HC Deb 06 July 1956 vol 555 cc1681-749

Order for Second Reading read.

11.7 a.m.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

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

This is the first Public Works Loans Bill taken in this Parliament, but it is the eleventh since the war. I am well aware that there is normally no element of surprise, sparkle or sensation in the Public Works Loans Bill. I was, therefore, hardly counting on obtaining an audience worthy of Budget day for the Second Reading of the Bill on a Friday morning, but we shall have here today, I know, right hon. and hon. Gentlemen who are specially knowledgeable on local government matters and who will recognise that this is an essential piece of our financial machinery. I hope that we shall have a valuable debate. I do not propose to deliver a lengthy or embellished oration. If I have your leave, Mr. Speaker, and that of the House, I will endeavour later to reply to any points raised in the debate.

When I moved the Second Reading of the last Public Works Loans Bill, on 28th February, 1955, we were all somewhat handicapped because the latest Report of the Public Works Loan Board was many months out-of-date. I specially asked that the printing of the Report of the Board for 1955–56 should be accelerated so that copies might be in the Vote Office yesterday, as they were. I hope that any hon. Member who, in the course of the debate, may seek to inform himself further about the activities of the Commissioners, will make sure that he secures a copy. I am sorry that it was not possible to make it available earlier.

The Commissioners were first appointed under the Public Works Loans Act, 1817, but they derive most of their present powers from the Act of 1875. The Bill, like its predecessors, is needed to authorise the National Debt Commissioners to provide the Public Works Loan Commissioners out of the Local Loans Fund with further money which they can lend. The last Act received the Royal Assent on 29th March, 1955. The House will remember that it enabled the Commissioners to lend up to £500 million. It is because we are approaching the exhaustion of that sum that it is my duty to ask that a further amount shall be authorised.

On these occasions the House is always particularly interested to know just where we have reached. Up to the end of last week the amount lent had reached £402 million, which means that there was still £98 million unlent. At the average rate of lending since October, 1955, when policy was somewhat changed as regards local authority borrowing, the lending powers will be exhausted before the end of this year. Before long we hope that Parliament will go into Recess. It seemed wisest, in the circumstances, to take the Bill at this stage in July, rather than to run any risk that the powers would be exhausted before we came back in the autumn. I can imagine nothing more awkward and embarrassing than that the local authorities which had a right to expect to be able to borrow from the Public Works Loan Commissioners, if they were unable to get the accommodation they needed in the market, should have to be told that Parliament had not authorised any further money to be available.

I mentioned that the amount so far lent was £402 million and I think that the House will wish to know how that was made up. That is the amount since the current Act received the Royal Assent, 15 months ago. The loans up to the end of last week for housing comprised £283 million; for education, £35 million; for public health, £23 million; and for redemption of debt, £12 million. All the other purposes such as transport, water, land drainage, and so forth, took £49 million. I think hon. Members will find that the figures I have given add to £402 million.

Mr. Emrys Hughes (South Ayrshire)

Can the right hon. Gentleman break down those figures for Scotland?

Mr. Brooke

I cannot.

The Bill is, as usual, a short one and on perfectly familiar lines. Clause 1 authorises advances up to £300 million from the time when the Bill becomes law. Perhaps hon. Members will recollect that when a new Public Works Loans Bill becomes law the lending powers under the former Act cease. We start from nought again and do not carry forward any authorised amount not yet lent. I think the House would wish me to defend the figure of £300 million, which is to be authorised by Clause 1 and is considerably smaller than the figure mentioned in the 1955 Act.

Our traditional course here, which, I think, has been followed by successive Governments, is not to keep the amount steady from year to year, but to seek to provide in each period for about the same length of time for the future. I am suggesting this figure of £300 million on the assumption, which seems a reasonable one, that it will be likely to suffice for about the same length of time as in the past.

What I want to make quite clear is that this is a machinery Bill and not a policy Bill. It simply makes the money available. Whatever figure we put into Clause 1 does not determine the rate at which money will be lent by the Commissioners. That depends on the desires of local authorities and the willingness of Ministers to grant loan sanction. There is no question that before this £300 million is exhausted, whether in a short time or a longer time, the Government will come to the House for a further Bill, but the purpose of putting a figure such as this into the Bill is to ensure that from time to time Parliament will have opportunity to review the position.

Mr. Eric Fletcher (Islington, East)

Could the right hon. Gentleman say what the corresponding figure was in the last Bill?

Mr. Brooke

It was £500 million.

One substantial change which has taken place since then is that, as the House knows, my right hon. Friend the Lord Privy Seal, in his Budget statement last October, announced the new procedure for loans to local authorities, a procedure which was designed to reduce the volume of lending from the Exchequer through the Local Loans Fund and through the Public Works Loan Commissioners to local authorities. As a result, the calls on the Commissioners have diminished considerably since last autumn.

I can assure the House that at the rate of lending which has been continuing since last October the provision of this £300 million will keep the Commissioners in funds for more than a year. It may be expected that if it is passed into law this Bill will have a life of about the same length as most of the previous Public Works Loans Acts passed since 1945. I think that that has always been the wish of the House.

Mr. G. R. Mitchison (Kettering)

Before the right hon. Gentleman leaves that point, I wonder whether if he could tell the House, in estimating that this amount will last for more than a year, how much of it he expects to be spent on loans which have already been approved, and how much of it is to be put aside for further applications?

Mr. Brooke

I was just coming to the question of commitments. That is dealt with in Clause 2. The hon. and learned Member for Kettering (Mr. Mitchison) is perfectly right. At any one stage there is a certain amount of money that has actually been lent and, over and above that, there is a further amount which the Commissioners have committed themselves to lend, but which has not yet been taken up by local authorities. In a moment I shall tell the House what the present figure is.

The object of Clause 2 is to authorise the Commissioners to incur commitments to lend over and above what they actually advance and it provides that the total—the aggregate—of advances and commitments together shall not exceed £400 million. I want to explain why this provision is so very much lower than the provision of £1,000 million for advances plus commitments in the present Act. In past years the need for the Commissioners to incur commitments arose out of the procedure by which the Commissioners automatically approved loans in principle at the same time as the loan sanction by Ministers was given, even though the money was not actually borrowed from the Commissioners until later.

The House will appreciate—I am sure the hon. Member for Islington, East (Mr. E. Fletcher), who was one of the Commissioners fully understands this—that it might never be borrowed at all because a local authority might change its mind and not go forward with a project. It meant that commitments could accumulate to an unlimited extent on the books of the Commissioners against which they might have to make advances. It was for that reason that it was deemed necessary for Parliament to approve those commitments and to limit them. Otherwise, in a sense, the will of Parliament might have been anticipated by the Commissioners entering into commitments far beyond the loans they were authorised to make.

The procedure I have just described has changed in two ways. I reported to the House, when I moved the Second Reading of the Bill which became the present Act early last year, that it had been agreed that local authorities would not automatically receive the Commissioners' approval for every loan for which departmental loan sanction was given. They would receive it only if they actually wished to borrow from the Commissioners.

Secondly, as part of the new lending procedure which was introduced last October, it was further arranged that local authorities should come to the Commissioners not more than about a month before they required their money. As commitments are not now incurred automatically, and as under this latest procedure they get translated into advances within a very short time and cannot accumulate in the Commissioners' books as they used to do, there is no longer the slightest need for the statutory limit for commitments to be very substantially greater than that for advances. It is for this reason that we think that a limit of £400 million for advances plus commitments should be enough.

There is one further thing which I should like to tell the House. When the new procedure was introduced last year there was outstanding, of course, a considerable volume of commitments to local authorities. This was discussed with the two standing committees of local authority associations and, with their agreement, all loan approvals which had been given by the Commisioners before the end of 1954, but which had not been exercised, were written off. That was done, as I say, with full agreement between all parties concerned.

Mr. J. A. Sparks (Acton)

May I ask the right hon. Gentleman whether, before writing all these items off, he consulted local authorities on the matter? If so, did they agree to write off the whole lot?

Mr. Brooke

Yes. We consulted the two standing committees of the local authority associations and had their full agreement.

Mr. Glenvil Hall (Colne Valley)

Was it confined to the two years' limit? Or am I wrong?

Mr. Brooke

No, what was done was that all loan approvals which had been given before 31st December, 1954, and which had not been exercised, were written off. There had been an earlier writing-off operation which is, perhaps, in the right hon. Gentleman's mind.

Mr. Sparks

The right hon. Gentleman said that he consulted the two local authority associations concerned, but they would not be the people who were applying and who had had sanction for the loans. What I intended to ask was whether the local authorities who had applied for loans and had had sanction were consulted before the loans were written off.

Mr. Glenvil Hall

As I understand, there were two operations. The first wiped off any application that was more than two years old. That was the October operation. In addition, the matter has been brought right up to date and almost everything has been written off unless the local authority concerned really wanted it.

Mr. Brooke

No. There had been an earlier operation before the last Bill was passed. I am simply telling the House what has happened since that Bill was passed in 1955.

In reply to the hon. Member for Acton (Mr. Sparks), who is very knowledgeable on these local authority matters, he appreciates, I am sure, that the Treasury, wishing to keep in touch with local authority opinion on all these question, discusses its possible intentions with standing committees which represent all the local authority associations. I have no doubt, from my knowledge of the Association of Municipal Corporations and the County Councils' Association that they do not authorise their representatives on the standing committees to agree to anything unless they have satisfied themselves that the course will commend itself to individual local authorities.

The effect of this writing-off action was that unexercised commitments amounting to no less than £213 million were cancelled. At present, the amount of commitments outstanding—as distinct from loans actually granted—is only about £67 million. Therefore, the present total of loans granted and commitments is £469 million. I want to assure the hon. Member for Acton, and the House generally, that the local authorities have been most co-operative in all these matters. We run this machinery together, because this is, as I say, a machinery Bill. It is quite distinct from the policy question involved in local authorities desiring to borrow or Government Departments desiring to encourage or to restrain their borrowing. This is simply, as it were, the tap through which the money comes.

I should like to take this opportunity of expressing the Government's appreciation of the efforts which the local authorities themselves have made to ensure that the new lending procedure has worked smoothly. I also want to express my thanks to the Public Works Loan Commissioners themselves. They are unpaid, and I fully realise that as a result of the new procedure we are putting a further burden of responsibility upon them.

I am sorry that the hon. Member for Islington, East decided to resign from the Board. I should like to thank him and the other members of the Board who have retired from it, together with all those who are carrying on. If the hon. Member for Islington, East takes the view that it is more desirable that hon. Members of this House should not serve on the Public Works Loan Board under these new arrangements I would not dissent from that view. At the same time, he realises, I know, that it was not under any pressure from the Government that he decided to send in his resignation.

Mr. E. Fletcher

The Financial Secretary is no doubt aware that the Government, in their House of Commons Disqualification Bill, now before the House, expressly suggest that in future Public Works Loan Commissioners should not be eligible to sit in this House.

Mr. Brooke

Whatever that Bill may contain, I think that the idea would probably commend itself to the House generally, because in the past there were periods when the Commissioners themselves had simply to see that the rules were kept and that the machine functioned. Now they have to exercise judgment over individual loans to a greater extent than in the past.

We have, I think the House will agree, been fortunate in the new members whom we have managed to secure to fill vacancies. There is Mr. Warwick, former General Manager of the Royal Arsenal Co-operative Society; Sir John Imrie, former City Chamberlain of Edinburgh; and Sir James Lythgoe, former City Treasurer of Manchester. It will be noted that in filling vacancies we have taken special trouble to secure a greater proportion of people who have been intimately connected with matters of local government finance for many years, because it seems important that this Board should enjoy the confidence not only of the House and of the country in general but particularly of the local authorities, with whom it has so much to do.

The new lending procedure has inevitably increased the burden of the Commissioners' work, especially during the first few months after it was introduced, but, with great public spirit, they have assumed the new burden. In the view of the Government, they have discharged it with judgment and discrimination, and I think we should all be grateful to them.

I have gone over the main points of a Bill, which as I said, apart from the actual figures, is more or less in standard form from year to year. As one who has had some connection with local government, I attach great importance to the smooth working of the machinery. I shall listen to the debate with great care, and, if I may, I should like later to deal with any points that may arise.

11.31 a.m.

Mr. G. R. Mitchison (Kettering)

I would begin by offering the Financial Secretary my ironic congratulations on having introduced the Bill without, in the year of grace 1956, ever mentioning the rates of interest charged by the Public Works Loan Board. It was a remarkable performance of omission which should certainly entitle him to promotion in this Government. I shall not be guilty of a similar omission.

The first outstanding point in the proceedings of the Commissioners which we have to consider is that the applications for new loans have fallen very sharply. Before I deal with that, I should like to thank the right hon. Gentleman for being just in time—only just—with the Report of the Commissioners for 1955–56, which was actually laid on the Table on 26th June. Fortunately, it "pupped" on the Table, and I was able to borrow the second copy. However, there was certainly a difficulty about hon. Members trying to appreciate what we have to consider today on the information available before yesterday.

I now turn to the history of the applications. The right hon. Gentleman and the House will understand that I am dealing not with the loans advanced but with the applications made and approved during 1955–56, and for these purposes I am neglecting the comparatively very small sums which are not applicable to local authorities, about which we need not trouble. I entirely agree with the right hon. Gentleman, as everybody does, that this is a machinery Bill, and that we are dealing with a piece of Governmental machinery, and that no question arises of the Board having to consider applications other than those which have already been approved by the responsible Government Department. We are simply considering whether the Board is serving the purpose for which it was constituted, which is to provide loans for local authorities in circumstances when it is difficult for local authorities to get loans elsewhere, and to provide them on reasonable terms.

What has happened is that since 1952–53 the applications made by local authorities and approved by the Board have gradually been falling, and the very sharp fall this year is simply the continuation of a process which has now been going on for four years. The total of applications approved in 1952–53 was £573 million. The figure fell by £32 million in the first year, and by a further £129 million in the next year. It has now fallen by yet another £188 million. The result is that, in respect of applications, this organ of finance is now functioning at a rate of about 39 per cent. of what it was doing in 1952–53.

I understand that the examination of a falling body was conducted from the Leaning Tower of Pisa. There is always some doubt how much longer the Tower of Pisa will stand up. There is also some doubt in this case, not only how much longer the Government will stand up, but how much longer the Board will stand up. I think we have to consider that question today.

We were told that the £300 million which we are now asked to authorise would last for a year. I put a question to the right hon. Gentleman. I am not certain that I made myself sufficiently clear to convey to him that what I wanted to know was how much of the £300 million is estimated to be the result of loans which have been sanctioned and which are, therefore, not to be the subject of fresh applications. If I understood the right hon. Gentleman—I hope he will correct me if I am wrong—he does not expect more than about £69 million of the £300 million to be devoted to those purposes, and the consequence appears to be that about £230 million is what he expects will be sanctioned in the form of new applications during the year that he has in mind.

Mr. H. Brooke

It is not quite like that. I said that at present there were commitments amounting to £67 million which had not yet been taken up. I cannot say how much of that will be taken up before the Bill becomes law, nor how many further applications there may have been by then. None of us can be certain of that.

Mr. Mitchison

Perhaps I might refer the right hon. Gentleman to something in the Report which may help him. Since the new procedure was introduced—that is to say, since the present Lord Privy Seal's statement in connection with the autumn Budget—the advances in respect of previous approvals have actually exceeded the advances in respect of fresh applications. Unless there is some startling change in that proportion—this is in the period after the clean-up which the right hon. Gentleman mentioned—it looks as if an even smaller figure than last year will be devoted to fresh applications by local authorities. In fact, the falling object will continue to fall, and that appears to be expected.

If I am wrong, I would ask the right hon. Gentleman to correct me and to point out in what respect I am wrong and why he expects that the proportion between loans under existing approvals and loans under fresh applications will vary during the current year from that which prevailed during the relevant period at the end of 1955–56. We can certainly agree that the history of this matter, not only in the current year but for a good many years past, has been one of steadily falling applications, which, unless there is a corresponding reduction in local authority expenditure—and there is not such a corresponding reduction—appears to indicate that the Board is not meeting requirements.

I have looked for the current expenditure, and it is difficult to find the relevant figures. However, in the last May Digest of Statistics particulars were given of a form of local authority expenditure which does not cover all the subjects for which these loans have been approved, and will no doubt be approved again, but which covers most of them, as it is their capital expenditure—and it is that with which we are concerned—on social services, including housing, education and most of the health services.

I repeat that it is the capital expenditure. It is true that under this Government, as might be expected, capital expenditure has been falling since the date I mentioned just now, 1952–53. For the year covered by the Report of the Public Works Loan Commissioners it is estimated to be £377 million, which is a much higher proportion of the 1952–53 expenditure or even the 1953–54 expendi- ture than are the applications. Therefore it seems to follow that the applications, even in that category, appear to be falling at a much higher rate than any reduction in the comparable local authority expenditure.

Much the same result appears if we look at other sets of figures. I make one complaint to the right hon. Gentleman. In these matters the Report mentions, and rightly mentions, the financial statistics about local authorities. It is compelled to say, in 1956, that the last available financial statistics are those for the year 1953–54: something ought to be done to expedite the publication of those figures.

We come to the conclusion, therefore, that the local authorities have applied for less and less of their proper and sanctioned needs to the Public Works Loan Board. And what is the reason? The reason given by the Board in its Report is that the heavy fall in the volume of loans approved was due to the revised procedures mentioned in section III. When we turn to section III, we find quoted the statement of the present Lord Privy Seal and a reference to what the right hon. Gentleman said just now as to the second change in procedure. Summarily, what that sentence means is that the fall in applications is due to the fact that local authorities were told to try somewhere else before they approached the Public Works Loan Board, and that they would only get their money if they could not get it anywhere else.

That cannot be the whole explanation, because it certainly would not account for a process which has been going on for some years past, but, so far as it applies at all, let us look at it. First, few of the applications have been turned down. If we take the number, 99 per cent. of them have been granted; if we take the amount, 95 per cent. Therefore, the local authorities must have answered to the complete satisfaction of the Public Works Loan Board the questions which they were asked.

There may well be another reason. We were informed by the right hon. Gentleman, and it appears in the Report, that the local authorities were co-operating fully to ensure the success of the policy. I hope that the right hon. Gentleman has never been arrested by the police and told to come quietly. I imagine that when we were discussing capital punishment a few days ago some of us may have had in mind the man going to be hanged without fighting about it. Well, the local authorities seem to me to have been co-operating fully by failing to apply to the Public Works Loan Board, and trying desperately to get the money somewhere else.

Where else could they go? That depends on what size the local authority is. The really big local authorities can, of course, go to the capital market. It is a significant sign of the pressure on that market from other sources under present conditions that the recourse to the capital market has been very small. Indeed, for the period we are now talking about, it amounted in all to under £16 million. That is quite a small figure, and the borrowings, of course, were by the large authorities. With the exception of Hendon—and that was after this period—I do not think that any but a county council or a county borough, and a fairly large county borough at that—has faced the ordinary issue market. It is significant that when they have done so, they have had to pay during the course of recent months a steadily increasing interest for what they had to borrow.

There remain mortgages. It may well be that the large local authority can go to a large insurance company, investment trust or pensions fund, or even other public funds, and borrow there. But that kind of resource is hardly open in practice to the smaller authorities. It is no more open to them than is a public issue, and what the Public Works Loan Board ought to be doing is meeting the needs of the smaller local authorities as one of its primary duties.

I will add that in 1945, before the end of the war, when it was obligatory to go to the Public Works Loan Board, we were told the advantages of going there. Sir John Anderson, as he then was, the then Chancellor of the Exchequer, gave two other reasons why the Board had a real service to perform. The first was that the local authorities will be getting the capital resources they need, exactly as and when they need them."—[OFFICIAL REPORT, 24th January, 1945; Vol. 407, c. 908.] That applies both to large authorities and to small ones, and of course it is not working now.

The large authority, minded to go to the capital issue market, has to take its place in the queue according to the requirements of the capital market and not according to its own immediate needs. It has to wait its time, it has to take its chance as to what interest it will have to pay, and just the same applies in respect of large mortgages. It takes time to get these matters arranged, and one of the objects of the Public Works Loan Board was that of time—to let the authorities get money as and when they needed it.

The smaller authorities are in an even greater difficulty. My experience is that if anyone borrows on mortgage at all he has to pay rather more than he would have to pay through other channels, and that is exactly what is happening to the small local authorities now. I can tell the right hon. Gentleman about several of them in and around Kettering who have been bewildered by the change of policy and have been made to think in terms in which they were not accustomed to think about how to get the money needed for essential social services.

It may be said that, after all, some of them had reserves. The right hon. Gentleman understands perfectly well that the possibilities of accumulating reserves in the hands of a local authority are strictly limited by statute, and that the reserves so accumulated are, at any rate theoretically, subject to what I may call a statutory raid by the Treasury. But there it is. There is not much to be had from that source.

Hampstead, was it not?—but, whether it was Hampstead or not, think for a moment, not of the L.C.C., not of these large county boroughs, but of these small district councils and the like, the non-county boroughs. They have really been dealt a very nasty blow indeed by this change in policy and by the results of it.

I take up next one other point which I hope will be answered. It has already been made by my hon. Friend the Member for Acton (Mr. Sparks). I put it in the following way. The Government have promised that a loan shall be made to authority A, and authority A has, no doubt, got that promise in mind when arranging its own programme. The Government now go and arrange with the Association of Municipal Corporations, or the county councils, as the case may be, that there shall be a clean sweep of all these matters. Is that completely consistent with the treatment which an ordinary lender would extend to a borrower to whom he has promised to make a loan? Is this not a matter in which there ought to be individual agreement on the circumstances of each case?

Nothing is harder than to drive any Department of the Government to consult local authorities as distinct from consulting their associations. I should have thought that in a matter of this sort something of the kind ought to have been done. It may have been, but it was not mentioned by the right hon. Gentleman, and he appeared to answer my hon. Friend in another sense.

To sum up what I have been saying about the sources open to the local authorities, can the right hon. Gentleman tell us where in fact they are getting the money which they are spending, and which of these figures they are not getting from the Public Works Loan Board? I am referring to applications for loans, and not to loans made on the ground of applications which have already been sanctioned. I said just now that the very last figures which had been used in this Report to show what percentage of the borrowings of local authorities was taken from the Public Works Loan Board are those for the year 1953–54. If the right hon. Gentleman cares to compare those with earlier years, he will find that the percentage had even at that time been falling rapidly. It was 85 per cent. two years before, 77 per cent. one year before, and 55 per cent., and no more, in 1953–54. The question then is as follows: is the Public Works Loan Board, in the light of the Government's change of policy, really carrying out the job for which it was constituted?

Now I turn to the rate of interest. The second reason given by Sir John Anderson in 1945 why the Board had a real service to perform was that local authorities would be enabled to borrow more cheaply than they otherwise could do, because the rate of interest which they would pay for loans of any given period would be approximately that which the Treasury itself pays. I do not think there is very much difference now. I agree with that, but it seems to me that the objection to piecemeal borrowing in the open market is not only the rate of interest. It is also that it meets the needs of only some authorities and that it is wrong in its timing in relation to their needs.

As to the rate of interest, here is the picture. Let us look at the rates of interest and take them for this purpose up till today—because there has been a change since the publication of the Report. The previous Bill was at the end of March, 1955, and since then there have been changes amounting to a rise of 1½ per cent. for the long-term loans. I leave aside the shorter-term loans. They followed a more variegated course, and it is really the long-term ones which probably concern the authorities, particularly in the matter of housing.

It is housing that I propose to take as an example. After all, the right hon. Gentleman had a great deal to do with that subject before he occupied his present office, and he knows all about it. It will be no news to him to discover that on the figures given by the Vice-Chairman of the London County Council Housing Committee, who may be presumed to know what she is writing about, taking a £10 subsidy house—that is the ordinary need type—and translating this rise in the rate of interest into terms of rent, it means a rise on a £1,700 house from 30s. 10d. a week to 39s. 5d. a week—that is, 8s. 7d.—during a year; and on a £2,000 house from 35s. 11d. to 46s.—that is, 10s. 1d.—during a year.

A policy which has those results surely requires more justification than it has ever received at the hands of the Government. I am gradually being forced to this conclusion. Either the dear money policy of the Government has come to stay and they are giving up the task of getting us out of the financial difficulties into which they have landed us; we are going to stay there for years and years to come; or it is a more or less temporary measure, and unless we can really be assured that it is a temporary measure it seems to me that this or any Government of today are faced with a choice.

The Government are either going to be perfectly consistent and have the same rate of interest applicable to all the borrowers—the market rate, to describe it loosely—and in that case they are going to face the responsibility of putting up the rents of council tenants at a rate of roughly 9s. or 10s. a year—because that is what it has been, and there is no certainty that it will not go on; or, if that is not the case, they will have to make other and better arrangements about allowing local authorities to borrow more cheaply for their essential needs. After all, it is essential needs that we are discussing today. We are talking about a bit of machinery. The effects of its working come home to ordinary people in terms of the rent of their houses, the rates they have to pay to meet educational needs, in terms perhaps of the slowing down of programmes in education and public health.

If this bit of machinery is failing, as it seems to me to be failing, to do its job, then I suggest that instead of continuing with this interesting Public Works Loan Board and contemplating its eighty-first Annual Report with the satisfaction with which we contemplate works of considerable antiquity, the Government might think again about what they really are to do to meet the difficulties and needs of local authorities at a rate of interest and under conditions which will not result in considerable hardship to the ordinary citizen and the ordinary ratepayer.

12 noon.

Mr. Cyril Osborne (Louth)

I must start by confessing that I am not an authority on local government finance. I want to make one or two observations on behalf of the ordinary ratepayers and taxpayers who have to foot the bill. The hon. and learned Member for Kettering (Mr. Mitchison) complained that the Public Works Loan Commissioners were now approving loans at the rate of 39 per cent. of the 1951–52 period. I think that that is a good thing and I congratulate my right hon. Friend on that policy.

The hon. and learned Member for Kettering also mentioned that ordinary people were affected by the rates they had to pay. I want to draw his attention and that of the House to the Bill from that point of view. My right hon. Friend said that this was a machinery and not a policy Bill. He said that it merely made money available. It is about the word "merely" that I want to talk, because I believe that to be the crux of the whole Bill.

There can be no policy without the machinery providing the money. My right hon. Friend likened the Bill to a tap from which the money comes and I am glad that the tap is slowly being turned off and that the money is not coming out at its previous rate. Ratepayers in my constituency, like those of other hon. and right hon. Members, especially small traders, shopkeepers and keepers of small boarding houses, have been bitterly complaining about the high rates they are having to pay. The more loans which are effected under the Bill, the higher the rates they will have to pay.

The small business people in my constituency have asked me to protest against the increased local government expenditure which inevitably results in higher rates for them. The little people, the shopkeeper and the typical members of chambers of trade, are complaining that the rate burden is becoming excessive and tending to drive them out of business. The more money which local authorities borrow under the Bill, the higher the rates must be. It is against that situation that I want to protest, and I congratulate my right hon. Friend for turning off the tap, at least to some extent.

Yesterday, I gave myself the pleasure of re-reading the whole of last year's debate. I was most interested in the contribution made by my hon. Friend the Member for Edinburgh, South (Sir W. Darling), whose absence I am sure all hon. Members will deeply regret. It is about the year since he fell ill and I am sure that we all miss his cheerfulness and his friendliness, even those right hon. and hon. Gentlemen who do not agree with him. What he said last time applies to this as to the previous Bill. He said: The right hon. Member for Colne Valley sought to persuade the House that it is desirable to get further into debt, but the monstrous debt under which this country staggers is a crying scandal against which very few voices are raised in this Chamber. As my hon. Friend is not present, I want to say some of the things which he would have said had he been here. He went on: If money is dear"— this is an answer to the hon. and learned Member for Kettering— people tend to be more prudent. If money is cheap, they tend to be profligate. There is something to be said for a dear money policy. It makes people careful not only with what they themselves borrow, but with what they are prepared to lend. The social effects of a dear money policy are restrictive, it is true, but they are honestly restrictive. They do not induce men and women into a fool's paradise. It is cheap money which leads them into temptation, so I hope, that as debt is not a good thing, and as to live within one's means is a good thing, and as public extravagance and public profligacy are merely one and the same thing, they will be discontinued."—[OFFICIAL REPORT, 28th February, 1955; Vol. 537, c. 1736–40.] I should like to echo what my hon. Friend said. The greatest need today in all respects, individually, from a local government point of view, and nationally, is that money should be treated more carefully and with greater respect and that we should live within our means. I am, therefore, pleased that the Bill is not providing as large a facility as did the previous Bill.

There is another quotation from the debate on the previous Bill to which I want to draw my right hon. Friend's attention. That was his own statement, which rather shocked me. He said: The hon. Member for Kilmarnock (Mr. Ross) suggested that these new rates would deter local authorities. That is the point the hon. and learned Member for Kettering had made. Looking backwards, it is quite impossible to see any close connection between changes in the rates of interest and the amounts which local authorities have borrowed."—[OFFICIAL REPORT, 28th February, 1955; Vol. 537, c. 1807.] I hope that that is not true, and that higher money rates do curb spending. Indeed, if that is not so, it is unwise to have high money rates. This policy is part of the Government's general financial policy to defeat inflation and if it is not intended to succeed, and does not succeed in reducing the amount spent by local authorities, it cannot be justified.

In last year's debate one Member opposite fairly said that if a sewerage scheme broke down, such expenditure must be undertaken at once. Obviously we all agree, but the point that I want to make is that if capital expenditure is not wise, then it ought to be deferred and indeed must be deferred as things are today. In his autumn Budget last year the then Chancellor, dealing with this problem, said: In the public sector, the investment expenditure of the local authorities is a very important element. It represents about a quarter of the total of the nation's investment. … As for the other capital expenditure of local authorities, which represents well over £200 million a year, the Government have now decided to reinforce their appeal of last July by a message to all local authorities, asking them not only to observe particular restraint in current expenditure, but also to review their capital expenditure. …"—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 212–3.] It is for capital expenditure that I hope the Government will not be induced to increase the amount available, but will stick to their present policy of restriction. A good deal of local authority capital expenditure can and ought to be deferred, if not completely abandoned.

Mr. James MacColl (Widnes)

Such as what?

Mr. Osborne

I am glad of that intervention, because I have a case which an hon. Friend of mine has given to me. It appears in a local newspaper, The Ledbury Reporter, of 29th June, so that it is quite up to date. Hon. Members have asked for an example and here is one. The paper says: Mr. Melville spoke of Ledbury's new police station as an example of waste. 'Everyone admits it was unnecessary.' He said 'For a town of 3,800 this building will cost nearly £100,000. The people did not want it and the Council objected to it. All that was needed was a building costing £10,000 at most.' What they had got was a miniature guildhall. Similar considerations applied to the fire station in Hereford, he said.

Mr. MacColl

The hon. Gentleman has given a very interesting example about county police, who are not controlled by the council at all. They are controlled by the standing joint committee, half of whose members consist of justices of the peace. Approval for such schemes has to be given by the Home Office, which gives a 50 per cent. grant. If the Home Office and the constabulary thought the scheme referred to by the hon. Gentleman was necessary, who is the person in the Ledbury whatnot to say that the money ought not to be expended? Is that not an indication of the lunacy of all this talk about extravagant expenditure?

Mr. Osborne

The money has ultimately to come out of national funds whether it is spent by the local or the national Government.

Mr. Emrys Hughes

On a point of order. I understand, Mr. Speaker, that we are discussing borrowing from the Public Works Loan Board. The hon. Gentleman is citing expenditure which does not come from the Board at all.

Mr. Speaker

It seems to me that this discussion is getting rather wide of the Bill. Of course, on Second Reading it is necessary to have a great deal of latitude, but I hope that it will not be abused.

Mr. Osborne

I was about to give another example, Mr. Speaker, but in view of your Ruling I will not.

Clause I authorises loans not exceeding £300 million. The second point I want to make is that these loans are all unproductive loans. None of them produces any new wealth. The loans may be for social amenities or for all kinds of desirable things, but they are not economically productive. The purposes for which the loans are required may be desirable in themselves and may be justified from a local point of view, but from the national point of view we have to ask ourselves, especially at this time, whether we can afford such expenditure.

The nation as a whole can only make loans to the extent that it saves from its productive capacity. We can only lend from savings. If we try to lend more than we save, then more inflation is inevitable. The Public Works Loan Board is not the only borrower; there are queues of borrowers who want to tap the net savings of the nation. We as a House have got to to make up our mind whether the savings of the nation should go in this or any other direction.

For example, the right hon. Member for Llanelly (Mr. J. Griffiths), who has just left the Chamber, is very keen, and quite rightly so, on colonial development. The Colonial Development Board requires—

Mr. Emrys Hughes

On a point of order. Does the Colonial Development Fund, Mr. Speaker, come under the Public Works Loan Board?

Mr. Speaker

I think that the hon. Member was developing the thesis that all borrowing must be related to the net savings of the people. That was what I understood him to be saying, and I assume that he was going to argue against the Bill on the ground that it makes some abstraction from that fund of saving. He was saying that there were other calls besides those in the Bill, if I understood him correctly. I hope that he will not go on to talk about colonial development on this Bill.

Mr. Osborne

I am sorry that hon. Gentlemen opposite, especially those from Scotland, who are supposed to be interested in thrift and saving, should dislike a reasonable argument.

There is only a certain amount of money from which the nation can make loans. Yesterday, we were discussing the question of a loan of £1,000 million to the National Coal Board. If we have only a certain amount of resources, and those resources go through this tap, then they cannot go through another tap. I am arguing that the money expended on this type of loan is economically unproductive. We may want to build bigger and better schools, bigger and more houses, new parks and lots of other desirable social amenities, but we also want to increase the productive capacity of the nation.

The problem which the Government and this House have to face is whether it is better to put our limited savings into new machinery and new factories which will themselves produce new wealth or whether we should put them through the Public Works Loan Board into amenities that we really cannot afford. I want my right hon. Friend to know that I am glad that the tap has been turned off somewhat and that not as much money is going out in this way as formerly, a matter about which the hon. and learned Member for Kettering complained.

Last year, I went to Stalingrad. That city, 95 per cent. of which was destroyed during the war, has been rebuilt. But the Russians did not put their new money first into—

Mr. Emrys Hughes

On a point of order, Mr. Speaker. Does Stalingrad borrow from the Public Works Loan Board?

Mr. Speaker

It does not, but I think that the hon. Member is developing an argument. I have not heard the end of that argument yet.

Mr. Osborne

I am much obliged to you, Mr. Speaker. I have no intention of being put off by hon. Members opposite so long as you, Sir, allow me to develop my argument.

In Stalingrad, I saw the new tractor works which had been built first. The limited resources of the Russians were not put first into houses and other amenities, but into new wealth-producing equipment. I suggest that, to some extent, we in this country have gone too far in one extreme in the same way as the Russians went too far in another. This Bill is taking from our limited resources more than we can afford to put into what. I agree, is a socially desirable thing.

Generally speaking, I do not like loans of any kind. I hate them. As a boy I was taught to keep out of debt and only to spend what I could earn, and I believe that if we as a nation learned that lesson a little more, and had fewer loans of any kind, we should all be better off. Therefore, I hope that my right hon. Friends the Financial Secretary to the Treasury and the Chancellor of the Exchequer will continue their present policy. We must live within our means.

I do not want our new factories and our new machinery to be starved in order to find money that is to be spent on amenities. We must put first things first. Therefore, as I have said, I hope that my right hon. Friend will continue the policy of restricting the amount of money available for amenity purposes until we have rebuilt our economy and our capacity to produce a higher standard of life is justified. When those things have been achieved, I hope that he will reduce the rate of interest as quickly as he can.

12.20 p.m.

Mr. Eric Fletcher (Islington, East)

The speech of the hon. Member for Louth (Mr. Osborne) covered a very wide range of topics. It is very tempting to reply to it in detail, but that is not the primary purpose for which I rise. I cannot however, forbear to observe that it is quite obvious from what he said that there is a wealth of difference in the respective philosophies of his party and mine with regard to public expenditure and the raising of loans within the nation's wealth.

The hon. Member's view is a grossly materialistic one, based upon what I regard as the absurd fallacy that money borrowed by local authorities from the Public Works Loan Board is not economically productive. I want to spend a moment or two in examining that basis of argument. Does he really suggest that only factories producing material goods are economically productive? Does he suggest that money spent upon land drainage, roads, bridges, public health and sanitation, without which urban civilisation could not exist, is economically unproductive?

What of education? Through some of their spokesmen the Government have boasted of their plans for spending large sums upon technical education, and I agree with them in that. It is profoundly important to the whole future of our commercial prosperity. A large part of the sums raised through the Board is spent upon education. Does the hon. Member for Louth suggest that money borrowed for education, including technical education, is not economically productive? All these questions have only to be asked in that way for them to answer themselves.

Mr. Osborne

Does the hon. Member want an answer?

Mr. Fletcher

No. I think that the answer is obvious. I have omitted any reference to housing, because the case there is self-evident. It is quite absurd for even the hon. Member for Louth to pretend that there is some economic difference between money spent upon plant and machinery and factories on the one hand and upon essential primary social services on the other. That is the basis of my observations in answer to what was said by the hon. Member for Louth.

The Financial Secretary was kind enough to make a reference to me, and to the fact that since our discussion upon the previous Public Works Loans Bill I had tendered my resignation as a Commissioner of the Board—an office which I had held and enjoyed for eight or nine years. The reason for my action, as I believe was made known at the time, was that I felt that my position on these benches, in opposition to the Government, to be completely incompatible with the exercise of my duties as a Commissioner of the Board, in view of the profound change in its functions introduced by the Lord Privy Seal, then Chancellor of the Exchequer, in his supplementary Budget statement on 26th October, 1955.

Prior to that time it had generally been the case that all borrowing by local authorities was channelled through the Public Works Loan Board. There had been some relaxation of that procedure in 1953, but during the whole period of office of the Labour Government it was an essential part of Government policy to finance local authority borrowing exclusively through the machinery of the Board, in order—as my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has reminded the House, in his quotation from the speech of Sir John Anderson, when introducing a policy later adopted by the Labour Government—that local authorities, in their expenditure upon social services, should have the benefit of being able to borrow upon Government credit and at low rates of interest.

The reason for the vital change made upon 26th October, 1955, was stated with remarkable candour by the present Lord Privy Seal, and is quoted in the Board's Report for 1955–56. The Lord Privy Seal quite clearly said: I propose to change the present practice whereby an authority is charged a rate based on its own credit if it borrows on the market but a rate based upon Government credit if it borrows from the Public Works Loan Board. In future, an authority which makes its case for borrowing from the Board will pay a rate reflecting not Government credit, but the credit of local authorities of good standing in the market for loans of comparable periods. … In other words, the change brought about by that new procedure, as the Financial Secretary called it, is that whereas in respect of any scheme for which local authorities had to borrow they were formerly able to do so upon Government credit, they now have to borrow upon their own credit. It should be observed that all schemes required the prior approval of some Government Department as being desirable in themselves before there could be any attempt to borrow, and therefore ex hypothesi the purpose for which the borrowing was going to take place had been approved by the Government Department concerned.

I do not believe that the financial credit of any one local authority is a relevant criterion of the desirability of the purpose for which it is borrowing money. If some land drainage scheme, highway undertaking or extension of education scheme is desirable in itself, it seems to me that the capital funds required should be borrowed upon Govern- ment credit and not upon the credit of the local authority concerned, because that is quite irrelevant. Not only that, but this change in financial operation deliberately produces extreme pressure and hardship upon those local authorities which are least able to afford it. One frequently finds that the need for housing expenditure is more acute in the poorer boroughs and districts, whose credit as a municipal authority is not as good as that of richer boroughs such as Bournemouth or Harrogate, although the social need is the same in each case.

Since the hon. Member for Louth keeps talking about economic desirability, I would point out that capital expenditure for housing purposes in the poorer boroughs where it is required is at least as economically necessary as it is in the case of local authorities whose financial credit is much higher.

Let us consider education. If projects of educational development are sound, whether in the realm of technical education or elsewhere, and if local authorities have to borrow their share of the capital expenditure for educational purposes, they ought, in our view, to be able to borrow on Government credit, and the amount that that borrowing should cost a local authority should not be dependent upon the irrelevant and accidental fact as to whether its community is a poor one with a relatively low rateable value and perhaps not such a good financial credit structure as another local authority. That is the basis of our objections to the policy introduced last October, and it was because I was not prepared to take any part in the operations of the policy that I tendered my resignation as a Commissioner.

Now, as I understand it, the Commissioners, before they can even contemplate granting a loan to a local authority, must first satisfy themselves that the local authority has not been able to borrow the money elsewhere. The result of the Government's policy has been clearly demonstrated by my hon. and learned Friend the Member for Kettering. As he pointed out, not only have interest rates risen progressively during the last 12 or 15 months, but the amount of borrowing that has taken place has diminished to an alarming extent and is still diminishing.

It is very noticeable that since April, 1955, rates of interest charged to local authorities through the Board have, as a result of a series of Treasury orders in respect of loans for periods between five and 15 years, increased as follows. From 1st April, 1955, the rate was 3¾ per cent. It was increased to 4¼ per cent. in July, 1955; to 4½ per cent. in August, 1955; to 5 per cent. in September, 1955; to 5⅜ per cent. in January, 1956; and to 5½ per cent. in March, 1956.

The cost to local authorities of all borrowing has risen alarmingly, with the result that, in so far as they have continued with borrowing operations, an increasing burden has fallen either upon their ratepayers or the tenants of the council houses which they have built, or they have had, as an alternative, to abandon projects for which they wanted to borrow, which means that they have had to abandon some socially desirable schemes for which Government approval had been obtained.

I hope that the Financial Secretary will be able to give us some figures later. He has given us certain figures, but I am anxious to have the precise figures showing the decline in local authority borrowing during recent months. I have been given the following figures, which are a clear indication of the change. I understand that in the financial year to date new lendings by the Board have amounted to only £29 million compared with £90 million in the corresponding period last year. I also understand that over the eight months since the change in policy occurred borrowings have totalled £133 million compared with £298 million in the corresponding period a year ago.

The Financial Secretary made no attempt to conceal the fact that the provisions of the Bill show that he is expecting a very considerable diminution in both the rate and quantity of local authority borrowing during the next 12 months. He is estimating that £300 million will serve for as long as £500 or £600 million has served in recent years. I very much doubt whether £300 million will be lent by the Board during the next 12 months.

It is obvious that the first victims on a substantial scale of the Government's financial policy of credit squeezing are the local authorities, and, in particular, the poorer local authorities. It must be made abundantly clear that that is no fault whatever of the Board. The Board has to discharge a very difficult and not particularly pleasant duty imposed upon it by the Government. It is the Government which must assume full responsibility for the way in which social services of all kinds are being starved by the change in borrowing policy announced by the present Lord Privy Seal last October.

Obviously, we shall not vote against the Bill. It is, in our view, however, a manifestation of the Government's neglect of essential social services. Unlike the hon. Member for Louth, I very much hope that we shall soon be able to look forward to a time when there can be a reversal of this unfortunate trend, and when we can go back to the system, operated by the Labour Government, of enabling all local authorities to borrow, for all purposes of social services, on the credit of the Government of the day.

12.38 p.m.

Major H. Legge-Bourke (Isle of Ely)

I suppose there is nothing more stupid that any politician can do than to get firmly fixed in his mind that, no matter how circumstances change, he will never change his mind on a certain subject. Although I would certainly associate myself with the remarks addressed by my right hon. Friend to the hon. Member for Islington, East (Mr. E. Fletcher) about his services on the Public Works Loan Board, I feel that the hon. Member is perhaps so wedded to the original concept when he first became a member of the Board that, no matter how much circumstances may have changed, he cannot see that it is desirable to change the basis on which money should be lent to local authorities.

I cannot see why the Board should be held up, as it was by the hon. and learned Member for Kettering (Mr. Mitchison), as a paragon of virtue compared with any other form of lending. The quotations that he gave from the remarks by Viscount Waverley, formerly Sir John Anderson, when Chancellor of the Exchequer, during the war, show that there was a purpose at that time in enabling local authorities to borrow at as low a rate of interest as possible; but that was in time of war, and circumstances have now changed considerably. We have had an intensification of an inflationary problem which, as the hon. and learned Member for Kettering will remember, was something that the Labour Government did not find very easy to handle.

Surely we can at least agree that one of the main contributing factors to the inflationary problem has been the amount of money circulating and what has been done with it. Obviously, if there is a limited amount of certain vital materials which it is essential should be put into productive work then we must try to restrain the use of those materials for non-productive purposes. The hon. Member for Islington, East used a finely balanced argument, whether or not all the spending on social services and on local Government is ultimately essential to getting the production. Of course, we want to house our people and to see that they live in healthy conditions and, of course, we want to keep the roads in the best possible order, but all of us know that not all local authorities have been spending money as wisely as they might have done if they had known that their rates of interest were lower than they ought to be.

I hope that I shall be in order in referring to one of the purposes for which the Board lends money to local authorities. In particular, I want to mention the subject of land drainage. In the table in page 9 of the Report of the Public Works Loan Commissioners the total loans raised for the purposes of land drainage are shown as £2,628,000 and of that amount £2,202,042 were provided by the Board. The percentage contributed by the Board is the highest of any of its contributions. In other words, 84 per cent. of the money borrowed for land drainage purposes—and, of course, river boards and drainage boards rank as local authorities for this purpose—was borrowed from the Board.

I do not think that the case of the hon. and learned Member for Kettering for blaming the Government really holds water—perhaps that is not the right analogy and I should say that the hon. Member did not really substantiate his argument. Of this considerable sum a great deal has been spent in my constituency and the ones which adjoin it. My right hon. Friend will remember that we have been in correspondence, since we discussed the subject previously, to see whether some way can be devised so land drainage work should not be damaged unduly by the alteration in the rate of interest.

Mr. Mitchison

May I point out to the hon. and gallant Gentleman that the table from which I quoted related to the year 1953–54?

Major Legge-Bourke

I appreciate that, but I think that the hon. and learned Member used the figure of 55 per cent. as the average percentage which was found by the Board in that year to show that something serious was happening of which he disapproved, although, personally, I think it was quite right. I am merely saying that in respect of land drainage the case is not nearly so strong. If one objects to the fact that the Board is not providing the money and other lenders are, then I would say that the case is not as strong in respect of land drainage. I think that that would probably follow from the current figures as well.

We all remember with some vividness the great floods of 1947, which followed a very severe winter. As a result, the Great Ouse Catchment Board, as it then was, decided to build a large cut-off channel to try to take away the head waters and get them to the sea more rapidly. The original scheme was to cost about £6,220,000. Since then, there have been increased costs due to the general inflationary problem and, in addition, there has been increases in the rate of interest.

I suggest that there is some difference between a major work of this kind, which, once begun must be completed otherwise one would have a complete state of chaos, and a scheme which comprises several housing plots where the work can be broken up and done bit by bit as money becomes available. As a result of what has happened through the years, the loan charges which have fallen on the Great Ouse River Board, as it now is, have increased by about 100 per cent. That is partly due to the fact that the costs have risen and additional work has been brought in as the scheme has progressed, but the main cause is that the rate of interest has increased as the years have passed.

Is there not a case for discriminating between the short-term small projects and the big project which must be a longterm one? Is there not a case for saying that we ought to try to give local authorities responsible for doing the work on a major scheme a guaranteed fixed rate of interest over a considerable number of years? I realise that this is a difficult problem and that the difficulty will be to decide where to draw the line, but I feel that it virtually makes it impossible for an enormous scheme such as this costing several million pounds to be planned with much confidence if there is to be uncertainty about the rate of interest.

I do not blame my right hon. Friend for the changes which have taken place in the rate of interest. I think that they were inevitable and right, but I feel that, if local authorities are to be faced with problems of this kind, as they have been during the past two years, it will stultify a certain amount of work on the bigger scheme. I suggest that an average should be struck over the years. It may be a question of going back for 25 or 50 years. I suggest that we should make a graph, year by year, of the various charges for loans from the Board, and then strike an average through the middle and see whether we can offer a guaranteed fixed rate of interest to local authorities to cover work on long-term projects.

I am not suggesting that the money should be cheaper than that provided for other work, but that the rate of interest should be averaged over a number of years. That would enable these local authorities to plan ahead with much more confidence. I honestly believe that if the Great Ouse River Board had known at the time when it approved this scheme what changes would be involved as the result of the variation in the rate of interest, it might have produced a completely different scheme in a very much modified form. If it had done that we should have continued to run the risk of floods such as those we suffered in 1947. Over the years there has been flooding almost every 10 years. This scheme was designed to stop flooding once and for all, and I maintain that schemes such as this should rank for a fixed rate of interest.

I believe that it is only by the Government being courageous, as they have been, and standing up to those who say that we are unfairly penalising local authorities, and by saying that the local authorities themselves must curb their spending just as we tell individuals to curb theirs and just as central Government must also do, that we shall succeed, and I believe that, in the end, the Government will earn the gratitude of the nation for having done this job.

I know that it is unpopular, and I should say that there was something wrong with it unless it was unpopular. The action of the Government in placing loans on a new basis, in which the local authority is to be judged on its own financial strength and reliability in borrowing, rather than simply relying on Government credit, I believe to be right. It would probably be interesting to know whether the loans which have been made to local authorities by the Board have in the main been made to the smaller authorities. I rather suspect that that is so, and that the bigger authorities have been able to go into the market.

I am sure that that is what was intended. The Government could not have meant unfairly to penalise the smaller authorities, and, if the figures which the hon. Member for Islington, East quoted from page 9 of the Report could be brought up-to-date, we might find that the smaller local authorities are themselves again relying on the Board, whereas the bigger authorities go out into the market.

What is wrong with that, if the result will be that, in the end, we are able to cope successfully with the inflationary problem of the country? I believe that it is right, that local authorities, like private individuals, should realise that if they want to get this money, in future they must pay more for it. That will make them all the more careful to ensure that the money they are spending is well spent.

I believe that the result of the Government's policy will go some way towards making the local authorities keep a check on their spending. In fact, in my own constituency, a sort of watch committee has been set up by the chambers of trade to see that this is done locally. That is a proper result to happen from the action of the Government, and I believe that the country ought to be grateful to them for having taken it.

12.53 p.m.

Mr. James MacColl (Widnes)

I think that everybody must have enjoyed the speech of the hon. and gallant Member for the Isle of Ely (Major Legge-Bourke). It is all very nice when somebody is just blatantly inconsistent, and, without the slightest attempt to hide it, log-rolling on a constituency interest.

The hon. and gallant Gentleman exhorted the Financial Secretary to be brave and courageous and adopt an unpopular policy, to stand up to the local authorities and make them go out into the market and borrow for everything except land drainage. For land drainage, there must be special care to give them a guaranteed rate of interest. The hon. and gallant Gentleman indicated his pleasure at the fact that for land drainage a substantial proportion of the money was coming from the Public Works Loan Board. I do not blame the hon. and gallant Gentleman. If I had the good fortune to be the Member for the Isle of Ely, I should feel very much that way about it. I should be inclined to push forward the interests of land drainage, and not feel very worried about what was happening to the people in Widnes, Kettering or Islington.

But I think the hon. and gallant Gentleman ought to make an effort of imagination. If a particular problem which he has to tackle in the Isle of Ely makes it necessary for his local authority and drainage board to get special assistance in their borrowing, he should make an effort to look at things also from the point of view of Widnes, Kettering, Islington and all the other overcrowded and busy urban areas, with their appalling problems of schools, houses, roads, and bridges, and things that are for them just as important as is land drainage to the Isle of Ely.

If the hon. and gallant Gentleman would make that effort, I think there would be more hope for him than there is for the hon. Member for Louth (Mr. Osborne). Although the hon. Member for Louth sins against the light willingly, because he knows and does not care, the hon. and gallant Gentleman just has not thought what this problem looks like in Lancashire.

Major Legge-Bourke

The point with which I was dealing is not only the concern of my constituency, but goes much further, up into Norfolk and right along to the source of the Great Ouse.

Mr. MacColl

I am sure that it will be a very substantial amount of money that is involved in a very necessary capital investment. What I am saying is that the hon. and gallant Gentleman ought to bear in mind that other local authorities have their problems, which are very pressing and urgent, and which require the expenditure of money.

It has rightly been pointed out that this is a procedural Bill, concerned with the machinery of obtaining money for loans, and that it is not in itself a declaration of policy about the Government's attitude towards local authority borrowing. That, of course, is perfectly true. On the other hand, this happens to be one of the very few occasions when we can discuss one of the most important questions, namely, what attitude should be taken towards local government investment. This is the first occasion when we have been able to look at the Government's policy, or rather change of policy, since it was announced.

I think we can take it as almost certain that the Government would not have put the figure of £300 million into this Bill, compared with £500 million in the last one, if they did not think that that money was going to last. I do not think the Government would risk the embarrassment of bringing another Bill before the House so soon, and having to listen to the kind of criticism that has been made today. They would not take that risk. They must, therefore, be almost sure that this money will last a long time, and, if that is so, it means that there is to be a very drastic reduction in the amount of money which the Public Works Loan Board will be able to supply to local authorities.

I must confess that I am utterly bewildered at the attitude of financial and monetary experts on this question. Not very long ago, the Committee on Public Accounts produced a Report in which it criticised the prices charged to local councils for milk for schools. It said that the prices were too high, and that it was suspected that somebody was making a profit out of it. The Report asked for an investigation and for pressure to be put on milk suppliers to get the price reduced. Why should it be right to do that, and, when somebody charges a high price for the money which the local authority equally needs for its purposes, why should not the same argument equally apply? Somebody must be making a lot out of it. If, in fact, the price of money has gone up and councils are being forced to borrow the sums they need, somebody must be making a profit out of it.

It is true, as the hon. Member for Louth said, that the tendency, when we put up the price of money, is to discourage people from spending it and to save it in order to provide services, and, equally, the increase in the price of milk discourages people from drinking it. I should have thought that the real question is: do we want people to drink milk and, if so, is it good for them to do so? Equally important, is it a good thing that a local authority should spend money on investment? If we think that it is, then why, for goodness' sake, do we not provide it at the cheapest possible price?

Could anything be more ludicrous than the action of the Government on education? Education needs a substantial amount of capital investment, which is the responsibility of local councils, who are being forced to go out into the open market and pay a rate of interest more than that at which the Government can borrow the money themselves. They are forcing the local authorities to pay a higher than the minimum price. Then they are solemnly having to pay 50 per cent. grants on the increased rate of interest—sometimes 60 per cent., and more than that in the case of some authorities—on the loan charges for building schools. In other words, not only are they making the local authorities pay more money than is necessary, for somebody else's profit, but also making the Government themselves pay more.

To crown the lunacy, when the Government build hospitals, they do not do anything of the sort, because they do not pay any interest charges on the cost of building the hospital. It is purely a question of administration or historical development. It so happens, in the case of a school built by a local education authority, that the authority collects most of the money from the Government, whereas in the case of the hospital the Government build it direct. The need for hospitals and schools is precisely the same, and, therefore, there should not be any kind of financial manipulation producing this sort of Bedlam, which is what the Government policy has developed over the past few months.

I should like to tell the House a fable. Once upon a time, there was a little boy who was bright and intelligent, but who had a rather lazy and dissolute father. The time came when the father said to him, "Son, you are growing up. Now that you are in long trousers you should go out and earn money." He persuaded the boy to get a newspaper round on Sundays.

The boy was tremendously pleased at that. It made him feel confident and self-reliant. He made money, and brought it back to his father, but his father spent it on "booze." The father did not work and did not keep his family, so the pressure grew greater and greater. Eventually, the boy was made to take a newspaper round every day. This had a worsening effect upon his health, and at length got him down so much that he failed to pass the General Certificate of Education examination.

This is precisely what has been happening between the central Government and the local authority. The Government have said to the local councils, "Now it is time for you to be independent. You should not be tied any longer to the leading strings of Government credit or to the Public Works Loan Board. Go out into the open market like other grown-up people, and borrow your own money."

Local authorities have fallen for that story in a very misguided way. They have felt big. They no longer went to Old Jewry to collect their money, but they tried to launch loans in the City. Their representatives have even been invited out to dinner by helpful and courteous finance agents who put them on to the lines where they could get money from a private borrower

There has been a lot of talk in local authority papers about the new spirit of independence which has come over local government. It simply means that the local authorities are getting no benefit at all. They have to put more charges on their ratepayers while increasing their own obligations. The Government take no responsibility such as ought to fall on them, since the Government are the local authorities' partners in much of this spending. Local authority finance does not arise out of the idiosyncrasies of local councillors; the great bulk of the expenditure is virtually mandated by the central Government. Very little of it is left to local discretion.

Housing and education amount to a very substantial proportion of local authority expenditure. The Financial Secretary gave us figures which were very revealing, showing the very high proportion which housing and education bear to the total amount of local authority capital expenditure. In both fields the Government exercise close control over design and siting, through the responsible Minister.

On Tuesday of this week, the Minister of Labour spoke of the redeployment of surplus labour in the motor car industry and said, "We shall provide houses for these people to move from one area to another." Who will provide the houses, if they are provided at all? The local housing authority, and it will have to borrow money.

Is there anything more fantastic than for the Government to direct, encourage, stimulate—or whatever the word may be—housing authorities to build for the benefit of people who are displaced in industry as part of the Government's economic policy and, on the other hand, to say that such spending is extravagant squandering of public money; and that the Government must, therefore, put up the rate of interest, drive local authorities into the open market and do everything to discourage them from borrowing? Could anything be more ludicrous than to have, on the one hand, a progressive policy and, on the other, a restrictive policy? That is exactly what the Government are doing.

One subject of capital expenditure is water supply. In my constituency we have launched a scheme of capital development for the benefit of industry, under which we shall use the dirty waters of the Mersey for industrial purposes, to enable us to economise in clean water and preserve it for household and drinking purposes. That is a sensible and economical thing to do, and helps the heavy chemical industry. On the one hand, the Government encourage us. They have approved the proposal and have given an undertaking. On the other hand, they say, "That is extravagant, and you ought not to do it."

This policy is the height of folly. Not only are the Government crippling local finance, but they are increasing the burden falling on local government and on the ratepayers. The effect can be seen. In 1953, capital expenditure by local authorities amounted to £606 million, which was 23 per cent. of the total investment of the country. By 1955, the capital expenditure had fallen to £497 million and the percentage had fallen to 16. There has been that drastic fall in local authority investment while the total investment of the country has gone up. The Government have failed to discourage investment generally, as part of their general economic policy to prevent inflation, of which we have heard so much. In this one field of local government where essential social services are being provided, the Government have succeeded in making a drastic cut.

The hon. Member for Louth cheers when he hears that local authority expenditure has dropped. He thinks that it is wonderful. If we say what it means in terms of bricks and mortar there is a different reaction. If we say, "That means scrapping water schemes which would save money in the long run by preventing the effects of drought, cutting down the building of schools, meaning that more children will have to share classrooms, reducing the amount of housing in the new and expanded towns so that people cannot get decent houses or move to where their employment is", people get angry.

That is the tragedy of the position and the real significance of the hon. Member for Louth. There are many "hon. Members for Louth" in this world who speak in a vague way about extravagant local government expenditure and never look at the matter in terms of their own circumstances, their children, their family, or of schools, houses, streets, water supplies, main drainage, and so on. They always want more money spent on those things and better and more efficient services. That would be understandable among people to whom the mysteries of local government finance are obscure, but it is not excusable in the Financial Secretary to the Treasury. He and the Government ought to know better.

What are we really doing today? My hon. and learned Friend the Member for Kettering (Mr. Mitchison) spoke of a condemned man not struggling when he went to the gallows. We are really conducting a memorial service today, at which the Minister of Housing and Local Government is not even represented, on all the services which are recognised as ministering to our essential needs.

1.10 p.m.

Mr. Emrys Hughes (South Ayrshire)

When the Financial Secretary was moving the Second Reading of the Bill I asked whether he could give figures about local government borrowings in Scotland. Quite understandably, he could not do so because he is an English Minister with experience of English local government—especially, I understand, of local government in London—but this matter vitally affects local government in Scotland. Although we have a Secretary of State for Scotland and no fewer than three Under-Secretaries of State in this House, not one of them has deigned to attend this debate. I did not expect an answer to my question, because it seems as though the three Joint Under-Secretaries are completely indifferent to what is by far the most important problem affecting local government in Scotland today.

The right hon. Gentleman knows that over and over again on Tuesdays he and the Secretary of State for Scotland are asked Scottish Questions which occupy a great deal of the Order Paper. It is simply littered with Questions asking if representations have been received from this or that local authority about the heavy increase in rates charged by the Public Works Loan Board. This by far is the most difficult problem which local authorities in Scotland have to face today. It has been the subject of representations by the local authority associations, and it is certainly making all our problems intensely difficult. It affects Scotland especially because we have so many small local authorities. I think I am right in saying that only three local authorities have gone to the market as a result of the instruction from the Treasury. They are Ayr County Council, the City of Glasgow and the City of Edinburgh.

The question that immediately comes to mind is, what are all the other local authorities doing? Are they able to go to the market, and what are the results? Of course, it is ridiculous even for a comparatively large county council in Scotland to go into the money market. When it does so, as the County Council of Ayr did recently, it finds it has to pay ransom to all kind of middlemen, underwriters and financial houses in the City of London. It is a very good thing for firms such as Nivison, etc., those who are the super-money-market middlemen, that this instruction was issued. Every time Ayr County Council has gone into the money market in the last 20 years it has been fleeced by the middlemen of the City of London. We can quite understand that that is the primary purpose of this Treasury policy.

How does that policy affect the smaller local authority? Within the County of Ayr there are a score of small burghs. Those small burghs have responsibility for housing, sanitation and other social services. When a project is passed by a town council it does not immediately rush to borrow money. The project has to be sanctioned by the Department of Health and the Secretary of State for Scotland. A small local authority does not do as the hon. Member for Louth (Mr. Osborne) seemed to think. It does not embark on some recklessly extravagant proposal for spending public money. For more than 20 years I was a member of a small local authority. In such an authority the expenditure of every shilling is carefully examined. The members have to meet their ratepayers, not only at election time; usually the custom is to have ratepayers' meetings every year. If the rates go up by 2d. or 3d. that is looked upon as a major financial issue in those small communities.

The interest rate has gone up to 5½ per cent. That will be crippling, in fact prohibitive. As my hon. and learned Friend the Member for Kettering (Mr. Mitchison) said, it means an increase in interest charges alone of 8s. 7d. a week on a house costing £1,700. I think that was a modest estimate. The figure which is usually mentioned in local government circles in Scotland is an increase of 10s. a week for the kind of council house now being built.

There is not only the increase in interest rates. I wonder what members of local authorities in Scotland are to do in about five years' time when they are faced with a crippling burden of expenditure of all kinds. Then there will be what we consider a huge increase in rates which is likely to result from the passing of the Valuation and Rating (Scotland) Bill.

I have the greatest commiseration and sympathy for members of small local authorities who will be forced by the pressure of public opinion to demand more houses and then have to say to their local people, "We are faced with a heavy increase in respect of rent and rates." If that goes on, I can conceive of a time when it will be very difficult to be a member of a local authority because they will be called upon to incur odium and blame for legislation brought about by the actions of this Government. It will be a difficult time for those in a county like Ayrshire, where there are 20 town councils, and where, although housing conditions have been improved, they still present a very grave and serious problem.

In my local authority area of Cumnock we have rehoused the overwhelming majority of the population, but there is still a long list of people waiting to be housed. The time is coming when there will be a drastic increase in rates and rents, and that will reduce the standard of life of the people in that area, especially of newly-married people going to new municipal houses, who will have to pay extortionate rents.

This increase in interest rates is not a party problem. In the town of Ayr, represented by an hon. Member who is not present, and whom I represent on these important occasions, there is a Conservative town council. That town council has passed a resolution urging not only the hon. Member for Ayr (Sir T. Moore), but the other hon. Members for the county, to seek an immediate reversal of Government policy. That kind of resolution has been pased, I believe, by 90 per cent. of the small burghs of Scotland, which are faced with this difficulty.

The effect of the Government's policy applies not only to housing but to everything else. For example, I know of a local authority which prepared a sewerage scheme twenty years ago, and as a result of Government pressure undertook the project three or four years ago. Since the preliminary negotiations for the scheme the rates of interest have risen, with the result that that local authority now faces a very heavy burden. That amounts to a tax on sanitation. The result is that local authorities hold back all sorts of necessary schemes relating to side streets, water supplies and sanitation. The Government know this and are conniving at it. They are doing everything they possibly can, directly or indirectly, to cripple local government.

The locality in which I live is one of the country's future coal fields and people are coming to it from Lanarkshire. If we are to get miners into the pits we have to give them social amenities. They must have decent houses, community centres, etc. Mining communities in the coming 20 years will not be mere shabby collections of rows around the pits. We have to give those people decent amenities and social conditions. That means giving them decent houses at reasonable rents, good lighting, and, in particular, centres for community life in isolated villages.

The Government are clamping down on that sort of thing and making it far more expensive by increasing the rates of interest. That is a very short-sighted attitude indeed. There are, of course, still a few unenlightened people, such as the hon. Member for Louth (Mr. Osborne) who cannot see that such municipal expenditure, although its results are not shown in the direct form of factories, is essential if we are to get the workers for the factories. As one who has known this interest rate controversy for a good many years, I think that the Government's policy will make local government in Scotland very difficult indeed—and if the Minister were to consult the local authorities they would tell him so. Today, however, we are in this unfortunate position that we are discussing a most vital problem affecting local government with not a Scottish Minister present to express a point of view. I am quite sure that the Scottish local authorities will be interested to know that there is no one to speak for Scotland from the Government benches; that the case has to be dealt with by a Minister who, in his opening remarks, said that he did not know the answer to a very simple question.

Mr. H. Brooke

The hon. Gentleman asked me what was actually rather a technical question. If he wants to know what was the proportion of Public Works Loan Board advances to Scottish local authorities in the last financial year, the answer is that, as compared with those to English and Welsh local authorities, it was rather more than one-eighth.

Mr. Hughes

Anybody who has a slight acquaintance with the subject could give that answer.

Mr. Brooke

Then why did the hon. Member ask me the question?

Mr. Hughes

Because I wanted to test what the right hon. Gentleman really knew about it—and it has taken him all this time to give those figures.

I could put the right hon. Gentleman in difficulty if I asked for the proportion for Scottish housing and Scottish education, but I do not wish to make a personal attack on the Minister at all. He should not be put in this difficult position, which results from Scottish Ministers not having turned up. I sympathise with him very greatly—we cannot expect him to be an encyclopaedia of local government all over the country. I also suggest that, when dealing with this problem, which so vitally affects Scotland, we should have had at least one of the unholy trinity of Joint Under-Secretaries of State for Scotland present to state the case for the Government and to explain it to the local authorities

1.25 p.m.

Mr. J. A. Sparks (Acton)

This is an annual Bill. Considered against the background of previous Bills the policy which it contains can be regarded as most reactionary in its effects upon local authorities. To some extent it shows us the serious effect of the Government's financial policy on local authorities and others who have been accustomed for many years to obtain their capital requirements from the Public Works Loan Board. We can get a realistic picture of the effects of that policy only if we compare the Board's Annual Report for 1951–52 with that for 1955–56, which has recently been published.

When we make that comparison we find these astounding facts. In 1951–52, the Board approved loans to local authorities for educational purposes of £45 million—and I speak here in round figures. In 1955–56, the amount was £17 million. Approvals for public health in 1951–52 were £20 million. That figure fell to £15 million in the past year. For local authority housing schemes, the figures are £305 million for 1951–52 and £103 million last year. In 1951–52, the amount approved for roads and bridges was £3,676,000; last year, that figure fell to £1,644,000. For town and country planning schemes £10 million—again, in round figures—was approved in 1951–52. Last year, that figure fell to £1,359,000.

With regard to the trading services of local authorities, the amount approved in loans to local authorities in 1951–52 for transport was £7 million, and last year it fell to £2 million. On water, which is a very important service provided by the local authorities, in 1951–52 the amount approved was £21 million, and last year it fell to £12 million. The total amount of approved loans to local authorities for their many different purposes in 1951–52 was £475 million, but last year that amount fell to £223 million.

Mr. H. Brooke

I am sorry to interrupt the hon. Gentleman, but I hope he appreciates that he is reading the wrong figures from the last Annual Report. He is reading out the figures of loans approved, on page 4 of the Report, whereas he is saying all the time that they represent loans advanced. The figures for loans advanced are on page 6.

Mr. Sparks

I intended to indicate that they were loans approved by the Public Works Loan Board. As the Report says, Loans approved on the security of local rates:— The figure of actual loans advanced is slightly different, but the policy that I am endeavouring to expose is revealed in these figures, namely, that the Public Works Loan Board has been forced, by Government policy, to reduce its approvals of local authority loans; or, in other words, the Board has sent the local authorities away and has refused to approve schemes to the extent that they were aproved in previous years, and particularly in 1951–52.

Since the right hon. Gentleman has raised the point, may I point out that he will find, in page 7 of the Annual Report for 1955–56, these significant words: By the end of the year, however, many local authorities applying for loans were furnishing reduced estimates of their probable capital requirements over the next twelve months, whilst others intimated that their programmes were under review. All that indicates that the policy of the Board has been and still is to refuse approval to loans made by local authorities unless they can indicate within one month of their requirements that they have been unable to raise this money elsewhere.

The most detestable feature of these proposals is that the Government are not only depriving the local authorities of the facilities of the Public Works Loan Board in the way that they have been accustomed to enjoy them over many years, but they are driving them to the money market. As anyone knows, the price they must pay for loans in the market is higher than the Public Works Loan Board rate, and because the rate in the money market is higher than the Public Works Loan Board rate, the Board is directed to increase its rate of interest on whatever money it advances to local authorities to the same level as local authorities pay in the open market.

When the Public Works Loan Board increases its rate of interest on borrowing to the level obtaining in the open market, the open market raises its rate higher than the Public Works Loan Board rate. We therefore have this process of the rate of interest being constantly forced up because of this competitive element that has been introduced as between the rate of interest to be paid on the open money market and that of the Public Works Loan Board. The Public Works Loan Board is raising its rate of interest as the rate of interest on the money market increases.

In effect, that is automatically stimulating a rise in interest rates on loans which local authorities require from time to time either in the open money market, or, in the last resort, from the Public Works Loan Board. That is a thoroughly bad principle. After all, the work which local authorities are undertaking is in the interests of the community. They are not making a profit for themselves as a result of their capital investment programmes.

That being the case, I believe that local authorities are entitled to the facilities which the Public Works Loan Board has always been able to provide for local authorities, namely, loans at reasonable rates of interest which in the main were slightly below the open money market rates and which were about equivalent to or slightly higher than that which the Government would have to pay for raising their own financial requirements.

It is an anti-local authority and anti-public policy which the Government have forced upon the Public Works Loan Board in compelling it to adopt a kind of dog-in-the-manger attitude by refusing local authorities the financial facilities which they have always been accustomed to have, and not only making them pay much more in interest on their loans, but compelling the ratepayers to pay much more than they have hitherto paid to finance the services of local authorities.

In this Report we find that the Public Works Loan Board has raised its rate of interest on loans five times during the past year. In fact, I am not quite sure whether my figures include the latest increase or not. If not, it means that the Board has raised its rate of interest six times since the last Annual Report was presented. But let us assume that the Board has raised its rate of interest to local authorities five times during 1955–56.

On loans of not more than five years duration, the rate of interest has been raised from 3⅛ per cent. to 5⅝ per cent. On loans of more than five and not more than 15 years, the rate has gone up from 3¾ per cent. to 5½ per cent., and in the case of loans of more than 15 years the rate has increased from 4 per cent. to 5½ per cent.

The average rate of interest on all the money advanced by the Public Works Loan Board in 1951–52 was £2 19s. 5d. per cent. or per £100 advanced, but in 1955–56 the average rate of interest on its advances had increased to £4 11s. 5d. per cent. or per £100 advanced. Therefore, one sees that there has been a considerable and substantial increase in the rate of interest charged by the Public Works Loan Board upon the loans that it has advanced to local authorities, and it is the ratepayers who have had to make good that difference.

If we examine the effect of the new policy of the Government on the financing by the Public Works Loan Board of local authority requirements, we find a remarkable result in housing, which is an important part of local authority activities that hitherto has been financed substantially by the Board.

On 1st March, 1956, I asked the Minister of Housing three Questions which were replied to in a Written Answer which appeared in c. 149 of the OFFICIAL REPORT. I asked the right hon. Gentleman if he could tell us what was the cost of the notional house in 1951 and 1955. Here perhaps I should say that the notional house is an average type of house based upon the average cost of building by local authorities. The Minister takes the number of dwellings built by a local authority and the amount of finance necessary for the purpose. Then he strikes a general average which is called a notional figure, and on that figure the Minister bases his subsidies. The Answer was that in 1951 the cost of the notional house, was £1,396 and that in 1955 it had risen slightly to £1,442, an increase of roughly £46, which is insignificant for my purpose.

I also asked the Minister if he would indicate the total amount of repayments on such a notional house over the period of a 60-year loan, because local authorities finance their housing schemes on that basis, as a general rule. The total repayments on the 1951 notional house, according to the Minister, would be £3,520. The repayments on the 1955 notional house, he said, would be £4,754, or an increase of £1,234 in the repayment charges on the 1955 house.

Thirdly I asked the Minister if he could indicate how much of the total repayment was for interest charges upon loans obtained from the Board. The Minister replied that the interest charges on the 1951 house accounted for £2,124 of the total repayment of £3,520 and that interest charges on the 1955 house had risen to £3,312 out of a total repayment of £4,754. In other words, the interest charges now payable on the 1955 house have gone up by £1,188.

Expressed in another way, 60 per cent. of the repayment cost on the notional house in 1951 is chargeable to interest, whereas on the 1955 house the repayments cost for interest charges is 70 per cent. In other words, the interest content of the repayments on the notional house rose from 60 per cent. in 1951 to 70 per cent. in 1955.

I will express the matter in yet another way. In 1955 local authorities completed 162,525 houses which were in the main financed by the Public Works Loan Board. The measure of the increased cost of interest charges is indicated by the fact that as compared with 1951, local authorities will pay £193 million more in repayment on those houses than they would have had to if the houses had been built in 1951.

That is a formidable figure. What the policy of the Government has achieved is that they have succeeded in placing a huge burden of £193 million more for houses not on local authorities but upon the backs of the tenants who live in the houses and of the ratepayers who live in the local authority areas. So, at one fell swoop they have transferred to the backs of ordinary people an additional burden of £193 million through the general rise in interest rates.

We do not know what will follow. We cannot anticipate legislation in next year's Public Works Loans Bill, but if the present year is any criterion, next year will be a worse one. The general tendency for the rate of interest to rise appears to be inevitable also next year, and that must have its effect upon the activities of local authorities, and compel them to reduce still further their activities on behalf of their communities.

There is one last and final point that I want to make in connection with the cancellation of loans approved. The right hon. Gentleman made an attempt to answer an interjection of mine when he moved the Second Reading of the Bill, but he cleverly avoided the main point of my question. It arises from section IV on page 5 of the Report of the Public Works Loan Board, which states that during the year a total of £226,267,000 in respect of loans approved was cancelled in the books of the Board and that the outstanding commitments were reduced accordingly.

I asked the right hon. Gentleman whether, before cancelling these loans the Government consulted the local authorities who had obtained the approval of the Board to their loans. The right hon. Gentleman replied that the Government had consulted the two associations of local government authorities and that they were satisfied. I do not know what form of consultation took place. I do not know whether the Financial Secretary telephoned the secretary of the A.M.C. and said, "Look, old chap, we are proposing to wipe out all these loans. What do you think about it?", and the secretary said "That is all right. We do not mind."

I am sure that if consultation had taken place with the local authorities—they are the people to whom the Minister should have gone, for they are the people who have made application and have received loan sanction—the right hon. Gentleman would have found that a number of the loans outstanding in March, 1956, were for urgent and necessary purposes. The fact that the Board approves a loan does not necessarily mean that the money is advanced in the same year. Indeed, on page 7 of the Report there appears an analysis of advances under the years of loan approval. The amount advanced in 1955–56 was £364 million, but that was on account of loans approved, in some cases, many years previously. Of that sum, £108 million was for loans approved in 1954–55; £65 million was for loans approved in 1953–54; £21 million was for loans approved in 1952–53; and if we go back to 1945–46, we find that £1,000 of it was for loans approved ten years ago.

Thus, the Government, without any consultation whatever with local authorities, have completely cut off all loans which were sanctioned before 31st December, 1954. They gave local authorities no notice of their intention and no chance to reconsider the matter and, perhaps, to say "We can agree to this loan being cancelled but not that, which is for an especially important purpose."

It is no argument for the right hon. Gentleman to say that if a project was of an urgent character a local authority would have put it into operation the year in which the loan was approved. It is in the general process of the financing of local authority activities that, for their own good reasons, or sometimes for reasons beyond their control, applications for advances may be delayed for a year or two after approval has been given. A local authority may have other commitments, and so that they should not be too heavy in one year, it might wish to spread them over a year or two. However, having got the sanction of the Board and the Government to a project, it knows that it is only a question of time before it can proceed with the work. The right hon. Gentleman and the Government were very unfair not to consult local authorities about the outstanding loan approvals. I am sure that a number of urgent and necessary works have been cut off.

We cannot congratulate the Government or the Financial Secretary upon the contents of the Bill. My hon. Friends and I cannot oppose a Bill of this kind, because it gives authority to advance to local authorities moneys to be used to finance their work, and that, in principle, is a good thing. At the same time, we can place upon record our condemnation of the Government's new policy of depriving local authorities of financial resources at reasonable cost. The policy is strangling the efforts of local authorities and causing them to run down many of their urgent and necessary works, including housing, public health, education, roads and bridges, sewerage and a host of other necessary services.

The Report points out that local authorities must indicate to the Board what their capital requirements are likely to be in the following 12 months, and that substantial reductions in their capital programmes have been indicated to them already. The Report says that this process will continue and that further programmes are under review in a downward direction.

Therefore, it may well be that at this time next year we shall be considering a report which is far worse in content than the present one. My hon. Friends and I believe this to be a great mistake. We believe that local authorities should be entitled to receive from the Board the necessary finance for their work at reasonable cost. It is wrong to force local authorities into the open money market. The larger local authorities, who have greater security to offer, may find it a little easier to get loans, but the smaller local authorities will have very great difficulty in raising money on the open money market, merely because they are small. Their work will, in effect, be completely crippled, not only because of their inability to raise money, but because of the increasing rates of interest which are being levied.

The burden of increasing rates of interest falls far more heavily upon the people in our rural and county districts than upon those in the great concentrations of our cities and towns. In the remoter areas a 1d. rate means much more to the people than it does to those in built-up areas. The policy is wrong. Whatever the Government may see fit to do about the county boroughs and the county councils, I think there is a case for giving the rural district authorities, and even some of the urban district authorities, far better facilities than they now have to carry on their necessary work without placing an undue burden upon their ratepayers.

2.0 p.m.

Mr. Glenvil Hall (Colne Valley)

The Financial Secretary, when he initiated this debate, said that he thought that it would not attract as many Members as normally attend a Budget statement. Undoubtedly, that observation was correct. Nevertheless, the Bill is just as important in its way as any Finance Bill which follows a Budget statement, with all the ceremonial, interest and attention which go with it. Here, we are providing the machinery which assists local authorities to organise their budgets and their local finances in the most reasonable and economical way.

I have sat through the whole debate and it seems to me that there is very little which I can add to what has been said by my hon. Friends. We have had only two speeches from hon. Members opposite and both wholeheartedly supported the policy of the Government and were in agreement with what the Financial Secretary said. I thought the speech of the hon. Member for Louth (Mr. Osborne) was one of the good old-fashioned sort which we rarely hear these days. He was very anxious that local authority expenditure should be cut down at all costs, and that practically all of it—I do not think that he made any exception—was unproductive. I need not reply to what he said, because his case was completely demolished by my hon. Friend the Member for Islington, East (Mr. Fletcher).

The hon. and gallant Member for the Isle of Ely (Major Legge-Bourke), who represents an area which I used to know very well, agreed with the hon. Member for Louth, except about land drainage. He thought that that at all events was an excellent object to attract loans from the Public Works Loan Board. We, of course, agree with him, because land drainage, particularly in the Fen district, is a matter of the utmost urgency both to agricultural production and the livelihood of the people. It is essential, as the hon. and gallant Member saw clearly, that drainage boards should be able to borrow money at low rates and not have to go to the open market and compete with others for the money which they want.

Major Legge-Bourke

I want to make clear what it was that I was particularly urging. It was not what the right hon. Gentleman said. I was asking that any major, long-term scheme which, once started, must be taken to completion and which could not be stopped half-way, should be financed at a permanent rate of interest.

Mr. Glenvil Hall

I followed that part of the hon. and gallant Gentleman's argument and agreed with what he said, and I hope that the right hon. Gentleman will take note of it. However, the hon. and gallant Member did spend a portion of his time commenting with approval on the table on page 9 of the Report, where it is shown that the percentage of money which the Board granted for land drainage was greater than that for any other type of scheme. In fact it was 84 per cent., as the hon. and gallant Gentleman reminded us.

These Bills have a very ancient history. From 1875 it has been felt essential that Bills of this type, under legislation of that year, should be enacted from time to time. Normally we get them every Session and I think that all hon. Members will agree that that in itself is an indication of how important this side of the national endeavour is. For more than 80 years it has been found absolutely essential that moneys should be found by the Government to assist local authorities. I suppose that never before since this legislation was put on the Statute Book and moneys loaned from the Local Loans Fund by the Public Works Loan Commissioners has there been in office a Government who have done so much to reduce the usefulness of the Commissioners. It seems to us that the Government have needlessly gone out of their way to prevent the Commissioners from being as useful as they might otherwise be.

As we all know, the Bill provides in its two operative Clauses for the advance of £300 million of fresh moneys until another Measure is passed and for advances plus promises of advances to the extent of another £100 million, that is £400 million in all. The right hon. Gentleman indicated that should the Government find that their calculations were wrong, they would not hesitate to come to the House again to pass another Measure. That, however, is said by the Financial Secretary of the day every time we get a Bill of this kind. In spite of that, when the figures are inserted in the Bill, we know very well that those are what the Government are likely to need. When the right hon. Gentleman tells us that £400 million for advances plus promises is what is in the Bill, we can take it as certain that that amount will last the Government, at any rate until this time next year, if not later.

In the previous Measure we agreed to advances up to £500 million and for advances and commitments up to another £500 million, making £1,000 million in all, which is £600 million more than is allowed in the present Measure. In the Measure before that the figures were even more startling. We were asked to agree to advances up to £500 million and advances plus promises up to £1,200 millions. When we were debating the present Act last year, I asked the Financial Secretary why there had been a drop of £200 million in the total amount. He replied that we should not look upon the slight reduction as anything sinister. Perhaps in connection with an amount of that size £200 million can be said to be a slight reduction.

However, I do not think that it is slight this time. It is catastrophic, and my hon. Friends and I must protest very vigorously at the kind of policy which this change indicates. The fact that local authorities have had to go to the open market has made a considerable difference to the interest rates and to the difficulties which they have to encounter in raising money for capital expenditure. The rates which are charged by the Board have varied considerably in the last few years. In November, 1951, as was pointed out by my hon. Friends, particularly my hon. and learned Friend the Member for Kettering (Mr. Mitchison), local authorities could borrow up to five years at 2 per cent. and for 15 years at 3 per cent. and for over 15 years at 3¾ per cent.

Today the picture is entirely different, and local authorities borrowing up to five years have to pay a rate of 5⅝ per cent., from 5 to 15 years 5½ per cent. and for over 15 years 5½ per cent. There have been nine changes—an incredible state of affairs—between November, 1951, and March, 1956.

Those of us who were in the House at the time have only to recollect what the rates were between 1945 and 1951, when the Labour Government were in power. During the term of office of my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), the rate never varied from 2½ per cent., and not only local authorities but business people were much helped because of that. Under the late Sir Stafford Cripps, the rate went up to 3 per cent., but never higher, so that the ratepayers as well as the taxpayers have suffered very heavily as a result of a Conservative Government coming to power five years ago.

What do these higher rates mean? The figures show that there has been an enormous rise in the interest charges on a £1,700 house, with, consequently, an increased rate burden and increased rents for local authority houses. In 1951, when the rate was 3 per cent., the interest charges on a £1,700 house were £1,976. With the interest rate at 5½ per cent. the interest charges on the same house—if it costs £1,700 which, unfortunately, it does not—now represent £4,122.

That is an enormous rise which has to be paid for by ordinary people and, more often than not, by small local authorities. Spread over 60 years it means a yearly addition of £35 14s. on every house. In 1951, the interest charges amounted to about 12s. 8d. a week whereas today, as a result of the policy of the present Government, they amount to 26s. 5d. a week, a difference of 13s. 9d. That represents a rise of more than what was the whole weekly interest charge when the Labour Government left office.

I hope that the right hon. Gentleman will be able to indicate today whether the present burden of interest rates is likely to be reduced. How long local authorities can continue to pay these rates, I do not know. Since they were put into operation some local authorities have found themselves unable to go on with their schemes for house building, even though the houses are needed as much today as they were earlier. It is anti-social and quite wrong of any Government in these modern times to put any obstacle in the way of a local authority wishing to build houses for the people in its area.

Looking through the Report, I notice that for the year to 31st March, 1956, 3,292 fresh applications were made to the Public Works Loan Board for loans totalling, I think, £61 million. During the same period there were, in addition, 3,281 re-applications for what might be called old loans, that is, loans applied for before the new policy came into operation. That means that the total number of applications for the year was 6,573, representing £134 million.

According to the Report, 6,410 of these applications were granted, which means, if my arithmetic is correct, that 163 were refused. A total of £111 million was advanced by way of loan, thus leaving an amount of £23 million in respect of loans not acceded to. I think we should be told, if the right hon. Gentleman has the information and would be good enough to give it to us, the types of authorities which were refused loans representing that £23 million, and why those loans were refused. For what purposes did they want the money?

It is my experience of local authorities that, normally, they do not ask for money unless it is urgently needed for some scheme which has very often been discussed for a long time. That being so, why in this relatively short period of time were 163 applications refused? If the right hon. Gentleman can answer those questions it will give the House some idea of the kind of policy which the Government are following in this matter.

In his speech, the right hon. Gentleman said that all local authorities applying had been asked to say why they wanted the loan. I thought that was rather a naive way of putting it because it hardly marches with the statement made by the then Chancellor of the Exchequer on 26th October last year in which, as my hon. Friend the Member for Islington, East (Mr. E. Fletcher) pointed out, he was very frank in announcing the Government's change of policy. Among other things—my hon. Friend did not quote this, but perhaps I might—the right hon. Gentleman said: But I have asked the Board, before it grants any advances in future, to put all applicants on inquiry as to their ability to raise the finance on their own credit, either in the stock market or in the mortgage market."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 215.] In other words, although local authorities come only a month before they want the money—that is at the very latest date—they are then rarely then put on inquiry as to their ability to raise the money on their own credit in the mortgage market or in the stock market.

In this connection, perhaps I may quote from an article which appeared in the Financial Times on 16th March last. It was not signed, but it was obviously from the pen of a borough treasurer who knew what he was talking about. It said: The situation as far as mortgage loans are concerned is one of considerable difficulty. Money is far from plentiful and lenders are naturally seeking the highest possible rates for the longest possible periods. Rates of 5⅞ to 6 per cent. are being asked for the shorter period mortgages, and 5⅜ to 5½ per cent. for terms up to 25 years. The article indicates that local authorities are thus faced with considerable difficulty, and that the ratepayers, and possibly the tenants, are being forced to carry a very heavy burden by way of repayment costs. The only alternative to that, quite definitely, is for the local authorities to stop building altogether for general needs.

I am sure that many hon. Members on both sides of the House are as familiar as I am with councils which have recently had to decide to stop building houses altogether owing to the changed policy of the Government. That is very anti-social and very wrong, and I think that the right hon. Gentleman ought to give some reason why, in the eyes of the Government, that policy has become absolutely essential.

I wish to put one or two other questions to the right hon. Gentleman. He will remember that the Government agreed, after some pressure, to allow local authorities to borrow for less than a 60-year period. That has been of the utmost assistance to many local authorities which do not want to borrow for that length of time. But they are still not able to repay and reborrow at a lower rate of interest when rates go down.

I do not know how long this Government will stay in office and, therefore, how long interest rates will remain as they are or go even higher, but hon. Members on this side of the House hope that one day another Government with a more forward outlook will come into office; and when that time comes interest rates will go down. It is a shocking thing that local authorities who are now forced to borrow at fantastic rates should have to go on paying those rates for anything up to 60 years. It is high time that the Government revised their policy and permitted local authorities to borrow through the Board and, when they feel it prudent to do so, repay the loan and re-borrow at a lower rate.

The Board has always been efficiently staffed, but the staff has never been very large. It has carried out a great deal of work with what some people might call a minimum number of persons. From its last Report, I gather a change of Government policy has given the Board much extra work. As this is one of the few occasions on which we deal with the Board and the Commissioners, I should like to ask the right hon. Gentleman whether he can tell us if an increase of staff has had to be made, or whether, under the general policy of the Government of reducing staff in a variety of Departments and directions, the Commissioners have had to work with a smaller staff, in spite of the increased burden which has been placed upon them.

It would be useful if the Minister told us something about the bad debts owed to the Commissioners. In the old days, during these debates many references were made to the number of loans which, for one reason or another, had had to be written off. When we debated the 1952 or 1953 Bill it was announced that the Government did not intend regularly, with every Bill, to write off loans which appeared to have been irretrievably lost. That was five years ago, and I should imagine that some bad debts have been incurred since then.

If we look at Appendix B—the explanatory notes on which appear to be almost word for word the same as they were last year—we find no indication of the amount of money which has now been quite definitely lost, without any hope of its ever being repaid. One notices too that the interest now appears to have exceeded the capital upon these loans. Looking through the list it appears to me that £375,000 or more has been registered as bad debts, but the interest seems to amount to over £500,000. That kind of thing can go on until it becomes farcical. Can the right hon. Gentleman give some indication of the present position?

Finally, as the House knows, this is not a Bill which we can vote against. We shall have to accept it, although we regret that the Government have found it possible to introduce so meagre a Measure at a time when local authorities are in such great need, and money rates are so high.

2.24 p.m.

Mrs. Joyce Butler (Wood Green)

In moving the Second Reading of this Bill, the Minister referred with appreciation to the co-operation which the Ministry has received from local authorities. He must have said that with his tongue in his cheek, because he knows perfectly well that local authorities have had no opportunity to do anything but co-operate. They have been forced to come into line with the Government's policy. The Minister must also be aware of the very strong resentment which exists among all types of local authority about this policy. Many local authority deputations have been to the Ministry of Housing and Local Government, if not to the Treasury, in connection with this matter.

Because of the shortage of time, I shall not elaborate some of the points which I wanted to make, but I should like to refer to one aspect of the matter which has not yet been touched upon, namely, the fact that local authorities are acting as agents for the Government in making advances for house purchase. Reference has already been made to the very serious effect which the Government's policy has had upon local authority housing, and I entirely endorse what has been said in that respect. Faced with this new financial policy, local authorities are inevitably being forced to cut their housing programmes. If they can build, they find that the high interest rate and the high cost of building, together with all the other difficulties, are putting rents beyond the means of the people.

Until the change in borrowing from the Board came about in October last year, local authorities had advanced very considerable sums to people who wanted to buy their own houses. If one compares the figures for 1951–52 with those for 1955–56 one finds that there has been a considerable increase in the amounts which local authorities have borrowed from the Board for that purpose. In 1951–52, more than £14 million was borrowed, and last year the figure was £26 million, in round figures.

In making these advances local authorities have also been making a very considerable contribution towards solving the housing problem. As council house building becomes restricted by Government policy it is important that these loans should continue to be made as far as possible. Local authorities are not doing this on their own behalf or for the benefit of their ratepayers as a whole; they are acting as agents of the Government. They are simply advancing the money as part of the declared policy of successive Governments, under the Housing Acts and under the Small Dwellings Acquisition Act provisions. At present, many of them cannot obtain the money for these advances from the Board. Immediately after October of last year they were able to borrow from the Board for this purpose for several months, but it has become increasingly difficult for them to do so in the last few months. As in the case of all the other loans which they wish to raise, they are being driven on to the market.

With the difficulty of raising money on the market, the high interest rates and the expenses which are attached to them, local authorities are finding it extremely difficult to carry out this function, and many of them—I do not know the exact number; I do not know whether the Minister has it?—have discontinued this service altogether. Others have introduced restrictions. Some are lending only £1,000 upon any one house, others have increased the amount of deposit which they require to be made, and in other ways they are very much curtailing this service. Is it the Government's policy that this should happen? Is it the Government's policy that it should become so difficult for local authorities to carry out this service that they stop carrying it out altogether and deprive those who want to buy their own houses of the means of doing so through local authorities?

That is what is happening, and although the sum advanced last year for this purpose was comparatively large, it is clear from what is happening today that by this time next year very little if no change is made, will have been obtained from the Public Works Loan Board for this purpose. If that happens it will mean that what has been a very useful social service will have practically dried up because of Government policy.

2.31 p.m.

Lieut.-Colonel Marcus Lipton (Brixton)

I am obliged to the Financial Secretary for the courtesy which he has shown in not replying to the debate until all those hon. Members who wish to take part in it have done so. I will, therefore, not trespass unduly on his generosity, except to say that I hope that this very commendable example on his part will be followed by some of his Ministerial colleagues on other occasions.

As my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) said, the number of loan applications and approvals has fallen very considerably during the last two years of the Public Works Loan Board's activities; the number has fallen to about half. Nevertheless, the cost of running the Public Works Loan Board is more or less the same. In 1954–55, the total cost of administration was £57,000 and in 1955–56 it was £56,000, although there had been this great drop in the number of applications received and loans approved.

It may be that when the credit squeeze was applied in October, so much extra work was imposed on the Board in turning down applications that the staff found themselves just as busy turning down applications as they had been in granting them in previous years. The temporary pressure arising from the credit squeeze is not likely to continue throughout the year. Nevertheless, the estimates for the forthcoming year show that the Board will cost £54,000 to administer. That economy does not seem to me to be at all in proportion to the very much reduced work which, as a result of Government policy, the Board is now called upon to discharge.

On previous occasions, I have advocated the abolition of the Public Works Loan Board, and it now seems that if the logical consequences of the Government's economic policy are fully worked out there will be no more work for the Board to do. It is obviously Government policy, first, that local authorities should spend little or nothing, and, secondly, that if they spend anything at all they should go somewhere else for the money and not to the Public Works Loan Board. As long as the Government's present policy continues, the more certain it will be that this annual Bill will become unnecessary, and perhaps next year, if the Government's policy works itself out as they want it to work out, the Financial Secretary will not find it necessary to come to the House with a similar Bill.

I turn, next, to the question of short-term borrowing. It is very important that local authorities fortunate enough to be able to borrow for periods up to 60 years from the Public Works Loan Board should have an opportunity of bringing the loan to an end if interest rates move in their favour. It is certainly prudent finance at present for local authorities to borrow short to the utmost possible extent, and in that connection the Board's rate of 5⅝ per cent. for short-term borrowing—not longer than five years—is, in fact, an illusory figure. It is impossible at present to obtain short-term loans in the money market at anything like that figure. A few days ago the Metropolitan Borough of Lambeth wanted to borrow some money for three years, and the lowest quotation for a three-year loan which the Borough Treasurer could get in the money market was 6 per cent., which makes the figure of 5⅝ per cent. up to five years quoted by the Public Works Loan Board purely a figment of the imagination.

In any event, almost no sanctions are given by the Government Departments concerned for loans over periods less than seven years. That is borne out by the analysis of advances in page 6 of the Board's Annual Report. If one looks at the Schedule, one sees that of the total amount advanced during 1955–56, about one-third of the 1 per cent. was for periods not exceeding five years. That seems to confirm my argument that it is doubly difficult for local authorities who can meet their needs by short-term borrowing in fact to borrow short, either in the money market or even from the Public Works Loan Board.

Fortunately, the London County Council—with which the Financial Secretary is not unacquainted—was able to get a loan of £10 million from a secret source, and as a result of that the Metropolitan Borough of Lambeth was able to borrow at 5⅜ per cent. for a period of two years. That loan obtained by the London County Council has been of immense help to Metropolitan borough councils all over London; it has certainly helped them in a period of some financial difficulty.

These difficulties will continue, however, and I hope that the Financial Secretary will be able to use some influence with the Public Works Loan Board to make it easier for local authorities to obtain advances from the Board for these short periods, not exceeding five years.

2.38 p.m.

Mr. H. Brooke

If I may have your leave, Mr. Speaker, and that of the House to speak again, in reply to the debate, I will try to keep myself as closely as I can to the contents of the Bill, although the Opposition's criticisms have ranged far beyond the Bill.

Those criticisms have been founded on two fallacies. One is that local government capital expenditure is of such unique national importance that it should be enabled to carry on unaffected by thoughts of inflation, the balance of payments, the value of the £, or anything else. The second fallacy—at least, it seems a strange view for the Opposition to put before the House—is that the Conservative Government are strangling the local authorities and the social services if they do not ensure that local authority capital expenditure continues at a rate substantially higher than that when the Socialist Party was in office.

The second of those criticisms answers itself, I should have thought. As to the first, we all have to bear in mind that local authority capital projects account for about 25 per cent. of the total capital formation of the British nation at home, and, therefore, the rate at which local authority capital development goes forward is bound to be a matter of very considerable moment to all who care about the handling of the national finances and the national economy.

The hon. and learned Member for Kettering (Mr. Mitchison) alleged that the Board was not meeting the requirements of the local authorities. He spoke, in particular, of the smaller local authorities around Kettering. He said, almost reproachfully, that the Board should be meeting the needs of the smaller authorities as one of its primary duties. In the circumstances it is rather surprising to me that we receive no criticisms whatever from the smaller local authorities themselves that the Board is failing to meet their needs. It is quite true that on occasions some of the larger authorities have complained in that the Board has represented to them that they have not made sufficient efforts to raise their money in the stock market, the mortgage market or elsewhere and that they have come to the Board before they could prove that they were unable to raise their money elsewhere. I have no record of any such complaints from the smaller local authorities.

I would say, though the hon. Member for Acton (Mr. Sparks) is not in his place—and I do not blame him, because he was sitting here for a long time—that his allegation about the ill-treatment of local authorities by the Board in writing off older commitments without consulting them individually, was the most astonishing evidence of the distance which he and other hon. Members are ready to travel from the facts in seeking to criticise the Government. If the Board has done wrongly in writing off older commitments which have not been exercised, in full agreement with the standing committees of the local authority associations, surely the complaint should in the first instance come from the individual local authorities which consider themselves damnified. We have not had one single complaint of that kind, yet the hon. Member thinks that it is desirable to take up the time of Parliament by complaining that we have acted unjustly.

A number of hon. Members have sought to argue that the fall in advances from the Board can be taken as direct evidence of a proportionate fall in capital expenditure by local authorities. That, of course, is a fallacy, too. The fact is that since last October local authorities have been making a much more vigorous effort to seek to raise money by their own efforts, and in very many cases they have been successful. I fully recognise that it is harder for a small authority than for a large one to do that, but it must be right that the larger authorities, and, indeed, all authorities, should make the effort and that the Board should stand behind in the background available if any authority, small or large, can prove that it has been unable to raise the money without drawing on Government funds.

Fundamental to this whole question is the fact that the system of local authorities borrowing from the Board casts a responsibility on the Exchequer. This money comes from the Exchequer through the Local Loans Fund, and thereby increases the total of the National Debt. That, again, is an important factor which my right hon. Friend the Chancellor of the Exchequer must bear in mind in his management of the national finances and the national economy.

Hon. Members on several occasions have repeated my statement that this was essentially a machinery Bill.

Mr. Mitchison

I do not think that the right hon. Gentleman has answered about the only question I asked him. It was, where are the local authorities getting the money from at present that they do not get from the Board or from the issue market? If the right hon. Gentleman can tell me, I should like to know whether they are paying more than the Board's rate for it.

Mr. Brooke

Those local authorities which have been successful in borrowing in the open market are probably known to the hon. and learned Member. The amount that local authorities have raised on the open market in the first half of this calendar year is £37,500,000. In addition, the local authorities borrow on mortgage from the trustee savings banks. The end of the last trustee savings bank financial year was 20th November, 1955. At that time the outstanding borrowings on mortgage by local authorities from those banks amounted to £163 million. It would naturally be impossible for me to produce figures later than those given annually by the trustee savings banks.

In addition, the local authorities are raising substantial other sums by mortgage. I cannot give the estimate. It is not obligatory on local authorities to report everything that they borrow to the central Government. It may be—I cannot say, because it is one of the factors we have to take into account in fixing the £300 million in this Bill—that in the coming months they may not find it so easy to borrow in the mortgage market as they have in the past few months. I am seeking to show that one cannot establish a direct relationship between what they are borrowing from the Board over any period and the total capital expenditure of the local authorities.

Mr. Mitchison

I think that this is the first many of us have heard of such extensive borrowings from the trustee savings banks. Is the rate the same as the Board's rate? Is the procedure the same? Are there similar requirements about having to go elsewhere first, and has there been an increase in that total since the previous year?

Mr. Brooke

The trustee savings banks are free to make their own arrangements with the local authorities, but those banks are one of the sources of money to which the local authorities can go. The hon. and learned Member asked whether there was an increase over the previous year. Yes, there was a net increase of about £25 million, which suggests that, net, the local authorities were in 1955 borrowing about £500,000 a week from the trustee savings banks.

Mr. Mitchison

I am sorry to interrupt again, but this is a matter of some importance. The trustee savings banks, I always understood, were bound under the Act to invest their investable funds in what I think is called the fund for savings banks, or something of that sort, at the Bank of England. I did not know that it was open to them to entertain applications from local authorities. The right hon. Gentleman will understand that this has some bearing on what has been said recently about the Birmingham Municipal Bank and other banks lending to local authorities.

Mr. Denis Howell (Birmingham, All Saints)

Is the right hon. Gentleman aware that the Chancellor of the Exche- quer told a deputation from Birmingham yesterday that one of the difficulties standing in the way of the Birmingham Municipal Bank in getting the taxation concession on the £600 saving was that they could lend money to the local authority, although they had not done so since 1949? The Government want us to open a trustee savings bank in Birmingham in place of our bank. How does that square up with what the Minister is telling the House?

Mr. Brooke

I must not anticipate any debate that may take place next week on the Report stage of the Finance Bill. What I am saying now is that at the end of the trustee savings banks' last financial year they had about £163 million lent on mortgage to local authorities at various rates of interest. The local authorities have no alternative source to the Public Works Loan Board to which they can go and expect always to be able to borrow at a fixed rate of interest.

My hon. and gallant Friend the Member for the Isle of Ely (Major Legge-Bourke) asked me whether the local authorities could not have a fixed rate of interest guaranteed for a period of years when embarking on big schemes for which they would only need the money slice by slice. I must say that I look with doubtful eyes at anything of that kind, because though I can see how attractive it seems to my hon. and gallant Friend in a period when interest rates are rising, it would be very much less attractive to local authorities in a period when interest rates are falling. If we embarked on that, I can well imagine that local authorities, quite naturally seeking their own advantage, would claim the benefit of such an arrangement under the former conditions and yet seek to be released from it under the latter conditions, when interest rates were in fact falling.

The hon. Member for Islington, East (Mr. E. Fletcher), who kindly explained to me that he would not be able to remain until the end of the debate, stated very clearly and definitely the reasons why he did not feel able to remain a member of the Commissioners. He said that in his view the credit of a local authority was no test of the desirability of the purpose for which a loan was required, and he went on to argue from that, it seemed to me, that a local authority should be free from any sense of responsibility for its own credit. It is exactly that kind of feather-bedding of the local authorities which is contrary to the view of the Government. We want to see the local authorities enjoying as much freedom and responsibility as possible, and realising that, in the exercise of their responsibilities, they must stand on their own feet and not be constantly claiming that they can run back to mother.

The hon. Member also gave certain figures, which, I understood, had been supplied to him, about the more recent lendings of the Board. In fact, if he and other hon. Members care to look at an Answer which I gave in HANSARD yesterday, they will see that the new lendings by the Board in the first quarter of this financial year—the first three months, that is, after the end of the period described in its Annual Report—were £37½ million. The hon. Member drew certain comparisons with previous periods. One has to be careful in drawing these comparisons, because there are ups and downs at different periods of the year, but, broadly speaking, I think I can put the position to the House in this way.

Until last year and the change of policy introduced in the autumn Budget, advances from the Public Works Loan Board to local authorities had been running for a period of years at a rate of approximately £7 million a week. During the period since the end of October, 1955, they have been running at an average of about £4 million a week. I was basing my calculations on that when I said that the further £300 million, for which we are seeking to get authorisation by this Bill, should last for more than a year. Some hon. Members thought that I said for a year only, but I was careful to say that it should last for more than a year. Particularly, I had regard to the calendar, because I am sure that none of us wants to run any risk of the lending powers becoming exhausted during a long Summer Recess, when Parliament is not in session. What I am concerned to ensure is that these new lending powers in the Bill will last well over next year's Summer Recess.

The hon. Member for Widnes (Mr. MacColl), who, I know, has also had to go away, vehemently attacked the deprivation of the local authorities of their old power to borrow at rates of interest reflecting Government credit. What he was, in fact, appealing for was a system of concealed subsidies to local authorities by enabling them to borrow at a rate of interest which was neither the market rate nor the Public Works Loan Board rate as now calculated, but Government credit itself. That is not our view of the way in which local authorities should be assisted by the central Government. We consider that such assistance should be done openly from Exchequer grants rather than by any concealed subsidies.

I could answer the Scottish questions put by the hon. Member for South Ayrshire (Mr. Emrys Hughes). I did not want to interrupt him a second time, but he asked me what was the Scottish position regarding housing. I take it that what he had in mind was the advances to local authorities for their housing purposes. Last year the advances to Scottish housing authorities were between one-sixth and one-seventh of the advances made to housing authorities in England and Wales.

I trust that I have dealt with the majority of the points which have been raised in the debate, but I will read over the debate in HANSARD because, as the House knows, I have a vital interest in this subject from both points of view, that of the central Government and that of the local authorities. I see that I have failed to answer the questions of the right hon. Member for Colne Valley (Mr. Glenvil Hall) about staff and other matters. We were able, at the end of the last financial year, to reduce the staff of the Board from 77 to 72. It is true that there was a rush of work last autumn, but, owing to the slower rate at which applications were coming along, the burden became less by March.

The right hon. Gentleman asked which type of local authority was finding its applications turned down by the Board. The answer is, as a rule, the larger authorities, because if the right hon. Gentleman looks at the figures, he will find that 98 per cent. of individual applications were granted, but only 83 per cent. of the amounts which had been applied for were granted in the period since October, and the right hon. Gentleman can draw his own conclusions from that.

The right hon. Gentleman also asked what is the position about arrears, and he will find all the figures set out in page 14 of the Report. Both he and one or two other hon. Members asked whether premature repayment was permitted. The answer is that premature repayment of loans is permitted, but if the current rate of interest chargeable by the Board is lower than that charged on the loan to be repaid, the borrower may have to pay a premium on repayment to cover any loss which the Local Loans Fund might otherwise incur. Members who individually try to pay off loans which they have contracted on terms which do not allow for earlier repayment may equally find that they have to make an arrangement of that kind.

The hon. Lady the Member for Wood Green (Mrs. Butler) who knows about these matters, said that many deputations had come from dissatisfied local authorities. We have not had those deputations at the Treasury. She must be thinking of deputations from local authorities to Departments which have refused loan sanction. That is quite a different matter and is a policy matter. I am anxious to remove any impression that the Public Works Loan Board is either unpopular with local authorities or is failing to meet their needs. I would inform the hon. Lady that the Public Works Loan Board is still lending extensively for Small Dwellings Acquisition Act purposes. Some authorities have changed over from that Measure to lending under the Housing Act, which avoids certain interest difficulties, which is what the hon. Lady perhaps had in mind.

At the beginning of the debate I said I hoped we should have a valuable discussion. It has been an interesting one for me. I recognise that there are differences of principle between the two sides of the House, but there has been very little criticism from anyone of the actual way in which the Public Works Loan Commissioners have carried out their duties. I trust that the House will now be able to give the Bill a unanimous Second Reading.

Question put and agreed to.

Bill accordingly read a Second time.

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

Committee upon Wednesday next.