LOCAL AUTHORITIES LOANS BILL

HC Deb 24 January 1945 vol 407 cc907-42

Order for Second Reading read.

3.59 p.m.

The Chancellor of the Exchequer (Sir John Anderson)

I beg to move, "That the Bill be read a Second time."

The main purpose of this Bill is to give effect to the policy in regard to borrowing by local authorities which I announced in this House on 25th July last. In the first instance, may I recall briefly to the House the statement I then made? I first pointed out that for a period which could not yet be defined after the end of hostilities in Europe the combined demands of the central Government, of local authorities and industry on the capital market, will, inevitably, be very great I do not think I need give instances; many will occur to hon. Members' minds. What is important is that all the capital expenditure with which we shall be faced in the early post-war period will be vitally necessary in the national interest, and that it must be financed in an orderly manner, and as cheaply as possible. There must be no scramble between competitors for capital, and everything must be done that is necessary to maintain effectively the Government's cheap-money policy. In such circumstances, the Government propose that, subject to certain exceptions for special types of borrowing, which I will explain later in my speech, all local authorities should borrow only from the Local Loans Fund, which fund will be kept supplied by the Treasury. At the present time, by an administrative arrangement, loans from the Local Loans Fund are, in general, made only to local authorities with a rateable value not exceeding £200,000 in England and Wales, and £250,000 in Scotland. These limits will, of course, be abrogated for the purpose of the new scheme.

Hon. Members may point to the fact that we already have our capital issues control, which applies to borrowings by local authorities as to all other borrowings. They may ask what further advantages will accrue from the scheme which the Government now put forward. I think there will be solid advantages both to the Central Government's cheap-money policy and to the local authorities themselves. So far as the Central Government are concerned, the advantage will be that a great portion of the demand on the capital market, instead of being made by a large number of local authorities, as and when each of them needs funds, will be made by the Treasury itself, at such times and in such ways as are most convenient in the light of the general borrowing programme. The advantages to the local authorities are, I think, equally clear. They are twofold. In the first place, the local authorities will be getting the capital resources they need, exactly as and when they need them. They will escape the possibility—this applies particularly to stock issues—that even when a particular borrowing programme has been authorised the market conditions at the moment may impose some delay on carrying out that programme. That has been a frequent experience in the past. There will thus be no reason for delays on financial grounds in the execution of public services. In the second place, local authorities will be enabled to borrow more cheaply than they otherwise could do, because the rate of interest they will pay for loans of any given period will be approximately that which the Treasury itself pays, or might be expected to pay, on its borrowings for such a period. I think the House will agree that in the sphere of capital finance the Government are, through this scheme, affording local authorities a considerable measure of assistance towards the speedy and cheap fulfilment of the responsibilities which will rest upon them after the war.

Since I made my statement in this House last July, the Government's proposals have been discussed with representatives of local authorities in England and Wales, and also in Scotland. Those representatives have accepted these proposals in principle, and I think we may take it, therefore, that they recognise both the necessities which have given rise to the scheme and also, not less, the advantages which the local authorities will derive from it. The discussions, over a period of months, have turned on points of relative detail. Some of them have given rise to provisions which now appear in the Bill, but a number of them concern matters of administrative procedure, and I do not propose to go into these now. I think I am fully justified in saying that, as at present conceived, the scheme is acceptable to the local authorities, and that it will be carried into effect with their full co-operation.

Since the scheme is a novel one in certain features, I think that it is, in the nature of the case, scarcely practicable to adopt the course—which I see certain of my hon. Friends wish to urge—of putting a definite time limit on its operation in the Bill itself. Certain assurances have, however, been given to local authorities, of which I should make the House aware. In the first place, it has been confirmed that the new scheme will continue in operation only for so long as it is necessary, and that it will be reviewed, in consultation with the local authorities, in any event, four years after the end of hostilities in Europe.

Mr. Graham White (Birkenhead, East)

That is not in the Bill.

Sir J. Anderson

No, that is an assurance. As I have said, there is no definite time limit in the Bill. Secondly, local authorities have been assured that the Treasury will be always ready to consider any representations which they wish to put forward about the working of the scheme, and that if, for that purpose, the associations of local authorities wished to appoint small standing committees, one for England and Wales and one for Scotland, to maintain contact with the Treasury, such a procedure would be acceptable.

I turn to the Bill itself. Clause 1 is the principal Clause, giving effect to the policy I have just explained. It provides that local authorities shall not, without the approval of the Treasury, borrow otherwise than from the Public Works Loan Commissioners, whose loans are, of course, made from what is known as the Local Loans Fund. It is not expected that the giving of Treasury approval for borrowing elsewhere, in individual cases, will be other than a very rare occurrence, but the Clause goes on to provide that the Treasury may, by Regulations, allow exceptions from the operation of the Clause, and Regulations will in fact be made, to permit of certain exceptions of a general character. The Regulations will, under Clause 7, be laid before Parliament when they are made, but the House may like me to indicate now what the first Regulations are expected to contain. I will not trouble hon. Members with every detail or every qualification which may be found in these rather technical Regulations. The Regulations will be discussed with representatives of the local authorities before they are finally issued.

Broadly speaking, they will permit local authorities to borrow in ways which I will briefly specify and which will be by way of exception to the general practice laid down in the Bill. These are the exceptions: First, borrowing on mortgage and on certain other securities, provided that the total debt outstanding in such ways shall never exceed the amount outstanding at the end of the financial year 1943–1944. The second exception is borrowing temporarily, in anticipation of revenue, or pending the raising of a permanent loan—temporary accommodation. Third, borrowing from any superannuation fund to which the authority contributes. Fourth, borrowing from another authority any funds which the other authority has power to lend. Fifth, by the issue of a new stock, in replacement of stock which an authority has an option to redeem, or which has finally matured. The use of any of these facilities which I have just enumerated will, of course, be subject to any necessary Treasury consents under the Capital Issue Control, or to any necessary consents of the Minister of Health or other appropriate Minister.

Mr. Colegate (The Wrekin)

May I get this point quite clear? The second heading was temporary accommodation, by which, presumably, the Chancellor means a bank overdraft. Does he include bills?

Sir J. Anderson

I did not exclude any particular form of accommodation.

Mr. Colegate

The Chancellor knows that certain authorities use bills.

Sir J. Anderson

That is, perhaps, a point that may be raised in Committee.

Mr. McEntee (Walthamstow, West)

There are quite a number of small banks known as municipal banks in this country, and I happen to be chairman of one myself. They are limited in the use of money to loans to local authorities, and if they are not permitted, under this new Bill, to continue to lend their money to local authorities, I wonder what is to happen to them. Will Treasury sanction be readily given to such loans?

Sir J. Anderson

This would not affect the lending powers of these banks. But long-term loans by banks would not be among the general exceptions for which provision is made. Temporary accommodations—yes.

Mr. Gallacher (Fife, West)

Will the Chancellor not include in these exceptions, the encouragement of local authorities, in view of the situation that will exist after the war, to get from organisations or individuals in their localities interest-free loans?

Sir J. Anderson

I do not think there would be any difficulty about that.

Mr. McEntee

There will not be many loans, either.

Sir J. Anderson

That may be regarded as a special case. Clause 2 of the Bill contains provisions affecting the Public Works Loans Commissioners, and gives me an opportunity of saying a word or two about the position of the Commissioners in relation to the new scheme. It is, I think, fortunate that, faced with the necessity of making this considerable innovation in the method of providing capital funds for local authorities, we have, ready to hand, the existing organisation of the Public Works Loan Commissioners and the machinery of the Local Loans Fund. For over 100 years, the Commissioners, who are appointed by Statute and are, therefore, indepen- dent of the Executive of the day, have been charged with the function of making loans to local authorities, and their primary duty has been to see that the security for such loans has been adequate to ensure public funds against losses on the loans. That is a duty which will still have to be performed, in relation to the much larger sums which will be involved in the future, and in which the Exchequer will be more closely concerned than it has been in the past. The country is, I think, much indebted to the successive bodies of Commissioners who have given their services over so long a period, and I am glad to be able to inform the House that we are assured of the full co-operation of the present Commissioners in the scheme we are now inaugurating. They have also readily agreed to certain simplifications of the technical details of their procedure.

It has been necessary to arrange for the fullest co-ordination—and this is a very important point—between the various authorities who will be concerned in any local authority's application to borrow from the Local Loans Fund. Such an application will, normally, have to be considered from three angles. The sanctioning Department, for example, the Ministry of Health, or the corresponding Department in Scotland, must see that the services for which the money is required is in accordance with approved policy and that it is done reasonably economically. Next, the Capital Issue Committee must be able to consider the proposed borrowing in the light of any rules laid down in the general control of capital issues. Finally, as I have explained, the Public Works Loan Commissioners must satisfy themselves about the proposed loan from the point of view of the security of the Local Loans Fund. I hasten to assure the House that the process of obtaining these necessary authorities will not, in practice, be as formidable as it might sound, and that we have arranged a procedure which will involve, I believe, the minimum of labour, delay or inconvenience to applicant local authorities.

The procedure will be this. A local authority will submit one application, accompanied by one set of supporting details, and that application will be submitted to the Department concerned with the policy. If it approves the application, that Department will send it on to the Capital Issues Committee and then to the that all three bodies may consider the one Public Works Loan Commissioners, so application, before any reply goes to the local authority. All three Departments will send their replies to the authority simultaneously. If the general policy governing the application is agreed, it will be the exceptional case in which difficulties will arise from either of the other two aspects. Nevertheless, questions or doubts may, quite properly, arise, which are entirely within the competence, and responsibility of either of the other two Departments concerned. If such be the case, the matter will immediately be considered by all three Departments jointly, before any one of them replies to the application, and such steps as may seem best in the circumstances will then be decided. It may be, for example, that, having regard to representations received, about the importance in the national interest of the policy involved in the particular case, the Public Works Loan Commissioners will feel that they ought to give an applicant authority the benefit of any doubt about the security of a loan; and, in the event of any consequential loss to the Fund, I should think this House would be disposed to accept such an explanation from the Government Front Bench as sufficient justification of the Commissioners' action.

I have explained, in this way, the procedure we propose to follow for removing any misgivings that may be in the minds of local authorities as to the administrative inconvenience of a procedure which involves, inevitably, getting three different consents. We will do it, as I have explained, in a way that will involve the local authority in no more trouble than if they had to make one application to one Governmental authority only.

Perhaps I may return briefly to the actual provisions of Clause 2; they are, in fact, mainly technical. Sub-section (1) ensures that the Public Works Loan Commissioners will have power to lend for any purpose for which a local authority has power to borrow. The effect of Sub-section (2) is that the maximum period for which the Commissioners may lend will not, in future, be subject, as at present it is in some cases, to a limitation of 50 years, but the period will be, in all cases, the maximum period prescribed for any particular purpose of borrowing by the Act under which the local authority borrows or in the authority given under the Statute by the appropriate sanctioning Department. Thus there will be the maximum of elasticity. The object of Sub-section (3) is, I think, fully explained in the Explanatory Memorandum accompanying the Bill. At present borrowers from the Local Loans Fund pay a lump sum fee to the Public Works Loan Commissioners which is fixed by those Commissioners by reference to their expenses. In addition, the annual rate of interest charged on loans from the fund, which is fixed by the Treasury, includes an element to cover the cost of managing the local loans stock issued to finance the fund and any further expenses of the Government Departments concerned beyond those covered by the fee to the Public Works Loan Commissioners.

That is the present system. Under the plan, in future borrowers will pay one lump sum fee only, of an amount to be prescribed by the Treasury after consultation with the Commissioners. The fee will be prescribed in Regulations to be laid before Parliament and the intention is that the fees will be sufficient to cover, without any profit to the Exchequer, all the expenses of the Commissioners and of the Local Loans Fund. Assuming that the fee is expressed as a percentage of any advance from the fund, the amount of the necessary fee will, of course, depend on the amount of the expenses to be covered and on the volume of advances to be made, and it will be reviewed from time to time in the light of experience. At the outset, it is proposed to fix the fee at 4s. for each £100 of an advance.

It follows that in future the annual rate of interest to be charged to loans from the Local Loans Fund will contain no element in addition to the pure interest charge. As I have already said, the interest charge for a loan of any given period will be approximately the rate which the Treasury itself pays or may be expected to pay on borrowings from the public for the same period.

This is perhaps a convenient place at which to refer to one point which arises on the question of interest rates. Under the existing Statutes loans from the Local Loans Fund for housing, small holdings and allotments must be made at the minimum rate in force for the time being for loans from the Fund. That minimum, which is at present 3¼ per cent. is, in fact, a long term rate, being based on the current yield of Local Loans Stock. Under the new scheme rates will vary according to the periods of the loans. The minimum rate will apply to loans for quite short periods and it will not be appropriate to apply it to long term loans like those for housing. The change will not involve on local authorities any increased cost for housing loans and they will, of course, benefit, in a variety of other services, by the lower rates that will be payable on loans for shorter periods. I regret that the necessity for dealing with this was not noticed before the Bill was introduced and I shall, therefore, have to move an Amendment in the Committee. But I mention the point now, in order that my explanation of the scheme of the Bill may be complete.

Now I turn to Clause 3, which makes provision for the financing of the large commitments of the Local Loans Fund in future. This Clause, if the House gives the Bill a Second Reading, will have to be the subject of a Financial Resolution. When the Local Loans Fund was set up in 1887, it was provided that it should be financed by the issue of local loans stock, which was to be a perpetual stock carrying 3 per cent. interest. That proved at times an unsatisfactory method of financing the fund, but it was not until as recently as 1935 that an alternative power was taken to issue, in lieu of Local Loans stock, other securities carrying whatever terms the Treasury thought fit. Actually, the alternative power so taken has never been used. In the circumstances likely to exist in the period immediately after the end of the war, when the Treasury is likely to continue to be a borrower for its own purposes, it may very well be inconvenient to make special issues for the purpose of the Local Loans Fund and it will certainly be more convenient if the Treasury can borrow to raise money which can be applied indifferently to whatever State purpose needs the money at the time. Hence Clause 3 provides that the Local Loans Fund may be financed by the Consolidated Fund and that for that purpose the Treasury may borrow in any way in which it is authorised to borrow for its other needs. In effect, therefore, the Local Loans Fund may be financed out of the proceeds of the Treasury's general borrowings. In form this power will be alternative to the other two powers that I have mentioned, but we may expect that it will in fact prove to be the normal method of financing the Local Loans Fund for some time to come.

As stated in the Explanatory and Financial Memorandum attached to the Bill, it is not possible at present to estimate the amounts which it will be necessary to issue to the Local Loans Fund or the Consolidated Fund under this Clause. That will depend on the needs of local authorities which cannot yet be assessed. It would be impracticable to insert any money limit in this Bill. The absence of such a limit does not, however, mean the absence of normal Parliamentary control over the amounts of issues under the Bill. The House will remember that money can be issued out of the Local Loans Fund for the purposes of loans by the Public Works Loan Commissioners only under the authority of Public Works Loan Bills which are introduced periodically, normally about once a year. Such Bills authorise issues up to a stated total. Parliament by this means will have in future, as in the past, strict and continuous control of the use to be made of the powers sought for in this Clause.

As regards Clauses 4, 5 and 6, which are of a technical character and are all designed in their respective ways to assist local authorities in dealing with their capital liabilities, a very brief reference at this stage will suffice. As regards Clause 4, the Treasury obtained powers in 1941 to assist local authorities to save interest costs where they had a chance to do so by the conversion of interest bearing securities at lower rates of interest. This was done by taking money from the Local Loans Fund to enable such authorities to redeem securities in respect of which the holders did not accept conversion. The powers taken in that way were limited in time to the period during which the Emergency Powers Defence Act, 1939, remains in force. Clause 4 is simply for the purpose of removing that time limit. On Clauses 5 and 6 I do not think that it is necessary for me to add anything to what is contained in the Explanatory Memorandum.

Clause 7 provides that Regulations made by the Treasury under the Bill should be laid before Parliament and be subject to opportunities for Parliament to annul them if it thinks fit to do so, in accordance with the normal procedure, by negative resolution. The Regulations in question will be those in Clause 1 which will deal with exemptions from the provisions of that Clause, and those under Clause 2 (3) which prescribes the fees to be paid by borrowers from the Local Loans Fund. On those points, therefore, Parliament and this House will have full control.

On Clause 8, the only point that I need mention is that the effect of the Clause is that the Bill will apply to all local authorities having power to levy a rate or a precept ultimately payable out of a rate. This, therefore, will cover the case of joint boards of local authorities, catchment boards and other drainage boards.

Clause 10 provides for the Bill coming into operation on an appointed day. The general scheme for centralising the borrowings of local authorities in the Local Loans Fund was originally designed to come into operation as soon as hostilities ended in Europe. Before then local authorities will not require to borrow large sums. There will be borrowing for such purposes as sites for houses. On the other hand, many authorities have accumulated capital funds. However, there may well be advantages in putting the scheme into operation as soon as the necessary administrative arrangements can be completed. Those arrangements can then be tried out in a small way before the larger post-war operations have to be carried through.

So much by way of explanation of the provisions of the Bill. In conclusion—

Mr. Gallacher

I would just like to ask—

Sir S. Anderson

If the hon. Gentleman will allow me to finish, I would say in conclusion that though this Bill starts off in a rather negative manner by imposing, or appearing to impose, new restrictions on local authorities, its object is, as I have tried to make clear, and its result will be, as I believe, to afford a well-conceived measure of positive assistance to local authorities in the great task of reconstruction and redevelopment which they will have to undertake after the war. It involves what must be regarded as a notable departure from our traditional methods of Government finance, and it imposes important new duties and responsibilities upon His Majesty's Treasury. The extent of these changes is a measure of the importance which the Government attach to their proposals. They offer, I feel, a new field of fruitful co-operation between the central and local governments, and with these words I confidently commend this Bill to the favourable consideration of the House.

Mr. Gallacher

One question before the Chancellor sits down. In view of recent events, can the Chancellor—

Hon. Members

Order.

Mr. Deputy-Speaker (Major Milner)

The Question is, "That the Bill be now read a Second time." Mr. Woodburn.

Mr. Gallacher

Why not allow me to ask the question, Mr. Deputy-Speaker? The Chancellor agreed to answer my question.

Mr. Deputy-Speaker

The hon. Gentleman will have an opportunity later.

Mr. Gallacher

On a point of Order, Mr. Deputy-Speaker. I rose to ask the Chancellor a question and he courteously asked me if I would hold it over until he had finished. I want to ask that question now, and the Chancellor is willing to answer it. Why am I not allowed to ask it? Why should the Chair prohibit me from asking this question?

Mr. Deputy-Speaker

Perhaps I misunderstood the hon. Gentleman. I thought he was beginning to make a speech. [HON. MEMBERS: "No."] Then it is my fault, and I am sorry.

Mr. Gallacher

In view of recent events, which show us the very great need for controlling the borrowing and directing the expenditure of the local authorities in Northern Ireland, can the Chancellor tell us why Northern Ireland is excluded from this Bill? It is a very important Bill for Northern Ireland.

Sir J. Anderson

I can explain quite easily why Northern Ireland is excluded. Northern Ireland has a fiscal system of its own, and we do not interfere with that.

4.34 p.m.

Mr. Woodburn (Stirling and Clackmannan, Eastern)

The House, I think, will welcome this Bill and on behalf of my hon. Friends I welcome it as a step towards the tidying up and the improvement of our general financial relationships. The money system of this country has grown up very much like Topsy, and to-day it would take a Philadelphia lawyer to know all the ramifications of modern finance. On occasion, I think the Chancellor himself has had difficulty in following some of the questions which hon. Members have wanted to raise and probe with a view to elucidating the financial system of this country. The MacMillan Committee was set up by a former Chancellor with a view to trying to put the picture in some sort of order, and, while it made great steps towards doing that, I think everyone will agree that much still remains to be done before the subject of finance is what might be called an open book.

The main points of this Bill are that it makes it illegal for local authorities to borrow except through the Public Works Loans Board, and that, in my view, eliminates a good deal of the chaos which takes place in the money market, and which might occur after this war, when all sorts of people will be hastening—probably during a panic rush—to demand loans and trying to borrow. In the past, I think it has been the case that when one authority thought it wanted to borrow all the authorities wanted to do so, and, as the Chancellor said, it became a veritable scramble. Under this Bill the other important point that strikes me is the fact that money can be supplied from the Consolidated Fund, and that that money can be, and will be, borrowed by the Government. I was very glad to hear the Chancellor confirm my own impression, gained from the Bill, that probably in the future most of the money lent to local authorities would come from that source. However, the fundamental point about the Bill is the question of the rate of interest, because, in the long run, the local authorities do not care where they get the money so long as the cost of it is not exorbitant, and it is important that under this Bill they will be able to borrow at approximately the rate which the Treasury itself pays, or might be expected to pay, on borrowing from the public for the same period.

On the face of it it looks like a Bill to benefit the local authorities and, to a large extent, that is the case, but the benefit is not all to the local authorities. Certain borrowings of local authorities affect the expenditure of the Treasury. If, for instance, a housing subsidy is established on the basis of limiting the local authority's expenditure, say, to a penny or a twopenny rate, then if the cost of borrowing money for that housing scheme or housing programme rises, it is not the local authority that bears it but the Treasury, which must bear it by paying an extra subsidy. Therefore, in some cases, it will be true that this will mean a saving for the Treasury, because if local authorities were borrowing inefficiently or extravagantly, on an account to which the Treasury had some obligation, then the Treasury itself would be the loser.

After the last war, and I believe it is still the case to-day, local authorities paid as high as 6 per cent., 6½ per cent., and, I believe, 7 per cent. for housing loans. To-day that just looks scandalous, and I fear that if such a situation were allowed to arise after this war the burden on the financial resources of the country might be such that a large number of our financial arrangements would break down. When we get the assurance that the rate will be that at which the Government will borrow, then the question arises, what kind of rate will that be? The Chancellor, I am very glad to say, gave me on 11th July an assurance that it would certainly be one of the objects of the policy of cheap money that necessary loans for housing and other local government purposes should be raised as cheaply as possible. I accept the intention of the Government that the policy of cheap money must continue and, if that is to be the case, then, of course, it involves a certain amount of control. I took the trouble to look into the meaning of this question of interest in regard to housing, which will be one of the biggest problems after the war, and I took the case of a house at £1,000 over 60 years.

The interest on that at six per cent. amounts to 17s. a week. If the interest is brought down to 3¼ per cent., which I think is the present rate, it brings the cost down to 7s. 10d. a week, and the interest is down to two per cent. it brings the cost down to 4s. 5d. a week. The Chancellor smiles, but he ought to be proud of the fact that the overall borrowings of the country for war purposes are under two per cent.

Mr. Colegate

There is a lot of short money in that.

Mr. Woodburn

It is short enough, but if you keep it going it soon becomes a long period. The point is that the Government are going to control lending and if they are going to control interest rates they have to see that those interest rates are small.

Mr. Colegate

I agree.

Mr. Woodburn

Co-operative societies have proved that there is a great deal of bunkum in the talk about people being willing to save their money only if they get high interest rates. The old co-operative societies used to proceed on that basis, but were forced to lower the interest to deter people from saving. In spite of that, people kept on saving. One of the troubles later might be to break that habit to some extent and get people to spend more money, so that it can be used if there are slumps. That is the Government's policy in regard to full employment. It is not just a question of relating these rates of interest. A storm was raised in the House some months ago over the cost of land. One would have thought, from some of the statements that were made, that the whole rent of a house depended on the cost of land. The cost of land amounts to only 3½d. per week. In other words, if we got the land for nothing we should save 3½d. per week; but the interest can amount to as much as 17s. a week. Therefore, the subject we are discussing to-day, after the captains and the kings have departed from the battle that has just finished, is much more fundamental than the matter we had all the row about in the latter part of last year. However, it may be wise that we should pass these things in a cooler state of mind.

If the rent and the rate interest is limited the extra cost of this interest falls on the Government, and it is right that they and the local authorities should co-operate in this matter for this purpose. The question has been raised in the House several times as to the desirability of having interest free loans for housing. They are not an impossibility. It is possible for the Government to grant loans free of interest, but it must not be forgotten that there are no such things as costless loans, which are a different proposition. If the Government want to give a subsidy by making loans free of interest that is one way, but I am against it for this reason: it is wrong that it should not be clear what things cost. If a house costs a certain amount of money it should be clear to the country and the local authority what is the cost of that house. The subsidy should be clear and open, so that the House knows what is being paid in subsidy. That is the best form of finance. To give hidden subsidies, like interest-free money and things of that kind, only leads to misunderstanding in the community and sometimes causes a great deal of mischief.

Mr. Kirkwood (Dumbarton Burghs)

My hon. Friend says it would cause misunderstanding. Can he tell us how we are to get interest-free money?

Mr. Woodburn

There has never been interest-free money, and there cannot be unless somebody else is paying the interest. I said that we cannot have money free of cost. Running the money system of this country requires a large number of buildings and very large staffs, and they have to be paid. They are paid now from the amounts which come in as interest. If we do not pay that way we have to raise taxation in order to run the facilities to provide the money free of charge to local authorities. My own view, therefore, is that what we want to achieve is interest or money facilities at cost price. The question arises: Is the cost of money still too dear? There is a great deal of wastage in this country in the running of our banking system. In a small agricultural town one sees five or more banks, cheek by jowl, all doing the same type of business. That cannot be justified on the grounds of efficiency. The present cost of money includes a great deal of overlapping and duplication of activity. I also raised the question with the Chancellor about the present price charged for our money facilities. A great deal of extra money is being paid to the banks in connection with our loans to-day.

I realise, of course, that costs have increased and that banks are paying the salaries of members of their staffs who have joined the Forces. I realise that commercial loans at five per cent. have been considerably reduced, and that although banks are dealing with a larger amount of money at one per cent. it does not equal the income they would get at five per cent. I am concerned about banks changing the method of presenting their accounts in some ways, which makes it difficult for experts, and even banking papers, to compare their accounts with pre-war accounts. It is true that up to now there has been the Excess Profits Tax, which gives a prima facie case to the suggestion that they have made no extra profits, but if I understand the system correctly they would be able to pay off a great many back debts which they might otherwise not do, and place themselves in an excellent position to make far better profits after the war. But I do not want to be too severe in this matter. As regards shipping policy, if it is desirable that shipping should be able to restart after the war—

Mr. Molson (The High Peak)

Is it in Order, Mr. Deputy-Speaker, to discuss the banking system and the shipping industry on this particular Bill?

Mr. Woodburn

Further to that point of Order. A fundamental point of my speech on this Bill is the rate of interest to be paid. That rate has to be decided by the policy of borrowing, and I submit that I do not see how it can possibly be excluded in that form.

Mr. Deputy-Speaker

The hon. Gentleman, on that basis, appears to be in Order.

Mr. Woodburn

I suggest, without making any charges against the banks or anybody else, that the Chancellor should look into this matter and make it a little clearer to the House that he is satisfied that the cost he is being charged in this connection is as strictly calculated as the costs of an engineering firm which is supplying munitions of war. The Government policy of maintaining cheap money will be one of the vital factors in reconstruction. This Bill is a step towards the national planning of finance, not a revolutionary one, but a very important one. It will prevent a scramble for money which, after the war, may be equally as dangerous as a scramble for goods. I gathered that the Government's policy is to try to keep the amount of spending power in the market commensurate with the amount of goods available, and this, no less than other forms of spending, is a control of that kind. Hon. Members opposite get very heated on the point of controls of any kind. Some want to abolish all controls. It has always been curious to me that, while in theory the Conservative Party are violently opposed to nationalisation or public control, they have brought more nationalisation and control into being than any other party. Indeed, they have created all the nationalisation that exists. Their theory gets out of touch occasionally with their practice. We accept this step forward on the ground of its practical desirability and not on the ground of any particular theory, although I welcome it as a proof that the Government intend to steer us safely through the storms ahead and not leave the ship of State to drift helplessly among the rushing waves of selfish interest.

I should like to ask the Chancellor of the Exchequer one question about municipal banks. I think he misunderstood the question that was put to him, because such institutions as the Birmingham and Motherwell municipal banks are not banks in the normal sense of the term. They are really municipal savings banks, where the money of the locality is gathered in and automatically becomes available to the local authorities, who use it as a method of borrowing. If the Chancellor's decision was to be effective, that would immediately wipe these banks completely off the face of the map. He said this might mean a temporary Bill. I hope that is not the case. In practice I am satisfied that it will justify itself and will be permanent. If we wipe those banks off the map we could not reinstate them in five years, because the law forbids a new bank being started.

I hope that among the exceptions that the right hon. Gentleman will make will be these municipal banks. They have been a great success and have provided a source of cheap money to local authorities from their own savings and, while it may be desirable to have a general pool, it is not much different from borrowing from their own pool funds if they borrow from the local savings of their own people. I do not know what the position would be with normal savings banks, because some of them have entered into contracts with local authorities, but I imagine that the general savings banks' money would go straight to the Treasury and go into the common pool, while a municipal bank is confined to the municipality. We welcome the Bill as a step forward and, in connection with the general policy of full employment and control of money, we hope it will be a prelude to Bills of other kinds to tighten up the financial machine.

4.54 p.m.

Mr. Graham White (Birkenhead, East)

This is a very important Bill and a very necessary one. It is impossible to conceive any well-ordered scheme for directing the capital that is available towards the best purposes according to the priority of their importance unless the question of municipal finance is incorporated in it. Municipal corporations have been in the past some of the most important borrowers. It cannot be said that in future they will be any less important. In fact it is obvious, with the great duties which will be placed upon them in the task of reconstruction, that their need for finance will be greater than it has been at any time in the past. It would be impossible to imagine municipal corporations and local authorities entering into any sort of competition with other bodies in a general scramble at the end of the war, and that is, of course, the prima facie and unanswerable case for a Bill of this kind. One does not need to cast one's memory far back in order to recall times when municipal borrowers had great difficulty in raising their loans. There have been times when they had to stand in a queue, and sometimes it was a long time before needy authorities could get into the market.

The Bill must be welcomed for that reason, but the fact that it is necessary and important does not make it less necessary to see whether any dangers for local authorities and their finances might arise from the proposals contained in it. I cannot disguise from myself that in certain circumstances, and under the Regulations that may be made under the Bill—the Regulations may be very important—it might be possible to place the whole of the local authorities' finances in a strait jacket by ear-marking advances for specific purposes or withholding all advances till the machinery proposed for other purposes important to the local authority had been set on foot. We have had from the general tone of the right hon. Gentleman's speech, an assurance that, as far as a Ministerial assurance can be binding—and we are accustomed to look on them as binding—there will be nothing of the kind attempted. Not only for this reason, but also because no one can predict what the conditions of the money market and our capital arrangements are going to be very far ahead after the war, I welcome the assurance, though it is not contained in the Bill, that there should be a review of the conditions and circumstances at the end of four or five years. A good deal may happen for good or for evil in a considerably less time than that. But, for the purposes of our discussion, the assumption that it will take place after four or five years is a very reasonable one, and, if events took a different course from what we imagine, and difficulties arose, there would probably be no difficulty in approaching the Government and asking for a review of all the conditions, or consideration of the events which had altered conditions.

On the other hand, one must recognise that the Bill contains many important proposals which make for greater elasticity in corporation and municipal finance. Clauses 4, 5 and 6 distinctly make possible a greater elasticity of treatment with regard to the re-conversion of loans already made, and with regard to the fact, which has not hitherto been the case, that money advanced to the Local Loans Commissioners can be put into the common pool which many municipal authorities maintain. That may well be a great convenience at certain times.

My hon. Friend, speaking a few moments ago, stressed the importance of the rate of interest. Of course that is a very important matter indeed. There is nothing in the terms of the Bill which will directly affect or determine the rate of interest, except the fact that a disorderly process of borrowing would have a great effect on it. I do not, however, see any possibility of our conducting our finances in such a way that 5, 6 or 7 per cent. would be called for on our loans in future. If we contemplate such circumstances we must recognise that we have no competence to manage our financial affairs at all. That is a bugbear we need not consider. The rate of interest which will be charged to the local authorities will be the lowest terms on which anybody can borrow. I am not quite clear whether the terms will be the same for all authorities borrowing money for the same purpose. We look back with regret to days when municipal authorities were trying to borrow money to carry out proposals to deal with unemployment. Those authorities, whose need to borrow cheaply was the greatest, were those which had unemployment or disabilities over which they had no control, and they were the authorities which had the greatest difficulty in borrowing and had to pay the highest rate. We wish to avoid any disabilities of that kind.

Having said that, I do not wish to wander from the strict path of the Bill and discuss any of the ancillary financial institutions of our country. I think that the Bill is well designed to cover a very important field in our post-war capital arrangements. Without it, a complete scheme cannot be made. I welcome the explanations which have been made by the Chancellor of the Exchequer on points which have given rise to some anxiety in some quarters, and also his assurance that negotiations and consultations will take place from time to time between the two great partners in the great work of reconstructing and rebuilding Britain. That there should be complete co-operation at all stages, with a view to obtaining the money that is needed at the right time and on the cheapest terms possible, is a matter of great consequence.

There are matters outstanding in connection with this Bill which we shall need to look at a little more closely in Committee. There is the question of the terms of repayment of loans and the conditions under which they may be made. At the present time, municipalities very often have an option whether repayment shall be made at the full term, or at some intermediary time. That is a matter to which importance is attached, and we should look into it more closely, but not on Second Reading. There are also such questions as whether it is really necessary, in these days, for municipal loans to pay their interest gross, and matters of that kind, which are contrary to the usual practice and cause a wastage of administrative work which might be avoided. I believe that the Bill is an essential part of any well-ordered scheme for the control of our financial and capital arrangements after the war.

5.5 p.m.

Mr. Colegate (The Wrekin)

I think that everybody in the House must have great sympathy with the object of this Bill. If we are to have a policy of full employment, it is certainly necessary that we should keep the money rates down to the lowest practical point. Not only that, but there certainly must be an orderly approach to the capital market. I think that the Chancellor has, in this Bill, taken a rather unnecessary power by putting so complete a prohibition on the local authorities for borrowing. There can be no question that everybody would desire that local authorities should borrow as cheaply as possible, but Clause 1, which is the main part of the Bill, may not necessarily mean that the local authorities can always borrow at the cheapest rate. During the past 20 years the local authorities have been able to borrow more cheaply than the central Government. Many local authorities are getting very cheap money, and many of them manage their financial affairs extremely well. I do not think the hon. Member for East Stirling (Mr. Woodburn) meant what he said when he talked about "chaos" in the financial system. There may be chaos in parts of the financial system, but I can assure him from considerable experience that local authorities' finance, on the whole, is extremely well done.

Let me refer to one or two common practices. There is a common practice for firms which have available money which they wish to place on deposit, to place it on deposit with local authorities on extremely cheap terms—½and ¾ per cent. I, myself, have been instrumental in placing in one instance over £2,000,000 at an average price of ¾ per cent., and that at 12 months' notice. It suited the firm, and it suited the local authority, because it had an ambitious programme which it was anxious to carry out. I asked my right hon. Friend about bills. As many Members must know, many local authorities have access to the bill market. I think I am right in saying that Liverpool Corporation has always advertised tenders for bills, and it has got very cheap money indeed. Somebody may say, "This is all very well, but we are talking about long-term loans and you are talking about short-term loans." That to some extent is true, but you can go on many years renewing a short-term loan, until the proper moment comes to fund it, and that moment should be when you can get the lowest rate of interest.

I suggest that all that Clause 1 need have said was that local authorities shall not borrow other than from the Public Works Loan Commissioners unless they can do so on more advantageous terms. Local loans at the moment give a yield of 3¾ per cent. There have been few borrowings by local authorities during the last 10 years where they have had to pay as much as 3¾ per cent. Many of them on the average have been much lower than that. On long-term loans the average of central Government borrowings is under 2 per cent. That figure is the average of all Government loans, including the enormous amount now outstanding of Treasury bills and bank receipts. If the municipalities are on the same basis, they also can get very low rates of interest. That matter needs to be reconsidered when we come to the Committee stage.

There are only two objects in the Bill. One is to give the Central Government adequate control of the capital market which it needs for its policy of full employment. The other is to see that the enormous sums of money which the local authorities have to borrow for the gigantic housing programme should be raised at the very lowest rate of interest. That is essential and will make an enormous difference to the whole housing programme. It is a very important point. I think we are going too far here, even if the Measure is revised in five years' time. It has been a very important part of the independence of local authorities that they should have the power of raising money. While I agree that the Chancellor of the Exchequer is right to ask for powers, especially for the next five years, which would enable him to keep the rate of money down, that should not be done in the form proposed in the Bill. I very much fear that if we once take away from local authorities their power of borrowing, the prohibition will tend to remain after the expiry of the five years.

We do not know how future Governments will be composed and still less what their credit will be. They may be able to borrow very cheaply, but, on the other hand, they may not. There have been periods when local authorities could borrow more cheaply than the Central Government. Therefore, while I welcome the general purpose of the Bill, we should look very closely at Clause 1 again when we come to Committee, to see whether we can modify it so as to attain the object the Chancellor has in introducing the Bill, without so drastically interfering with the powers of self-government of the local authority.

5.13 p.m.

Mr. Magnay (Gateshead)

I want to say a word of thanks to the Chancellor of the Exchequer for bringing in the Bill. When we were considering the White Paper on National Insurance, I said that it denoted a new way of life. It was, to me at any rate, a great watershed, which made the waters of life run another way. The Bill is necessary in my opinion, cer- tainly in the interests of local authorities, that they may be able, in the parlous conditions which may obtain after the war, to put their own houses in order.

What I am concerned about, other than this word of thanks and good wishes to the Chancellor and to the Government for their efforts in that respect in the Bill, is, Who is to be in the queue for the loans? How many are there to be? Who is to choose them? When I came here, 13 years ago, mine was the worst distressed area in England or Wales, except for Merthyr Tydfil, and it was almost impossible for a distressed area to get a decent loan when it wanted it. Being a Wesleyan, I always think that Wesley spoke as a great statesman when he said that we should give not only to those who need us, but to those who need us most. In the future, such places, whatever fancy name they may be given, such as "special areas," will want all the help that they can get. Are lots to be cast to decide who is to come first in the queue? Are the borrowers to be taken in alphabetical order, or in the order of those who can pay back most quickly? I agree with an hon. Member who spoke earlier, that the Bill will be no use at all unless the loans carry the lowest possible rate of interest.

I do not think it is impossible that loans for housing should be free of interest. We should not be honest and sincere if we failed to do something in that direction in regard to housing. Local authorities such as my own will be interested in the tripartite agreement of the three different authorities who have the loaning of the money. I should like to be assured that the loans will not carry a time-lag, which will make it impossible for the local authorities to carry out the works in the time that they would desire. I would like to know that these matters are being thought of, and that there is some plan. We should discuss this matter very carefully when the Bill is in Committee.

As I read the signs of the times, and the practices followed during the war, I do not think there is any need for a high rate of interest. We know what happened in the '20s; there had to be deflation. In our madness and on the advice of our financial experts, we pushed the bank rate up to 7 per cent., with the result that the industry of the Tyneside went flop, and we were made a race of labourers for many years in the shipyards. My father was a blacksmith, one of a generation of craftsmen who could make anything, and there was a high standard of craftsmanship. But we deliberately made the Tyneside a derelict area. I will raise my voice against any possibility that friends or relatives of mine should go down in that way again simply because we are guided by the advice of financial experts. It all hinges upon this low rate of interest.

If anybody had told us during the last war that we could run this war on 2 per cent. or less, we should have disbelieved it. We should have said that the suggestion was stark financial lunacy. But it has been done. It can be done again. Let us be honest. When we will the end, let us will the means. Let us see that every effort is made by the Chancellor in this direction. I hope the House will excuse me for having spoken with such heat on this matter, but we have gone through hell on Tyneside during the last to years, and we do not want it to happen again. Let us put our brains together, and let this be a joint effort of all parties to see that the local authorities have the best means of making it financially possible to carry through the great enterprises which will be necessary to make this England the country we would like it to be.

5.19 p.m.

Mr. Douglas (Battersea, North)

The Bill proposes to make a very drastic change in the methods of local authorities' capital finance. It will take away from them almost completely the freedom which they have in the past enjoyed to manage these matters as they have thought best. The independence and the autonomy of local authorities are something which they cherish very deeply. Nevertheless, in the discussions which have taken place with the Chancellor and the Treasury upon the principles of these proposals, the local authorities have agreed to accept them as a temporary measure, not merely for what advantage they can get out of them themselves, but for the general advantage, because the Treasury is likely for some considerable time to come to be a borrower upon its own account, as well as upon the account of the local authorities. Therefore, to prevent unnecessary competition between local authorities and the Treasury ought to be an advantage to the Treasury, as well as the prevention of unnecessary competition between the local authorities themselves.

I do not think one ought to expect this Measure to work miracles. There is a reasonable hope that it will achieve a modest degree of saving, both to the Treasury and to the local authorities, in the rates of interest they may have to pay in the years which are immediately facing us. But there is, after all, a limit to what can be achieved in this way, and in this respect I do not agree with my hon. Friend the Member for East Stirling (Mr. Woodburn). The rate of interest which has to be paid is in the end limited by other factors than those which he mentioned. There is the question of what the person with capital at his disposal can get by investing or using it in all the possible avenues open to him. There is also the question of the amount of inducement which he requires in order to induce him to save money and invest it for capital purposes, and these factors are all of a fundamental nature which will not be altered at all by this Bill. In passing, neither do I accept his statement that this Bill will solve the problem of building houses or that the cost of land is a negligible factor. I only wish my local authority was able to procure land on the kind of terms he mentioned, instead of having to pay, in many cases, £200 to £300 for land per flat which it has to build. That is by the way.

This new procedure which is contemplated means that the local authorities have now to jump over three hurdles before they get their finance. They have not only, as in the past, to obtain the sanction of the Ministry of Health or whatever other Department is the loans sanctioning authority in that particular case; they have also to get the assent of the Capital Issues Committee, and finally, the assent of the Public Works Loans Board. With regard to the Public Works Loans Board, I should like, as a member of that Board, and I am sure with the full assent of my colleagues upon it, to acknowledge the compliment which the Chancellor paid to the Board for the work it has done in the past, and which I know it will be only too delighted to carry on to the best of its ability in the future. However, there are these three different bodies which have to be brought into operation in this matter, and I hope that the rules and regulations which are laid down will be as simple as possible, and will avoid unnecessary formalities and waste of time. It will not help the ultimate success of this experiment if there is unnecessary red tape, either with regard to the preliminary inquiries or the form of the mortgage or security which is required, and so on.

As local authorities are to be prevented, with some exceptions of a limited character which the Chancellor adumbrated in his speech, from borrowing elsewhere than from this one single source it will have to be understood that when sanction is given by the appropriate Department then, as a general rule, the other sanctions will follow automatically. In the past a local authority has had the freedom, once it obtained sanction from the loans sanctioning department, to go where it pleased for its borrowing, and if the terms which it was offered in one quarter were not satisfactory it could try another. That is entirely cut out now, and, therefore, it ought to be made possible, if the sanctioning Department considers that the project should proceed at all, for the loan to be obtained without any difficulty.

With regard to the Capital Issues Committee, may I suggest that it would perhaps be helpful if that body contained some member or members familiar from practical experience with the work of local authorities, and with the way in which they manage their financial transactions? That is a suggestion which is in accordance with the other suggestion which the Chancellor has accepted that there should be a small advisory committee which will follow the practical working of this from day to day, and will make suggestions, in the light of experience, as to matters in which the procedure can be improved. The regulations which have to be made under this Bill are of very great importance, because they will contain, in a large measure, the substance of what the Bill wants to achieve. It is understood that there is to be no restriction upon borrowing by a local authority from internal or surplus funds which are at its disposal. This seems to be achieved by Clause 6, but there is a peculiar provision in it which, in practice, looks as if it were going to limit the applicability of it by limiting the period for which the borrowing may be made. When the time comes perhaps we can look at that in more detail, but there seems to be a measure of inconsistency in the way in which the provision is drafted.

Another point to which I should like to refer, and which will presumably have to be covered in the regulations, is the period for which the loans shall be made. I hope it will be made clear that a local authority is not prevented from borrowing for a shorter period than that for which the loan sanction is given. I do not mean by that that it should be allowed to finance long-term expenditure by means of short-term loans renewed from time to time, because that clearly is inconsistent with the main purpose of the Measure. What I am referring to is where it is thought, on proper technical and financial grounds, that it will be better policy to amortise the loan in a shorter period than that which the loan sanctioning Department has allowed. There are many instances in which local authorities in the past have quite properly carried out such an arrangement. In the case of electricity undertakings, for instance, many progressive local authority undertakers have borrowed for mains and other purposes for shorter terms than those which were sanctioned, and have found that that policy was a wise one, because the rate of obsolescence has turned out to be greater than was anticipated, and they have not been left with a burden of unproductive capital debt at the time when they found it necessary to scrap the plant and put in new plant.

It is the same with regard to housing. It is a wise policy to borrow part of the money, at any rate, which is required for the period the Exchequer subsidy lasts, so that the burden on the local authorities' finances will be reduced pari passu with the reduction or disappearance of the subsidy. Those are illustrations of cases in which it is wise financial policy to borrow for a shorter period than has been sanctioned by the loan-sanctioning Department. I hope that no obstacle will be placed in the way of such a policy continuing. I hope also that it will be made clear that no restriction will be imposed on local authorities financing capital expenditure out of revenue if they feel it advisable, as has become the practice, to a certain extent, of a considerable number of local authorities, a practice which I should hope, so far as circumstances permit, will be increasingly adopted, with great advantage to the ratepayers.

I hope it will be made clear that no obligation will be imposed on local authorities to exhaust the whole of the internal funds which they have available for capital purposes before they apply to the Public Works Loans Board for an advance. If such a condition were imposed it would be extremely distasteful to the local authorities, and it would not in the long run be to the advantage of anybody. In the same way it ought to be made clear that there is no intention on the part of the Treasury to impose any greater control, apart from that which naturally flows out of the general principle here, upon the expenditure and the financial policy of individual local authorities than has been exercised in the past. I hope that on these points we shall receive satisfactory assurances.

It was understood very clearly in the discussions that have taken place with the Chancellor on the principles of this Measure that it was intended to be only a temporary expedient, or experiment, to last for four years. There is no limitation of time whatever in this Bill, nor was there any suggestion that the point would be covered by the Regulations. All the Chancellor said was that consultation would be held with local authorities after the expiration of four or five years. That is not how I understood the undertaking given to them. It might be found, in the light of experience, that this arrangement should be carried on for a longer period. I will not prejudge that, but I think that the local authorities would like to have it made clear that the Chancellor of the Exchequer is not prejudging it by casting this Bill in permanent form.

5.35 p.m.

Mr. Stokes (Ipswich)

I would deprecate, if I may, the absence of the Chancellor. I think he is woefully lacking in education on these points. Although he may read the speeches, that is not the same thing as talking to a man face to face, because if a man has any brain at all—and the Chancellor has—the arguments sink in more deeply then than if he reads them afterwards. [An HON. MEMBER: "If they are forceful."] If the Chancellor were here, I should certainly be more forceful than I shall be this afternoon. I wish to call attention particularly to the incidence on the rates of these local loans. I want to put a few figures on record. I am speaking about my own constituency, the borough of Ipswich. This really affects both the incidence of the loans and the rate of in- terest. In 1941–42 the cumulative effect of interest and sinking fund on the loans outstanding in the borough amounted to £350,000, against a total expenditure of £1,500,000. I agree that some of the interest was paid out of Government grant, but that does not seriously affect the issue. The fact is that about 25 per cent. of the total expenditure in the borough was concerned with payment of interest and the sinking fund on the loans. I protest against this usury, however petty it may be.

I wish to deal with a particular loan in a borough which I do not propose to mention, although I propose to send the borough treasurer a copy of my speech. It was a £25,000 loan, at 6¾ per cent. It was a 60-years loan, raised in 1920. In 13 years it had been reduced by something under £600, to £24,442, and in 18 years it had been reduced to £24,070. At that rate, at the end of 60 years, the £25,000 loan will have cost that wretched borough £100,000 in interest.

Mr. Tinker (Leigh)

I thought that loans at a high rate of interest could be revised at certain periods.

Mr. Stokes

My hon. Friend has drawn attention to the very point that I wanted to make. It is time that loans of that kind were revised. The only thing we can do is to mention our examples, and to send the people concerned copies of our speeches.

Earl Winterton (Horsham and Worthing)

Surely that includes the sinking fund?

Mr. Stokes

No; I ask the Noble Lord to look at what I have said. It has taken 18 years to reduce the loan by something under £1,000. It is our old friend the Prudential which is concerned. I am glad that my hon. Friend the Member for East Stirling (Mr. Woodburn) dealt with the question of interest rates. I want to refer specifically to the interest rates effected on loans in my constituency. We have at present £4,440,000 outstanding on loans, the average rate on which works out at 3.82 percent. We could get loans—I do not say interest-free loans, because I know the difficulty, but at one per cent.; and there is no reason why we should not, if the Chancellor of the Exchequer really entered the lists against this petty usury. I profoundly disagree with my hon. Friend on this point. There is no reason at all why the Government should not loan money at 1 per cent.

I hope every ratepayer in the country will notice what I am going to say now, but it is very unlikely, I agree, because there will be a directive to suppress it and to have nothing said about it. I want to say to this House and the country what the effect would be on the rates of Ipswich if we could get loans at 1 per cent. The effect would be, at the present time, that we should save £125,781 a year on a total rate levy of 500,000. That is, approximately, 25 per cent., and on a 17s. rate, as at present, 4s. 3d. Thus 25 per cent. is the difference between the rates being levied at present and the rates as they would be with loans at 1 per cent. If we could get the rate of interest down to 1 per cent. we could drop the rates by 4s. 3d. in the pound. If that is not worth doing I do not know what is. I think the present Government are Sadly lacking in their intentions regarding the welfare of the people in this matter. They are still under the thumb of the moneylenders and they have one eye on Bretton Woods. They are still determined not to uproot the financial interests of the City. It is about time we had them out and a decent arrangement made whereby the welfare of the people can be looked after without this—to put it mildly—perfectly filthy usury on the part of people who do nothing for a great deal.

5.42 p.m.

Sir John Mellor (Tamworth)

The Chancellor of the Exchequer has described the provisions of this Bill as being a notable departure in our financial legislation. I think that, in that case, it is rather extraordinary that this Bill should be brought on for Second Reading in the last two hours of the day. It would have been far more appropriate to have put it on the Paper as the first Order for some other day. It would be quite a good Bill if Clause 1 were deleted. I am entirely in favour of local authorities being given full facilities for borrowing from a central source. I am very much against their being prohibited from borrowing from other sources, should they wish, and are able to do so on terms more favourable than from the central source. I strongly protest against this prohibition that they should not borrow otherwise than through the Public Works Loans Commissioners except with the Treasury's consent.

When the Chancellor discussed this matter with the local authorities, I think it was quite clear that it was discussed with them on the footing that it would be, at any rate so far as compulsion is concerned, a temporary measure. Reference to the memorandum, which was published in HANSARD on 25th July, quite clearly establishes that. Indeed, the Chancellor quoted some of it when he opened his speech. I gathered from him that, in his view, it was not intended that this Bill would be a permanent Measure, as we are asked to enact it now. But I am afraid the Chancellor gave no indication in the later part of his speech that we could be assured that the scheme might not retain its present form for all time. What did he say? He referred to an Amendment which is on the Paper in the names of myself and some of my hon. Friends, and which proposes that the duration of Clause 1 of the Bill should be limited to a period of five years. The right hon. Gentleman said that he did not regard that as desirable. He said this was a novel scheme and for that reason it was not desirable to have a time limit. I should have thought that the very reason that it is a novel scheme is the strongest possible reason for this House imposing a time limit, and that is, in fact, the reason why I seek to impose a time limit of five years.

The Chancellor has already undertaken to the local authorities to review the matter four years after the Bill has come into operation. I do not think that is sufficient for us. It is quite right that the matter should be discussed with the local authorities, but it should also be discussed in this House, and we have no possible means of securing reconsideration in this House in four or five years' time, unless we impose a definite time-limit now. That is not a burdensome thing to require. When the time comes, supposing the Bill works well, and we are all agreed that no alteration is necessary, all the Government need do is to bring in a one-Clause Bill making the scheme permanent or extending it for a further five years. It is perfectly simple. I do not think we should part with this Bill with this very drastic Clause 1 in it, which makes it illegal for any local authority ever to borrow money except from one source without Treasury consent. We ought not to pass that Clause without a time-limit being imposed upon it.

There is one further point. The Chancellor claimed that the local authorities would be able to barrow more cheaply. I always understood that the position was as explained by the hon. Member for The Wrekin (Mr. Colegate) that, in the past, it has very often happened that local authorities have been able to borrow more cheaply in the open market than they have from the Public Works Loan Commissioners. I am glad that other hon. Members have formed the same impression as the result of experience. Surely, all we want to see is that the local authority should be able to borrow in the cheapest market, and I understand that the local authority must have the consent of the Minister of Health before going to anybody. It is quite easy to secure that the local authority shall always borrow to the best possible advantage from the point of view of its ratepayers, even if it was tempted, which I cannot conceive would happen, to do anything else. Suppose it did do anything else, and, having the facilities for borrowing at a fixed rate from the Public Works Loan Commissioners, the local authority chose to borrow at some higher rate in the market. Surely, the district auditor of the Ministry of Health would have something to say about it and I imagine that the councillors responsible would probably find themselves surcharged.

Mr. George Griffiths (Hemsworth)

No.

Sir J. Mellor

I may be wrong, but it is a small point. There is no need for the Public Works Loan Commissioners to be given a monopoly. Consider the interests of the local authorities. Give them the facilities and let them choose. They will then have the chance to borrow in the cheapest market. If Clause 1 is necessary for the period of reconstruction immediately following the war, I am quite prepared to be persuaded upon that point, but I really cannot see that it is necessary to introduce this permanent prohibition. Unless the period is limited in the Bill, as far as we in this House are concerned, it is a permanent prohibition which I can only describe as a piece of blatant bureaucracy.

5.50 p.m.

Mr. Gallacher (Fife, West)

I want to make a few remarks, but before doing so I would like to say that if any ill-disposed person in this House were to suggest that I am in any way a financial expert, I would consider that as the subject for an action for slander. I am far from being in that category, but I have lent money many and many a time, and, as I remarked to my hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood), in our walk of life—[An HON. MEMBER: "You never get it back"]—it was a common thing for those who happened to celebrate on certain occasions, to regard a teetotaller as one who should always have money in his pocket and should always have it at their disposal. I have lent money, but I have never at any time in my life dreamed of a percentage of interest. That never entered the mind of any honest man.

Mr. Colegate

Is the hon. Member talking of loans that he made to local authorities, or those he made merely personally?

Mr. Gallacher

They were friendly loans, from one friend to another. Are we to be told that the Chancellor of the Exchequer is the enemy or the friend of the local authority? I will put it in another way. If I have furniture which I am afraid of losing, I put it into store for safety. Do they pay me so much interest for putting it into store? I have to pay for putting it into store. If I have money in the house which I am afraid of losing, I put it into store—a bank. How much do I pay? I want to impress Members on this side of the House particularly with the fact that this method of dealing with money is one which is a fraud, and is used for corrupting the people of this country. The people of any town, city or locality would willingly lend their money to the local authorities—

Mr. Henderson Stewart (Fife, East)

Do they lend it to the co-ops?

Mr. Gallacher

—and to the co-ops too. They would willingly lend money if encouragement were given, and if it was not for the rotten system that encourages every kind of fraud and corruption. I am not one of those who make a lot of talk about the freedom of local authorities to go into the cheapest market. It is not the cheapest market that Members of the party opposite are thinking about when they talk about the freedom of local authorities. It is the freedom for their own fellows to encourage the local authorities to go to their particular friends for loans, at whatever rate of interest they like to charge. If there is to be freedom for local authorities to do their job, there will have to be control over loans, and the rate of interest that they have to pay. The Chancellor of the Exchequer should see to it that, if the loans cannot be issued free of interest, they should be at the lowest rate of interest, such as would exist between one friend and another. It is no use the hon. Member for Gateshead (Mr. Magnay) getting into a passion, and complaining of the position in Gateshead, if he supports the robbers on the other side. You cannot support the robbers, and then plead to God. You have to make a choice. You cannot choose Barabbas and then complain of the way in which your friends and relatives have been treated.

Mr. Magnay

I did not say a word about Barabbas.

Mr. Gallacher

I say to the hon. Member "Be honest with yourself and finish with the whole business." I want to deal with the question of municipal banks which was raised by an hon. Member. The Chancellor should discuss this with the Secretary of State for Scotland, who has, from time to time, written exceptionally fine articles, dealing with the question of municipal banks, and saying what municipal banks would mean in saving local authorities from much heavy expenditure, and enabling them to get ahead with their work. I believe that there is a municipal bank in Birmingham, and there is one at Kirkintilloch, the home of the Secretary of State. We ought to be encouraging municipal banks so that they can gather in the local money, and pour it into the funds of the local authority, in order that the local authority get ahead with the jobs they have to do.

I do not understand the financial juggling of the hon. Member for East Stirling (Mr. Woodburn) showing that local authorities only pay a few coppers a week for land and 17s. for interest. You cannot separate the cost of land from the interest. The interest is used in respect of the loans for land, materials, and all the rest of it. There are many authorities in this country who have heavy interest to pay because of the high cost of land. When they take building land for building purposes, all the amenities and all the civic centres should go with the houses. A fellow in Dundee wanted some land on which to build nine three-storey buildings and because of the cost of land, he could only get one-third of the land he wanted, and, instead of building nine three-storey buildings, he built three nine-storey buildings. [Interruption.] He was as crazy as most of the Members opposite. When last I saw the buildings, in spite of the housing shortage, only up to six floors were occupied.

Land is one of the most serious problems. The Chancellor of the Exchequer, in dealing with the local authorities, should realise that two things are absolutely vital to local authorities, so that they may meet and deal with the crisis of housing and health. They are so essential that the Chancellor of the Exchequer should see to it that land is obtained by the local authorities with the greatest of ease and in the greatest abundance. They should have money at the cheapest possible rate so that they may be free to do the great job of work that lies ahead of them.

5.59 p.m.

Lieut.-Commander Joynson-Hicks (Chichester)

After the very exhilarating exhortations to which we have just listened from my hon. Friend the Member for West Fife (Mr. Gallacher) it is a little difficult to enter into the more detailed intricacies of some of his arguments, but I cannot help drawing attention to the tall houses to which he was referring, and thinking that they may have contained some of the tall stories of which he has been telling us. Certainly these seem to go up very high towards the sky. There was, however, one thing with which I was in agreement with my hon. Friend, and that was when he said there must be a measure of control over the local authorities. I think there, however, our ways part, because the measure of control which he attempted to envisage was very different indeed from the measure of control which I should advocate. I should advocate control to ensure that the local authorities, where it was necessary for them to borrow money, did so in the cheapest market, and that is what I fear this Bill may very likely prevent.

It being Six o'Clock, the Debate stood adjourned.

Debate to be resumed To-morrow.