HC Deb 18 June 1948 vol 452 cc864-76

Order for Second Reading read.

1.40 p.m.

The Financial Secretary to the Treasury (Mr. Glenvil Hall)

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

The purpose of the Bill is to authorise the National Debt Commissioners to issue to the Public Works Loans Commissioners, for the purpose of local loans, advances not exceeding £500 million in cash and to make commitments, that is, promises together with advances, of a sum not exceeding £680 million. The reason for the Bill is that, as at 4th June, rather more than £140 million had been advanced, of which £110 million had been advanced for housing. The outstanding commitments at that date were about £180 million and, under the power conferred by the present Act, the overall balance left is something like £80 million. Of course we could wait until the Autumn before promoting another Bill, but it occurred to us that there would be a risk in doing that and that it would be much better to come to the House for powers to make the advances mentioned in the present Bill.

It is of course difficult, as the right hon. Member for the City of London (Mr. Assheton) knows, to estimate how long the present sums will last. It was difficult in the old days when he occupied the position I now hold. It is very difficult now when nearly all loans have to be made through the Local Loans Fund and, after six years of war, local authorities are spending a good deal of money, particularly in the erection of houses. It is difficult to give any real estimate as to how long the amount set forth in the Bill will last, but it is our expectation that it will certainly last until late in 1949 and, we hope, until early, in 1950.

When this Bill becomes an Act, it will entirely supersede the powers which were granted under the previous Measure. When the present Act was passed, I told the House that the commitments then outstanding were in the region of £225 million. That £225 million, or a very large proportion of it, has had to come out of the present Act. Today we have the unused balance of approximately £80 million, and if that is added to the outstanding promises of a further £180 million, we get an approximate total of £260 million, the major portion of which will have to come out of this Measure. When the matter is looked at with that in mind, it will be realised that the sums we ask for are reasonable and proper in the circumstances. It is essential that local authorities should have these facilities for development and reconstruction. We should run no risk of being in a situation where we have not the powers even to commit the Board to make an advance. I commend the Bill to the House.

1.45 p.m.

Mr. Assheton (City of London)

I have little comment to make on this Bill. One notices it is a much slighter document than the Public Works Loans Bill to which one is accustomed and does not have the schedule or appendix which usually discloses a large number of somewhat unsatisfactory loans made in years past which have come home to roost. I have no doubt we shall have a revival of that appendix when we have the next full Bill.

I was not quite sure how much of the £500 million is likely to be applicable to housing. The right hon. Gentleman gave an indication in regard to a past figure, but did not indicate how much of the £500 million would be applied to housing. It would be convenient if we could be told what that figure will be, and also how much is likely to be devoted to education, school buildings and so on. I do not know if it is convenient for those figures to be given now, but, if not, perhaps they could be made available to the House on some future occasion.

I wish to know how this new plan by which the local authorities concentrate all their borrowing through the Treasury is working. There was a good deal said on both sides when the new plan was introduced and it was thought by many that the more general control of the capital market which the Government have undertaken made it desirable that that practice should be followed. I would like to know whether local authorities are satisfied with the new system or whether there have been complaints or difficulties arising from it.

I should also like the right hon. Gentleman to tell us, at what rate of interest the money is now being lent to local authorities. I have an idea what it is, but I should like it confirmed officially by the right hon. Gentleman. He has told us that the £500 million is likely to last, or he hoped it would last, until about the end of next year. I do not know what the general capital position is going to be over that period, nor do I know how much capital it will be possible to find. It is all very much tied up with the question of savings. I take it that the right hon. Gentleman is satisfied that the savings will be adequate to provide this finance, because if savings are not forthcoming to meet it the situation is very unsatisfactory from the point of view of controlling inflationary influences.

This is not the time to talk at length of the importance and difficulties of the formation of capital, but it is a matter about which I have felt very concerned of late. Not only have we on this side of the House criticised proposals in the current Finance Bill in regard to the Special Contribution which we thought would have a serious effect on savings and on the formation of capital, although they are restricted at present to a small class of saver, but anxiety has been generally expressed on the subject. I hope the right hon. Gentleman takes full account of that and will represent to the Chancellor that that anxiety is felt. It is very clear to me that the next few years will see a great scarcity of capital. That is a feature which will become more obvious as time goes on.

In the past capital has largely been formed from the savings of the wealthier members of the community who had a surplus income out of which they could save. Now, owing to the very high level of taxation of the wealthier members of the community, the margin available for saving is very much reduced, and leaves the saving to be done by a very large number of much smaller income holders. That will have a serious effect upon the future financing of our business. However, we are here concerned with the Public Works Loans Bill, and all I want to know is that the right hon. Gentleman feels satisfied himself that the savings which will be available to the Treasury during the period ahead of us will be sufficient to meet the capital commitments which this Bill envisages.

1.51 p.m.

Sir John Mellor (Sutton Coldfield)

As the Financial Secretary has pointed out, this Bill provides that a prescribed amount of money may be issued by the National Debt Commissioners for the purposes of local loans by the Public Works Loans Commissioners. On another occasion, and in another connection, I have drawn attention to the fact that the body called the National Debt Commissioners has now been reduced really to the position of being a mere puppet of the Treasury. The Public Works Loans Board, like the National Debt Commissioners, is a body composed of very distinguished people. It has, indeed, a most imposing set up, but in my contention the Public Works Loans Board also is now operating merely as a puppet of the Treasury. It is unfortunate that the Public Works Loans Board has not a wider degree of discretion in the conduct of their business.

My right hon. Friend the Member for the City of London (Mr. Assheton) inquired of the Financial Secretary whether local authorities generally were satisfied with the new arrangements. My experience indicates that at any rate some of them are not satisfied. I feel that in order to illustrate my contention I should tell the House certain facts with regard to a particular local authority. It will not be necessary for me to go into any great detail; I have already drawn the attention of the Financial Secretary to the facts, of which he is well seized, and if I say anything which in his view is inaccurate I ask him immediately to interrupt me.

A local authority negotiated a loan of £90,000 with the Public Works Loans Board; it was a long-term loan, for the purpose of housing, to run for 60 years; the rate at which it was negotiated was 2½ per cent., and it was arranged that the advance should be made on 2nd January of this year. That advance would have been made on 2nd January of this year, at 2½ per cent., but for an unfortunate mistake for which the Public Works Loans Board was solely responsible. I think the Financial Secretary will be the first to admit that no blame whatsoever lay with the council or its officers. What happened was that, through a mistake on the part of the Public Works Loans Board, an essential document which had to be sealed by the council was omitted from the papers which were sent, and owing to the delay which ensued the advance was not made, as expected, on 2nd January. That perhaps would not have been a matter of any great seriousness but for one event: on 2nd January a Treasury Minute raised the rate of interest on local loans from 2½ per cent. to 3 per cent. from 3rd January onwards. This local authority will now be required to pay 3 per cent. instead of 2½ per cent., which, taken over the 60 years of the loan, will amount to an increased charge of something over £20,000 for the service of the loan.

The House will appreciate that this is a very grave and serious matter, which raises an important question of principle. Naturally the local authority at once took up the question with the Public Works Loans Board, but the Board said: "We can do nothing. We are entirely bound by the Treasury minute. We are not permitted any discretion whatsoever to make any relaxation, even in the hardest possible case." The local authority then went to the Treasury, and received an entirely uncompromising reply. I then took the matter up with the Parliamentary Secretary to the Ministry of Health, from whom I received all sympathy, but he decided that he was unable to intervene. I then took the matter up with the Financial Secretary, who merely confirmed the attitude which the Treasury had stated to the local authority. The position is, therefore, that through a mistake for which the Public Works Loans Board was exclusively responsible, and for which no blame whatsoever lay upon the council or its officers, a local authority will over the next 60 years lose £20,000.

That is a very hard case, and perhaps on some other occasion I may be permitted to deal with it in greater detail. The reason I am raising it now is to call attention to the very unfortunate and inflexible situation in which the Public Works Loans Board finds itself. It is not permitted by the Treasury any discretion to deal with cases of this kind, and it seems to me positively humiliating to that Board, with its very distinguished membership, that it should be allowed no latitude at all. If a commercial institution had been involved and had decided to raise its rates for loans as from a certain date, and if through the fault of that commercial body a loan which had been negotiated at a certain rate was not completed by that time they would not seek to charge the increased rate of interest; if the matter had been negotiated at 2½ per cent. it would have been completed at 2½ per cent., even if meanwhile the lenders had decided to raise the rate on their loans in general. It is positively humiliating to the Public Works Loans Board to be put into the position that, when it has committed a fault and so gravely prejudiced the position of one of its borrowers it is not permitted by the Treasury to make the obvious and reasonable arrangement of permitting the loan to go through at the rate of interest at which it was negotiated.

I think that this needs looking into. If the rate of interest on local loans is to be changed by Treasury action, by making a Treasury Minute at 24 hours' notice, then that should apply only to loans negotiated thereafter. But when loans have been negotiated at a certain rate those negotiations should go through, and be completed at that rate. The position of the Public Works Loans Board should be looked into. It seems to me to be a very unhealthy position to have a body which looks very distinguished and very important and has great responsibility, but without either power or authority, standing between the Treasury and the local authority. If we are to have such a board, let it have not only responsibility, but also the appropriate amount of power and authority. I make no complaint that the Treasury should decide that the rate of interest on local loans should be raised. That is a proper matter for the Treasury to decide. But surely, in the administration of the matter, in the precise application of the rules, some discretion should be allowed to the Public Works Loans Board. Either we should have a board with some authority or else it would be far better to have no board at all.

2.2 p.m.

Sir William Darling (Edinburgh, South)

This is a moment of great triumph for His Majesty's Government. Some very short time ago a prominent leader and a former Member of the Government told the world and the House of Commons that pounds, shillings and pence were meaningless symbols. That proposition has apparently converted supporters of the Government as they think this Debate unessential enough for them to leave their Benches entirely empty. There is not a single unofficial supporter of the Government on any of the Benches and that I think is deplorable. From another point of view it may be a matter for congratulation, because apparently supporters of the Government, converted by the former Lord Privy Seal, think that £500 million represents only meaningless symbols.

I would like to follow my hon. Friend the Member for Sutton Goldfield (Sir J. Mellor) in criticising the Public Works Loans Board. I suggest that there are important public considerations involved. Do we really require this sum of money to be borrowed in this way? Are there not within this country ample resources from which local authorities can obtain the necessary finance whereby they may conduct their enterprises? They did so in the past. They paid the market rate for money required, and when that market rate seemed high it often discouraged extravagant local enterprise. This proposal to make available this large sum of money, in these days when inflation is still with us, may well encourage spending where otherwise local authorities would not be so tempted. The great savings institutions have not been called upon to anything like the extent they could have been called upon to meet the needs of local authorities. There are those millions of which we hear a great deal and which are available through the banking institutions of this country. There are millions available through the building societies. These would seem to be sources more appropriate to draw upon, at the appropriate rate, than to draw upon public funds to this extent.

My hon. Friend the Member for Sutton Goldfield made reference to the fact that this money would be used mostly for housing and other large scale developments. I know that the Financial Secretary to the Treasury is interested in housing, and in saving. Many millions invested in housing at the moment could be released if the Government would address their minds to a plan offered to to them frequently from this side of the House. There are many tens of thousands of occupants of local authority houses who would willingly purchase their houses, if they were allowed to do so, and thus free the local authority and place them in funds for rebuilding and the extension of their housing programme. The Government are placing at the disposal of local authorities an apparent blank cheque, which is an encouragement for them to enter into transactions from which at some time in the carrying of them out, they will suffer hardship. That is doing something to the local authorities which, in the long run, is not to their advantage. I do not believe in having only one bank, and I do not think that local authorities are wise to place all their responsibilities in the hands of one bank. The competitive system has its advantages. If local authorities, as in days gone by, can decide (a) whether they borrow or not; (b) whether they borrow at a particular price or not, and (c) from whom they borrow, their position would be stronger and more independent than under this arrangement.

Much has been said about the invasion by the State of the rights of local authorities. In my opinion this is a fresh invasion by the State of those rights. It is giving a greater and more monopolistic control of their financial destiny than in days gone by. I am opposed in principle to the extension of State finance. The capital can be raised in other ways at an economic price, which in itself is a considerable safeguard. It can also be raised to a not inconsiderable extent by the realisation of assets formerly spent on housing, by enabling many thousands of persons to become the purchasers of their houses and thereby relieving the local authority of much heavy capital expenditure. This is a policy of financial extravagance. It is a policy of offering seductive temptation to local authorities who should be encouraged, not to purchase easy money, but to follow a policy of thrifty, prudent and careful housekeeping.

2.8 p.m.

Mr. Glenvil Hall

I should like to answer briefly the main questions put from the other side of the House. I was asked by the right hon. Member for the City of London (Mr. Assheton) how much of the £500 million contemplated in this Bill will be needed for housing. It is impossible for me to give a completely accurate figure but, if the past year is any guide, about three-quarters of it will go in that direction. Housing by local authorities is undoubtedly the largest element in the expenditure covered by loans which are now being raised through the Board. The right hon. Member asked how the plan to concentrate local authorities'—

Mr. Assheton

Would the Financial Secretary refer to education?

Mr. Glenvil Hall

It will depend on the local authority concerned and the materials and manpower situation during the coming year. I am sorry, but I think it would be unwise of me to venture to name a figure to the House. I did make inquiries under the Gallery whilst the right hon. Gentleman was speaking and I am informed that the Treasury could not now give a hard and fast estimate.

The right hon. Gentleman asked how the plans to concentrate local authority borrowing through the Commissioners were progressing. The House will remember that the Act of 1945 only lasts for five years and that we will have to review the position in 1950, or before. I think that I can say that, on the whole, the procedure has worked very well. At this juncture, it is obviously wise and proper to concentrate the main borrowing by local authorities through the Commissioners. It prevents local authority competing against local authority in the outside market.

Sir W. Darling

Why should they not?

Mr. Glenvil Hall

It enables the Treasury and the Board to advise local authorities, where such advice is necessary. Generally, it makes for tidiness rather than raggedness.

I was asked if I would give the current rates of interest for the purpose of record in HANSARD. As from 3rd January last, the rates are: up to five years, 2 per cent; five years to 15 years, 2½ per cent.; above 15 years, 3 per cent. The right hon. Gentleman said that savings by individuals were important at present, and that they were doubly important if local authorities were borrowing large sums, which undoubtedly they are. In spite of the hard things which some hon. Gentlemen opposite have said, I am sure that they realise that savings are important and that they should do everything to encourage thrift among the people.

The hon. Baronet the Member for Sutton Coldfield (Sir J. Mellor) trotted out what is becoming his usual gambit, namely, that every board is a mere puppet of the Treasury. A little while ago the National Debt Commissioners apparently did nothing of their own volition. They simply did what the Treasury ordered them to, do. This afternoon he would have us believe that the Public Works Loans Commissioners are in the same position. Nothing is further from the truth. There are 12 Commissioners who are appointed for five years. They are unpaid. They do a great job of work out of a sense of duty to the State.

I assure hon. Members that they are the sole judges of the securities offered for advances. The majority of them come from banking and financial circles in the City—the last place where they would simply say, "Yes," like a rubber stamp to everything they were asked to do by the Treasury. Recently, and very properly, the policy has been expanded to include on the Board representatives of local authorities. That is a policy which is good in itself. If representatives of local authorities are placed on the Board, that is additional evidence that the Board is an independent body. These people would not agree to be there to act as figure heads for some nefarious purpose which the Treasury had in mind.

The individual case to which the hon. Baronet referred was one in which both the Ministry of Health and the Treasury had much sympathy with the local authority; but it is obvious that if a date for a change in the rates of interest is laid down, then that date must apply. In this instance, the application to the Board was made on 9th December, and it was not until towards Christmas that the arrangements began to come to a head. It was unfortunate that Christmas intervened and that a form which should have been sent to the local authority was not enclosed with a letter. Because of that, the actual advance was not made until after 2nd January, whereas, if it had been made before that date, the rate of interest would have been different. These borderline cases are most difficult but, although they command much sympathy, it is absolutely essential that, if rules are made and rates are laid down to come into force on a given date, they should be put into effect. It is difficult to extend a different rate to one authority and not to extend it to others. The hon. Baronet is one of those who has been most consistent in this House in saying that 2½ per cent. was far too low a rate and that we should raise it to 3 per cent. Now that that is done, he seems to find a grievance.

Sir J. Mellor

As the loan was arranged to be completed on 2nd January and negotiated at ½ per cent., and as it was entirely the fault of the Board that it was not so completed, surely this is more than a borderline case? This is a case where the transaction ought to have been carried through as contemplated.

Mr. Glenvil Hall

It is not quite as simple as that. On a Bill of this character I do not want to waste too much time on a case of domestic interest to the hon. Gentleman and to the Board. The date, 2nd January, was not suggested by the local authority but by the Board as a reasonable date upon which the loan might be made. I am not a member of the Board. It may well be that the Board had in mind that it would assist the authority by giving the advance on a date when the change would not have taken place. In the upshot, owing to the Christmas holidays, shortage of staff, illness and other human factors, which unfortunately enter into these things, the advance was not made and agreed until after the new rate had come into force. Under the rules and regulations, as the hon. Gentleman knows, one does not negotiate at a given rate in the sense that one does with a commercial firm. The rate, on the basis of which negotiations take place, is that which will happen to be in force on the date when the advance is made. Unfortunately, in this case, the rate on that date was 3 per cent.

Mr. Assheton

I wonder if the right hon. Gentleman will make the position clear. It was rather suggested by the hon. Baronet that the Commissioners, had they been allowed to exercise their own discretion, would have agreed to go on with this loan at 2½ per cent. As businessmen conducting business in an honourable way, that is what they thought was the right thing to do, but they were prevented by the Treasury, through some technicality, from doing what they, as businessmen, would have liked to do. It is obvious that for local authorities in the future this matter will occur again. If a negotiation takes place between a local authority and the Board for a loan on the basis of a certain rate of interest, and the negotiations are completed but the formalities are not, I should have thought that the rate of interest which was under discussion when the negotiations were completed, was the rate which ought to have effect, whether it be higher or lower. There may be a case where it would be to the advantage of the Treasury. It seems to me, and to some other hon. Members, rather objectionable that this kind of thing should happen because some form has not been completed or some seal has not been put upon a document.

Mr. Glenvil Hall

I do not know whether this would or would not occur with a commercial firm. We must take the situation as it is. When a local authority applies, normally it goes first to the Ministry of Health and later it goes to the Public Works Loans Commissioners. As a general rule, these negotiations occupy many weeks and, sometimes, many months. That is inevitable in the circumstances.

There must be a certain amount of inquiry into why the money is wanted, whether the amount is right and proper, how long the advance, when made, is to be for, and so on. Inevitably, it takes some time and, if the suggestion now made and the principle laid down by the right hon. Gentleman were accepted, it might well be that an advance might be negotiated today at 2½ per cent. or 3 per cent., but that the actual advance would not be made for a year or 18 months, and that, in the meantime, the rate might have gone down considerably. If so, the local authorities would feel very aggrieved. Therefore, as I think very properly, we have to relate the rate at which the advance is made to the actual date upon which it is made, and that, unfortunately, was the case here. On other occasions, it has gone the other way, and the local authority has gained because there has been some delay and the rate has changed shortly before the advance was made. That is the difficulty with all these borderline cases, and I admit it. I sympathise with this local authority, but there it is.

Was the Treasury or the Public Works Loans Board responsible? That question, of course, I cannot enter into at all. We have the Loans Board there, and it takes its decisions, and I, acting for the Treasury and speaking on behalf of the Chancellor of the Exchequer, must take responsibility for what happened, and I do. I am very sorry indeed that it happened as it did and that this local authority has had to pay, and will have to pay, more interest than it would otherwise have done if the papers had gone through earlier. I think that that answers most of the points made, and, with those observations, I ask the House to give a Second Reading to this Bill.

Question put, and agreed to.

Bill read a Second time, and committed to a Committee of the Whole House for Monday next.