§ This leads me to the difficult and complex question of the method of financing the nationalised industries. On this, I fear I must ask the Committee to tolerate a considerable digression. Often as we have debated, inside and outside Parliament, the pros and cons of nationalisation from the point of view of management, I do not think there has been so much public attention given to the question of finance. Yet ever since the war, it has been necessary to raise very large sums, sometimes running into £300 and £350 million a year, for their capital requirements.
§ In some cases, as with the railways, the years of war led to great destruction of capital assets. In others, as with the mines, the working out of old pits has made it necessary to spend immense sums in opening new pits and bringing older ones up to date. Again, the rapid development of industry, particularly the metal-using industries, as well as the vast housing schemes, has made necessary a rapid expansion of gas and electricity, both of production and distribution.
§ Before nationalisation, the necessary capital would have been raised by the many and diverse bodies concerned in one or both of two ways. The new money might come from their own resources—that is, from trading profits made and not distributed but ploughed back—or the new money might be raised, by various 865 channels and in various amounts, on their own credit on the market. [An HON. MEMBER: "Or it might not be raised at all."] Today, for reasons which are well known to the Committee—I am only giving a purely factual account of the position—the amounts made available from profits are not significant. I reckon that, of the total capital expenditure in coal, gas, electricity, transport and airways since the nationalisation of these industries, over £1,600 million, or about 60 per cent., has had to come from external borrowing. But the Committee will also observe another difference. Before nationalisation, these services were financed largely by money raised on the borrower's own credit. Now the new institutions pledge the credit of the nation.
§ Perhaps this is right—since they are nationalised institutions, subject to the limitations and responsibilities which the State has put upon them. Perhaps, like the pelican, traditional symbol of maternal devotion, the State should feed its off-spring with its own blood. All the same, from the point of view of the national credit, it is uncommonly embarrassing. Of course, a number of institutions have been in the habit of borrowing from the State—that is, from the Exchequer. For instance, local authorities. But since their own credit allows them to borrow from the market without any Treasury underwriting, there is no reason why they should not do so more and more, and I shall certainly press forward with this policy, initiated by my predecessor. The ultimate aim perhaps ought to be that the nationalised industries should be able to do the same. Hon. Members will have read with interest, and, I hope, approval, the suggestion made by the Herbert Committee in relation to the Central Electricity Authority. The time may come when this could happen. Perhaps electricity and gas might be the pioneers—I do not know.
§ But, frankly, neither these industries nor coal or railways have—if I may use a vulgarism—a cat in hell's chance of doing so in present conditions—and for two reasons, two very simple reasons. The first is that, as the nationalisation Acts are drawn, the industries concerned cannot pledge their undertakings as security, and, also, they are not left with an unfettered ability to fix charges. Who, therefore, would lend money without Treasury guarantee on this basis? 866 Secondly, even if we could overcome this difficulty, the very size of their requirements adds to the difficulty of flotation on their own credit—at least, in present circumstances.
§ At present, apart from coal—its capital has always been raised in a different way—the capital required is raised ultimately; we hope it is raised ultimately—from the market investor, as and when the market completely absorbs these issues. Generally, the borrowing starts with bank advances. From time to time these are followed by issues of stock carrying a Treasury guarantee. But if this stock is not taken up, or not fully taken up, then they have to be supported by the Exchequer. In recent months, support of this nature has had to be substantial and prolonged. If the nationalised industries are to carry on their programmes, further large issues will soon be necessary, doubtless with similar consequences.
§ Two embarrassing results will follow. First, official "support"—this word is a term of art, of which many hon. Members will no doubt appreciate the significance—can, in fact, only be given, by and large, by borrowing the necessary funds on Treasury Bills. This, of course, impedes the whole operation of our monetary control. It kicks the ball, as one might say, through one's own goal. Secondly—this is also very important—the necessity of making frequent issues on the basis of Government credit, often at inconvenient times for particular nationalised industries which have reached their borrowing limits with the banks, prejudices the national programme of borrowing, re-financing and funding.
§ For the time being, therefore, it would, in my opinion, and I hope the Committee will agree, be far better to face the reality, and for the Exchequer to be in control of the whole operation. I propose, therefore, as a temporary measure, to meet these capital requirements out of the Exchequer. Bank advances for capital expenditure will gradually be repaid. These industries will in future look to the banks only for their normal requirements of short-term capital.
§ I propose to move a procedure Resolution in order that Parliament may embody the necessary provisions in the Finance Bill. These provisions, of course, will be limited both as to time and as to amount. The new system will only be for two 867 years; the maximum sum will be £700 million. This, I would emphasise, is for industries other than coal which is already, and has always been, financed by the Exchequer below the line. If these proposals are accepted, I estimate that issues may be required of some £350 million in the year 1956–57. This figure must therefore be added to the estimate of the nominal deficit below the line. So disappears, by my own murderous act, my beautiful overall balance!
§ Nevertheless, I am sure that we shall gain substantially from this plan. First of all, it gives us, technically, far more control of the situation, and enormously assists the authorities faced with their problems of dealing in general with the National Debt. Of course, it makes no difference to the method by which the physical programmes of the various Boards are approved by the Departments concerned and by the Treasury. Still, if one actually presses the fee oneself into the piper's hand, one has a better chance of influencing the tune. Naturally, my purpose will be that this sum for the nationalised industries, with other borrowing by the Government, should be successfully absorbed by the public during the year—that is, draw in real savings and not depend on inflationary finance. But in the end, neither the nationalised industries, nor the Government, can borrow, except upon a purely inflationary basis, more than the nation is able and willing to lend.