PUBLIC WORKS LOANS BILL. (Hansard, 30 November 1937)

§ The Financial Secretary to the Treasury (Lieut.-Colonel Colville)
I beg to move, "That the Bill be now read a Second time."
It is not necessary for me to enter into any detailed description of the purpose of this Bill, but a few points require a word of explanation. Clause z authorises the advance by the Public Works Loans Commissioners of a maximum amount—on this occasion £25,000,000—for the purposes of local loans until the passing of the next Act. The Measure does not necessarily cover 12 months, but that is generally the approximate interval between the Acts. The House will recollect 2036 that the last Act was passed in February of this year, and authorised advances to the amount of £20,000,000. It was thought that that would last for 12 months, but the housing programme has necessitated larger advances, and it is now expected that the £20,000,000 will be expended before the end of January. For that reason it is necessary for us to get the Bill through all its stages before the House rises for Christmas, in order to enable the Commissioners to go on with their work. The amount provided in this Bill is £25,000,000, and we hope and expect that it will last for the next 12 months. think the House should realise that since the beginning of 1919, up to the end of October this year, the Commissioners have made advances out of the Local Loans Fund totalling almost £375,000,000, and that no less than 80 per cent. of this has been for housing. The second Clause is in common form and directs the writing off, in accordance with usual procedure, of certain amounts set out in schedule form. In the explanatory memorandum attached to the Bill there have been certain alterations in the way the figures are set out, in order to meet representations which were made last year by the hon. Member for Caerphilly (Mr. Morgan Jones).
The only point of special interest this year to which I would like to draw attention is Clause 3. This Clause is outside the usual routine. The Board, under the present powers, can lend to local authorities for the purpose of any work for which the council of a county, borough, district or parish is authorised to borrow, but these general powers do not enable the Board to lend for the purpose of purchase of land by local authorities, except where the purchase forms part of works that are to be carried out, as, for example, a drainage scheme or reservoir, or something of that sort. Eight instances have occurred up to date, and they are likely to become more frequent, where local authorities have had to borrow for purchase of land, and the Board have found, on investigation, that they have no power to lend. An example would be land for open spaces or recreational purposes, and, as every effort is being made to facilitate and enlarge works for recreational purposes, it is desirable that the Board should be in a position to lend money for 2037 this purpose. The House will appreciate that local authorities have power to buy land and to borrow, but, though the Public Works Loan Commissioners are the natural lenders, they are debarred from lending. There is no change of policy. The remaining Clauses are in common form, and I hope the House will give the Bill a Second Reading, to enable the Board to go on with their valuable work.

§ Mr. Benson
The Financial Secretary said that there was only one interesting point, and that that was Clause 3. He is doing an injustice to our old friend, Eymouth Harbour. For years this has invariably appeared in this Bill, with a sum to be written off. This is a melancholy reminder of the Agricultural Credits Act, 1923, for Clause 2 of the Bill writes off the assets of the fund some 4,000 of loans which are not recoverable. But I hope no hon. Gentlemen are under the impression that £4,000 is the limit of our loss in the year 1936–7 under the Agricultural Credits Act. As a matter of fact, that £4,000 is a very small fraction of the loss resulting from that Act. The total loss for the year is not £4,000, but £76,000. The sum of £4,000 is borne in this Bill, and the other 72,000 is borne on the Votes of the Ministry of Agriculture and the Scottish Office.
I want to examine the policy that lies behind this very considerable and continued loss, which arises as the result of the Treasury paying the premiums which are charged on the repayment of loans under the Agricultural Credits Act at an earlier date than that for which they were stipulated. The way this provision arises is that when the money was lent under the Agricultural Credits Act, the Local Loans Commissioners had to borrow at the market rate, which was approximate to 5 per cent. They lent to the borrowers at 5 per cent., on the understanding that their loans would remain current for between 50 and 60 years. They made their borrowings permanent and they lent on the understanding that they were going to re-lend for 50 or 60 years. Since they lent, a very big drop in the rate of interest has meant that it was a great advantage to the borrowers if they could re-borrow at lower rates of interest and repay to the Local Loans Fund the sums 2038 that they had borrowed at 5 per cent. Naturally, the Treasury pointed out that, if these repayments were made earlier than the stipulated time under the agreement, a loss was involved by the Local Loans Fund and that a premium must be paid on repayment at an earlier date than that which had been arranged. All local authorities that borrowed from the Local Loans Fund have to pay this premium, but the borrowers under the Agricultural Credits Act have the premium paid for them by the Treasury. In the last three and a half years these premiums, paid for by the Treasury and borne on the various Estimates, have amounted to something like 250,000. The policy of paying the premiums on premature repayments under the Agricultural Credits Act is an unsound one, and it will not achieve the object for which it was adopted. The object is quite a simple one. It was known perfectly well that the loans under the Agricultural Credits Act were bad loans from the point of view of other loans. It was inevitable that very heavy losses would be involved, and the Treasury, in order to mitigate those losses, decided to offer an inducement for earlier repayment by allowing the repayments to be made without the necessary premium. In theory, that is, no doubt, all right. But how does it work out?
If you examine the figures of the Local Loans Fund, you will find that there are a certain number of borrowers who are solvent and are paying their interest and their annual capital repayments, and there are others who are insolvent and are in default. The only people who can take advantage of this waiver of premiums are the solvent borrowers. The insolvent borrowers, the borrowers whose farms are mortgaged up to the hilt and who have no opportunity whatever of replacing the Local Loans mortgage by a private mortgage, cannot repay. The result is that this waiver of premium merely attracts back into the Local Loans Fund safe money in respect of which there is no danger of loss. But unsafe money, money that the Treasury aim at getting back, is not coming back. It is only safe money which is coming back, and there is no sense in paying premiums to get safe money back which we should not lose if we allowed the loans to run their full time.
2039 These premiums, owing to the very heavy drop in the rate, amount to a very considerable figure. In the last year premature repayments amounted to £276,000, and of that sum the premium borne by the Treasury was £72,000, or 26 per cent. In the last three and a half years the premiums borne by the Treasury have amounted to £250,000, which works out at approximately 25 per cent. of the capital sum repaid. If we compare that with the actual losses not of good money, because we do not lose good money, but of bad money, we find that hitherto under the Agricultural Credits Act we have lost £44,000, which represents 28 per cent. of the capital originally loaned. What the Treasury are doing in their waiver of premiums policy is that they are paying 26 per cent. to get good money back, and on bad money their loss is 28 per cent. I suggest that that is a ridiculous policy to pursue, and that it would pay us to insist on the premium even if it reduced the rate of premature repayments practically to nil. It is only good money which takes advantage of this waiver of premium, and we shall get back good money. I suggest that this policy should be reviewed. The Treasury should review the question whether they are getting value for money by this waiver of premium. Each year loans under the Agricultural Credits Act become safer, because all loans are gradually repaying their capital. The total loans were something like £3,200,000, and of that sum £660,000 has already been paid, leaving about £2,500,000, so that we are so far as solvent borrowers are concerned in a comparatively strong position. I think it is folly to offer a 25 per cent. premium for the repayment of this comparatively safe money. I hope the Financial Secretary will look into the matter. Why should there not be a revaluation of these loans? There would be only about 900 valuations, and with the whole machinery of the Government at our disposal that would be a small matter. We are paying £70,000 in premiums which I hold is entirely unnecessary, and I think it is time the matter was looked into.

§ Mr. Pethick-Lawrence
I am sure I am representing the feelings of hon. Members in all parts of the House when I say how 2040 much we welcome the return of the hon. Member for Chesterfield (Mr. Benson) to our Debates and realise that he has lost none of that vigour as a watchdog over finance which he has always shown in our discussions. I will not try to anticipate what the right hon. and gallant Gentleman will say in reply. I do not know whether he will be in a position to reply to-night to the detailed points that we have raised, and if he is not so able, I hope that he will be able to give us a considered answer on the next stage of the Bill. I confess that my sympathies are more with the people who do not get an opportunity of being paid than with those who have been lucky enough to secure it.
On many occasions before when this Bill has been under discussion we have had our hopes raised by the possibility of something being done for the local authorities who borrowed at high rates of interest for a long period and who are, of course, perfectly correctly being held to their repayments over that long period. The Treasury have been able to throw out hopes recently that some relief might be given to them, and I hope that it may be possible, as time goes on, to relieve some of them from the heavy burdens they bear. I have only one thing to say about Clause 3, to which reference has been made. I can see nothing to which exception can be taken in it. The Bill is common form, with that single difference. I do not desire to delay the Bill in its passage.

§ Lieut.-Colonel Colville
I can speak again only with the leave of the House. I do not think that hon. Members will expect me to enter into the details of the points which were raised by the hon. Member for Chesterfield (Mr. Benson) to whose speech I listened with great care and attention, as we all do when he speaks on financial matters. The point which he has made to-night sems to hinge upon whether certain loans made under the Agricultural Credits Act were or were not safe. Where loans are not very safe and there is an opportunity of receiving early repayment, we think it is often prudent to take that opportunity. The hon. Member referred on a previous occasion to a question, which I do not think he raised to-night, whether we were not rather free with our remissions of loans. As this is St. Andrews night, I 2041 could not do better than quote the Scottish proverb: Ye canna tak' the breeks off a Hielan'man. [HON. MEMBERS: "Translate."] I think that proverb will be quite as well understood in the English language. There are cases where it is impossible to get the money at all, and the only thing to do is to write off the debt. I have noted the points made by the hon. Member and I will go very carefully into them. Somebody must judge whether, in point of fact, particular loans are safe or not and, when an opportunity occurs for early repayment, whether it is wise to take that repayment, even if this involves the remission of the premium normally paid by the borrower for doing so. I noticed the point made by the right hon. Gentleman about the position of the local authorities, but I cannot at present add to what I said on this subject last year. The matter is, however, not lost sight of.

§ Mr. Benson
The right hon. and gallant Gentleman has just said that somebody must be the judge of whether repayment should be accepted or not. I would 2042 point out that the Treasury minute lays it down quite definitely that no loan repaid under this Measure, whether safe or not, involves the remission of a premium. It is not a question of judgment. The repayment is made without any premium at all. I want the whole matter investigated.

§ Lieut.-Colonel Colville
I had in mind the whole range of policy when I said I would go carefully into the hon. Member's points.