PUBLIC WORKS LOANS BILL

HC Deb 21 November 1957 vol 578 cc682-709

Order for Second Reading read.

9.38 p.m.

The Financial Secretary to the Treasury (Mr. J. Enoch Powell)

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

The Bill is in the nature of a hardy perennial, for Parliament has habitually so drawn the powers of advancing money to the Public Works Loan Board that they require to be renewed at fairly frequent intervals and that consequently the House has regular opportunities of reviewing the Board's operations.

The last Act, which received the Royal Assent on 2nd August, 1956, provided for a limit of £300 million on sums which might be advanced for the purposes of these loans. At the present rate at which these are being issued, that limit would be reached about July of next year. It is clear that at some time during the present Session a new Public Works Loans Bill would be necessary, and although up to date only a little over £180 million of the present £300 million has been issued, it is convenient that the Bill should be taken now. I know the House appreciates that when each successive Public Works Loans Act receives the Royal Assent, it cancels the fag end, as it were, of the previous power to lend.

The present Bill contains the same limits as were written into its predecessor, namely the limit of £300 million upon advances during the period and the limit of £400 million upon the total of advances and commitments. Not only are the limits unchanged: the policy under which the Board is operating has undergone no alteration since the last Act was passed. The treatment of applications by the Board and the principles which govern the fixing of the rate of interest by the Treasury remain as they were laid down by my right hon. Friend the Lord Privy Seal on 26th October, 1955.

In moving the Second Reading of the Bill, it is customary to give the House the breakdown of the total loans since the last Act by the purposes to which they have been devoted. I can cover the period only from 2nd August, 1956, to 8th November last. Up to the latter date loans for housing have amounted to £135 million; for education £9½ million; for public health £13.2 million; for the redemption of debt £2.2 million and for other purposes, notably transport, water, and land drainage, £18.9 million. These total aproximately £179 million though, as I mentioned a little earlier, advances have gone rather beyond that point in the subsequent week or two.

Of this total, the proportion which has been lent to Scottish local authorities is £15.4 million. I have looked at the Scottish proportion over previous years and I find that the proportion for the last complete financial year is roughly in line with the average over the previous period of 8 or 10 years, so I think that it can be taken broadly as a normal figure.

There is a figure in the Financial Statement presented with the Budget, below the line, for the Local Loans Fund. That figure, in last April's statement, was fixed at £100 million though, since the Board is able to dispose for this purpose also of the sums it receives back by way of repayment, that figure doe not correspond to the total advances which it is anticipated the Board will make during the financial year. However, the House may be interested to know that the rate of loans to local authorities is so far running almost exactly to the form which was assumed as a basis for the Budget figure of £100 million.

Since the change of policy in October, 1955, only a minority of local authority capital investment has been financed by the Board. The latest estimated figures which I can obtain far local authority borrowing on capital account are for the financial year 1956–57, though I must emphasise that these are still provisional figures and subject to a certain amount of correction later on. They show a total of £564 million borrowed for capital purposes by the local authorities of Great Britain. Of that, £121 million, or between one-quarter and one-fifth, was advanced by the Board; about £34 million was found by local authorities from their own internal resources; £63 million was raised by the issue of stock on the market, and the residuum—the lion's share—of £346 million was represented by mortgages and other forms of market borrowing.

So the proportionate share which the Board bears in the total financing of local authority capital investment is at present running at a level of about one quarter or one fifth, and the vast majority required for that purpose is raised by local authorities on the market. Local authority capital investment itself has continued at a high rate; indeed, in real terms, it is running today at a level higher than, for example, in any year while the party opposite was in office. But the transfer of the main burden of financing local authority capital investment from the Public Works Loan Board to the market has been undoubtedly a very important element in the measures which the Government have taken to counter inflation.

There are two further points I should like to make. Clauses 3 and 4 contain provisions for writing off—

Mr. Harold Davies (Leek)

Before the Minister leaves that point, while he is giving the House these figures, will he state the rates of interest which the Public Works Loan Board has charged during this period? I am quoting from the Minister's own Report. Since those figures of advances from the Board were given, the drop in 1955–56 of from nearly £312 million to £121 million has had a disastrous effect on the finances of some local authorities. Since this is almost a non-political discussion, I regret the Minister's assertion that the rate of investment is much higher than when the Labour Party was in power. The truth is that costs have risen so much that investment is only about the same level as when we were in power.

Mr. Speaker

Order.

Mr. Powell

I am sorry that I have caused the hon. Member distress, but my statement referred to capital investment in real terms and, therefore, took account of any alteration in the value of money. I emphasise that the rates of interest on loans by the Public Works Loan Board under the policy since 1955 have been such that, from the local authority's point of view, there is virtually no financial difference, whether it borrows from the Board or on the market. So that the fall in proportion financed by the Public Works Loan Board has not imposed any financial difficulty upon local authorities.

I was about to refer to Clauses 3 and 4, which provide for the writing off of irrecoverable debts. This is a phenomenon which occasionally crops up in Public Works Loans Bills. It has been in five Bills since the war, and the last of its kind was in 1952. The House will find the reasons why it is proposed to treat the three debts concerned as irrecoverable set out in the customary detail in the explanatory memorandum to the Bill.

The last thing I wish to say is this. I am following precedent, but none the less I sincerely wish to draw attention to the services which are performed by the Board, which, as the House knows, is a voluntary and honorary body. The decline in Lending operations has, of course, been accompanied by a reduction in staff. It has fallen from 72 at the end of the financial year 1955–56 to 59, but the reduced scope of the Board's operations has not meant that the public service performed both by the members of the Board and by the employees has been less valuable or of less importance to local government.

9.49 p.m.

Mr. G. Lindgren (Wellingborough)

The Financial Secretary has said that the Bill is not required until July of next year. I therefore make the protest that it is wrong that at this time of night we should be expected to deal in a short time with a Bill of such vital importance to local authorities and to local authority finance. It would have been far better if the Government had shown their liking for local government and dealt with this Measure in the normal way.

I do not claim to be an expert on finance, and I therefore propose to deal with the Bill on the basis of how it will affect local government. The first question that I should like to put to the Financial Secretary is, what is the policy of the Public Works Loan Board in using this £300 million odd that we are now asked to make available to it? The record of the Board during the lifetime of this Government, in spite of what the Financial Secretary has said, does not inspire very much confidence. One of the important factors in the rate poundage of a rate levied by a local authority is the interest that is charged to the local authority on capital expenditure.

If we look at the rates of interest charged—my hon. Friend the Member for Leek (Mr. Harold Davies) referred to them in his intervention just now—the record of this Government is something shocking. In November, 1951, it went up to 3¼ per cent. In February, 1952, it was 4¼ per cent.; October, 1953, 4 per cent.; June, 1954, 3¾per cent.; March, 1955, 4 per cent.; July, 1955, 4¼ per cent.; August, 1955, 4½ per cent.; January, 1956, 5¼ per cent.; March, 1956, 5½ per cent.; October, 1956, 5¾ per cent.; February, 1957, 5½ per cent.; July, 1957, 5¾ per cent.; September, 1957, 6¾ per cent.—fourteen changes in less than six years of Tory Government.

What a record of instability. What a nightmare it has been for members and officials of local authorities. How can a local authority budget? How can a local authority project its future commitments with fluctuations in interest charges such as we have had from this Government? A local authority that has levied a rate on 1st April has been out of date by the time it has collected the rate.

Many local authorities have had to find thousands upon thousands of pounds not for work done, not for any additional service, but just for additional interest charges placed upon the local authority after the time it has made its estimates. How the local authorities look back to the happy days of a Labour Government. Ask a financial officer of any local authority, in Scotland or in England, whether he would not rather have the golden days of stability of the Labour Government in the years between 1945 and 1951—six years when interest charges were at 2½ per cent. and when there was only one change in the whole of those six years, to 3 per cent. in November, 1948.

We have a Prime Minister who has talked about a plateau of stability. The only time there has been a plateau of stability in interest charges was under a Labour Government. Under this Government we have had insecurity and fluctuation, when people have not known from day to day where they have been.

The Financial Secretary said that the present Government in 1955 forced local authorities out on to the open market and he claimed that it was a countermeasure to inflation. I do not claim to be a financial expert, but how a countermeasure to inflation can arise from forcing local authorities to pay high interest rates and forcing up the amount of rates that a local authority has to charge its individual ratepayers is beyond my comprehension.

Let us consider the effect of forcing local authorities on to the open market for three-quarters of their borrowing. In the old days, of course, a local authority borrowing money could play the open market off against the Public Works Loan Board. If the market were asking more than the Public Works Loan Board rates, then an authority could go to the Public Works Loan Board. At that time, in those conditions, the Public Works Loan Board rate was the ceiling for interest rates. Now, when the Government force local authorities into the open market first, to come back to the Public Works Loan Board only when they can prove their inability to raise money on the open market, of course, the Public Works Loan Board rate becomes the platform off which the open market jumps. Local authorities are then forced into negotiations with brokers and professional investors who are concerned with getting the last one-tenth per cent. possible.

What is the policy of the Public Works Loan Board in fixing its interest charges? I understand that it is not intended to reflect the Government's credit—and perhaps that is a good thing, because their credit must be very bad. I understand that it is intended to reflect the credit of a local authority of good standing. Is that so? If that is the intention of the Government, recent events tend to disprove it.

The Nottingham City Council has just been in the open market raising £3 million by an issue of stock. It did it at 6 per cent. The market opened at 10 o'clock in the morning and at 10.1 the lists were closed. So much money had been offered that those requiring less than £1,200 have been allocated nothing and those who asked for over £1,200 have had only 6 per cent. of their application granted. Not being a financial expert, I may be laying myself open to being shot at, but, to a simple mind like mine, that seems to prove that there is ample money on the market available for local government finance at 6 per cent.

After all, the Nottingham City Council is a local authority of good standing, as has been proved by the response to its offer. If there is plenty of money on the market available to a local authority of good standing at 6 per cent., why does the Public Works Loan Board charge 7¼ per cent. for loans up to five years and 6¾ per cent. for loans over five years?

Let us consider the other effect. The Capital Issues Committee fixes a minimum of £3 million for stock issues. That is all right for the larger authorities, but most local government activity is among the smaller authorities, boroughs, urban districts and rural district councils. Government policy at the moment means that the largest authorities, those with the greatest resources, can get their money more cheaply, whereas those with slender resources must pay more. For big city councils like London, Birmingham and Manchester, the rate is 6 per cent. For smaller urban district councils and rural district councils, whose job is of equal importance, the rate is forced up to 7¼ per cent. for under five years and 6¾ per cent. for over five years.

On work and loans sanctioned by the various Government Departments, can the Financial Secretary justify charging local authorities those excessive rates of interest above the market price? It tends to make some of us believe that the Government are using the high interest rates of the Public Works Loan Board as a sanction against capital expenditure by the smaller local authorities. It is as well to remember that all the scales are weighted against the small local authorities.

Consider, for example, trustee securities. A county council, a county borough or a municipal borough with a population of over 50,000 automatically issues trustee stock, but in the case of the smaller local authorities and boroughs with populations of less than 50,000, the urban districts and the rural district councils, it is not trustee stock, unless in the dim and distant past they happened to have been granted powers for the issue of housing bonds or they had taken powers in a local Act. This, too, means that the field of finance open to the smaller local authorities is restricted. Trustee savings banks, superannuation funds and administrators who are limited to using trustee securities cannot lend to these local authorities. This also is an unfair burden, restriction and handicap upon the smaller local authorities.

The Government have forced local authorities out on to the open market, as evidenced again by the figures of three-quarters and one-quarter admitted by the Financial Secretary today. Having forced them out to negotiate with the professional investor and the broker, why maintain this further restriction against trustee stock for the smaller authorities? Why not give them the opportunity to enter the market on the same terms as some of the other authorities?

Then there is the £3 million restriction by the Capital Issues Committee for local authorities. The number of local authorities wishing to raise £3 million is limited. As local authorities are now out in the open market, and it is to be more and more Government policy that they should be, should not the £3 million be reduced, perhaps, to £1 million or even the facility given to two or three local authorities to join together and make one stock issue?

My next point is that, because of Government policy and the policy of the Public Works Loan Board, local authorities are more and more being forced to the expedient of temporary or short-term borrowing, to such an extent that it is estimated that there is at present well over £100 million of local authority money out on seven days' call. For any treasurer—for example, of a small urban district council—with large sums of money, perhaps up to £500,000, on seven days' call, that is worrying enough.

It was a little less worrying until a short time ago, because local authorities were able to cushion themselves against the possible call on money by the arrangement with the banks to make advances to cover the period between the call-in of money on seven days' call and the financial officer's ability to get out and find other money. A further handicap has been laid upon the local authorities by the Government through the instruction which has been given to the banks, so that the banks have now withdrawn the bridging advances which local authorities used to have for three to four weeks.

I put this to the Financial Secretary. We are now advancing, or agreeing to advance or make available, £300 million through the Public Works Loan Board. In the event of local authorities being in difficulties within the next twelve months by the call of the seven-day money, the short-term money they have, will the Board come to the aid of the local authorities placed in that difficulty because of the recall of the short-term money?

While the Financial Secretary is answering that question perhaps he will also deal with the complaint which local authorities have about the length of time the Board takes to make advances.

Mr. Leslie Thomas (Canterbury)

The hon. Member has great experience of these things. Is he saying that the long-term projects of local authorities are based on short-term financing? Will he tell me, is that what is being done?

Mr. Lindgren

Since this Government in the last few years have caused this shocking experience through interest rates to the local authorities, the local authorities have been creating local loans pools. They have been taking advantage of any moneys which have become available as, for instance, on maturing loans they have not had to repay, and otherwise raising money in the expectation that interest rates were going back. They have been looking back to the golden days of the Labour Government and of the 2½ per cent. and 3 per cent. rate. They have been thinking that, perhaps, the Tory Government and their shocking rate of 5 per cent. cannot last. So they have been borrowing considerable sums of money for six months and on seven days' call thereafter. They have been borrowing for 364 days.

As I said just now, there is over £100 million out on seven-day call amongst the local authorities generally, but mainly the rural councils and smaller boroughs. In relation to the total liabilities of the local authorities that is not a tremendous sum, but for a small urban district with a rate poundage of, say, £700 for 1d. rate, a £500,000 liability on seven-day call is a terrible worry to its financial officer, to the chairman of its finance committee and to the members of the council as a whole, and it is not a worry that they ought to have to bear.

I was dealing with the unconscionable length of time which the Public Works Loan Board takes in making advances. The lapse of time between the date of application and the loan being agreed by the Board and the money being made available is from three to four weeks, and local authorities just cannot understand why the Board should take all that time.

I refer again to the question raised by the hon. Member for Canterbury (Mr. L. Thomas) when I say that local authorities are reluctant to go to the Board and be tied to a fixed rate of interest, now 6¾ per cent., a little while ago 5½ per cent., for 20,40 or 60 years. Local authorities think that that is to saddle them with responsibility for an exorbitant rate of interest.

I entered local government in the early 1920s. We were then faced, in our finance committees, not with the cost of work which we were doing from day to day at that time, but with the terrible burden which we had to carry as a result of the administration of Tory Governments of that period, at interest rates of 6 per cent. and 7 per cent. It is astonishing how, when Tory Governments allow their policy of freedom to go along so nicely, the burden always comes back to the local authorities at a rate of 6 per cent. and 7 per cent. interest.

The local authorities cannot understand, and I should like the Financial Secretary to explain it to us, why the Public Works Loan Board cannot vary its rates of interest, and why it makes a fixed rate of interest for the whole period of 20 years, 40 years or 60 years as the case may be. Why cannot there be a break clause so that local authorities can adjust their finances to the general condition of the market from time to time? Housing is a good example, and I am glad to see the Parliamentary Secretary to the Ministry of Housing and Local Government is present.

Local authorities are refusing to operate the Small Dwellings Acquisition Act, and Section 4 of the Housing Act, 1949, because they are losing money on the operation. The Ministry is getting worried, in spite of the Minister's denial the other day. The Minister has now indicated that he is prepared to present to the House legislation that will enable the local authorities to vary the rates of interest during the lifetime of a mortgage.

Mr. L. Thomas

The hon. Member has made a very important statement. I quite agree with him, and I think that the Financial Secretary will support me, that under the Small Dwellings Acquisition Act rates for loans from the Public Works Loan Board are not variable, but the hon. Member referred to the Housing Act, 1949, and said that the Minister had made a statement to the effect that he was prepared to introduce some amending legislation. In fact, the Housing Act, 1949, provides for a variable rate of interest at this moment. A local authority, in issuing a mortgage or loan under that Act, can vary the rate of interest to the purchaser.

Mr. Lindgren

I would not be prepared to argue too much about that, but there is certainly no such provision in the Small Dwellings Acquisition Act. It may be so under Section 4 of the Housing Act, 1949.

Local authority activities, in any event, comprise something considerably more than those activities which are concerned either with Section 4 of the 1949 Act or with the Small Dwellings Acquisition Act. There is the provision of water and sewerage, and so on. But I was arguing that the Public Works Loan Board interest rates are fixed for the whole period of the loan. The Minister has suggested that, to enable local authorities to deal more flexibly with house purchase, there should be a possibility of fluctuation of rates of interest. If that is so in the case of the house-purchase borrower, why should not the same facility be available to local authorities to enable them to avoid being committed to a high rate of interest over a long period?

The hour is getting late. There is much more I would have liked to say on this subject, and much more that ought to be said, but I hope I have said sufficient to produce from the Parliamentary Secretary one or two answers that will at least give local authorities some encouragement for the future of their finances. I am thinking particularly of the Public Works Loan Board rates of interest and their application to what is really the market rate. I hope, too, that the hon. Gentleman will give the local authorities some hope that they will not be saddled with these extortionate rates of interest for long periods of time, as they were in the 1920s.

10.16 p.m.

Sir James Henderson-Stewart (Fife, East)

The hon. Gentleman the Member for Wellingborough (Mr. Lindgren) began his speech by saying—and I took a careful note of it—that the record of the Public Works Loan Board does not inspire confidence. I do not know whether he really meant that?

Mr. Lindgren

If I cast any reflection upon the Board, it was not intended. The Board is carrying out Government policy. It is the action of the Government which has caused the Board to raise rates of interest. I had that in mind, not members of the Board.

Sir J. Henderson-Stewart

It is a good thing the hon. Gentleman has corrected himself, because it would have been a most unfair criticism of that public body if it were to go unchecked. Recently I have had some contact with the Public Works Loan Board on behalf of the Fife County Council. I would like the House to believe me when I say that I found the Board a most friendly, understanding body of men, and the Fife County Council would bear me out in that view.

The hon. Gentleman criticised the Board for what he called unconscionable delay in dealing with claims. That is not my experience. Three or four weeks for examining a claim, checking it and paying the money does not strike me as an unconscionable period. That seems to me a reasonable period if the Board is to lend an authority £1 million or some such sum.

I can only think that the hon. Gentleman does not appreciate what is the function of the Public Works Loan Board. If he will reflect for a moment, he will realise that it ought not to be intended as the first line of approach by an authority that wants capital for public works. It ought to be the reserve line, and that is precisely what the Government provided in the change of policy in 1955. It put the Public Works Loan Board in its proper place, in the sense that the local authority ought first from every point of view to stand upon its own credit, go to the market and get advances upon the strength of its own credit, and only if it fails, or if it has particular difficulties, should it turn to the last line of defence which is the Public Works Loan Board.

Mr. Harold Davies

The hon. Gentleman has revealed the fallacy of this kind of policy. He has said that it should be a last line of reserve. He has suggested that after local authorities have tried on the market, not before, they should try the Public Works Loan Board. May I draw the attention of the hon. Gentleman to the antiquated, moth-eaten system of financing local government and to the irrelevancies of raising local finance? Local authorities are in a terrible position today because there has been no reorganisation of local government finance, and they have no hope of keeping up with richer authorities who happen to have mineral wealth or capitalist activity in their areas. It is completely wrong, if we are giving every person in England an equal chance according to the Tory philosophy of freedom, to fall back on the kind of philosophy which the hon. Gentleman has perpetrated.

Sir J. Henderson-Stewart

I wonder whether the hon. Member is fully aware of what is happening.

Mr. Harold Davies

I am too much aware of it.

Sir J. Henderson-Stewart

As I understand it, the Board takes the view today that the funds provided for it by Parliament should be made available rather more readily to those local authorities which have not the great wealth and standing of the larger ones and, therefore, need money and help more than the larger ones do. That strikes me as a reasonable and proper way to approach the problem.

The hon. Member for Wellingborough looked back nostalgically to the "golden days" of the Labour Government. It was no wonder that a great many of us laughed when he said that. They were the days of cheap money and "Daltons," the days when prices rose at a greater rate than ever before or since in our history, the days when we had to face the frightful disgrace of devaluation, the days which led up to the crisis of 1951 which nearly ruined the country. To describe those as the "golden days" of the Labour Government is fantastic.

The truth is that since then we have recognised that money prices must also rise a little. In latter years there has been a greater expansion of local authority service than ever before in our history, housing being twice what it was in the "golden days" of the Labour Government and public education being twice what it was in the years the hon. Member quoted. The truth is that the financial policy of the Government, brought about by the crisis which they inherited, has led from the point of view of the advancement of public services, to one of the great periods in British history.

Mr. Thomas Hubbard (Kirkcaldy Burghs)

Does Fife County Council back up the words which the hon. Member is now uttering?

Sir J. Henderson-Stewart

I have already referred to the Fife County Council—I do not think the hon. Member was present then—and I need not repeat what I said. The point that I am making is that the general financial policy of the Government has led, in the practical way that we appreciate, in relation to schools, houses and so on, to one of the great periods of our history.

Mr. Lindgren

Can the hon. Gentleman explain this? I quoted figures relating to the period from 1951 to 1955, a period of four years after the term of office of the Labour Government, when interest rates were 3¾–4 per cent. Interest rates are fluctuating now, after six years of Toryism, to 6¾ per cent. Does that show financial stability?

Sir J. Henderson-Stewart

I do not know what the hon. Member wants. It is like all the policy of the Labour Party. Everything has to be on a dead level or it is no good. Why should rates of interest necessarily be at the same dead level from the beginning of the century to the end? That shows crass ignorance of the monetary system. The money market of this country is a free market. It is our money market which largely maintains our economic strength. Surely any intelligent Government must amend their policy to fit in with the movement of the market from time to time.

Mr. Lindgren

I am intrigued by the term "free market". A local authority does not think that a 6¾ per cent. interest rate is free. A local authority building a house costing £1,700 and having to pay 42s. a week in interest charges does not think money is free.

Sir J. Henderson-Stewart

The hon. Gentleman does not need to tell me that. We all know that very well. I do not want to enter a wider argument about the general financial policy of the country, but if the hon. Gentleman wants to argue about whether it is necessary now to raise general interest rates to win the battle of inflation, I should be glad to have such an argument with him. We do not like the 6½ per cent. rate in Fife, but the general rate which Fife County Council and other authorities are now paying is not 6½ per cent. Only a small fraction of their total borrowings are at that high figure. The great majority of their borrowings with which they have built their houses have been at round about 4 per cent., a very different state of affairs. If hon. Members opposite will help us to win this battle against inflation, we will get the interest rates down.

10.25 p.m.

Mr. Eric Fletcher (Islington, East)

In view of the lateness of the hour, I shall endeavour to curtail what I should otherwise have said. I want, firstly, to deal with the preliminary remarks of the hon. Member for Fife, East (Sir J. Henderson-Stewart). It is well known by those who have taken part in these debates in the past that this has never been an occasion for criticising the activities of the Public Works Loan Board itself, and I am sure that my hon. Friend the Member for Wellingborough (Mr. Lindgren) did not intend to make any such suggestion. These debates always serve the purpose of enabling us to criticise the policy of Her Majesty's Government towards local authority borrowing for capital purposes. That is the subject which we are discussing tonight.

What disturbs me most is a paragraph in the last Report of the Board. The Report reveals, as everybody is aware, that the volume of lending to local authorities has fallen catastrophically and deliberately as a result of the policy of the Government. On page 7 there appears this sentence: The heavy fall in the totals of loans approved and loans advanced during the year 1956–57 indicates the extent to which Local Authorities met their capital requirements from other sources. That is only partially true. It may well be that local authorities resorted to the market and private lenders for some of their capital requirement, but what is more serious and nearer the truth is that, owing to the policy of Her Majesty's Government, many local authorities have had to postpone, suspend or abandon essential schemes which they would otherwise have started to carry out.

I do not propose in the short time I shall detain the House to refer to the subjects which are generally discussed in these debates, housing and education. We have heard repeatedly the complaints which we make against the Government as a result of their neglect of the requirements of both education and housing. I prefer to take the subject of public health and one aspect of public health which is at present far more important. What do the Reports show? The Report for the previous year, 1955–56, showed that loans advanced for public health were about £18 million. In 1956–57 the figure was slightly more than £9 million.

The irresistible conclusion is that many local authorities, as a result of this financial stringency to which they have been driven by the Government, have had to abandon essential works of public health. It is a serious matter because it is notorious that in public health matters there is already a large backlog of work to be done in connection with sewage disposal.

We do not often have an opportunity in the House of considering the not-too savoury subject of sewage disposal, but it is very germane to our discussion of the activities of the Public Works Loan Board. In my opinion, in a civilised society nothing is more important than an adequate system of sewage disposal. We are repeatedly hearing of the pollution of our rivers and streams and now of the pollution of our seashore. Only a few moments ago, in the debate on the last Amendment to the Expiring Laws Continuance Bill, we heard an astonishing revelation by my hon. Friend the Member for Hamilton (Mr. T. Fraser), which was not repudiated by the Joint Under-Secretary of State. My hon. Friend explained how the River Clyde was polluted, how the local authority wanted to cure that pollution and embark upon a scheme of sewage disposal and how it was prevented from doing so by the financial control exercised by the Government.

Recently this matter of sewage disposal has become far more important. Polio is becoming a national scourge. Opinions may differ about the connection between sewage disposal and polio, but a great deal of medical opinion thinks that there is a very close connection between them. There was a remarkable leading article in The Times on 13th August, headed "A Filthy Business," which quoted the statements of the Secretary of the Institution of Public Health Engineers, who said that no Public Health Engineer would ever think of bathing in the sea who has special knowledge of sewage disposal. The hon. Member for Fife, East boasted of the Government's housing record. There is nothing to boast about in their record of dealing with sewage disposal. The truth is contained in The Times leading article: Great populations have grown up and sanitary arrangements have been left lagging shamefully behind. Many outfalls were not well sited in the past. Fears of huge expenditure…make local authorities defeatist. Referring to the filthy, beastly conditions which exist on so many beaches where the sewage flows up and down the coast, the article concludes that as a result of the neglect by local authorities of this vital service to public health …bathing goes on…in conditions that amount to being perilously near those of paddling in a sewer. One result of the Government's policy in this vitally important public health service is the production of a state of affairs which in my opinion is a disgrace to any civilised society.

The Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. J. R. Bevins)

indicated dissent—

Mr. Fletcher

The hon. Member shakes his head. He will have an opportunity of replying to the debate. It is no use his pointing to the Financial Secretary to the Treasury; the Financial Secretary has exhausted his right to speak in the debate. On Second Reading no hon. Member is allowed to speak more than once without leave, and I shall certainly object to any second speech from the Financial Secretary.

I did not want to be diverted from my speech, because I feel very strongly about the neglect of sewage disposal. I feel that in it we have a glaring example of the neglect of a vital service produced directly as a result of the Government's policy of making it impossible for local authorities to undertake essential public works. It is a scandal and it is enough to condemn the Government.

10.35 p.m.

Mr. Harold Davies (Leek)

I sincerely hope that at some time whichever party is in power will give its time and attention to this overwhelming problem of local government finance. There is not the slightest doubt that the entire system needs overhauling. I do not intend to make a party point out of the matter, but I do want to say that to bring in an important Bill like this—[Interruption.] If I am interrupted I shall talk for a couple of hours in the mood I am in at the moment.

Mr. Robert Edwards (Bilston)

I have the Adjournment 'Motion.

Mr. Davies

if the Government were really concerned with the health and virility of local government activities, they would bring in a Bill as important as this as the first Bill in the afternoon's debate. This is an important debate, taking place at a very critical transition period in the history of this country. Nevertheless, the House is treated in this manner—and this has been the tendency under the present Government—by this important Bill being brought up at this hour, with the result that it cannot receive the attention it needs.

I want to quote from the Ministry of Housing and Local Government Report which, in page 7, says: The year 1956 saw further changes in the rates of interest on local loans by the Public Works Loan Board. On 14th January the rate for loans for periods of more than 15 years was raised from 5 to 5¼ per cent.; to 5½ per cent. on 24th March; and to 5¾ per cent. on 20th October. Then some other examples are given. What does that mean to local authorities? Some of us who represent rural areas in one part of which intensive industrial activities are carried on, while others consist of hill farming areas, know what a problem this represents to local authorities.

We are talking about furthering agricultural production. It is all very well for the Government to say that it is a good thing for local authorities to go on to the open market, and I expect that the hon. Member who is to reply will tell me that the Public Works Loan Board is a defence for our little local authorities. With all due respect, with a rate of 6¾ per cent. and 7 per cent., action has ceased in some of our little local authorities. If such an authority wants to improve a road on a mountainside because it is a death trap for lorries carrying lime, for example, it has to remember that with interest rates at their present high percentage it will take years to clear off the loan of a few thousand pounds. In Leek Rural District Council housing is at a standstill, one of the reasons being the high interest rate.

This is a vital matter to those in rural areas. Let us consider the share of borrowing by local authorities, and see what proportion the Board has been paying since 1951–52. So as not to weary the House with masses of figures, I will express the situation in percentages. Let us take the advances from the Board for new capital purposes, expressed as a percentage of the total new loans. In the year 1951–52 the Public Works Loan Board lent 85 per cent.; in 1952–53, 77 per cent.; in 1953–54, 55 per cent.; in 1954–55, 69 per cent.; in 1955–56, 64 per cent., and tonight we have been told that out of £564 million-odd which local authorities are raising only £121 million is being raised by the Public Works Loan Board.

I assure the House that poor local authorities make as big a contribution as they can to the destiny of the country in agricultural produce. Even if we do not live in their areas, our motor lorries have to trail through them. Such local authorities are faced with an impossible problem.

We are now becoming a country of stinking rivers. It is a tragedy in rural Britain to see the condition of our rivers. We are becoming a country of death-trap roads. Finance officers of local authorities are bewildered by the problem of rising finances. Yet at this juncture we are limiting the capacity of the Public Works Loan Board to lend money to these poor authorities.

I had originally intended to delay the House longer with a number of other facts about the matter, but rather than do that I would prefer to get a fresh and virile reply from the Government Front Bench, if any Minister is fresh and virile enough to give it, because they sit there these days like "zombies" promising that something will be done. If this Government begin looking into the entire question of local government finance another Government can carry on with the job.

We are betraying the British public by pretending that in the event of war we could move 12 million people out of London over the kind of roads that we have today. That is in exactly the same strata as being told in the book on the hydrogen bomb that we can protect ourselves from the effects of the bomb by whitewashing our windows. Let us have no more whitewashing of the problem of local government finance.

It is the duty of the House to keep alive local democracy and, if possible, to make it more virile than ever before. It is our duty, without party malice, somehow to find a formula by means of which we can take a completely new look at the financial problems of British local government. I should like the Minister, when replying to the debate, to give a slight indication of how the Government are looking at these problems now posed before twentieth-century Britain which they hope to make great.

10.43 p.m.

Mr. A. Blenkinsop (Newcastle-upon-Tyne, East)

I intervene in the debate partly because of the remarks addressed to us by the hon. Member for Fife, East (Sir J. Henderson-Stewart). It seemed to me that the hon. Gentleman was putting before us, on the one hand, the argument that the period of the Labour Administration with low interest rates for local authorities was one of great misery and suffering for the country. Almost immediately afterwards he went on to say that the position of local authorities, which were today having to pay such very high interest rates, was not as bad as it might otherwise have been, because a great part of their borrowing had been done during the period of the Labour Administration, and that therefore their average interest rate charges was a good deal less than the current rate. If there was ever an example of muddled thinking it was those remarks of the hon. Gentleman.

The Report of the Public Works Loan Board which we have before us indicates the terrific problem facing local authorities, and I should like to support what one of my hon. Friends said about many of the valuable and vital projects with which local authorities could be going ahead but which have been stopped entirely by the rates which are now imposed upon them. Indeed, the Public Works Loan Board points out that since 1945 there have been fifteen changes in the rates. Even apart from the actual amount being paid, there has been a complete lack of knowledge of what rates will be demanded from local authorities over any reasonable period of time, which makes any kind of planning or working ahead almost impossible. Thirteen of those fifteen changes have been during the period of office of a Conservative Administration.

I should like to emphasise the very real importance of what has been said about these schemes. My hon. Friend referred particularly to sewage schemes, very rightly because of their enormous public health significance, and the way in which they have been rejected and local authorities find it impossible to go ahead with them because of the high rates which are now charged. That is presumably the object of the Government. Yet while these vital projects for the health of the country are prohibited, a great deal of private development takes place which is obviously of much less significance and importance.

One speaks with a good deal of feeling on matters like this because of conditions in one's own area. Reference has been made to various projects in the South. There is no river that is more of an open sewer than the River Tyne. There have been arguments about this for a long time, and there are now great campaigns in progress in order to try to get something done. I am sorry that the representatives of Ministry of Housing and Local Government seem to have disappeared temporarily from the Government Front Bench. They have made it quite clear to the local authority that nothing can be done. It is only by ignoring the opposition of the Ministry—and this is the great tragedy—that there is any prospect at all of even the slightest mitigation of the problem. The same kind of problem emerges with regard to clean air.

Mr. Anthony Kershaw (Stroud)

The hon. Gentleman must not assume that all works of this sort are at a standstill. In my own constituency important sewage and pumping works have recently been permitted and are going ahead.

Mr. Blenkinsop

I am not saying that all schemes have been stopped. I am merely saying that the rate of interest that is charged is obviously designed to prevent them and delay them. That is the whole reason for their existence.

There is every possible effort exerted by the Government to delay clean air projects which we know to be of real significance to the whole community. We are more and more recognising that in the interests of health we should not concentrate solely on remedying the conditions that people develop but that we should do far more to prevent those conditions occurring.

In that respect, clean air and clean water are matters of overwhelming importance. Yet I charge it against the Government that, by this money policy which they have adopted, they are successfully preventing very many local authorities from doing works which they urgently need to do. For that reason, I regret very much the policy which the Government have imposed upon the Public Works Loan Board. In other circumstances, the Board would, no doubt, be able to carry out its duty in a manner far different from that which is possible for it today.

10.50 p.m.

Mr. James MacColl (Widnes)

My hon. Friend the Member for Wellingborough (Mr. Lindgren) has asked me to apologise to the House for his absence and to explain that he has been called away on private business; it is not the nervous strain of the prospect of seeing me perform here which has led him to depart.

We have had a debate which is not unlike many other debates we have had on the subject of the Public Works Loan Board. The only thing I was grateful to the hon. Gentleman the Financial Secretary for was that he did not attempt on this occasion—indeed, no hon. Member opposite attempted—to talk about freedom for the local authorities. There was a sort of "golden age" in about 1955 when we were told that everything was to be wonderful, the local authorities would be big boys and no longer would they have to work on the leading strings of the Public Works Loan Board. We were told that they were to be given the opportunity to show that they could get money themselves, trying their own luck, and everything would be splendid.

Since then, there has been a steady increase in the interest rates, and local authorities have found it more and more difficult to obtain money from anywhere. The resources of finance departments in most local authorities have been taken up in trying to scrape the barrel to find some money for their capital commitments rather than with the job for which they are trained, the job placed upon them by Statute, that is, looking after and husbanding the resources of the ratepayers.

There is no doubt that the position of local authorities at the moment is one of complete restriction, restrictions not only because of the impossibility of getting any money from anywhere, but restrictions as a result of the rigid control exercised by the Ministry of Housing and Local Government and the Ministry of Education. The suggestion made by my hon. Friend the Member for Islington, East (Mr. E. Fletcher) that we might have a reply from the Parliamentary Secretary to the Ministry of Housing and Local Government has led to his precipitate retreat from the Chamber. I hope that I shall not be thought unfair to the Department if I say that its work is today very largely one simply of throttling down the demands of local authorities which wish to undertake capital works.

The fact that so much money is spent none the less, in spite of the difficulties of borrowing and in spite of the difficulties of interest rates, is a sign that there is a tremendous potential reserve of work which requires to be done—vital work, work on things which are at present a danger to health, which are holding up the development of highways, of education, or of housing. One need not do more than quote from the recent Circular No. 54/57 of the Ministry of Housing and Local Government, dealing with the restriction of capital investment, to make the point. There, in paragraph 3, there is a reference to what my hon. Friend for Islington, East was speaking about, "Schemes other than Housing": As regards schemes for water, sewerage and sewage disposal, and the various miscellaneous local government services for which the Department is responsible, these have all been subject to severe restriction for the past 18 months. Administration of these services will continue on the existing basis for the time being. Most local authorities contemplating large schemes have made a practice of discussing with officers of the Department, at Whitehall or Cardiff as the case may be, the question when they can hope to start, before committing themselves to expenditure, and they should continue to do so. In other words, the Circular says—as local authorities have learned from their experience over the past eighteen months—that it is precious little use having any ideas about capital investment to improve their social services because the Government have stopped them in the past and they intend to apply even harder pressure in the future.

Against that background, let us consider the position of the Public Works Loan Board. The report which we had from the Financial Secretary contained nothing about which one could feel any pride or satisfaction at all. It was a miserable story of throttling down the work that the Government themselves in their legislation require to be done. The inexplicable feature of the whole situation is that the Government apparently wish to have development in education and in the other social services, and they are paying a substantial amount towards the cost of these services by way of grant, and yet at the same time they are making it more expensive for the local authorities to obtain the money towards which they are paying grant.

I should like to take up one point which arose from what my hon. Friend the Member for Wellingborough and the hon. Member for Canterbury (Mr. L. Thomas) said about having variable interest rates for house purchase. This is not a major side of the work of local authorities, but it is, or should be, of increasing importance as a natural result of the Government's policy over the Rent Act. The more that decontrolled tenants are forced to find enormous premiums, disguised as they may be in the sale of furniture or anything else, as a condition of obtaining a lease, in so far as people are being encouraged to go in for home ownership rather than rented houses, a tremendous demand for financial assistance is bound to be created.

I was interested to see in The Times of 15th November, in the same column, two interesting pieces of evidence on this point. The first was something in which I had never expected to find support for my own views. It was a report of the annual dinner of the Incorporated Society of Auctioneers and Landed Property Agents, in which hon. Members opposite would be more at ease than I would. The President of the Society, it was reported, said that the Chancellor of the Exchequer, in his determination to put a stop to inflation, had struck a grievous blow at those who were ready to help themselves and the country by saving for a house of their own. The language is not mine, and I am not wishing to identify myself with it, but it is the kind of language that hon. Members opposite churn out in large quantities at elections and party meetings. It is something with which they are familiar. If they believe that people who save for a house of their own are patriotic and reasonable, are they aware of the view taken by this important body that they are strangling that possibility?

On top of that appeared another very interesting report concerning the Finance Committee of the London County Council, headed "L.C.C. restrict home loans". It said: The increase in applications"— for house purchase— has followed the recent rise in interest rates and difficulties in borrowing, which have led many more authorities to stop or reduce their lending. The result has been more applications to the L.C.C. and a report to next Tuesday's meeting says that the £1,250,000 provision for loans was not sufficient to meet the rising demand. In other words, what has been happening is that the smaller authorities in London are ceasing to lend money at all for house purchase and the whole responsibility is going on to the County Council, which is finding that its resources are not adequate for the purpose. If the party opposite believe what they say about home ownership, if they are to fulfil the pledges they gave when the Rent Bill was under discussion, they really must do something about this.

I should like the Financial Secretary to elucidate paragraph 8 in the Circular from which I have already quoted. It has been referred to by the Minister of Housing and Local Government as a statement of his policy in this matter. What the Circular says is that— The Minister reminds local authorities that they have power to make loans for house purchase; and he will be willing to consider new or revised schemes which will provide for a varying rate of interest on advances under the Housing Acts. We have been discussing the fact that under the Small Dwellings Acquisition Act the rate of interest cannot be varied but that it can be varied under the Housing Act. What part are the Minister and the Public Works Loan Board prepared to play in this process? What part will they play if a scheme is prepared under which varying rates of interest will be payable on advances and if a scheme is prepared to meet the request of the auctioneers—and again I quote from the same speech—that: There should be provision, if necessary preferential provision, of credit facilities and taxation reliefs of such a character as to act as incentives for those who generally wish to have a house of their own. If local authorities prepare a scheme giving preferential interest rates to those who want a house of their own, will the Public Works Loan Board be empowered to lend money at preferential rates for this purpose?

I cannot believe that, even with the cynicism of the present Government towards local authorities, it is expected that those authorities should be prepared to borrow money at 6 per cent. and lend it at 4 per cent. or 3 per cent. That, obviously, would be something beyond their powers or their duties. Therefore, I ask whether the Government are prepared to amend their directive to the Board in such a way that it would be possible for purposes of this kind to lend money at less than the maximum rate at which it is now lending. That is a question to which points in the Minister's Circular are relevant and which requires an answer. I hope that the Financial Secretary will be able to give us an answer.

I do not want to recapitulate all the points made, not only on this but on previous occasions, about the financial position in which the local authorities find themselves. I want to make only a general point which I think sums up the whole situation. The hon. Baronet, the Member for Fife, East (Sir J. Henderson-Stewart) said that he had always found the Public Works Loan Board courteous and prompt in dealing with applications. My own experience, more than a year ago, when my local authority, Widnes, applied for assistance from the Board was that the Board was most courteous, most efficient and most speedy—and turned down the application.

I think that that must have been the experience of a great many middle-sized local authorities all over the country; and it is the middle-sized authorities which are not equipped for the job of playing the short-term money market. It is a fantastic situation that the central Government should be indifferent to the needs of and the problems facing the average-sized local authorities. The great local authorities, no doubt, can get their own money by floating long-term loans. The local authorities which cannot go into the market have to live from hand to mouth.

The suggestion that local authorities borrow short has been criticised by one of my hon. Friends. My own experience is that that has been happening because everybody hopes that we shall get rid of the Government and have a fall in the rate of interest. Therefore, the best thing that local authorities can do is to try to borrow for a few months until things get better.

As long as the present Government are in office, of course, the financial pressure on the local authorities gets worse and worse. This Bill is merely the sum of the complete indifference of the central Government to the local authorities, the failure of the Government to regard themselves as partners with the local authorities in building up services, and the abrogation by the Government of any responsibility for what is happening. That is a miserable story which we hope we shall never have to tell again. We hope that next year we shall have a Government in a position to act as they should act, as the partners and friends of the local authorities.

Mr. Powell

rose—

Mr. Speaker

By leave of the House?

Mr. Powell

If I may, by leave of the House, speak again—

Mr. E. Fletcher

On a point of order. I intend no disrespect to the Financial Secretary, but, as I understand it, it is contrary to the rules of order that any hon. Member should speak twice on the Second Reading of a Bill. I have been aware for some time past that this practice has been growing, and it seems to me to be contrary to the traditions of the House. It is competent, as I understand it, for any other Government spokesman to reply to a Second Reading debate.

On this occasion, questions have been put from this side of the House which can be adequately answered only by a spokesman from the Ministry of Health. Might I, therefore, suggest to you that, as I do not think any of us are particularly anxious to hear the Financial Secretary again, the right course would be for this debate to be adjourned in order that on some subsequent occasion a spokesman from the Ministry of Health may answer the points that have been raised tonight?

Mr. Speaker

I could not accept a Motion for the adjournment of the debate, but if the hon. Member for Islington, East (Mr. E. Fletcher) objects to the Financial Secretary speaking again, that means, according to the rules of order, that he cannot speak again. Does the hon. Member object to the Financial Secretary speaking again?

Mr. Fletcher

Yes, Mr. Speaker. I am tired of this practice of the same Government spokesman speaking over and over again.

Mr. Speaker

Then I must put the Question.

Question put and agreed to.

Bill accordingly read a Second time.

Committed to a Committee of the whole House.—[Mr. Hughes-Young.]

Committee upon Monday next.