§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ 8.4 p.m.
§ Mr. PETHICK-LAWRENCE
It will be within the recollection of the Committee that when this Bill was passing through 1501 the House on Second Reading I put certain questions to the Financial Secretary, and other Members of the House put questions relating to Clause 6. The Financial Secretary gave us rather inadequate replies. He said he could not go very fully into details at the moment and that we must wait and see what happened a little later. Naturally the points raised were rather complicated and we could not expect the Financial Secretary to give detailed answers on the spur of the moment, but now that we have come to the Committee stage I think it is only reasonable that the Financial Secretary should go a little further and should give the Committee more enlightenment than he did on that occasion. There are two points on this Clause on which I should like to have a clearer statement of what the Treasury proposes.
In the first place, while we welcome the idea that rates of interest on outstanding loans shall be brought down, we want to know whether that is a dream of the ultimate future or whether there is any prospect of it being realised at an early date. It may arise, as far as I understand it, on account of either the first Sub-section or the subsequent Subsections of Clause 5. If it arises owing to the subsequent Sub-sections of Clause 5 it would arise because there was sufficient money in the local loans account to enable them to deal a little generously with previous borrowers from the fund. If it arises under the first Sub-section of Clause 5 it would arise because the local loans Commissioners are able to give something to the 3 per cents. If the rate of interest falls, say, to 2½ per cent. the Commissioners can obviously refund the 3 per cent. local loan fund provided it is redeemable at any time, as I think it is.
§ Mr. PETHICK-LAWRENCE
Therefore if the rate falls below 3 per cent. it may become worth the while of the Treasury to refund, and in that case they could give relief to the old borrowers as well as to the new. In the first place I want to know whether it is in contemplation to bring this Clause 6 into operatien either by the use of the later Sub-sections of Clause 5 or whether it must wait until the opportunity arises of bringing into effect the first Sub-section of Clause 5, and whether the Financial 1502 Secretary thinks that either of these things is likely to operate in the early future. The second point I want to have elucidated is the use that is to be made of the advantages which may accrue from a reduction in the rate of interest.
It will be recognised, I think, that a very large part of the money lent out of the Local Loans Fund has been lent for the purpose of housing, and, although I certainly do not want to trespass on the time of the Committee by going into that matter in any detail, I should like to point out that there has been more than one method of financing housing through the Local Loans Fund under different Bills. In some cases the Exchequer bears the great bulk of the charge due to uneconomic rent—the whole, except a penny rate—in another case the Treasury contributes £6, and in another case contributes a maximum of £9 to the local authorities. What we want to know is whether, if a reduction can be made, the bulk of the advantage is likely to pass to the Treasury—whether in fact this Clause 6 is really going to be used to take the vast part of any benefit for the Treasury or whether the proposal is that the local authority and possibly the actual rent payer shall get a substantial part of the advantage that may accrue.
That is a point which I think the Financial Secretary swept rather airily aside on the last occasion by saying that obviously we had not come to the time when any reduction of the rate could be made, and that if and when that time arrived the question to which person it should apply would be considered, but that whether it should apply to the Exchequer or the local authority or someone else he was not prepared to say. I quite recognise that he cannot deal absolutely specifically with the detailed use of a hypothetical reduction which has not yet arrived, but I do think we are entitled to know what is at the back of the minds of the people at the Treasury who have framed this Measure so that we may know whether the refreshing fruits which Clauses 5 and 6 are offering are all to be put on the table of the Treasury or whether local authorities and other persons are to get a substantial share of the feed.
§ 8.10 p.m.
§ Mr. W. S. MORRISON
I fail to appreciate myself in the role of one who brushes things airily aside, and I should 1503 like to say that I dealt with the matter briefly on Second Reading because I thought it was my duty to give an idea of the purpose of the Clause. If at any time it is found possible by converting existing stock to get such a state of solvency in the fund as will enable us to make some concession to existing loans, then we wish to be armed with powers to secure that the person who realises the benefit is the ultimate borrower and not the middle borrower. It is common knowledge that very often a loan may be made by the fund to a local authority which is in reality destined for an individual borrower. In cases under such Acts as the Small Dwellings Acquisition Act a man borrows from a local authority and the local authority borrows from the fund. The purpose of this Clause, and the sole purpose, is to secure that if the Commissioners are able to reduce the rate of interest on the loans granted to the local authority, the local authority must make a like reduction in the interest charged to the man who borrows. That is the purpose of the Clause.
The hon. Member asked two questions. He asked first, recognising as he does that this Clause has in view the happy day when such relief can be given, that I should name the day. Well, I am afraid that is simply not possible. If I knew the date I would tell the hon. Member, but the hon. Member will understand how many factors go to make the set of circumstances in which conversion is possible. There has to be a certain condition in the money market, certain rates have to prevail, there must be a certain state of solvency in the fund, and the date when that position will arise I cannot say. No man can predict the future with sufficient particularity. I cannot tell the hon. Member the day, but it is quite clear that in recent years, when interest rates have been low, a more fruitful set of general circumstances for conversion has arisen, and it is desired to equip the Treasury with the necessary powers so that if and when that concatenation of circumstances to which I have alluded does occur, swift advantage may be taken of it. Beyond that it is not possible for me to go. Indeed, the hon. Gentleman will probably agree from his own experience that too confident a prophecy as to the date of an 1504 operation of this sort may not be of assistance in bringing about the conditions which we hope to attain.
§ Mr. PETHICK-LAWRENCE
I take it that it is under the first Sub-section of Clause 5 that the question will arise. It does not arise under the changes that have been made in Sub-sections (2), (3) and (4) of Clause 5.
§ Mr. MORRISON
Oh, no. If the hon. Member reads Clause 6 he will see that it really follows not from anything in this Bill but from Section 31 of the Finance Act of 1935. It was by that Section of the Finance Act that we took the necessary powers and prepared the way for this conversion. Clause 6 really hinges on Section 31 of the Finance Act, 1935. I did not realise that that was what was troubling the hon. Member. The Section with which we have been dealing deals with an entirely different matter. The hon. Member put before me certain weighty considerations about various housing loans, where the Exchequer is in the position of a residuary legatee, and he voiced apprehension lest when the happy day arrives we shall single out for special treatment those loans where the Exchequer is itself involved, and leave the loans where other people are involved unredeemed and still paying the higher rate of interest. I can only tell him that that is not the intention. When I was asked this question on Second Reading I said that it was very difficult to visualise with accuracy the condition which might arise at a future date, but in answer to other questions I said that the way in which the relief would be applied would depend and must depend to a great extent upon its size. It would depend upon the sum of money you have at your disposal how you could best apply it in the public interest. I can assure the hon. Member that there is no such dark design as he apprehends in contemplation by the Treasury.
The Treasury are the holders of various stocks from time to time, and the practice has been to rank them on a par with other holders of the stock. I do not say that the Treasury will forego its share of the benefit if it happens to be involved in any transaction, but I can assure the hon. Member, if that is the substance of his question, that there will be no singling out for priority 1505 Treasury stocks or, rather, loans in which the Treasury stands to gain by any such means that he has put forward. The answer is that what is at present intended will follow the practice in the past, that if the money saved should be of sufficient dimensions to enable the relief to extend over a wide area, then every one who is at present damnified by the existing high rate of interest would share in the relief. Certainly, no such thing as the hon. Member apprehends is intended.
§ 8.18 p.m.
§ Mr. BENSON
I do not know whether the Financial Secretary can give us the actual amount of money lent by the Commissioners under the 1919 Act. It would be very useful if he could.
§ Mr. MORRISON
I am sorry that I cannot give the figure right off, but with notice I could easily find out.
§ Mr. BENSON
I do not think much of this Clause. Under the Finance Act, Section 21, before any relief at all can be given the Treasury have to be satisfied that the Fund is £10,000,000 in credit. At present the Fund is £120,000,000 in debit. Therefore, I am afraid there will have to be a very big drop in interest before we are likely to see any advantage whatever from this Clause. I assume the Financial Secretary is conversant with the Treasury Minute which lays down the rules and regulations for the repayment of a loan before the stipulated day. Assume that a local authority has borrowed money under the Acquisition of Small Dwellings Act and has lent out under secondary mortgage the money borrowed from the Commissioners. Assume that they take advantage of some modification under this Clause of the Treasury Minute for repayment, would they be compelled thereby to make any modification in the rate of interest that they still charge to the mortgagee, the ultimate borrower?
I assume that the object of the Clause is to compel the local authority to pass over any advantage to the ultimate borrower when they receive a reduction in interest. That is correct. If any reduction in interest takes place, along with that reduction of interest there will have to be modification of the Treasury Minute relating to repayment. Assume that the local authority decides that it 1506 can take advantage of the repayment but still decides to finance the loans that it has made to the ultimate borrower by borrowing money at a lower rate, after repaying at an earlier date than the original mortgage is supposed to be paid off, is there anything compelling them to pass on any advantage whatsoever to the ultimate borrower?
§ 8.21 p.m.
§ Mr. MORRISON
I am not sure that I entirely follow the question put by the hon. Member, but I think I can answer him by directing his attention to what the Clause does. Take the case that he put to me, borrowing under the Small Dwellings Acquisition Act. The man goes to the local authority and executes a contract with the local authority, stipulating to pay a certain named sum. The local authority in its turn, when it has collected a number of such loans, goes to the board and executes a contract with them, in which the interest to be repaid to the fund is stipulated. What would happen, supposing the fund, out of the goodness of its heart and the richness of its disposition, were to reduce the interest would be this, unless this Clause were enacted, that the ultimate borrower, the small man who has a house, would be held by his contract to the rate of interest as expressed therein; but if the hon. Member looks at the Clause he will see that the effect of it is to create an alteration in every such contract in the land and to enact, by force of law, that if the contract said that 5 per cent. was the rate of interest, 2½ per cent., say, should be the rate. This Clause, if ever it is put into operation, will have the effect of stretching its invisible fingers over every contract of that kind in the Kingdom by rubbing out one set of words and putting in another. In that way, in the most effectual manner, it will effect the change which the Committee desire, namely, that the benefit should be given to the ultimate borrower.
§ 8.24 p.m.
§ Mr. WOODS
The most significant word in the Clause is the word "if." The Financial Secretary, in his reply to the hon. Member for East Edinburgh (Mr. Pethick-Lawrence), repudiated the idea that he had replied in an airy way but, quite frankly, I think that he has 1507 made this word "if" more airy than anything I have heard of. The Financial Secretary holds out the hope that something may happen. His reply, in which he said that he was waiting for a favourable concatenation of circumstances, is typical of the National Government, which is waiting for something to turn up. The Government do not realise the importance of this Bill. They make professions that they want to provide employment. The Financial Secretary may take it from me that up and down the country there are local authorities who, if they are to build, will have to borrow from this fund, and who are prepared if a favourable rate of interest were available to put in hand millions of pounds worth of public work, but they are held up merely because of the high rate of interest. There is a feeling that any local authority which has anything at all to do with this fund will be very foolish because of having to pay such a high rate of interest, a rate out of all proportion to the current rate. I feel that the Treasury, instead of waiting for a favourable set of circumstances, if and when and so forth, should face up to the problem and put the fund in such a position that they can make advances to public authorities, so that they can proceed with works which they are urgently desirous of putting in hand. At the moment their hands are paralysed by the tremendously high rate of interest—
§ The CHAIRMAN (Sir Dennis Herbert)
I am afraid the hon. Member is now touching upon matters which do not apply to the Clause.
§ Clause 7 ordered to stand part of the Bill.
§ Schedule agreed to.
§ Bill reported, without Amendment; read the Third time, and passed.