HC Deb 29 January 1964 vol 688 cc420-7

Not amended (in the Standing Committee) considered.

6.13 p.m.

The Economic Secretary to the Treasury (Mr. Maurice Macmillan)

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

I should, perhaps, remind the House that the Bill is intended to facilitate a reorganisation of local authority borrowing arrangements. Under these new arrangements temporary borrowing will be controlled. The Bill gives local authorities greater access to the Public Works Loan Board. The first function of the Bill is really in the national rather than the purely local interest, while the second is a corollary to it.

We had a great deal of discussion on Second Reading and in Committee on the reasons for the Bill's necessity and the history that led up to its presentation. The hon. Member for Sowerby (Mr. Houghton) suggested that we had got a bit frightened by the situation which we had ourselves created. I refute that. Perhaps it is people who stand still who get cold feet. Our policy has been to move with the times.

It is wrong to regard the last eight years as a period when local authorities have, so to speak, been in the wilderness, and to suggest that now the Government have reluctantly allowed them back into the promised land of Public Works Loan Board borrowing. This is an evolutionary rather than a revolutionary step, and what we are doing now does not amount to putting back the clock to 1955. Rather, we are introducing a system based on our experience of the past and our assessment of the needs of the future. I hope that this will combine the best of the methods previously used in the way best suited to the present and future needs of local authorities, as well as to the requirements of a sound monetary policy.

During the interim period the smaller authorities have been able to raise a good deal of their capital from the P.W.L.B. in recognition of their difficulty in borrowing on fine terms on the market. Some of the larger authorities have, it is fair to say, operated with great skill, and enjoyed the opportunity of raising money from different sources and developing new borrowing techniques, notably that of temporary borrowing.

It should not be forgotten that free access to the P.W.L.B. up to 1955 was accompanied by restrictions on the period for which market borrowing could take place, and that restricted access to the P.W.L.B. since 1955 has been accompanied by relaxations in this respect. The new arrangements represent a logical development of these former arrangements. There will be some restriction on both temporary borrowing and borrowing from the P.W.L.B., thus permitting the sometimes opposing interests of the local authorities and the management of money to be reconciled.

I turn to the positive provisions in the Bill and the administrative changes that will accompany it. In future, P.W.L.B. loans will, for the most part, bear interest at the rate at which the Government borrows, plus a small margin for expenses. This should mean somewhat lower rates for local authorities. This point was brought out in our earlier debates.

At an earlier stage in our proceedings I was pressed to say precisely how the new rates would compare with the existing P.W.L.B. rates. This is not a question which can be answered concisely because, for one thing, there is no constant differential between the two sets of rates. Moreover, different local authorities will want to borrow for different periods, and this again affects the interest differential. We settled in Committee the misunderstanding that arose over the use of the word "differential", and I hope that the hon. Member for Sowerby is now happy on that point.

If the new arrangements were to come into force today, the saving to an authority might be anything up to 1 per cent. according to the type and period of loan selected. Moreover, P.W.L.B. loans will be available on a wider range of terms, in so far, as local authorities will be able to raise maturity loans as well as loans repayable by instalments. Rather fewer formalities will be attached to getting and accounting for P.W.L.B. loans in future.

Clause 3 provides for a number of changes of this sort—procedural changes which will enable the P.W.L.B. to advance money more quickly in future. We hope that the time needed to deal with applications and make the necessary advances will be roughly halved. There has been some disquiet over procedure, and representations were made during the passage of the Bill. Though local authorities may still have some views on these matters, I hope that, in general, they will regard this speeding up of the procedure as one of the most useful results to emerge from the review which we have made of borrowing procedures and practices.

Although the Bill is not directly concerned with the control of temporary borrowing, this control is an important feature of the new arrangements and one which has rightly been present in hon. Members' minds during our discussions. In this connection, the point has been made that some authorities will have to pay more for their money because they have in recent years relied heavily on temporary money, which is cheaper than borrowing long-term. There is no denying this, although these authorities have—and this is the reason for the procedure—four years in which to adjust themselves to the new conditions, and will, of course, be able to obtain some of the countervailing benefits in having access to the Public Works Loan Board at Government rates.

In any case, the minority of local authorities so affected will in no instance be worse off than those authorities that have made more modest demands on the temporary money market. But there is no question—as, I hope, has been made clear in the discussions—of any blame being attached to the actions, intentions or policy of any local authority. It is merely that, if the trend were to continue towards such heavy reliance on temporary borrowing, it would clearly create difficulties. It is to arrest this trend that these provisions have been brought forward.

Since the war, the Public Works Loan Commissioners have filled a variety of rôles in a variety of ways. At one time, they were lending a lot of money after little inquiry; more recently, they have been lending a little after a lot of inquiry. Now, with a versatility of which I am sure they are very capable, they will have to combine both rôles. I am sure that they will work as effectively as they have done in the past, and I should like to acknowledge the Government's debt to them for both past and future services.

I assure the House that we are continuing the consultation with local authority associations, who have helped so much to create the new arrangements. It is probably true to say that we have had more local authority representatives passing through the Treasury doors and more Treasury officials going through town hall doors in the last two years, than at any time in the recent past. There has been a very useful two-way flow of ideas, and I believe that, as a result, the new arrangements we now propose will prove suitable for the circumstances of their time, and will command the support of local authorities in general. It is against this background that I ask the House to give the Bill its Third Reading.

6.22 p.m.

Mr. Douglas Houghton (Sowerby)

When the Bill becomes law it should be an act of repentance, but, since the Economic Secretary has no shame in him, I will call it an act of recantation. The hon. Gentleman says that it does not represent a change, a reversal, of the policy introduced in 1955, because Her Majesty's Government move with the times. The truth is that the Government have got behind the times, and that is why the Bill is now necessary. In 1955, the Government closed the doors of the Public Works Loan Commissioners to many of the local authorities. The Government said that local authorities must first try their luck on the market; that if they were successful there, there was no need for them to trouble the Board, and that if they were not successful on the market, they could come as suppliants to the Board for their financial accommodation.

The hon. Gentleman has just said that the larger authorities displayed great skill in borrowing on market. There is no wonder that they should have tried their skill there, because they were forced to go there. Towards the end of his speech, the Economic Secretary had the effrontery to say that there was no blame attaching to the local authorities for being as successful as they have been in borrowing on the market. What did local authorities find when they were thrown into the cold winds of the money market? They found that they could borrow what they wanted on short-term conditions more cheaply than they could borrow from the Public Works Loan Board.

That seemed a good idea to many local authorities, and they exploited the short-term market for all they were worth—and they were worth a good deal, because hundreds of millions of pounds have been borrowed short term by local authorities, who have undoubtedly benefited from it. Indeed, the skill of the local authorities, which the hon. Gentleman has praised, proved so successful that they began to borrow too much on short-term conditions. Not only that, but money was coming from abroad on short-term borrowing conditions.

That provided a new threat to our financial stability. A good deal of "hot" money was coming to the local authorities, and a good deal of what local authorities borrowed was on call for seven days. It would have caused a great deal of difficulty to local authorities if that money had been called in at anything like that short notice, but it was not, and has not been. But the Government, properly, have taken notice of the trend, and have wished to guard against its possible consequences.

That is why the Government now say that they wish to bring local authority borrowing back to a greater extent to the Public Works Loan Board and, in return, to control local authority temporary borrowing. The Government want to control that temporary borrowing because it has at present got somewhat out of hand. It is a little ingenuous for the Government to say in the White Paper that the prospective call for long-term financing is likely to be greater than can regularly be met by existing arrangements. That is probably true of long-term finance, but is probably not true of short-term borrowing.

The Bill itself does not tell us very much about what the Government intend to do. We have to look at Command 2162 to find out the Government's intentions. What I describe as the "moneylender's clause"—Clause 2—gives the lending body power to fix the rates of interest from time to time, to fix different rates of interest for money borrowed on the same terms.

Mr. Macmillan

indicated dissent.

Mr. Houghton

Does the hon. Gentleman say I am wrong? Rates to be fixed having regard to the length of time for which the sums are borrowed. They can alter the rate of interest according to whether the money is borrowed on the security of rates or otherwise, and we find the following in lines 9 and 10 of page 2: … and different rates may be fixed in respect of different sums borrowed for the same length of time. That is the point I have just made, but the hon. Gentleman shook his head.

I do not complain. All I say is that under this Clause moneylenders are given a good deal of flexibility in the terms they impose on those who borrow from them. Some very large sums will be lent under the provisions of the Bill—

Mr. Macmillan

I would make one point of fact clear; there is normally no difference in the rates for local authorities except on the basis of difference of time.

Mr. Houghton

I am glad that that point is made clear, as it is not obvious from reading the first part of Clause 2. I do not make heavy weather of it. Clearly, when a lending authority is given powers to lend money to local authorities and other public bodies it must be given reasonable room for discretion as to the terms on which it will lend.

If members of the saving public want to know where at least some of the money goes, this is where it will go, because the Bill provides for a sum not exceeding £650 million to be placed at the disposal of the Public Works Loan Commission, that is £650 million obtained from the National Debt Commissioners who are the custodians of the public savings. This amount, which is to be lent to local authorities and public bodies, is expected to last about two years and then it will be necessary to come to the House for authority to lend more.

The Economic Secretary has repeated in his speech the apologia he made on Second Reading and in Committee for the change in policy on the part of the Government. Looking back now, there is no question that they did wrong in 1955. They have probably regretted it ever since. They are now putting it right and bringing local authority borrowing into a more reasonable and sensible shape.

The sentiment of Clause 5 and Schedules 1 and 2 weighs heavily on my mind, because I think that this is the last occasion on which we may have the opportunity of paying tribute to two former hon. Members whose benfactions led to the construction of public works which it was hoped would prove beneficial and profitable to the local community but which unhappily fell on evil days. There was the late Mr. J. C. Williams, M.P., who advanced a loan to the Mevagissey Harbour Trustees, over 60 years ago, for the construction of a breakwater.

Trustees were appointed to undertake the responsibilities for this breakwater and for financing its future, but unhappily in 1899 the trustees fell into arrear with their payments, owing, it is said, to the failure of the mackerel fishing in that area. One can only assume that mackerel fishing there has been failing ever since, because although the guarantor, that is, Mr. J. C. Williams, fully met his obligations, the trustees unhappily fund that their financial position was weakened, and we now have to deal with the consequences of the melancholy story of the Mevagissey Harbour Trustees.

Out of £22,000 lent to them, they repaid less than £1,000 of the principal. The interest outstanding, which is not mentioned in Schedule 1, is £43,000, and in Schedule 2 there is an item on which there is £59,000 of interest outstanding. It is a sorry story of the failure of the mackerel fishing in Mevagissey Harbour. We are now finally asked to extinguish the outstanding principal and arrears of interest. I gather from the use of the terms in the Schedule that these amounts have already been written off, but apparently they are not finally abandoned until they are extinguished and that is what we shall be doing when we pass the Bill containing Clause 5.

The other Parliamentary benefactor, Mr. T. B. Bolitho, M.P., guaranteed loan repayments for the St. Ives Corporation from about 1890 until 1908. There again, storms damaged the harbour installations and erosion began. The sorry story goes on that the local herring fishery failed. Therefore, we have to write off and finally extinguish just over £22,000 and accumulated interest of £26,000 at the end of the day.

The House should pause for a moment and pay tribute to the memory of the late Mr. J. C. Williams and the late Mr. T. B. Bolitho, who were able to bestow, presumably upon their constituents, benefactions which are rare in these days and which might be open to considerable suspicion if they were made now. It is not their fault that we now have to deal with the consequences of these enterprises.

The Bill is necessary and it is overdue. It is a vote of censure on Her Majesty's Government, but they are too blind to realise that that is what the Bill really means.

Question put and agreed to.

Bill accordingly read the Third time and passed.