§ Order for Second Reading read.
§ 6.58 p.m.
§ The Economic Secretary to the Treasury (Mr. Maurice Macmillan)
I beg to move, That the Bill be now read a Second time.
The main proposals of the Government, and the general object of the Bill, is to give effect to such of the changes proposed in the White Paper on Local Authority Borrowing, Cmd. 2162, as require legislation. Some of the proposed changes do not require legislation to bring them into effect. For example, the proposed control over the temporary borrowing which can be done under the existing Control of Borrowing Order powers. And some of the other changes, such as the formula governing access to the Public Works Loan Board, do not require legislation at all, but are matters for administrative action.
The Bill consists chiefly of provisions designed to increase the sums available for lending by the Public Works Loan Commissioners and to repeal what have, in fact, become obsolete restrictions on 468 the Board's lending powers and the way in which local authorities are required to account for Public Works Loan Board loans. There are two related matters provided for by the Bill. The first is the removal of certain restrictions on the power of local authorities to reborrow both from the Board and from other sources. The second is an increase in the amount the Treasury can advance to the Government of Northern Ireland for the purposes of loans for public works in Northern Ireland. Earlier provisions for loans to Northern Ireland have been made in the Miscellaneous Financial Provisions Acts,1950 and 1955, and the Bill provides a convenient, and I think an appropriate, opportunity to extend this limit on the Treasury's lending powers. I hope that Northern Ireland Members will welcome it.
It is now about six years since a Treasury Minister last moved the Second Reading of a Public Works Loans Bill. I think that I am right in saying that this is a record interval. During this period new policies and new practices have gradually evolved. These require new Measures which can be brought forward as a result of the experience gained both in inquiries undertaken by the Treasury and from the practices to which I have referred. So I now ask the House to approve a Bill which is a prelude to important changes in local authority borrowing arrangements.
I should like to deal briefly with these borrowing arrangements before I come to the provisions of the Bill. The main Government proposals are that local authorities' temporary borrowing shall be limited to 20 per cent. of their outstanding loan debt and that authorities whose temporary borrowing exceeds this figure shall be allowed four years to get down to it. Local authorities will have freer access than up to now to the Public Works Loans Board. The intention is that local authorities shall be allowed to meet 20 per cent. of their long-term borrowing needs from the Public Works Loan Board in the first year of the new arrangements and that this proportion will rise by 10 per cent. a year until the fourth year, when authorities will be able to meet half their long-term needs from the Board. These loans will be 469 made at the Government credit rate—that is, the rate at which the Government themselves borrow for similar periods—plus a small margin for expenses.
This proposed control over temporary borowing must be looked at in a national perspective. Local authority borrowing operations are very large indeed. Their annual new borowing is at times even greater than that of the Government. In 1962, new works required £550 million. Re-financing maturing debt, for example, takes about £370 million annually. The scale of local authority borrowing operations is such that it can affect the monetary situation generally, and the Government are bound to take an interest in the pattern of local authority borrowing for this very reason.
During the last few years the pattern has undoubtedly been a great increase in temporary borrowing. The Radcliffe Committee on the Working of the Monetary System commented on it in its Report in August, 1959. At that time the difficulties that this practice could cause—that is, a large proportion of temporary borrowing—was recognised, but we did not then feel that the scale of temporary borrowing was such as to need Government intervention. It was, however, as a result of the Radcliffe Report and the debates which stemmed from it that the Government undertook to collect more information about the whole extent and pattern of local authority borrowing.
It was the information collected as a result of the Radcliffe Report and the debate on it that enabled a close watch to be kept on the situation. It is in the light of the information so collected that we have reached the conclusion that the rate of growth of temporary borrowing should not be allowed to go unchecked. I think that I am right in assuming that others have shared this conclusion. As far as I recollect, reference was made to this situation on the Second Reading of the Finance Bill, 1962.
§ Mr. G. W. Reynolds (Islington, North)
The Economic Secretary has drawn attention to the amount of local authority borrowing. The whole tone of his speech so far has been that local authorities have done something rather 470 wrong. Would he not admit that this situation has come about only because of the way in which Government policy has forced local authorities to borrow money? Local authorities are not responsible for this situation.
§ Mr. Macmillan
The hon. Gentleman has somewhat anticipated the point I intended to make. At the moment, I am on the first part of the proposals, which are not contained in the details of the Bill, but in the White Paper which preceded it and which are indeed responsible for some of the provisions in the Bill—that is, the proposals to limit and control local authority temporary borrowing.
I am not suggesting that they were wrong to do it. I merely say that it is a practice which has created certain difficulties for the Government, in money management among other things, and that the extent to which it has happened makes it necessary to put a limit on it. During the various debates there were suggestions that the extent of local authority temporary borrowing would be damaging to local authorities. It is, in fact, a greater danger to Government control rather than to local authorities, because, as various hon. Members have pointed out, including my predecessors at this Box, the Public Works Loan Board has always been available in the case of local authorities not being able to refund short-term debt.
§ Mr. Douglas Houghton (Sowerby)
Is not the Economic Secretary evading the point made by my hon. Friend the Member for Islington, North (Mr. Reynolds)? What the hon. Gentleman is not telling the House is that local authorities were driven on to the market by Government policy announced in 1955. Local authorities found that on the market it was cheaper to borrow short, with the result that temporary loans, many of them on seven-day call, have grown to large proportions. The Government are now trying to rectify that position, but they are dealing with the consequences of their own actions. If the Economic Secretary will deal with that, it will save me exposing it in a few minutes' time.
§ Mr. Macmillan
That is exactly why I said that the hon. Member for Islington, North was anticipating my point. However, I will make it now. Before 471 1955 there was a rigid control over local authority temporary borrowing. On the other hand, before 1955 local authorities had unlimited access to the Public Works Loan Board. For the reasons given in 1955—Ihave them all here—if the hon. Member for Sowerby (Mr. Houghton) would like me to repeat them—
§ Mr. Macmillan
For those reasons and for the reasons also expressed in the debate in 1959 on the Radcliffe Report, it was felt right that local authorities should go to the market. At the same time, in 1955 the restrictions on temporary borrowing were removed. As a result of the Radcliffe Report, and of the debates on it, disquiet was expressed and the Government of the day undertook to examine the problem.
Now we have evolved from there, but not back to the 1955 situation, because we are now trying to create a situation in which there is some limitation on temporary borrowing without the rigidity which existed before 1955, and, in addition, some of the restrictions on access to the Public Works Loan Board have been removed. The complete freedom of earlier situations has not been restored, however. In other words, a compromise has been produced by considering the problems arising from the varying needs of central Government and of local government. If the hon. Member for Sowerby will have a little patience, I shall reach the point later and will make it all over again, if he would like me to do so.
For various reasons which we have dealt with, and doubtless will come on to again, local authorities have tended to regard new temporary borrowing as a method of financing their activities rather than its chief use of being bridging finance. The House will agree that it is difficult to decide what is a safe level of temporary borrowing. The fact that local authorities have always been able to replace short-term borrowing, even at a time of credit restraint or during the withdrawal of foreign funds, by access to the Public Works Loan Board has made it a great deal safer for them than for others.
472 This does not mean that no risk is attached to local authority temporary borrowing. A risk is always involved in borrowing short and lending long. Although, to individual authorities, the risk may seem small and may seem a price worth paying for the advantage of raising money more cheaply—and I do not blame authorities for wanting to do that—if all authorities were to take this view then short-term borrowing in this part of the public sector would assume vast proportions.
As it is, local authority temporary debt stands at over £1,250 million, and the Government feel that the time has come to limit the rate of growth in this form of borrowing. It is better to do so now, in awareness of the risks which this practice has for monetary policy, debt management and our balance of payments, than to do it later, in a hurry, after a crisis has occurred. It is the recognition of this, combined with the recognition that local authorities have considerable problems of their own—and they have shown a good deal of initiative in overcoming them—that has led the Government to produce this compromise Measure. For national reasons we feel that we must intervene, but this has been done in a way which will minimise the impact of the new arrangements on local authorities.
It is for this reason that we have given those local authorities—and there are only 300 of them out of a total of about 1,800—whose debt exceeds the new limits four years in which to get down to those limits, and we hope to see a progressive reduction. In addition—and here I come to the Bill rather than the White Paper—the control of temporary borrowing will be linked to the new arrangements for giving access to the Public Works Loan Board and for making loans at the Government credit rate. This is the main purpose of the Bill.
The reason for the change is simple. If local authorities' freedom to borrow temporarily is to be restricted, they must raise more money longer term and they could, in theory, be required to find it on the market. This might place undue strain on the arrangements, particularly as capital expenditure on housing, education and other services is increasing 473 sharply. The Government have, therefore, taken the view that local authorities should have greater access to the Public Works Loan Board than in recent years, but that the same considerations which applied before should mean that that greater access should be for some of their money only. In conjunction with that, it is no longer necessary for the Board to charge the local authority the market rate on such money. Thus the Board will make its advances at the Government rate.
This will cheapen the long-term rate at which local authorities borrow. As the four-year period advances that advantage will accrue to more local authorities. Ultimately, they will be allowed to borrow all but half of their total long-term borrowing needs. The idea is that this should be met by a gradual change of that proportion. If we were to put it up to half at once it might increase the demands on the Exchequer by as much as £500 million a year and monetary management would be seriously complicated by a shift of this size.
In the first year local authorities will be able to meet 20 per cent. of their needs from the Board. In the second year the figure will be 30 per cent., in the third year 40 per cent. and in the fourth year a half. It is not intended to apply this formula rigidly, in a way which might create difficulties for authorities with modest borrowing requirements and which already get a substantial proportion of their funds from the Public Works Loan Board. We propose, therefore, that every authority should be allowed to meet the first £50,000 of its long-term borrowing needs from the Board.
This arrangement means that between 300 and 400 local authorities can meet all of their borrowing needs from the Board—that is, the smaller authorities—during the first year. The main beneficiaries of this ruling are likely to be the rural and urban district councils in England and Wales and the small burghs in Scotland. Many more authorities, including a number of the small non-county boroughs and large burghs in Scotland, will also benefit from the arrangement.
In subsequent years it may be possible to allow local authorities to borrow up to £100,000 from the Board, if this is 474 greater than their percentage quota for the year otherwise would be. These quotas are based on the assumption that local authorities will be able to find the rest of their needs on the market. This should be possible because the total calls on the local authority market will be reduced. We shall certainly expect local authorities to do their utmost to get the balance of their money in this way. There is, however, a chance that some will not always be able to find the funds they need on the market at a particular time. The Board will, accordingly, continue to act as a lender of last resort and will make additional loans if it is satisfied that an authority cannot raise the money on the market.
These additional loans will normally carry interest at the local authority market rate, not at the gilt-edged rate. In certain circumstances the Board may permit an authority to offset an additional loan against its quota for the following year. The Board will also have discretion to permit an authority to adjust, in the same way, any inadvertent over-drawings.
It is estimated that the call on the Exchequer under these arrangements will amount to £200 million in the first year and rise by about £100 million each year to £500 million in the fourth year. Actual lending by the Board will be rather higher, since the flow of repayments to the Board permits a certain amount of money to be advanced without the need for new Exchequer issues. In the first year, for example, the Board could lend up to £240 million without the need for more than £200 million being advanced by the Exchequer.
I turn to the provisions of the Bill. The first and most obvious need which the Bill meets is to increase the sums at the disposal of the Public Works Loan Commissioners. Clause 1 provides £650 million for this purpose. This should permit the Board to operate the new arrangements for about two years after the introduction of the measures set out in the White Paper. The Clause also provides necessary matching provision for Board commitments. The provision covers two years because we felt that it was desirable to get adequate experience of the new arrangements before coming back to the House for a further increase in the sums to be placed at the Board's disposal.
475 Clause 2 consolidates and amends the Treasury's existing powers to fix and vary the rates of interest charged by the Board. To a large extent, the provisions of this Clause actually reproduce existing legislation, but the Clause is also designed to provide for the introduction of the dual interest rate system described in the White Paper.
Clause 3 provides for a number of repeals in existing legislation about the terms on which the Board shall lend and in the law relating to temporary borrowing by local authorities in Scotland. I do not think that I need go into this matter in detail.
Clauses 4 and 5 provide for the write off and remission of various nineteenth century loans to four harbour authorities. In all these cases, the harbour revenues have proved insufficient to meet the Board's loans, either because of a fall in the number of vessels using the harbour or because expenditure on essential repairs has exceeded expectations.
Clause 6, which I found rather complicated, amends and qualifies the powers of a local authority or other public authority to reborrow when the original borrowing is repayable by instalments or by sinking fund. With the development of borrowing and accounting techniques, some of the provisions contained in the Local Government Act are more difficult to apply and in some circumstances might be held to impede reborrowing. For example, as the law stands there is doubt about an authority's power to reborrow where it originally borrowed for less than the loan sanction period. This seemed a suitable opportunity to clarify the law in that respect.
§ Mr. Houghton
Does the complexity of Clause 6 explain why it takes only three lines in the Explanatory and Financial Memorandum to tell us all about it?
§ Mr. Macmillan
I think that the complexity of the Clause is caused by the difficulty of the subject rather than the Clause, and perhaps it was felt that hon. Gentlemen who had anything to contribute on the Clause would have a deep understanding of the subject.
Clause 7 increases the limit on outstanding Treasury advances to the Government of Northern Ireland for the use 476 of Northern Ireland Government Loans Fund. This fund makes loans for public works, mostly to local authorities in Northern Ireland. Originally, power to make loans for this purpose was provided for in the Miscellaneous Financial Provisions Act, and the limit on such loans was increased from £15 million to £30 million in 1955. Outstanding advances amount to over £23 million. Calls on the Government Loans Fund are expected to rise in future when the Northern Ireland Government introduce similar changes in the borrowing arrangements for their local authorities. It seemed appropriate, therefore, to take powers in the present Bill to increase our contribution towards the Government Loans Fund.
Clause 8 provides for any increase in rate-deficiency grant or Exchequer equalisation grant that becomes payable as the result of any increase or rephasing of local authority expenditure arising from the changes in borrowing and accounting arrangements under the Bill. It is customary to include a provision of this kind whenever there is a possibility of this sort of thing happening.
I am sure that there will be some reference in the speeches that follow to going some way back to 1955, but not going back far enough. It is fair to say that although there is a feeling that local authorities should be allowed more liberal access to the Public Works Loan Board and that we should allow them to borrow as much as they like, there are equally valid reasons why this cannot be done. As hon. Members will know, these reasons were rehearsed in 1955 and again in 1959.
The reasons, broadly, are three. The first is that it is extremely difficult, in practice, to allow more liberal access. Local authority borrowing is now in the region of £1,000 million a year. It is hardly feasible to give local authorities freedom to borrow from the Public Works Loan Board up to this figure. It would create a great problem for the Exchequer and for monetary management. The amount of money involved is too great for us to switch over from this heavy reliance of local authorities on market borrowing to equally heavy reliance on borrowing from the Exchequer.
Secondly, it is felt that it is hardly prudent to allow local authorities free 477 access to Government funds at a time when other calls on the Exchequer are rising so rapidly. In the next few years there will be increasing demands on public funds for a wide variety of purposes such as higher education, roads, ports, and the expansion of the electricity industry. Against this background we feel that it would be unwise to allow local authorities to pre-empt too much of Government funds even though the additional amount that they borrowed would be balanced by a pro rata fall in the amount of market borrowing. There is a limit to the amount of switching that can be done between private and public sources of capital. Our chief concern is to avoid taking on commitments which might be difficult to fulfil later on.
The third reason for allowing only limited access to the Public Works Loan Board is that experience during the last few years has shown that the larger authorities, at least, can raise the funds they require on the market. There is no doubt that in the last few years the technical skill of local authorities in market borrowing has increased and it would be foolish to make arrangements that gave them no opportunity or incentive to exercise their skill, especially at a time when the other calls on the Exchequer will be rising so much.
§ Mr. Frank Allaun (Salford, East)
The hon. Gentleman says that he thinks local authorities should not be prevented from exercising their ability to obtain money in certain quarters, but is it not true that the Bill will do precisely that? Is it not true that many of the largest authorities, such as Leeds, to avoid paying excessively high market rates of interest, are borrowing short-term in large amounts and that the Bill will restrict their ability to do this and thereby will involve the citizens of Leeds and of other big cities in paying hundreds of thousands of pounds extra in interest?
§ Mr. Macmillan
I am sorry that I did not make it clear to the hon. Member that this is not because of the Bill, but because of the measures which the Government are taking. The Government decided to take these measures because it was felt that the amount of short-term borrowing had increased dangerously over the last few years.
478 I tried, apparently unsuccessfully, to explain, at the beginning of my speech, that this was a compromise and that we have not reverted to the pre-1955 situation, when local authorities had unrestricted access to the Public Works Loan Board but had also, to all intents and purposes, a complete prohibition on their borrowing short and raising temporary funds and when, therefore, the level of their loans was marginally below the market rate from the Public Works Loan Board. In the intervening period, between 1955 and the introduction of this method, the situation was that there was no restraint on local authorities' short-term borrowing but there was a strong restraint on access to the Public Works Loan Board.
Experience which has developed since then and the investigations which the Government undertook to make and subsequently made have indicated that a compromise solution was the best for the Government and the local authorities together. There is no question but that this is a compromise. It is appreciated that the burden on the ratepayers will be increased, but this is only likely where local authorities have contributed to the situation by the extent of their short-term borrowing. This is a compromise between the burden on the ratepayers and the danger to the taxpayer.
I realise fully that these proposals will not be welcomed universally by local authorities. I know that some feel that the limit on temporary borrowing is too stringent, and even that there should be no limit at all. Others would like bigger and quicker access to the Public Works Loan Board. These proposals equally are not ideal from the Treasury's and the Government's point of view, because this is a field in which the needs and interests of the central Government and those of local government are not identical. We should not be too dogmatic about the needs of local authorities because they, too, have varied widely, but within that variation the present compromise seems to accommodate a reasonable proportion of short-term finance and reasonable access to the Public Works Loan Board with the balance, up to a half at the end of the interim period, from the market. The Public Works Loan Board will always be there as a source in the last resort.
479 I must express my gratitude to the local authority associations and those local authority treasurers who have helped us to frame these compromises. The proposals are Government proposals, but they have been reached by a process of consultation. I believe that we have reached a sensible compromise which holds a reasonable balance between the responsibility of the Government for the efficient management of our monetary policy and the responsibility of local authorities to raise money as cheaply as is consistent with prudent financial practice.
This view is not mine alone. It was more or less quoted in an article by Ronald Bird in the Banker in December this year, in which it was said:…local authorities will have a wide range of decision over the shape of their borrowing from the board, and will no longer be subject to the governessy limitations imposed on them under long out-of-date statutes. It begins to look, indeed, as if both the methods and instruments of local borrowing are being given a contemporary shape.That is the opinion of the Government. It will, I hope, be the opinion of the House.
§ 7.31 p.m.
§ Mr. Douglas Houghton (Sowerby)
I apologise to the House for imposing myself in its debates for the second time today, but as I do not think that any hon. Member present now was here at 4 o'clock when I began for the first time, perhaps the tedium will be reserved for those who read Hansard tomorrow, which will be very much like my parish magazine.
Whenever a Minister comes to the Box to make an announcement or to introduce a Bill nowadays, he ought to come in on his head. The Economic Secretary should be leaning backwards, now because the policy he has introduced in moving the Second Reading of the Bill reverses the consequences of earlier policies. This goes back to the second Budget of 1955, a historic year Budget-wise, and we may well see a repetition of 1955 in 1964 because we then had a Budget in the spring, a short Finance Bill, Budget Resolutions tightly drawn, the House visibly in decay, and then off we went to the General Election in May, 1955. On 26th October, 1955, the then 480 Chancellor had to put right all the silly things which had been done wrong earlier in the year.
The House will recall that that was the year in which substantial reductions in direct taxation were made in the April Budget, and the tax reliefs then given were reimposed not on the direct taxpayer but on the housewife's pots and pans. That Budget became known as the "pots and pans" Budget, and in it came the restrictions on the freedom of local authorities to borrow, which the Bill is intended, in part at least, to remove.
When the Government wished to put a check on the total volume of borrowing by local authorities, they threw them on to the market to sink or swim. They told those that were in danger of sinking that they would be rescued by the Public Works Loan Board, but not until there were visible signs that they were sinking were they to go for rescue to the Public Works Loan Board. Even when they did, they were to be given terms of interest representing not the Government's credit to borrow but the particular local authority's credit to borrow which might not be as good as that of the Government, and, therefore, they might not get their money as cheaply. This was the policy which the Government pursued to curb the borrowing of local authorities.
Now, when local authority borrowing is to be increased, the Government are pulling them back sharply from the market and not letting them pursue the ways which were forced upon them by the policies of 1955, the dangers of which were mentioned by the Radcliffe Commission in 1959. What the local authorities have done, of course, has been to make the best of the position in which they were put in 1955. They have found a way of meeting their loan requirements which is now an embarrassment nationally to the position of sterling and which the Government wish to correct.
Local authorities found that they could borrow short-term. They found that they could borrow more cheaply short-term than long-term. The result now is that the short-term borrowing of all local authorities amounts to nearly 25 per cent. of the local authorities' total debt, and of this temporary borrowing 62 per cent., that is, £800 million out of £1,300 million. 481 is on seven-day loans—money within call on seven days' notice.
A good deal of this is hot money, admittedly. When the Government, as part of their financial measures, put the Bank Rate up to 7 per cent. and local authorities had then to pay 6¼ per cent. on their temporary loans, hot money came in from abroad attracted by the high rates of interest. The Government were, in fact, buying support for sterling and making the local authorities foot the bill. In came money from abroad supporting sterling, and the Government made the local authorities pay for it because that was the only borrowing which they could undertake to satisify their needs.
The Government have now got a bit frightened. The Radcliffe Commission drew attention to what was happening, but the Government did not think that there was anything very much to worry about then. Now they think that there is. Why?—because local authorities will now have to borrow more, and, if they are left alone, they will go on borrowing in the way that suits them best, which may mean that they will go on borrowing a great deal more on short term, and this represents, from the point of view of the national Exchequer, a danger and an embarrassment. The Bill is designed to correct this because restrictions are to be placed upon the proportion of the local authorities' total debt which they may borrow on short-term conditions.
As I have said, nearly 25 per cent. of the local authorities' total debt is on short term, and the Bill proposes that the proportion should be reduced to 20 per cent. Undoubtedly, some local authorities will find themselves with a higher proportion of short-term loans than they will be allowed to have when the Bill is fully operative. It is being done by instalments. It is being done gradually, in order, as the Economic Secretary said, to reduce the impact on particular local authorities.
This really is an important Bill because, as the Economic Secretary pointed out, it has to do with large scale financial operations by local authorities to fulfil the national plan, if there is such a thing. Local authorities will have to borrow more for the expansion of housing schemes and many other 482 local authority works such as modernisation and clearance schemes. What is worrying a number of local authorities about the Bill's proposals is whether they will have to pay more, not less, than they are paying now. At times, the rate of interest which local authorities have paid for short-term borrowing has been 2 per cent. lower than the rate being charged by the Public Works Loan Board. They have been borrowing below the market rate and they have had the advantage of that. In a great many cases they have not been upset by the short-term call on their money because it has not been called in, or, if it has, they have been able to make alternative arrangements.
I should like the Minister to explain a little more the relationship between the lending rate of the Public Works Loan Board and the borrowing rate which local authorities may have to pay for loans on mortgage and other outside financial accommodation. Has any estimate been made as to whether local authority loans will, on the whole, be more costly under the Bill than before? Is this really a Bill to adjust the overall financial implications of what local authorities have been doing? Or is it intended to help local authorities, because some of them certainly would be able to continue to get what they want outside the Public Works Loan Board, although I think that it must be admitted that, with the stepping up of local authority expenditure, it is unlikely that they could meet all their requirements in this way. This goes to the very heart of the cost of local administration and local government.
When one thinks of the enormous tribute which is being paid by this nation for the use of two commodities only, land and money, one realises how much is being extracted from our resources to satisfy the demands of those who possess these two things. In terms of the national well-being, our productive capacity and the improvement of our wealth, I regard what the nation and local authorities are paying for money and land as a gigantic extortion from the wealth of this country. There is nothing in the Bill which will facilitate local authority borrowing on terms which enable them to do their work and satisfy the demands of their citizens at reasonable cost.
483 I am glad that my hon. Friend the Member for Salford, East (Mr. Frank Allaun) is here, because on 3rd December he asked the Chancellor of the Exchequer toreconsider reintroducing the 3 per cent. maximum rate which applied under the Labour Government".The right hon. Gentleman said:No, Sir. Our assistance to local authorities is very large and is growing. We think that the right way to subsidise local authorities is in this more open way rather than by providing hidden subsidies in the form of artificial rates of interest."—[Official Report, 3rd December, 1963; Vol. 685, c. 953.]Since when have the Government been so puritan on this question of subsidies and the desire not to hide things when aid is being given in the public interest?
If one surveyed the whole field of subsidies, which we were doing earlier when we were considering the Report of the Public Accounts Committee, one sees plenty of things which are not exactly exposed to public view. The ordinary person would not see them unless he had a very good look. In any case, the point is that one utilises financial aid and subsidies in order to achieve certain results. It is not, I think, a matter for a doctrinaire approach to the question of subsidies.
At one time the Government were appalled at the idea of subsidising public enterprise. But they do it freely now. They objected to subsidising other activities because they thought that they should be made to pay. But the Government are having to do it quite freely now. The question of differential rates of interest, which the Chancellor of the Exchequer calls artificial rates of interest, has attracted a good deal of attention. I think that there is nothing wrong financially, socially or politically in lending money for approved public purposes at a lower rate than would be payable in the market, the Government covering the difference between their borrowing rate and lending rate.
There is nothing wicked about that. It may be a matter of considerable argument whether it should be done that way and whether it would achieve the desired purposes rather better than an alternative method, but I think that this solution to local government borrowing may have to be considered as time goes on because local authorities will be 484 borrowing increasingly large sums of money for their essential operations. Interest rates as a whole are too high, and I should think that a great honour awaits the Government which can bring them down because there is no doubt that in present circumstances the public is paying a great deal too dearly for the use of money.
Turning to the narrow issues raised by the Bill, we want to know what will be the effect on the interest rate at which local authorities will borrow. We are told that this money which will be borrowed from the Public Works Loan Board will be made available at Government lending rates—that is, the rate at which the Government borrow with a small addition to cover Exchequer costs. They will add on the costs of postage, telephone calls and all the other incidental expenses connected with these operations.
I think that I heard the Economic Secretary talk of preferential rates, or differential rates. Will there be differential rates? This is very important. Will local authorities be forced off short-term borrowing at lower rates of interest on to mortgage or other loans at a higher rate of interest, or on to the Public Works Loan Board, also at a higher rate of interest? That is a crucial question, and it will affect some local authorities much more than others.
We will be able to examine the Bill, including the complexities of Clause 6, in Committee. That may give us an opportunity of going more fully into the possible effect of some of the provisions of the Bill. I am sure that the House will be glad to know that there has been close consultation with the representatives of the local authorities. It is at least a comfort that they have looked at the matter broadly from their point of view. We hear that they regard the proposals as a fair compromise, which rather suggests that the Government were pressing them, in the first instance, further than they thought they should go. It rather seems as if this was not the bountiful gift from Her Majesty's Government which was being taken to the local authority associations. It was something that they did not like when they first saw it. This, we are told, is a reasonable compromise. It is not, therefore, a beneficent Bill after all. This is a form of discipline.
§ Mr. Maurice Macmillan
It is possible to have a compromise between two sets of interests which is not necessarily arrived at by a battle between two groups of people.
§ Mr. Houghton
We shall probably hear more about the battle, if there was one, by the time the Bill gets to Committee, because when there are differences of opinion we are not usually kept in ignorance of them by the local authority organisations. We shall be glad to hear what they have to say.
I can only test the matter out for myself with local authorities in my constituency. They are small ones, as the Economic Secretary knows, because our constituencies are neighbours, and very good neighbours, too, and it pains me very much to have to talk sternly to the hon. Gentleman. The local authorities which I have consulted have very mixed feelings about these proposals and they have expressed the fear, of which I have spoken, that at the end of the day they will be paying more and not less for their local authority borrowing.
We shall not, however, oppose the Bill, because it is obvious that in present circumstances something has to be done if for no other purpose than providing a satisfactory starting point for this very large expansion of local authority activity which will require them to borrow a good deal more money in the next few years than during the last four or five.
§ 7.52 p.m.
§ Sir Knox Cunningham (Antrim, South)
I do not wish to take up the time of the House for more than a few minutes, but I want to welcome the Bill and to refer to a few matters which affect Northern Ireland.
I agree with my hon. Friend the Economic Secretary that it is not necessary for me to deal with Clause 6, because, although the aim is clear, it is a little complex. On the other hand, Clause 5, which goes with Schedule 2, is a Clause which extinguishes a debt which is between 90 and 100 years old—a loan of £80,000 to the Carlingford Lough Commission.
As the House knows, Carlingford Lough is a strip of water which divides Northern Ireland from the Republic of 486 Eire. The work for which the loan was given was largely on the Northern Ireland side, and at the end of the lough is the Port of Newry. I am happy to say that when the Government of Northern Ireland took over that part of Ireland the debt was not transferred to them. This is, therefore, of no direct interest to Northern Ireland, but I am happy to welcome the breath of realism which my hon. Friend the Economic Secretary has brought to the extinguishment of the debt.
A matter which is of real importance to Northern Ireland is that of the increase in the loan limit by £10 million. My hon. Friend has referred to the Miscellaneous Financial Provisions Act, 1950, under which the Treasury was empowered to make loans to the Northern Ireland Exchequer. A limit of £15 million was then fixed for capital outstanding at any one time. In 1955, this limit was extended to £30 million and the Bill seeks to extend it to £40 million. As my hon. Friend has mentioned, only £23½ million of such loans are now outstanding. Thus, under the existing provisions, there is still room to borrow £6½ million.
Public investment has for many years been maintained at a high level in Northern Ireland. A large part of that investment is carried out by local authorities with the aid of Government loans. This is particularly true of housing, which makes by far the largest demand on the Government Loan Fund. The figures to which I have referred show that it is not a lack of capital which is at present responsible for restricting development in industry and the absorption of the unemployment pool, but rather physical shortages, for example, a shortage of skilled labour. It is the speedy training of skilled labour that will be the solution.
The Hall Report dealt with this matter in referring to restrictive practices in the building industry. It is surely in the public interest and also in the interest of labour and management to get rid of restrictive practices in Northern Ireland and to develop to the full methods of apprentice training. I greatly hope that the trade unions and management will get together with this aim in view. If they do, it will prove to be a way to conquer the spectre of unemployment in Ulster.
487 As capital investment rises in Ulster, there will be larger and larger demands for loans; and the Treasury has agreed to meet a substantial part of such loans from the United Kingdom Exchequer. That is the reason for the limit of such loans to Northern Ireland being raised in the Bill from £30 million to £40 million of capital outstanding at any one time.
A further technical matter is raised in Clause 7(2), which construes that references in the United Kingdom Statutes to these loans shall not be affected if the Northern Ireland Parliament amends the Government Loans Act (Northern Ireland), 1957. That is a technical point, but its purpose is to clear that particular matter.
For the reasons which I have given, we Ulster Members welcome the Bill and give it our support. It will be of considerable help to Northern Ireland and I trust that soon, with the efforts of my hon. Friend, it will be on the Statute Book.
§ 7.58 p.m.
§ Mr. G. W. Reynolds (Islington, North)
I am glad that on behalf of Ulster the hon. Member for Antrim, South (Sir Knox Cunningham) has welcomed the Bill, which is yet another example of the Government's slow, creeping move towards Socialism which we have seen happen quite a lot during the past few months.
I am disappointed that in moving the Second Reading of the Bill the Economic Secretary to the Treasury appeared to go deliberately out of his way, whilst not actually saying so, to put the blame for the situation upon the local authorities. He was not even as generous as the White Paper, which, frankly, does not go very far. It states, in paragraph (2):This is not to criticise local authorities who have sought to adapt their borrowing practices to meet both their growing capital commitments and the conditions prevailing in the capital market.That is all right as far as it goes, but the main reason is not the growing capital commitments or the conditions prevailing in the capital market. The main reason is that in 1955 the Government deliberately decided that local authorities should be forced to finance their capital expenditure on the market. 488 Having deliberately forced local authorities to do that, the Government are not admitting their part in the responsibility, because the local authorities have discovered very quickly—and many of the treasurers responsible for this work had little experience of it before the war—the best way to operate in the free market, which is what the Government wanted them to do. Now, the Government are putting restrictions upon their free operation in the market, having forced them on to it only eight years ago.
It is not the fault of the local authorities that these restrictions have become necessary. They have become necessary, we are told, because of the general position concerning hot money. But also, as the Radcliffe Report pointed out in 1959, because the operations have "gone on too long to be without effect on the market for the central Government's bonds": in other words, because the local authority treasurers were getting, perhaps, a little too efficient at this game for the liking of the Government Broker and the Treasury, because they were not receiving as good a deal as they hoped once they forced the local authority treasurers completely out into the market.
In moving the Second Reading of the Bill, the Economic Secretary also used the phrase that the time had come to limit the rate of growth of this short-term borrowing. That is rather different from the general tone of the White Paper, which, in paragraph (3), states that:The essence of the proposals is that a limit should be placed on local authority temporary borrowing".It goes on, in paragraph (9), to say that:action must now be taken to limit temporary borrowing".The Minister, however, referred to the time having come to limit the rate of growth, which is rather closer to the intention of the Government than is the White Paper, because my view is that it will not in the next year or two reduce the amount of such money on short-term borrowing to local authorities and it will in the future not hold the amount even at its present level but will limit the growth for such period as the Act remains in force.
This is a death-bed repentance of the Government and a complete reversal of 489 their former policy. The Parliamentary Secretary to the Ministry of Housing and Local Government can use the expression which he is now wearing, but even he must admit that this is a complete reversal of Government policy since 1955. There is no way in which the Government can escape the charge of trying, in effect, to blame local authorities for operating in the way in which the Government have wanted and forced them to do since1955, when we were told that the local authorities must stand on their own feet and pay the market rate of interest, as my hon. Friend the Member for Sowerby (Mr. Houghton) has said. Now, we are being told that local authorities can have money at the Government's rate of credit. If that is not a complete reversal of Government policy on these matters, I do not know what is.
The Government have been making quite a nice profit from the operations of the Public Works Loan Board for the last eight years. Admittedly, the operations have not been on a very large scale—between £30 million and £50 million a year—but it has been the general view in local authority financial circles that the Public Works Loan Board rate of interest has been considerably above the market rate for local authorities of good standing. Not only has it not followed the rate of interest at which local authorities of good standing should obtain money, but it has led the way to forcing up the rate of interest. The Government for the past eight years have been able to borrow at the Government rate of interest and lend it back to local authorities at a higher rate of interest than would have been the local authority rate had the Government not increased, arbitrarily, on many occasions, the rate of interest charged by the Public Works Loan Board. That is not my expression of opinion; it is the opinion which has been put to the Government on many occasions by the Local Authorities Standing Joint Committee, which considers and discusses the various aspects of it with the Government from time to time on behalf of the local authorities.
We are now told by the Minister that it would not be possible to revert completely to the 1955 position because £1,000 million a year would be a sum virtually impossible for the Government 490 to borrow on the market without completely upsetting the whole of the credit arrangements. This is a point that I cannot understand. In effect, as I see it, the Minister is saying that 1,800 borough and district council treasurers can more efficiently raise £1,000 million a year in the market than can the Government broker and the Treasury.
This is a situation which is rather farcical. One thousand million pounds has to be borrowed from somewhere, on the Minister's own figure, for new capital expenditure and reborrowing on various items which fall due for repayment. If £1,000 million has to be borrowed, theoretically I should have thought it easier for one borrower to obtain it and lend it out at a small charge for the service rather than 1,800 separate local authorities. We will presumably be in the position with the new arrangements with the Public Works Loan Board that 1,800 local authority treasurers will borrow next year £200 million less on the market and the Treasury will borrow £200 million more at, we hope, a slightly lower rate of interest, thus saving the local authorities a certain amount on interest charges.
I cannot accept the Minister's charge that the needs of central and local government are not identical. I would have thought that the needs would have been about the same in both cases, in other words, to keep interest charges for local authorities capital work at the lowest possible level. I was surprised to hear the Minister refer to the new contemporary shape for local authority borrowing which I can only assume to mean that the new contemporary modernisation ideas of the present Conservative Government are to put more controls on the way in which local authorities can borrow money. This is a magnificent reversal from the grand battle cry of 1951, "Set the people free", if we are now to go back on what was done in 1955 and reimpose controls on local authorities.
I disagree slightly with the figures given by my hon. Friend the Member for Sowerby. The Minister told us that some 300 out of 1,800 local authorities at present hold more than 20 per cent. of their total outstanding capital in short-term money repayable in twelve months or less. 491 According to the White Paper, this sum of money is something over £1,200 million. As far as I can see from the various statistics that were published, the local authorities debt outstanding at present is about £6,000 million in England and Wales and £800 million in Scotland.
If my arithmetic is correct, 20 per cent. of that means that after a given date which the Government intend to introduce if all local authorities took full advantage and borrowed or held 20 per cent. of their money on short-term the total amount of short-term money would increase from £1,200 million to about £1,360 million. My calculations show that the present holding of short-term money taken over all local authorities is about 19 per cent., and it may be increased under the arrangements which the Government are now suggesting up to 20 per cent., which is £1,360 million.
§ Mr. Reynolds
The Minister obviously has more up-to-date statistics than I have. The published ones which I have are about twelve months old. In fact, that reinforces my argument. There could be an increase of something like £400 million a year up to £1,600 million from the present level of short-term money of £1,200 million. I suggest that the Government White Paper will encourage over the next two years a quite considerable increase in the amount of local authority short-term money.
We know that some authorities, Leeds, has something over 50 per cent. of its capital debt in short-term money, Reading, nearly 80 per cent. in the very enterprising policy which they have been following there, which I would have thought a little risky, but nevertheless they have obtained their money on short-term borrowing of less than twelve months. Many of these authorities—300 of them according to the Minister—are to be given four years to get down to the 20 per cent. level. Presumably the regulations will provide by what proportion they have to go down each year, or something to that effect. Nevertheless, they have four years to get down to it.
492 But there are 1,500 at present, or at the time of publication of the White Paper, and the position has altered a lot since then, with less than 20 per cent. of their capital requirements being met by loans over a period of twelve months or less. Many of these authorities are quite small ones and would not in any event go in for short-term borrowing. On the other hand, their capital requirements are very small as well, and that sort of local authority is satisfied by borrowing some £50,000 from the Public Works Loan Board, which would probably cover two years of its capital expenditure. In working out these figures, borrowing by such authorities does not play a very large part in arriving at the total. Others, however, of these authorities are large ones with a considerable amount of capital, and some medium sized ones have several millions of capital outstanding, and up to the present they have been holding in some cases 4 per cent., 5 per cent., 6 per cent., 10 per cent., of their money on periods of loan of less than 12 months.
Now the Government White Paper has laid it down quite clearly that it is perfectly respectable, finance-wise, to hold up to 20 per cent. of one's capital in short-term money. There have been many, during the last month or two, since the publication of the White Paper, small and medium sized authorities, which up to now have been acting very conservatively in this respect, which have increased their holdings of short-term money because the Government have produced a White Paper which says that 20 per cent. is all right. So I am absolutely convinced that, at any rate over the next two years far from a downward move, those authorities with less than 20 per cent. at the moment will gradually—because a large number of authorities have kept well below 20 per cent. mark—be encouraged by the fact that this 20 per cent. is one which has been given a certain aura of respectability and will be likely to increase their holdings quite considerably and thus increase the figure of some £1,200 million.
I really cannot understand why the Government have allowed this to happen. If they are concerned with the amount of hot money which is 493 included in this sum, if they are concerned about the possible effects on the economy as a whole of this type of activity, why have they taken the action which will increase the amount of hot money which local authorities have got during the next 12 to 18 months. In fact, the proposals in the White Paper itself will not reduce the amount of short-term money very largely. As I have already explained, some authorities will have to reduce their holdings, others will increase them but in fact the total local authority capital expenditure will go up by at least £600 million per year in the foreseeable future, and for every year, if one allows a little bit for capital repayments, they will be able to add 20 per cent., or about £100 million a year, of short-term debt which they carry, and the permissible figure will increase by some £100 million per year, so that in four or five years' time we shall be in the position that the total amount of short-term money held by local authorities will exceed that which they hold at the present time.
This is not what one reads in the White Paper, but, as I explained a moment or two ago, it is what one reads in the Minister's remark, because he said the time had come to limit the rate of growth. I think it is generally recognised, as it is by financial journalists connected with local government, that the rate of growth over the last few years has been fast but indications are that it is now slowing down.
So far as this aspect of the Government's proposals is concerned, many local authorities will now begin to take a greater interest, and because the total amount which can be held on short term automatically increases every year, I cannot see that it will have any great effect in putting the Government in a less vulnerable position in relation to the total amount of hot money.
I should like to know a little more about the actual position. We are told that local authorities have got some £1,200 million on short-term loan. I understand from the inquiries I have made that probably 75 per cent. or 80 per cent. of this money originates in the first place from sources outside this country. But I think that as the main reason for this action being taken is the amount of hot money involved we really 494 ought to be given a few estimates from the Treasury Bench as to exactly how much is involved. My information is from purely private sources involved in lending this money to local authorities. We ought to be told how much of it is considered to be in that form; we ought to be given some sort of definition; we ought to have some idea of what the definition is as well, because it will make a difference to the answer. But how much of it is hot money?
Local authorities are warned off this type of money. This is what always happens when the Government are composed of hon. Gentlemen opposite, for they only control the public sector. What proportion of money of this kind is borrowed by local authorities? Who else is getting it? How much is going into private industry? I have not the faintest idea, but as this is the case for introducing this type of control, I think the House should be given more information as to what caused the Government to take this action, and whether the Government themselves have got some of this money, as well as the local authorities. I would not claim to be an expert in how central Government finance is curried on, but it would not surprise me if the Government had even more hot money than local authorities, but the local authorities cannot control the Government whereas the Government can control the local authorities, and so the local authorities get the worst end of the stick whichever way it goes.
I should like to say a word or two about the money which local authorities will soon be able to obtain from the Public Works Loan Board. I understand that the Minister has told them that as from next year they will be able to get some 20 per cent. of their total capital requirements going up each year. I make a special plea for one particular type of capital requirement of local authorities. We have been told ever since hon. Gentlemen opposite have been in power that they want a property-owning democracy, that they want to encourage owner-occupation. Ever since, they have been forcing up the rate of interest charged to the local authorities on mortgages from 3¼ per cent. to 6½ per cent. and by building societies from 4½ per cent. to 6½ per 495 cent. It is rather a queer way of encouraging a property-owning democracy, but nevertheless this is how hon. Members have encouraged owner-occupation and the purchase of houses. Local authorities have been forced to borrow money on the market for the purpose of making advances under the Small Dwellings Acquisition Act, and the Housing Act, 1949.
Many of them over the last few years have been forced to curtail their activities, and for a comparatively simple reason—if a local authority borrows money from the Public Works Loan Board to lend to prospective owner-occupiers under the Small Dwellings Acquisition Act and the Housing Act, 1949, even though the interest rate is high, they cannot lose. Because if the rate of interest is later reduced then the person with the mortgage can go to a building society, reborrow at a lower rate and repay the local authority. The local authority which has borrowed from the Public Works Loan Board in the first place can then give notice to the Board and repay the money so that the local authority suffers no financial loss.
But if the local authority makes advances from money it is forced to borrow from the market on 10-year or 15-year mortgages, or whatever is the current best period of years, and then lends at ¼ per cent. above the figure at which it borrowed, then the rate of interest will be above 6½ per cent. Then if the rate of interest falls and people reborrow and repay the local authority it cannot then repay the money but must hold on to 6½ per cent. money.
I have no doubt whatsoever that a local authority which wanted to borrow money at that particular time probably got it at rather less than 4½ per cent. Nevertheless, if a local authority operates on a 15-year loan from an insurance company or a merchant bank or some other organisation, it must keep the money while paying a higher rate of interest than it should have been able to borrow at. If the Government wish to encourage owner-occupation, and if they are relaxing borrowing conditions for local authorities, then they should allow local authorities to borrow as much as they wish from the Public Works Loan Board for making allowances under the 496 1959 Act and the Small Dwellings Acquisition Act.
According to calculations made in local government circles on the basis of the White Paper, the Government will probably charge about 5 per cent. for long-term loans by the Board. Borrowing at that rate of interest would enable local authorities to lend money to owner-occupiers at about 5¼ per cent. which is rather less than the figure of 6 per cent. or 6¼ per cent. or even higher that they are having to pay now to building societies and, indeed, to local authorities.
If the Minister wishes to help owner-occupiers and those building their own houses, here is his opportunity. I know that I can speak here on behalf of the Acton Borough Council—I am chairman of its Finance Committee—and I believe that it represents the views of many others as well. That council would be only too pleased to wipe out all restrictions on borrowing for owner-occupation if it could get sufficient money from the Public Works Loan Board at no risk to local ratepayers.
I believe that it would be possible, without undue strain on the Exchequer, to allow local authorities, in addition to the 20 per cent. they will be allowed to take up—if they so desire—from the Board next year, to allow them to take as much as they need for assisting owner-occupation. This would be a demonstration of genuine interest by the Government in owner-occupation.
Since 1951 the Government have made it financially more and more difficult for people to buy their own homes. Through this Bill, there has been a somersault in the relations between local government and the central Government over the borrowing of money. I hope that we can have an even bigger somersault and get a Government which will assist owner-occupation in a way that will compare favourably with this present Government's past policy of making it more difficult.
§ 8.23 p.m.
§ Mr. William Hannan (Glasgow, Maryhill)
My hon. Friend the Member for Islington, North (Mr. Reynolds) has made some of the points to which I intended to refer and, therefore, it will probably relieve the House to know that I shall curtail my remarks. The hon. and learned Member for Antrim, South 497 (Sir Knox Cunningham) referred—andNorthern Ireland is to be congratulated on this—to signs of attention to Northern Ireland in the Bill. I do not regret that, but I hope that the Minister will explain paragraph 13 of the White Paper, which says:The proposed limit on total temporary borrowing is higher than that at present in force in Scotland under section 260 of the Local Government (Scotland) Act 1947.This being so, the White Paper goes on to say that there are no grounds now for maintaining the former favourable situation which Scotland enjoyed. This comes as a disappointment and surprise to Scotland. Why should the Government take this view?
The Government profess to be paying particular attention to Scotland at the moment. Their usual practice, however, is to allow interest rates and unemployment figures to creep up and then reduce them again, but by not quite as much as they have gone up. They then preen themselves on securing an improvement. What are the grounds for the previous arrangements for borrowing not being maintained? Circumstances in Scotland have not improved to such an extent that this can be justified.
The White Paper itself shows up the contradictions and difficulties in the Government's position. In paragraph 5 there is a reference to…the rising cost of short-term borrowing has not held demand in check because the only alternative for local authorities has been to commit themselves for a longer term at rates which were generally even higher".Apparently the Government have tumbled to the fact that local authorities are trying to find ways and means of overcoming the difficulties which the Government themselves have placed in their way for many years. The Government have realised at last that short-term borrowing is difficult and that local authorities are preferring longer-term borrowing. The result is that the three months' period is out and short-term borrowing is to be interpreted as meaning 12 months. If it allows past conditions to continue, then the Government must resort to such methods.
Paragraph 6, however, contradicts paragraph 5. It says:…the development of a local authority temporary borrowing market has meant the growth of a large volume of short-term debt that is insensitive to interest rate policy.498 Here is the evidence that the Government's methods have failed to deal with the problem of short-term borrowing and that high interest rates have had no effect. But, as has been indicated, we are not now just going back to pre-1955 days, for the Minister is talking about a possible compromise. Since 1955, the Government have failed completely in their policy of putting local authorities on to the open market for money borrowing.
Hon. Members, especially those from Scotland, will recall that in December, 1955, some of us put questions to the then Chancellor of the Exchequer, now the Foreign Secretary, about the failure of the Glasgow Corporation loan. The Corporation had been forced to go to the market for a loan of £5 million, but it had been a complete flop and the underwriters had had to accept 97 per cent. of it. Glasgow's humiliating experience only made it more difficult for smaller authorities to go to the market, and it also meant that exorbitant rates of interest were demanded by the market to finance the serious work of local authorities and help them discharge their statutory duties.
The White Paper also makes it clear that the Bill is to bring local authorities into line so that they have to have regard to national considerations and not act indiscriminately out with Government policy. This, too, is something new. Whet all local authorities had free access to the Public Works Loan Board for their borrowing needs, in 1955, an election was looming. We can all recall the promises which were then made and the give-away Budget of 1955. But immediately after the election there came the restrictions on expenditure by local authorities and other public bodies. Despite all the promises and the flamboyant policies offered to the electorate, this action is now suggested in the White Paper.
The most important aspect of financing house building, the problem which bedevils local authorities and relations between the Government and the local authorities and between the authorities and tenants or owner-occupiers, is that of the rate of interests. The Government have made it clear that the Bank Rate is their principal instrument for 499 managing the economy. Their use of this one instrument has led to the policy of stop and go and the Government have landed themselves in repeated contradictions over the past 12 years because of it.
For local authorities the rate of interest is even more important than subsidies. Moreover, it is precisely this factor which creates confusion and indecision in their planning. Consequently, if in their priorities and budgets they are subjected to the vagaries and uncertainties of Government policy, it is no wonder that we have the conflict which is partly responsible for the present rating position, which the Government are now trying to rectify by the introduction of another Bill.
In proof of what I am saying, since 1951 there have been no fewer than 23 changes in the rate of interest charged by the Public Works Loan Board. These have varied from 3½ per cent., as we left it, to 7 per cent. and 8 per cent., and are now around 5 or 6 per cent., despite local difficulties. The Government have now taken so much from Labour's policy that they should go a little further. Having accepted planning, they ought to use planning in financing local authority and other projects.
For example, in 1961, Glasgow Corportion completed 16 three-apartment houses. The estimated cost of each house was £2,200, made up of labour, materials, land, roads, sewers and professional fees. The repayment of the capital alone over 60 years cost 14s. 1d. per week, but to repay capital plus interest at 5 per cent. meant a repayment of 44s. 8d. a week. That meant that 30s. 7d. was paid in interest every week in respect of each house. How can the Government justify that wicked method of dealing with an urgent problem? To put it another way, the capital and interest over 60 years on a house costing £2,200 amounts to £6,973, which is three times the initial cost of the house itself. If the rate of interest was reduced by even 1per cent., over a period of 60 years it would make a difference of 7s. 3d. per week.
The Government ought to consider this problem in their own interests, because it is here that trouble arises between local authorities, tenants and 500 owner-occupiers. It is because people have to pay extortionate rates of interest that we continually run into rating difficulties. If the Government want to commit political suicide, who am I to say them nay, but it means that local authorities, tenants and owner-occupiers are having to suffer because of the indecision of the Government and because of the varying rates of interest charged year by year. The present state of affairs prevents people from planning for the future, and is harmful to the economic welfare of the nation.
§ 8.36 p.m.
§ Mr. Bruce Millan (Glasgow, Craig-ton)
I thought that when the Economic Secretary was introducing the Bill, he was rather reticent about the fundamental considerations which had led to the need for it. The White Paper is the most devastating criticism that it is possible to make of the Government's policy of using the monetary instrument as the Government's main weapon of economic policy during the last eight to 10 years.
In 1955 the Government forced local authorities away from the Public Works Loan Board on to the market in an attempt to instil financial discipline into local authority borrowing. We are told in the White Paper that the Government have recently carried out a review of that policy, and have come to the conclusion that it ought to be changed. In fact, there is nothing in the White Paper that was not said in the Radcliffe Committee Report in August, 1959. All the disadvantages of denying local authorities access to the P.W.L.B. were set out in full in that Report.
The basic criticism made by the Radcliffe Committee was that there was no need for the Government, whatever they might have been doing in the economy as a whole, to use the monetary instrument to control local authority borrowing. The Government already have control over local authority borrowing in two ways. First, because a local authority cannot borrow money without getting loan sanction from the Government. Secondly, because most of the capital expenditure incurred by local authorities is the result not so much of local authority policy but, rather, the result of the application by local authorities of national Government 501 policy. The Government therefore have all the control they need over local authority borrowing.
The reason given in October, 1955, for forcing local authorities on to the market was therefore a completely pointless one. The various disadvantages that the Radcliffe Report warned might flow from that policy have eventuated. The White Paper simply says what Radcliffe said about four years ago. There has naturally been a tendency for local authorities to indulge in a considerable amount of temporary borrowing, because in a period of high interest rates local authorities, in trying to protect their ratepayers, have been reluctant to fund their borrowing. Temporary borrowing, whatever the other disadvantages have been, from their point of view has at least given local authorities the opportunity of paying lower rates of interest.
As the Economic Secretary pointed out, the growth of temporary borrowing has been very marked since 1955. It has risen sevenfold since the new policy was introduced, and it has been rising particularly rapidly over the last two or three years, as the local authorities' need for funds to finance their increasing capital expenditure has risen.
As the Economic Secretary also recognised—and this is also a confession of error in Government policy—from the national point of view this is an extremely undesirable and insecure way of financing local government borrowing. For example, there has been a considerable attraction of foreign funds, although it is difficult to discover how much of the money that local authorities have been borrowing has come from abroad, and how much is hot money. I hope that the Economic Secretary will answer the question raised by my hon. Friend the Member for Islington, North (Mr. Reynolds).
One of the criticisms made in the Radcliffe Report was that there was not sufficient statistical information available about local authority borrowing and, for that matter, that there was a general dearth of financial statistics. We hope that that has to some extent been put right in the last four years, and that the Economic Secretary will be able to give us more information this evening.
502 Hon. Members on this side of the House naturally welcome the Government's proposal to allow local authorities to have readier access to borrowing from the Public Works Loan Board—20 per cent. in the first year, rising over a period of four years to a total of 50 per cent. We would like to see access to the Public Works Loan Board liberalised even further. There is an interesting comparison between the gradual change which the Government are now making for a more liberal use of the Public Works Loan Board and what happened in 1955. When the boot was on the other foot and it was a question of the Government's seriously inconveniencing local authorities, there vas no gradual transition to the new policy; it was put into operation virtually overnight. The disastrous attempt of Glasgow Corporation to float a large stock issue took place in December, 1955, only two months after the change of Government policy in October of that year What happened in Glasgow was repeated, although perhaps not in such a spectacular fashion, with other local authorities.
One of the effects of Government policy introduced n 1955 was to place further difficulties in the way of local authorities—which difficulties have continued over the last eight years—in the process of raising money for their essential purposes. Those purposes are essential, as the hon. and learned Member for Antrim, South (Sir Knox Cunningham) reminded us with reference to Northern Ireland. The kind of schemes that local authorities are financing are schemes of housing, education, roads and the like, which the Government themselves have admitted to be essential by in the first place giving them sanction to borrow the money.
Apart from increased access to the P.W.L.B., which we certainly welcome and should like to see extended, the Government are now proposing that there should be limits put on the level of temporary borrowing. It is worth pointing out that these limits have always operated in Scotland. The limit for temporary borrowing at 15 per cent. of the total loan debt provided for in the Local Government (Scotland) Act, 1947 was rather more stringent than the new limit which the Government are now introducing for Scotland as well as for England and 503 Wales. Over the last eight years Scotland has suffered from two different points of view. It has been prevented from getting access to the Public Works Loan Board and has not had the same facilities for temporary borrowing as local authorities in England and Wales have had.
It is still an open question as to what the actual effect of the Government's new proposals will be on the level of temporary borrowing. The extremely interesting analysis given by my hon. Friend the Member for Islington, North of what he considered the effect would be of the next two years, requires an answer from the Economic Secretary. There is a certain conflict of interest here. Obviously, from the Government's point of view, the point of view of national policy and monetary management, it is important that the level of temporary borrowing should be reduced, or at least that it should not continue to increase.
We on this side of the House will accept that, but it is not such an obvious bargain from the point of view of the local authority which by the insecure method of increasing its temporary borrowing as a proportion of its total borrowing has thereby managed to obtain lower rates of interest than it would be forced to pay on the market for longer-term borrowing.
While we would accept in principle that it is right that some attempt should be made to put a limit on the total level of temporary borrowing, I do not think we can give an unreserved welcome to this part of the Government's proposals unless they are able to give us some satisfaction about the rates of interest which local authorities will have to pay when in future they go to the Public Works Loan Board. This is something about which the Economic Secretary said absolutely nothing, but it is basic from the point of view of local government finance.
It is basic also in a much wider sphere. The Government's attempt to use the monetary instrument as one of its main instruments of economic policy has not only, as my hon. Friend the Member for Glasgow, Maryhill (Mr. Hannan) pointed out, created a considerable amount of uncertainty, because 504 the P.W.L.B. rates of interest have changed nearly 40 times since November, 1951, whereas in the six years of Labour Government they changed only twice. It has not only created uncertainty but very much added to the cost of all kinds of borrowing.
Quite apart from the increased cost of local authority borrowing, it is worth making the point that as long as the Government continue to have a high interest rate policy, they are suffering financial disadvantages in the financing of the national debt. For example, between 1951 and 1962 the national debt increased by about 11 per cent., but in the same period the total interest paid on the national debt—and this comes out of the taxpayers'pockets—rose by nearly twice. This is not a question of a few million pounds or even £100 million; the increased cost of Government financing because of their high interest rate policy was £400 million, comparing 1962 with 1951. From every point of view I wonder why the Government persist in attempting to run the economy—and not even successfully—at these high rates of interest.
The burden on the local authorities is similarly increased. One of the arguments of Government spokesmen when this has been drawn to their attention has always been that one has to consider not just the rate of borrowing by local authorities in any year but the broad picture, adding the particular year's rate of borrowing to the total borrowing of local authorities so that the high rate of interest currently being paid did not make much difference. But these small differences in average rates of interest in one year after another eventually have a considerable cumulative effect.
The average rate of interest which Scottish local authorities paid for all their borrowing—not just that over the current year—in 1950–51 was 3 per cent. whereas in 1961–62 it had risen to 5 per cent. These figures come from an Answer given by the Secretary of State this afternoon. The additional burden on local authorities because of these higher interest rates amounted to no less than £17 million in 1961–62. The figures for England and Wales must approach £200 million. If the Government are concerned with improving the 505 prospect of local authorities and giving them some financial relief, the simplest and most fundamental step would be to reduce the rates of interest on sums loaned to local authorities.
It is in that context that we must consider the new Government proposals and, in particular, the additional access which is to be allowed to the Public Works Loan Board. If this simply means that local authorities will have to restrict their temporary borrowing and to go to the Public Works Loan Board at the current rate of interest, then I doubt whether local authorities, taken as a whole, will get any financial advantage at all from the Government's proposals, certainly in respect of interest payments.
My hon. Friend the Member for Islington, North pointed out in his interesting speech that the rates being charged at present by the Public Works Loan Board for borrowing are higher than the rates which are available to local authorities of good standing for loans of a comparable period in the open market. This follows from what the Government have been doing with the Public Works Loan Board since 1955, because the Government have been placing the Board's loans at rates which would be equivalent to those which authorities having to resort to the Board would have to pay in the open market. Since the Board has been a lender only of last resort and larger local authorities and those of good financial standing have not been borrowing from the Board, by definition the rates of interest which the Board currently charges are higher than those which would have to be paid by local authorities of good standing in the open market.
With the Government's change of policy, local authorities of good financial standing will come for part of their requirements to the Board. It seems to follow, even from the Government's policy, apart from it being desirable in itself, that the rates of interest currently being charged by the Board will be too high in the new circumstances. The current rate is 5¾ per cent. One would expect the new rate to be significantly lower.
I hope that the Economic Secretary will make an announcement about this and will be able to assure us tonight that the Board's new rate of interest will be 506 lower than the rates which are currently charged. If they are not, I repeat that there will be very little advantage, at any rate from the interest point of view, to local authorities in the new arrangements, even if they welcome the more liberal access which they are to have to the Board.
On the whole, therefore, although we welcome the Bill, we have some reservations about it. It does not come anywhere near solving the fundamental problems of local authority finance. I do not believe that these can be solved without a fundamental review of the whole structure of the rating system and local authority finance generally. So far as it goes, the Bill is on the whole welcome, but it merely puts right something that need never have happened. It merely remedies the disastrous effect of the Government's action in 1955 of following the doctrinaire philosophy that local authorities should be subject to the financial disciplines of the free market. We did no; accept that in 1955. Our view on this was vindicated by the Radcliffe Report in 1959. We welcome the Government's conversion to our view, however belated it has been, and the introduction of the Bill.
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present—
§ 9.0 p.m.
§ Mr. Maurice Macmillan
By leave of the House; I am grateful to have this opportunity to reply to some of the points that have been made during the debate, despite the efforts of the hon. Member for Islington, North (Mr. Reynolds). It has been an interesting debate and we have had an interesting series of discussions on both the White Paper—
§ Mr. George Lawson (Motherwell)
On a point of order. Are we to take it that the hon. Member is objecting to the fact that my hon. Friend drew attention to the me agre attendance in the House?
§ Mr. Macmillan
I was not objecting to that. I was expressing my gratitude that the end result had not prevented our proceedings from being concluded.
507 As I was saying, we have had an interesting series of discussions on the White Paper, the Bill, and on the problems of local government finance. We have also at intervals discussed interest rate policy generally.
I would like to begin by correcting several points of fact about which some hon. Members seem to have become confused. The hon. Member for Sowerby (Mr. Houghton) referred to the temporary borrowing figure as being 25 per cent. As defined in the White Paper, the temporary borrowing proportion is 15 per cent. and not 25 per cent. The 25 per cent. figure is the sum of temporary borrowing plus long-term debt within one year of maturity. This latter proportion is not being limited in the arrangement set out in the White Paper.
My hon. and learned Friend the Member for Antrim, South (Sir Knox Cunningham) welcomed the Bill in that it would, he hoped, provide some assistance to the special problems of Northern Ireland. I am glad that he made that point. Fears were expressed by the hon. Member for Glasgow, Maryhill (Mr. Hannan) that the limit on temporary borrowing would discriminate unfairly against Scotland. In fact, it removes the discrimination that now exists in that the limit at the moment on temporary borrowing by Scottish local authorities is 15 per cent. and it will become 20 per cent., in parallel with England and Wales.
There is always apt to be a conflict of interest as between local and national government and the share of the financial burdens of Government expenditure as between the ratepayer and taxpayer. In suggesting that the previsions we have been discussing were a solution that attempted to find a compromise to this conflict, I was not suggesting that there had been serious disagreement or that either of the parties concerned were to blame. The hon. Member for Islington, North deplored the fact that I appeared to blame the local authorities. I had no intention of doing that, and, if I did, I apologise.
There is no blame attached at all to this situation, but that does not mean to say that it is not the responsibility of the central Government to remedy it 508 once it has arisen. I should like to make that quite clear. Nor is it a reasonable criticism to blame the central Government on a matter of dogma. The situation in 1955 was one which in the judgment of the then Government required the local authorities to go to the market and not have any longer exclusive reliance, at any time they wanted and in any amount they wanted, on the Public Works Loan Board.
Meanwhile, the situation was changing, as situations particularly today do change. In 1959 the Radcliffe Report warned of the dangers of this and the difficulties which it was likely to bring and it proposed that we should go back to the 1955 situation. In the course of debates the Government took note of the warning and expressed the view that this was a real danger, but that the situation was not yet such as to require Government action and therefore what was happening would be kept under review and inquiries and investigations would be made. Now the situation has changed again, and since 1959 it has led to the view that it is necessary to make these limitations on short-term local authority borrowing. This was not returning by any means to the pre-1955 position when local authorities were not able in practice to borrow short-term, but it was a return, as I have said, to a mean, so to speak, between the two previous situations.
I do not think that this is at all a subject for a doctrinaire approach. This is much more a question of technical control and of a method of managing the monetary side of our economy. A great deal of the argument, apart from some of the questions which were asked, turned on the interest-rates policy in general terms rather than on the particular provisions of the White Paper or the Bill. The argument which was put forward was answered by my right hon. Friend the Chancellor of the Exchequer, who was quoted in the debate, when he said that in the matter of differential rates of interest for local authorities for housing or other purposes the Government preferred to deal directly, rather than indirectly, with the subsidy that this implied. I do not think that I have much to add to that statement. Whatever one may say, either the arguments put forward from the benches opposite were a plea for a cheap money 509 policy or they were a plea for a subsidy to local authorities by means of differential rates of interest.
The hon. Member for Sowerby asked me some specific questions on the comparative cost of borrowing and on hot money. First, on the hot money side; the money from overseas is only one of the reasons for these measures. The implication during part of the debate was that this was the main and indeed the only reason impelling the Government to take this course. One of the difficulties is that it is not possible to know in advance or at the time exactly what foreign money is coming to local authorities. This is the real problem. There is no method of knowing it except retrospectively and even then only with extreme difficulty.
I cannot give this evening the quantity or the nature of the foreign money. We know that at the end of June, 1963, loans by foreign banks to local authorities totalled £160 million. But this, of course, is only part of the picture. I have no figures available for loans of foreign money coming through English banks and other English intermediaries.
As to the comparative costs of borrowing, the current seven-day rate is 4⅛ per cent. The current three-month rate is 4⅜ per cent., and the current 364-day rate is 5 per cent. I think that there has been a little confusion about the Public Works Loan Board rates. The current rate for all periods is 5¾ per cent., and this is the rate which at the moment, would be available for local authorities borrowing above the quota. The quota borrowing, so to speak, would be at the Government credit rate, and this is calculated by reference to what it costs the Government to borrow for a comparable period; it is calculated from the yields of Government stocks, and the expenses incurred by the Government are covered by rounding up the yields to the nearest ⅛ per cent. There is no constant differential between the Government credit rate and the local authority market rate. It usually runs to a figure of about ¼ per cent., but it has ranged during the past year or so between nothing and ¾ per cent. I appreciate that this is a slightly incomplete argument at the moment, and I shall come later to some of the argu- 510 ments raised by the hon. Member for Glasgow, Craigton (Mr. Millan).
It is true that local authorities which have been relying very heavily on temporary borrowing will have to pay more for some of their money. The money which they have previously borrowed short and will in future have to borrow long will cost them more. They will save money on some of their long-term borrowing, by and large, through the Public Works Loan Board, and over the full transition period, of course, this can be up to 50 per cent. of their total borrowing. There will, in fact, be a balance, and the local authority with the heavy short-term debt will have to pay a bit more on balance, but no more than those which are already borrowing long. The authorities which are already borrowing long will be better off under the new arrangement, and, I remind the House again, these are the great majority of the local authorities.
The hon. Member for Islington, North seemed to think that there was some disagreement between myself and the White Paper as to the object of these measures. This is not so. I was trying to express, in a rather moderate way, what we were claiming for them. I took the point, which was made in the debate, that the total amount of short-term borrowing may not be reduced initially, and, indeed, as the whole amount of local authority borrowing extends, it may well rise; but this is precisely the point I tried to make earlier in explaining why the Government thought it right to take early action now rather than take panic measures when the situation became really difficult. Hon. Members appreciate that we do not really know what is the hot money situation and how it will develop, and indeed it is not possible to know.
This is why we have set the limit of 20 per cent. We have given four years for the local authorities to get to it. The method of doing it has not been laid down and is a matter for adjustment between the local authorities and the Government So far, I think, it is being left more or less to them, but, of course, it will be expected that they will show a proportionate increase in the cost of borrowing according to the total size of their short-term borrowings. It is the uncertainty in the situation, to which the 511 hon. Gentleman referred, which has led to the setting of a percentage limit, which, of course, reduces the vulnerability of the Government; it depends not so much on the absolute amount of the debt but on a proportion, as he knows.
§ Mr. Reynolds
It is precisely the uncertainty to which the hon. Gentleman is referring which reinforces my argument. If there is not to be included in regulations actual steps or stages through which local authorities with more than 20 per cent. have to go to reach the 20 per cent., then, because of the uncertainty of the political situation, they will be unlikely to take any action to reduce their short-term holdings at least until after the General Election. In fact, there will be a greater increase in the total amount than I foretold.
§ Mr. Macmillan
I think that that is a rather improbable argument, begging several questions. Local authorities with any significant holdings of short-term money which might be dangerous are comparatively few. The total number of authorities above the proposed limit already is only 300. I do not think that the relationships between the Ministries and the local authorities are so strained as not to be able to cope with the rate of scaling down of those authoties which have very large short-term borrowing, and without composing a complete set of regulations which might be difficult for some of the individual authorities. I think that that can be left to the good sense and co-operation of the officials concerned.
The force of the hon. Member's argument would be more apparent were he to give a hint or undertaking as to whether, if the party opposite were to win the General Election, they would repeal the Bill. I think that we can leave that point and go on to the other point made by the hon. Member, namely, that the Public Works Loan Board has led instead of followed the local authority market rate. I do not think that this is so. The Public Works Loan Board rates have been calculated with strict regard to the rate paid by local authorities on the market. I agree that it is sometimes argued that this creates a vicious circle and that the Board's rate acts, so to speak, as a floor to the market rates. But this argu- 512 ment is not susceptible of proof because fundamentally it is an argument as to which comes first—the chicken or the egg—and I do not think that I can give the hon. Gentleman any information which would help him in it.
The question of owner-occupation has been raised. I think that I am summarising the point fairly in this way: if the Government cannot allow unrestricted access to the Public Works Loan Board, why cannot they allow access to owner-occupiers under the appropriate Acts over and above the quota? This would not be possible simply because it would add about £100 million a year, which certainly, in the beginning, is a significant proportion of the total amount for which local authorities can go to the Board at the Government borrowing rate. It is half the first year's quota, so to speak. The whole idea would be inconsistent with the desire to keep the calls of local authorities on the Board within prescribed limits. It would probably, in any case, have to be at the expense of loans by the Board for other purposes and, in view of the fact that proportionately to local authority borrowing the total of loans for these purposes is very small, it is better to leave the local authorities concerned to make use of their Public Works Loan Board quota for these purposes among others. The proportion is about 100 to 1,000 million.
The hon. Member for Glasgow, Maryhill was concerned about interest rates. I think that one of his main points was that he was against the local authorities going to the market. I shall have something to say, I hope, about his argument later. The debate turned back, so to speak, on the question of subsidised and low interest rates. Naturally, I do not agree with the contention of the hon. Member for Craigton that the White Paper is a devastating criticism of the Government's policy. As I explained at the beginning of my reply, I do not regard this as going back to 1955 as has been suggested, or to the Radcliffe Report. As we hinted in 1959, the position created in 1955 is no longer suitable to the conditions, which have changed a great deal since then. This is not in any way attempting to attach blame to the local authorities but is a recognition of a 513 de facto situation, which the hon. Member agreed had to be dealt with.
The argument which has been behind all this is that the interest rates are too high. I will not go into the dangers and difficulties of trying to run a cheap money policy when world interest rates are high. I point out in passing that the cost in interest to the Government of borrowing money is returned to the taxpayer by way of interest on the investment in his savings, which produce loans for the Government. It is not as if the taxpayer had no return directly and indirectly from the interest on gilt-edged. That can be seen in the immense rise in savings over the last few years. The hon. Member's analysis of what might happen was a little theoretical and appeared to ignore the fact that a great deal of it was purely speculative and making a number of assumptions which might or might not come about.
As to interest rates in general, over the last 10 years long-term interest rates have risen throughout the world. This reflects the world-wide pressure of demand for capital for all forms of investment. In this country, as in most other countries of sophisticated economies, the capital market has been progressively freed of restrictions on borrowers and lenders of funds capable of investment.
This enhanced freedom of capital to move in response to demand means that the price of capital—the rate of interest—is bound to be subject, first and foremost, to the normal play of supply and demand in the market. The Government have, of course, considerable influence on the long-term rate of interest and are by no means indifferent to the rate prevailing at any one time. However, the experience certainly of the party opposite should have provided a warning against trying to hold long-term interest rates at a lower level than the market rate and the difficulties that a policy of that nature builds up for itself over a period of years.
In the most favourable circumstances, the ability of any Government to control the long-term interest rates is limited by factors of a technical nature as well as by policy. It is essential that budgetary and monetary policy should complement each other. Each impose certain limitations on what can be done in the market 514 to influence the long-term rate. The free character of the market reflects the choice which is open to investors. No Government could force the public to hold securities on which the yield was considered to be too low.
Despite the higher interest rates, the Government credit rates will, on the whole, be favourable for the local authorities compared with the market long-term rate. Secondly, there is a point which underlies some of the doubts expressed about the difference between the two rates. If hon. Members are worried about the recent fall in gilt-edged market prices, with the consequent rise in the Government credit rate, it is fair to say that at a time when the economy is expanding an adjustment in investors' preferences and in the yield relationships between equities and gilt-edged is only to be expected. There is no question of the Government either approving or disapproving adjustments of that kind and they certainly have no long-term results on the economy. We shall doubtless return to some of these major problems of interest rate policy, particularly low rates for local authorities, when we come to discuss the details of the Bill.
All that I can do this evening is to sum up the provisions contained in the White Paper and in the Bill. We are imposing a limit on the extent to which local authorities may borrow short-term, and we are extending their capacity over a period to go to the Public Works Loan Board at Government credit rates for up to 50 per cent. of their total long-term requirements. The Public Works Loan Board remains as the final underwriting cushion, so to speak, for local authorities in the last resort no matter from what source their loans may have been obtained.
§ Mr. Houghton
Will the hon. Gentleman answer the question put to him by my hon. Friend the Member for Glasgow, Craigton (Mr. Millan)? What is the rate of interest to be charged by the Public Works Loan Board? Is it to be lower than the present figure?
§ Mr. Macmillan
I thought I had explained that. The rate of interest which is quoted and which was 5¾ is not the Government rate.
§ Mr. Macmillan
The Government rate is not published, but it would normally be expected to be lower than that. The Government rate is calculated from time to time from the yield on Government stocks. I tried to explain that the short-term movement of gilt-edged was not a factor which would remain for very long and that there would be an adjustment between the yield of gilt-edged and equities. In calculating the Government credit rate, the attempt is made to even it out so that it would not fluctuate too rapidly, but normally one would expect the Government credit rate to be lower, and, as I have said, in the last year it has been between 3/4 per cent. below and level with the local authority market borrowing rate.
It would be abnormal for the Government credit rate to be higher than the quota rate charged by the Public Works Loan Board, and normal for it to be lower—in the past, it has varied between nothing and ¾ per cent.—and the variation, I am now informed, would be between 4¾ and 5¾ per cent. So the benefit is absolute to local authorities not yet borrowing up to their full quota short-term, and whose access to the Public Works Loan Board will, therefore, be of definite benefit, and will add a slight charge on the rate of interest for those authorities which are of course causing the most risk by having the highest proportion of their money on short-term.
I have tried to answer most of the points which have been made in the debate. There will be other opportunities to raise them, and I commend this Bill to the House.
§ Mr. Hannan
The hon. Gentleman will remember that I asked a question about paragraph 13. It is true I was absent from the House for just a few moments while he was speaking. I wonder whether he could clarify that at all—about the proposal for temporary borrowing and the charge being higher in Scotland?
§ Mr. Macmillan
I did, in fact, answer the hon. Gentleman in his 516 absence. Happily for Scotland, he has got it the wrong way round. The proposal is removing the disability which was on Scotland, and the treatment of Scotland is equal though not superior to that of England and Wales.
§ Question put and agreed to.
§ Bill accordingly read a Second time
§ Bill committed to a Standing Comittee pursuant to Standing Order No. 40 (Committal of Bills).