocks, and in the days before the war the "sweet simplicity of the three per cents." was considered very reasonable. The loss on the capital side of the Fund was not great, and the separate account was a very convenient piece of machinery enabling the surplus funds to be dealt with in the manner I have described.
The years which have succeeded the war have, of course, created an entirely different picture, and the rates of interest prevailing have been much higher than three per cent. In order to get three per cent. stocks on to the market it was necessary to issue them at a very large discount. For example, the issue in 1921 was at 52 and the issue in 1922 was at 57. In these circumstances, it has been thought necessary to credit any such surplus to the capital account of the Fund because the existence of the separate account creates a false picture. You have an item of surplus income in the accounts which is in no true sense indicative of a surplus. Such sums will he applied to maintaining the solvency of the capital sum and the intention of the Clause is to abandon the separate account which, in the present state of the Fund, presents a misleading picture. The surplus account will be carried to where it really belongs, the deficiency on the capital side.
That is a very general description of the purpose of the Clause. If hon. Members look at the Sub-sections in detail they will see that that purpose is carried out. Sub-section (1) deals with a silghtly different matter. The Act of 1887 fixed at 2¾ per cent. the minimum rate of interest for loans paid out of the Fund. The happy conditions that prevail at present render the retention of such a minimum inadvisable. It may be possible to issue loans at a lower rate than that statutory minimum, and hon. Members will see that if the provision is allowed to stand for a minimum rate of 2¾ per cent. and if the money market enables borrowers to get loans at a still lower rate of interest than 2¾ per cent., the whole purpose of the fund will be gone. There would be no inducement to any one to apply to the Fund if they could get their money more cheaply in the market. As the purpose of the Fund is to enable small local authorities to obtain 1162 their resources easily, we deem it prudent at this stage to take power to have the minimum abolished, so that the very best service in the way of cheap money may be given to local authorities out of the Fund.
Sub-section (1) deals with that matter. The remaining Sub-sections deal with the matter to which I have previously alluded. Sub-section (2) repeals the provisions of the Act of 1897 which set up the separate account, and brings the surplus income of the Fund into the capital account. Sub-section (3) does the same thing for capital in the separate account.
§ Mr. MacLARENThe hon. Member stated that debtors, whose loans were written off the assets of the local loans fund, would not pay back the loans into this account and that they would be liable to the Treasury. How would the payment be made to the Treasury?
§ Mr. MORRISONThe two things would in no way clash. The fact that the debtors who are mentioned in Clause 3 of the Bill are still liable to the Treasury is a different matter from the way in which the accounts will be kept. The hon. Member will see that the Sub-section with which I was dealing makes no difference in the liability of the debtor but merely proposes a simple change in the way in which the accounts are kept.
§ Mr. MacLARENMy only point was as to whether, should there be some surplus in the Fund, it will be given back to the Treasury to make up for losses.
§ Mr. MORRISONNo. If there is any surplus coming in to the fund, it will go into the fund itself on the capital side. The two things are not in any way inconsistent. Sub-section (4) does the same thing with regard to securities as the two previous Sub-sections do with regard to surplus income and cash in hand. Sub-section (5) is merely for the purpose of settling a small question of interpretation. I am told that there is some difference of opinion as to how the original Act should be construed in regard to whether or not the National Debt Commissioners should be able in their discretion to cancel stock, and the Sub-section is a declaratory sub-section.
§ Mr. ALBERYMy hon. and learned Friend has mentioned £15,000,000 as the amount in the surplus income account. Can he say what the amount of the surplus income account was at the end of the last accounting period?
§ Mr. MORRISONI cannot say, as I have not the figure by me. Turning to Clause 6, the Chancellor of the Exchequer made a statement in his Budget Speech with regard to this matter. It is hoped to take advantage of the present conditions of credit in order to try to make some remission, not only in the case of future loans, but in the case of those existing loans which have been issued at some higher rate of interest. Of course the possibility of doing that depends entirely on the solvency of the Fund and on the conditions prevailing at the time. If suitable conditions present themselves, we shall try to do that, and in that case we want the relief to go to the ultimate borrower. The position is that local authorities which borrow from the Fund are frequently merely conduit-pipes for some private borrower who borrows from them. That occurs, for instance, under the Small Dwellings (Acquisition) Act, where a man can get a loan from the local authority to purchase his house, and the local authority itself can borrow money from the Local Loans Fund.
§ Mr. MARSHALLIs it certain that any relief that may be given to local authorities will be passed on to the ultimate borrower?
§ Mr. MORRISONI am trying to explain that that is what Clause 6 does. The object is to make sure that any such relief does get down to the man who ultimately borrows the money. Sub-section (1) says:
If a reduction is made under section thirty-one of the Finance Act, 1935, in the rate of the interest payable on a loan made out of the Local Loans Fund, the proceeds whereof have been used for the purpose of making a further loan in pursuance of powers conferred by or under any enactment, the like reduction shall be made in the rate of the interest payable on that further loan";and Sub-section (2) goes on to say:(2) Where the rate of interest on a loan is reduced under the said section thirty-one or the last foregoing subsection—(a) any mortgage deed relating to the loan shall have effect as if it provided 1164 for payment of interest at the reduced rate for the period in respect of which the reduction is made.In other words, it is provided that any contract or mortgage entered into by a private borrower from a local authority shall, if the rate of interest on existing loans is reduced, be read as if the rate of interest was the reduced rate and not the old rate, so that the ultimate borrower will get the benefit of any reduction. I am sure the House will consider that that is a wise and just provision, because no one would like the advantage to go to the middleman. I have done my best to lay before the House shortly the provisions of the Bill. There is nothing very strange in it; it follows the usual course of these Bills. The only new matters are, first, the simplification of accounts, which I commend to the House as having the advantage that it presents a clear and not a misleading picture of the state of the Fund's finances at any given time, and, secondly, the anticipation of that happy day, which we hope may arrive, when it may be possible to take advantage of the prevailing conditions of credit to lighten the burden of interest charges on these loans.
§ 4.51 p.m.
§ Mr. PETHICK-LAWRENCEIn common with other Members of the House, I have listened wth much interest to the lucid exposition of the Bill which has been forthcoming from the Financial Secretary. We thank him for it, and also particularly for the new provision to which he referred in the latter part of his speech, and on which I shall have a further word to say later. The present Bill, of course, repeats the usual features of Bills of this kind, and from that point of view it is in the main entirely non-controversial. Members in all quarters of the House would naturally regret it very much if anything happened to prevent this annual Bill from finding its way on to the Statute Book. With regard to the usual provisions, I have only two questions to ask. The first is, can the Financial Secretary, or whoever is going to reply, tell us how much stock has been issued since the last Public Works Loans Act was passed; and the second is, can he form any judgment as to how long the £20,000,000 now asked for will last in order to achieve the purposes of the Fund?
1165 The main interest of the present Bill lies in the unusual features which it contains. In the first place, it proposes to create a fresh board for the following five years. That, of course, is only unusual in the sense that it happens every five years instead of on every occasion when the Bill is introduced. I should like to ask the Financial Secretary, has he considered whether the present basis of the Board fully covers all the persons who are concerned in this matter, or does he think some additions might be made still further to widen its scope? Possibly some of my hon. Friends may wish to move the addition of one or two names at a later stage of the Bill.
Coming to the first of the two major alterations which are contained in Clause 5, it is certainly refreshing to realise that we are getting away from the high rates of interest which have delayed public development in many respects during the last two decades, and that we are getting back to the low rates of interest that were considered natural and usual in the latter years of the last century, and, if I remember aright, nearly up to the date of the War. In that connection, dealing still with Sub-section (1) of Clause 5, I should like to ask the hon. and learned Gentleman what is the precise rate of interest that is being charged to borrowers at the present time. It has to be slightly over the yield of local loans at the time, so I suppose it is possibly about 3¼ per cent.
§ Mr. W. S. MORRISONIn most cases it is ¼per cent. over the yield.
§ Mr. PETHICK-LAWRENCESo that it is probably about 3¼ or 3½ per cent. at the present time, and we are still, therefore, I am afraid, a little way from going below the figure of 2¾ per cent. We all hope that 2¾ per cent. will not only be reached during the continuance of the Bill, but that this Sub-section will actually be called into play, and that it will be possible to issue loans at rates below that figure. So far as Sub-section (2) of the Clause is concerned, the matter, of course, is somewhat complicated, but I think the Financial Secretary gave us a very lucid account which enabled us to understand what is taking place.
As I have already said, we welcome more particularly what I gather to be the hope, if not the immediate intention 1166 of the Treasury in connection with Clause 6. The complaint has been made for a long time past—a very natural and proper complaint—that, when new borrowers could get loans at a very low rate of interest, old borrowers were still subjected to this very severe tax on their resources, and, although the explanation of the Treasury was in some ways complete, there was, I think, a feeling in all sections of the House that, if a way could be found through these difficulties, it would be of very great advantage. I do not know whether it is the expectation of the Financial Secretary, but at any rate he appears to entertain the hope, which I trust may be realised, that it may be possible as time goes on to implement the proposals of which he gave us an indication. I should like to know if he can tell us—I think the figure was given the last time this matter was discussed—what is the total amount of the loans on which the rate of interest is over 5 per cent., and what is the longest period for which they have to run. I do not suppose he is in a position to tell us what reduction he hopes to be able to make; it is perhaps too early yet to say; but we shall be glad to hear anything further that he is in a position to tell us on this extremely important point.
There is one point in that connection on which I should like a little more information. If I remember aright, the last time this matter was discussed it was pointed out that, of these high-rate loans, a very considerable part related to the Housing Act, where the Exchequer itself has to pay a great part of the expense, because the burden falling on the local authorities is limited to a penny rate. I was not quite sure, from what the Financial Secretary said in reference to Sub-section (1) of Clause 6, what would be the position with regard to those loans. Is the result of this Sub-section mainly to relieve the Exchequer, or is it proposed to give the relief principally to loans other than those in the case of which the Exchequer will benefit? If these are largely the loans which the Exchequer bears, of course, it is only helping one part of the public funds out of the other, and what the public are looking for is some relief to the local authorities and the private persons concerned. Perhaps whoever replies for the 1167 Government will give us a little further information on that point. I should like to thank the Financial Secretary again, not only for the lucidity of his statement, but for the hope of some measure of relief which he held out to us in relation to Clause 6.
§ 5.2 p.m.
§ Mr. BENSONThe first thing I wish to do is to protest very strongly against the fact that in discussing this matter we are dealing with accounts which are practically two years old. The latest figures we have published take us to 31st March, 1934. These accounts are published annually and this is an annual Bill, and there seems to be no earthly reason why the accounts and the Bill should not be made simultaneous and why we should not have the Bill after the accounts are published and made available to the House. How is it possible to criticise a Bill on accounts that are possibly two years old? The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) has asked if the Financial Secretary to the Treasury would give us some indication as to when we may hope that the loans already granted at high rates of interest may show some abatement of the interest charge. This is a very important matter, and when one looks at the actual incidence of these high rates of interest, it is even more pressing. The maximum rate of interest at which money is lent by the local Loans Commissioners, is actually 6¾ per cent. Sixteen per cent. of their total outstanding loans are at 6½ per cent. and over; 26 per cent. of their outstanding loans are at 6 per cent. and over; and 68 per cent. of them are at 5 per cent. and over. The hon. Gentleman may reply that a very large amount of that money does not really constitute a heavy burden on the local authorities on account of the liability of the penny rate. But if we deduct that there is at least £40,000,000 loaned to local authorities at 5 per cent. and over on which they have to bear the full incidence of the high rate charged.
We are not blaming the Local Loans Commissioners. They have lent money on the basis of one quarter per cent. plus sinking fund more than they have had to pay for the money they advance. The real nigger in the wood-pile is the Treasury Interest rates are dropping. 1168 The big local authorities, like Manchester, Liverpool and Birmingham, have made big conversions, just as the Government have done, and they are receiving very considerable advantages from the drop in interest charges. The smaller local authorities which are in the clutches of the Local Loans Board are asking why they also cannot take advantage of this very great drop in the rate of interest. The reason is not far to seek. It is owing to the appalling mishandling by the Treasury in the raising of money for the Local Loans Commissioners. What they have done is to issue 3 per cent. stock. Why, under the circumstances, they have done this heaven alone knows. The only explanation I can think of is because it was laid down in the National Debt and Local Loans Act, 1887, that they should issue 3 per cent. stock. Acts of Parliament have been modified before now. Why was that not modified in the time of high rates? They have issued 3 per cent. stock at as low as 50. The issue of low interest bearing stocks at a very high rate of discount, is an extraordinarily bad practice. The Colwyn Committee condemned the issuing of any form of loan at a discount. There may be some justification for it when it is a question of price and the stock shows discount of only 1 or 1½ per cent., but to issue stock at a discount of 50 per cent. is iniquitous. I do not think the word iniquitous applied to the Treasury will hurt them very much. It is silly. That may hurt them a great deal more—or at least it should do.
They have issued to the public since the War £80,000,000 of nominal stock. For that £80,000,000 of nominal stock they have received £42,000,000. £30,000,000 was issued at 50; £20,000,000 was issued at 52 and £30,000,000 was issued at 57. What has happened to that stock? Let us take the £30,000,000 of stock issued at 50. The public subscribed for that £30,000,000 of stock £15,000,000, and on that they get 6 per cent. interest. They got 3 per cent. on the £30,000,000; therefore they got 6 per cent. on the £15,000,000 which they paid on that stock. That stock cannot be redeemed except at par, so that if we want to get rid of that stock we shall have paid them 6 per cent. on the money invested, with a premium of a 100 per cent. on it if it comes to be redeemed. At the present time the investors who subscribed 1169 that £80,000,000 of stock in 1920 and 1921 have actually received between 5½ and 6 per cent. interest on the money invested and they have already received on the £42,000,000 with which they bought the £80,000,000 of stock a capital increment of £34,000,000 which has not paid a penny of income tax or super tax. This is the way the Treasury have financed the Local Loans Board.
Those are the facts. What is to be done about it? Here I may perhaps correct the Financial Secretary, who said in his opening remarks that the last issue was in 1921 at 57. As a matter of fact, there have been nine issues since then, representing practically half the capital of the Local Loans Stock.
§ Mr. W. S. MORRISONI referred to the last public issue of stock.
§ Mr. BENSONBut there has been issued since then something like £200,000,000 to the National Debt Commissioners.
§ Mr. MORRISONYes, Sir. The stock has been created but not issued to the public. It has gone to the National Debt Commissioners, and the last creation was in 1931.
§ Mr. BENSONI am going to deal with that. The position is roughly this. The Local Loans Commissioners are responsible for a gross sum of £429,000,000 upon which they pay 3 per cent. But the actual cash they have received is only £290,000,000; and the result is that their nominal 3 per cent. works out at £4 9s. 5d. per cent. which they actually have to pay on the cash they have received. The problem we have to face, if we wish to reduce the rate of interest materially and immediately to the local authorities, is how we can square that nominal 3 per cent. they pay with the actual £4 9s. 5d. per cent. If we had to deal with this in details of interest rates on the 30 or 40 various issues that have been made I think we should muddle what is a comparatively simple matter. I would ask the Financial Secretary to turn to page 5 of his accounts where there is the figure of £142,000,000, representing discount on local loans stock issued. I think in discussing the question of interest rates we can simplify the discussion very much if we concentrate on that figure. I want the Financial Secretary to agree that if by any means we can wipe out 1170 that figure and make a corresponding reduction on the other side of the account in the capital for which the Local Loans Commissioners are responsible—that is the nominal amount of stock, £429,000,000—we shall solve the problem of the rates of interest. Does the Financial Secretary agree with that? I assure him that his advisers will tell him that this is quite correct. It is a fact that if we can wipe out that £142,000,000 we thereby enable the Public Works Loans Commissioners to lend at 3 per cent. plus their differential quarter. I hope to carry the Financial Secretary with me on that point. My argument is based on that assumption. The question is how are we going to get rid of that £142,000,000 of discount. When we look at the holding of local loans, the National Debt Commissioners hold not less than £286,000,000, whereas the public hold not more than £143,000,000. But those are not the most important figures. The important figures are in what proportion are the two holding bodies, the public and the National Debt Commissioners, entitled to the increment, or the discount, or whatever you like to call it, and I find that the National Debt Commissioners are entitled, in the case of the redemption of the stock, to £109,000,000 out of £142,000,000 whereas the public are only entitled to a proportion amounting to £33,000,000. It seems to me that that is the key to the solution of the problem. The National Debt Commissioners, of that £142,000,000, hold £109,000,000. There is no earthly reason why that should not be cancelled forthwith. The National Debt Commissioners hold £286,000,000 worth of nominal stock, for which they only paid £177,000,000 cash into the pockets of the Local Loans Commissioners. If they get back what they paid there is no loss. The Financial Secretary may say that since those transactions have taken place the National Debt Commissioners have handed over the stock to various departments where it has been taken into account. That may be so, but all these matters have been merely inter-departmental transactions.
§ Mr. DENMANThe savings banks.
§ Mr. BENSONThe savings banks have merely taken this as security.
§ Mr. DENMANDoes the hon. Member propose to raid the savings banks?
§ Mr. BENSONI have not suggested for a moment that any fund should be raided. I have merely suggested that the Treasury, or any Government Department that holds Local Loan stock, should be prepared to cancel the unearned increment upon it. As a matter of fact, all this is an inter-departmental transaction. They are book entries. They may not even have been written up. I do not know. Treasury finance is a mystery. If they have not written them up, they still stand at the actual cash paid for them—£177,000,000. If they have written them up, they have been written up simply and solely as book writings up and can be written down in exactly the same way. The Treasury have received for that £289,000,000 £177,000,000 and, if they get their £177,000,000 back for the stock, they have nothing to grumble at.
There is, however, the question of the £33,000,000 which has been issued to the public and which we cannot write down in the manner that I have suggested. Fortunately the Local Loans accounts are in a position to wipe that out. On page 5 again practically £19,000,000 are recovered under various items, mainly surplus income. In the surplus income account the balances amount to £15,000,000, so that we have various surpluses and balances in the account amounting to £34,000,000 already. Here we have assets of £34,000,000, against the £33,000,000 of increment which has taken place in the stock held by the public, so that the fund is actually in a position to wipe that out. We shall have £2,000,000 surplus this year in all probability, and that will enable the Financial Secretary also to wipe out the various other items of £2,400,000, leaving us finally in a position completely to wipe out the £142,000,000. The Treasury is in a position, without finding a penny, to wipe out the £142,000,000 discount item in the Local Loans stock. If they do that, the Local Loans Commissioners will be able to wipe out corresponding stock on the other side, they will pay 3 per cent. or thereabouts instead of £4 9s. 5d. per cent., and they will thereby be able to reduce the rate of interest to every local authority that they have lent to at these high rates of 4, 4½, 5, up to 6¾ per cent.
The Treasury may not be prepared to do what I am suggesting but they are going to enforce upon other people exactly the same line of conduct. The 1172 Financial Secretary said that a large number of local authorities borrowed money and were merely conduits for that money to the ultimate borrower. What is the Treasury but a conduit? The Treasury has no more right to a fantastically high differential income than any other body, local authority or Local Loans Commissioners. The Treasury can offer a very large amount of encouragement to local authorities by relieving them of these heavy rates. They can do it by carrying out the principle which they have enunciated in Clause 6 and which they themselves intend to apply to local authorities. If they will not do this—I have no doubt the Financial Secretary will have excellent reasons why it cannot he done—there is only one reason why they do not, and that can be summed up in the phrase, "You cannot get butter out of a dog's throat."
§ 5.24 p.m.
§ Mr. ALBERYI have tried to follow the hon. Member's complicated account. As far as I can make out, he proposes to take money out of one pocket and put it into another and pay it to someone else from a third pocket. I cannot follow his £30,000,000 surplus. I can find only £15,000,000 surplus in the Surplus Income account. I really rose to ask the Financial Secretary if he could give a little more explanation as to the procedure that it is proposed to follow under Clause 6. These various loans to local authorities and others were made at various rates—from 3½ to 6 per cent. If by means of a conversion operation a reduction is brought about, is it proposed to apply the benefit by a larger reduction in the higher rates, or is it proposed to make an even reduction right through? To make my question a little clearer, if there was enough money available to reduce the interest on all borrowings by a half per cent., is that the procedure that would be adopted or would it be proposed to knock 1 per cent. off the very onerous rates and make no reduction in the lower rates?
§ 5.26 p.m.
§ Mr. QUIBELLThere is one point which affects the original housing loans, on which interest is charged in some cases at 6, 6¼ and 6½ per cent. I should like to know whether local authorities will be able, in consequence of these resolutions, to avail themselves of a conversion in a similar way to the conversion 1173 of national stock. It has prevented many authorities from being able to reduce the rents of the original houses, which are shockingly high. Pressure has been brought by numerous local authorities on the Department concerned. It seems to me that the Government Department has held local authorities to ransom and prevented a reduction of rents. It would be conferring a very great boon on the tenants of the houses if advantage could be taken of this. But there is some other very interesting information contained in this statement—particulars of Loans, etc., and Assets to be written off. I notice that advances have been made to farms, and the Government have not been very happy in the realisations. One farm just outside my division has realised the magnificent sum of £5 an acre. The Government claim that they have put farming on its feet. They put this fellow on his feet all right. At one time he could ride in a car, but now he is walking. All that needs to be done is to get the Minister of Agriculture to continue this magnificent policy of his and the Public Works Loans Board to keep their hold on these farms that fall in and nationalise the land automatically. There must have been something very lax either in the valuation or in the realisation. There is a tremendous discrepancy between the original valuation for mortgage purposes and the realised value of the farms. In one case the value is £15 an acre and the realised sum was something like £5. I think there must have been undue haste in realising. I think they ought to have retained them. It would be a good way of carrying out the policy for which we on these benches stand of nationalising the land and doing it at very little expense.
§ 5.30 p.m.
§ Mr. G. HARDIEMy hon. Friend the Member for Brigg (Mr. Quibell) has referred to what might happen in the nationalisation of the land, but I would take the matter a step further. If the Minister of Agriculture with his mix-up and the Financial Secretary, with the mix-up he has shown us to-day concerning what is contained in these pages, got together and continued the muddle, the Government would be compelled to take over the land to cover up the mess. With regard to the valuation—I need not read this through—it is a question of taking 1174 the valuation made for the Department. What system was adopted in obtaining the valuation? Anyone reading the various accounts and details would come to the conclusion that either there had been some mistake made somewhere or that these farms had never been worked as profitable farms. I should like to know at what date these farms were giving a profit, and what change came about so that on valuation the whole lot of them showed a large deficit? What I and a great many hon. Members want to know is the cause of this huge difference. Was it a question of an inflated valuation owing to some local influence, or was it simply a question of the manipulation of circumstances in order to get a loan? The Forty Thieves were decent fellows compared with this kind of method. At least they were direct in what they sought to obtain, and they were honest men in that. It is a very different thing when you get people coming along trying to create a belief that they were honest English gentlemen getting down to methods like this and trying to hide it in all these pages of small print, and putting it in sideways. It says:
The Public Works Loans Commissioners made an advance of £540.…The Public Works Loans Commissioners made an advance of £3,907, and so on.When you come to the end of the description you always find it states that it was impracticable to take steps to secure the deficiency. We have been told that the land is full of difficulties. There must have been some period when these were really farms. Is this some obnoxious thing which has been introduced to describe these lands as farms in order to get a loan? If that is not the case, it is for those in charge of the Bill to-day to say how long these lands have been farms, and when they were being worked as farms. A farm is not something with which you can juggle. You have a man using his spade, and you have the result of the seed. You cannot juggle with them. But when you commence to make a loan you meet the swindler and the juggler on all sides.This Bill makes provision for £20,000,000. It authorises the remitting of £200 on one Scottish business, not in respect of a farm, but in respect of a harbour. The remissions following that 1175 item come under the Agricultural Credits Act, 1923, and amount to £11,403 11s. 11d. It is very interesting to note that the subjects in respect of which loans were advanced were agricultural holdings in regard to which the valuations were made for the Department and not by the Department. We are told that the proper method to do that is to get a local valuer, but in every case of which I know you never pick a local man to carry out valuations for a Government Department. I could give a hundred instances. You always obtain a man who is not known to the people in the district in case a local man should be in league with them. I do not say that these figures show that local men were in league in order to get a loan that was twice the value, say, of the farms. I could say that from what is contained in this Bill. I have the evidence here.
It is clear that if valuations were made which proved that after a certain number of years there was a deficit, the Financial Secretary to the Treasury has to answer the question whether these farms had at any time been worked at a profit, and whether the valuations in the years when the farms were paying concerns were different from the valuations made by the supposed local and interested valuer.
When it comes to the question of a valuation of a farm and you require the basis upon which you are to issue a loan, you have to obtain the valuation apart from the question of local, private and personal interests. You must see to it that that circumstance is taken right out of the whole consideration of the matter. Taking the figures as they appear in the Bill, the total of these valuations was £54,605, the total of the loans granted amounted to £40,107, and the amount to be written off is £11,403 11s. 11d. If it is to be assumed that the valuations were approximately the prices paid by the borrowers, then, not only have the Public Works Loans Commissioners lost £11,403, but the individual borrowers have lost £14,418, making £25,821—almost half the price paid. And the landlords scoop the whole lot. I see the right hon. Member the Minister without Portfolio on the Front Bench, and I am glad to know that he is designated as the man who has to do the thinking. Since there is not much to choose between those sitting on the opposite side with regard to the capacity 1176 for thinking, if I were asked to choose the one who might do some thinking I should choose the right hon. Gentleman. I saw him smile just now because I said that the landlords got the lot. He cannot stand at that Box and deny that assertion. He knows because he belongs to that category which I described at the beginning of my speech. He is well known and belongs to the category of those who made all these conditions possible and have given us a mixed-up muck-heap of a Bill like this.
Why should you call this a Public Works Loans Bill when you ought to have done the thing direct? This Parliament believes that you should not do anything direct but should do it indirectly and in diverse ways. Instead of coming along and saying, "Here is something that requires to be done and necessitates the provision of money," you set up a Public Works Loans Board, and then, before it is possible to get any aid from the Public Works Loans Board, you have to spend money in getting gentlemen with false hair on their heads to argue with each other in order to determine whether that which is true is true or not. When the Government tried to get out of the morass which they have created by incapacity, especially in regard to the use of this land, they have to bring a Bill forward which, if you read its pages, makes the position so difficult that only one or two Members may be able to understand it. The Financial Secretary to the Treasury is a Scotsman and knows exactly what it means when he is dealing with a national brother. I am not asking for any favours. I will dip my dirk to his at any time. This afternoon he made a statement in regard to this scheme, and I make this personal appeal to him as a fellow countryman, that on the question of this Public Works Loans business he should get his Government to see that all this sort of thing is a waste of time, and that they should adopt a smaller and more accurate machine to do the work, and do it much better.
§ 5.42 p.m.
§ Mr. GARRO-JONESI do not propose to follow my hon. Friend the Member for Springburn (Mr. Hardie) in the light and amusing speech which he has made, though I believe there were many substantial truths underlying his 1177 remarks. I want to point to another aspect of this Schedule of farms which have been bought and sold under the supervision of the Agricultural Credits Act. These figures throw a lurid light on the state of agriculture in this country. We find that one farm, for example, which was valued at £2,750 has had to be sold for £1,000, another which was valued at £3,180 had to be sold two years later for £2,080, and another valued at £1,950 had to be sold only eight years later for £500. I do not think that these are exceptional cases. I do not mind whether a farm was over valued to begin with or whether it was sold for too small a price when it was sold. The real truth is that these farms, like many other farms, have suffered a heavy and serious depreciation during the time that this Government has been in office.
§ Lord EUSTAGE PERCY (Minister without Portfolio)What about 1931?
§ Mr. GARRO-JONESI am not entitled to go into that at length, but to make the point of principle that these figures illuminate almost like a flash of lightning what is going on in agriculture in this country to-day. I hope that the Government will take it as a warning that if we could have the whole of the farms of this country valued now in comparison to their value 10 years ago, and realised the losses which farmers have suffered—
§ Mr. DEPUTY-SPEAKER (Sir Dennis Herbert)I think the hon. Member knows that his remarks are quite out of order.
§ Mr. GARRO-JONESI realise that on points of detail I may be out of order, but I thought that I was entitled to point out the principle.
§ Mr. DEPUTY-SPEAKERThe hon. Member would not only be out of order to discuss points of detail, but also when he came to discuss the general principle of agriculture.
§ Mr. GARRO-JONESI will not pursue the point, but I should like to make one further point. We are asked to reimburse the sum of £11,000. Almost inevitably we find that we are asked to reimburse losses but we never find that we are recouped when profits are earned. In almost every sphere where the Government interferes with finance we have the 1178 losses to reimburse but never any profits to draw. It is not that no profits have been made. Substantial profits have been made, but they go into private pockets. It is when losses are incurred that we have to recoup them. Loans have been made under the Agricultural Credits Act, and I believe I am right in stating that those loans stand at a capital appreciation to-day. There is no question of the Government participating in that appreciation, but if the Government have given a guarantee and the capital depreciates, it is the same old story over and over again that they come to the public purse to recoup those losses. There are the cases of the Sugar Beet Subsidy, Imperial Airways, the Bank of England exchange losses and now the Agricultural Credits. Time and again we shall have that position repeated during the next three years. We shall be asked to recoup losses that have been incurred, but on the other side of the sleigh when profits are earned, they will not be mentioned but will be put into private pockets.
I would ask the Finance Secretary to the Treasury to take advantage of the great opportunity that presents itself to him. He has taken his present office, suddenly, amid the high hopes of his colleagues and followers. He has an opportunity to revolutionise the defective principle which has guided the conduct of his party hitherto, namely, that the State shall pay losses but the State shall not share profits. If he wants to go down in history as the greatest Financial Secretary who ever stood at that Box, he can do it by revolutionising that principle and saying once for all that if the State is going to recoup losses it must stipulate that it shall share in the profits.
§ 5.52 p.m.
§ Mr. EDEI should like to draw attention to Clause 6, especially the point mentioned by the hon. Member for Brigg (Mr. Quibell), and its possible effect on the housing finance of the local authorities and the Treasury. A good many local authorities borrowed money in the early days after the War at rates of not less than 6½ per cent. from the Public Works Loans Commissioners, under the Addison scheme of finance, where everything over a loss of a penny rate had to be borne by the Treasury. Not only was the rate of interest very high but the price of the 1179 houses was very high, because the loans covered the peak period in the cost of house building. Therefore, we are paying very high rates of interest on houses that are now worth nothing like the capital sums paid for them when they were erected.
Some of the houses built in the neighbourhood of London, three bed-roomed houses cost £1,100 in those days. [HON. MEMBERS: £1,500.] I never like to overstate a case. I was dealing with cases within my own knowledge. I do not suggest that I was stating the maximum. There were thousands of houses built at £1,100, and those houses could now be built for half that sum. If you take a house that costs £650 and you reduce the rate of interest by 1 per cent., that is equivalent to a reduction of 2s. 6d. in the rent. Housing authorities throughout the country are still handicapped by the finance of those early days. Nobody complains about the Act itself or the policy of the local authorities in the matter, because they had to deal with a very urgent situation and, as usual, the money lenders did very well out of the nation. I hope that the people who are having to pay this heavy interest will receive some satisfaction.
There is another group of people for whom I would appeal, and I hope the Treasury will see that they get some help. The Minister of Labour is an Englishman who represents a Scottish seat, and the Financial Secretary is a Scotsman who represents an English seat. I am not quite sure which country has had the advantage of the exchange.
§ Mr. HARDIEEngland, absolutely.
§ Mr. EDEIt would be the first time that we have had the better of the exchange. The Minister of Labour was in a by-election in Mitcham in 1923 when he was the Liberal candidate, and I was the Labour candidate. In those days he had his own views about the people among whom he now sits. A very great amount of building of houses of the owner-occupier type took place in the Mitcham division and very high rates of interest were charged, compared with which we have now to pay, by the Public Works Loans Board to the Mitcham Urban Council of those days for the money advanced for that purpose. That rate of interest is still being paid by the 1180 owner-occupiers who bought houses under the scheme. I hope that those people also will gain some benefit from any reduction in interest that may now be available. They are small people, many of whom have suffered very substantial reductions in salary during the last 10 years.
As a member of the public assistance committee of the county in which those houses are situated, I know that in some cases the interest and repayment of principal are being met by the public assistance committee as relief grants. We are faced occasionally with the dilemma of deciding whether you can call a person destitute who is the owner of part of a house. We can only hope that such a person is the owner of that part of the house which appears likeliest to stay up the longest. I hope these people will be borne in mind. I was a Member of the House in 1923 when the Agricultural Credits Act was passed, under which advances were made, the losses on which are mentioned in the Memorandum that has been issued. It seems to me that that state of affairs is a complete fulfilment of what we prophesied. We said that the public would be asked to take over those mortgages which the banks were not inclined to run risks about.
§ Mr. DEPUTY-SPEAKERWe cannot discuss the Agricultural Credits Act now.
§ Mr. EDEThe losses with which we are faced to-day and with which we are asked to deal under this Bill are a result of policies adopted, on which we foreshadowed losses. I am sure that hon. Members who were here in 1923 will remember the prophecies which we made. I regret to find that in that matter I was a true prophet. With regard to the commissioners, I had hoped that the opportunity would have been taken on this occasion to reinforce the commissioners with people who had spent some time in local government. The policy of the Board would be viewed with more favour by local authorities if a larger proportion of the people who act as commissioners came from people who have been actively engaged in local government and have acquired some reputation in that field of public activity. When we sat on the benches opposite in 1929–31 we were able to introduce three names which are still on the Commission, and I had hoped that at the end of the list we might have seen 1181 two or three more names of people who have served on local government bodies and have acquired some reputation in the management of local government business. At the present time this body is far too distant from the ordinary humdrum affairs and day-to-day administration of local government, and I hope that as opportunity occurs the Government will try to reinforce the Board by persons of that calibre.
§ 5.55 p.m.
§ Mr. W. S. MORRISONI can speak again only by leave of the House in reply to some of the criticisms that have been offered. The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) asked me how much has been issued out of the fund since the last Act was passed. Powers were taken in the last Act for £18,000,000 as a maximum and of that sum £15,500,000 have been issued. When the new Act receives the Royal Assent that surplus will be disposed of. Questions have been raised with regard to the constitution of the Board. We have tried to make the Board as representative as possible, but I would remind hon. Members that a great deal of the work of the Board is of a financial character. While I agree with the hon. Member for South Shields (Mr. Ede) that it is an advantage to have the local government point of view represented, the main work of the Board is financial and one must therefore have the Board sufficiently strong in regard to that aspect of its duty.
I have been asked to give the total amount of loans issued at over 5 per cent. The figures at the end of the last financial year were £91,000,000. I cannot say the longest period that the loans have yet to run, but if the hon. Member who raised that matter wishes the information I will get it for him.
§ Mr. MacLARENFrom what source has the Financial Secretary obtained these figures?
§ Mr. MORRISONThey are taken from the Treasury. Several hon. Members, including the hon. Member for Gravesend (Mr. Albery), raised the question as to what procedure will be adopted if and when it is found possible by conversion or some other method to deal with the existing loans. I am not in a position to 1182 say what the precise procedure will be. It must depend to a great extent upon the amount by which you can reduce the loans and upon the amount of the money at your disposal. If it was a large amount an all-round reduction might be possible, whereas a small amount might have to be applied in some specialised direction. The main thing is to try to get into the position when that point will arise for consideration. In the Bill now before the House we are asking for certain machinery provisions to enable us to take advantage of the opportunity when it arises. We can defer the consideration of the precise machinery to be adopted until we know the result, and then these various other matters can arise for discussion. The hon. Member for Chesterfield (Mr. Benson) complained that the accounts were a year old. It is a little unfortunate that the Debate is taking place now; if it had been taking place next month the hon. Member would have had last year's accounts in his possession.
§ Mr. BENSONWhy not now?
§ Mr. MORRISONThe accounts are issued ten months after the close of the year, and if the hon. Member considers the multiplicity of calculations which are necessary, I do not think that he will consider it an unnecessary delay.
§ Mr. BENSONI am not complaining that the accounts are so late but that the Debate is not taking place after the accounts have been issued. There is no reason why the Debate should not succeed instead of precede the accounts.
§ Mr. MORRISONI appreciate what the hon. Member says, and while it is a little difficult to co-ordinate all the activities of the Government, I will bear the point in mind. He put the question as to when this abatement will take place. I cannot tell; it depends on the circumstances, and we shall take advantage of the circumstances when they arise. The hon. Member also made a great deal of play with the capital increment which will accrue to those who bought local stock. I have no doubt that all considerations were present to the minds of those who considered the purchase of this stock a good bargain, and that they took into consideration the fact that there might be such capital increment. When the hon. Member attempted a solution and 1183 suggested a method by which the Government can get out of their difficulties, I found it hard to follow him. If we could sweep away at once a debt of £142,000,000 it would be a very good thing, but certain repercussions of any such opperation would have to be considered. The hon. Member thought it was only a book-keeping transaction—this holiday of the National Debt Commissioners. So it is, but one of the books concerned is the Post Office Savings Bank. The National Debt Commissioners have to hold these and other securities as backing for the Post Office Savings Bank Funds, which are entrusted to them to look after, and the suggestion that in order to help the National Debt Commissioners should solemnly wipe off £142,000,000 of that necessary backing would be a shock to some people.
§ Mr. MacLARENIt would shock the right hon. Member for St. Ives (Mr. Runciman).
§ Mr. MORRISONAnd it should shock the hon. Member. He is chiefly concerned with the land, but I think he would view such a transaction with some apprehension. The hon. Member for Brigg (Mr. Quibell) seemed to take a rather gloomy view of the rural side of this matter, and no doubt he will be glad to know that the debts which are to be remitted are only a small part of the sums loaned. About £4,750,000 has been issued to agriculture, and the total amount is a sum of £18,000. I am not a very good arithmetician, but I think that less than 1/240th part of what has been lent is contained in the Schedule; and that is one penny in the pound. To get a true picture of what the Schedule means you must keep that in mind. The hon. Member must bear in mind that these loans, none of which have been made since 1928, were for the benefit of agriculture, and that the Government are making an effort to improve the industry, an effort which should receive the strong support of the hon. Member. I appreciate the point made by several hon. Members as to the high cost of housing loans which were made in the five years immediately after the War. That is a factor which is present to all of us. As far as any of the operations are financed by the Board, it is not true that all were—there is no 1184 doubt that if it were possible to reduce the burden of capital charges it would be a good thing. I am asking for the Second Reading of a Bill which is designed to equip the Treasury and the Commissioners with powers which should, among other things, and when a favourable opportunity arises, do what is regarded as a very desirable object.
§ Mr. PETHICK-LAWRENCEThe Financial Secretary has not answered one question of mine. I asked how Clause 6 would work out in the case of housing loans where the Exchequer at present bears a considerable part. Will it inure to the benefit of the Exchequer, or will it be to the advantage of the local authority?
§ Mr. MORRISONAs I have said in my reply, it is too early to say what will be the best way in which to apply any of these provisions, but if the hon. Member will look at Clause 6 we will see that it refers to a debt owed by an individual, and the object of the Clause is to achieve the passing of any relief on to the individual.
§ Mr. DEPUTY-SPEAKERThe hon. Member has exhausted his right to speak. This is the second speech he has made.
§ Bill committed to a Committee of the Whole House, for Monday next.—[Lieut.-Colonel Sir A. Lambert Ward.]