PUBLIC WORKS LOANS BILL. (Hansard, 25 March 1941)

§ The Financial Secretary to the Treasury (Captain Crookshank)
I beg to move, "That the Bill be now read a Second time."
I do not think that I need detain the House very long on this Bill. It is a Measure which is well known to the House in ordinary times, and it arises generally towards the end of each year. Actually we have not introduced such a Measure since December, 1938, when £25,000,000 was asked for. That sum has not been quite exhausted, and at the end of January just over £23,000,000 of it had been drawn. Therefore the time is now ripe for us to come to the House with a further Measure. In the very nature of things to-day, the demands of local authorities cannot be as great as in normal times, because so much of their expenditure is now financed directly by the State. Secondly, of course, there is such a very big reduction, in fact an almost absence, of new building, which was the chief purpose for which these loans were created, that there is not an 490 opportunity for spending very much. That is why, under Clause 2, I am only asking for £5,000,000. The time has come for reappointing the Commissioners for a further five years. That is provided for under Clause 1. Clauses 3 and 4 deal with the remission of the small amount of arrears of principal and interest.
The really interesting and novel part of the Bill is in Clause 5, which is introduced as the result of an answer that my right hon. Friend gave on 18th instant to a Question asking whether he was now preparing to lift the ban on the conversion of stocks issued by local authorities where an option of repayment can be exercised. Since the war started this ban has been in existence, because the Government felt that they did not wish somewhat similar classes of borrowing to come into the market which might be in competition with their own borrowing. An ingenious way of getting over that difficulty has been propounded, that is, that the authorities which are now in a position, after due notice, to make conversion offers will be allowed to do so, and, if any money is required for the purpose, it will be provided by this fund instead of by ordinary market arrangements. That means that it will not be competing with Government borrowing-The amount involved is at present within the proviso which my right hon. Friend made in his answer, that he is prepared to consider applications by local authorities for permission to give notice of repayment of stocks carrying more than 4 per cent. interest. There is something like £20,000,000 at present which might be converted if so desired, and during the present calendar year there will be something like £13,000,000 or £14,000,000 more coming in, so that the field over which we are ranging is a maximum of £34,000,000. As no criticism has been heard of that proposal of last week, I hope it has commended itself to hon. Members and to people outside who are interested in following these matters. This is a novel Clause in what used to be an annual Bill, but I am sure it is the right place in which to put it, and it is the only way in which we could carry out the undertaking.

§ Mr. Pethick-Lawrence (Edinburgh, East)
Apart from Clause 5, this Bill is in common form, though it is longer than usual since we had a similar Bill. With 491 regard to Clause 5, I think it is a very ingenious method of meeting what was felt to be a difficulty by the Treasury. Personally, I do not share that feeling. I always thought that the existence of high interest-bearing stocks belonging to local authorities was injurious to public borrowing at low rates of interest, and I have always believed that the sooner they were allowed to convert the better, subject always to the fact that their conversion offer was couched in terms agreeable to the Treasury, because, clearly, the market being what it is, if you couch the terms agreeably, the public will take up a new offer. I am very glad that the Chancellor of the Exchequer has now agreed to allow these conversions to take place. "I am not at all anxious about the amount of money that people want to receive in cash. I hope that a little experience of this procedure will enable him to do what he intended in reply to a Question from an hon. Friend of mine when he made the original announcement, that he hoped to extend it later below the figure of 4 per cent. I should like to ask whether the £5,000,000 which the Commission is entitled to borrow under Clause 2 includes the sums payable under Clause 5. I rather gather that it does, but I should like to be quite certain that it is not a separate sum that is going to be borrowed. I support the Second Reading.

§ Mr. Benson (Chesterfield)
The first point I should like to raise is in regard to the general policy of the Public Works Loans Commissioners in selling farms and lands on which they have foreclosed. I see that something like 2,750 acres have been sold during the past year. That is not an exceptional amount. There is a very large number of mortgages, covering a very large amount of land, which are in default now and I assume, if the present policy is continued, that land, when it comes into the possession of the Commissioners, will be sold as and when they can. I think that is a mistaken policy. I think it very desirable that we should retain land rather than sell it, very frequently at practically a knock-down price. Government Departments are always buying land and, when they have to buy it in the open market, they have to pay a far higher rate than the Local Loans Commission would get when they sell. For instance, prior to the war the 492 Prison Commissioners were scouring the whole of the South of England for land for a camp prison, but were unable to find it. Why we should dispose of land when it comes into our hands I do not know. I certainly think it a bad policy and one which should be reconsidered.
There is another point in regard to the position of the Local Loans Fund. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) asked whether that £5,000,000 was to cover the underwriting of the municipal conversions. As drafted, the Bill is extraordinarily obscure, but it seems quite obvious that, whether or not it comes out of the £5,000,000 mentioned in Clause 2, the money is to come out of the Local Loans Fund whether it is lent by the Commissioners or the Treasury. If it does not, there is no point in introducing this matter into the Bill. A rather unusual position is created. Not only has the Local Loans Fund to find the money for the usual loans to local authorities, but now it has under-written something like £34,000,000. The total amount of this cash available now in the Local Loans Fund is only £2,500,000. I do not think that will be enough to meet the conversion. If we are to judge by the only conversion we have made since the war a great deal more than that will be required. The 4½percent. Conversion Loan was a "flop." For many months the various Government Departments were gradually preparing the market by purchasing 4½percent.stock and when the conversion was announced the stocks became in effect a very excellent six months Bill and the finance houses absorbed it greedily. There was a gradual accumulation of the stock into hands which intended to convert or which were compelled to convert. But the amount of non-assented stock was over £100,000,000; that is, anything between one-half and one-third of the stock was left in private hands.
If we are not to have a similar fiasco in the municipal conversion, the £2,500,000 which is all the money available in the Local Loans Fund will be inadequate and it will be necessary to issue fresh local loan stock. I do not think there has ever been a matter in the history of the British Treasury which has been so abominably managed as the Local Loans Fund. Money has been raised at enor- 493 mous discounts, in some cases amounting 10 50 per cent. The result is that the Local Loans Stock amounting to £429,000,000 gross carries a burden of £141,000,000 discount, a burden which ought never to have been allowed. Local Loans Stock is redeemable at par, and the result is that when it is redeemed very large blocks of it will receive 100 percent. premium on the rate at which it was issued. I do not need to stress the bad policy of issuing stocks at big discounts, for that is generally agreed. The Local Loans Stock at present stands at 90, and if, as I assume, the £2,500,000 now available is inadequate, fresh stock will have to be issued sooner or later. It ought not to be issued at 90. The blunder made in the past ought not to be repeated. There are two methods of fortifying the Local Loans Fund: either by issuing a fresh type of stock, not the 3 per cent, convertible at par, but possibly a stock for a period or a stock bearing a slightly higher rate of interest. If that is not possible owing to the difficulties of confusion, there ought to be a loan by the Treasury to the Local Loans Fund. There ought to be no more money raised for this fund at big discounts, and I hope the Financial Secretary can give us an assurance that if it is necessary to fortify the fund it will not be done along the line adopted previously.

§ Captain Crookshank
In reply to the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), who asked whether the £5,000,000 covered any amount that came under Clause 5, the answer is "No" The hon. Member for Chesterfield (Mr. Benson) says that the only money available is £2,500,000, but he must have overlooked that during the coming year money will be repaid and some of the ordinary loans will have come to an end, so that money is coming in and certain investments will be realised if necessary. I cannot do more at present than to say that I will take note of his observations. I cannot give such an assurance for which he asks.

§ Mr. Benson
What are the investments that may be realised? The investments are £1,500,000, and cash in hand is £1,000,000. That is all the money which is available for the Local Loans Fund.