Commons Sitting of 23 November 1951

Preamble
The House met at Eleven o'Clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORDERS OF THE DAY
  RETIREMENT OF MR. SPEAKER CLIFTON BROWN

    (ANSWER TO ADDRESS)
    Resolution reported:
    That the annual sum of four thousand pounds be granted to His Majesty out of the Consolidated Fund of the United Kingdom, the said annuity to be settled in the most beneficial manner upon Colonel the Right Honourable Douglas Clifton Brown, lately Speaker of the House of Commons, to commence and take effect upon the thirty-first day of October, nineteen hundred and fifty-one, and to continue during his life.
    Resolution agreed to.
    Bill ordered to be brought in upon the said Resolution by the Chairman of Ways and Means, the Prime Minister, the Chancellor of the Exchequer and Mr. Boyd-Carpenter.

    Mr. SPEAKER CLIFTON BROWN'S RETIREMENT BILL
    "to settle and secure an annuity upon the Right Honourable Douglas Clifton Brown in consideration of his eminent services," presented accordingly, and read the First time; to be read a Second time upon Monday next, and to be printed. [Bill 14.]

  PUBLIC WORKS LOANS BILL
  Order for Second Reading read.
  11.6 a.m.
  The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter): I beg to move, "That the Bill be now read a Second time."
  This Bill is the succesor to a similar Measure introduced into this House last year by the hon. Member for Battersea, North (Mr. Jay), and it is also the logical consequence of the renewal by this House
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  last week in the Expiring Laws (Continuance) Bill of Section 1 of the Local Authorities Loans Act. That Measure, as the House will recall, subject to certain restrictions, restricts local authority borrowings to borrowings from the Public Works Loans Board.
  The Bill with which the House is now concerned provides the Public Works Loans Board with the money necesary to meet the requirements of the local authorities and also authorises the Board to make certain commitments with respect to future loans. The amount of money which the Bill authorises is £500 million in respect of loans. This is substantially more than is normally required in the course of a year, and perhaps, by way of illustration of that, I might mention that since the last Measure, to which I have already referred, became law in December last year, £336 million has actually been advanced. That, I am informed, approximates to an annual rate a little in excess of £350 million a year.
  There is no reason to assume that the amount to be required in the period to be covered by this Bill will be substantially greater, and the reason that the figure of £500 million has been inserted in the Bill is that it is desirable both to have a margin in hand in case any succeeding Bill should for any reason be delayed, and to allow for contingencies. The figure of £500 million in this Bill is the same as that inserted in last year's Measure.
  It is also necessary at the same time to authorise increases in the commitments which the Board is authorised to enter into with local authorities. As the House is aware, there is a time lag between the initial approach made by the local authority and the actual advance of the moneys, and it is necessary to get authority to spend some time before the actual cash is advanced. Local authorities must know that they can rely on future loans being forthcoming, and they therefore have to get approval in advance.
  This Bill proposes an overall total for advances plus commitments at £950 million. That is £100 million more than the figure inserted in last year's Bill. We feel that it allows a somewhat larger margin for contingencies, and we base that view on the fact that at the present rate the authorised total for advances plus commitments will probably be reached

  741
  towards the end of January. That is a further reason why we have asked the House for this Bill at this stage in the session.
  I think the main interest which the House takes in this matter relates to the use of these loans for housing purposes. They are, of course, a major purpose for which local authorities borrow this money; but it is an over-simplification of the matter to assume that these advances relate solely to housing. Under the current Act, as I mentioned a moment ago, the total so far advanced is £336 million. Of this, £241 million was for housing, the remaining £95 million being for other local government purposes.
  As for forward commitments, at 31st October, out of a total of £416 million, £260 million was for housing and, therefore, £156 million was for other local government purposes. I mention this so that the House will appreciate that, though housing is by far the biggest single item, it is not the only item with which we are concerned in these advances.
  I understand that, subject to your permission, Mr. Speaker, a number of hon. Members desire to raise during the Second Reading the question of the decision, announced by my right hon. Friend the Chancellor of the Exchequer in his speech during the debate on the Address on 7th November, to make certain increases in the rate of interest at which this money can be borrowed.
  Mr. Norman Smith: Hear, hear.
  Mr. Boyd-Carpenter: I see that my understanding to that effect has at any rate one supporter. This Bill does not strictly concern that decision. It provides the money. The rate of interest at which that money can be borrowed is fixed separately and independently by my right hon. Friend. But, quite obviously, the two matters are so closely interlinked and interlocked that it would be somewhat artificial to try and discuss the one while completely ignoring the other and, subject only to your deciding that it is in order, Mr. Speaker, I should like to say a word or two on that aspect of the matter at this stage.
  I shall deal with it quite briefly because I have not yet had the advantage of hearing what is to be said in the Debate, but my right hon. Friend the Minister
  742
  of State for Economic Affairs is on the Bench and, should he have the good fortune to catch your eye, Mr. Speaker, he will at an appropriate stage, seek to reply to any arguments adduced, in particular on this issue.
  The position as we see it is this. What we have done has been to put the interest rates at which local authorities can borrow from the Public Works Loans Board at substantially the same rates as those at which the Government can borrow. That is not a new idea originated for the first time by the present Administration. Indeed, the House may be interested to recall that on 20th January, 1948, a gentleman who is no longer a Member of this House, Mr. Piratin, asked the then Chancellor of the Exchequer, Sir Stafford Cripps, why he had increased the rate of interest to be paid by local authorities to the Public Works Loans Board.
  Sir Stafford Cripps's answer is not without both interest and materiality in this connection. In reply to Mr. Piratin, Sir Stafford Cripps is reported in the OFFICIAL REPORT as having said:
  "The present rates charged are 2 per cent. for loans of less than five years, 2½ per cent. for loans of five to 15 years and 3 per cent. for loans of 15 years and longer. The rates of interest charged to local authorities are fixed from time to time to correspond broadly with Government borrowing rates for comparable periods."
  The House will be surprised to learn that Mr. Piratin was not apparently satisfied with that answer and put a supplementary question:
  "Will the Chancellor of the Exchequer explain what new circumstances have arisen during the last few months, since the ex-Chancellor of the Exchequer"—
  I think that was the right hon. Member for Bishop Auckland (Mr. Dalton)—
  "introduced the very welcome reduction in interest charges, to make it necessary to inflict this further burden on local authorities?"
  Sir Stafford Cripps replied:
  "The Government borrowing rates for comparable periods have altered,"—[OFFICIAL REPORT, 20th January, 1948; Vol. 446, c. 33.]
  The idea that the rates of interest to be charged by the Public Works Loans Board for loans to local authorities should approximate to the rates at which the Government can borrow—whether that idea be sound or unsound—is not new. As I have said, it was expressed

  743
  with his characteristic lucidity by Sir Stafford Cripps some three-and-a-half years ago.
  I understand that the hon. Member for Battersea, North, will seek to catch your eye later, Mr. Speaker, and I know that he takes a different view from that which I have just expressed. During the debate on this Measure last year, the hon. Gentleman developed the very interesting theme that it would be appropriate for the Government, or rather the Board, to charge local authorities a lower rate of interest than the rate at which the Government itself could borrow because at that time the Government had a substantial Budget surplus running and therefore did not have to go on to the market to borrow money to re-lend to local authorities.
  The initial difficulty about that argument, which no doubt will be developed by the hon. Gentleman at a later stage, is this: once we abandon the idea that the price at which the Government can borrow should be the price which the Loans Board charges, there does not seem to be any logical step at which we stop until we reach the point at which the loans are interest-free.
  Mr. Norman Smith: Hear, hear.
  Mr. Boyd-Carpenter: I am glad to see that for a second time today I have the support of the hon. Member for Nottingham, South (Mr. Norman Smith), for whose original and forcefully expressed ideas on this question I have long entertained great admiration. But I shall be interested to see how the hon. Member for Battersea, North, approaches the issue, which I have put in no controversial sense. I think it is desirable—and no doubt my right hon. Friend will deal with the matter—that we should get the conflicting views on the matter clearly on record and subject to clear definite analysis.
  It seems to us, on the other hand, that to charge the local authorities any lower rate than that at which the Government can itself borrow introduces an element of subsidy. I suppose it is beyond dispute that a subsidy, particularly for housing purposes, is appropriate. But a subsidy given partly in this way by the adoption of what is an unreal rate of interest seems to have all the disadvantages of a concealed subsidy.
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  It seems to us that the realistic thing to do in these circumstances is to charge the local authorities the same rate as that which the Government itself would have to pay if it borrowed the money, and then to take that into account in discussions during which the rate of subsidy is fixed. We feel that that is a more realistic way of dealing with the matter, inasmuch as the subsidy given is then clear and ascertainable, is given in one way and not two, and is given in a way in which the amount given can be clearly assessed and understood.
  I cannot say anything more about the discussions with the local authorities to which my right hon. Friend referred on 7th November, but I think that those hon. Members who have had to deal with the associations representing local authorities will have no fears that the local authorities will fail to put their own point of view on these matters with their accustomed persuasiveness and force. The discussions have not yet, as I understand it, opened, and, therefore, it is quite impossible, of course, for anybody on behalf of the Government to say more than that quite obviously the rate of interest charged by the Public Works Loans Board is inevitably a factor in these discussions.
  It is proper—because I know the interest which hon. Members rightly take in this matter—that this question of the rate of interest should be debated, but I hope I may be allowed to remind the House that the rate of interest is not in this Bill; nor is it directly affected by this Bill.
  We require this Bill and we do seek the assistance of the House in enabling us to get it quickly because, as I have mentioned, very early in the new year the total commitments authorised by the last Act will be being very closely approached, and I imagine that there is no hon. Member who would wish to place the severe handicap on local authorities which the reaching of this limit to commitments would entail. Therefore, I hope I may commend this Bill to the House with the thought in mind that, after the question of the rate of interest has been debated, the House will not overlook the necessity for providing these funds or borrowing by local authorities for the carrying on of the essential work of those local authorities, including housing.

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  Although we may differ on the details of the matter there is, I am sure, no hon. Member who wishes seriously to interfere with that work. I hope, therefore, that when the Debate has run its due course the House may be good enough to give the Bill a Second Reading and take us, therefore, one step towards replenishing the funds from which these borrowings take place.
  11.23 a.m.
  Mr. Douglas Jay: As the Financial Secretary clearly explained, this Bill gives power to the Exchequer to make loans to local authorities for their large capital expenditure on housing, schools, and so forth. I noticed, as the hon. Member pointed out, that the main change in the Measure this year is that it raises the limit of advances plus commitments from £850 million to £950 million. We have no objection to that.
  The hon. Gentleman said that it was desirable in his view to have a larger margin for contingencies because the actual commitments were, in fact, rising. He did not explain very fully just why they were rising, but I take it to be for the same reason as last year, that local authorities are now finding themselves able to plan rather further ahead, and to work out rather bigger development schemes in advance, than they were a few years ago. At any rate, we have no objection to the raising of the limit.
  This Bill is, as the hon. Gentleman has already said, the logical consequence —I think these were his words—of the Local Authorities Loans Act, the renewal of which we approved recently under the Expiring Laws Continuance Act. That, as he said, compels local authorities, with very few exceptions, to borrow through the Public Works Loans Board, and prohibits virtually them from borrowing in other ways, as they otherwise could, possibly on a shorter term basis and at a lower rate of interest.
  Under the Labour Government that provision and that compulsion were compensated by the fact that the Government lent to local authorities at interest rates rather below what they would have had to pay in the City of London for long-term loans. Now, however, the Chancellor has suddenly raised the rate on loans of more than 15 years from
  746
  3 per cent. to 3¾ per cent., but at the same time he continues the prohibition on their borrowing from outside sources.
  In last year's debate the present Minister of National Insurance asked me why the then Government were still lending at only 3 per cent., which he called an "absurdly low rate," and when I said that the party opposite were apparently wanting us to adopt a course which would lead to an increase in the cost of house building, hon. Members opposite protested that that was very far from their thoughts. Well, it is just what now appears to be happening—which seems to me another proof that what the Tories in fact do after elections is just what they have promised not to do before elections. Possibly that is why there are so few hon. Members opposite to listen to this debate today.
  Last year Tory speakers pressed me to increase the rate of interest, on very much the same grounds as the hon. Gentleman has given today for the Chancellor's action. They said that the Government ought to charge local authorities the same as they would have to pay themselves for borrowing for similar periods, and Sir John Anderson was quoted as having originally propounded that doctrine.
  Mr. Boyd-Carpenter: Not Sir John Anderson, but Sir Stafford Cripps.
  Mr. Jay: I think I am correct. Sir John Anderson originally propounded it in 1945.
  Mr. Boyd-Carpenter: Oh, yes.
  Mr. Jay: Various pronouncements were made later.
  Mr. Boyd-Carpenter: Oh, yes.
  Mr. Jay: Last year it was Sir John Anderson who was quoted. However, it is not material to the argument.
  I replied at the time, and I repeat now, that this doctrine applied to recent years is really metaphysical—that was the word I used—and without practical force. For, in fact, the money lent to local authorities under this annual Act has not been borrowed by the Government on long-term at 3¾ per cent. or 4 per cent. or anything like it

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  Up to about a year ago it was in fact raised in taxation, which provided enough revenue to cover the whole below-the-line expenditure from which these loans are made; and, indeed, even in the last year, when there has not been a surplus below the line, it has in effect been raised by short-term borrowing at rates below 1 per cent., or thereabouts.
  The hon. Gentleman quoted Sir Stafford Cripps as saying that the rate charged to local authorities should correspond broadly with the rate at which the Government would have to borrow. That, I think, might have some force if the Government were so borrowing; but it is surely quite irrelevant when the Government are not raising the money in that way or at that cost. I know that the Minister of Housing and Local Government referred to this in that speech last week which contained so very many words and so few facts and figures—the speech in which the 300,000 houses finally vanished into a fog of words.
  He said in that speech that my argument on this issue proved too much, and the hon. Gentleman repeated that argument today. It proved, he said, that all these loans ought to be made to local authorities interest free. Well, I do not think it proves that at all. I stand here, as so often, in a moderate and middle position between my hon. Friend below the Gangway the Member for Nottingham, South (Mr. Norman Smith) and the hon. Gentleman opposite.
  Surely, if the Government forgo the use of large sums of money for 60 years they are plainly entitled to charge some rate of interest for doing so. What I do say is that they are under no obligation to charge precisely 3¾ per cent. when they have not borrowed money at that rate, just because if the Government had to borrow money, then they would probably have to pay that rate. That is what seems to me to be a metaphysical argument.
  Sir John Mellor: Is it not reasonable that the Government should charge the full amount because if instead of the money being lent to local authorities it was applied to a redemption of debt that rate of interest would be saved?
  Mr. Jay: That is precisely what seems to us to be a hypothetical argument. If the Government did all sorts of things with the money—used it, for instance, through the Distribution of Industry Act to build factories—it would earn a much higher rate than 4 per cent. I do not see that that is any reason why the local authorities should be charged that rate.
  We are told by the Government that in the case of housing some part of the increased costs is to be reimbursed by the Exchequer through the housing subsidy. The real issue here is whether the Government propose to return in subsidy what they take away in interest rates.
  I hope the House will notice two things, first, that this does not apparently apply to anything except houses; so that in the case of that other large area of expenditure such as schools and also transport, drainage and some other matters, a substantial part of the extra cost must fall on the local rates. That, of course, unless the Financial Secretary tells me that my assumption is wrong, amounts to a cut in social service expenditure by the central Government.
  Secondly, we have no assurance—I think this is the crux of the whole matter—that even in the case of housing the whole of the increased cost will be met by the subsidy. The Minister for Housing and Local Government—perhaps we ought to call him the Minister Without Planning for short—definitely refused to give that assurance to one of my hon. Friends when he spoke last week.
  I am not sure that the public realises what this rise in interest rates means. In the case of housing, it is the equivalent of a rise of 4s. or 5s. a week in the rent of new council houses from now on for 60 years. For instance, in the case of London County Council housing it works out at 4s. 4d. a week more for a four-roomed cottage, 4s. 8d. more for a five-roomed cottage, 4s. 9d. a week more for a four-roomed flat and 6s. a week more for a five-roomed flat with a staircase access. That is surely a serious matter.
  Nor can we be certain that these rent increases will be confined to new council houses built from now on. For it is, I understand—again the Financial Secretary can contradict me if I am wrong—the practice of many local authorities to spread out the rising costs over old houses

  749
  as well as new. Therefore, although generally speaking it seems that the Macmillan house will in future be distinguished by having a higher rent than the Bevan house, nevertheless we cannot be sure that the rent of many of the existing council houses will not go up, though naturally if the rise is spread out it will be lower per house. I give the hon. Gentleman that part of the argument for the sake of fairness.
  We have been told that some of this rise in rents will be cancelled out by the change of subsidy. But the question is, how much? Can the Financial Secretory or the Minister of State for Economic Affairs, who is, I believe, to wind up the Debate, assure us here and now that the whole rise will be cancelled out, and there will be no increase in rents in the case of any council house as a result of this decision? If the right hon. Gentleman or the Financial Secretary will give me that assurance now at this very moment, I shall be exceedingly glad to have it—
  Lieut.-Colonel Marcus Lipton: And they will get the Second Reading now.
  Mr. Jay: —and I shall gladly withdraw any suggestion that there is to be any rise in council house rents. If they cannot do it—and I gather they cannot—then we must conclude surely, as a matter of logic, that either rates or rents, or both have, in fact, been raised by the Government's decision.
  I wonder if we can, at least, have the assurance that in the course of this revision of subsidy there will not be any enforced depression of housing standards, which would, in fact, cancel out some part of the increase in the subsidy. It seems clear that we are not to get either of these assurances just now. Therefore, the public must conclude that there is to be a rise in rents, and probably rates as well, as a result of this deliberate and unnecessary forcing up of interest rates. Indeed, the London "Evening News" only yesterday, I noticed, said:
  "In some cases warnings have already been given that rents of future council houses might be up by 3s. or 4s. a week."
  The rot already seems to have set in. That means, in fact, a cut in social
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  services and a rise in the cost of living due to the new Government's policy.
  Therefore, I say that this is another complete breach in the election promises of the party opposite. The electorate were given the promise that the social services would not be cut and the cost of living would be kept down. They were not told that there was to be a rise in interest rates paid by local authorities, so that rents of council houses would be raised. As a matter of fact, those who warned the public that this might and perhaps would happen under a Tory Government were accused by candidates of the party opposite of gross misrepresentation.
  I believe that the Chancellor of the Exchequer will come to regret that in this instance he surrendered with such indecent haste to all this financial mumbo jumbo about interest rates.
  Mr. Boyd-Carpenter: In view of what the hon. Gentleman has said, can he say whether in 1945 there was a similar warning to the electorate that Sir Stafford Cripps would raise the interest rate?
  Mr. Jay: The hon. Gentleman knows perfectly well that Sir Stafford Cripps maintained this rate of interest at 3 per cent., and my complaint is precisely that Sir Stafford Cripps's policy has been abandoned and the rate raised from 3 per cent. to 3¾ per cent.
  Mr. Boyd-Carpenter: The hon. Gentleman has failed to apprehend my point. Sir Stafford Cripps raised the then rates and the hon. Gentleman has indicated that any Government doing that ought to warn the electorate. I therefore ask the hon. Gentleman whether before Sir Stafford Cripps raised the rates in 1948 a warning was given to the electorate.
  Mr. Jay: My complaint is that the party opposite gave a promise that there would be no cut in the social services, and that they would do all they could to keep the cost of living down. I do not believe that the cost of living was an issue in the 1945 election to anything like the extent it was at the last election.
  My second complaint is that the arguments used for this cut really amount to nothing more than what my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) called mumbo jumbo, and I

  751
  repeat his words. These were the Chancellor's actual words and they are worth quoting:
  "This change in the short-term interest structure will liberate part of the economy, which is at present artificially restricted, and thus strengthen it."—[OFFICIAL REPORT, 7th November, 1951; Vol. 493, c. 206.]
  That seems to me to be a prize piece of verbiage, which, translated into English, means that rents of council houses are to go up.
  It is a great pity that the Chancellor did not at least postpone this decision to that Christmas period of mystic cogitation during which Ministers in other fields are to seek inspiration—no doubt from Lord Cherwell—and make up their minds what to do by February or March. Indeed, how much wiser the Chancellor would have been if he had referred this whole matter to Lord Cherwell, in the hope of eliciting one of those statistical revelations, of which the Prime Minister spoke with such obvious emotion the day before yesterday.
  On this side of the House—here I am glad to give comfort to the Financial Secretary—we do not oppose the Bill as such because, as he rightly said, it is necessary to provide the funds which local authorities require for all these essential purposes, which we all support. But we do record a most emphatic protest against the Government's decision deliberately, entirely without justification, and with improper haste, to raise to this high level of 3¾ per cent. the rate of interest at which these funds are provided, and so threaten a rise in council house rents, and in the cost of living, for thousands, indeed tens of thousands, of families throughout the country.
  11.43 a.m.
  Mr. Norman Smith: There are certain advantages which the House of Commons has in dealing with the hon. Gentleman who is now the Financial Secretary to the Treasury. I have observed over a period of years that the hon. Gentleman is very meticulous in his choice of words. His meticulousness amounts almost to primness, but it is of very great advantage to deal with a Minister like that because we can have no doubt what is in the mind of the hon. Gentleman.
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  My hon. Friend the Member for Battersea, North (Mr. Jay), has said that we shall not oppose the Bill; neither do we wish to do so. To oppose it, to vote against it and possibly defeat it would be wrong. There are many reasons why we shall not do that. Nevertheless it seems to us that the Government have, by administrative measures, taken away whatever virtue and usefulness this annual Bill has had in the past.
  It is a good thing to remove local authorities from the hazards and chances of what is deemed by the Financial Secretary—and certainly by the hon. Member for Sutton Coldfield (Sir J. Mellor) who this morning in an intervention used the very phrase—to be the money market. It is essential to my case that there is not, and cannot be, any such thing as a money market.
  Sir J. Mellor: I did not use the phrase "money market," I referred to the market rate of interest
  Mr. Smith: There is no difference whatever. My hon. Friend the Member for Battersea, North, has given the House some figures concerning the effect upon London County Council houses. I propose to give the effect upon my own constituency. This raising of the rate of interest has got me the reputation in my constituency of being something of an "Old Moore," because I told every election meeting in Nottingham that this was what the Government would do. I said that it would be one of the first things they would do. Although it has got me a good reputation in Nottingham, it will do Nottingham a lot of harm—unless there is to be some increase in the subsidy.
  I listened to the meticulously chosen words of the Financial Secretary on this point. He said: "The organisations of local authorities will be able to put their case." Indeed they will.
  "I can call spirits from the vasty deep, but will they answer?"
  The Association of Municipal Corporations may ask for subsidies, but will they get them? We do not know, and we have no reason to suppose that they will. Until we know whether there is to be some increase in the subsidy it is right to put it to the House and to the country that the effect of this administrative

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  measure upon Nottingham will be to raise the rents of new council houses in the future by 3s. 6d. a week, or to impose upon Nottingham a 7d. rate, which is a pretty formidable burden.
  In my constituency we are embarking upon a very big housing scheme in respect of which £8,250,000 remains to be borrowed. The additional burden, determined by simple arithmetic, is £62,000 a year, which means a 7d. rate dwindling over 60 years to zero. That will be a very heavy burden for Nottingham. The Financial Secretary defends this on the ground that there is something known as "the rate of interest" which is prevailing at the moment and to which this particular rate of interest ought to conform. He is repeating the argument used in this House by the present Minister of National Insurance a year ago when he said:
  "Rates of interest … must … conform … with the prevailing rates of interest in the money market."—[OFFICIAL REPORT, 21st November, 1950; Vol. 481, c. 219.]
  I deny that there is such a thing as a money market. The whole arrangement is purely artificial. If one examines the flow of money into the Local Loans Fund it is difficult to be clear about the sources of the money which comes into that fund. We can be absolutely certain that a substantial proportion of these alleged moneys are, at one remove or two removes, mere bank creations of paper credit.
  When we have a condition of things in which the supply of the alleged commodity, Money, can be expanded or contracted at will, just as a man might expand or contract a concertina, what is the use of talking about "the market rate of interest" of that commodity? There is no sense in it whatsoever.
  When I was a boy, the bank deposits in this country totalled about £1,000 million. Now they are about £5,000 million. The additional £4,000 million came from somewhere. It can only have come from book entries in the banks. In my lifetime the total amount of money in the country has gone up by £4,000 million. It has been expanded five times by means of bank entries. What is the use of talking about "market rates of interest" in those circumstances?
  Let us now examine the effects of this Measure.
  Sir J. Mellor: Is it not a fact that when the Government wishes to borrow there is a market which determines the rate of interest at which the Government may do so?
  Mr. Smith: The Government can borrow quite a lot of money, or it could do so until the other day, at ½ per cent. Now they have to pay ⅞ per cent.
  Sir J. Mellor: On medium or longdated terms.
  Mr. Smith: Those are purely artificial terms which have only a metaphysical reason for existence.
  I want to draw the attention of the House to certain consequences of this Measure. Because the rates of interest are to be raised all round, particularly the rates of interest to local authorities, somebody will be the recipient of the increment. Somebody is to draw the ¾ per cent. extra rate of interest on local loans, and that person or those persons will be better off. Is this a case of the Conservative Party looking after its friends? I did say at every election meeting that this is what they would do, but it may be that I have been uncharitable and harsh.
  I do not want to be uncharitable and harsh. I think highly of some hon. Members who support the Government and I like them quite a lot. I do not think they are looking after their friends. It is that they are devoted to the superstition that money is a thing which ought to command a price. The Financial Secretary to the Treasury actually used the word "price." Every future advance of loans in respect of Nottingham's very big housing scheme will be at the enhanced rate of interest.
  The Financial Secretary said that there came a time when the actual cash was advanced to the local authority. There is no actual cash; it is purely and simply a book entry. That these book entries should be deemed to be commodities which must be paid over at the higher rate of interest means that the people who put me into Parliament will have to pay an extra 3s. 6d. on their rent, or a 7d. rate or, if this is to be covered by subsidies, there will have to be an addition to the taxes.
  I cannot understand what the Government are doing. They are already adding

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  to Government expenditure. There is already an addition to Government expenditure of £25 million as the result merely of the raising of the interest rates, quite apart from the effect of raising the local loans rate of interest. A three-quarters of 1 per cent. increment upon the outstanding loans for the whole country means an additional £8,500,000 a year from the ratepayers besides what is being taken from the taxpayers.
  This is a fine beginning by the Government at the expense of working-class tenants and ratepayers in a city like Nottingham. It is not mysterious; it is a perfectly straightforward example of a party at the mercy of doctrinaire superstitions derived from an epoch of 100 years ago when gold was the basis of our currency. Council house constituents of mine are the people who are being called upon to pay the price of Tory superstition.
  11.52 a.m.
  Mr. Arthur Colegate: I am sorry I missed the earlier part of the debate, but I heard sufficient of the speech of the hon. Member for Battersea, North (Mr. Jay), to realise the line which is being taken. If we follow that argument to its logical end, it is clear that we cannot take any steps whatever to reduce inflation.
  According to the argument which we have just heard from the hon. Member for Nottingham, South (Mr. Norman Smith), the only advantageous thing would be to reduce the rate of interest and have still greater inflation. These are extraordinarily short views, and they entirely ignore the whole object of attempting any deflation. The cost of a house is not merely the cost of the money borrowed to pay for it, but is much more largely the cost of the materials used.
  Mr. Norman Smith: No.
  Mr. Colegate: I cannot deal with anybody who argues on those lines.
  Mr. Leslie Hale: The increased cost of a municipal house under the new rate will be £600 spread over the period. The cost of the house is very largely the cost of wages, because wages enter into almost every material. The materials that are expensive come from abroad and will not be affected by this policy.
  Mr. Colegate: I do not agree. Bricks are not commonly imported and neither is cement. Timber is, but that is not necessarily a major item. However hon. Members attempt to wriggle out of it, the fact remains that deflation will result in lower prices. Owing to the extraordinary financial policy followed by the late Government and the extraordinary method of reducing the rate of interest, which caused losses of hundreds of millions of pounds to small investors, hon. Gentlemen opposite have succeeded in raising prices and bedevilling the whole housing problem. It is now time—I am glad to see a start being made—some effort was made to deflate present conditions, to stop inflation and to get lower prices in order to avoid the cuts in social services which have been imposed by hon. Members opposite.
  Mr. Jay: It would be out of order to discuss interest rates other than those for municipal loans. I presume that in wishing for a higher interest rate to deflate the economy, the hon. Gentleman wants to have such a rate in order to reduce the number of houses to be built. Otherwise, what does he mean?
  Mr. Colegate: Certainly not. If we lower prices, we can build the same number or a larger number of houses, as we hope, at a lower cost than could be done by adopting the inflated prices which do so much harm in the housing problem.
  Mr. Jay: We are discussing interest rates, and the Government are not lowering them but raising them.
  Mr. Colegate: Exactly. I am surprised that the hon. Member should ever have been connected with the Treasury, because he does not seem to understand the mechanism of stopping inflation. We must deflate the cost. It is no good trying ingenious subtleties, not even with the hon. Member's hon. Friends. We must face the fact that someone must have the courage to stop the inflation which has proceeded at an increasing degree over the last six years. We are discussing a relatively small part of the field in which these steps must be taken.
  Mr. Ivor Owen Thomas: The hon. Member stated that investors have not been having a fair deal owing to low rates of interest. Is the raising of the interest rates to benefit investors

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  a part of the economy which the hon. Gentleman and the Government have in mind?
  Mr. Colegate: I said nothing about investors losing money. What I said was that the manipulation of the investment market and of the gilt-edged market by the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) caused the loss of hundreds of millions of pounds to small investors. I am not claiming that any further interest should be paid upon the market rate, but the fact remains that unless we make an effort to keep down the cost of materials and reduce the cost of living there will be nothing but constantly rising prices affecting the cost of living and the cost of housing.
  Mr. James MacColl: I should like to get this argument into real financial terms. I can see that one can reduce inflation by reducing wages or the amount of purchasing power that people have. Does the hon. Gentleman want to reduce investments in housing? Is that the purpose of raising the rate of interest? Or does the hon. Gentleman want to increase rents and thus reduce the purchasing power in the hands of tenants? Will he explain if that is the way he is trying to tackle the problem?
  Mr. Colegate: No, it is simply—
  Mr. MacColl: On the question with which we are dealing at the moment.
  Mr. Colegate: The question with which we are dealing at the moment is one example of the steps which have to be taken to reduce inflation. That is the answer. It is no good looking at it any other way. Either hon. Members wish to have inflation and the consequent rise in the price of houses and the cost of living generally or they do not. Let us have a clear answer about that. It is no good wriggling away from this. Hon. Members must come out and say clearly whether they are or are not in favour of stopping inflation. I am in favour of stopping inflation.
  The Conservative Party promised in their Election addresses to try to stop inflation, and we are not going to be diverted from that by subtleties concerning the money market when no responsible financial authority in the whole of
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  the international scene fails to recommend for stopping inflation the steps that are now being taken. I am certain that the Bill is necessary and proper and that we should pass it without wasting time on arguments which are, in effect, arguments for continuing inflation.
  12 noon.
  Mr. Charles Pannell: The Minister of Housing and Local Government said that he was going into negotiations with representatives of the local authorities and was bringing forward by six months the normal date of the review of the subsidies. This means that a review will take place in January, just two months hence.
  I do not know whether the right hon. Gentleman has fully appreciated—it certainly is not appreciated by the hon. Member for Burton (Mr. Colegate)—that by leaving things as they are, with the increased interest rates that we have envisaged here this morning, the increased rents—at least, in the local authority of whose finance committee I was the chairman for 12 years—will be 4s. 4d. per house per week, or £11 5s. per year, over a period of 60 years. To get that in its right perspective, we have to assume that the party opposite will achieve their target of 300,000 houses—that is to say, 4s. 4d. per week for 60 years on 300,000 houses.
  This matter brooks no delay whatever, because local authorities are not likely to enter into any new contracts with any great enthusiasm while this sort of thing hangs over their heads. And what about housing in the course of erection? That is one of the considerations which we must bring in, because loan consents do not coincide with the commencement of a project; very often one starts on balances, and the consents follow. [Interruption.] Oh, yes, the point was very ably covered by my hon. Friend the Member for Battersea, North (Mr. Jay), in that this will affect past housing as well as future housing. Let there be no mistake about that. I have been concerned with a local authority loans pool for a very long time, and there can be no argument about it.
  These schemes of housing—the land has to be bought first and the loan sometimes comes very much later—were started on certain firm assumptions with

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  regard to cost. Those costs are reflected in the rents—
  Mr. Harmar Nicholls Mr. Harmar Nicholls (Peterborough) rose—
  Mr. Pannell: Let me finish what I am saying—which the prospective tenants have to pay. Obviously, the borough treasurer, when starting on a housing scheme, usually lays before his finance committee or housing committee the assumptions of costs and prospective rents.
  Mr. Nicholls: Is the hon. Member suggesting that it is the general practice of local authorities to enter into building contracts without having settled their loan sanction before they start? That is a very risky thing to do.
  Mr. Pannell: Despite the fact that the hon. Member is on a local authority, he presumably does not know the local authority facts of life, because usually, in formal consultations with the Ministry, one gets consents and the sanctions follow afterwards. But all this now goes by the board.
  The important point to remember is that nowhere so far—[Interruption.] I remember that when the hon. Member for Peterborough (Mr. H. Nicholls) addressed the House on the subject of 300,000 houses he was the originator of that idea, and forced it upon hon. Gentlemen opposite. He might very well consider that certain financial conditions must be laid down to achieve those 300,000 houses. It is no use for the hon. Member to go up and down the country, as he said he did in that speech of his, trying to get industrialists to look at this matter in a more realistic way and approaching the merchants, if the merchants are to be sold behind their backs on impossible financial conditions.
  Nowhere, so far, has the Minister said that the additional cost would be met by increasing the Exchequer subsidy by a like amount. Does the right hon. Gentleman contemplate that any part of this increase will be borne by contributions from the local rates? This is very important, because if that is the idea the Minister will be surprised at the warmth of the reception he receives from local authorities. I speak as one who has represented them in this sort of negotiation. The greatest prime concern of local
  760
  authorities is the rising costs of the services they administer, while their revenue remains static. [Interruption.] The hon. Member for Burton had his backchat across the Floor of the House under the protection of Mr. Speaker, and I should be glad if he would not carry on his sotto voce conversation now.
  Mr. Colegate: I gave way whenever anybody wished to interrupt, and I refuse to accept the suggestion that I indulged in backchat under Mr. Speaker's protection.
  Mr. Pannell: If the hon. Member did not do so when he was on his feet, he is doing so now.
  Taking the average for the country as a whole, the level of rates levied for the current year in spite of the severe curtailment of expenditure in every possible direction, is 20s. 1d. in the £ for county boroughs, 20s. 4d. for non-county boroughs, 20s. 0d. for urban districts, and 17s. 6d. for metropolitan boroughs. In the City of Leeds, which I represent, the rate is 21s. 6d. of which approximately 9¾d. is the contribution of the citizens, as ratepayers, to the housing subsidy—that is, a 9¾d rate; and with a 1d. rate which yields £15,400, this means that the citizens of Leeds are paying £150,000 a year in housing subsidies from the rate fund.
  It has to be borne in mind that many of those people live in the back-to-back dwellings which hon. Gentlemen opposite thought were good enough for the working classes and that they are subsidising by rates people in very much better housing accommodation than themselves. That is the sort of thing which must be remembered when we consider whether we are to lay still further imposts on that sort of people, who are inadequately housed, in order to maintain a higher standard for those who are lucky and fortunate—and deserving—enough to come out of the list.
  Every post-war house built throughout the country is subsidised to the tune of at least 8s. 5d. per week. Some of them in my city are subsidised at over 13s. a week—because, as hon. Members know, a local authority can itself grant an extra subsidy to housing. The present national subsidy is £16 10s. from the Exchequer and £5 10s. from local rates. I have not much knowledge of rural districts, but the

  761
  subsidies amount to £25 10s. The problem might well be accentuated still further in those districts which have a very low product of a 1d. rate.
  The rents charged, even now, in many places are beyond the capacity of the tenants to pay.
  Mr. Colegate: Very well.
  Mr. Pannell: But the hon. Member is supporting the policy to put them up. Any further charges on rate funds will lead to a curtailment of housing schemes. We cannot have these high interest charges when speaking in terms of an increase to 300,000 houses a year.
  Mr. Colegate: Yes, we can.
  Mr. Pannell: Not unless hon. Members opposite fulfil the condition about which they are so cagey today—that is, to make up the whole of this increased charge from Exchequer funds.
  There is another aspect which so far has not been mentioned; we have not had the whole story. Subsidies from the rate fund are not limited to new houses and flats, but arise, in many cases, from deficiencies on the housing repairs fund. This factor has already caused municipal rents to be raised under the 1936 Act, and has given rise to considerable trouble up and down the country. In some cases there have been major rent strikes, and in the Reading case there was an appeal to the High Court.
  That is not surprising when one remembers that before 1939 the average statutory repairs allowance was £4 per house per annum. I have been a member of four local authorities, and generally speaking, within reasonable limits, that figure was adhered to. But one has to consider now the backlash that had to be taken up. I notice that the Parliamentary Secretary is in his place; possibly he may like to tackle me on these figures.
  I am advised that in the local authority, just outside London, of whose finance committee I was the chairman, the average cost of repair charges is now £18 per house per annum, spread over a period of seven years programme. That is the difference between the two, and the arithmetic is as simple as that, which has caused local authorities to increase rates on their pre-war houses. Most local authorities find themselves in the dilemma
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  either of having to increase rents on pre-war houses, or levy a heavy rate on the general body of ratepayers to grant a still further subsidy to council tenants.
  The Minister of Housing and Local Government said that the Chancellor had done everything possible to safeguard the housing programme, but has he? It does not seem like it, unless he is prepared to give a 100 per cent. assurance about subsidy. We must await the result of negotiations to see whether he has done that, or just the opposite. I wish to remind the Minister of State for Economic Affairs that the Chancellor gave his name to an Education Act which makes the largest single item of expenditure in local rates, but even the most progressive authorities in the country are not implementing the Act and the Butler Act is becoming stultified because of financial considerations.
  Even the County of Kent with a Conservative Council, by a blanketing resolution in open council last year, without consultation with the education committee, decided to wind up all the nursery school accommodation in the county simply because they wanted to cut the rates. This has been partly reversed, but it merely shows the effect of rates on the minds of elected representatives. It was also said by the Financial Secretary that we are concerned with many other matters besides housing.
  The policy of the Government to make money dearer leads me to refer to one of the purposes of the Local Authorities Loans Act, 1945, bearing in mind that the Parliamentary Secretary said that it was unreasonable that local authorities should have money at a lesser rate of interest than the Government for its own purposes. One of the purposes was the rate of interest at which local authorities were able to borrow from the Public Works Loans Board and to spread capital over a period of years and reduce to a minimum the call on capital resources which compete with claims against the national exchequer and thereby to restrict the rates by which a local authority in the exercise of its discretion and in its own interest by requiring borrowings to be effected through the Public Works Loans Board. But the local authorities always understood that those conditions were accepted as a quid pro quo for the cheap money policy of the Government.

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  Otherwise, what is the advantage? The concomitant of planning is cheap money. The present Government have brought local authority interest rates into line with market rates and while it remains necessary to exercise a proper control over expenditure the only justification for a continuance of the requirement that local authorities should go to the Board is that the higher rate of interest now payable will help the Government to meet the additional interest charges which the Government itself is now incurring on its own borrowings as a result of increasing the Bank rate.
  That is hardly a justification which the local authorities will appreciate because we are, in fact, robbing them of the exercise of their discretion in financing their own schemes. I realise the necessity to institute safeguards in this sort of thing, but that could be achieved far more simply by requiring local authorities to be precise and to certify what funds they hold at the start of any such scheme; then the Treasury could give consideration and approval. The argument with which the local authorities will meet the Treasury or the Minister is that at the new rates many of them could do better by going into what the hon. Baronet the Member for Sutton Cold-field (Sir J. Mellor) calls the open market. All these considerations apply equally well to education, health services, roads, fire brigades—all services of local government.
  There is another aspect, the aspect on which the Leader of the House and the Minister of Housing and Local Government made such a faux pas the other evening. That is the position under the Small Dwellings Acquisition Act. I noticed that in reply to my right hon. Friend the Leader of the Opposition, in winding up the debate, the Leader of the House was evidently under the impression that local authority houses had already been bought under the Small Dwellings Acquisition Act. We wondered where he got that information and we were told the other day that presumably it was whispered in his ear by his right hon. Friend the Minister for Housing and Local Government. I can only say that to anyone, even the hon. Gentleman the Member for Peterborough, who has been a member of local government, that
  764
  that is known in engineering terms as "dropping a clanger."
  Mr. Nicholls: Why did the hon. Member say "even the hon. Gentleman"?
  Mr. Pannell: Much as I admire the hon. Member for Peterborough when he talks of bricks and mortar, I think he is out of his depth when talking about rates and financial matters.
  If we take the Small Dwellings Acquisition Acts under which people buy their own private houses I reckon that on a £2,000 house with a 20 years' mortgage at 3¼ per cent. the rates would be about £137 and on 4 per cent. £146, which becomes a 7½ per cent. increase for these working people and hon. Members opposite claim to be the champions of the property owning democracy. They are punishing their friends by an increase of 7½ per cent.
  The other day the Minister concluded his speech by saying that he could not think there was any man or woman in this House, whatever he may think of the merits or demerits of the proposal, who could bring himself to hope that the Government would fail in achieving their target. Certainly, I, as one who has had many years on a local housing committee, concerned with local government over a very long time and knowing the difficulty of allocating houses and the social misery behind the application, would wish him nothing but success. Between the benches here and the benches opposite there are differences deep and wide, but we are at one in desiring above all to protect the fabric of British family life. I do not suppose that there is one on these benches who does not wish the Government the very greatest amount of success.
  I am not so sure that the hon. Member opposite wishes it success, because there is still so much confusion in his mind and he must make up his mind. I have already shown that unless there is a contribution this proposal means a rise in the cost of living, a rise in the rates which eat into the private incomes of the people we represent. The hon. Member has to sort that out in his own mind.
  Mr. Colegate: Surely the hon. Member should read an elementary book on inflation.
  Mr. Pannell: I do know that the commodity brewed in the constituency of the hon. Member causes more inflation than almost any other commodity. But it really is no use throwing out that form of petty insult about reading elementary books. It is things we are dealing with, and not primers on economics—real things, rates levied twice a year and rents paid every week.
  Mr. Colegate: And inflation.
  Mr. Norman Smith: Is my hon. Friend aware that the hon. Member for Nottingham, South, has written an elementary book on inflation and that a copy could be sent to the hon. Member—
  Mr. Speaker: Order. I think the debate is becoming a little ragged, and I would urge hon. Members to address themselves to the Bill before the House.
  Mr. Pannell: I have read the elementary book written by my hon. Friend, but it is far beyond the capacity of the hon. Member for Burton. Before they ask for the good will of this House the Government must see that they do not lay themselves open to a charge of ill faith by making pledges, and then creating monetary conditions which render those pledges impossible of fulfilment.
  12.21 p.m.
  Mr. Harmar Nicholls: It would appear that hon. Members opposite are using the Debate to put over some of their propaganda. Nobody can object to that, particularly when it is so blatant that we know the people to whom it is directed will see through it at once. But I feel it is right that some points should be answered. There is in the first place the suggestion that this Bill is intended to, and will bring about some reduction in the Social Services. That comes ill from hon. Members opposite when it is well known that the greatest knock to the Social Services was devaluation.
  So far as the rents of council houses are concerned, it ought to be remembered that when we had the subsidy for council houses in 1946 it was then stated that that subsidy was on the basis of expected building costs of £1,100 per house. During the period of office of hon. Members opposite the cost of building council houses went up from £1,100 to £1,200 or £1,300, until now, when one cannot get
  766
  a building contract under £1,500 or £1,600.
  If anyone played any part in raising the rents, surely it is the Government who were in charge during the period when the cost of building went up as drastically as that.
  Mr. Pannell: Is the hon. Member suggesting that we had any particular control over the price of imported softwood?
  Mr. Nicholls: I am suggesting that, the fact is that during that six years the cost of house building went up by £400 or £500, and that reflected itself in increased rents. If the hon. Member for Leeds, West (Mr. Pannell) was as concerned in those years as he appears to be this morning about the increase in rents I should have expected to have heard his voice raised much more often on that problem.
  Mr. Jay: Just because wages in the building trade have gone up and the prices of materials have gone up in the past six years, is that a reason for pushing costs up further by an unnecessary rise in interest rates?
  Mr. Nicholls: I was coming to that. It is the fact that while the hon. Gentleman was an important Member of the Government the building costs went up £400 to £500, and rent went up in consequence.
  Mr. R. T. Paget: Is the hon. Member aware that building costs went up less in England than in any other single country in the world?
  Mr. Nicholls: So far as that intervention is concerned the only point of interest is that I represent an English constituency. The fact is that the cost of building went up during the period of the leadership of hon. Gentlemen opposite and resulted in increases in rents. But two blacks do not make a white and I do accept the interjection made by the hon. Member for Battersea, North (Mr. Jay).
  The country is facing a period of financial stringency which has to be recognised, and I think this Bill is an honest attempt to meet the inflation which is one of the outstanding difficulties confronting the country at the present

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  time. I agree with hon. Members opposite that another problem, almost equal in its intensity, which is bearing heavily on the ordinary man is the shortage of houses; and the question of rents which have to be paid for them when they are secured. I believe that the Government must keep that point in mind also.
  I am hoping that the Government will meet the local authorities on the question of subsidy. I am satisfied they will realise the importance of keeping rents down to as low a level as possible. I feel, however, that at this stage we ought to look for other remedies than the doling out of more money, and the giving of bigger subsidies to local authorities to keep down rates.
  The line we should be pursuing is to encourage everybody responsible for building houses to reduce once again the building costs. I do not accept the view which was obviously in the mind of the hon. Member for Leeds, West, in suggesting that loal authorities in the country would throw up their hands and say "Woe" because interest charges are going up and that they will not do anything about building houses—
  Mr. Pannell: I did not say that.
  Mr. Nicholls: That was the intention at the back of the arguments advanced by the hon. Member. I am certain that the result of this Bill will be that local authorities will work hard to investigate every possible means of reducing building costs.
  I am certain they recognise the need for more houses. I believe we shall get more houses and that the local authorities will recognise the need to build smaller houses, which will be erected at a lower cost. I am hoping that a result of this Bill will be to impress upon local authorities the urgency of their task in bringing down costs, which will more than balance the actual increase in interest rates.
  Mr. Pannell: The hon. Gentleman has not made his point. He said he thought I was wrong in suggesting that local authorities will have to think very hard before building further houses. Will he deal with the economic fact always present before local authorities? Shall I instance the city of Leeds in which his
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  own party won a resounding victory in May of this year, and where they have already been forced to consider raising rents?
  Mr. Nicholls: The point which I understood the hon. Member was making was that the interest rates are going up and that would be bound to reflect itself in rents—the hon. Member for Nottingham, South (Mr. Norman Smith) said 3s. 6d. in his division and the hon. Member for Leeds, West, said 4s. 6d. in his.
  Mr. Pannell: The figure I gave, which I thought I made it clear, was 4s. 6d. in the borough of Erith in Kent where I used to be Chairman of the Finance Committee.
  Mr. Nicholls: The suggestion on the one hand is 3s. 6d. and on the other 4s. 4d. and of course if the situation remains just as it is now, without anybody making any effort to alter things these figures will be just as they are quoted. But this Bill will help in bringing a realisation of the financial stringency which the country must face up to, and local authorities must play their part in providing cheaper houses by exercising keener supervision on building costs, by building cheaper and smaller houses and indeed by every way that will produce houses without any increase in rent.
  This Bill is not an attack upon the housing programmes of local authorities. It is a challenge to them to face up to their housing needs, and at the same time to do it in such a way that they can reduce costs, so that rents will not increase. I think it is stupid to suggest that the rentpayer, the ratepayer and the taxpayer are all different people; they are not. They are precisely the same, so that, if the result of the Bill is a facing up to the danger of inflation which is now affecting the country, everybody will benefit from it. If this Bill gives encouragement to local authorities, as I believe it will, to take greater care in house building, and to bring about reductions in housing costs, it will more than outweigh the increased interest rates which they will have to pay.
  I hope that my hon. Friend will keep clearly in mind the vital importance of seeing to it that those who are already finding it hard to pay the existing rents do not have this added burden placed

  769
  upon them. While I believe that, overall, this Bill will help to combat the rising inflation confronting the country, we do not want to do that at the expense of those who are unemployed, even though they are not such a very large number, or those already living in houses the rents of which they are finding it hard to pay.
  If we accept the challenge behind the Bill, we can get the best of both worlds. It will be a means of bringing down the cost of living and be of special encouragement to local authorities who are prepared to make a real effort to provide houses at the lowest possible cost.
  Dr. Barnett Stross: As the hon. Gentleman is showing such practical experience on this subject, may I ask him a question? Will he try to reduce the cost of house building by moving against the price rings?
  Mr. Nicholls: I support my party's intention, already set out, to face up to any price rings or monopolies whose object is to keep up prices.
  12.32 p.m.
  Mr. J. A. Sparks: I am very glad of the opportunity to say a few words on this Bill, because its consequences on my own constituency, and particularly on the housing problem of the local authority, is of a very serious nature.
  It is a very sad commentary that we were able to finance a great war at a rate of interest which was never higher than 2 per cent., and yet here, in times of peace, and in these very difficult post-war years when there is so much reconstruction to be done throughout the country, we are considering today a Bill which involves increasing to 3¾ per cent. the rate of interest to local authorities for those purposes.
  In the first place, I want to emphasise the effect that the Government's proposals to vary and increase the rate of interest which they would charge to local authorities for loans have effect in my constituency. In the case of a dwelling which costs the local authority £2,000 to build, these proposals will mean an increase in rent to the occupier, assuming that this matter is not adjusted by way of subsidy, of about 4s. 7d. per week.
  The interest charges on a house costing £2,000 to build at the present time are
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  equivalent to about 17s. per week, and, on the average, under the new rates of interest, that weekly charge will increase to 21s. 3d. per week. When one realises that the increased charge is likely to be spread over a matter of 60 years, one realises how vitally important interest rates are to local authorities in carrying out their various undertakings.
  I want to refer to some other items connected with functions of the Public Works Loans Board. Much of our Debate this morning has quite rightly centred upon the increased cost of housing schemes to local authorities as a result of the rise in interest rates. The Financial Secretary will correct me if I am wrong, but I think he said that there were other items of expenditure by local authorities, apart from housing, which account for about £150 million of the loans made by the Public Works Loans Board.
  Mr. Boyd-Carpenter: I think the hon. Gentleman has substantially got the point, but may I correct him on the figures? I did not say £150 million a year. The figure for non-housing expenditure in the last two or three years has been substantially below that figure. The hon. Gentleman is thinking of the £156 million out of the £416 million of commitments, some of which relate to work done more than a year ago.
  Mr. Sparks: I thank the hon. Gentleman for that explanation. I have here the report of the Public Works Loans Board for 1951, which is the latest report, and I would like to make some comments on some of the loans made by the Board other than for housing purposes. For instance, last year, in round figures, £28 million was advanced to local authorities for purely educational purposes—largely for the building of new schools, technical colleges and matters of that kind. I want to ask the Financial Secretary, or whoever is to reply to the Debate, whether the increased costs to the local authorities will be made good by an increased grant from the Board of Education.
  We have heard from the Financial Secretary and others that it is the intention of the Government to negotiate with the local authority organisations for the adjustment of the subsidy in regard

  771
  to increased interest charges. I want to say a word or two about other items of vital importance to local authorities. On the subject of education, we need to know whether we shall be compelling local authorities to increase their costs in the building of schools and technical colleges and other important works connected with education, or whether the Government intend to relieve those local authorities to some extent, or, as I believe should be the case, to the whole extent, of these increased costs which they will now have to bear.
  Again, there is in the report an item of £8,720,000 last year which was advanced for public health purposes, most of which, I believe, was in connection with expenditure on the provision of proper sanitation and sewerage, including water schemes. The increased interest rates will compel local authorities to incur additional expense for these vital purposes of public health, and I would like to know whether the Government intend to make good this increased cost, in whole or in part, to the local authorities by a revision of the Exchequer block grant.
  Next, under the Small Dwellings Acquisition Act, £9,241,000 was advanced last year to enable persons to buy their own homes. Do the Government intend to reimburse the local authorities by a sum equivalent to the rise in the interest charges, so that these loans under the Small Dwellings Acquisition Act may still be made available to persons desiring to buy homes of their own without additional interest charges?
  If not, it really means that those people who in the future want to acquire a home of their own and who go to the local authority to raise the necessary loan will have to bear an increased expenditure by way of repayments of principal and interest of an amount equivalent to about £11 18s. 6d. a year over the whole period of the mortgage, which might be for 10, 15 or 20 years, or perhaps even longer.
  That is a very substantial burden to ask anybody to undertake for a number of years. The Small Dwellings Acquisition Act is a small but important part of the national housing programme of the country, and, therefore, I think we should make loans available on the most equitable terms possible to people who want to own their own homes.
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  We also find in the annual report of the Public Works Loans Board, under the heading of "Roads and Bridges," the sum of £1,613,000. Here, again, it will cost the local authorities a higher rate of interest to finance the provision of new and better roads and bridges. I want to know whether the Government intend to adjust the grant made by the Ministry of Transport to local authorities to cover this increased cost to them, because, if not, it must inevitably be a burden on the rates in the same way as education, public health, and the other items I have mentioned.
  Then there is land drainage, another important item. Over £2 million was advanced last year to finance land drainage schemes of local authorities, but now we are increasing the cost of carrying out that important work by raising the rate of interest. Are we or are we not going to leave that additional burden to be carried by the local authorities? I believe the Government should make good to local authorities the increased cost of land drainage which will arise from the increased rate of interest now being demanded.
  Although I do not propose to go through the whole list, there are many other items in it which outline the very important purposes and functions of the Public Works Loans Board in financing local authority development schemes. I put these points to the Financial Secretary because they are matters upon which local authorities want some information.
  It is all very well to give a somewhat hazy undertaking that the Government will look into the readjustment of the subsidies upon housing without giving any guarantee of what is likely to occur. But local authorities are vitally concerned with the several other matters, apart from housing, and unless the Government are prepared to deal with these other matters in the same way as with housing it must inevitably mean that the cost to local authorities for all other valuable social services—as was pointed out by my hon. Friend the Member for Battersea, North (Mr. Jay)—must inevitably increase, and must become an additional burden upon the rates.
  I would remind the Financial Secretary that last year one of his right hon. Friends, when sitting on this side of the

  773
  House, and when the Public Works Loan Bill was being discussed in much the same way as it is today, made a very definite and categorical statement on behalf of the Conservative Opposition about this very matter. We want to know whether his undertaking is going to be carried out by the Government because we know that they are inclined to say one thing when in opposition and something totally different when in the seat of Government.
  This is what the right hon. Member for Leeds, North (Mr. Peake) said about increasing interest rates:
  "I said that any necessary subsidies on house building, or any other local authority project, must, of course, be granted and, if necessary, increased to make up for anything they might lose through the rate of interest being brought up to the proper level."—[OFFICIAL REPORT, 21st November, 1950; Vol. 481, c. 235–6.)
  From that it will be seen that the right hon. Gentleman made a categorical statement last year that any increases to local authorities, not merely on housing, but on all other local authority projects, should be made good to them if the rate of interest is raised to that which he said the Treasury would be expected to meet in its own borrowings in the money market.
  I hope that before the Second Reading stage of this Bill is concluded the Government will be able to give some much clearer statement to the House and to local authorities as to whether they are to carry out the undertaking given by their spokesman the right hon. Member for Leeds, North, last year, or whether they intend to throw it overboard. They must tell us whether they intend to meet the increased cost to local authorities for housing and for all the many other items of social services so vital to the welfare of local authority life. I trust that we shall get that information before this Debate is concluded, because it is urgently desired by those outside.
  12.48 p.m.
  Mr. Eric Fletcher: I am sure the whole House is indebted to you, Mr. Speaker, for having allowed us, in discussing the Second Reading of this Bill, to consider the action taken by the Chancellor of the Exchequer recently in increasing the interest rate from 3 to 3¾ per cent. It happens to be a fortunate coincidence that the Bill is introduced by
  774
  the Government so shortly after that increase was made. As I understand it, had the Bill not been so introduced, it would have been impossible for us to deal with the matter or to discuss it in this House.
  The Financial Secretary to the Treasury—and I should be obliged if I could have his attention for a moment, because I am sure that this point would appeal to him—has always been an enthusiastic advocate for giving Parliament full control over delegated legislation and administration. As I understand, the Treasury Minute which authorised and required the Public Works Loans Commissioners to increase the rate of interest from 3 to 3¾ per cent. was not a Statutory Instrument in the ordinary sense such as has to be laid before this House. Therefore, but for the fortunate coincidence that we are considering this Bill today there would have been no opportunity for this House to pray against it or to deal with it.
  As I gather that the hon. Gentleman and his right hon. and learned Friend the Home Secretary are anxious to receive suggestions and assistance about how the rights of this House over the Executive can be improved, I would invite his attention to the possibility of making the necessary changes so as to enable the House, if any further review of the interest rates are contemplated by Treasury Minute, to have an opportunity for discussing it, because, as this debate has shown, the interest rates are a matter of very great public concern, of vital importance to local authorities, and things which this House ought to discuss. Local authorities, by virtue of this burden and of the Bill which we passed the other day, find themselves in the position of having no other source than the Government from which to raise money.
  It is no exaggeration to say that when the Chancellor made his statement about these increased rates on 7th November, to which effect was given by a Treasury Minute the following day, it caused something like consternation among local authorities throughout the country. As the House may be aware, one of the reasons why this Bill will not only authorise the expenditure of a sum of money but also authorise the Commissioners who enter into commitments to make advances is, as the Financial Secretary himself said,

  775
  because there is a time-lag between the moment at which the Commissioners authorise local authorities to borrow and the moment the demand is actually made.
  When this announcement was made, the Public Works Loans Commissioners had agreed to sanction advances to local authorities to the extent of approximately £420 million. That is the extent of the commitments into which they had entered because of the plans local authorities had made. All these commitments, all these advances that had been promised but not actually made in respect of local authority undertakings, will now, by virtue of this decision, attract the new rate of 3¾ per cent., although all those plans were made by local authorities on the assumption that the rate would continue at 3 per cent. and that the Government would continue the policy of the Labour Government in giving the local authorities facilities to enable them to borrow money at reasonably cheap rates.
  One of the reasons given for canalising local authority borrowing through the Public Works Loans Commissioners instead of leaving them free to borrow money wherever they could was because thereby it was thought they would be able to obtain the money more cheaply. That was the quid pro quo. Therefore, it may be imagined that this has resulted in great hardship to local authorities.
  I hope that the Minister of State for Economic Affairs, when he comes to reply, will really answer the questions put to him in the course of the debate. They are questions which have not been answered yet. What is the intention of those interested? Is it to make it more difficult for local authorities to build houses? Is it to enable and to compel local authorities to charge higher rents? Is it, as the hon. Member for Burton (Mr. Colegate) suggested quite unashamedly, a measure of deflation? Is it blatant deflation? Is it intended to increase the cost of living? Is there any reason to suppose that it will not have that result?
  What was meant by the very ambiguous words of the Chancellor of the Exchequer, that there will be consultation with the local authorities with a view to reviewing subsidies in which this will be one and only one of the factors taken into consideration? How long are the local authorities to be kept in suspense before
  776
  they know the final result of this increased rate on the budgetary arrangements they have to make?
  Does the Minister of State for Economic Affairs realise that the effect of this increase is that for every £1,000 local authorities have to borrow they will now have to repay not, as at 3 per cent., £2,168 over 60 years but £2,527, which means that everybody borrowing at the new rate will have to repay, for every £1,000 they borrow, an additional sum of approximately £360.
  It is obvious from what has been said already that this Measure is proof, if proof were needed, of the deliberate policy of the Government to introduce measures of deflation similar to those which the country had to face in the years when they were in power before. It is a further indication of the Government's policy of increasing the cost of living contrary to the promises that were given at the Election. I think that it is very fortunate that we have had a further opportunity of exposing their policies in the debate on this Measure.
  Mr. Speaker: Sir Arthur Salter.
  Lieut.-Colonel Marcus Lipton: On a point of order. Are we to assume, Sir, that your calling the right hon. Gentleman marks the closing of the debate on the Second Reading?
  Mr. Speaker: No, it by no means closes the debate. Hon. Members are at liberty to continue so long as there is time available.
  12.56 p.m.
  The Minister of State for Economic Affairs (Sir Arthur Salter): We are accustomed to debates on Friday morning having a somewhat intimate character and our expectation has not been disappointed in that respect today. But, commonly, when we have a Bill of the kind which is now before us we also generally expect the debate to be somewhat esoteric, and part of the interest is in watching how the ball is passing from one to the other of the skilled hands of successive Financial Secretaries. In that respect, this debate has taken a different turn.
  You, Mr. Speaker, have allowed us to travel beyond what is definitely prescribed or decided by the terms of the Bill before us. You have allowed us to

  777
  discuss the question, which is, of course, of great interest to hon. Members in all parts of the House, of the possible effects of the announcement recently made by the Chancellor of the Exchequer as to the increase in the rate of borrowing by local authorities.
  I should like to say in answer to the hon. Member for Islington, East (Mr. E. Fletcher) that I quite agree that in some way or another when decisions of importance like the decision to issue a Treasury Minute raising the rate are made, it is desirable that this House should have an opportunity of discussing it, such as that which, by your permission Mr. Speaker, we have had this morning. I will take note of what the hon. Member said in relation to the general proposals that the Home Secretary now has under consideration.
  I fully realise what is in the hon. Member's mind. He asked me what this reflected of general Government policy and intention. Did it mean that we were embarked upon the kind of deflation which has been known before in the history of this country and which has had some of the results which are in all our minds? My right hon. Friend the Chancellor of the Exchequer made a very specific statement on that subject in his speech on 7th November, when he said that monetary policy was not going to be the dictator of our economy in that sense.
  But if in that sense this is not a reflection of deflation—if I may use the word which some of my hon. Friends find very painful and which I agree is an ugly word—it does represent part of a policy of disinflation, that is, an attempt to return to a point which is between an inflationary and a disinflationary position. The hon. Member for Islington, East and several other hon. Members asked whether I could give any definite assurance as to what would be the position of the Government with regard to subsidies and possibly block grants other than housing, which is in all our minds. Everyone knows that this morning I cannot go beyond what has been said in the last few days.
  Mr. Sparks: May I ask whether the right hon. Gentleman disowns the categorical statement made by the right hon. Gentleman the Member for Leeds, North (Mr. Peake), when he sat on this side of
  778
  the House last year and gave that assurance?
  Sir A. Salter: As I understood it—I had not previously got the words in my mind—there was a very important word "necessary" in the quotation that was read. I cannot now go, in the way of assurances, beyond what was said by my right hon. Friend the Chancellor of the Exchequer the other day. There is to be the accelerated and anticipated review with the local authorities, and until that review has taken place I am unable to give assurances in such a specific form as would obviously render that consultation valueless. I would also say that while assurances on my part would be premature, inferences on the part of hon. Members opposite would also be premature
  Mr. Jay: For the sake of clarity, I take it that the right hon. Gentleman is not willing to give an assurance that there will be no increase in council house rents as a result of this decision?
  Sir A. Salter: I can only repeat what my right hon. Friend said the other day, that the increase in the interest rates will be one factor in the discussions. It would be premature for me to give an assurance such as the hon. Member has asked me to give. It would also be premature on his part, pending these discussions and consultations which will take place in the very near future, to make inferences of the kind which have been made today.
  Mr. Jay: The brief answer to my question, then, is "No"?
  Sir A. Salter: The answer is that the requests for assurances in a form which hon. Members know it is impossible to give today, either with regard to this question or with regard to the precise specification of housing design, are premature before the discussions have been begun, would much more appropriately be made on a later occasion, when a different Bill or a different proposal is under consideration.
  The main discussion today has been upon the question of relating these interest rates to the rate at which the Government could borrow for comparable periods. The hon. Member for Battersea, North, said that we had changed the policy of Sir Stafford Cripps in this

  779
  respect. That is not so. Sir Stafford Cripps' policy, clearly announced in the quotation which was given by my hon. Friend, was precisely the same as that which had been announced three years earlier by Sir John Anderson, and which, indeed, has been orthodox policy—that is to say, to relate the rent to the comparable rate for long-term borrowing and to change it from time to time as Sir Stafford Cripps quite clearly said that he had done. That is the orthodox and regular policy under Socialist and Conservative Governments, to which we are now returning after a brief excursion away from it.
  Mr. Pannell: I understood the right hon. Gentleman to say that the rents are changed from time to time. Does that mean that he is envisaging rents changing in an upward direction?
  Sir A. Salter: I said "rate."
  Mr. Pannell: I thought the right hon. Gentleman said "rents."
  Sir A. Salter: No, I said "rate." This policy, which has been followed by Governments of both kinds, has been to change from time to time the rates for long-term borrowing.
  Mr. Jay: I do not want to interrupt the right hon. Gentleman too much, but he really should not misrepresent the policy of Sir Stafford Cripps. If his policy was such as the right hon. Gentleman now says, then, clearly, Sir Stafford Cripps would not, as he did, have left the rate of interest for these loans throughout 1948, 1949 and part of 1950—particularly 1949 and 1950—at a rate below what the right hon. Gentleman calls the market rate. Indeed, by saying that we had made an excursion into another policy the right hon. Gentleman, in fact, admitted that Sir Stafford Cripps's policy was not the same as Sir John Anderson's.
  Sir A. Salter: I did not say that the policy meant a constant shifting in every month or period. I was speaking of the main principle of the policy. May I repeat the quotation which my hon. Friend gave:
  "MR. PIRATIN: Will the Chancellor of the Exchequer explain what new circumstances have arisen during the last few months, … to make it necessary to inflict this further burden on local authorities?
  780
  SIR S. CRIPPS: The Government borrowing rates for comparable periods have altered." —[OFFICIAL REPORT, 20th January, 1948; Vol. 446, c. 33.]
  When this change was made in what I still think was an excursion from the main policy previously pursued by Sir Stafford Cripps, the hon. Member for Battersea, North, developed, I think in November last year, a very ingenious and rather intricate argument. The purport was that our resources cost us less than the rate which would follow from the application of this principle, and that, therefore, we were justified in charging less than the rate for long period Government borrowing.
  I should like to make one or two remarks upon this general question. I think discussion on it can easily get metaphysical on one side or the other of the point, but the plain position is this. We all know that in the general financial structure some parts are very cheap and others are comparatively dear. The Government can get a part of its money without cost to the Exchequer in the form of a surplus in the Budget. It can get another great chunk at very cheap rates applicable to the floating debt; and so we go on.
  It is a very specious and fallacious argument to say that the real cost that is applicable to a particular commitment or obligation or liability can be found from averaging the cost over the whole. It is perfectly clear that if we had no such obligation to lend to local authorities exemption from that obligation would be an advantage which could be translated into the general financial structure. The advantage that the Government have in getting very cheap money is subject to limits which we all have in mind, and those limits are not really enlarged by the fact that the Government accept such a liability as we are now discussing.
  Mr. Roy Jenkins: I am trying to follow the right hon. Gentleman's argument very closely. Is he suggesting that if this money was not advanced to local authorities it would be used to redeem debt, and used to redeem high interest bearing debt rather than low interest bearing debt? I think that must be the point of his argument, but that does not seem to be borne out by the Chancellor's new policy of funding some of the floating debt.
  Sir A. Salter: I am not saying how it would be used, but, obviously, it would and could be used in such a way as to have an advantageous effect upon the Government's obligations. I suggest that a perfectly normal and proper way in which to put the question is this: How much would it be worth while to the Government and the Exchequer to be exempt from this obligation? I suggest that if the question is put in that way we arrive at the cost of marginal borrowing in accordance with the orthodox policy of the Treasury and of this country.
  Let me give an illustration of the fallacy of averaging. Suppose an employer desires to compensate an employee for hard work, or work under less acceptable conditions, by giving him an increase of salary, let us say £500. The employee would say, "I am not concerned with what you pay me but what I get, which is £500 minus the taxation I pay." "Well," the employer might say, "proceeding on the average principle, I understand that you pay 5s. in the £ on the average of your income." "Yes," the employee would say, "but that does not mean that this £500 is worth £375. I have to consider what is the applicable Income Tax for this marginal addition to my salary." It may be, of course, that it is worth only £250 and not £375.
  Mr. Jay: The right hon. Gentleman is refuting an argument which I did not use. I did not use the argument of averages. I merely said that no money was raised at 3¾ per cent.
  Sir A. Salter: If I misunderstood the hon. Gentleman, I apologise, but that is certainly the way in which the argument has normally been put. I suggest to him that the argument I am putting—what would it be worth to the Exchequer to be free of this obligation—leads to the conclusion that successive Governments reached at different periods, until November of last year.
  I have nothing much to add in answer to other hon. Members, because I think that has been the main question raised. I want to make one or two general remarks on the suggestion that we are now engaged on a policy which is inconsistent with our policy towards the social services. I was asked whether we were deliberately starting on a policy of cutting the social services. What has been
  782
  destroying the value of these services, and what threatened, if the movement continued, to damage them even more seriously, has been the financial conditions expressed in a constant rise in prices and, therefore, a diminution of the money value of the social services.
  The fact is—and this is relevant to a great deal of the discussion today—that as we come into office we find that the superstructure of all our expenditure, whether Governmental or local authority expenditure, is too heavy for the financial foundations, and in some way or other we have to strengthen those financial foundations. This action is a part of that general policy and that general purpose.
  Mr. Sparks: Could the right hon. Gentleman tell us the effect on the activities of the Public Works Loans Board of the Government's policy of postponing the starting of new schemes, other than housing, for three months? There are quite a number of purposes, other than housing, for which the Public Works Loans Board has granted money to local authorities, and in those cases we may assume that the starting date will be postponed for three months. That postponement must have some effect upon the work of the Public Works Loans Board. Could the right hon. Gentleman indicate to what extent it is likely to reduce the amount of loans during the next 12 months or to reduce the overhead commitments?
  Sir A. Salter: I cannot follow the precise results of a policy of that kind in all its aspects. To a considerable extent the postponement of starting dates—and this is particularly true about the housing programme—will have the effect of relieving the housing programme of what has been a large overloading. It may in itself not only not reduce the number of houses built, but might even accelate the date of completion of houses which have been commenced. Obviously, however, that question cannot receive anything like a detailed and full answer from me in a discussion on this Bill.
  Mr. Sparks: I think the right hon. Gentleman has misunderstood the point. I was excluding houses. The building of schools and colleges, work on sewerage and roads and bridges and a whole host

  783
  of other functions which a local authority carries out were what I had in mind. I understand that the starting date of any new scheme is to be postponed for three months. That must affect the Public Works Loans Board in carrying out its function of advancing loans. I assumed that there would be a deferment in the advancing of loans for three months out of the 12 months, and that in itself would have some effect on the overall position over the year.
  Sir A. Salter: I cannot follow what would be the precise results. To some extent the results may be similar to that which I indicated would largely be the result in the case of housing. I will make this general remark to hon. Members who have spoken about the position of local authorities. If we are proceeding, as we intend to proceed, along the line of policy which means, not deflation but disinflation, a return to something in the intermediate stage, then, of course, that means, and must mean, very great and grave economies in public expenditure, not limited to the expenditure of the central Government—for the same or a similar policy must extend throughout future expenditure of local authorities.
  Mr. R. T. Paget: That may be summarised as follows: it is a transfer of spending power from the ratepayer and the rent payer to the taxpayer and the rentier, and on an average that is a transfer of spending power from the poor to the rich. That is what it amounts to.
  Sir A. Salter: I do not propose at the moment to engage in a general debate upon the whole of our financial policy, which has not been accurately described by the hon. and learned Gentleman; indeed, it could scarcely be accurately and completely described in a phrase so short as that which he used. There is little I need add to what I have said, but if any important question has been raised and I have inadvertently omitted to deal with it, perhaps I may be reminded before I sit down, as I intend now to sit down.
  Mr. Jay: I was provoked by one of the right hon. Gentleman's last remarks. Did I understand him to say that there were going to be great and grave cuts
  784
  in expenditure, both by the central Government and by local authorities, enforced by the present Government—or perhaps I was wrong.
  Sir A. Salter: I said that the strengthening of our financial foundations and the curing of the many evils with which we find ourselves faced as a country will not, in my view, be possible without economies not only in central Government expenditure but in local authority expenditure as well.
  Mr. Jay: This seems to be rather an important Government pronouncement. Am I right in understanding that, for the first time, the right hon. Gentleman is proposing, or threatening, some very heavy cuts, of which we have not yet heard, in central and local government expenditure? Are we to assume that that will cover defence or the Social Services or the food subsidies? Surely, having made that general pronouncement, the right hon. Gentleman should now give us some indication, or we shall be left to draw our own conclusions.
  Sir A. Salter: The conclusion which I hope the hon. Gentleman will draw is that, having regard to the present financial condition of the country, economies, both central and local and on a considerable scale, are required.
  1.19 p.m.
  Mr. Roy Jenkins: Before the right hon. Gentleman rose to address us we had three speeches from the Government side of the House, and after listening to all three I must say I was utterly confused as to what is the prime purpose of the change in interest rates associated with this Bill. It was certainly not made at all clear to us by the speech of the Financial Secretary. It was not made clear whether the purpose was deflationary or whether it was purely a tidying-up operation—a transfer from a concealed subsidy to an open subsidy. We all hoped very much that the right hon. Gentleman the Minister of State would make us absolutely clear on the point, but I am bound to say that when he was applying himself to the point, in the earlier part of his speech, he did not clear it up at all.
  I think that in the latter part of his speech, when he uttered those remarks which my hon. Friend the Member for

  785
  Battersea, North (Mr. Jay) has just taken up, about the great and grave cuts in public expenditure by both local government and the central Government, he did come down then pretty sharply on the side of this being a deflationary proposal.
  Sir A. Salter: Disinflationary. It is a horrid word, but it expresses more exactly what I meant.
  Mr. Jenkins: The hon. Member for Burton (Mr. Colegate), although not very moderate either in tone or in substance, did, in most of his speech, attain less disingenuousness than that evidenced by some other hon. Members opposite. There was no nonsense in his speech about disinflation. He talked about deflation. I am bound to say that even the brutal honesty of the hon. Member for Burton got a bit weaker when he was challenged by my lion. Friend the Member for Widnes (Mr. MacColl), who asked him how he thought this policy would be carried out. The hon. Gentleman then retired into complete financial mumbo jumbo.
  A deflationary policy in this respect means either reducing the amount of resources devoted to house building or making the Council house tenants pay more rent, and, therefore, have less money to spend on other things. Those are the only two ways in which this deflationary or disinflationary policy can be carried out by the changes of interest rates affecting house building.
  Mr. Colegate: I am sure the hon. Gentleman has no wish to misrepresent me. He is presenting, as is usual amongst hon. Members opposite, a false alternative. No doubt the effect of this deflationary policy—and I do not mind the word—will be to reduce the cost of house building. I would remind the hon. Gentleman that a reduction by the new rate of interest of £300 in the cost of a house would mean a saving of £11 5s. over whatever period the loan existed. There is no mumbo jumbo about it—if only the hon. Gentleman would read the ordinary financial rules.
  Mr. Jenkins: The hon. Gentleman was very patronising just now about elementary textbooks on economics, and he really must not retire into intellectual flabbiness, which is all that this amounts
  786
  to. We can bring about a reduction in the prices of anything by means of deflation only if we use deflation to reduce the pressure on resources. We can only possibly do that by a Measure of this sort affecting council house rents—if we are to do one of the two methods I mentioned.
  I have no idea what he thinks a policy of disinflation or deflation has in effect upon costs, except in so far as it reduces the pressure on resources; and it is no good just talking about the purely financial aspect of the matter. That is all that a deflationary policy means. All that can happen, so far as this Measure is concerned, is one of these two things—fewer houses being built, or higher rents for those who occupy them, which means that they will have less money to spend on other things.
  Is this the object, or the primary object, of this change in interest rates? Is it primarily a deflationary policy? If so, it is important that we should remember who are the targets for this Government's first measure of deflation. They are the people who will occupy the council houses which are going to be built from now on. They are the people the Government have chosen as the first people who will bear the burden of their deflationary policy. That is quite clearly the case if the primary object of this policy is deflationary.
  Sir A. Salter: May I clear up this point? The primary object of this particular change is what may be called "tidying up"—getting back to a real basis, and to see that the subsidies that are given are clearly visible and measurable, and not containing an element of concealed subsidy. That is the object of this particular Measure, but, of course, this Measure, as a whole, must be related to the general financial policy of the Government as explained by the Chancellor of the Exchequer the other day.
  Mr. Jenkins: We accept that that is the primary object, but as the right hon. Gentleman himself specifically refused to give the assurance for which my hon. Friend the Member for Battersea, North (Mr. Jay) asked, that these changes would be met by the Government giving an increase in the housing subsidy, we can only assume that this tidying-up Measure is being used as an excuse or a sort of smoke screen to put rents up.
  Sir A. Salter: I repeat that as such assurances are premature so, also, are inferences of that kind at this moment. The hon. Member knows that a very early review is to take place, at the end of which results may appear that he may criticise, justly or unjustly; but what I say is that at this moment inferences are as premature as assurances would be.
  Mr. Jenkins: If the right hon. Gentleman is now trying to say that it is possible, or, indeed, probable, that the changes in subsidies will be such as to mean no increases of rents, although he is not able to give an assurance of that now, what did that part of his speech mean when he said the changes are a general disinflationary policy? It could have no meaning.
  Sir A. Salter: The hon. Member will bear in mind that this Bill with which we are now dealing does not cover only loans in respect of houses.
  Mr. Paget: On a point of order. I beg to move. "That the debate be now adjourned."
  We are being asked to authorise payments. They are dependent on assurances which the Government are not in a position to give us—
  Mr. Deputy-Speaker (Mr. Hopkin Morris): Order. I cannot accept that Motion now.
  Mr. Jenkins: I am sorry, Mr. Deputy-Speaker, that you cannot accept that Motion, because it does seem that we are being asked to continue this debate, which is, after all, the only opportunity we shall have to discuss this matter in its present form, in a situation in which we can be given no assurance at all for which we have asked, and in which, when we try to work out the effect of the Measure, we are told that we are making improper inquiries. It is an impossible situation in which to discuss a very important change like this change in the rates of interests which the local authorities will have to pay.
  I think that there is no doubt at all that, in fact, this Measure is to a very large extent a deflationary Measure. In that case, I think the Government ought to face up to that fact. They ought to say whether or not as part of their financial policy they have got to cut down
  788
  the purchasing power in the hands of the people, and they ought to say "We have decided, rightly or wrongly, that the people whose purchasing power ought to be cut are people who are inhabiting or are going to inhabit new council houses."
  It is not good enough to come along, as the Financial Secretary did, and present the change primarily in terms of a tidying-up operation while hinting that it really will not make any real difference. Indeed, if one looks back to what the Chancellor said in the debate of the Address, one finds that he first of all announced the changes in interest rates, while everybody on that side of the House looked rather glum, and then made some vague statement about subsidies, hinting, perhaps, that the subsidies might be used so as to cancel out the change in the interest rates, whereupon there was a great cheer on the other side of the House, as they doubtless thought that then the right hon. Gentleman would bring forward some proposal to iron out the whole thing.
  We ought to be told what we have not yet been told, whether this policy of the Government, in putting up the rates of these loans to local authorities, is intended as a deflationary contribution at the expense of people who occupy council houses, or whether it is not.
  1.28 p.m.
  Lieut. - Colonel Marcus Lipton: The House finds itself in a most impossible and intolerable situation at the present moment, and although it was not possible for you, Sir, to accept the Motion moved by my hon. and learned Friend the Member for Northampton (Mr. Paget) I still think it is necessary to stress the impossibility of the situation in which the House now finds itself. As a result of bringing a certain amount of pressure to bear and of cross-examination of the Ministers in charge of the Bill today we have succeeded in extracting from them what appears to me to be a very serious and important statement of policy. That is the point to which I wish to direct the few remarks I should like to make.
  The Minister of State for Economic Affairs—under pressure; I will admit that—made a statement from which only one inference could be drawn, the inference being that important and very

  789
  serious and very grave cuts will have to be made in both national Government expenditure and local government expenditure. It strikes me as very odd that the time and place for announcements of that kind should be here and now on a Friday afternoon, when there are hardly any Members present in the House, though perhaps it was known in advance that there would not be very many present.
  The Government find themselves in a difficulty in presenting this Bill and in the discussions which have taken place on interest rates. They have to do one or other of two things. They have got to admit that they have nothing in their minds at all in suggesting that interest rates should be increased, or, alternatively, that it will lead to a policy of deflation, which we have suspected all along was to be the policy of the present Administration.
  Mr. Scholefield Allen: I hope that my hon. and gallant Friend is not overlooking the fact that this pronouncement was not made by a junior Minister but by the Minister of State for Economic Affairs.
  Lieut.-Colonel Lipton: And that makes the whole business much more ominous in my opinion.
  I hope the Minister of State for Economic Affairs will not take it amiss if I say that of all the speeches which we have heard from the Government side of the House this morning the most honest was that made by the hon. Member for Burton (Mr. Colegate), who has unfortunately left the Chamber. He was a quite open and unashamed advocate of a policy of deflation. He began to wobble, of course, when certain consequences of this policy were brought to his notice by hon. Members on this side of the House, but I venture to suggest that the voice of the hon. Member for Burton is the true voice of the Conservative Party on this issue. That is why I attach considerable importance to what the hon. Member said.
  It is quite clear that one effect of the increase in interest rates will be an increase in the charges that have to be imposed by local authorities upon their own ratepayers unless the Government are prepared to say that the subsidies will
  790
  be increased to cover the cost of the additional charge on local authorities.
  The right hon. Gentleman was compelled to make this most illuminating statement of Government policy, namely that the structure was too heavy for the foundations. I am not quite sure what that means, but he went on to say that it was necessary to strengthen the foundations. In his view one way of strengthening the foundations—and he speaks as a responsible Minister of the present Administration—was to increase the interest rates.
  We ought not to be surprised by what the right hon. Gentleman said, because the present Administration believe in a policy of decontrol. One of the price controls that they have been very quick to remove is the price control exercised by the previous Administration upon the price of money, in other words the interest rates. This, of course, will have all kinds of disastrous consequences in the economic field, of which we have had a glimpse today but only after bringing a certain amount of pressure to bear upon the right hon. Gentleman.
  Sir A. Salter: The hon. and gallant Member says that I have been compelled to make an important pronouncement on Government policy. I have not been compelled to make anything of the kind, and I have not made any such pronouncement in answer to the questions that were made, but I related this tidying up operation to the statement of general Government policy which was given by the Chancellor of the Exchequer on 7th November. I have certainly not gone beyond that, and I merely remarked that if we were to get economies they could not all be levelled on the central Government only.
  Mr. Jay: To announce that there are to be great and grave cuts in the expenditure both of the central Government and of local government, is far more than anything which the Chancellor said, because quite clearly any grave and great cuts in the expenditure of local authorities must be cuts in the social services.
  Lieut.-Colonel Lipton: I am much obliged to my hon. Friend the Member for Battersea, North (Mr. Jay), for his intervention because that was the point I was trying much less effectively to make.

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  Our worst suspicions have been confirmed today. We hitherto believed that that was going to be the policy of the present Administration. Now it has been confirmed. Whether the right hon. Gentleman was making an official statement or not and whether he was under pressure or not, he has still not departed from the statement he made. I view the prospect with considerable alarm from the point of view of the occupiers of council houses and the tenants of flats.
  I fear that the announcement of the cuts which the right hon. Gentleman has made today will be seen only too well in the misery which will be caused in the lives of millions of men and women in this country. That policy has now begun to unfold itself, and we now have had the first revealing glimpse of it in the course of the Debate on this Bill.
  1.38 p.m.
  Sir Richard Acland: This Debate has taken on an ever increasing importance with each speech that has been made. I appreciate what the Minister of State for Economic Affairs means when he says that he should not be pressed to make specific statements about the detailed matters which, in my view, not unreasonably are being left to the two-monthly period of gestation beginning on 7th December, during which time the Government will think about their major long-term policy.
  My only purpose in speaking this afternoon is to make a suggestion as to some of the thoughts which should pass through the Government's collective mind, and particularly through the mind of the Minister of State for Economic Affairs, arising from the implications of the statement which, despite his modesty, he has really made today. It is an important policy statement when it is announced that there are to be grave cuts in central Government and local government expenditure to strengthen our financial foundations.
  I do not quite follow the argument which connects those cuts with the strengthening of our economic and financial foundations, unless it is implied that the main cause of rising prices in the last two years, particularly in the last 12 months, has been a too great purchasing power within our own country. I should
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  have thought that that was a fallacious idea and that, in fact, the main cause of rising prices has been the increasing world prices of raw materials.
  That takes us a little bit away from the main course of the argument and discussion which has gone on in this Debate, but I want to consider what other effects will be brought about by these grave cuts as well as perhaps the "strengthening of our financial foundations." I want to put these high financial phrases of ours in terms of practical reality. I suggest to the right hon. Gentleman that just one of the many consequences to which his present policy is directly heading us is that we shall reduce the school-leaving age in 1953. That seems to be one of the practical consequences standing out—
  Mr. Boyd-Carpenter: On a point of order. May I seek your guidance, Mr. Deputy-Speaker, whether, on the Second Reading of this Bill, such issues as the school-leaving age are in order?
  Mr. Deputy-Speaker (Colonel Sir Charles MacAndrew): The hon. Gentleman has just anticipated my rising. That issue is going beyond the Bill.
  Sir R. Acland: I do not want to go into a prolonged argument on educational policy, but we have been told that great and grave cuts in central Government and local government expenditure have become necessary. I accept the suggestion that I would be going out of order if I were dealing with some trivial item of local government expenditure on which almost nothing is expended, but if one takes the main items of local government expenditure, one of them is education.
  This policy will raise the rate at which local authorities borrow for educational purposes without any suggestion such as has been made in regard to housing, that the cut might be made up in whole or in part by an increase in subsidy. There is no doubt that local authorities will have to bear, under this Bill, the whole extra cost which will be imposed upon in relation to school building. That must have a very noticeable effect upon the local authorities, who will be struggling to keep their rates down. It must have the effect of damping down their rate of school building.
  Mr. Deputy-Speaker: Yes, I quite agree, but if we are to discuss all the possibilities of the rise in the rate of interest we shall get very wide of what the Bill is doing.
  Sir R. Acland: I was hoping to use that as one illustration of the consequence which may arise from this act of Government policy and to come back then from the further consequences which I think are involved to the thoughts which I hope will occupy the minds of the Government and the right hon. Gentleman during the two months which are to be given to thought. The cuts, of which I have instanced one in order to give an example, will have the gravest consequences for many people in our country.
  I am not necessarily saying that it is wrong to make cuts. I am at one with the Government in believing that the position in which this country finds itself may be so grave and serious that cuts of this kind, with the consequences which they will involve for many people, must be made. I would not want to seem to give the impression that there is some way, some policy, by which everything can be made easy for everybody and no sacrifices of any kind will become necessary.
  I would, however, say to the right hon. Gentleman and to those with whom he takes thought that it must be made clear that the cuts are being equally and equitably shared by all, and that they are falling first on those who can best bear them. If, as I think, a logical consequence of the policy now adopted, or one of those consequences, is that we shall not have enough schools in 1953 to contain the children who will then be wanting to use them—
  Sir A. Salter: On a point of order. Surely to carry the argument as far as the hon. Baronet is now taking it, to the question of the equitable sharing of burdens is right away from the ambit of the Bill.
  Mr. Deputy-Speaker: Yes. I have already asked the hon. Baronet to try to keep himself to the subject matter before the House.
  Mr. James Callaghan: Would it not enable us to circumscribe the Debate quite a lot if the
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  Minister of State would tell us what great and grave cuts he has in mind?
  Sir A. Salter: I was asked to say the precise meaning of our proposals in the Bill. As to the announcement of the increase in the rate of interest I said it was primarily a tidying-up operation, for the reasons I gave, and in oder to avoid the distorting effect of concealed subsidy. When I was asked to reveal the financial policy of the Government, I referred to the statement of 7th November of my right hon. Friend the Chancellor of the Exchequer, and said that of course the Bill had its proper relationship to our general policy, which included, as the Chancellor said, envisaging great reductions in public expenditure. What I did say was that economies could not be limited only to central Government expenditure. I did not give, nor had I in mind, any programme of specific changes in regard to particular services such as education.
  Mr. Callaghan: I submit, from my recollection, that it is not the case that the Chancellor of the Exchequer said anything like what the Minister of State now says he said. Leaving that aside, if the Minister of State is not in a position to tell us what the great and grave cuts are, I submit that it is open to my hon. Friend the Member for Gravesend (Sir R. Acland) to put to the Minister of State the particular services which my hon. Friend thinks ought not to be subjected to these great cuts.
  Mr. Boyd-Carpenter: Surely the issue which the Chair has to decide is not whether it is equitable for my right hon. Friend to be asked questions on these matters but whether the questions come within the ambit of the Bill.
  Mr. Deputy-Speaker: That is the point I was trying to make. If we anticipate how economies might be exercised and make suggestions. we shall be out of order.
  Mr. Jay: If it is in order for the right hon. Gentleman to speak of these great and grave economies, surely it is in order for my right hon. Friend the Member for Gravesend (Sir R. Acland) to refer to them.
  Mr. Deputy-Speaker: Yes, but the hon. Baronet was going on to suggest what they might be.
  Sir R. Acland: By the Ruling of Mr. Speaker, we were allowed to discuss not only the narrow limits of the Bill, which authorises certain money to be spent, but also the consequences arising from the known fact that the money will be lent not at 3 per cent. as before but at 3¾ per cent. Mr. Speaker definitely said that that fact could be taken note of and its consequences could be considered in the debate.
  I propose to come to the point, which I have been trying to reach from an opposite direction, that one of the effects of the change from 3 per cent. to 3¾ per cent. must be to increase the income of rentiers in general. I leave this thought with the Government for this two-month period during which their main policy is to be laid down. They take a step which, on the one hand, increases the income becoming available to rentiers.
  If at the same time they are announcing "great and grave" cuts, one of the consequences of which will, in my opinion, be that we shall not be able to sustain the school leaving age at 15 for another two years, then in this coming period of thought the Government must make up their minds what additional measures they are to adopt to restrict the inflationary spending of those in the community who are amongst the wealthiest people of all. If our position is now so grave—
  Mr. Deputy-Speaker: That is going miles beyond what is in the Bill.
  Sir R. Acland: But, Mr. Deputy-Speaker, we are not on the Third Reading of a Bill and we have been given permission by Mr. Speaker to take into account the consequences arising from the whole of the policy outlined by the Bill and logically and necessarily following from it.
  Assurances which have rightly been sought arising out of the Bill have been postponed on the grounds that they cannot be asked while the two months' period of thought lies ahead of the Government, and I should have thought that it was in order for me to suggest some of the other matters to which the Government will have to give their attention during that two months' thought if the consequences inevitably arising from the Bill are to be made acceptable to our
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  people. I believe I have sufficiently indicated what these consequences are and that I need not prolong the question of whether this is or is not in order, but can conclude now by thanking you, Sir, for the indulgence which I have been given.
  1.54 p.m.
  Mr. Ivor Owen Thomas: When the Minister of State for Economic Affairs rises in a debate on a Bill such as this dealing with local loans and mentions certain grave and serious—
  Mr. Callaghan: "Great and grave" —get it right.
  Mr. Thomas: —"great and grave" cuts in national and local expenditure, such a statement raises the whole issue of the purpose of the Bill and its specific provisions. If the Government have in mind "great and grave" cuts in national and local government expenditure—cuts which have not yet actually been specified—I suggest, and I carry my colleagues with me in this—that they are confessing that they are not in a position to support by an estimate the sum of £500 million which appears in the Bill.
  Unless the Government give the House details of the "great and grave" cuts in expenditure, we cannot deal effectively with the basis on which the total amount of local loans included in the Bill is estimated. If the cuts are to take place, what effect will they have on the total amount ultimately to be issued in the form of loans by the Government to local authorities for housing, schools, police stations and all other forms of local government expenditure?
  An outstanding example to which these proposals have been related is housing. The figure of 300,000 a year has been mentioned repeatedly. The Government must mean one of two things in their promises about housing. If they really mean that their target is to be 300,000 houses as speedily as possible, the raising of interest rates to local authorities on loans for housing will not enable the target to be achieved more speedily.
  By the inverted logic used by the hon. Member for Burton (Mr. Colegate), it is wise for the Government and beneficial to the community as a whole for the interest rates on housing loans to be raised to 3¾ per cent. If the result of that is to speed up the provision of houses, it is logical to conclude that we should have

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  still more houses if we raised the interest rate to 6 per cent., which is obviously ridiculous. Therefore, we can only reach the alternative conclusion that the raising of the rate on local government loans has the specific purpose of reducing the total expenditure of local authorities on all local services, including housing.
  If, by some remarkable ingenuity, local authorities find it possible, despite the increase in the interest rate, to build more houses, it is inevitable that those houses will cost more. How are the increased costs to be met? Will they be met by increased Government subsidy? We ought to have a reply to that specific question. Is it the intention of the Government to revise the Government subsidy on housing loans? May we have a reply to that question? Apparently the reply is silence. We can only conclude that there is to be no revision of the Government subsidy for housing, and, therefore, the increased cost will inevitably have to be met by increased rents or increased rate assistance.
  To say the least, the Government have not been frank with the House in today's debate. I make this primary criticism of their action in bringing before the House for discussion on a Friday a Bill of this importance. It is an attempt to squeeze through, to rush through, unnoticed, as it were, a Bill which deals with the fundamentals of local government finance. A Bill of this kind should have been brought forward earlier in the week, and it should have been given by the Government the importance that is essential to it.
  Obviously, the Government have sidetracked all the main questions that have been put from this side of the House in today's discussion of the Bill. The Minister of State for Economic Affairs made certain remarks, apparently, giving an indication of the general trend of Government thought in regard to local expenditure. We contend, therefore, that in dealing with a Bill of this kind we should be furnished with a full statement of the Government's intentions in regard to the whole of their financial policy.
  How can the Government put forward proposals in regard to a sum which is not to exceed £500 million when, on their own confession, they intend to have slashing economies put into effect in local and national expenditure? They are making these proposals without giving to the House and to the country a full outline
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  of their plans and intentions. We have had only dribs and drabs, hole-in-the-corner suggestions, from which we are left to draw out own conclusions, and when we seek to draw those conclusions there is danger of our being ruled out of order as raising matters that are outside the scope of the Measure which we are discussing.
  I suggest, therefore, that the Government should defer this debate to a further day and should give to the House a full outline of their intentions as to local government and national expenditure, their intentions and expectations as regards local government services like housing, and some indication as to the length to which they are going in order to reduce local government expenditure to achieve what they contend is the overall purpose and necessity of national economy.
  The Government cannot have it both ways. They cannot say that they intend to aim at and to achieve as speedily as possible a target of 300,000 houses per annum, and at the same time, by this financial manipulation of interest rates, make it even more difficult for local authorities, not only to build the 300,000 houses, but even to maintain the standard of achievement which has been reached under the Labour Government in the last six and a half years.
  The Government are not being as honest and straightforward as they ought to be in this matter. They ought to take the Bill back and think twice—three times, in fact—about it. They should put all their cards on the table and tell the House and the country what are their intentions, so that we on this side might be able to address ourselves to their arguments, instead of misleading the House and trying to squeeze through a major Measure of this kind, with only mere suggestions as to their overall intentions of reducing the full scope of operations of local authorities over the whole field of local government service.
  2.5 p.m.
  Mr. James Callaghan: I am glad now to have caught your eye, Mr. Deputy-Speaker. The Minister of State has only himself to thank if the debate is prolonged unduly. Had it not been for the somewhat spectacular statement that he made this morning—
  Sir A. Salter Sir A. Salter indicated dissent.
  Mr. Callaghan: I see that the right hon. Gentleman shakes his head in dissent. Does he not think that to announce on a Friday morning that great and grave cuts are to be made in central Government and local expenditure, is a grave statement? Apparently he thinks so, because he does not nod his head this time.
  Clearly, either way the Minister of State is in for a wigging. The Chancellor of the Exchequer will not be very pleased when he gets back from Rome to find that in his absence, and whilst his back is turned, his junior Minister has come down to the House and has said something quite contrary to the whole spirit of what the Chancellor said in his speech on 7th November.
  The Minister of State attempted to say that he was merely following what his right hon. Friend had said on that occasion. I shall be very ready to give way to the Minister of State if he will tell me where he thinks he is following the Chancellor of the Exchequer. During the excellent speech of my hon. Friend the Member for The Wrekin (Mr. I. O. Thomas) I have had the advantage of reading what the Chancellor of the Exchequer said, and I say to the Minister of State that he ought not to shield himself in this way.
  The Chancellor of the Exchequer did not say anything like what the Minister of State for Economic Affairs has suggested. I should like to read some of the things that the Chancellor said, and I will gladly give way to the Minister of State if he wishes to interrupt me at any time in order to tell me where he thinks —I hope that the right hon. Gentleman is not leaving us. Perhaps he has gone to get a copy of HANSARD. [HON. MEMBERS: "He is coming back."] I hope that the right hon. Gentleman brings a copy of HANSARD to see exactly what his right hon. Friend said on that occasion. I notice that the Minister of State now has a copy of HANSARD, and I bring to his notice what the Chancellor said:
  "After only 10 days or so in office it would I consider be a sign of levity in me to produce a complete programme of retrenchment."
  Are we to understand that in the succeeding fortnight the Minister of State has
  800
  been successful in doing what the Chancellor of the Exchequer said he could not do?
  "These things"—
  said the Chancellor—
  "affect the whole country and all our citizens. It is quite clear, for example"—
  I hope that the Minister of State will follow this—
  that decisions on policy need careful thought and must be concerted. To be fair one must be thorough."—[OFFICIAL REPORT, 7th November, 1951; Vol. 493, c. 202.]
  Sir A. Salter: I did not give a programme of reductions such as the Chancellor said it would be a sign of levity to give. What I did was to repeat what the Chancellor said, which was that economies would have to be made—[HON. MEMBERS: "Great and grave."] He indicated that there would have to be serious economies. [HON. MEMBERS: "Where?"] The only conceivable suggestion that can be made as to any extension of what I said was that public economy and expenditure could not be confined to central Government, but would clearly have to extend into the sphere of local government. That is the only possible extension that was not completely covered. I never said anything about programmes such as the Chancellor said he could not give.
  Mr. Callaghan: I fully follow the explanation of the Minister of State: I understand he is in a very great difficulty. If he wishes to withdraw what he said, I will gladly give way in order that he may do so, because this is a matter of grave moment. I think he will agree that his words, perhaps uttered in haste without a brief and perhaps he had not consulted Lord Cherwell—whatever it may be, he has either put himself into some difficulty for which he will get a wigging later on, or else—
  Sir A. Salter: The hon. Member may leave relations between myself and other Members of the Government to us. He has charged me with making an important statement which was at variance with what the Chancellor of the Exchequer said. I have not. The Chancellor said he could not produce the programme of cuts; I have repeated that. The Chancellor said there must be a great economy in public expenditure: I

  801
  have repeated that. But I have not done, or attempted to do, what the Chancellor of the Exchequer said, naturally and rightly, he could not do. I was not suggesting a withdrawal; what I actually said was in complete conformity with what the Chancellor of the Exchequer said.
  Mr. Callaghan: I am glad the Minister of State thinks he is in complete conformity with the Chancellor of the Exchequer and that he has the powerful backing of the Minister of Housing and Local Government in doing so. I am glad that that Minister is here. I think it is very important he should be here on this occasion, and I am sure we are all very grateful to him for his attendance. I shall come back to him later, but for the moment I shall continue with the Minister of State for Economic Affairs. He will have to "square" the Chancellor of the Exchequer when he gets back from Rome.
  I have no doubt that the Chancellor of the Exchequer will have this debate drawn to his attention. I can well imagine a little session together in which they will endeavour to reconcile what the Chancellor of the Exchequer said with what the Minister of State thinks he is now in accord with him upon.
  I wish to read one or two more sentences from the Chancellor of the Exchequer's speech to see whether the Minister of State, who, after all, has some intellectual integrity about him, really believes that what he has said was in accord with what the Chancellor of the Exchequer said. This is what the Chancellor said:
  "It must be my special duty to ensure that all play their part in the common effort and that the drive to secure savings is pursued with the same intensity and the same sense of urgency in all Departments."—[OFFICIAL REPORT, 7th November, 1951; Vol. 493, c. 202.]
  Is the drive to pursue savings the same as "great and grave cuts"? After all there is a substantial difference. Perhaps the Minister of Housing and Local Government will allow the Minister of State for Economic Affairs to answer, although I do not suggest that he should not put into his mouth what he should reply when he wants to.
  Sir A. Salter: After all, the way savings are made is by cuts.
  Mr. Callaghan: With great respect, I quite agree that savings can be made by cuts, but that really is not what the right hon. Gentleman and his colleagues have been saying for so long. What they have been saying is that our administration was so poor that they could make a great deal of saving without making cuts in the social services.
  The right hon. Gentleman need not wave his hand at me like that. I fought an Election, like all my colleagues, and I know perfectly well all the cries which went round the constituencies. They were going to maintain the social services and were not going to tamper with the food subsidies, but they were going to make great savings through better administration. The Chancellor of the Exchequer is in accord with the Conservative Party's Manifesto and says he is to invite all his colleagues to make these savings. I entirely agree and hope that he succeeds, as I am sure we all hope he will. No one wants him to spend more on administration than he needs to. But how does he reconcile that with "great and grave cuts" in expenditure?
  Sir A. Salter: A reduction of expenditure here stated by the Chancellor of the Exchequer is a cut in public expenditure. Clearly the hon. Member is making an enormous play on words, between the words "cut" and "saving"—both are a reduction.
  Mr. Callaghan: I am very glad to hear that. May I move to the next point; may I take it from what the Minister of State now says that in fact the savings now to be made—or the cuts to be made, I will use either word as he feels there is no difference between them—will not have any effect in reducing our social services? Is that the position? Can I take it that that is so, in the light of what the right hon. Gentleman has said?
  Sir A. Salter: We are dealing with a Bill, and we have had a discussion as to loans to local authorities who are not the local authorities through which social services—[HON. MEMBERS: "Houses"] If hon. Members include houses, the answer has been given about houses any number of times. I cannot go further in the way of an assurance than my right hon. Friend the Minister of Housing and Local Government has gone and than the Chancellor of the Exchequer has gone in

  803
  anticipation of the review—the accelerated review—which is to take place of the whole of the subsidy position with the local authorities. I have gone no further, nor have I said anything inconsistent with what my right hon. Friends have said before me.
  Mr. Callaghan: I think it is clear that we have convicted the Minister of State for Economic Affairs of a very gross and misleading use of words. Clearly he does not intend to go further than the Chancellor of the Exchequer; he said he does not wish to go further and there are to be no great and grave cuts in central Government and local government expenditure except that there are to be savings.
  I feel that the Minister of State must be very grateful to me because, if I have not managed to get that out of him, he would have been on the mat in front of the Chancellor of the Exchequer very quickly indeed. Now he says he is back in line with the Chancellor of the Exchequer and there are not to be great and grave cuts in our central and local expenditure. Is that so?
  Sir A. Salter: There is to be great saving. Saving can be made in different forms, as the hon. Member knows, but obviously there must be, in conformity with what my right hon. Friend said, a great saving in both central Government and local Government expenditure.
  Mr. Deputy-Speaker: I would respectfully remind the House that we are not at Committee stage now; this is the Second Reading.
  Mr. Callaghan: I fully follow that, Mr. Deputy-Speaker, and perhaps I have been inviting the right hon. Gentleman to interrupt and should not have done so. Perhaps I had better make the rest of my speech without further interruption, which I am sure will save the right hon. Gentleman some embarrassment.
  I fully understand that we can have great savings—if the right hon. Gentleman wishes to substitute the word "savings" for "cuts." I have never heard of "grave savings" but I suppose there is such a thing and it is sometimes grave to be making savings. But that certainly was not the theme song we had from the party opposite. They never told
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  us that it was a grave matter to be making savings, but said it was a most important and vital matter to be making savings.
  I am afraid the Minister of State has not had too good a morning and perhaps he has not yet had his lunch, and we had better let him off for a moment.
  Sir A. Salter Sir A. Salter indicated dissent.
  Mr. Callaghan: The right hon. Gentleman does not wish to be let off. In that case I need have no compunction in continuing my speech. One particular matter on which he could give us some enlightenment is in relation to slum clearance in this connection. We have had to slow down very considerably, as the right hon. Gentleman will know, the process of slum clearance since the war. It was being dealt with before the war—unfortunately not nearly at a fast enough rate.
  We have the Minister of Housing and Local Government with us. Since the war slum clearance has had to be slowed down in my constituency in Cardiff, where a large number of houses are unfit for human habitation. They have been condemned and ought to be removed and the people in them housed in decent accommodation. There can be no dispute about that, and I am sure we all know of such cases.
  I wish to put this to the Minister of State for Economic Affairs. If he is proposing, as he is, to raise the interest rate to 3¾ per cent., will he please take Into account in any subsidy discussions which the Minister of Housing may have with local authorities the effects that this step may have on slowing down the rate of slum clearance?
  These houses are not fit for human habitation and clearly they should be demolished at the earliest possible moment. In very many cases landlords are collecting the rents, but are not doing the repairs. They claim that they cannot do the repairs, because the houses are not worth repairing, but I notice they do not stop collecting the rents.
  I feel that this is a matter of grave social policy, and I am not twitting the Minister of State for Economic Affairs. It is a grave matter of social policy. The Minister of Housing and Local Government will, I hope, be resolute against the

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  Treasury in this matter, and will do nothing to slow down the rate of slum clearance of property which should have been demolished 10, 20, 30 years ago.
  Mr. Stephen McAdden: We cannot slow down something that has stopped.
  Mr. Callaghan: The hon. Gentleman says that we cannot slow down something which has stopped. I fully agree. I think it a very great pity that housing should be subjected to the slowing down process which is now taking place. I am very sorry it has to be so, and the Minister of Housing will no doubt take this into account in considering his future programme. I do not want to make a particular party point and I will not attempt to do so—
  Mr. McAdden: The hon. Member cannot.
  Mr. Callaghan: —not in this part of my speech. I would say most seriously to both the Minister of State and the Minister of Housing that in a number of cities the new housing programme has got to the position where local authorities have to begin to think about slum clearance again; and there is some possibility of them doing something about it, because the waiting lists are diminishing in size.
  If the effect of putting up the interest rate will be to slow down the re-housing of people living under appalling conditions it will be a very grave social consequence upon the advent of the party opposite to power, and one of which they will not be particularly proud in years to come. I hope, therefore, that despite the great and grave savings which are to be made in the expenditure of local authorities, the Minister of Housing and Local Government will be resolute in seeing, so far as his side of this picture is concerned that he gets full compensation from the Treasury and from the Minister of State for Economic Affairs in the form of an enlarged subsidy for replacing slum property in exchange for the higher Bank rate and the higher rate for loans which are now to be charged.
  I say to the Minister of State that I hope the great and grave savings will not be allowed to affect this problem of slum clearance and that he will be generous—and here I am fighting a battle for the
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  Minister of Housing and Local Government—when it comes to the degree of subsidy for the local authorities. I believe this to be a matter of most vital importance. None of us who has seen some of these houses, and the condition into which they have got over the last 50 or 60 years can do other than say that this is a vital problem which really has to be dealt with—
  Mr. McAdden: Why did not the party opposite deal with it?
  Mr. Callaghan: Do not say that sort of thing. I am trying to make a serious point and you are really trying to introduce these party matters—
  Mr. Deputy-Speaker: I have not said anything while the hon. Member was speaking. I was perfectly silent.
  Mr. Callaghan: I beg your pardon, Sir, but the hon. Member was being somewhat provocative, as I am sure you will agree.
  We have to do all we can to get new houses built and to get these old houses in the older parts of our cities torn down. I speak with great feeling on this matter, because in the part of Cardiff near the docks there are houses which were put up a hundred years ago, and more which were put up when the port of Cardiff really grew. They have got into such a state over the last 30 years that they should be pulled down as quickly as possible, and I think the Minister of Housing and Local Government can start to do something. I only hope that the Minister of State for Economic Affairs will not stop him by refusing to give him the additional money he will need to compensate for the higher rate he is to charge local authorities.
  I do not take the Minister of State very seriously. From the description of his functions which we have had from the Prime Minister so far, I doubt whether he plays such an important part in determining what great and grave cuts are to be made as we might have been led to suppose this morning. Because of that I feel that we should rely more on the word of the Chancellor of the Exchequer in this connection, and on the policy that the Chancellor is following rather than upon the obiter dictum of the Minister of State. He has slipped into a bad error, but we shall not hold

  807
  that against him. We shall always be glad to hear him at the Despatch Box, but I hope that the next time he will read his brief more carefully before he commits himself to statements of that sort.
  2.25 p.m.
  Dr. Barnett Stross: I wish to put, briefly, one point to the Minister of State for Economic Affairs on the question of slum clearance and the effect of this Bill on that possibility; and on the rents to be paid by those who, at some time in the future, will be moved from slum areas into new houses where they will have to pay higher rents. Inevitably, the rents will be higher, as I know the Minister will agree, whether there be dearer money or not, because the rents of new houses are higher than those normally charged for slum houses. I ask him to remember that in his consideration of this matter.
  Our experience before the war showed that where people were moved from slum areas into new housing estates, and if, as a result of that removal their cost of living was raised and they had no way in which to help themselves—if they were out of work, for example, or were lowly-paid workers, unskilled workers—it was noted in the survey of Stockton-on-Tees by Dr. McGonigle, for example, that the death-rate of such people, and their wives and children, increased. The re-housing of such people does not necessarily improve their health unless they are protected by not having the cost of living rising against them as a result.
  If that is not borne in mind, those things which everybody would wish for our folk will be denied them. It would be only fair to give warning that we shall hold it against the Government if they do not bear this in mind. We know that today the country is fully employed, but one cannot guarantee that that will always be the case. That is all the more reason why I should add my voice to the views expressed by my hon. Friends, when I say that anything which tends to make money dearer is a very dangerous procedure indeed.
  2.28 p.m.
  Mr. Emrys Hughes: I had no intention of intervening in this debate. I was waiting for the subsequent debate in order to support the Minister
  808
  of State for Economic Affairs, because I understand that he is opposed to inflation. The policy he has outlined is one to prevent inflation. I hope that he will understand my motive in intervening.
  I came here to oppose the Bill which seeks to increase the salaries of judges, which is to follow this debate. I have heard the speech of the Minister in favour of cuts in public expenditure, and, so far as subsequent legislation is concerned, I hope he will stay to give me his support. When I hear that there are to be great and grave cuts in national and local expenditure, I wonder, naturally, how this policy will affect Scotland. I see on the Front Bench opposite the Lord Advocate, who, I presume has not come here to support the Minister of State for Economic Affairs, but has come forward to support a Measure carrying out a policy which that Minister strongly supports.
  I am quite sure that, when the Prime Minister hears what has happened in this debate, he will come to the conclusion that future debates on Fridays in which the Minister of State for Economic Affairs will be speaking shall be conducted in secret.
  Mr. Speaker: To which Bill is the hon. Member directing his remarks?
  Mr. Hughes: There is a preamble to the present Bill, but I do not wish to continue the argument with the Lord Advocate until we come to the Bill which deals with judicial salaries.
  When a Bill of this kind, which so vitally affects the interest rate to be paid by local authorities, has to be considered, we in Scotland are especially interested, because, if there is one problem with which I have been concerned for many long years with local authorities, it is the question of the interest rates charged by the Public Works Loans Board. Under this Bill, we are asked to acquiesce in an increase of ¾ per cent.—
  Mr. Speaker: That is not in the Bill.
  Mr. Hughes: It may not be in the Bill, Sir, but that has been the explanation given by Ministers. I suggest that, even if the figure of ¾ per cent. is not in the Bill, the whole point of this Bill is the justification by the Government of the

  809
  policy outlined by the Minister, and indicating that, indirectly, a cut is to be enforced in local expenditure as a result of its operation.
  Although this Bill looks very innocent, I happen to have had experience, in my work on a local authority, of the effect of increasing the rate of interest on local government loans, which can effectively stultify a great deal of the activity of local authorities. I have already had a protest about this Bill from my constituency, because the treasurer of the town council of the area in which I reside has already drawn public attention to the fact that this increase in the rate of interest is likely to have a very detrimental effect on the building of houses in this part of Scotland.
  That, indeed, is the argument to which we should have some reply from some Minister who represents Scotland. As the rate of interest so vitally affects the housing problem in Scotland, and the Joint Under-Secretary for Scotland, who has special knowledge of housing, is present on the Front Bench opposite, I think we should have a reply from a representative Scottish Minister to indicate how this increased rate is likely to affect housing in Scotland.
  The rate of interest has long been a very sore point with local authorities in Scotland, because it not only affects rents, but, indirectly, is likely to affect the whole housing situation in Scotland. This matter has been the subject of a long and stormy controversy. When Mr. John Wheatley, the first Minister of Health in the Government of 1924, was doing his best to encourage the building of houses in Scotland, he always made the point—and it was a very important point—that, over the period of 60 years in which the interest and sinking fund charges on local government loans have to be repaid, the people were paying in interest charges on the loan more than they paid for the rest of the cost of the house.
  This prospect of an increase of ¾per cent. in the rate for Government loans will be very strongly resented throughout Scotland. At the present time, in my constituency, we are greatly interested in a housing scheme which the Minister will realise profoundly affects the social and economic life of Scotland—the re-
  810
  housing of workers from Lanarkshire in the Ayrshire coalfield.
  If the rate of interest is to be increased, and if the cost of housing is going up, I suggest to the Minister of State, who is responsible for big developments in our social activities, should be vitally interested in this housing problem in so far as it affects the future economic life of the people of Scotland. If we are to have this big increase in the rate of interest, it will greatly increase the rents of houses for miners coming into the Ayrshire coalfield, and there will be the inevitable consequence in that the problem of coal production will be affected indirectly by rising rents.
  I suggest that the people who are living in the industrial areas, who are now, for the first time, enjoying the benefit of living in decent houses, will find that, as a result of this apparently innocent debate today, there will be indirect social consequences, which, apparently, have been realised only by hon. Members on this side of the House.
  The question how people are to pay the increased rents of their houses is one which is greatly concerning the people in my constituency. It is not only a case of the effect of house building, but, in my experience, local authorities are able to borrow money through the Public Works Loans Board for the purpose of furnishing houses. If we increase the rate of interest, we shall not only increase the rents of the houses but also impose an increased cost on the furniture of the houses, so that we shall have the poorest of the poor, who are now being brought into the new houses, stultifying themselves in order to pay the increased rent and the increased cost of furniture due to the increase in the interest rate.
  Since I have been present today, I have already come to regard the new Minister as "Enemy No. 1," because this policy of great and grave cuts in national and local expenditure is one which we must fight at every possible opportunity. Exactly what are the functions of the new Minister of State for Economic Affairs? When the Members of the Government took their places on the Front Bench on the first day of the debate on the King's Speech—the parade of the

  811
  gladiators—my hon. Friend the Member for Sparkbrook (Mr. Shurmer) said, "There's Uriah." I do not know the reference; I thought he was referring to the hero of the Book of Kings. But it appears to me to have been a reference to the villain in "David Copperfield."
  The Minister of State for Economic Affairs, by his speech today, has thrown some light on very dark places. We are going to find out that he has just given us an indication of the policy against which we shall fight whether we are on local authorities or in national Government.
  I know how this thing worked the last time, and how the Secretary of State for Scotland slowed down the housing problem. He connived at a policy of increasing the interest rate which meant that the people could not pay the rent. The result of this policy will be the automatic reduction of the housing problem, because the poorest of the poor will be unable to pay the rent. In the Chancellor's speech, to which my hon. Friend referred and from which quotations were read in this House, the right hon. Gentleman envisaged the possibility of issuing to the local authorities certain circulars and directions which would result in reducing local expenditure.
  I vividly remember how this worked in 1931, when we were suffering from the economic aftermath of the policy which is now going to be repeated. I remember how his predecessor, who did not have such a high-sounding title, issued to the local authorities the circular calling for the same sort of reduction in national expenditure. We not only had reductions in local expenditure affecting housing, but in every sphere of local authority expenditure, and this is what we are now going to be faced with as a result of the policy which has been outlined to us.
  I regard the Minister of State for Economic Affairs, in spite of his innocuous personality, as one of the sinister figures of the Government, and all I hope is that the House realises the great portent of what he has said and that we are not going to let him get away with it. He is the Sir John Anderson of this Parliament.
  Mr. Callaghan: Oh, no.
  Mr. Hughes: The right hon. Gentleman will, I think, understand the reference. I suggest that this House should not continue with this Bill after the explanation that has been given and certainly not until we have had a further explanation from the Secretary of State for Scotland as to how it will affect what I am sure the House will agree is the most vital part of this country.
  2.44 p.m.
  Mr. Scholefield Allen: We have listened to a very entertaining speech by my hon. Friend the Member for South Ayrshire (Mr. Emrys Hughes), but this matter is a very serious one because the effect of raising the interest rate concerns all local authorities, including urban authorities, although at the moment I am more concerned with the rural authorities. The constituency of Crewe is famous as a railway town, but I also represent in this House a number of rural areas. We have been plagued in these areas by the tied cottage, and have done what we can to eliminate the problem.
  What is the method by which the tied cottage is being gradually eliminated? It is by the rural areas, for the first time in their existence, building blocks of rural dwellings for farm labourers in all parts of the countryside. It may be that a large city such as Sheffield or Leeds would be able to stand the burden of these increased interest rates.
  Mr. Pannell: My hon. and learned Friend must not take it for granted that cities like Leeds are going to pay any more than the 9¾d. towards local housing subsidies which they pay at the present time.
  Mr. Scholefield Allen: I am much obliged to my hon. Friend for his intervention, but I still persist in what I was saying, that it may be that large cities—and I hope I am not being invidious in mentioning this—would be able to bear this interest rate, even though the Scrooges on the benches opposite give them nothing to make up for it. It will mean that some of the rural authorities to whom the product of the 1d. rate is essentially small will have to discontinue building rural dwellings, an activity which is so important if we are ever to end the tied cottage system.
  I, like my hon. Friend, came here today to speak on another matter, but

  813
  having heard the pronouncement of the Minister of State for Economic Affairs, I felt impelled to say a word or two on its effect on rural authorities. We on these benches have often thought that the way in which the Conservative Party would put the workers back in their place was by a deflationary policy.
  Now we would seem to have the beginning of this deflationary policy unless we are assured in the not too distant future from the Minister of State for Economic Affairs, or from his right hon. Friend the Minister of Housing and Local Government, that the Government intend to make up this difference in the interest rate by an increase in the subsidy. If they do not give that assurance then it is obvious that this is the beginning of the deflationary policy which we have always believed they would introduce. It will not end with per cent.; that is only the beginning.
  I see that the Minister of Housing and Local Government is now in his place, and I will willingly give way to the right hon. Gentleman if he is prepared to give us the assurance, which when pressed his right hon. Friend the Minister for Economic Affairs could not give, that we are so anxious to have. The Minister of Housing and Local Government has not been present for most of this debate; it may be that he did not realise that this Bill raised some important questions relating to his Department.
  The Minister of Housing and Local Government (Mr. Harold Macmillan): My Department has been represented throughout the whole of the debate.
  Mr. Scholefield Allen: Now that the right hon. Gentleman is here, perhaps he will tell us that he personally is determined to fight the Treasury for these increased subsidies, and, if he is prepared to do that, I will willingly give way to him.
  Mr. Speaker: Has the hon. and learned Gentleman concluded his speech?
  Mr. Scholefield Allen: No, Sir, I was merely giving way so that we could get a pledge, from the Minister of Housing and Local Government. It is obvious, however, that we are not going to get the assurance we seek, and, therefore, I resume my seat fully believing that this is the beginning of a deflationary policy.
  Mr. Callaghan: The right hon. Gentleman will not fight.
  2.49 p.m.
  Mr. G. R. Mitchison: I see that it is proposed to provide £500 million for the purpose of making local loans for any of the purposes for which local authorities may borrow money. This money is the only source, short of a public issue, from which local authorities may borrow, and in these circumstances we are entitled to take notice of what is going to be done with this money. The most important thing about it, of course, is that it is proposed to lend the money to local authorities at a higher rate of interest than that which they have paid hitherto. We are told, at the same time, that it is necessary that there should be a cut in the total expenditure of the local authorities. How those two statements can consistently be reconciled I find it exceedingly difficult to see.
  What emerges from it is that it is certainly contemplated that pressure shall be put on local authorities to reduce their expenditure on some of the purposes for which they are entitled to borrow. One of these purposes of course—perhaps the most obvious one—is housing which has already been mentioned. I want to point out, if I may, from the point of view of a constituency which includes rural areas, some of the effects which this increase in the charges to local authorities and consequent reduction in the amount of their expenditure will entail.
  One of the most acute problems in these rural areas is the rent charged for council houses including, of course, the council houses that are built for agricultural workers. Not only in my own constituency but in many other parts of the country the problem is aggravated by the neighbourhood of large towns. The difficulty is that the rural worker finds himself increasingly unable to afford a council house in the rural area and the council houses tend to be occupied by someone living in the neighbouring town.
  That this is so is clear enough. We have houses built and we find workers on the land literally unable to occupy them. [An HON. MEMBER: "I thought poverty had been abolished?"] Poverty is, after all, a relative matter. This will increase the number of people who cannot afford to occupy the council houses intended for them and it will increase the difficulties of workers on the land as regards whom I have heard, time and time

  815
  again, form the benches opposite, protestations of concern not only for the workers themselves but for the important work they are doing in the interest of the country at present.
  Let us follow the matter a little further. Let us see what will happen as a result. Failing a corresponding subsidy which will exactly balance the increase in the charges made to local authorities, those rents are bound to go up and to that extent agricultural workers will either be kept out of the houses entirely or be obliged to pay a higher rent for them. They next consequence will be that if the rent charged is increased to the agricultural worker occupying a council house he rightly and properly demands higher pay form the farmer.
  The next stage after that is that the farmer at an annual price review asks for higher prices for his agricultural produce and it is at that stage that the ordinary man and woman in the country will appreciate the very notable effort made to reduce the cost of living by the remarkable proposals regarding these interest charges that are being put before us.
  It is really scandalous that a responsible policital party, having come to office with the express purpose, they tell us, of reducing the cost of living, should do something, as their first positive step in this Parliament, which is bound to increase the cost of living, whether one looks at it as a matter of rents or a question of the price of produce.
  For whose benefit, then, is this being done? It is part of a policy of cheaper money and the increased rate of interest which is to be charged to local authorities reflects the steps which have already been taken to let the rate of interest rise on short-term money. The two things are part of one policy; and the long and short of it is that the people who ultimately will benefit from the increases which will come down on the agricultural worker and people of that type are those concerned in the money market in London. I can see no possible justification for imposing on one of the poorest classes of the community an additional burden at this time for the benefit of those people.
  816
  There is another aspect of this matter. Another of the services for which public loans are required is, of course, the provision of water supplies. I am particularly concerned with water supplies in rural areas because, on the one hand, I know how scandalous the position in that respect was in my constituency, and indeed throughout the East Midlands, in 1945 and, on the other hand, how much still remains to be done in spite of the notable advances made in the last six or seven years. I should have thought that this was a matter that ought to concern hon. Members opposite.
  The present position in this matter is that expenditure has been fixed at a given figure and that expenditure will be maintained or increased or diminished as the case may be. All I can point out about it is that again the effect of this Measure, the effect of increasing the rate of interest on these loans, is either to limit the amount of work that can be done by way of provision of water supplies in rural areas or to call for a larger subsidy from the Exchequer.
  I could go on to give a good many instances, for, after all, these local loans are the financial backbone of the local authorities and it seems to me when we have to consider a Measure of this sort we are considering what is, in effect, a Finance Bill for local authorities. It is nothing short of that. Either we are going to impose additional charges on local authorities and, by so doing, increase the rents and the cost of living of the people within their areas, or we shall require an additional subsidy from central funds.
  I do not know which of these two alternatives the Government propose to adopt. The Government themselves do not know at present, and it is obviously not the least use asking the Minister of State for Economic Affairs or the Minister of Housing and Local Government to get up and tell us what they are going to do, because they have not made up their minds.
  I regard it as a most extraordinary position that we are now asked to impose these additional charges on local authorities without being told whether they are to be borne by the inhabitants of the local authority districts, or whether they are to be recouped by subsidies out of

  817
  public funds. If it is the former, the comment is obvious; I have already made it. It is a most extraordinary way of reducing the cost of living by taking immediate steps to put it up.
  If, on the other hand, it is the second alternative, all I can say is this. I understood that the party opposite had some general intention of reducing Government expenditure. All attempts to find out from them how or in what fields they propose to reduce it has been completely unsuccessful in the past seven years, and in their Election manifesto there were so many qualifications and half promises, so many "ifs and buts," that one could come to no conclusion but that then, as now, they did not really know what they proposed to do.
  All that is perfectly true. But here is a definite Measure. If, in order not to reduce rents and not to reduce the cost of living, it is to entail corresponding subsidies from public funds, then all I can say is that the first positive step that is being taken by the Government is one which is bound to increase Government expenditure and, therefore, to increase the burden to be borne by taxation. We must leave it to the Government themselves to let us know which of the two promises they prefer to break in this instance. Do they prefer to increase the cost of living, or do they prefer to increase Government expenditure and, therefore, taxation?
  3.2 p.m.
  Mr. Leslie Hale: The course that this debate has taken this morning has been grave not only for the interests of the economy of the country but also for the interests of democracy, and we cannot leave the debate as it now stands without making a few comments on what has happened.
  This debate, which is on the first of four Bills which were to be discussed today, was opened by the Financial Secretary to the Treasury with that bounce and facile optimism which, I suppose, will presage every major withdrawal from Conservative promises, or every prediction of a coming financial or economic disaster. At that time he had behind him three Conservative Members in support. A few minutes later, when it seemed that things of some importance were being said, there appeared to be
  818
  some disposition on the part of the Conservative Whips to urge their Members to speak, and I have been surprised to notice their silence in the last two hours since major announcements of policy were made about which no Member of the House has been informed, and about which no Member of the Conservative Party apparently wishes to inquire.
  Before I come to the lamentable statement by the Minister of State for Economic Affairs, who has left the House, I shall wait a few minutes in the hope that he will have the decency to return, because I say that it is an abuse of the ordinary procedure of Parliament and a contempt of this House that a Minister under criticism on an important statement should walk out and leave the House. Unless he has left to write out his resignation which, I suggest, is probably the right and appropriate course, I think that his absence at the moment is utterly indefensible, and I shall have to consider moving the adjournment of the House.
  I observe that the right hon. Gentleman has now returned, and no doubt we shall be told what documents he has been writing. First of all, let me take the opening words of the Financial Secretary, because I understood him to say—and I am sure he will correct me if. I am wrong—that the general impression was that there would be no increase on loans out of this fund in the course of the next financial year. He said they were increasing the overall sum available to allow for flexibility, but I understood him to say that it was expected that the amount of loans issued would run at about the same rate as last year. If I am wrong perhaps he will correct me. He does not correct me, so I am not wrong.
  What has happened to the 300,000 houses? Where are they? This would have meant increased loans of £100 million in the next year, and we are told that they are not expecting to spend a penny of it. Where has it gone? Was the Financial Secretary himself making another major pronouncement of withdrawal, or was he not?
  Mr. Boyd-Carpenter: I hope that the hon. Gentleman apprehends two things: first, that the total borrowing powers here given are concerned not only with

  819
  housing, but with a very large number of other matters; second, that this year, as in last year's Bill, a substantial margin was given. In addition, of course, these figures relate not only to the immediate borrowings, but to the existing commitments.
  Mr. Hale: I am grateful. This is the first precise statement we have had, except the "great and grave" statement, which has not been explained much further. Let us face it. First, by far the biggest item loaned from the Public Works Loans Board's fund is for housing loans—by far the biggest. Not only are these, of course, for municipal houses, but there are loans under the various Housing Acts for reconditioning, and so on.
  If the Financial Secretary's now clear statement means anything—and I have no doubt it does, for I am sure he would not willingly interrupt me to say something which does not mean anything—then it means this: that the Government are still hoping, vaguely, that there will be some increase in the housing progress during the next 12 months, but are relying on being able to cut down the building of schools and hospitals, and so on, to balance that increase.
  That is what it must mean. It cannot possibly mean anything else, because the hon. Gentleman has made it quite clear that the Government do not expect to spend a penny more in loans from the Public Works Loans Board in the next 12 months than was spent in the preceding 12 months; and unless they lend the money, local authorities, however anxious they may be to get the houses, cannot build them. I thought there was at that point a little, tentative gesture from the Minister to indicate that he was considering whether or not to interrupt me. I should be most happy to give way.
  Sir A. Salter: As I came in, the hon. Gentleman was saying that I should have been in my place. May I at once apologise and explain exactly what I have been doing? I did not recollect the particular phrase about "cuts" which has caused so much comment and which was said to have occurred in my original speech. I went up to the Official Reporters and found that my own recollection, which was not sufficiently definite
  820
  at the time for me to deny having made the remark, was correct, and that the word I used was "economies" and not "cuts."
  Mr. Jay: It is, I think, within the recollection of the House, and certainly within my recollection, that the right hon. Gentleman used the words "great and grave," which were the essential words.
  Mr. Hale: No doubt the Minister will take an opportunity—and I am very willing to give way—to tell us exactly what he meant, and we will not worry about what he said in the first place. After all, this was not a very carefully considered statement and was made on a Friday in an empty House. I am, of course not allowed to go to the OFFICIAL REPORT to find out what the right hon. Gentleman did say. The only thing I can do is to go to the tape and to find out what the tape thinks he said. They say he said,
  "economies, both centrally and locally, on a considerable scale are required."
  Whether the right hon. Gentleman calls it "cuts" or "economies," does not seem very important.
  Where is he going to economise? The Home Guard? Or where? Where is he going to start? The House is being asked to pass a Bill which is in a form precisely similar to others we passed in preceding years. We must remember one thing which is very important—it compels local authorities to go to Public Works Loans Board for their money. They have no choice. They cannot go into the City, into what was described by the hon. Member for Burton (Mr. Colegate) as the "money market," to try to buy their money at competitive rates. They have to go to the Public Works Loans Board.
  Mr. Boyd-Carpenter: I am sure the hon. Gentleman does not intend intentionally to mislead the House. This Bill does nothing of the sort. That proscription was imposed by the Local Authorities Loans Act, Section (1), which was renewed for a further year last week in the Expiring Laws Continuance Act. All this Bill does is to provide the money.
  Mr. Hale: It makes this money available to be loaned on those conditions and, therefore, with great respect, in making interruptions of that kind, the Financial

  821
  Secretary is making rather a foolish point and quite unnecessarily delaying the House in its anxious desire to get through the other business of the day.
  This is the position: this money is to be loaned on terms laid down by His Majesty's Government, and the first thing His Majesty's Government did when they came into office was to compel the rates of all loans to be raised, and indeed, to use powers of directing the nationalised Bank of England which were never exercised by a Socialist Government at any time when they were in office, in spite of all the prophecies which were made at the time.
  We heard the Financial Secretary's curious and facile optimism; and then, as apparently no Conservative Member seemed disposed to take any part in the discussion, we saw the Conservative Whip wandering around the House trying to encourage certain Conservative Members to speak. I see they will do it now, because it seems to be a much greater and more important subject than it was then. So far as I could judge from what happened, he appeared to have failed to persuade the hon. Member for Sutton Coldfield (Sir J. Mellor) to speak and to have been successful in persuading the hon. Member for Burton to speak. I think he ought to be felicitated on one of those two results. I am far too courteous a man to say which.
  Then the Minister of State for Economic Affairs gets up at the conclusion of the discussion and makes a statement we want elucidated, especially if recollections one has heard repeatedly are to be trusted. I really do say that the Minister should take the House seriously. After all, it is only a few months since the right hon. Gentleman was selected by the B.B.C. as being an independent man in politics who could be trusted to put a completely non-controversial point of view on almost any subject under the sun. They have replaced him now by the unsuccessful candidate at the Election in the Fulham, West, constituency, who shares similar views. I should have thought he would have welcomed the opportunity I am constantly offering him to say just what he meant to say, just what it implies, just what he knows about the statement he made, and where the cuts are to take place, and in what services.
  822
  This is not one of those controversial problems. When I go to Oldham at the week-end I have to interview people who, week after week, have been putting their names down for council houses for years. [HON. MEMBERS: "Hear, hear."] Yes, indeed—and I go to a town where 10,000 houses are still unfit for human habitation—10,000 houses built in a time when the Conservatives were responsible for the housing of the people. These people, with their wives and families, are already concerned—I will give this point to hon. Gentlemen opposite with pleasure—are already concerned about the increases in rent that have already taken place in council houses. They are concerned already, because Oldham is not a well paid town. The cotton workers have not had the increases of wages, in proportion, that there have been in other industries. Already, the problem of paying council house rents is an acute one, and they are entitled to ask about the effect of these changes.
  We must not be treated in this way. We must not be treated with the contempt shown in these matters by the Government Front Bench over this past month. We cannot pass this Bill today and be told at some time or another what it means and who is to pay for it. We know that on every house we are building in Oldham at the moment the increase in rates will cost £600 over the normal loan period. Those of us who have dealt in these matters know very well that in the old days people buying houses built under private enterprise had to borrow the money from building societies on long-term rates. It was a very grave matter—the question of the instalments—a very grave matter indeed. It often meant that many people lost houses they had already half paid for, and that they were turned out after years of effort.
  Are not people entitled to know what amounts they are going to pay? Are they not entitled to be told, if they remain a few months longer waiting for houses. whether this will mean that they will be able to afford them? Does not the Minister want to interrupt me again and tell me? Is there no one on the Conservative benches who is concerned that the Minister should get up on a Friday and say that great and grave cuts are necessary—[HON. MEMBERS: "Economies."—and that we have to economise.
  Lieut.-Colonel Lipton: On a point of order. Can we have it made quite clear what exactly was said by the right hon. Gentleman? In the recollection of most of us he said "cuts." [HON. MEMBERS: "No."] Now he is saying that what he said was "economies."
  Mr. Speaker: That is not a point of order. Moreover, I did not have the pleasure of hearing the right hon. Gentleman's speech, and I cannot, therefore, throw any light on the problem at all.
  Mr. Hale: I am much obliged, Mr. Speaker. None of us wants to prolong the debate—[HON. MEMBERS: "Oh!"]— as there is a great deal of business still to go through. Undoubtedly, the debate would have been concluded two hours ago but for the right hon. Gentleman's statement, of which we have not yet had any particularisation. No Conservative Member has asked a question at all or evinced any interest. Surely the Minister will tell us—I shall willingly give way to enable him to do so—just this: What is meant by the great and grave economies —which is what he wished to say and which I will say for him?
  Sir A. Salter: Yes, economies.
  Mr. Hale: I know, of course, the passion for alliteration of the co-ordinating Minister, and "great and grave" seems to me to fit into that sort of terminology. But cannot he tell us what he is going to cut down—whether he is going to reduce school building? Are hospitals to be built? Is the National Health Service to be allowed to progress? Are we to have all the necessary doctors and specialists? Are there to be more factories in the depressed areas?
  Cannot he tell us anything? Does he know what is to happen but is not allowed to tell us; or does he not know what is to happen? If we wait until after 7th December will more thought be given to this matter mean time? Cannot he give us some information, so that we shall know what the decision is likely to be or what subjects are there likely to be economies in?
  Sir A. Salter: I was merely repeating what the Chancellor of the Exchequer said when he indicated that there must be great economies but, he said to
  824
  produce a detailed programme of those economies at the time when he was speaking would be levity. That is equally true at this moment.
  Mr. Hale: I must say that in the circumstances it would be unkind and ungenerous to probe the mystery state any further. In shooting circles there are rules about the bird in motion and the bird not in motion. All I would say is that if the Minister of State for Economic Affairs is under the impression that what he said today was a repeat of the careful phrases of the Chancellor of the Exchequer a short time ago, then he is very much in the position of the Duke of Wellington, who said to one of his subordinates on one occasion, "Was what I said of very great importance?" and the subordinate replied, "You were merely announcing the fall of your own Government."
  Bits of information on this subject keep slipping out. I understood the Parliamentary Secretary to the Ministry of Housing and Local Government—it used to be "Local Government and Planning"; "planning" is not used nowadays —to say, during an adjournment debate recently, that the cost per £100 of the new rates of loan interest in terms of rehousing would be 10s. 5d. per £100 borrowed, I found that difficult to understand, because the ordinary arithmetical computation is 15s., but may be deductions reduce it to 10s. 5d. That is a serious matter. It means destroying the chance of reconditioning houses, because that will be economically impossible if this goes through.
  By increasing the rent new houses will be outside the pockets of many people, and increasing loan rates will prevent many people going on with the reconditioning of existing houses, because they cannot afford it. Apparently these grave economies are not to be made in defence or the Home Guard, but in social or semi-social services, and it seems to me that this is such a major recantation of every promise made during the General Election and such a cynical disregard of the things that were said then that it amounts to a contempt of democracy as a whole, for which Ministers opposite will have to answer, and answer very strictly to the people of this country.
  3.18 p.m.
  Mr. S. P. Viant: It is not my intention to detain the House for very long, but I happen to represent a constituency which is in a borough that has been doing its best to rebuild its slum area. While sitting in the House today I became painfully aware of the fact that it will become exceedingly difficult for them to carry out their programme. I should be lacking in my duty if I did not rise today to speak, even if only for a few moments, and put my point of view on this matter.
  I consider the step that has been taken by the Government to increase the rate of interest to be one of the most retrograde steps any Government could take. I am not surprised. I have sat in this House sufficiently long to know that when Tories are in power they always do things like this, and there is really nothing new in that. One expects it.
  Their point of view and our point of view are very different. We believe in cheap money. They believe in dear money. Since I have been a Member of this House I have seen the effect of dear money upon employment. As the rate of interest has been increased we have invariably seen the number of unemployed increase. Therefore, I say this is one of the most retrograde steps any Government could take.
  It is no use our expecting the Government to give increased subsidies. I shall be very surprised if they do. I am not sufficiently optimistic to believe they will do that kind of thing. Increases in rates of interest will become a general policy. Local authorities, in seeking loans to carry out their work, give rise to considerable employment, so that the building trades and the engineering construction industry are likely to be greatly affected by the Bill. They employ a large proportion of the population of the country.
  We can take it for granted that instead of an increase there will be a decrease of employment in those industries. Already local authorities are aware what the effect of the increased rates of interest will be, and I have not the least doubt that many of them will have to consider whether it is not wise to cut down on their programmes, because the
  826
  cost of housing and public works will be too large.
  If that is the purpose and the desire of the Government, we may as well be informed. The Minister of Housing and Local Government is there; can we be informed whether that is the Government's intention? We should be very much obliged for an answer. We were led to believe that there would be a great increase in housing, but nobody, visualising the results of this increase in the rates of interest, will expect an increase in the construction of houses. For four or five years we have been endeavouring to speed up the erection of houses, and have met with much success.
  Take the period during which houses have been constructed since 1945. There has been a considerable increase, and they were houses to let and not houses to buy or sell. Our achievements are much in advance of those which took place prior to the war. The rate of construction was much increased, when we compare our record with the five years following 1918, especially when there has been a depleted building industry. We had to start with a depleted building industry.
  Cutting down the housing and public works programme will not induce the operatives in the industry to do their best. When the Labour Party were in power, we were told that the operatives did not pull their full weight because of the shortage of materials. Any slackening in the programme today is not likely to induce the operatives to pull their full weight.
  This is a retrograde step in every respect, more especially after the promises made by the Government during the General Election. If we could be given more information by the Government it might induce us to be less apprehensive, but no one could have listened to the evidence which has been forthcoming and noticed the reluctance of Government supporters to speak without being filled with apprehension about the proposed policy.
  I am convinced that I am justified in saying that this is one of the most retrograde steps which could have been taken. If this is a forerunner of what is likely to follow, mounting unemployment will overtake us in the very near future.
  3.27 p.m.
  Mr. Douglas Houghton: The main complaint of most of my hon. Friends is that the Government have done nothing at all to allay fears, repeatedly expressed by the Opposition, that the consequence of raising the rate of interest on public loans will be to force up the rents of municipal houses. Strangely enough, the only attempt made by the other side to allay these fears was that by the hon. Member for Peterborough (Mr. H. Nicholls). He is commonly believed to have been the originator of the figure of 300,000 houses.
  We understand that he was the man who at a Conservative Party conference saw visions and dreamed dreams or thought of a number; and that number was taken up as a challenge by the delegates and was finally embraced to the bosom of the Lord President of the Council. The hon. Member for Peterborough tried to reason his way out of the interpretation that we have placed upon the step of raising the interest rate by suggesting that the way to make houses cheaper is to make them dearer.
  Before we dismiss this as a typical example of Tory logic, let us try to follow the process of reasoning behind what he said. I understood it to be that increasing the rate of interest will increase the revenue charges on municipal housing programmes and that will compel local authorities to increase rents, that increased rents that will deceased the demand for houses at increased rents, and that the logical sequence of such a state of affairs will be to force down the price of houses. I cannot put any different interpretation on his speech than that.
  How did the hon. Member suggest that the price of houses might be forced down? He suggested, among other things, building smaller houses. He also suggested that local authorities should exercise greater supervision over building operations. Therefore, if I am right in this interpretation, the only glimpse of hope we are given that the result of the Government's policy may eventually be to reduce the price of houses, rests upon the assumpion that building costs can be forced down.
  How is that to be done? By reduction in wages? In some way, by reducing the cost of materials? How are these difficulties going to be overcome by local
  828
  authorities such as those in the Sowerby Division of the West Riding of Yorkshire, who have probably the most difficult housing sites in the country, where there is scarcely a level building site in the whole area, and where there are precipitous, mountainous building sites, presenting the local authorities with enormous costs for services, roads and approaches before they can begin to build at all? In such a state of housing difficulty, any increase in the interest rate is bound to accentuate the problem of local authority housing in such conditions.
  Where the Government have gone seriously wrong is in attempting to reconcile in the debate today how the purposes of the Minister of State for Economic Affairs in the proposal to increase the interest rate can be reconciled with the desire, and, indeed, the intention, of the Minister of Housing and Local Government to get the 300,000 houses. I do not wish to impute any motives to the Government in this, but I wonder whether the underlying purpose of this move is to drive local authorities out of housing altogether—
  Mr. Emrys Hughes: Of course it is.
  Mr. Houghton: —and to hand the whole enterprise over to private building operators. By such means, the Minister of Housing and Local Government may hope to get his 300,000 houses, even if they are smaller houses and even if they are jerry-built houses. I cannot believe that the Government can seriously have any such purpose as that, and yet that seems to be the grave danger of this proposal to increase the interest rates, and if the difficulties of local authorities are to be increased in the way in which they certainly will be increased.
  Another mistake among the many that have been made in the debate today was the stumble—if I may use such a word without disrespect—of the Minister of State for Economic Affairs into a declaration of Government policy on economies which, I am sure he has long regretted having made, but which has given rise to increased fears on this side of the House as to the real intentions of the Government.
  Whether it is "grave and great economies" or "grave and great cuts" is simply Tweedledum and Tweedledee

  829
  —they both mean the same thing. They both mean, surely, slashes in public expenditure, both nationally and locally. It is a great pity that when such a statement was made, the whole revelation of Government policy did not accompany it, so that we could put this isolated piece of Government economic policy in the context of the Government's financial and economic policy as a whole.
  In all the circumstances, since the Government have stumbled into this embarrassing situation, by far the best thing now would be—and I see the Leader of the House in his place—for the Leader of the House to withdraw the Bill in order to reflect upon the consequences of its introduction and upon the grave disquiet on these benches which has followed the announcement of the Minister of State for Economic Affairs.
  Mr. Jay: In the hope of now bringing this debate to an early close, in view of what my hon. Friend has just said, perhaps I may have the leave of the House to say one further sentence. In view of the far-reaching pronouncement of the Minister of State for Economic Affairs—which I did not regard him as having withdrawn in any important particular by merely substituting the word "economies" for "cuts"—although we do not propose, of course, to vote against the Second Reading of the Bill, because that might conceivably hold up the housing programme, nevertheless, I wish to give notice that we shall put down an Amendment on Committee stage which will tend to prevent any rise in interest rates and, therefore, protect the public from a rise in rents of council houses which is now threatened.
  3.36 p.m.
  Mr. Ede: I had hoped that we would have the advantage of some other pronouncement from the Government Front Bench in order to clear up the difficulty which has arisen owing to the statement made by the Minister of State for Economic Affairs. Of course he labours under a most serious disadvantage. He entered the House as a university Member, with all the disadvantages that that gives —its remoteness from popular sentiment and its ability to view things with that detached air which is denied to lesser mortals—but I am quite sure
  830
  he will feel this afternoon that that feeling of detachment is not one which will be very helpful in dealing with an important matter of the kind with which he had to deal today.
  I am not concerned with whether he used the word, "economies" or "cuts" but there is no doubt that what he said went far beyond what was said by the Chancellor of the Exchequer and since the right hon. Gentleman has spoken, I have had the opportunity of reading completely through the speech that was made by the Chancellor of the Exchequer. Certainly he used no words comparable with the two adjectives which the right hon. Gentleman used in the course of the pronouncement that caused such a sensation in the House.
  This whole question of loan charges is a most important one in the sphere of local government finance. I see we have now the privilege of having present the Chairman of the Finance Committee of Surrey County Council who, in January and February next year, will be preparing the county budget, and I have no doubt that the usual complimentary resolution will be passed that his speech shall be reported on the minutes of the Council.
  Mr. Cyril W. Black: I hope so.
  Mr. Ede: I hope so also, because I shall be very pleased to see what the hon. Member has to say in regard to this matter for, after all, when local government finance committees meet the one inescapable charge that confronts them is the loan charges which have to be met on the loans which have been obtained.
  They can effect economies in the numbers of staff, they can even in certain cases—they are not governed so much now by joint industrial council awards—in desperation inflict reductions in salaries, but the one thing they cannot alter is the loan charges that become payable during the course of the ensuing financial year. Therefore, any increase in the amount that is contemplated as a result of this Measure today must be very serious throughout the whole of local government expenditure.
  Of course, it is quite a mistake to think it is the Chancellor of the Exchequer who settles these matters. I have taken the

  831
  trouble to reinforce myself with the Treasury Minute, dated 8th November, 1951, fixing rates of interest on local loans. That documents starts,
  "My Lords"—
  of the Treasury—
  "read Section 1 of the Public Works Loans Act …"
  Then, after reciting two or three paragraphs on various matters that apparently came to their consideration, the last paragraph says:
  "The Chancellor of the Exchequer now recommends, and my Lords approve ‖"
  During the whole of the discussion today we have not had the advantage of the presence on the Treasury Bench of a single Lord of the Treasury.
  We could hardly expect the First Lord to come and deal with a matter of this kind, but there is no junior Lord of the Treasury present. The Vice-Chamberlain of the Household does not count in this matter. Neither does the Financial Secretary. So far as I know the Minister of State for Economic Affairs is not invited to the meetings of the Lords of the Treasury; and certainly, if he turned up he would have neither a voice nor a vote. We are not even told who were the Lords who were present on this occasion.
  I recollect in the days of the late Government, and in the absence abroad of my right hon. and learned Friend the Member for St. Helens (Sir H. Shaw-cross), when he was President of the Board of Trade, Orders were occasionally submitted to me, as Secretary of State, for signature which recommended certain alterations and which also required the consideration of the Lords of the Treasury. On those occasions, before I signed, I always made quite certain that the manuscript signatures of two of the Lords of the Treasury were appended to the document.
  On this occasion there are no signatures. We do not know who were the people who considered the recommendations of the Chancellor of the Exchequer. We do not know the length of time they gave to the consideration. We do not even know whether a formal meeting was held.
  Mr. Emrys Hughes: A secret session.
  Mr. Ede: All these sessions are secret, but occasionally a little leaks out; but on this occasion there is nothing of that. But as a result of these deliberations every chairman of a finance committee on every local authority in the country will be faced next year with additional difficulties in framing his budget and in presenting it to his local authority.
  We do not believe that as a result of this one can do other than increase the rents of the council houses or increase the charges on the rates and taxes in respect of those local government measures which will be affected by the Treasury Minute to which I have alluded. I think that what the Minister of State said was probably just the academic mind blurting out one of those truths that more subtle people have tried, now unsuccessfully, to conceal from the House and from the country.
  On behalf of my right hon. and hon. Friends on this side of the House I am bound to warn the Government that we shall watch very carefully the future developments of the policy, first stated in somewhat hurried and restricted words by the Chancellor of the Exchequer, and now bluntly and brutally made plain to us by the speech of the Minister of State for Economic Affairs.
  3.45 p.m.
  Mr. Ralph Assheton: I intervene only for two minutes to deal with two points made by hon. Members opposite. One of my neighbours, an hon. Gentleman representing a Lancashire constituency, sitting on the Front Bench opposite below the Gangway, said that hon. Members on this side of the House were not taking an interest in this debate. I have noticed that there have been just as many hon. Members present on this side of the House—[HON. MEMBERS: "No."]. Yes, I have taken the trouble on several occasions to count them. If hon. Members will do so now, they will find that there are more hon. Members present on this side than there are on that. [HON. MEMBERS: "No."] The amount of interest taken in the debate has no relation to the number of words which are used by hon. Members.
  The whole basis of the charge which hon. Members opposite have made is that the rate of interest has increased and the costs of loan charges of local authorities

  833
  will, therefore, be higher. That is the main charge which they have made. What is the truth? The rate of interest has gone up. Why has it gone up? It has gone up because money is getting scarce, and when things are scarce they become more expensive. The reason why money is scarce now is because the party opposite wasted money for six years. The main reason why money is dearer today is the extravagant behaviour of the Socialist Government over the last six years.
  3.47 p.m.
  Mr. James Hudson: I should like to congratulate the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) on having found voice and broken out. The party of "dumb dogs" opposite that cannot speak, who have sat throughout this debate—
  Mr. Bernard Braine: On a point of order. I am wondering, Mr. Speaker, whether your ear caught the most offensive term used by the normally inoffensive hon. Member for Ealing, North (Mr. J Hudson).
  Mr. Speaker: I did not hear any offensive term, and I should be very much surprised to hear it from that quarter. [Interruption.] As I have said that I did not hear anything offensive, perhaps the hon. Member will tell me exactly what he did say?
  Mr. Hudson: I made a quotation from the Scriptures, Sir, but I feel that, if it may have caused offence, it would be better for me to withdraw it.
  I was pointing out—and now I cannot speak with the stronger terms which I think were called for—that there has been a strange silence on the part of a party so full of promises about 300,000 houses which fought the Election in about a bitter a way as it could have been fought.
  The Under-Secretary of State for Air (Mr. Nigel Birch): "Warmonger."
  Mr. Hudson: There is now another hon. Gentleman across there in a state of excitement on another matter.
  I come back to the point, which is that, during the Election, hon. Gentlemen opposite, if they did what was done by their candidate in my division, hunted up all the poor people they could find who were in search of houses—and there
  834
  are many such who could be found—and, having exploited them for party purposes, come here and sit in silence while the issue, namely, that by the action of the Government there is bound to be some diminution in the number of houses built, is being dealt with.
  We have heard of great and grave economies in public and local expenditure. For me, this debate will continue tonight when I meet my constituents, who will come and tell me about the houses which hon. Gentlemen opposite are going to provide, and I am going to tell my constituents that as a result of the silence and of the attitude of quiescence of the same hon. Gentlemen while these exposures were being made, it is inevitable that some of my constituents will do without houses for a very much longer period as a result of the policy now being adopted.
  Hon. Gentlemen opposite are great on points of order. I wish they would show the same enthusiasm over their promises about houses. At any rate. I am telling them, and shall tell my constituents tonight, that it is inevitable owing to the policy now being pursued that there will be a very great diminution in the number of houses to be made available.
  Who is it who will receive the benefit of the increase in the price of money to be lent? I thought it most appropriate for the right hon. Member for Blackburn, West to "get hot" about that, and the fact that he did get excited about it gave me a clue as to who will be the gainers. For a long time before he went to Blackburn, the right hon. Gentleman had a close association with people in the City of London, and I am prepared not merely to suspect, but to assert, that the gainers will not be my constituents in search of houses, but those who made the finance available to the local authorities.
  Mr. Assheton: May I point out to the hon. Gentleman that his constituents and every other citizen of this country will gain because the value of their money will cease to depreciate?
  Mr. Hudson: If that further promise of the right hon. Gentleman is more likely to be kept than the prophecies made to my constituents about the total number of houses, then it will be a very new situation for the Tory Party opposite.

  835
  I am coming to a conclusion because I do not want this Bill to be lost. I think there are many grave risks to be taken, and I am quite sure that my party will take full advantage of the silences that have been so long the rule on the benches opposite to make it clear to our constituents that in this matter, as in most things, the Tory Party have completely failed in their promises.
  Mr. Baker White: May I remind the hon. Member that polling day was on 26th October?
  Question put, and agreed to.
  Bill accordingly read a Second time.
  Committed to a Committee of the whole House for Monday next.—[Mr. Studholme.]

  JUDICIAL OFFICES (SALARIES. &c.) BILL
  Order for Second Reading read.
  Mr. Emrys Hughes: On a point of order. Is it the intention, Sir, of the Government to proceed with this Bill at this late hour?
  Mr. Speaker: The hon. Member, if he waits, will see.
  3.56 p.m.
  The Attorney-General (Sir Lionel Heald): I beg to move, "That the Bill be now read a Second time."
  I am not entitled to ask for the indulgence of the House, but I hope I may be allowed to ask for its sympathy and forbearance in having to put before it a Bill of this importance on my first appearance at this Box. I am very conscious of my inadequacy, and particularly so when I recall an incident in which I figured just before the end of the last Parliament in connection with the right hon. Member for Don Valley (Mr. T. Williams). He has very kindly agreed to my mentioning this although he is, unfortunately, unable to be present today.
  We had rather a lively discussion during the course of the Committee stage of the Forestry Act and I am
  836
  afraid that in the course of it I rather annoyed him. I see that he said, according to HANSARD:
  "‖ my one consolation is I do not think we shall ever hear him"—
  That is myself—
  "reading a brief from this Box."
  I am reported to have replied:
  "I shall be able to do without it."—[OFFICIAL REPORT, 16th July. 1951; Vol. 490, c. 967.]
  Well, we were both wrong.
  The right hon. Gentleman was a bad prophet, but I was equally wrong because I realise today that when one has a difficult task to do in difficult circumstances it is certainly not only desirable but absolutely necessary to have a brief from which one can read if necessary, particularly when one is dealing with such a difficult subject as this.
  The Bill with which we are concerned is neither long nor complicated, and it certainly needs no lengthy introduction. Indeed, I would hope it might be regarded as an agreed Measure because it represents the fulfilment of a pledge which was given by the late Government. That pledge was given by the Lord Chancellor on 18th July in quite plain terms, and the Bill carries out that pledge exactly. Therefore, I hope and believe that I shall have the full support of hon. and right hon. Members opposite on this Bill.
  It has been indicated today that certain hon. Members opposite are to express other views, but I hope and believe I shall have very valuable and strong assistance in resisting anything they may say. I believe that any detailed reference to the Clauses of the Bill would be out of place at this stage—[HON. MEMBERS: "No."] It may be that later, when we have heard what is said with regard to them, it will be necessary to deal with them in detail. I propose to confine myself to one or two general points of principle in dealing with—
  It being Four o'Clock, further proceeding stood adjourned.
  Bill to be read a Second time upon Monday next.

  TRADE, MACCLESFIELD AREA
  Motion made, and Question proposed, "That this House do now adjourn."—[Brigadier Mackeson.]
  4.0 p.m.
  Air Commodore A. V. Harvey: The remarks I have to make are not controversial but concern the trade recession in the Macclesfield constituency and in the adjacent areas. In making these remarks I am conscious of the fact that similar conditions prevail in Lancashire, the West Riding of Yorkshire and elsewhere. The alarming thing is that in my constituency, which is concerned with weaving and the manufacture of silk and rayon, orders, both from abroad and at home, have steadily been declining since the summer.
  In the last few weeks conditions have steadily deteriorated. It became very apparent from the early days of the General Election, and I am sorry to say that some of my political opponents suggested that the falling off of trade and the numbers working short hours was a stunt.
  Mr. Harold Davies Mr. Harold Davies (Leek) indicated dissent.
  Air Commodore Harvey: I am not accusing the hon. Gentleman; I said that some of my local political opponents made that suggestion. I do not attach much seriousness to it; many things are said at elections, but unfortunately that was not true. I wish it had been.
  The situation has deteriorated in the last two or three weeks. It was worsened by the remarks of the right hon. Member for Bishop Auckland (Mr. Dalton). He did not instigate the decline or its commencement, but undoubtedly a considerable number of orders from abroad were withheld because it was felt that prices would come down and it would be better to wait.
  On 15th October I questioned the Minister of Labour about unemployment figures. In the past we have had something like 40 or 50 unemployed, but on 15th October there were 447 unemployed. I read in my local newspaper this morning, the "Macclesfield Times," published yesterday, that the unemployment position in Macclesfield had appreciably deteriorated during the past month, due
  838
  mainly to short-time working in the silk industry. It was stated that many workers in the silk trade were working two or three days a week and signing on at the employment exchange for the remainder of the period. In Congleton, which was almost a distressed area before the war, the employment exchange has been working overtime.
  It is my responsibility to take care, to the best of my ability, of the affairs of my constituents, but it is also the responsibility of the Government of the day to do everything they can to help. Some things—in fact, in my view, most things—have been mismanaged during the last six years, and I sympathise with my right hon. and hon. Friends in having to cope now with these difficulties with which the country is faced. But as I see it, the textile trade may be in for a very difficult time. I should like to think it was only a phase, but the industrialists who have spent their whole lives in this business do not seem to think it is.
  We shall have pockets of unemployment in certain parts of the country. whereas the engineering and light engineering industries want more people. It is a most serious problem when we have a shortage of houses, unemployed in certain areas, and over-employment elsewhere. That is one of the problems which have got to be tackled.
  I am unable to find out from the Minister the number of people working short-time in my constituency, but I am assured by the local mill owners and industrialists that the figure is considerable and that it is increasing. Many of the firms have had a good six months. In the first six months I think they have made very good profits, but since then their profits have steadily declined.
  They have kept on a number of men and women workpeople hoping that orders would come in so that they could give them plenty of work. But they cannot go on doing that definitely. I have been told that they will try to keep these people on until the end of the year. Unless something happens before that, a number of them will have to be paid off.
  In Congleton and in Macclesfield there are a number of firms known as makers-up, who make gowns and garments, and they are suffering considerably at the moment. They are looking for orders

  839
  and just cannot get them, yet I read a report in a newspaper, sent to me from the Division, which quoted a report from Milan as saying Britain had ordered £240.000 worth of R.A.F. shirts,
  "as the Ministry of Supply office here confirmed tonight."
  I do not think that is true. I cannot imagine the Ministry of Supply ordering nearly £250,000 worth of shirts for the R.A.F. when our own mills are waiting for orders. I hope my hon. and learned Friend will check that point with the Minister of Supply, because if the report is correct something should be done immediately to place the orders in the mills at home.
  To add to my troubles and to those of my constituents, last Saturday we had a disastrous fire in Congleton involving a firm known as Conlowe Ltd., who employed just over 400 people. The building was razed to the ground, with a considerable amount of stock. The firm have been able to place something like 40 per cent. of their employees in factories belonging to subsidiary companies, but, even so, that will involve the hardship of travelling, while the other 200 employees are still out of work. I ask my hon. and learned Friend to bear this in mind, so that when the firm make representations about rebuilding or getting the business under way—and incidentally it involves a great deal of export business—their application will be considered sympathetically and speedily by the Department concerned.
  Mr. Harold Davies: I hope the hon. and gallant Member will permit me to add my voice to his, because some of my constituents work in the hon. and gallant Gentleman's constituency and have been affected by the fire at that mill. I heartily endorse the hon. and gallant Gentleman's statement.
  Air Commodore Harvey: I am glad to have that support. I do not often get it from that quarter, but I am glad to have it on this occasion, and I hope my hon. and learned Friend will bear in mind what we have said.
  In my view, there are three reasons for this semi-slump. The first is the high cost of living. Where there is a small family, with two or three children,
  840
  by the time the household bills have been paid there is very little left to buy garments for wear, especially at today's high prices. Secondly, orders are not coming in from abroad or at home. The warehouses at home are stacked full, and in some cases the same position exists abroad. Thirdly, and most important, is the incidence of Purchase Tax. I shall refer to that again in a moment.
  When the Korean war broke out, I believe firms at home and abroad, thinking there might well be a world conflagration in a short time, stocked up. If that is so, there is a reasonable hope that the stocks may be unloaded and that we shall get full employment going again. But that is not necessarily so in this case. These are quality goods. Best Macclesfield ties sell in America, but travellers are coming back with very small orders.
  It seems to me that as a nation we must try to sell quality goods. It is no use making rubbish and cheap articles, as many other European countries do. We have to make high quality goods, and an export trade in those lines can be sustained only by a healthy home market. Designs have to be tried out on the British public to discover their reactions and to see what will sell. Some of these foreign markets are only seasonal markets, for four months a year or for two months twice a year. They have to be supported by a healthy home market.
  The expense of exporting these productions is considerable, bearing in mind the cost of preparation and the sending of travellers to America and other countries. It must be made possible to make some recovery from the home market. Purchase Tax is killing that at present. The bulk of the fabric produced for export and home use is a high quality rayon. It looks like silk but it is a rayon fabric and it is only a few pence dearer than the best utility material.
  Many people at home are tired of utility clothing. Girls in mills and elsewhere want something a little bit better. They are entitled to it. After all, they are entitled to make the best of their dress. Export customers also have a high opinion of this fine rayon, but the prices are out of reach of many of them. They are out of reach of many abroad as well as at home.

  841
  For instance, the cost of fabric processed at home is approximately 5s. 6d. a yard. It bears tax ultimately at 6s. a yard. It is eventually sold in the shops at something like 18s. 6d. a yard. If it were classified as utility fabric it would be much cheaper. It does not seem to me to make any sense.
  Unless something happens by the end of this year, I am quite convinced that in certain areas concealed unemployment will be exposed. We have had concealed unemployment a long time. It has very rarely been admitted in this House, but we have had it for months, and it will be exposed unless something is done. The situation cannot possibly be left until the Budget in April because even in normal times—and we are living in very abnormal times—buyers hold off for two months before the Budget. They have held off from last June. If we wait until next April before something is done many firms will be bankrupt and many thousands of people will be out of work.
  The Chancellor of the Exchequer has had little time to consider this problem. He has got far weightier problems on his mind at the present time, and I sympathise with him. He has a tremendous task, as we have heard in the last few weeks. However, I do ask him and his colleagues at the Treasury and in the Board of Trade to review this matter of Purchase Tax at a very early date. I recognise that Purchase Tax has to remain, but we may come to a situation in which the law of diminishing returns may apply, and then the Government will get less money.
  If we work out a better scheme of taxation the Government will get more revenue, industry will be healthier, and exports better. In my view this is a pernicious tax. It was never intended for peace-time. It is one of the things that, has got to go on, certainly at the present time, but it is killing initiative in the textile trade.
  Raw silk is sometimes considered a luxury, but I can assure my right hon. and hon. Friends that that is not the case. Silk has many uses in strengthening other fabrics, and has to be used today for a large number of things because there is no alternative to it—no substitutes for it. We are faced with competition from Japan, Italy, Switzerland and France. Japanese competition has not begun yet,
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  but we have to put our house in order against that competition when it arrives, and sell our fabrics at the lowest possible price.
  The only people capable of handling this problem of silk are the fine craftsmen of Macclesfield and a few other parts of the country. They must be protected. They export silk at something like three times the value of the raw silk that comes from Japan. That is a very nice turnover.
  There is no time to go into other matters, but in my constituency the authorities have on their books two firms who are willing to go to Macclesfield, to a site prepared by the Corporation, to bring in other industries—engineering, which, I believe, is connected with rearmament. I would ask the Government to give their consideration to this matter. The idea is that we should have as a buffer another type of industry to which the workers could go, and which they could fall back upon in lean times.
  I do not mean that we should rob the silk industry of its workers. The workers in the silk and rayon industries have made a fine contribution to our export trade, and they did a fine service in the war by weaving silk and rayon for parachutes, and so on. I hope that my right hon. Friends will consider this point.
  I do not wish to overstate this problem, but I think that any hon. Member of this House who sees any unemployment going on week after week is worried by that. It becomes a nightmare. It is a worry lest it should get worse. I ask for consideration of these questions affecting the silk and rayon industries. I do not say that it should be done in a few weeks, but that that consideration should be full consideration to bring about alleviation of the problems wherever possible.
  4.15 p.m.
  Mr. Harold Davies: I am sure that the House is grateful to the hon. and gallant Gentleman the Member for Macclesfield (Air Commodore Harvey) for raising this subject this afternoon. It may be that this is a local matter, for the Macclesfield district alone, but although I am a political opponent of the hon. and gallant Gentleman I am also a neighbour and I know that the matter he has raised is of

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  importance to all of us, whatever may be our politics.
  I heartily endorse the statements made by the hon. and gallant Gentleman. If it is correct that orders are being given to firms in Milan for R.A.F. shirts, surely the Board of Trade and the Government could investigate this immediately and see if these orders could be given not only to Macclesfield but to Leek. I do not want to trespass on the constructive reply which we are to get, I am sure, from the Parliamentary Secretary to the Board of Trade and which the hon. and gallant Gentleman deserves, but I should like to take up two small points.
  It is right that we all should be made aware of the concealed unemployment which now seems to be overshadowing an important dollar earning industry like the silk and rayon industry in Macclesfield and in Leek. It was not so long ago that these industries were penetrating the North American markets and enabling us to maintain our standards of life.
  My second point is one which concerns the Japanese Peace Treaty, a matter which I hope to deal with in the near future at greater length and on wider issues. There is no one in this House who wishes to make a punitive Peace Treaty, particularly in its economic clauses, but some of us on this side and, no doubt, some hon. Members opposite are worried about the vague generalities of the economic clauses of the Japanese Peace Treaty.
  I want to see the Government now in power encouraging maximum contacts between British manufacturers of cotton, silk, rayon, pottery and shipbuilding with those in Japan, and we should also like to see contacts made on the trade unions side. I do not think that within any measurable distance there is any hope of creating, in Japan, standards of like life we have in this country, and, consequently, areas like Macclesfield and Leek may feel the shock of intensive Japanese competition in the near future, which may completely undermine the prosperity we have hitherto enjoyed.
  I cannot finish better, in illustrating the practical difficulties, than by quoting from the Mitsubishi monthly economic circular figures which were published recently. They show that in 1913 the average number of workers in a ceramic factory in Japan was 6.7 while the average today
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  is about 13. In other words, because of the small accumulation of business per factory, the trade unions in Japan cannot be properly organised. I hope that in dealing with this problem, and when we sustain the full shock of Japanese competition, these matters will be the concern of His Majesty's Government.
  4.20 p.m.
  The Parliamentary Secretary to the Board of Trade (Mr. Henry Strauss): My hon. and gallant Friend the Member for Macclesfield (Air Commodore Harvey) has made a characteristically persuasive speech on behalf of his constituents and. as we have heard from the last speaker, on behalf of the constituents of other hon. Members, too. The main industry in his constituency is, as he has pointed out, interesting and world famous. The silk industry is one of the oldest in this country, dating from the 14th and 15th centuries. It has been established in his constituency since the 18th century, and it is now widely spread throughout the country. One sixth of the industry is still centred in my hon and gallant Friend's constituency, and the products of that industry are famous throughout the world.
  The first thing I would say to the House is that, as my hon. and gallant Friend already knows, the falling off in demand which he has brought to our attention is not confined to this country and, within this country, is not confined to Macclesfield. The falling off in the world demand for silk goods is part of a decline in the demand for textiles generally. The silk industry has specially suffered from competition from other fibres, but it is a vigorous and virile industry, as we know from the Third International Silk Congress which took place in London last September.
  Among the difficulties which this industry has had to face have been the high cost of the raw material, and the great fluctuations in price. Japan is the great source of supply of the raw material, and it may be of interest to the House to know that a Bill for the stabilisation of raw silk prices is now due for consideration by the Japanese Diet.
  On the point raised by my hon. and gallant Friend about the high cost of living, I cannot add to what has already been said by the Chancellor of the

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  Exchequer on this subject, when he was dealing with inflation. On the question of Purchase Tax, my hon. and gallant Friend is aware that that is not a subject for my Department but for the Treasury. He will have observed that the Financial Secretary to the Treasury has been here throughout the debate and has noted his observations.
  Air Commodore Harvey: I am much obliged.
  Mr. Strauss: On the question of utility schemes, the House may be aware of the difficulties of extending them in the case of goods of which there are imports as well as a home-produced supply. This country has certain obligations under the General Agreement on Tariffs and Trade and certain other international agreements, as a result of which we are bound to give national treatment to the products of other countries in respect of internal taxation.
  That is one of the matters being considered by the committee whose setting up was announced by the previous Chancellor of the Exchequer on 31st July—the committee that sits under the chairmanship of Sir William Douglas and is generally known as the "Douglas Committee." I understand that the industry has put its case to the Douglas Committee and that, as my hon. and gallant Friend is no doubt aware, Mr. Goodale, the President of the Silk and Rayon Users' Association, is a member of that committee.
  My hon. and gallant Friend would probably like me, in the few moments which are left, to deal with the possibilities of alternative employment. In recent years 21 extensions to existing premises and new projects have been approved in the Macclesfield-Congleton area. There are some possibilities of work connected with re-armament within travelling distance of the principal places in his constituency.
  However, the chief point that I wish to bring to the attention of the House is one which, from his speech. I believe he already well recognises. It is that what may be desirable must depend to a large extent on the question: Is the present recession temporary or permanent? I am certain that the House will appreciate that actual harm might be done to the industry whose cause my hon. and gallant Friend has so eloquently
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  pleaded if we were to treat as permanent a shortage of work which may be destined to be only temporary. Although I certainly do not wish to be dogmatic, I believe there are reasons why part, at any rate, of the shortage of work will be only temporary.
  Air Commodore Harvey: Will my hon. and learned Friend give just one reason why he thinks it will be temporary?
  Mr. Strauss: I want to be brief, because I have other things to say, but one of the reasons is that part of the unemployment is not in the most luxurious part of the trade, but in a part which has, over a period of years, always recovered after slumps, a trade without which the world cannot do. I have no time to develop that, but I believe there are grounds for the statement I have made.
  My hon. and gallant Friend mentioned the wishes of two engineering firms from Stockport. I cannot definitely tell him whether the two firms from Stockport which I shall mention are those he has in mind, but I am sure that he will be glad to learn that two engineering firms from Stockport have had Industrial Development Certificates issued to them this year for new factories in Macclesfield, one for 10,000 sq. ft. and the other for 14,000 sq. ft. I do not want my hon. and gallant Friend to misunderstand the effect of the issue of an Industrial Development Certificate. It does not in itself mean that building licences will necessarily be granted. In frankness to the House, I ought to say that. In present circumstances the grant of building licences must depend on over-riding national considerations. I do not think I can go beyond that, if for no other reason, because the sponsoring Department in this case will be not my Department but the Ministry of Supply.
  In the short time left to me before I have to sit down I should like to express the regret of the House that the difficulties of my hon. and gallant Friend's constituency have been accentuated by the recent fire in Congleton. I am sorry that in the time at my disposal I cannot elaborate further in answer to my hon. and gallant Friend's speech.
  Question put, and agreed to.
  Adjourned accordingly at Twenty-nine Minutes past Four o'Clock.