HC Deb 03 August 1961 vol 645 cc1642-5
34. Mr. A. Henderson

asked the Chancellor of the Exchequer whether he will make a statement on the revised interest rates on loans to local authorities from the Public Works Loan Board.

37. Mr. Frank Allaun

asked the Chancellor of the Exchequer what changes in interest rates on Public Works Loan Board housing loans are proposed following the latest raising of the Bank Rate; and if he will remove restrictions on the quantity of such loans.

Mr. Barber

Government policy is that the rates of interest charged by the Public Works Loan Board should be kept in line with those ruling on the market. Market rates have been rising in recent weeks, and Public Works Loan Board rates will accordingly be raised. From Saturday, 5th August, the rates of interest charged by the Board will be:

Per cent.
Up to 5 years … 7½
Over 5 but not over 15 years … 7½
Over 15 but not over 30 years … 7
Over 30 years … 7
It is not proposed to alter the conditions on which Public Works Loan Board loans will be made available. In other words, the Board will continue to act as lender of last resort to local authorities who cannot borrow on reasonable terms on the market.

Mr. Henderson

In view of the heavy burdens which will be placed upon local authorities as a result of these changes, where local authorities have received loan sanction prior to the announced increase in the Bank Rate should not the Government provide the necessary funds, through the Public Works Loan Board, at a fixed, reasonable interest, so as to permit local authorities to avoid some of the burden that is being placed upon them?

Mr. Barber

I can best answer the right hon. and learned Member's question by saying that the normal rules which have hitherto applied when there has been a change in the rates of interest will apply on this occasion.

Mr. Allaun

Is not that a monstrous reply? Is it not going to add 10s. or 15s. a week to the rent of the average council flat? Will it not drive rents so high that many families who desperately need council flats will be unable to go into them?

Mr. Barber

Unless the rates charged by the Public Works Loan Board are kept in line with those ruling in the market, local authorities borrowing from the Board would be at an advantage or a disadvantage—[HON. MEMBERS: "Why not?"]—as compared with those borrowing on the market. I will explain if hon. Members will listen. Surely it would be unfair as between one local authority and another if those authorities borrowing from the Board could borrow more cheaply than those borrowing from the market.

Mr. H. Wilson

Who, in heaven's name, does the hon. Gentleman think is responsible for the rates ruling in the market? It was the Chancellor of the Exchequer who increased the Bank Rate last week. Will the hon. Gentleman tell us whether he thinks it is possible for local authorities to meet the enormous problems of overcrowding and slum clearance with Public Works Loan Board borrowing rates of 7 per cent. and 7½ per cent.? Since the purpose of the high Bank Rate is simply to bring into this country "hot" money which we do not need and cannot use, and which causes fresh problems when it goes out again, will the hon. Gentleman tell his right hon. and learned Friend to reconsider the whole policy?

Mr. Barber

No, Mr. Speaker. The reasons for the increase in the Bank Rate were explained at length by my right hon. and learned Friend in the debate the other day, and there would be no point in my going over all that ground again this afternoon. I am sure that the right hon. Gentleman understands the reasons perfectly well, but it must follow from the policy which has been pursued by the Government since October, 1955, with regard to local authority borrowing, that the rates of interest on loans made by the Public Works Loan Board must be kept in line with the rates ruling in the market. Otherwise, the whole system becomes completely unfair.

Sir J. Pitman

Is not it equally true that while rents may be increased savings are increased, as the saver gets a higher rate of interest? Is it not true that high rates of interest are beneficial to savers and that it is the saver we wish to help at the moment?

Mr. Barber

I think it is recognised by most people who have studied this matter that the general effect of the action taken by my right hon. and learned Friend will be of benefit to the economy. But I should like to make plain that the raising of these rates is not a deliberate measure to restrict local authority capital expenditure. It is simply an action taken in line with the policy pursued since 1955 in dealing with interest rates on loans made by the Public Works Loan Board.