PUBLIC WORKS LOANS BILL (Hansard, 15 November 1949)

§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
I beg to move, "That the Bill be now read a Second time."
It is about 18 months since the last Bill of this kind was introduced, and on that occasion I said we expected that the amount the House was then willing to grant under the terms of that Measure would last until late 1949 or early 1950. I can only wish that I were always as correct in my estimates as I obviously was on that occasion. That Bill authorised £500 million, which could be granted by the Commissioners by way of cash advances, and a total not exceeding £680 million for cash advances plus commitments. The House will be interested to know how much of that has been expended and how much has been earmarked by way of commitments.
At the beginning of this month, actual cash advances had been £360 million, of which £285½ million havegone on housing, £14 million on education, £9½ million on public health, £44 million on gas, transport, land drainage and the like, and £7 million on stock redemption. The 1933 balance in hand is, therefore, £140 million; that is the cash balance in hand of the £500 million. But the commitments which we have to take into account come to about £225 million. If those commitments are added to the £360 million advanced, the total is £585 million, which leaves only £95 million out of the £680 million I have mentioned.
As at the moment cash advances are being made at the rate of £8 or £9 million a week it is quite obvious that by about February or March the funds will be exhausted. We therefore come to the House with this Bill and ask for similar provisions to be made—that is, up to £500 million for cash advances and £680 million for cash advances plus commitments. In this connection, I would add that as soon as this Bill, if agreed to, becames law, all the commitments which have been made under the old Measure, together with cash advances about to be made, fall, and the commitments and cash advances still to be made will have to come out of the new amounts which this Bill grants.
Hon. Members might ask how a Bill of this kind marries up with the Government intention to reduce capital expenditure during the next year. The answer is that this is only an enabling Measure, and when we agree to the figures in this Bill, it does not mean that commitments will be made for these amounts during the current year. Applications for loans have to be sanctioned by the appropriate Departments before they go to the Public Works Loans Commissioners, and therefore it will be possible for the Departments concerned still to operate the policy of the Government on capital expenditure, in spite of the fact that we are agreeing to these further sums.

§ Mr. Osbert Peake (Leeds, North)
These Bills have not, by custom or tradition, been made the occasion for a large review of our financial situation, but, in view of the very large figures involved compared with before the war, I am afraid it may be necessary, not tonight but on future occasions, to have a rather wider review of the powers of the Public Works Loans Board and of their operations than has hitherto been the case. The figures, of course, are stupendous compared with what they used to be before the war, when the borrowings of 1934 local authorities from the Public Works Loans Board were limited to those authorities whose rateable value did not exceed £200,000.
The first point I should like to make, which is of some importance, is that we ought to try and get back to making these annual Measures. Before the war there was always one Public Works Loans Bill every Session, and the amount involved was between £20 million and £30 million. From that we could roughly estimate the amount of new expenditure on housing and so forth which the smaller local authorities were undertaking. Since then, the Public Works Loans Bills have appeared at very irregular intervals. We had two in 1945, one in March and one in October, the first authorising the National Debt Commissioners to advance £150 million and the second £250 million. There was then a period of something like 14 months, to December, 1946, when we had a further authorisation of £250 million, and seven months later, in July, 1947, we had another authorisation of £500 million.
As the right hon. Gentleman has said, it is now something like 18 months since the last Bill, and we are here authorising a further £500 million. It would be much more convenient if we could get back to having annual Bills, because we should then be able, more or less, to relate the figures to the below-the-line expenditure we now review at the time the Budget is introduced. The difficulty about this Bill is that there is no period specified which the money granted has to cover. It is not related to a financial year or to a calendar year. It may be compared to a father who, instead of giving his boy a regular quarterly or annual allowance, just says, "Here is £100. See how long you can make it last." That is what the Government are doing in the case of these Public Works Loans Bills.
I should like to see the Financial Memorandum set out the figures the right hon. Gentleman has given us in his opening speech. The Financial Memorandum, instead of giving us the informative information we require to enable us to appreciate the situation, merely refers to these small items of bankrupt farmers and small co-operative housing schemes which have met with misfortune and whose debts to the Public Works Loans Board have to be remitted.
1935 I wish to refer on this occasion to one other matter which is of great importance. The Local Authorities Loans Bill, 1945, canalised all local authority borrowings through the Public Works Loans Board. Its purpose was to secure orderly postwar finance and avoid an ugly scramble in the capital market. As a quid pro quo, the local authorities were given the assurance that the interest rates at which they would be able to borrow should be approximately what the Treasury itself paid or might be expected to pay on its own borrowings. That assurance was given by the then Chancellor of the Exchequer, my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson), and also by myself when I occupied the same office at the Treasury as the right hon. Gentleman opposite.
The rates of interest were related to the length of the loan period, and the original interest rates varied from 2 per cent. for short-term loans to 3¼ per cent. for loans of over 30 years. These rates were reduced, of course, during the Chancellorship of the right hon. Member for Bishop Auckland (Mr. Dalton), and were subsequently increased in a period of financial stringency by the present Chancellor of the Exchequer. The long-term rate is now 3 per cent., which is, of course, far below the rate which the Treasury might be expected to pay on its own long-term borrowings at the present time. With 4 per cent. Consols touching par and 3½ per cent. War Loan down to 88 or 89, the Government are having to pay 3¾ per cent. for long-term borrowing at the present time.
It really is rather ridiculous for the Government, through the Public Works Loan Board, to be prepared at the present time to grant long-term loans to local authorities at a 3 per cent. rate of interest. It really amounts to this: that over and above the Government subsidy upon municipal housing schemes, there is at the present time, if new loans are granted, a further concealed subsidy by the rates of interest being charged.
The right hon. Gentleman said, perfectly correctly, that local authorities have to get the sanction of Government Departments and of the Treasury before they can proceed to obtain a loan through the Public Works Loans Board, but if he will look at the admirable report of 1936 the Public Works Loans Board, he will see, at the bottom of the first page, the procedure laid down for obtaining loans by Government Departments. I should like to congratulate the Chairman, Sir Jeremy Raisman, and the other members of the Commission, one of whom I see is in his place opposite, on having secured the issue of this report so shortly after the end of the financial year. It is a most admirable document, and I recommend it to Members of the House. It goes on to say: Exceptions to this procedure"— that is the necessity to go to the Ministry of Health or the Treasury— occur when a local authority desires to borrow from the Board in order to repay an existing loan obtained from other sources and no borrowing Consent is required. Then if the right hon. Gentleman looks at page 4 he will see that of the loans issued during the calendar year 1948–49, something like £12 million was for the purpose of enabling local authorities to repay existing issues. It seems to me wrong, first of all, that the interest rates on loans are now so far below what the Government would have to pay if they went into the capital market that they thereby contain an element of subsidy to local authorities; and, in the second place, that local authorities should be able to raise new money at these absurdly low rates to enable them to discharge existing obligations.
It is perfectly true that the Treasury will have to look again at these interest rates, because the present situation is full of anomalies. I should like to give one example, which I think will impress hon. Members opposite. There are still, although I understand it is going to stop in the future, houses being built by private persons under licence for their own occupation. It is still possible for persons building their own houses to secure loans from their local authority to enable them to pay for their erection, and the rate of interest which they have to pay to the local authority is one-quarter per cent. in excess of the rate at which the local authority can borrow from the Public Works Loans Board. Even at the present time a man, who has saved some money with a view to building his own house, can borrow a similar sum of money required to construct and pay for the house at 3¼ per cent., and he can invest 1937 his savings in long-term Government securities, which give him nearly 4 per cent. at the present time, thereby making for himself a clear profit at the cost of the Exchequer. I am quite confident—although I am perfectly well aware that the right hon. Gentleman cannot get up this evening and announce new rates of interest payable in connection with loans from the Public Works Loans Board—it will have to be looked at again in the very near future.

§ Mr. Eric Fletcher (Islington, East)
The right hon. Gentleman the Member for North Leeds (Mr. Peake) was good enough to refer to me as a member of the Public Works Loans Commission, and it is obvious from his remarks that he has been a keen student of the report from which he quoted, especially for the year 1948–49. I do not claim any personal credit for what is set out in that report, nor would the right hon. Gentleman expect me to comment on the observations he has made with regard to the interest rates laid down by the Treasury, at which the Public Works Loans Boards grants loans to local authorities.
Since the right hon. Gentleman has studied the report he will observe, as the Commissioners point out in their latest report, that the functions which devolve on the Public Works Loans Board are, in fact, of an extremely limited character. The House realises that when a local authority in these days wishes to borrow, it has to obtain the consent of the Government Department and of the Treasury for borrowing under the Control of Borrowing Order, 1947. The rather limited function of the Public Works Loans Board is to examine their credit and grant the loan, with the result that three bodies simultaneously, study the application from a local authority, and the Loans Board, in granting the loan in advance of the sanctioning Government Department concerned, the Ministry of Health or the Ministry of Education, make it conditional that such sponsorship shall be forthcoming.
We should all agree that local authorities have no possible cause of complaint at the way in which this machinery has, in fact, operated since the passing of the Local Authorities Loans Act, 1945. It is perfectly true that since that 1938 time local authorities have, broadly speaking, been compelled to raise all their capital requirements from this one source. All borrowing has been canalised through this machinery, and to local authorities the results have been eminently satisfactory.
It is perhaps worth while on this occasion, in view of what the right hon. Gentleman has said, to refer the House to the observations made on pages 7 and 8 of the annual report. The Board point out that there has been no other possible source from which the local authority could raise money, and this has created at times some embarrassment for them. They say that when an application is received where, in the opinion of the Board, the high rates or other adverse factors afforded doubtful security, the facts have been laid before the Treasury and the Board's views explained. The Treasury have then, in consultation with the Department responsible for approving the project, considered whether the proposed work was one which, in the public interest, must be allowed to proceed. In the two cases which the Board have referred to the Treasury the decision has in each case been that the work must be carried out, and the Board, at the request of the Treasury, have finally agreed to make the necessary loans. Then there is a rather surprising fact: No loan, therefore, has been refused since 1st August, 1945, to any local authority for any purpose which has been approved for borrowing by the sanctioning Department. That, I think, reveals what the Commissioners would wish to draw to the attention of the Government and the House with regard to this procedure, because they go on to say: The Board feel bound to point out that these functions have, in fact, been considerably restricted by Section 1 of the Local Authorities Loans Act, 1945. They feel that this is a matter which deserves serious consideration when the question of the extension of this Section of the Local Authorities Act, 1945, beyond 31st December, 1950, is under review.

§ Mr. Ellis Smith (Stoke)
Can they not be merged?

§ Mr. Fletcher
My hon. Friend asks can they not be merged. Reading between the lines, one may permissibly draw the conclusion that in view of the experience that has been gained by the operation of the Act during the last four or five years, the Government can and no doubt will 1939 consider whether in future years there is any opportunity of simplification.