HC Deb 25 July 1944 vol 402 cc586-9
49. Mr. Hutchinson

asked the Chancellor of the Exchequer whether he is yet in a position to make any statement about his discussions with local authorities on the provision of funds to meet their capital purposes after the war.

The Chancellor of the Exchequer (Sir John Anderson)

Yes, Sir. I have now discussed this matter with representatives of various Associations of local authorities in England and Wales and have conveyed to them certain proposals which the Government desire to adopt. These proposals are set out in a memorandum which I handed to the associations and of which I am circulating a copy in the OFFICIAL REPORT. I have invited the associations to give the matter their care- ful consideration and to submit any observations they desire to make. My right hon. Friend the Secretary of State for Scotland has similarly conveyed the Government's proposals to representatives of various associations of Scottish local authorities and invited their observations.

Following is the Memorandum:

BORROWING BY LOCAL AUTHORITIES AFTER THE WAR

1. The Government desire to make, in the period immediately after the war, an important change in the methods by which local authorities at present satisfy their borrowing needs.

2. It is clear that for a period (which cannot vet be defined) after the end of hostilities in Europe the combined demands of the Central Government, local authorities and industry on the capital market will be very great. The Central Government will for a time have to borrow to meet an inevitable Budget excess of current expenditure over current revenue; it will also have to meet such charges as compensation for war damage, repayment of postwar credits, and those capital programmes which have to be financed centrally. Local authorities will require to incur very considerable capital expenditure in connection with the reconstruction of damaged areas and the development of various public services (e.g., housing, education and water supplies). Industry will likewise require to finance much capital reconstruction in order to effect the conversion of plant and machinery from war to peace purposes and to make good arrears of technical development.

3. All this capital expenditure will be vitally necessary in the national interest and it is essential that it should be financed not merely in an orderly manner but as cheaply as possible. As a matter of public policy, therefore, interest rates must be kept low and the Government must have all the powers and facilities necessary to make that policy effective. In particular, anything in the nature of a scramble between competitors for capital finance, which would undoubtedly be prejudicial to that policy, must clearly be avoided. The demands made by all parties on the capital market must be so co-ordinated that they are made at the times, and by the methods, which are most helpful in the general interest. The control of issues of capital, in conjunction with any necessary controls of physical resources, will go a long way towards securing that objective. On the other hand, there may at times be some delay in the making of issues permitted under such control, and essential public services—local as well as central—must as far as possible be protected from any delay in execution on that account.

4. As part of a policy designed to secure the above objectives, and so long as the conditions necessitating that policy substantially continue, the Government propose that all local authorities should (with the exceptions mentioned in the next paragraph) borrow only from a central source which will be supplied with the neces- sary funds by the Treasury. Such a procedure will have obvious advantages both for the Treasury and for local authorities. The necessary funds will be raised by the Treasury as and when it is most convenient from the point of view of its general borrowing programme and of the state of the market from time to time. Local authorities will get essential finance whenever they need it and will not be subject to market delays. The rates of interest on their borrowing will be determined by the Central Government's own credit, as measured by the market rates for Treasury issues of corresponding periods, with the addition of a very small charge for management expenses.

5. As exceptions from the requirement that local authorities should borrow only from a central source, it is proposed that any local authority should be free

  1. (a) to borrow on mortgage (subject to any rules in force as to the periods of mortgages) up to the amount necessary to provide for repayments of existing mortgages;
  2. (b) to borrow surplus funds which other local authorities have available for investment;
  3. (c) to borrow from their own sinking funds, superannuation funds and other similar internal funds to meet capital expenditure, as at present; and
  4. (d) to exercise existing powers of borrowing temporarily by bank overdraft (or, in some cases, under Local Act powers, by bills) but only for the purposes of (i) meeting expenses intended to be met ultimately out of a loan which it has been authorised to raise, and (ii) anticipating revenue.

6. It is proposed that the central source referred to in paragraphs 4 and 5 above should be the Local Loans Fund. The existing arrangements by which loans may not be granted to local authorities with rateable values over £200,000 to meet expenditure under Local Acts, or for commercial undertakings, will be cancelled. Arrangements will be made whereby the necessary administration of loans from the Fund by the Public Works Loan Board is coordinated with existing departmental procedure with a view to affording the maximum convenience to local authorities. Legislation will be promoted to enable the Public Works Loan Board to lend for those purposes for which local authorities have power to borrow but for which the Board have at present no power to lend.

For the purposes of supplying resources to the Local Loans Fund the Treasury already has power (so far unused) to issue any kind of other security instead of Local Loans Stock. It is proposed to take the further alternative power to make issues direct to the Local Loans Fund, if and when it is so desired, from the Consolidated Fund and out of the proceeds of the Treasury's borrowings generally.

7. The Treasury (in conjunction with the Ministry of Health) would like to be in a position to proceed at an early date with the drafting of the legislation necessary to give effect to these proposals; but before doing so, they will be glad if the representative associations of local authorities will give the matter full consideration. The Departments will welcome dis- cussion of any suggestions, consistent with the general policy, which the associations desire to make.

Note.—The same Memorandum was handed to the representatives of the Associations of Scottish Local Authorities, subject to necessary minor changes and to the addition of the following paragraph after paragraph 4:—

"As local authorities are aware, it has been necessary during the war for the consent of the Secretary of State to be obtained to borrowing for capital expenditure. This requirement has been generally accepted under war conditions and its continuance will be essential so long as the conditions necessitating the general policy outlined in paragraph 3 exist."