HC Deb 13 November 1953 vol 520 cc1284-336

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 another in the series of Measures by means of which this House provides funds to the Public Works Loan Board to enable the Board to make loans mainly, but not exclusively, to local authorities. It is the third of such Measures that it has fallen to me to introduce, though I am conscious of the fact that that is a very small figure compared with that which the right hon. Member for Colne Valley (Mr. Glenvil Hall) can claim.

It is not strictly an annual Bill in the sense that the Finance Bill is an annual Bill, but it is one that has in recent times usually been introduced at this time of year. It is, perhaps, material to stress that it is not an annual Bill—that may have some bearing on our subsequent discussion of it—but is simply a Bill which provides money until its successor obtains the Royal Assent. This Bill is not necessarily related to any strictly designated period of time, and it is, perhaps, a good thing to make that quite clear lest its annual appearance should make anybody outside think that it is an annual Bill.

The Bill is in its usual form, and hon. Members will note that it does not contain any provision for the writing off of individual bad debts, which, I am afraid, rather cluttered up last year's Bill. The reason why it does not is simply that the Public Works Loan Board has not found it necessary to ask us to take that step in respect of any of the obligations owing to it.

The only points of substance in the Bill are, of course, the provisions for particular amounts which are contained in Clause 1 (1) and in Clause 2, that is to say, the provision in Clause 1 (1) for the amount of advances that may be made during the currency of the Bill, and the provision in Clause 2 of the total amount of advances, plus commitments, which can be made equally during the currency of the Bill. That, indeed, is really the only point of substance that arises in the Bill as it stands, and perhaps I might be allowed to direct a few remarks to those two particular figures.

As the House will have noted, the figure provided in Clause 1 (1), in respect of advances, is £500 million, which, as hon. Members will no doubt recall, is the same figure as that provided in last year's Bill. It seems to us sensible to repeat in this Bill the figure contained in last year's Bill for a number of reasons, to one or two of which I will now refer.

With respect to the £500 million provided in last year's Bill which is, of course, the current Act, £342 million had actually been advanced up to the beginning of the present month, and if advances were to continue at the same rate that figure would run out somewhere towards April of next year. In parenthesis, I would say that it may be of interest to the House to know, broadly, the way in which that £342 million has been used.

As I think has always been the case, the biggest single item has been loans in respect of housing which accounts for £245 million, education has taken £35 million, public health, £13 million, and most of the remaining £49 million has been in respect of transport, water, land drainage, etc. That gives the pattern of the way in which it has been used.

I do not need to remind the House that although that is the pattern in which this money has been used throughout the currency of the present Act and although the Public Works Loan Board has, of course, been a large source of supply of loans to local authorities, it has not been their exclusive source of finance. The figures I have given relate to expenditure financed by loans by the Public Works Loan Board and not from other sources open to local authorities, such as, on the one hand, the market and, on the other hand, mortgages, etc.

The question therefore arises as to whether the House thinks that to provide £500 million in the next Bill is a reasonable figure. I think that we have here to balance two conflicting considerations. On the one hand, I think that hon. Members on both sides of the House will agree that it is essential that we should provide enough during the currency of the Bill to make quite sure that resources are available to local authorities for necessary purposes. On the other hand, I think that the House will equally agree that we ought not to insert in the Bill such large figures as to make unduly remote the time at which this House will next be able to exercise its control, and, therefore, in the light of the fact that the £500 million advances provided in last year's Act has been expended to the point to which I have referred, it seems to us right to provide the same figure in this year's Bill, without, of course, any inference being drawn as to the precise figure which it will be necessary for the Government to put before the House when producing the next Bill after this one.

What I have just said relates to the provisions for advances. The other provision, under Clause 2, deals with the total amount of advances plus commitments which the Board can make during the currency of the Bill. The necessity to make this provision springs from certain advice which I understand was given by the Law Officers of the Crown in 1946 to the effect that it was necessary for Parliament to authorise not only the total amount of the advances but the total amount of advances plus commitments which the Board can make. It has, since then, been the practice to provide an overall figure for the two.

In the current Act, the amount provided separately for commitments was £550 million, making a total, on top of the £500 million provided for advances, of £1,050 million. Hon. Members will see that the present Bill goes further and, instead of providing for commitments a figure of £550 million, provides a figure of £700 million, making a total for advances plus commitments of £1,200 million as opposed to £1,050 million.

One of the arguments which I would submit to the House to justify us in advancing this figure is the speed with which commitments have been taken up. I have already given to the House the figures for advances and the date by which, if the same rate of advances is maintained, the amount available for advances will be exhausted. But so far as the commitments are concerned, the position is that out of the £1,050 million for advances plus commitments authorised by the current Act, £942 million have been used up to the beginning of this month, leaving a margin of £108 million which, at the present rate, would be finished early in January.

It is for that reason and because we are fairly near the ceiling for advances plus commitments that it is necessary to introduce the Bill now, since it is clearly in the interests of all concerned that this Bill should be passed through the necessary stages in time to receive the Royal Assent before the Christmas Recess.

As the figure which would have brought us nearest to this ceiling is the figure for commitments and in view of the tendency of commitments to rise, it seemed necessary to us, while not neglecting the necessity of preserving Parliamentary control, to raise the figure from £550 million to £700 million so that the total rises from £1,050 million to £1,200 million. These are the two figures of substance in the Bill, and I hope that I have submitted to the House what would appear to be sensible arguments to show why, in our view, these are the right figures to suggest. I hope hon. Members will agree that they indicate a proper balance between the two conflicting considerations of risking the Board running short, on the one hand, or risking a deficiency of Parliamentary control, on the other hand.

Perhaps I ought to make reference, as reference has been made to it in the debates of the last two years, to the rates of interest at which this money will under the present provisions be borrowed. There has been discussion, certainly in the last year and, I think I am right in recalling, in the previous year's debate on this aspect of the matter.

The House will be aware that on 20th October, by a Treasury Minute, reductions were made in the rates of interest applicable to all three categories of loans by the Public Works Loan Board. For the sake of the completeness of the record I should perhaps give the figures. In respect of loans in excess of 15 years the rate was reduced from 4¼ to 4 per cent., in respect of loans for periods of from five to fifteen years, from 3¾ to 3½ per cent., and for periods not exceeding five years from 2¾ to 2⅝ per cent. This has been done in accordance with the general policy, I think first annunciated by the present Lord Waverley and subsequently by the late Sir Stafford Cripps, that, broadly, public works loan rates should be kept at much the same level as Government credit for the same periods.

That is the Bill as it stands. Although, as I have already indicated, as a result of last year's legislation local authorities have other sources of advances than the Public Works Loan Board, it will be seen both by reason of the introduction of the Bill and by the figures included in it that Her Majesty's Government, in accordance with the assurance I gave last year, is maintaining the Public Works Loan Board system so that local authorities shall still find its services fully available to them. Subject to what I have said, the Bill is in the usual form.

11.19 a.m.

Mr. Douglas Jay (Battersea, North)

A year ago, the present Government, by one of their muddles for which they are now so justly famous—another example of which we had on Wednesday night—threw the debate into confusion by introducing two Bills in the wrong order. As the House will remember, the Public Works Loan Board Bill came first and the Expiring Laws Continuance Bill second.

This year the Government, I am glad to say, have gone back to the traditional and correct order, from which I infer, incidentally, that last year's experiment was merely a blunder, though the Government have not yet had the courage to admit that candidly. At any rate, we now have the chance to discuss in a more calm and orderly manner this very important Bill, which authorises the issue of large sums of money, in gross total £1,200 million—one of the largest figures we have ever authorised in one vote in the House.

Although I see no reason to quarrel with the figures included by the Government in this year's Bill, last year some of us on this side of the House felt anxiety about the Government's new plan, to which the Financial Secretary referred, for ending the system introduced by the present Lord Waverley in 1945 by which all local authorities raised their funds for long-term borrowing in a regular and orderly way, and at low rates of interest, through the Public Works Loan Board.

The Government decided, last year, to launch the authorities into the open market in the City of London. The Financial Secretary claimed that he was thereby giving them one of these famous new "liberties", such as the Government are now conferring on the farmers, to the consternation and dismay of those who will in that case receive it.

Many of us were afraid that the Government in this matter, by their control of the terms of the public works loans, might impel the authorities—nominally, of course, acting of their own free will—into the open market. We asked the Financial Secretary for an assurance on that point last year, and on 12th November he said: It is not the Government's policy to force local authorities into the stock market."—[OFFICIAL REPORT, 12th November, 1952; Vol. 507, c. 1075.] What has happened in the past year? There is some doubt whether the Government have kept the spirit of that undertaking, although no doubt they have kept the letter of it in the precise form in which the Financial Secretary was careful to give it. The fact is that the present restriction, which prevents local authorities borrowing for a shorter period than 60 years for housing purposes from the Public Works Loan Board, has been a powerful lever pushing them into the open market. For, of course, any Public Works Loan Board loan must be for the full period of sanction, which in the case of housing is 60 years.

But that restriction applies only to borrowing from the Public Works Loan Board and not to loans from the open market. As a result, local authority treasurers are put into the position of having to calculate or guess whether, if they go to the City, they might be able to convert to a lower rate of interest after perhaps, 10, 20 or 30 years. The hon. and learned Member for Ilford, North (Sir G. Hutchinson), who has much knowledge of these matters, touched on this important point a year ago. Of course, the rigid rules about amortization which are imposed in the public works loans system also work in the same direction.

My information is that it is largely because of this restriction that several authorities have been impelled into the open market in the past year. In the hope of lower interest rates later on, they have decided to borrow in this way—with attendant high costs of making a public issue, which, no doubt, gives an attractive income to financial institutions in the City, but, nevertheless, throws heavy cost on the ratepayer and on future tenants of council houses.

The Financial Secretary gave figures which showed that about two-thirds of the present loans are for housing purposes; and the Public Works Loan Board Report shows that last year the figure was something like £300 million for housing out of a total of £436 million advanced during the year. So that the enforcement of this 60-years rule affects very large sums of money within the total which we are discussing today.

Is it really necessary that this restriction should continue any longer? It seems to us that there is a strong case for giving local authorities at least the same freedom to borrow for shorter periods, and with more flexible amortization rules, from the Public Works Loan Board as from the open market. At any rate, that is certainly the view of some of the local authorities. It may be that there was a reasonable case on two grounds for adhering to the 60-year principle when all local authorities were borrowing entirely from the Public Works Loan Board and at low interest rates.

One could, I suppose, argue with some reason that since a house would last—this was the theory—for 60 years, the loan should be of that duration. But I see little logic in applying that argument to Public Works Loan Board loans, but not to those from the open market, and in effect using this discrimination to push the local authorities towards the open market, to nobody's benefit except that of the finance houses.

The second and main point is that while the public works loans interest rate remained at 3 per cent. or tinder during the period of the Labour Government, there was no need for local authorities to attempt to get their loans at a lower rate, since it was exceedingly unlikely that rates would fall much below that level. But with a rate of 4¼ or 4 per cent.—let us remember that the rate still stands at 4 per cent. today, even after the change in October—the situation is entirely different.

The difference between a 3 per cent. and a 4 per cent. rate on these enormous loans amounts to something quite considerable on a council house over the whole term of its life. Indeed, there is little doubt that some of the greater authorities, including Birmingham, Bristol and Liverpool, who have gone into the open market in the past year as a result of this new policy, have not merely incurred high initial costs, but now find themselves paying higher annual interest rates than they need have done if they had gone to the Public Works Loan Board.

I believe that in the case of Birmingham they have borrowed at nearly 4½ per cent. That is, of course, far higher than they would have paid had the Government kept to the 3 per cent. which prevailed under the Labour Government. Therefore, the main effect of the Government's manoeuvres on this front in the past year has been to increase the cost of building houses and building schools. It seems to us quite wrong that local authorities and council house tenants should have to gamble on all these uncertainties. I suggest that if this present high interest rate policy is to continue, the local authorities ought to have the same freedom in their loans from the Public Works Loan Board, in the matter of the length of loans and amortization, as if they were borrowing in the open market.

I hope, in view of the remarks made a year ago, that the Financial Secretary will not argue that by dint of transferring some of these loans from the public works system—that is to say, from "below the line" under the Budget—into the market, he is reducing total Government expenditure and can, therefore, reduce taxation. I mention this because the Chancellor of the Exchequer claimed credit in his speech at the Mansion House for a reduction of about £50 million in Budget expenditure "below the line".

The fact is—I think the Financial Secretary will agree, though I should be glad if he would say so clearly—that on the principles on which Budgets are now constructed, if there is a reduction of these loans from the Public Works Loan Board "below the line" and if they have to be borrowed from some other source, that makes no difference to the total of national savings available or to the total of investment. It simply means that the Government would have to have a surplus "above the line" higher by that amount. The transfer of these loans from one source to the other has no effect whatever on the level of taxation necessary from the Budget.

As far as it goes—and it does not go very far—we welcome this latest drop from 4¼ to 4 per cent. in the Public Works Loan rate which, in October, followed the reduction in the Bank rate from 4 per cent. to 3½ per cent. in September. I think—and this debate gives us the opportunity to ask for it—that we need a little more clarification from the Government about the reflection of these operations on Government interest rate policy. That has a dominating effect on the Public Works Loan, about which we have had very useful discussions during these debates in the last few years.

The Government made this change in September, as they do with many things, when Parliament was not sitting, and we had no opportunity to inquire or to criticise. Since we seem to have the whole day before us, I hope that the Financial Secretary will explain rather more clearly the purpose of this change, which affects the Public Works Loan rate in this way.

I have attempted to understand the Government's mind in this matter, and I have seen three explanations put forward in the Press. The first is that the reduction in rates was due to a supposed general improvement in the economic outlook and the balance of payments. If so, it was an odd move to make in the autumn of 1953 rather than in 1952; for this year the balance of payments situation has grown worse rather than better.

In the second half of 1952 the United Kingdom balance of payments showed a surplus of £93 million, but in the first half of 1953 that fell to £26 million. Again, the gold reserve today is much lower than it was in September, 1951, and in July and August of this year, not counting American aid the sterling area was actually in deficit. Therefore, I think the Government's reason for this change—those facts were all very well known to them—must have been something other than that. If that had been the reason for the change in policy, I should have thought that the right time for a lower Bank rate would have been the middle of 1952, when there was a cotton slump and considerable unemployment in Lancashire. I think the Government must have had something else in mind.

The second reason I have seen given for this reduction, according to the experts, is that it was purely a technical one. We were told—

Mr. Boyd-Carpenter

Mr. Speaker, might I seek your guidance on this point? The right hon. Gentleman seems now to be arguing, with very interesting points, about variations in the Bank rate. Is such a debate in order on this Bill, which simply authorises certain sums to be issued to the Public Works Loan Board?

Mr. Jay

I was following the precedents of previous years in trying to elucidate the reason for the change in the Public Works Loan rate, which is associated with the Bank rate. That is all I am seeking to do, Sir.

Mr. Charles Pannell (Leeds, West)

Might I be permitted to point out, Sir, that last year the then Minister for Economic Affairs came to the House and made a speech on this subject which widened the debate considerably. He even went into the question of hypothetical cuts in the social services. If I may say so with respect, you, Mr. Speaker, wisely ruled, as did your Deputy the year before, that this was the one occasion during the year when we could speak about the general effects of interest rates on housing and local loans. I therefore hope that you will rule this morning that the debate today will be as wide as was last year's.

Mr. Speaker

I am anxious not to confine the debate within too narrow limits, but, at the same time, I think there is a line which can be drawn. I remember quite clearly that the circumstances of last year's debate were somewhat peculiar and the right hon. Gentleman the Member for Battersea, North (Mr. Jay) alluded to them at the beginning of his speech today. On that occasion there were, I think, two Bills involved and there was a case for a somewhat extended discussion. In so far as interest rates in general do affect the rate of interest in this particular Bill reference to them is not out of order, but I leave it to the good sense of hon. and right hon. Members not to pursue the matter into regions which are really remote from the purpose of the Bill itself.

Mr. Jay

I assure you, Mr. Speaker, that I have no intention of going as wide as the general field of Government expenditure, but would wish to confine myself strictly to interest rates which, as a matter of fact, we have discussed in these debates not merely last year, but for a series of years in recent times. I am attempting to elucidate this in order to see the effects of the changes on the Public Works Loan rate.

We were told by the "Economist" on 19th September that there was an "official explanation" of the changes that were then made. According to that paper, the change was intended to allow more freedom in the day-to-day operation of the market and to 'facilitate the flexible use of Bank rate in either direction as circumstances may require'. It was said that the rate needed to be "unified" rather than reduced, much in the sense in which the Government's majority was unified on the night before last.

It is not surprising, perhaps, that the "Economist" told us that this pronouncement created some "doubt and bewilderment" in the city. I do not think that the explanation that this was purely "technical" will really wash. If that were the explanation of the change in the Bank rate, why was the Public Works Loan rate altered as a result, even though it were an alteration of only ¼ per cent. and came a month later. And why did the Treasury bill rate also come down as a result of that change? I think we must agree that that was not the right explanation either.

The third explanation of these changes offered by the Press was that the Government were seeking to ease the sale of steel shares, which the Financial Secretary was unable to defend yesterday. The "Economist," in its note on this point, spoke of there being what it called a lurking suspicion that all this parade of virtue"— that is, about interest rates— is directed simply to a smooth launching of the steel issues and a cheapening of the terms for the Treasury's own refinancing operations. The "Economist" was even more candid in its leading article when it stated: … it is an undeniable fact that a certain strengthening in the gilt-edged market"— which, incidentally, has a pronounced effect on these loans— at this time would be convenient to the Treasury and to the Iron and Steel Holding and Realisation Agency. The plain fact is that gilt-edged prices did go up, and the steel operation was thereby greatly assisted.

Finally, to give the Financial Secretary what help I can in giving a more clear account of this later on, I would remind him that the Governor of the Bank of England himself, at the Mansion House on 14th October, made an important pronouncement on these mysteries. It is not often that a Governor of the Bank of England uses plain words in public, so I shall quote a short portion of what he said: Whatever the argument for and against making these adjustments, the resulting position is certainly more realistic. Influence can now be exerted more effectively in either direction—up or down—if it comes to be judged advisable. Those were certainly statesmanlike words which might almost have been used by the late Mr. Ramsay MacDonald.

I do not pretend fully to understand the phrase "the resulting position is certainly more realistic." But I should not be surprised if the public drew the conclusion that what the Government were really trying to do in all this was, in plain English, to help some of their friends in the City to buy these steel shares at an artificially cheap price. At any rate, if we do not get an alternative and lucid explanation today, that is what people will think.

In conclusion, I ask the Financial Secretary, who is obviously bursting with clarity and lucidity today, three simple questions. First, what was the reason for this reduction in the Bank rate and the Public Works Loan Board rate that followed? If it had nothing to do with the steel operation, what was it? Secondly, will he now consider removing this restriction on the length of the Public Works Loan Board borrowings? Thirdly, will he take the chance today of having so much time and an audience of such high quality, if not of great quantity, to repudiate clearly the argument put forward by some hon. Gentlemen last year, that the transfer of this borrowing from the Public Works Loan Board to the City would have some influence on the level of taxation required in the Budget?

11.42 a.m.

Sir Geoffrey Hutchinson (Ilford, North)

It is rather surprising that the right hon. Gentleman the Member for Battersea, North (Mr. Jay) should have referred to the debate which we had last year on this subject. My recollection of that debate is that I ventured to express the view that the new liberty which the Government were then giving to the local authorities to obtain their capital requirements in the market was a benefit which would be of no small value to them. If my recollection serves me right, I think the right hon. Gentleman was a little doubtful about that forecast. What has happened? The result has been that local authorities have gone to the market for about £50 million of their capital requirements since they have been at liberty to do so. To that extent the Budget has been relieved, I shall say something about the nature of that relief in a few moments.

The right hon. Gentleman says that the only reason they have gone to the market is that the Public Works Loan Board are not willing to lend on a short-term basis; but he overlooks a number of other factors which are of no less importance than the factor to which he referred. One of the reasons why the local authorities hesitated to obtain their capital requirements in the market was the high rate of Stamp Duty which the Labour Government imposed when they were in office.

I said last year that, if it were possible to reduce the rate of Stamp Duty, the local authorities would be glad to take advantage of it and would readily go for their requirements into the market; that, indeed, it was one of those concessions which the Treasury might readily give because it would cost them nothing. My right hon. Friend took that advice and reduced the rate of Stamp Duty on local authority transfers of new loans to the rate at which it stood before it was increased by the right hon. Gentleman's Government. That has undoubtedly been one of the major factors which has induced local authorities to obtain their requirements in the market rather than from the Public Works Loan Board.

Another advantage to which the right hon. Gentleman did not refer is that it is the practice of the Public Works Loan Board to relate their advances to loan sanctions. The local authorities are not able to go to the Board and obtain a lump sum covering all their requirements for more than one purpose. Each advance must be related to the particular loan sanction for which the money is required. That involves the local authorities in considerable administrative expense and some administrative inconvenience. From both those standpoints therefore, it is a much more convenient and satisfactory arrangement to go to the market and obtain their requirements, so to speak, in a lump sum.

I am not saying, of course, that one of the factors which induces them to go to the market is not the factor to which the right hon. Gentleman alluded, namely, that they cannot obtain from the Public Works Loan Board a loan for less than the period of the loan sanction. Under that arrangement the local authorities lose the advantage which they would get from comparatively short-term borrowing, with the prospect of refloating their loans at a later period if the market rates available are more favourable. When my hon. Friend replies to this debate, I hope he will be able to tell us that this is one of the matters which is under consideration, and that it may be possible to amend the practice of the Public Works Loan Board so that the smaller authorities as well as the larger ones may get the advantage of borrowing for shorter terms and refloating their loans at a later period if, as seems not improbable now, interest rates move in their favour.

In my judgment it is of considerable benefit, both to the local authorities and to the taxpayers at large, that as many local authorities as possible should be encouraged to obtain their requirements from sources other than the Public Works Loan Board. I tell the House quite frankly that I have never really understood how the funds which are used for the purpose of financing these advances are obtained in the Budget. The right hon. Gentleman said that this did not represent any relief in taxation. I remember having some discussion about it when the right hon. Gentleman occupied the position which my hon. Friend the Financial Secretary to the Treasury occupies today. We were never able to understand quite clearly where the money came from, whether it was borrowed or whether it was tax. It may be that some of it comes from one source and some from another, and it may be that the right hon. Gentleman is now correct in saying that it does not derive from tax surplus at all.

Mr. Jay

I did not say that these moneys were not derived from taxation at all. I should have thought that the brief answer—if it is for me to answer—is that if there is an overall Budget surplus, they come from taxation revenue, and if the total revenue falls short of overall expenditure, they come partly from an increase in the floating debt. My argument was that the transfer from one borrowing system to another does not affect the total of taxation one needs to raise if one looks at it, not from the point of view of the Budget, but from that of the total of savings and investment throughout the community.

Sir G. Hutchinson

The point with which I was seeking to deal was much narrower. It was that, if local authorities obtained their capital requirements from sources other than the Public Works Loan Board, it would be an immediate relief to the Budget. I do not profess to be able to argue with the right hon. Gentleman on topics of this character, but what he has just said rather confirms me in the belief which I have always entertained in my ignorance that if we could get them off the Public Works Loan Board, then, whatever the effect on the national savings situation, it would be an immediate relief to the Budget.

Mr. Jayindicated dissent.

Sir G. Hutchinson

The right hon. Gentleman shakes his head, but I always suspected that that would be the case, and what he has said rather confirms my suspicion. I must not repeat what he has said to me on other occasions, although I suspect that he would not mind at all if I did. It was not substantially different from what he has said this morning, except perhaps that the weight was on the other foot. Perhaps I had better not venture any further into this complicated and involved topic, although I still maintain, rightly or wrongly, that if there is anything that the Chancellor can do to induce local authorities to obtain their requirements from sources other than the Public Works Loan Board, it would be a good thing for the taxpayer in the immediate future.

Mr. Glenvil Hall (Colne Valley)

Would the hon. and learned Gentleman also say that it would be a good thing for the ratepayer?

Sir G. Hutchinson

Yes, certainly it would be a good thing for the ratepayer. He gets the advantage of a loan which is much more easily managed. He gets considerable saving in the cost of administration of the loan and, as he has had in the last few weeks, he may very well have an advantage in the interest which he has to pay. I remember venturing to say that last year and being challenged about it. In fact, the great City of Birmingham, which is governed by a party who are certainly not in sympathy with this side of the House, were the first to take advantage of it.

Mr. Pannell

There is an answer to that, too.

Mr. Glenvil Hall

Birmingham borrowed £6 million, I believe, which is a very different thing from borrowing something like £400 million, as the local authorities between them have done during the last year. That runs to something over £7 million a week. If the money market and the money rates are not affected by that, then I have a good deal more to learn than I thought I had.

Sir G. Hutchinson

The right hon. Gentleman tempts me to enter further into this very complicated business. I should have thought that if these advances were financed by borrowings in the market, the position would be exactly as he has stated, whether the local authorities went directly to the market or went through the medium of the Public Works Loan Board. I should have thought that the result would have been exactly as I said: but I must not be tempted by the right hon. Gentleman to enter too far into this complicated matter. As someone has just said, I claim only to be a simple local government man.

Mr. C. W. Gibson (Clapham)

Not so simple as all that.

Sir G. Hutchinson

It was, and to some extent still is, the practice of many local authorities, particularly in the North of England and in the Midlands, to borrow directly from the ratepayers on mortgage. That practice is not quite so widespread or so popular today as it used to be. It had certain very great advantages. Local authorities enjoyed the advantage of short-term borrowing; they enjoyed the advantage of simplicity and of certain economies in the cost of floating and managing the loan. If it were possible, I would hope that that process might be encouraged.

I am not quite sure that I have any concrete suggestion to make to my hon. Friend as to the most effective means of encouraging it, but in proportion as the local authorities are able to obtain their requirements in that way, it would still further relieve the demand which the Commissioners make on the Budget. There is the further advantage that this type of borrowing is a very useful outlet for small savings. It has the advantage from the public standpoint—and I am only dealing with it at the moment from that standpoint—that it is not quite so easy to withdraw money as is the case with other forms of investment and small savings.

We all know that one of the difficulties about the Post Office Savings Bank and National Savings Certificates as a form of saving is the temptation that is always present to withdraw money for some temporary purpose. One cannot do that quite so easily if the money has been lent for a prescribed period to the local authority. I should have thought that from the standpoint of the Chancellor, as well as that of the local authorities, it would be a good thing to seek to stimulate these advances in the future.

The practice of the Public Works Loan Board has always been to insist that all loans should be repaid by instalments over the full period. If the local authority wish to borrow for the full period of the loan sanction—and most of their loans are for 60 years—it is no doubt an advantage that the payment of interest and repayment of capital should be made on an annuity basis under which the local authority pay a uniform amount every year. In the case of small local authorities particularly, that is no doubt the best way of doing it. But it would be an advantage if some elasticity were introduced into this system. At present it is completely inflexible.

The result is that the local authorities lose the opportunity which they might otherwise have of reborrowing—from the Board if that is thought preferable—at more favourable rates of interest if more favourable interest rates are available later. I put that to my hon. Friend. I do not expect him to give an answer today, but I hope that it is a matter which he will bear in mind, and if it is possible, and there is no obstacle—I know of none—I hope that he may be able to tell us that this position is to be altered.

We always have a useful little discussion every year on the Public Works Loans Bill. The right hon. Member for Battersea, North is always here, sometimes mildly critical, sometimes not so critical. The debate today is following the course which it has followed in past years: it is always a very pleasant, enjoyable party, and I trust that the results of our discussions will be reflected in substantial advantage to the local authorities, who have already enjoyed substantial benefits from the policy with which this Government have pursued in respect of the complicated question of capital financing.

12.2 p.m.

Mr. Eric Fletcher (Islington, East)

I must first disclose my interest. It is not a financial one; it is a semi-official interest. As I think most Members know, I am one of the Commissioners of the Public Works Loan Board. My term of office expired in March of this year, and in view of some of the criticisms which I have made on previous occasions, I was somewhat surprised when the Chancellor renewed it.

In acknowledging that fact, I might add that it corroborates the view which I have always held that membership of the Board by Members of this House does not place any inhibitions on the comments which a Commissioner ought to make in the public interest when this Bill comes up for discussion. In fact, I have noticed that such controversy as does arise is practically never concerned with the activities of the Board but almost always with the policy of the Government of the day in relation to the functions of the Board. So it is today.

I wish first to speak about a matter which was mentioned both by my right hon. Friend the Member for Battersea, North (Mr. Jay) and also by the hon. and learned Member for Ilford, North (Sir G. Hutchinson). I refer to the question as to the ability of the Board to lend for a period less than the period of loan sanction. I do not think it would be too much if we asked for a categorical reply from the Treasury Bench on this subject today, because it was raised expressly in our debate last year—

Mr. Pannell

And the year before.

Mr. Fletcher

—and the year before. But last year, in particular, the Financial Secretary gave an assurance that the matter would be considered. He has, therefore, had at least a whole year in which to consider it.

The precise position about this matter is not entirely clear. I recollect seeking to move, during the Committee stage of the corresponding Bill last year, a new Clause to make it perfectly plain that the Board had power, if it wished, to grant a loan to a local authority for a period of less than that of the loan sanction. One of your Deputies was in the Chair at the time, Mir. Speaker, and my recollection is that that new Clause was not exactly ruled out of order as being irrelevant or outside the scope of the Bill, but that it was thought to be unnecessary. On that occasion the Financial Secretary did not make any comment.

The time has now arrived when the position should be cleared up. My own view, for what it is worth, is that as a matter of law the Board has power, if in its discretion it thinks it proper to do so, in any particular case, to grant a local authority a loan for a period of less than the full number of years of the loan sanction.

I think what has happened is that, as the hon. and learned Member for Ilford, North rather indicated, a practice has grown up which it seems to me has at all events been encouraged, if not dictated, by the Treasury that there should be no departure from the full period of loan sanction. My view is that the Board is a perfectly independent body and is perfectly entitled, in any individual case, to disregard the views of the Treasury if it feels it necessary to do so either in the interest of the local authority—the borrower—or of the public.

On the other hand, of course, one must recognise that the Treasury is not entirely disinterested in this practice, because the matter seems to fall out rather as follows. When a local authority borrows for housing and the loan sanction is for 60 years, it is not unnatural that the local authority should wish to spread the repayments of its loan over the longest possible period, because if it did not do that, if it were to seek to borrow for a shorter period, it would have to find some additional money somewhere, and that would involve a corresponding additional burden on the rent or perhaps on the rates, both of which the local authority would wish to avoid.

Although that is the case in respect of housing, it is not the case, however, with other projects for which local authorities borrow. When, for example, a local authority borrows for education or for drainage or for highways and gets a loan sanction for a particular period, it might well want to borrow, and properly so, for a shorter period. I should think that in such a case the Board should be entitled, if the authority made a request to it, to consider that request on its merits.

The reason for the Treasury's interest is that in the case of most of those applications the capital expenditure involves an Exchequer grant. Therefore, when the local authority has an educational project it borrows only part of the capital required because the remainder attracts an Exchequer contribution. If the loan were for a shorter period than the period of the loan sanction, then the Exchequer contribution would have to be provided over a shorter period. The Treasury might wish to spread it over as long a time as possible, and in such a case the interest of the Treasury would conflict with the interest of the local authority.

It seems to me, however, that the local authority ought not be penalised in that respect; and if a local authority, administering its own finances in the way that seems best to it, wishes to borrow for education purposes for a shorter period than that of the loan sanction, I should hope that the Treasury would not seek to impose either directly or indirectly a ban on the Public Works Loan Board to prevent the Board from granting to such a local authority a loan for a shorter period than the period of the loan sanction. I hope we may have some authoritative guidance from the Treasury on that subject before we part with this Bill.

The second subject on which I wish to say a word is that of general borrowing by local authorities from sources other than the Board. As has already been pointed out, this is the first year for a number of years in which local authorities have been able to borrow from some other source. The total amount of such outside borrowing cannot, I imagine, be very easily ascertained—

Mr. Glenvil Hall

Twenty million.

Mr. Fletcher

My right hon. Friend will forgive me, but I do not think that is quite the position. That figure is obviously one of some interest. My right hon. Friend points out, quite properly and accurately, that some £20 million has been borrowed from the market. But what we do not know is how much has been borrowed from private sources, and that may be a very considerable sum.

My view, as the hon. and learned Gentleman the Member for Ilford, North said, is that it is in the public interest to encourage local authorities to borrow from private investors, and not necessarily from their own ratepayers. They could borrow from ratepayers all over the country. There is at least one prominent local authority which considers it very good business to borrow from as far and wide as possible.

The activities of the Board throw some light on the extent of outside borrowing. The Financial Secretary gave a number of figures, both in regard to the actual advances made by the Board and also their commitments. One of the most significant features of the Board's activities this year is the growing gap between their commitments and their advances.

I imagine local authorities, even though they intend to borrow from the market or from outside sources, are continuing to make application to the Board in case they might eventually have to borrow from the Board, and because the procedure whereby local authorities make an application is almost automatic, in the sense that when the application for loan sanction is made and application for the approval of the central department concerned, at the same time a copy of the same set of papers normally goes to the Board. It may well be that the explanation of the discrepancy this year between the amount advanced and the amount of the commitments is that local authorities, while still obtaining the approval of the Board for an advance, may subsequently decide not to take it up, but to borrow from an outside source.

The fact remains that the gap between the schemes which the Board have approved and the advances is very much higher than ever before. It is about £140 million. I think that explains how it is that on this occasion the Financial Secretary is asking the House to approve, not merely £500 million for actual advances, but the sum of £1,200 million for advances, plus commitments. On that basis, if my calculations are correct, the amount for which the authority of this House is to be given is no more than the Treasury asked for last year.

That brings me to a point which may perhaps be more controversial. My criticism of the Bill is that the Government are not asking for enough. When I read the Bill and saw the amount for which authority was being asked, in conjunction with the statement that it was thought it would suffice for rather longer than the customary period of 12 months, that seemed to me to throw great doubt on the reality of the plans announced with such a tremendous display last week by the Minister of Housing and Local Government. We were promised that there would be a tremendous attack on the slums.

I am glad to see that the Parliamentary Secretary to the Ministry of Housing and Local Government is present, because I want to ask him some questions. I do not know whether he will reply to this debate. The Financial Secretary to the Treasury will not be able to reply without the leave of the House, and the normal custom is for some other Minister to reply. But we have not yet heard from the Government Front Bench what is the intention in that respect.

During the debate on the Address, the Government announced a most ambitious plan for dealing with the slums. Local authorities were to be encouraged to attack the slums, in addition to building new houses at the same rate as they are now building them. We were told that they would be given vast new powers to clear slum property in advance of their ability to demolish it. They were to be given all kinds of powers to put dilapidated houses into repair. They were to be encouraged to spend further vast sums on this kind of property.

One of the subjects which concerned hon. Gentlemen on this side of the House was whether that immense expenditure would be borne by the Exchequer or by local authorities, and in what proportion. Most of this slum clearance programme will fall hardest on the poorest local authorities, and if there is real seriousness on the part of the Government about this campaign for demolishing the slums—Which I doubt—obviously it will involve the expenditure of a great deal of money; and it will mean that local authorities will have to obtain far more money than they have been obtaining in the last year.

I should have expected, therefore, that provision for that would have been made in this Bill, but it is not. Why not? This seems to me to throw into serious relief and to cast suspicion upon the genuineness of the plan announced by the Minister of Housing and Local Government a few days ago. The right hon. Gentleman may have had the intention but is he being stopped by the Treasury? Have the Treasury imposed a veto on this great plan for slum clearance? Was it all just a parade of ballyhoo?

Since the White Paper was issued we have had the Bill. The last thing I propose to do is to infringe the rule against anticipation. But I submit that this is a case where we must probe the seriousness of the Government's intentions on this subject. They cannot carry out such a programme unless they have the money, and if a slum clearance programme is to be carried out it must be done by local authorities. It is all very well for the Minister to say that he will urge local authorities to do this, that and the other, but unless the Treasury provide the money no amount of urging will do any good.

What is the position? In fact, no more money is being provided for local authorities this year compared with last year. Yet at the same time we are told that, in addition to all that local authorities have been spending in the past on houses, schools and everything else, they are to be urged to acquire slum property in advance of requirements in order to deal with this very serious problem of preventing hundreds of thousands of dilapidated houses from falling into further disrepair.

We feel very strongly on this subject. It is very largely because of the pressure that we have brought on the Government month after month during the last two years that they have now belatedly announced their plans for dealing with the matter. I want to take the earliest opportunity of probing the real intentions of the Government. Mr. Speaker, you must know as well as everybody else in the House that it is idle to talk about this campaign for giving local authorities these vastly increased powers unless the local authorities have the money to spend. Therefore, I hope that before the end of this debate we shall have some reply from the Minister of Housing and Local Government on this question which arises directly from the Bill.

12.22 p.m.

Mr. Charles Pannell (Leeds, West)

I am glad to be able to catch your eye, Mr. Speaker, and I notice that I do so because nobody rises from the Government benches. It is worth while to make a prefatory comment upon the interest of the party opposite in local government finance. Every year the Financial Secretary to the Treasury introduces a Public Works Loans Bill. We are very pleased to see the interest of the present Financial Secretary. We did not notice it before he took up his present office; this was not one of the items of legislation on which he kept the House until the early hours of the morning. It really was not one of his subjects, though we are always very pleased to see him at the Dispatch Box. As one who has been in local government finance for a very long time I think I may say without patronage that we are very pleased to hear what the Financial Secretary has to say.

The other occupant of the Government Front Bench is the Parliamentary Secretary to the Ministry of Housing and Local Government. I can only assume that he anticipated what my hon. Friend the Member for Islington, East (Mr. E. Fletcher) intended to say about housing, but, though his avocation is that of junior Minister for Housing, his previous vocation was that of builder—the natural enemy of local government. The hon. and learned Member for Ilford, North (Sir G. Hutchinson) is, of course, Vice-President of the Association of Municipal Corporations. The best that can be said of the hon. Gentlemen is that they do not make a very brave display for the rights of local government.

We are entitled to say something about the history of this Government in that this Measure is the third of its kind that they have introduced during their term of office. The first Bill of two years ago was the one which increased interest rates. Interest rates went up and we had a debate on that subject.

Mr. Boyd-Carpenter

I know that the hon. Gentleman has great experience of local government finance. The rates are not changed by this Bill or any Bill. They are changed by Treasury Minute.

Mr. Pannell

That is a distinction without a difference. The whole subject of the debate two years ago was interest rates, and the rates went up. The effect was to increase the rents of municipal houses by 4s. 4d. a week for the next 60 years. Last year we had the exclusion of Section 1 of the previous Act which allowed local authorities to go to the market for their borrowing.

I think we are entitled to consider the experience of local authorities during the past year. I said at the time—and I admit it frankly—that the local authorities themselves welcomed the change by which they were given some degree of flexibility. But, of course, they welcomed the change largely because of the objection to borrowing from the Public Works Loan Board which has been explained this morning, that local authorities are bound to take up loans for the full maturity of the loan sanction, which is 60 years in the case of housing.

We have had the experience during the year of local authorities which have taken up loans. Birmingham went to the market for £6 million. I think they borrowed at something over 4¼ per cent. and, after they had been to the market, interest rates were lowered by the Public Works Loan Board. Presumably the great City of Birmingham is left with £6 million worth of stock at about ¼per cent. more than they need have paid for it if there had been a degree of flexibility. It is not in dispute that Birmingham would not have gone to the market if there had been a greater degree of flexibility in the Public Works Loan Board.

This is not a political matter. If we were to ask the Institute of Municipal Treasurers, the professionals outside the political ranks who are interested in this subject, it would be perhaps the greatest criticism they could bring against the Public Works Loan Board that there is not sufficient flexibility.

Ayr has recently been to the market for £3 million and Paisley for £2 million and there have been issues at Bristol and Liverpool. But it appears to me that the Birmingham issue, which was the biggest, exemplifies my contention. Broadly speaking, the City of Birmingham, at least in their municipal affairs, have never burked at any idea of—I do not put it as high as saying of Socialism—a sort of collective municipal effort. They have a municipal bank as an example. It is remarkable that Mr. Neville Chamberlain, having pioneered that in Birmingham, balked every other local authority from doing the same for the rest of his life; but there it is.

I do not know whether the Treasury fully appreciate the feelings of municipal treasurers. It happened that my right hon. Friend the Member for Rochester and Chatham (Mr. Bottomley), who cannot be here today, showed me a letter that he received from a municipal treasurer. If my right hon. Friend had been here he might have spoken about this himself. This treasurer put the matter rather well. He said: So far as housing is concerned, sanctions are generally given for an equated period of 60 years but there are certain capital works performed, the life of which may not extend to a period of 60 years. I refer, for example, to garages, where it would be preferred to take up a loan for a period of less than 60 years or more particularly in respect of shop fronts on council housing estates in cases where the shops are let on a lease for a period of 7, 14 or 21 years, which might necessitate the replacement of the shop front at the expiration of the term of the lease in accordance with the request of the new lessee. If, therefore, the original loan has been taken up for 60 years it would only he possible to renew the shop front by making a payment out of the Housing Revenue Account. Cases may also occur where additions are also being made for temporary storage according to the requirements of the present lessee and that such building may not have a life of anything like 60 years. But in spite of these circumstances, the Public Works Loan Board insists upon the loan being repaid over 60 years. That is from the borough treasurer of Chatham. The hon. and learned Member for Ilford, North will know that that is a common objection among finance committees of councils, whatever their political complexion may be.

There is also the other point that the Public Works Loan Board charge local authorities 4s. per cent. in fees, apart from the 5s. per cent. Stamp Duty, on all loans taken up, irrespective of amount. Fees received by the Board from local authorities in 1951–52 amounted to £800,000, yet the administrative expenses were only £70,000, which seems disproportionate. This represents a huge profit, most of which is in respect of housing loans, which tenants have to bear.

I see that the hon. Member for Peterborough (Mr. H. Nicholls) has just entered the Chamber. Early this year he said something in his constituency which brings home the effect which interest rates have upon housing rates. The "Peterborough Standard" on Friday, 23rd January, said: When Mr. Harmar Nicholls, M. P., held a meeting at Peterborough Museum last night to enable him to explain in greater detail his plan to substitute an outright grant for the subsidy on council houses … he surprised the audience by declaring that in the 60-year subsidy period every council house cost the country £2,916. This is how Mr. Nicholls arrived at this figure. Every council house involves an annual rent subsidy which, calculated with interest over the 60-year subsidy period, amounts to £2,136. To this is added repairs and maintenance at £12 a year, £720, and rent management at £2 a year, £120. If the contract price is £1,500, interest at 3¾ per cent. payable to the Public Works Loan Board for 60 years brings the figure to £3,780, and the total cost to £6,756. The average rent of this type of house would be 23s. a week, or, less rates at 8s., 15s. net. Calculated over the 60 years, income would be £2,340, leaving a deficit of £4,416. Even allowing the value of the property to remain at £1,500 at the end of 60 years, the house would have cost £2,916. The hon. Gentleman has all his sums right, but has made the wrong deductions.

Mr. Harmar Nicholls (Peterborough)

At the meeting to which the hon. Gentleman has referred I explained that the official actuarial value accepted by the Ministry was £769. I contended that the cost to the nation was not covered by that actuarial value taking it over the whole 60-year period. I was suggesting that the figure which the hon. Gentleman has quoted was more likely to be the real cost to the nation. However, that actuarial value is still accepted by the Ministry.

Mr. Pannell

That was not the moral that I intended to draw from what the hon. Gentleman said to his constituents. He did not say that a large contribution to that high figure is made by the efforts of his own Government which he supported with his voice in a debate two years ago. The Government were instrumental in raising the interest rates within a month of their coming into office, putting 4s. 4d. a week on the cost of every council house. This was because the Government's action had the effect of raising the rates of the Public Works Loan Board from 3 per cent. to 4¼ per cent.

I want to substitute another set of figures. The Minister's notional house cost not £1,500, but £1,525. The half yearly annuity to meet a loan of £1,525 over 60 years at the old rate of 3 per cent. represents £54 19s. 3d. An annuity at 4¼ per cent., the new rate, represents £70 9s. 3d. This means an increase due to interest alone of £15 10s. Therefore, under the Labour Government's rate of interest the repayment of £1,525 over the period of the loan was £3,928, but under the present Government's interest rate it is £4,228. In short, as a result of the policy which the hon. Gentleman has favoured, on those figures the rent of every council house in the country is increased by nearly 6s. a week over the loan period.

It is no use hon. Members going to conferences and putting forward great housing projects without trying to find out where they will get the money to pay for it. When all is said and done, real money is not what one wins on football pools but is the worth of raw materials, labour and know-how. When hon. Members speak lightly about interest rates they are speaking about the working hours of men and women and the inflationary effect of wage increases, and, therefore, the Bill and our discussion are very important.

Mr. Nicholls

The whole House will support the hon. Member when he says that money is important, but he ought not to take the interest point out of the context of the whole of the Government's efforts. We ought to remember that during the six years of office of the Labour Government the cost of building a council house rose from £1,100 to about £1,700 and it was then that rents were raised as a consequence of the foolish economic policy pursued by the Labour Government.

Mr. Speaker

The debate seems to me to be getting very remote from the Bill. We are now apparently embarked on a debate about the cost of housing in relation to housing policy. While these matters may be instanced to illustrate a point which is relevant to the Bill, they should not be pursued to this length.

Mr. Pannell

With great respect, Mr. Speaker, I do not think I drew my analogy further than other hon. Gentlemen have done. We are considering a Bill for the purpose of raising money the greater part of which will be devoted to housing, and interest rates have a considerable effect. It seems to me that if one cannot raise the subject here it would be difficult to raise it in its proper context in any other place. As you have called attention to it, Mr. Speaker, I will not pursue the point, but you will no doubt appreciate that it was the hon. Gentleman who went back to 1945 on the matter.

Mr. Speaker

I would merely point out that that shows where we get to once we begin going too far outside the bounds of what is relevant.

Mr. Pannell

The fact that I bow to your Ruling, Mr. Speaker, must not be taken to indicate that I necessarily concede the points put forward by the hon. Member for Peterborough.

Another municipal treasurer writes: .. if we could borrow, for, say 10 years (and at the end of that period renew for whatever period appeared appropriate in the circumstances then prevailing) we should (at the present P.W.L.B. rate) pay only 3½ per cent. This would reduce the weekly rent of a house costing, say, £1,800 all in by nearly 3s. per cent. I think it is 3s., but it is a bad figure. Anyhow, whatever it is, everybody knows that, with those people who have served on local authorities there is very much more popularity for what are known as the spending committees. That is not uncommon in public life. These are the committees that build great housing projects, great schools, hospitals and that sort of thing.

I have always said that we cannot have sound administration in local government unless it is based upon sound finance, and, as a matter of fact, the sort of thing which I should compel local councils to do would be to enforce compulsory membership of the rates arrears committees, the finance committees, and the valuation committees—as we do jury service.

If all the people on the council were members of the rates arrears committee, for instance, they would get to know something of the misery, hardship and sometimes heroism of the people who have to pay. In addition, people might be more interested in economy in school places and efficiency, as well as the rest, because when all is said and done these are the assets of the people.

Although this great expenditure which we are envisaging today is alarming, it is not the sort of expenditure from which we should react in dismay, because all the expenditure envisaged today is the sort of expenditure different from so much of the rest of the Budget, which never hurts anybody, but which touches the lives and happiness of the people.

12.42 p.m.

Mr. James MacCoIl (Widnes)

Although the hon. and learned Member for Ilford, North (Sir G. Hutchison) held the attention of the House in his remarks, it appears to me that they were the only remarks that we have had from the back benches on the Government side of the House, and it is really astonishing, when one thinks of the number of local government representatives on those benches, that on a day when there is no pressure of time and no excuse whatever for the Whips to try to stop majority party Members from speaking, we should have had only one hon. Gentleman opposite intervening in this debate, although he is one whom we all recognise as a great authority on this subject.

Perhaps the hon. and learned Member is the only hon. Member on the Conservative benches who is capable of putting forward a few coherent sentences. It is quite obvious that under his placid exterior there are volcanic pressures, and we see today the conflict between the simple local government man and the party politician, because of his criticism of the restrictions put on the Public Works Loan Board by the Treasury—restrictions which have been criticised from this side of the House as well, and about which the Financial Secretary cannot possibly avoid doing something, in view of what has been said from behind him. It is no use having a prize bull in the shape of a great expert on local government if we do not listen to what he says.

The hon. and learned Gentleman said there would have to be a lot of streamlining of the work of the Public Works Loan Board. At the same time, he is a party politician. While, on the one hand, he shows his anxiety to see the Board made more effective, on the other, he wants to hamstring it and sabotage its work, and put more and more work in the hands of the private money market.

The hon. and learned Gentleman must really try to make up his mind on which side of the fence he is to remain. Is he to be somebody who really cares for local government, or is he to be one who wishes to see local government exploited for the benefit of the people who think they could make money out of it and take advantage of it?

The Financial Secretary left me wondering just who is running the Treasury. I got the feeling that the Treasury is still being run by the shade of Sir Stafford Cripps, and, although at one time it used to be seen that the Treasury was run by the shade of Gladstone, it seems impossible for any spokesman of the Treasury to make any remarks about policy without relying upon the authority of that great Chancellor.

The Financial Secretary is not noted normally for his undue respect for his elders, yet in his speech today he reached a stage at which he bowed his head and said, "This was the view of Sir Stafford Cripps." It seems to me that the hon. Gentleman and his right hon. Friend are like Saul and the Witch of Endor and conjure up the shade of the late Sir Stafford Cripps in order to support their case on matters of financial policy.

One recognises the great authority of Sir Stafford Cripps, but I think it is time that this Government had a financial policy of their own and showed some willingness to face up to the present situation, rather than rely upon decisions taken so long ago.

I do not share the view of some of my hon. Friends, and I have not very much enthusiasm at all for seeing local authorities going into the private money market for their borrowings. I think we can draw a distinction between encouraging local small savings and the purely business and commercial arrangement of going on the money market. There is something to be said for the one, while the other is exceedingly dangerous, but, be that as it may, the main criticism of the Government is that it is not giving the Board a fair opportunity of competing.

By all means let us have competition between the money market and the Public Works Loan Board, but let us not tie the hands of the Board so that they cannot give to local authorities the service which they need. For those of us who are not behind the Iron Curtain it is not easy to apportion the responsibility between the Commissioners and the Treasury, although it is quite clear that a good deal of the rigidity now taking place is due to the influence of the Treasury.

I am alarmed about what is happening in local government finance in regard, particularly, to this question of the private money market. I think we all recognise that the finance officers of local authorities are very experienced and shrewd men. When it was a question, a few months ago, of giving the finance officers some discretion in matters of insurance which might lead them to prefer internal insurance to insurance on the private market, hon. Members opposite united in protest lest some city treasurer would have the town hall insured and then burnt down.

When it comes to the question of providing the money, we must have complete and absolute confidence in the skill of these very experienced local government officials in going into what is a new world for them. It is not a question of the great cities like London and Birmingham, but of the medium-sized local authorities.

Mr. H. Nicholls

Is the hon. Gentleman suggesting that it is a new thing that they should get their money from the market?

Mr. MacColl

I do not think it is right to rake up old scores, but the hon. Gentleman will remember the case which happened between the wars which showed some of the dangers of local authorities going blithely into the City and sometimes coming out without their shirts. I think that what is happening at the moment is within the knowledge of a good many hon. Members.

Sir G. Hutchinson

Surely the hon. Gentleman will recognise that that case was an entirely exceptional case, and that what he is saying may reflect very seriously on persons who have transacted business of this character without the slightest cause for complaint?

Mr. MacColl

I am going on with the more important criticisms of pushing local authorities on to the money market. I take an extreme view. Some of my hon. Friends do not go as far as I. I accept that there should be discretion, but there are dangers in that discretion which make it all the less desirable that there should be pressure, particularly upon the moderate-sized local authorities, to do this.

What is happening in connection with the local authorities that I know about, and, I imagine, is happening all over the country, is that borough treasurers are being bombarded by gentlemen in the City who have money to lend. It is very remarkable that usually the money has to be taken up within the next hour or two or, otherwise, it will not be available. It is one of those bargains about which one has to take a spot decision or lose it. I do not know that the average finance committee or borough treasurer can do that. I see my hon. Friend the Member for Leeds, West (Mr. Pannell) looking reprovingly at me.

Mr. Pannell

I did not know that I was.

Mr. MacColl

My hon. Friend was looking this way.

Mr. Pannell

My hon. Friend was talking about spot decisions, and I was thinking that finance committees are nearly always faced with spot decisions.

Mr. MacColl

I know that all decisions in local government are liable to be spot decisions. It is one of the rules of local government, a thing which will not bear examination. To steer their way through these complexities a local authority may seek advice from other gentlemen whether or not to accept the offers made by the gentlemen in the City, but they do not get that advice for nothing.

Let me give an illustration. If I intended to buy a pair of trousers for the park-keeper, or some such small thing in local government, I could check the market by taking the lowest tender. In the money market we do not go by tender. We have to accept offers without any means of testing whether they are the right offers. One danger is of accepting an offer on the basis of, "What is ½ per cent. between friends?", without realising how much profit is made by gentlemen in the City who deal on the market in ½ per cents.

One practical difficulty which has been touched on links up with the need for borrowing for the full period of operation of the housing subsidy, 60 years. This problem particularly affects the Metropolitan boroughs, who are doing a great deal of planning. In the ordinary housing development, houses come into occupation steadily once an estate is reasonably far advanced. As a house comes into occupation it is occupied, and as it is occupied we collect rents. Then we collect subsidies, and are in a reasonable position to meet loan charges. A block of fiats does not come into occupation until the whole block is completed. The local authority have to finance the whole building operation before getting the block occupied.

Therefore, in the period during which they get from the architect certificates that payments ought to be made to the contractors, they have to get money from somewhere because they are getting no rents or subsidies. A local authority developing housing on a large scale find themselves with very heavy financial commitments. They cannot now get assistance from the Public Works Loan Board on a short-term basis, and have to go to the private money market or to the bank. That is an example of the way in which the rigidity of the Public Works Loan Board interferes with its own competitive position, preventing it from giving to local authorities the service which they desire to obtain from it.

My only other point, which is not irrelevant to what I have been saying up to now, is that the high proportion of investment in housing compared with the total amount of local authority investment, is an indication of the way in which other local authority services are starved for money. It is not possible to do work for the library service, for example, which local authorities want to do owing to the restrictions upon them for the sake of housing. That may be justifiable or not, but it has been pushed upon them by the financial controls of the Treasury.

12.56 p.m.

Mr. C. W. Gibson (Clapham)

I do not propose to continue the debate in the rarefied atmosphere of high finance, but briefly to present two points. I would first support the hon. and learned Member for Ilford, North (Sir G. Hutchinson), in his plea for elasticity in the operation of the Public Works Loan Board. I have felt for some years, as a member of a finance committee, that it was very stiff in this business, possibly by reason of its constitution and the regulations under which it operates. The argument that it should be allowed to give short-term loans and to act very much more elastically than at the moment is fully justified. Such a change would be of enormous benefit to local authorities all over the country.

I am told that once a loan has been taken up the borrowers have to pay the interest over the whole period of the loan, whatever may happen to the general rate of interest charges. Could not the Public Works Loan Board allow a "break" clause in its contracts, to enable local authorities to make new financial arrangements, as they can on the open market, which might relieve them of heavy interest charges? I will give a recent illustration of how this operation works out.

A few weeks ago, when the Lambeth Borough Council opened a new housing scheme, a very large scheme just off the Clapham Road, the Chairman of the Housing Committee explained to his audience that the capital cost of the scheme was £2,250,000, but that by the end of the 60-year period the council would have paid more than £6 million. That meant that interest payments were nearly double the capital cost of erecting those flats and houses. No business enterprise would allow itself to get into that position. If rates of interest dropped, it would use the market to try to change its loan.

I know there is an opinion in local government circles in favour of this change. In the London County Council it is generally accepted that some break period should be allowed. There should be an option to local authorities when taking up a loan, especially very long ones for 60 years or so, to take advantage of any improvement in the situation to reduce the financial cost. That would be of enormous financial benefit to them, and to the rents which tenants of local authority houses have to pay. A change in interest rates of 1 per cent. makes a very considerable change in the rent charges that tenants have to meet.

While we cannot avoid paying the proper rate of interest for the loans we take up, I have seen calculations, based on the assumption that the loans were interest-free and that the Treasury had given up paying subsidies altogether, which proved that it would pay the country as a whole to treat housing authorities in that way.

Sir G. Hutchinson

Is not the London County Council precisely that type of local authority which can readily obtain its requirements in the market, and in that way obtain the very benefit to which the hon. Gentleman has just referred?

Mr. Gibson

It can if it pays it to do so. It is all a question of whether or not it pays it to do so. It is a matter of judgment on every occasion that the problem arises. The London County Council would naturally decide to raise the money elsewhere than from the Public Works Loan Board whenever it could do so on better terms, but I do not think there would be any automatic turning down of the present practice.

Without developing the matter of interest-free loans too far, it seems to me to be one worth considering. It would be of tremendous value to the whole housing programme, including the new drive for slum clearance and the repair of dilapidated houses, and would get rid of the very thing which will cause the most trouble in the country—the fear of a big rise in the rent which tenants will have to pay if large sums of money are spent in this way.

I ask the Treasury to consider allowing not only much greater elasticity in the operations of the Public Works Loan Board, but also—and according to my hon. Friend the Member for Islington, East (Mr. E. Fletcher) there is legal power to do so—allowing them, in practice, to permit short-term loans, and where long-term loans have been taken up, to have a break period at the option of the authority taking up the loan. I hope that the Minister will have something to say on these points when he replies.

Notice taken that 40 Members were not present;

House counted, and 40 Members being present

Mr. Deputy-Speaker (Sir Charles MacAndrew)

The Question is, "That the Bill be now read a Second time." Those of that opinion say "Aye"—

Hon. Members


Mr. Glenvil Hall

The hon. Members who are now saying "Aye" have not been present during the previous part of this debate.

Mr. Walter Elliot (Glasgow, Kelvingrove)

That is a direct challenge, Mr. Deputy-Speaker. I have been in the House, and I was greatly shocked by the levity of the hon. Member for The Wrekin (Mr. I. O. Thomas) in calling a count on this important subject.

Mr. Ivor Owen Thomas (The Wrekin)

On a point of order. I have been charged with levity in calling a count. I have listened to the debate for nearly two hours, and during the whole of that time I have taken note of the number of hon. Members present on the Government side of the House. At no time has the number totalled a dozen. It is only now that the count has been called that there has been an inrush of hon. Members opposite. [HON. MEMBERS: "And a rush out."] We are dealing with Government business, and I am calling attention to the fact that the Government side of the House attaches such little importance to their own business that they have not even the courtesy or the realisation of the importance of their own business to attend in sufficient numbers to avoid a count being called. I repeat that during the whole of this debate there have not been a dozen hon. Members on the benches opposite.

Mr. Elliot

Further to that point of order, if it is a point of order, and I take it that it must be since the hon. Member has been allowed to speak at such length. The hon. Member has confessed that he has been lurking here waiting to call a count, and we know that as soon as he did so some of his hon. Friends rushed out to stop, if possible, further discussion on this important Measure. We were, of course, present in force, and the attempt to stop the debate was unsuccessful.

Mr. Thomas

I wish to point out, Mr. Deputy-Speaker, that I am not in the habit of lurking. I have been in this Chamber during the whole of the debate, which is something that cannot be said for 75 or 80 per cent. of hon. Members opposite.

Mr. H. Nicholls

I think that the practice of bringing in tricks in place of arguments is discourtesy to the House. On the question of the number of Members present in the House when the count was called, it should be recorded that there were four hon. Members on the benches opposite and that one of them made a desperate effort to leave the Chamber before the count could take place.

Mr. Deputy-Speaker

I do not know what I am expected to answer. A count was called about two minutes past One o'clock, and if 40 Members had not been present within the specified time I should have adjourned the House. Therefore, I do not know what I have to answer.

1.5 p.m.

Mr. Glenvil Hall (Colne Valley)

I apologise to the right hon. Member for Kelvingrove (Mr. Elliot), who assures us that he was present during the debate. So far as I knew there were only two hon. Members sitting on the benches opposite, other than those on the Government Front Bench, during the whole of this morning's debate. But as I say, I apologise to the right hon. Gentleman for overlooking the fact that he was present somewhere within the precincts of the Chamber.

It is a pity we were unable to adjourn this debate because, as last year, it looks as if the Financial Secretary is going to sit through the whole of these proceedings without being able to refresh himself in any shape or form. That is a pity, and, if he is going to reply to this debate, I for one would quite understand if he left the Chamber for 10 minutes or a quarter of an hour. We want him to be fresh for answering the questions of which I am sure he has taken a note.

In moving the Second Reading, the hon. Gentleman said that he had introduced three of these Measures. In that direction I can beat him hollow. I do not know how many I have introduced, but the number is at least double that which he has had the honour of introducing.

The Financial Secretary mentioned that there is no Schedule to the Bill listing the bad debts written off. I do not know whether this is the first time in recent years when this has happened. I cannot remember any year when the Bill has been devoid of such a Schedule. Is the explanation that the Public Works Loan Board have held them up this year or is it that there have been no defaults whatever? This is something about which the House would like to hear a little more. As the House will remember, last year we wrote off about £200,000—about £40,000 here and over £170,000 relating to Ireland. It would be interesting to know whether everybody has suddenly begun to pay up and no money is at present outstanding which need be regarded as a bad debt.

The hon. Gentleman apologised for introducing the Bill. I do not know why. After all, it proposes to provide money for some excellent objects, and I see no reason why he should come to the House in sackcloth and ashes and tell us that he is sorry he has to introduce it, and that if possible he will not introduce another such Bill within the next year. We do not mind a bit Bills of this kind being annual; in fact, there is a great deal to be said for having them annually and providing at one time only enough money to carry the Government of the day, of whatever complexion that Government may be, for a period of 10 to 12 months.

The last time we discussed a Bill on this subject was almost exactly a year ago. As the Financial Secretary stated, they are asking for a little more this year, but, as I shall try to show in a few moments, it seems to us that, in spite of what he said and the hope he expressed that he will not have to come to us again within the next 12 months, that hope will be falsified, if, as my hon. Friend the Member for Islington, East (Mr. E. Fletcher) said, the Government are going to carry out the programme they have announced with regard to the clearing of slums.

The Government asked, last year, for £500 million for cash advances. This year they are asking for the same sum. As I say, some of us on this side of the House think that that will not be enough if all that the Government have promised is to be carried out during the next year. True, the Financial Secretary did indicate that they are asking for an increased sum to meet possible commitments. Last year the Government asked for £1,050 million and this year they are asking for £1,200 million. That is to say, only £150 million more than last year; and although I imagine that £1,200 million must be the highest sum ever asked for in a Bill of this kind, I think, looking at the figures which have been disclosed, that it is not nearly enough.

It may well be that the Government are expecting that during this year more local authorities will go to the money market than have been able to go there since certain recent legislation was passed. I know that this year several large towns and cities have gone to the money market: Bristol raised a loan in the open market of £4 million; Birmingham, as has been stated, raised one for £6 million; and Liverpool, one for £5 million, but these are fairly large cities. But, by and large, the amount which these places have asked for is not very great. The vast majority of local authorities requiring money are the smaller ones, and they must go, inevitably, to the Public Works Loan Board.

Last year, or so we were told when we debated the Bill in November, cash issues were running at the rate of £8 million a week. This year the rate of issue has not been quite so great, but, nevertheless, it has been substantial: just over £7 million. Most of that money, I understand, has gone to relatively small authorities of one kind and another, and it seems to me that the vast majority of those needing loans during the coming year will still want to go to the Public Works Loan Board, particularly if its procedure and some of the restrictions it places on borrowers could be eased.

Last year, the cash and commitments reported to us by the present Financial Secretary were about £904 million. He asked them for just over £1,000 million. This year, cash and commitments made, are, I understand, in the neighbourhood of £942 million. Yet he is only asking for £1,200 million—only £150 million more that he asked for last year. He did not fully explain why he is asking for that additional £150 million unless it is, as we hope it is, in order that work of slum clearance may begin.

A good deal has been said, both by the hon. and learned Member for Ilford, North (Sir G. Hutchinson) and by hon. Members on this side of the House, about the need to overhaul the machinery of the Public Works Loan Board. There is no doubt that the Board fulfils a very useful function. If, as we shall, we are to get a continuance of these Bills year by year, we should, I think, make them and the Board's terms reasonably attractive to the authorities who desire to borrow money.

It seems to some of us on this side quite absurd that we should pass these Bills with a great flourish and make available, in cash and for commitments, £1,200 million, and yet, at the same time, we should make it difficult for the local authorities to borrow. We have to remember that in 1945 the then Chancellor of the Exchequer, now Lord Waverley, introduced into the House a Bill to allow the provisions which we are now making to be used by all local authorities and to prevent their being forced into borrowing in the open market. With that in mind, I listened with some surprise to what the hon. and learned Member for Ilford, who is very knowledgeable on these matters, had to say. It seems to me that the arguments which Lord Waverley then used still apply at the present time.

Sir G. Hutchinson

Surely the arguments which were used in support of the 1945 Bill were based upon the exceptional conditions which it was anticipated were likely to prevail at the end of the war. It was never contemplated then that the restriction on borrowing powers imposed on the local authorities should be continued indefinitely.

Mr. Glenvil Hall

That may well be, so far as the Members of the party of which the hon. and learned Gentleman is such an adornment are concerned, but, so far as those of us on this side of the House are concerned, we believe that it assists local authorities if machinery of this kind exists, and if it does exist we should, I think, encourage them to make use of it. Although it is quite true, as the hon. and learned Gentleman says, that immediately following the war there was great competition for, and great need of, money by local authorities for a variety of purposes, that need, although it may be less in some directions than it was, is still very much there.

Therefore I hope that the Financial Secretary will not apologise for the fact that he has introduced this Bill. If he finds that before another year is out, in spite of what he said, it is essential that there should be more money for these great objects, I hope he will not hesitate to come to the House and ask for it. I assure him that so far as Members on this side are concerned, we should not oppose him on that occasion.

Before I sit down, I cannot refrain from pointing out that there are now only five Members sitting on the Government side of the House. Even the right hon. Member for Kelvingrove, although he is in his place, obviously is not attending to the debate; he is engaged on other work.

Mr. Elliot

I have listened to every word that the right hon. Gentleman has said. I do not think it has been a very good speech. I have listened to his references to Lord Waverley, to the large cities which were being brought in and to the difficulty which the small towns would have. I could give a precis of the right hon. Member's speech, but I think it unnecessary and undesirable. I am waiting in the hope that my hon. Friend the Financial Secretary will speak, after which the debate can safely be left in his hands.

Mr. Deputy-Speaker

The question of a quorum does not arise. There is no count between 1.15 and 2.15 p.m. on Fridays.

Mr. Glenvil Hall

Once more I have to apologise to the right hon. Gentleman. I see no reason why he should not read his papers while he is sitting in his place. It occurred to me, after the fuss that was made by hon. Members opposite when the count was called, that we should take note of the fact that so few of them remained and are present at an important debate of this kind. Quite a number of questions have been put by my hon. Friends to the Financial Secretary. I am anxious that he should have plenty of time to reply to them. I therefore resume my seat in the hope that he will be able to answer the points put by my hon. Friends.

1.22 p.m.

Mr. Boyd-Carpenter

I am sorry that the right hon. Member for Colne Valley (Mr. Glenvil Hall) should have got the impression that I apologised for the introduction of the Bill. He must have been confused by my habitual modesty of manner. Of course, I had no intention of apologising. I share the right hon. Member's view that this is a necessary Measure for providing finance for extremely important public purposes, and I should not like to leave, even in the right hon. Member's mind—I am certain I leave it in the mind of no other hon. Member—any suggestion otherwise than that my natural quietness and diffidence should have given the impression that I was apologising.

The right hon. Gentleman asked whether there were precedents for the Bill not including provisions for write-off. I have made inquiries and I understand that the two most recent precedents were 1948 and 1951, in which years the Bill presented a similar tidy appearance—that is to say, it was not jumbled up with a number of individual write-offs. I am grateful for the right hon. Member's solicitude for my well-being. I hope that when he expressed the view that he would like to see me fresh, there was no ambiguity in the adjective. I assure him—not that he needs assuring—that a debate of this kind is not an undue strain on whoever happens to hold my office. I am sure he would appreciate the force of that.

I should like to deal generally with several of the major issues, and first with the question of the amounts provided in the Bill. As I understood the right hon. Member for Battersea, North (Mr. Jay), who followed me when I moved the Second Reading, he did not dispute the amounts and the Tightness of the amounts. The main criticism of the amounts came from the hon. Member for Islington, East (Mr. E. Fletcher), other aspects of whose speech I followed with great interest, and to some extent from the right hon. Member for Colne Valley. I was not sure whether the right hon. Member's quarrel with the amounts was that they were too big or were too small.

As I said in introducing the Bill, its procedure has the advantage that one does not have to make provision for a specific period of time. If the money is exhausted before it is expected to be exhausted, there is nothing to prevent the Government of the day from coming to the House for further funds. I was glad to hear the right hon. Member for Colne Valley undertake that, were we to do so, he and his hon. Friends would offer no opposition. I hope that that assurance covers also an undertaking not even to attempt to count out the House on such an occasion.

The point raised by the hon. Member for Islington, East, as I understood it, was that the figures in the Bill indicated that there was no seriousness in the proposals regarding slum clearance which my right hon. Friend the Minister of Housing and Local Government is putting forward. That comment has a reminiscent ring of the similar comments—now, for obvious reasons, abandoned—about my right hon. Friend's proposals for the building of an adequate number of houses. I think I can reassure the hon. Member and any others who have serious doubts on that aspect of those proposals so far as this Bill is concerned.

As my right hon. Friend made clear during the debate on the Address in reply to the Gracious Speech, there is a procedure to be followed in connection with these schemes. First, as my right hon. Friend made clear, and as is reported in column 188 of the OFFICIAL REPORT for 4th November, the local authorities have to be asked to submit schemes. Indeed, the Bill has itself first to become law; it was presented only yesterday. The local authorities have to present schemes, and when they have done so and approval has been given, the first load on the finances of the Board arises, not under the head of advances, but under the first stage of commitments.

It will not have escaped notice that it is the commitments figure in the Bill which we have raised substantially above last year's figure. We are satisfied, when those factors are borne in mind, that, so far as one can reasonably foresee, the proposals of my right hon. Friend, in so far as they fall upon the money or commitments authorised by this Bill, can be met within the figures suggested. As I have made clear, however, if for any reason that calculation proved to be erroneous, there would not be the slightest reason why we could not come to the House and ask for further funds.

Mr. Jay

Does the hon. Gentleman recall that the figure for advances plus commitments has risen in each of the last three or four years, and, therefore, the fact that it has risen again this year does not appear to provide for the exceptional introduction of the slum clearance scheme?

Mr. Boyd-Carpenter

Not only do I realise it, but I mentioned it during my speech in moving the Second Reading of the Bill. As I see it, there is room for both these factors, in so far as they arise, inside the substantial increase of £150 million in the figure of advances plus commitments.

Mr. GlenviJ Hall

The hon. Gentleman surely knows very well that once the Bill has passed into law, the commitments outstanding fall due, and if, as I understood him, the commitments now amount to about £942 million, as against about £904 million last year, there is a rise of only £40 million, against which the hon. Gentleman is asking for an extra £150 million. We have not been told, although we can, perhaps, work it out, exactly how much of the £1,200 million will be needed for commitments which are hard and fast. Do we understand that, in the view of the Treasury, some of the commitments will not mature?

Mr. Boyd-Carpenter

I am not entering into an argument as to whether some of the commitments will not mature. The right hon. Gentleman must know perfectly well from his own experience that from time to time, for one reason or another, some of these commitments do not mature. There is the reason that the local authority, having obtained approval for the commitment, arranges the finance from another direction; that has happened and will, no doubt, continue to happen. There are even occasions—I am glad to say, reasonably few—when the project is dropped. Broadly speaking, we are perfectly satisfied that this increase will cover such additional liabilities as may arise during the currency of the Bill in connection with my right hon. Friend's proposals. I hope I do not need to assure the House that, as my right hon. Friend and the Government as a whole are extremely keen on the proposals, they will not be crippled by shortage of finance.

Before I get to the main issue I should like to deal with the interesting intellectual argument which developed between the right hon. Gentleman the Member for Battersea, North and my hon. and learned Friend the Member for Ilford, North (Sir G. Hutchinson) as to the effect of local authorities going to the market instead of obtaining finance from the Public Works Loan Fund. There was a genuine misunderstanding between my hon. and learned Friend and the right hon. Gentleman, but, as I see the position, it is this. If we are considering the national finances from, if I may so put it, the economic rather than the financial aspect, then it probably does not make very much difference as to the size of the surplus or the deficit for which the Chancellor may decide to budget whether this particular form of investment is financed from the market or from the Board.

From the point of view of the Budget in the stricter sense of the financial aspect, the extent to which the local authorities go to the market rather than borrow from the Public Works Loan Board diminishes the amount of borrowing which the Exchequer has to undertake. There are certain occasions when Exchequer borrowings are heavy for one reason or another, and any lightening of that level can give appreciable budgetary relief.

The right hon. Gentleman the Member for Battersea, North has sufficient experience of what can happen from time to time, when, for one reason or another, the Exchequer has to go heavily into the market. Then some relief is obtained when there are less local authority borrowings. That is the correct way to look at the matter, and the clash of view probably arises from the different approach to this subject—what might be described as the economic against the financial, with one hon. Member taking one view and another hon. Member taking another.

Mr. Jay

I do not entirely disagree with what the Financial Secretary said, but can he make clear what he means by budgetary relief? I take it he does not mean reduction in taxation?

Mr. Boyd-Carpenter

If the budget is relieved of a charge that does not automatically relieve taxation, but it may induce a mood in the mind of the Chancellor of the Exchequer in which reliefs in taxation are more possible. I hope the right hon. Gentleman, in view of the office he once held, is not seeking to suggest that there is no relationship between national expenditure and the amount of taxation it is necessary to impose.

Let me come to the big issue which was raised by a number of hon. Members, that of the question of borrowing for less than the period of loan sanction. This was raised by, among others, the hon. Member for Islington, East (Mr. E. Fletcher) who is, as he told us, a member of the Public Works Loan Board. I thought he was particularly punctilious in disclosing that interest, since it is in no sense a personal or financial interest. The hon. Member discharges his very important and responsible duties for no remuneration whatever and from a high sense of public service. I should like to take this opportunity of saying both to the hon. Gentleman, who has been good enough at my right hon. Friend's invitation to accept a further term of this responsibility, and his colleagues, that we have a high respect for that sense of public duty which causes him and them to undertake these responsible and un-remunerative duties.

The question of granting permission to borrow for less than the period of loan sanction falls into two parts. First of all there is the point raised by the hon. Member as to the legal position, and, secondly, as to the merits. Let me deal—I think it is the logical order—with the legal position first. As I understand it, the legal position is that under the Public Works Loans Act, 1875, as amended by the Local Authorities Loans Act, 1945, the only statutory restrictions on the Board is that the loans must be repayable within a period not exceeding the period authorised by the enabling Act; that is to say, they may not lend money for a longer period, but there is no statutory restriction upon lending for a shorter period.

The present practice—and here I reply to the right hon. Gentleman's question, "Why did they do it?"—rests on an agreement between the Board and the Treasury in 1946. The right hon. Gentleman may recall that. The agreement was to the effect that loans should not be issued for a shorter period than that for which loan sanction had been given. That agreement was published to local authorities in a circular dated 15th November, 1946.

Legally, therefore, the position is perfectly clear. There is a statutory power in the Board to lend for shorter periods, but, in accordance with the co-operation that they have shown to the Chancellor of the Exchequer of the day and under the actual agreement, they may not do so, and I have no doubt at all that they will continue not to do so. It will not be necessary here to enter into the fact that, of course, so far as borrowing is concerned, under the Control of Borrowing Order no local authority can borrow sums in excess of £50,000 without the sanction of the Exchequer. But I do not think that any of us want to deal with this on a legal basis. I only made inquiries because the hon. Member for Islington, East raised the point, and I thought he should have an answer. I have now given him the information he sought.

We all want to address ourselves to the merits. The great difficulty of doing what the hon. Gentleman asks, that is, arranging for the Board to issue loans for such shorter period as they may think fit, is this—and indeed the hon. Gentleman himself touched upon it. In a great many cases where local authority expenditure is supported by a percentage grant from the Exchequer, those percentage grants are calculated in each year on the actual annual cost of servicing and amortizing the loan. Consequently, if the period of the loan is substantially shorter, the annual cost of servicing and amortizing it is higher and therefore attracts a higher overall Exchequer contribution. In other words, the decision of a local authority to accept for its present ratepayers a higher proportion of the cost of a capital project would automatically under the present system, so far as grant-aided services are concerned, impose upon the present taxpayers a higher liability.

Mr. Gibson

That does not apply to the housing subsidy?

Mr. Boyd-Carpenter

I am well aware of that, but I would ask hon. Members to let me explain my argument, and then I will give way, if necessary. This is a complicated matter and I should like to get it clearly on the record. As I have said, that is confined to local authority services which attract percentage grants from the Exchequer.

As one hon. Gentleman opposite said, we have been having discussions with the local authorities on this question and we put our difficulties to them. First of all, we referred to the immediate increase in the Exchequer charge, and then also the difficulty facing the grant-paying Departments in constructing their estimates if they were not aware of the period for which a new loan had been arranged and what the annual charge in respect of it might be. We put that to the local authorities and they have understood this difficulty.

Consequently, at a meeting which took place recently on 21st October the Standing Committee of Local Authority Associations put to us another suggestion which we are considering. The suggestion is that, while the present restriction should remain in respect of expenditure on services partly financed by percentage grants, greater freedom should be given in respect of loans for other purposes. As the hon. Member for Clapham (Mr. Gibson) has pointed out, and as we are all aware, the subsidy for housing is not a percentage grant but a certain agreed lump sum figure per year in respect of each house.

That suggestion is being considered, and obviously I cannot give an answer as to our final view on so complex a matter at this stage. It is difficult to see whether it is possible to make the rigid separation between the different types of loan which acceptance of that suggestion would involve. On the other hand, it is a helpful suggestion for meeting what I think we are all forced to admit is a real difficulty so far as the grant-aided services are concerned. We shall consider it and we may have the advantage of further discussions with the local authorities when we have had a chance to clear our own minds on the matter. As the matter was raised, I thought I owed it to the House to report the latest position and to say that we have reached this stage.

Mr. MacColI

I do not want to press the hon. Gentleman, but this is the only chance we have of discussing the result of the discussions. It would not be logical to say that because in a minority of loans which are subject to a percentage grant the proposal would be found financially inconvenient to the Exchequer, the present rule should continue to apply to the great majority of loans.

Mr. Boyd-Carpenter

That is precisely the argument which is being put forward in these discussions, and for that very reason I do not want to be led into commenting favourably or unfavourably on it. When the hon. Gentleman says "the majority," I know he is referring to the majority in the sense of amounts of money involved rather than the number of subjects. It is the biggest individual item, but there are a number of other items not without substance and of considerable importance. I do not want even to seem to be expressing a firm opinion either for or against a most interesting and helpful suggestion put to us by a representative body in the recent past, at least until I have had the chance of examining it with the care which such a suggestion demands.

Mr. Jay

Whilst thanking the hon. Gentleman for this information, and not wishing to press him unduly in the middle of negotiations, would he agree that it is relevant that this restriction does not apply in the case of open market borrowing?

Mr. Boyd-Carpenter

That is very relevant. It does not apply either in the case of local borrowing on mortgage. But the practical point is that while what the right hon. Gentleman has said is not only true but it was actually on my notes to mention it, the difficulty I have referred to does not arise in any great degree in respect of those two sources of finance because of their relative smallness compared with the large sums involved in borrowings from the Public Works Loan Board. This is a case where the scale of the problem alters to some extent the practical difficulties. We are addressing ourselves to this problem with a full realisation of the views expressed today and we should like to find a solution of it.

The only other major matter referred to was the point raised by the hon. Member for Leeds, West (Mr. Pannell) in respect of the fees charged by the Public Works Loan Board. The hon. Gentleman drew attention to the apparent disparity between the expenses shown in the Public Works Loan Board report of £78,000 and the amount of their fees, which is £800,000. One is concerned here not only with the actual administrative costs of the Public Works Loan Board in looking at and vetting applications, but also with the cost of managing the large amount of public borrowing which is involved and which does not fall on the Board. Having said that, I would not rule out—as I did not last year—consideration of whether that fee is precisely at the right figure. It is not a subject on which I wish to be dogmatic.

Mr. Percy Wells (Faversham)

Does that mean that the hon. Gentleman is giving a promise that he will look at the 9s. per £100?

Mr. Boyd-Carpenter

I will certainly look at the figure. It is a question of assessing what is fair, because our object is that those local authorities who have recourse to the Public Works Loan Board for the majority of their borrowings should have a fair run. I would not regard that figure as necessarily sacrosanct, I only wish to stress that it is not fair to compare it merely with the figure given in the report of the Board for their administrative expenses.

Mr. Glenvil Hall

Do we understand, then, that the hon. Gentleman promises that he will not only consider it, but will report back next year when we are discussing this matter? This point was raised last year and the hon. Gentleman, with his usual courtesy, undertook to look at it. Again he undertakes to look at it, and I have not the slightest doubt that, unless he gives us more than a promise to look at it, this time next year someone from these benches will put a query and he himself, or someone in his place, will be answering in much the same way as he has answered today. The years roll on and local authorities feel that they have a grievance. I urge the hon. Gentleman to look at this, to come to a real decision on the matter and, either later by question and answer or in some other way, to let us know what is the decision.

Mr. Boyd-Carpenter

Of course the years rolled on while the right hon. Gentleman was in the position which I now occupy, but he has answered his own question. It will certainly be the case that, when we come to the Bill next year, someone will ask this very relevant and fair question and an answer will then be given. But of course, if I have any change of which to inform the House, I shall certainly take a convenient opportunity of so doing. I do not want to go further than that.

The position is that we are asking for this substantial sum in order to enable the local authorities to carry on their manifold activities. That is the sole purpose of this Bill in its present form. I have listened with great interest to the speeches, and I will not be led into controversy as to whether, from one side of the House or the other, quality has outweighed quantity. That is not my function.

The point is that it is helpful to have the views which we have had in this debate, as in previous years, of hon. Members with great experience in local government, as well as of an hon. Member with the peculiar experience in this direction of the hon. Member for Islington, East. It has been helpful to us because we are anxious as far as possible, without prejudice to the national interest, to meet the views of the local authorities. They have been fully expressed, not only by the local authority associations directly to us, but by hon. Members with great experience. The suggestions made will be noted, and may I be allowed to express the gratitude of Her Majesty's Government for the helpful suggestions which have been made?

Question put, and agreed to.

Bill accordingly read a Second time.

Committed to a Committee of the whole House.—[Mr. Legh.]

Committee upon Monday next.