HC Deb 01 May 1935 vol 301 cc417-26

Resolution reported: That it is expedient to make provision for the creation of other securities in lieu of Local Loans stock, for the redemption and conversion of Local Loans stock and securities issued in pursuance of this Resolution, and for matters relating thereto, and in particular to authorize—

(1) the creation and issue by the Treasury of such securities bearing such rate of interest and subject to such conditions as to redemption, repayment, or otherwise as they think fit for any of the following purposes:

  1. (a) for the purposes for which Local Loans stock may be created;
  2. (b) for raising money for the redemption of any such stock or securities;
  3. (c) for the purpose of exchange with any such stock or securities, and for raising money if required as further consideration for any such exchange;
  4. (d) for raising money for the repayment to the Exchequer of sums issued out of the Consolidated Fund under the next following paragraph;

(2) the issue out of the Consolidated Fund—

  1. (a) of any sums required to be paid in respect of the interest or the expenses of issue or management of any such securities, in so far as they cannot be paid out of the income account of the Local Loans Fund; and
  2. (b) of any sums required to be paid in respect of the principal of any such securities, or in respect of the redemption of Local Loans stock, in so far as they cannot be paid out of the capital account of the Local Loans Fund;
and the repayment out of the Local Loans Fund to the Exchequer of any sums so issued;

(3) the raising of money by the Treasury under Section one of the War Loan Act, 1919, for the purpose of providing for the issue out of the Consolidated Fund of sums mentioned in subparagraph (b) of the last foregoing paragraph, and the advance by the Bank of England to the Treasury of any money which the Treasury are so authorised to raise;

(4) the giving of relief, at any time after Local Loans stock has been redeemed or exchanged in pursuance of this Resolution, from outstanding obligations to the Local Loans Fund either in respect of interest or in respect of capital, so, however, that no such relief shall be given unless the assets of the fund exceed in value its liabilities by an amount not less than ten million pounds, or so as to reduce the said excess to less than five million pounds;

(5) the application to securities issued in pursuance of paragraph (1) of this Resolution of any enactment relating to Local Loans stock."

Motion made, and Question proposed, "That this House cloth agree with the Committee in the said Resolution.

5.50 p.m.


It would almost certainly have been more convenient, having regard to the technical nature of this Resolution, if the Chancellor of the Exchequer had made a preliminary explanation. The explanation contained in his Budget speech was clear but limited, and I thought that perhaps, if we had an explanation of the extent of the change intended, it would facilitate what I think will be in any case a short discussion.


Perhaps the hon. Member will indicate the points on which he would like further information.


MY justification for raising the matter at all is contained in paragraph (4) of the Resolution: The giving of relief, at any time after Local Loans stock has been redeemed or exchanged in pursuance of this Resolution, from outstanding obligations to the Local Loans Fund either in respect of interest or in respect of capital, so, however, that no such relief shall be given unless the assets of the fund exceed in value its liabilities by an amount not less than ten million pounds, or so as to reduce the said excess to less than five million pounds. I do not know whether my anticipations are too optimistic, or whether I am placing a wrong interpretation upon that language, but I assume that it means that the Chancellor is taking powers to convert this Local Loans stock, and that, as a consequence of the new situation that will be created, there may be a fund at the disposal of the Local Loans Board out of which it may be possible to relieve local authorities who are suffering at the moment from excessive interest charges, or, indeed, to reduce their capital commitments.

The situation of the local authorities, particularly in the distressed areas in this country, is exceedingly difficult. In South Wales alone there is some £40,000,000 of public debt. A very large proportion of this debt was incurred at the instance of the Government. Some of it was incurred before the War, but a very large proportion of it was incurred at the end of the War and in the post-war boom period. At that time interest rates were exceedingly high, and from 1920 up to as recently as 1930 the Local Loans Board demanded rates of interest varying from 4¾ per cent. to 6½ per cent. A very large amount of the local loans was obtained at 6½ per cent., although, of course, all the time the Local Loans Board was obtaining money at 3 per cent. I am not going to emphasise that difference, because I know that it is rather unreal. The Local Loans Board, or rather, the Treasury, raised Local Loans stock in the open market at 50, 60 and 70. That was redeemable at one month's notice, and consequently the interest was low, because the stock was redeemable at par, but, owing to the low rate of interest, it had to be offered sometimes at 50, and 60 and 70.

The local authorities have approached the Local Loans Board on several occasions asking for relief from their burdens, but the Commissioners pointed out that they were unable to relieve the local authorities because of their own commitments. A great deal of this money was borrowed for 30, 40, 50 and 60 years. I think the original limit for any loan was 50 years, but a portion of the housing loans under the Wheatley Act extend as far as 60 years. The local authorities have borrowed this money at anything from 5 to 6½ per cent., and have to carry that high interest over the whole period of the loan, although interest rates are now, of course, down at 3 and sometimes 2½ per cent. It seems to me that, if these loans were embarked upon at the instance of the Government, there is a case for asking the Government to come to the assistance of the local authorities. At the present time they are caught between the scissors of declining prices and the high value of money. The cost of living has fallen in the years between the borrowing of this money and the present time, and the burden of the loans has very gravely increased.

That is true, of course, of rentier burdens as a whole, and is true of the whole £429,000,000 of Local Loans stock. But I am not pleading the case of the local authorities as a whole at the present time; I am pleading the case of the local authorities in the distressed areas in particular, because not only have they to bear this increased burden of dearer money, but they have to bear it on declining resources. In South Wales the rate poundages vary from 20s. to as much as 27s. 6d. in the pound; rates are 200 per cent. more than they were before the War; and there are some urban authorities with as many as 80 per cent. of their adult insurable population unemployed. I know that these facts are well known to the Chancellor of the Exchequer, but the trouble is that, although the resources out of which these local authorities have to meet their demands are declining, the burden is, not only relatively, but absolutely, increasing. If you merely had declining resources and the burden remained fixed, it would be had enough, but to have a burden which is increasing in weight owing to dearer money, and at the same time to have declining resources, is an absolutely intolerable situation. It is very largely as a consequence of this situation that the local authorities in the distressed areas find themselves utterly unable to embark upon any capital expenditure at the present time, with the result that their distress is aggravated.

Some local authorities can go into the open market and borrow at lower rates of interest than are charged by the Local Loans Board. In one case quite recently a local authority raised a large sum of money in the open market at less than 3½ per cent. I am not claiming that the rate of interest charged by the Local Loans Board now is too high; the Board in September, 1934, charged a minimum, I think, of 3½ per cent. for local loans, and in October this was further reduced to 3¾ per cent., so that the Local Loans Board is now, with regard to current loans, obviously doing its duty. It is raising money at 3 per cent. and lending it at 3¼ 3½ or 3¾ per cent., and I have no complaint at all to make against it. My case is not an indictment of the Local Loans Board at all.

My case is a plea that, if the Chancellor of the Exchequer can possibly do so, he should bring forward the relief which, I think, he intends to grant under paragraph (4) of this Resolution. The local authorities in the distressed areas to-day are unable to borrow at these cheaper rates because they cannot borrow large sums of money at the present time, but can the House seriously contemplate that practically one-third of the area of this country shall go on for another 40 or 50 years paying anything from 5 to 6½ per cent. for this money? It is an intolerable situation. If the House insists that that should be done, I am afraid that very serious consequences will follow. There have already been rumblings in many quarters that the local authorities will be compelled to resort to some form of repudiation. I am not suggesting that at all as a threat, but the situation is becoming desperate. I know very well that the Chancellor of the Exchequer can say that local authorities cannot repudiate their debt to the Local Loans Board, because the Government have always the whip hand of the local authorities in respect of grants-in-aid, and can always take that money and meet the local authorities' action in that way. But I suggest to the right hon. Gentleman and to the House that there is surely something wrong with the distribution of the burden of local indebtedness which calls upon these areas, suffering so acutely from causes over which they have no control, to pay these excessively high rates of interest all the time.

I believe that I shall be representing the views of hon. Members in all quarters of the House, when I suggest to the Chancellor of the Exchequer that he should use all his ingenuity and the whole resources of the Treasury in order to secure some form of conversion that will enable the Local Loans Board to have at its disposal money by means of which it could give relief to designated local authorities. I admit I cannot at the moment, within the four corners of the commitments of the Treasury, suggest any way by which it can be done. I assume that the Chancellor of the Exchequer is expecting that the proposed redemption will result in something like £10,000,000 to £15,000,000 being at the disposal of the Local Loans Board at some future date. I do not blame him that he has not indicated, for obvious reasons, the time when conversion can take place, but I hope that he will expedite it, because the sooner conversion takes place, the sooner it may be that the Local Loans Board will have this capital sum at disposal. The Chancellor of the Exchequer stated in his speech that the Local Loans stock was redeemable at par. It means that the stockholders will get their pound of flesh all right because many of them paid, 55, 60 and 65 for the stock, and it will be redeemed at par. That is a very excellent thing for those who bought the stock at a time when money was very cheap. [An HON. MEMBER "Dear."] No, when money was cheap. When a great deal of this stock was bought, during the War and immediately after the War, money was plentiful, money was cheap. [Interruption.] I have always thought that when money is plentiful, it is cheap. At any rate, it does not really matter if from one aspect it was dear and from another aspect it was cheap, for it is clear that at that time they were able to purchase this stock, and they are now having it redeemed in terms of money with a much higher purchasing power than the money with which they bought it. That is the position. Stockholders are going to be put into a very strong position, but the poor devils who had to borrow this money from the Local Loans Board at the time, will keep on paying the high interest indefinitely.

There is something very wrong indeed with a system that enables rentiers to live in some of our pleasure cities and extract revenue week after week, month after month and year after year from the stricken areas of Great Britain. It is a situation which, when it becomes known to the distressed areas in its full implication, will not be tolerated. Unemployed steel workers, colliers and cotton operatives are not going to continue to pay this high interest all the way in order to provide fat revenues for the more prosperous districts in Great Britain. I submit to the Chancellor of the Exchequer that the same logic which applies to the conversion of National Debt, applies even to a greater degree to local stock in the distressed areas. I am sure that he will earn the indebtedness of hon. Members in all parts of the House and bring very much needed relief to the distressed areas, if he is able to use paragraph (4) of this Financial Resolution as an instrument by means of which it may be possible for the distressed areas to have a reduction either of their capital indebtedness or of their loan charges.

6.8 p.m.


The hon. Member indicated that he desired me to give some information on the subject of this Resolution which would enable him to understand better what the scope of the Resolution might be. After listening to the hon. Member, I see that he has not quite appreciated, I think, the limitations of the Resolution, and I presume that I should be out of Order in discussing the general question of the position of distressed areas and their need for relief on a Motion of this kind which is strictly concerned with the financial aspects of certain proposals in connection with the Local Loans Fund. The particular paragraph to which the hon. Member drew my attention—No. 4—as he rightly said, refers to the possible giving of relief, not necessarily to distressed areas, but to any areas in the future, from outstanding obligations to the Local Loans Fund, but I would call the attention of the hon. Member and of the House to the fact that this relief cannot be given at any time. It cannot be given now, for example. It can only be given, as stated in the Resolution itself, at any time after Local Loans stock has been redeemed or exchanged in pursuance of this Resolution. Therefore, there is nothing that can be done now to give relief, and I may say that the Fund, while it is at present solvent, has no such resources as would enable it to make any concession or relief in the existing rates of interest.

This Clause refers to some time in the future, as the hon. Member said, after conversion or exchange has taken place in pursuance of the Resolution, when conceivably the situation may have so altered as to leave the Fund with resources of not less than £10,000,000. Some relief might be given then, as long as that relief was not so great as to reduce that excess to something under £5,000,000. The hon. Member said he hoped that I would do everything I could to anticipate that period. My reply to him is that it is not within my power to do anything which will hasten the moment at which conversion becomes possible except to ask the House to pass this Resolution, because without this Resolution we cannot take advantage of the conditions when they are favourable to conversion. Therefore, I am doing all that I can at the moment to carry out what the hon. Member has in view. Let us pass this Resolution. We shall then be in a position, if the situation should be such as to make conversion feasible, to take advantage of it, and that would be the first step towards the giving of any relief as contemplated by paragraph (4) of the Resolution.

6.11 p.m.


I welcome paragraph (4), and I agree that it will certainly be a relief, but I am sure that the Chancellor of the Exchequer knows of the terrible position of many local authorities. I do not want to weary the House, but I desire to put before hon. Members, quite shortly, facts from my own knowledge. After the War a great many local authorities were strongly urged by the Government to build—they were almost compelled to build—and in order to build they had to borrow. At that time money was borrowed at 4½, 5 or even 6 per cent. for from 40 to 60 years. What has happened? Local authorities now find that they are bound for 30 or 40 years or more to pay 6 per cent. on money which they can now get in the market at 3 per cent. I quite agree that a man who loaned, say, £1,000 to the Public Works Loans Commissioners is entitled to his £60 a year for the full term of 60 years, and you cannot compulsorily convert that man's holding by giving him £1,000 for it, for the stock will have changed hands, and instead of being worth £1,000 it is now worth about £2,000. It is, I agree, a deadlock. You cannot force the investor to sacrifice so heavy a loss; and it is a very heavy charge for the Treasury to bear. The reason for asking for some concession is that in 1920 and 1921 a great many of the local authorities—and not very rich ones—were almost compelled by the Government to spend a very large amount of money. It proved to be improvident finance. Now they have had to reduce their rents, and they cannot always get even those reduced rents. There are in some cases charges on the rates which are almost intolerable.

I rose for the purpose of putting these facts before the House. They are perfectly well known to the Chancellor and I know that they excite his sympathy. I wonder whether a bigger surplus could be provided, for if the Chancellor of the Exchequer could see his way to grant some relief to the oppressed local authorities, he would be doing a very good work and one which, I believe, would find support in all quarters of the House from those who know the facts. It is no fault of the local authorities that they had to borrow at these rates and it is no fault of the man who lent the money that he will not be paid off at par. I hope that the Government will in these hard cases grant some increased concession.

6.15 p.m.


I should like to tell the Chancellor of the Exchequer that we do not propose to divide on this Resolution. We appreciate the fact that the point that my hon. Friend the Member for Ebbw Vale (Mr. A. Bevan) was raising may perhaps be deemed to be slightly outside the purview of this Resolution, but we are very anxious that the Chancellor of the Exchequer should keep in mind the very grave position of the local authorities. They are, one might almost say, struggling, stumbling and staggering in the midst of heavy municipal burdens, burdens which, as the right hon. and gallant Member for Ripon (Major Hills) said, are not burdens of their own seeking entirely, but in some degree burdens which are heavier by reason of direct Government action. Authorities were in the midst of public works at the beginning of the War, and those works were stopped by the Government. If those works could have been continued, they would have been completed at a cheaper rate, but they had to be resumed at a much heavier cost, and consequently at a much heavier rate of interest. I am sure that the case is familiar to the Chancellor of the Exchequer. Perhaps we are stretching a point in raising the point to-day, but once again I would invite the House to reiterate the appeal that my hon. Friend made and I ask the House and the Chancellor of the Exchequer to keep constantly in mind the appalling burdens under which so large a section of local authorities now groan on account of financial difficulties. I am absolutely convinced that the Government must step in with regard to this matter. They did what they could in 1927–28 under the Local Government Act to stretch out the burdens of local authorities evenly, but in spite of that Act these areas are still obsessed with these heavy burdens, and something will have to be done of a definite and specific character to help them. We content ourselves with having made an appeal to the Chancellor of the Exchequer, and I am sure that he will give his closest attention to the matter.