PUBLIC WORKS LOANS BILL

HC Deb 19 July 1965 vol 716 cc1259-303

Order for Second Reading read.

10.0 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

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

This is a short routine Bill which will I hope be uncontroversial. It serves two purposes. The first is to provide funds for lending by the Public Works Loan Commissioners to local authorities in Great Britain. The second is to provide a useful simplification in the procedure for securing loans advanced by the Commissioners.

There is, of course, nothing new about the first purpose. As the House knows, it is customary to present Bills at fairly frequent intervals so that Parliament can be kept informed and have an opportunity to review the extent of Exchequer lending to local authorities. The present review has come a bit earlier than usual. For one thing we have tried to help local authorities by allowing all of them to get the first £100,000 instead of the first £50,000 of their borrowing requirements from the Board. This enables more smaller authorities to raise all the finance they need without recourse to the market.

I think it is also fair to say that there must have been some under-estimation of the amounts to which authorities would be entitled when the new arrangements were introduced by the previous administration. I do not seek to blame them for that; those arrangements only came into operation just over a year ago and it is undoubtedly difficult to say with any precision just what will be the demand on the Board in any period. Much depends on the pattern of local authorities' borrowing, on the amounts of maturing debt they have to refinance and on the timing of their applications to the Board. Last time Parliament provided £650 million, and, although that provision is not completely exhausted, it is obviously impossible to run right up to the limit before seeking replenishment. On this occasion we are asking Parliament to provide £500 million, which should be enough to meet the entitlement of local authorities until well into next year. By that time the system of partial access to the Board will have been in force for some two years, and we thought that Parliament might then wish to take stock of the situation again. We shall, I hope, have settled most of the teething troubles which have arisen.

I am not suggesting that there are really any fundamental weaknesses in the system, but I think it is fair to say that neither the Government nor the local authorities are wholly satisfied with the arrangements as they now exist. There are undoubtedly certain strains and stresses inherent in those arrangements, and we shall continue to explore ways and means of removing them whilst reconciling the national and local interests. The House will, of course, appreciate that we are not concerned today with the level of local authority expenditure but only with the method of financing it, or, rather, financing a part of it. Perhaps at this point I can remind the House how the existing arrangements work. At present, only the smaller authorities can get all the money they need for their capital programmes from the Board. Larger authorities are limited to 30 per cent. of their long-term borrowing or £100,000, where that is greater. They are expected to find the rest of their money on the market.

In his Budget speech my right hon. Friend the Chancellor of the Exchequer announced that as a special measure of assistance to local authorities in the less properous areas, or indeed in entire regions, he proposed to give them up to 50 per cent. access to the P.W.L.B. I can now say that it has been decided to allow local authorities in Scotland, Wales and the northern and north-west regions of England to get 40 per cent. instead of 30 per cent. of their long-term borrowing from the P.W.L.B. this year. We came to the conclusion that, rather than give a few authorities 50 per cent., it would be better to widen the area to which the concession applies and give authorities in these four whole regions the extra entitlement.

I turn now to Clause 2. As I have said, we do not regard the present arrangements as static, and there is one change in the mechanics which we can make immediately. At present loans by the Board are secured by mortgage, normally of the borrower's revenues. The need for a mortgage deed to be executed involves time and labour for both the Board and the borrower, in correspondence, in sending the appropriate form and in the sealing of the mortgage deed, all of which has to be done before the money can be handed over.

The new procedure proposed in the Bill will provide a more streamlined system. Loans secured on the revenues of the borrower will be made by virtue of a simple agreement between the Board and the authority, and, when the money is handed over, the loan will be automatically secured on the authority's revenues, without a mortgage deed having to be executed. This new, simpler procedure will, I am sure, be warmly welcomed by local authorities.

Clause 3 provides a convenient procedure for the recovery of stamp duty in respect of these loans.

That is all I wish to say on the Bill itself. But, before sitting down, I should like to take the opportunity of paying a tribute to the Public Works Loan Commissioners. Theirs is not an easy task and it has been particularly strenuous during the last year or so, with the introduction of the new arrangements to which I have referred. The Government are indebted to them for the services they render on an entirely voluntary basis.

10.7 p.m.

Mr. Peter Walker (Worcester)

First, I join the Financial Secretary in paying tribute to the Public Works Loan Commissioners for the work which they do. I think that both sides of the House are appreciative of the manner in which they have conducted their affairs over the years.

This is a very important Bill in that it involves a very large sum of money. If we agree to the Bill, we are deciding that every family of four in the country will loan about £40 to the local authorities over the next 12 months or so. This is a very substantial sum. One gathers that at present local authorities are borrowing about £500 for every family of four in the country. At least, that is the figure that one obtains from the latest statistics available.

I would say immediately that I was rather disappointed that in his remarks in moving the Second Reading the Financial Secretary did not provide us with a great deal more information about the current state of local authority borrowing. This is a very important subject. It has important effects upon the economy as a whole. It is one of the most important spheres of public expenditure and also one of the biggest spheres of total investment. It is difficult to find the latest available information about the magnitude of the problems involved. I hope that whoever replies to the debate will be able to give us some further information about the trend in local authority borrowing between the passing of the last Public Works Loans Bill and the presentation of this one.

It was interesting to note the considerable contrast between the general tone of the Financial Secretary and the tone of his hon. Friends who spoke in the debate when the Conservative Government introduced the last Bill. For instance, the hon. Member for Salford, East (Mr. Frank Allaun) was present during that debate, and he will know that all sorts of imaginative suggestions were made by Labour Members about what should have been contained in that Bill. Consequently, when the Financial Secretary said that the Bill was a very simple one and in line with all previous Bills, I should have thought that there must have been a certain air of disappointment among hon. Gentlemen opposite who joined in the debates on the subject in 1963.

Turning to the Bill, we welcome the improvements in procedure contained in Clauses 2 and 3 and wish to ask certain fundamental questions about Clause 1. There is no doubt that, during the past six months, the local authorities have had some considerable difficulties and considerable expenditure in borrowing in the market and we would like to know how much the Government have taken into account such difficulties.

First, the general taxation policy of the Government has had its effects upon the needs and requirements of local authorities in borrowing. We are well aware that many items of Government policy have considerably increased local authority expenditure and the cost of their long-term investments. Taxes such as the vehicle licence duty and the petrol tax obviously add to local authority's immediate expenditure as well as to the cost of major development projects. The 7 per cent. Bank Rate, which was held at that level for longer than any period since the war and is still at the high rate of 6 per cent., has added considerably to the cost of borrowing by local authorities and there were periods in the past six months when they were paying sums far in excess of 7 per cent. I am surprised that we have no information as to the type of extra expenditure involved to local authorities as a result of Government policy.

Then, of course, local authority expenditure must be affected by the rise of nearly 5 per cent. that has taken place in the general cost of living index since the Government came to power. Added to these factors of the petrol tax, the increased vehicle licence duty, the 7 per cent. Bank Rate and the general inflation that has taken place there are other aspects of Government policy which presumably will result in considerably heavier burdens upon the local authorities.

For example, there is the declared policy as to comprehensive schools. If these are to be built fully and quickly it will presumably involve considerable extra expenditure on school building and this will involve, in turn, increased borrowings by the local authorities. There is also the effect of the Government's housing policy. It appears to be the declared policy to lay greater emphasis upon local authority building than on private building and this, too, will result in increased demand for borrowing by local authorities.

Yet we have had no estimate by the hon. and learned Gentleman as to the extent that this will affect future requirements of local authorities in borrowings. It is time that the public were given some estimate of what this will demand in terms of increased expenditure by local authorities. I hope that we shall have some further information about the amounts expected to be involved and the increase, if any, in the general rate of lending to local authorities under the Bill.

There are other aspects on which we would like a clear declaration of Government policy. The hon. and learned Member did not mention what the Government consider is to be future policy on interest rates. Many imaginative suggestions by hon. Members opposite were put forward on the last occasion we debated the subject. It was handled for the then Opposition by the present Chancellor of the Duchy of Lancaster. He, in his usual vigorous manner, expressed his disappointment at the lack of new ideas and of real assistance to the local authorities contained in the Public Works Loans Act, 1964, which was almost identical to this Bill. He said: 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 to 'reconsider 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 pig subsidies in the form of artificial rates of interest.'"— —[OFFICIAL REPORT, 11th December, 1963; Vol. 686, c. 483.] Doubtless, at that time, the hon. Member for Salford, East was disappointed by the Chancellor's reply and he was certainly encouraged in that disappointment by the right hon. Gentleman the present Chancellor of the Duchy of Lancaster, who went on to say that there was justification for having lower rates of interest for the local authorities under that Act. We know that, since the Government have been in power, the loans under the Public Works Loans Acts have, in the Board's capacity as lender of last resort, been at the highest level ever. I was surprised therefore that, the Opposition, having made quite clear, when the last Public Works Loans Bill was debated, that they were in favour of low rates of interest—and the magic 3 per cent. with which this Government is so associated was actually mentioned in that debate—there was no concession or statement from the Financial Secretary about their intentions in the matter of interest rates.

There is another problem facing local authorities. The Financial Secretary has rightly pointed out that besides obtaining the assistance which they do from the Public Works Loans Acts local authorities are still dependent for a very large proportion of their borrowings upon the market. In considering how much we should provide under these Acts we should surely consider the difficulties experienced by local authorities in borrowing from the market at any particular moment of time. The actions of this Government have made borrowings from the market more difficult and much more expensive. We are in the process of passing the Finance Bill and we know that that Bill will result in considerable demands in the market on the issue of debenture stocks.

The rush has already started as a result of the operation of the Corporation Tax. The rate of interest of these debenture stocks is very high and they are very attractive stocks for anybody requiring a fixed rate of interest. Therefore, we must ask what local authorities will have to pay to compete in the market with these stocks and how much this will cost the local authorities and therefore the ratepayers. Do the Government intend to see that the processes of the Public Works Loans Act will be used to enable local authorities to stave off the increased rate for borrowing which the Government's own Finance Bill has created? I was disappointed that the Financial Secretary, who took such a part in steering the Bill through, should not have made some reflections on the effect of the Bill on local authority borrowings.

The Government have decided to continue on the general principles and lines previously stated. This will cause a certain amount of depression among local authorities, because whereas this was reasonable when they could conveniently and competitively obtain borrowings from the market it is a different question when the cost of these borrowings has been increased by the Government's financial policy. On the last occasion when we debated a Public Works Loans Bill there was a great deal of questioning by the then Opposition, now the present Government, about the nature of local authority financing. Questions were asked about the amount of local authority borrowing which came from abroad.

Has the Financial Secretary any further information and detail about the present short-term borrowings of local authorities? The hon. and learned Gentleman will recall that the last Bill was introduced on the basis of a White Paper just previously published in which it was considered necessary to reduce the proportion of the borrowings of local authorities borrowed on the short-term market and it was laid down that it was the Government's intention to reduce the amount borrowed on the short-term market to 20 per cent. of borrowings.

How far are we going towards reducing it to that level, or has the position been in the last few months that rather than short-term borrowings having decreased they have started to increase again? If so, to what extent? These are important and fundamental facts which the House should know. I remember in the last debate the right hon. Gentleman the Member for Sowerby (Mr. Houghton), now Chancellor of The Duchy of Lancaster, in col. 481 of HANSARD talking of those short-term borrowings by the local authorities. He said: 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 6¾ per cent. on their temporary loans hot money came in from abroad, attracted by the higher rates of interest. The Government were buying support for sterling and making the local authorities foot the bill."—[OFFICIAL REPORT, 11th December, 1963; Vol. 686, c. 481.] The Government made the local authorities pay because that was the only borrowing which they could undertake to satisfy their needs.

We must, therefore, ask the Government to what extent they have had a 7 per cent. Bank rate, has this hot money been coming in from abroad to support sterling and what it has cost the local authorities, and what proportion of the total amount of short-term borrowings have come from abroad? These are fundamental facts which I think the whole House will want to know in order to see the very nature of the capital markets financing our local authorities. I believe that the extent of local government expenditure on borrowing must be of some concern to us all. At the present time the Government are facing problems of inflation, and the nature and extent of local authority expenditure must be of fundamental importance to them and to the economy. It is a colossal sphere of expenditure, and the extent of borrowing has now reached a level where every family in the country is lending to the local authorities something like £500 on average. Tonight we are increasing it by a further £40 for every family.

We must know what the general view of the Government is as to the development over the next two or three years in this sphere, and what measures they intend to introduce to see that this borrowing is spent wisely and in the interests of the economy at large. We must also know to what extent their financial policies are going to increase the rate burden in the country. I think it is a disappointment to the electorate who were promised rate reform, local authority financing reform, and house purchase reform, that the Government are pursuing a completely similar course to what has gone in the past, having put up the cost somewhat considerably.

I would like to say a word about the effect upon general provision for housing. This was another matter that formed a very large part of the debate in 1963. The hon. Gentleman who is now a present Member of the Government, the Member for Islington, North (Mr. Reynolds), made a very powerful speech on the last Public Works Loan Bill and he ended his speech by what he emphasised was a matter of considerable importance, namely, the financing of house purchase through the local authorities. He made the suggestion that under the Public Works Loans Board they should be willing to grant seemingly unlimited sums under the various Acts that would enable local authorities to finance house purchase. He said in column 496 of HANSARD: 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."—[OFFICIAL REPORT, 11th December, 1963; Vol. 686, c. 496.] I notice under this Bill that there is no provision for providing these unlimited sums to local authorities for lending to people for owner-occupation. May we seek from the Financial Secretary information as to whether the Government have decided to reject the suggestions that their own supporters made the last time this was debated, or whether this is a matter which will now possibly come under the present Public Works Loans Bill? This is an important Measure that we are passing. We believe that the Government are continuing a method of financing very similar to what we outlined in the previous Bill. We welcome an increase of £100,000 limit for the smaller authorities. Indeed, we outlined this ourselves when we introduced the last Public Works Loans Bill. The White Paper accompanying it stated: It is thought that at least two-thirds of all authorities will benefit from this arrangement in that £50,000 will represent more than 20 pet cent. of their needs in that year. It may be possible subsequently to raise this sum to £100,000. We are pleased that the Government have raised it to £100,000. We welcome the administrative provisions in the Bill, but we seek far more information from the Government about their general long-term intentions.

10.25 p.m.

Mr. Frank Allaun (Salford, East)

The hon. Member for Worcester (Mr. Peter Walker) has no right to criticise, for two reasons. The first is that for 13 years his party, while in power, did not introduce cheap interest rates. Indeed, the Conservative Government's interest rate was roughly 6 per cent.—exactly double the highest rate operating from 1945 to 1951.

Mr. F. V. Corfield (Gloucestershire, South)

The Conservative Party did not make promises. That is the difference.

Mr. Allaun

I am coming to that.

The second reason why the hon. Member for Worcester has no right to criticise is that the high Bank Rate from which we are now suffering—and people in council houses and would-be owner-occupiers are suffering—is largely due to the deficit which the Government have inherited. Having said that, I want to criticise—and I think that I, together with many other hon. Members on the Labour side, are entitled to criticise. While £550 million is a lot of money, the question which we have to ask is: at what rate of interest will this be lent? The answer, very simply, is the market rate of interest. This will make very little difference to most councils, I regret to say.

Mr. Julius Silverman (Birmingham, Aston)

Except for the quota.

Mr. Allaun

Yes, except for the quota. This is possibly ½ per cent. in many cases. Unless this interest rate is drastically reduced, council tenants, would-be council tenants and would-be owner-occupiers are in a very difficult situation.

The effect of the present bank rate and the rates which councils have to pay for the money with which they build council houses is this. Very roughly, the cost of a £3,000 council house by the time that the market rate of interest has been paid for the normal period of 60 years, is over £10,000. That means that £7,000 goes in interest to the financiers. All this talk about building operatives' wages causing the cost of houses to go up is twaddle. It is the moneylenders who are getting the bunce. So far we have not made much impact in reducing the toll of the moneylender.

Roughly two-thirds of the rent of a council house goes to pay interest on the capital. Rents are now rising to such a level that poor people who need council houses most would in many cases be unable to pay the rents required if the councils did not spread the cost of the new council houses over their old council houses. The result is that people who have been paying rent on a council house for 20 to 30 years are finding that their rents are going up every year, although there is no change in their housing situation.

Let me quote some figures. The housing deficit in the council accounts of some of our big cities is appalling—Salford, £150,000; Manchester, £600,000; Liverpool, £1¼ million. These councils are in an impossible position. They can either raise the rents yet again—and they have been raising them almost annually—or stop building. I am glad that most councils realise that it would be criminal to stop building in view of the tragic housing shortage. Consequently, they are continuing to build.

My hon. Friend the Member for Manchester, Wythenshawe (Mr. Alfred Morris) reminds me—I happen to live in his city, so I know—that in Manchester the council is having to impose a further rent increase of a minimum of 7s. 6d. a week rising to 12s. 9d. a week. All over the country, councils are faced with this dilemma. The same situation of a growing interest burden faces the owner-occupier. Any attempts by reactionary quarters to drive a wedge between the owner-occupier and the council tenant must be resisted, because they both face the same burden of high interest rates.

The solution was given in the Labour Party election manifesto of cheap interest rates both for the council tenant and for those wishing to buy their own houses. I should like to give an example of what West Germany does in this respect. In West Germany, the market rate of interest is even higher than in Britain, but the Government provides the first portion of the loan for building one's own house, either completely interest-free or at a rate of one-half of 1 per cent. That is a very good idea which, I hope, possibly our Government will consider.

That means that anyone who wants to build, say, a mansion costing £15,000 will not get a cheap interest rate for the whole figure, but if, for example, the first £2,000 is interest-free, the man who builds a small house will be helped much more proportionately than the man who buys a mansion. That is something which, I hope, we will take into consideration.

Mr. Alfred Morris (Manchester, Wythenshawe)

My hon. Friend is discussing an important matter. I noticed that some hon. Members opposite greeted with incredulity his point about differentially lower interest rates being the rule in other countries. My hon. Friend will, perhaps, agree that this is an established practice also in the United States. Money which is lent for housing is lent at differentially lower interest rates. My hon. Friend has drawn attention to a practice which is widespread throughout the world.

Mr. Allaun

I am indebted to my hon. Friend for his intervention. That is done not only in America, but in many countries.

I am sure that the Labour Government intend to carry out their promise. That is the solution, but there has been delay. First, we were given an indication that it would be done in the Budget, but it did not come in the Budget. Then there was a suggestion that it would come in July, but it did not come in July. Now, we are told that it will come in September. I am asking that it does come in September, because this is very necessary if we are to tackle the housing problem.

To do this would not cost fabulous sums. Last November, I put a Question to my right hon. Friend the Chancellor of the Exchequer and asked him how much it would cost to reduce from the current rate to 3 per cent. the interest on the council house-building programme of the previous year. His answer was £9 million per annum. I admit that if, in the following year, it was necessary to subsidise to the same extent, and assuming that Bank Rate had not gone down, there would be a further £9 million that year or, in other words, a total of £18 million, and £27 million the year after. Even if it were £9 million, £18 million and £27 million, however, what is this compared with the expenditure by the Government of £7,000 million a year? These are trifling sums, and yet they could do more than anything else to solve the terrible housing problem which afflicts our people, particular in the great industrial cities of the north, and the city of London.

I plead with the Government, for God's sake give us these lower interest rates quickly, before building begins to slow down.

10.35 p.m.

Mr. Robert Cooke (Bristol, West)

We have heard some passionate stuff—[HON. MEMBERS: "What?"]—passionate stuff from the hon. Member for Salford, East (Mr. Frank Allaun). I think his financial suggestions could be summed up rather like this. If we are short of money, just print some more. If one cares to examine minutely what the hon. Member has just suggested, it amounts to that—just turn on the printing press and print some more.

I should like to follow my hon. Friend the Member for Worcester (Mr. Peter Walker) in asking the Government to tell us a little about what is going to happen to all this money we are asked to vote by means of this Bill tonight. We have heard a lot about the terrible burdens under which local authorities labour. Of course, the reason why they labour under the burdens of interest rates is that they undertake a great deal of expensive activity of one kind and another, much of it most necessary, but some of it, perhaps, not so necessary, and I think we are entitled to know a little bit about the sort of obligations which the Government have placed upon local authorities, as a result, of which, no doubt, we are asked to vote this money this evening.

My hon. Friend briefly referred to the subject of education. I also would refer, very briefly, to that subject, because it is one of the reasons why local authorities are being asked to find more and more money and why we are being asked for this sum this evening. Yet we have a policy, being pursued by Government planning all over the country, by which, next September there will be empty places in schools. Because of doctrinaire political decisions a maintained grammar school in my constituency will have 30 empty desks next September because the local authority is bound by this doctrinaire policy to kill off that school by degrees. I should be out of order, I am sure, if I were to pursue that matter at great length or any great detail, but that is the sort of thing which is happening. As a result of the Government's policies local authorities are doing these things, and yet we are asked to vote more money this evening so that they can pursue these nefarious schemes.

I hasten to say that if we give this Bill a Second Reading tonight we shall certainly want to have a close look at it during its later stages. I should like to know from the Government a little about the financial disciplines which are to be placed on local authorities if this large sum of money is to be voted. We have heard suggestions that we should provide cheap money for local authorities and give them greater freedom in all their various projects. Well, if that were pursued to any great length we could get the most extraordinary imbalance in a city like Bristol, with private enterprise finding itself in considerable difficulties of competing with the local authorities in various fields. In such a city, with diversification of industry, despite all the onslaughts of Socialism, private enterprise still manages to carry on, because even if one is knocked out another can take its place, but that sort of fine balance which has gone on a long time might be disturbed if a local authority found itself in a somewhat different and special financial position.

That leads me to the point, which I think is a valid one, that however much one admires local authorities as a whole, and the splendid work they do in co-ordinating all the things which are necessary in a city or town or county, they are very vulnerable to the pressures of their electors.

We in Parliament are vulnerable to the extent that there can be a national agitation about one thing or another, and some of us may even feel moved to do something about it. If there is enough agitation, perhaps enough hon. Members are interested, and something is done about it, that is if the Government allow it, or if the Government have the money to do it.

Local authorities, however, are much more vulnerable, because the action of public opinion on them is much more violent. There is a great deal of noise about public opinion venting itself on the House of Commons. When people feel passionately about a particular issue they come and sit in the Central Lobby—many of them on the floor—but in the case of local authorities the electors have a much more dramatic effect on the elected representatives, and expenditure by a local authority can have a much more dramatic public effect on the electors.

Mr. Stan Newens (Epping)

Is it a bad thing for the electors to have an effect on their elected representatives?

Mr. Cooke

If the hon. Gentleman had listened with a little more attention, instead of beginning with a prejudiced mind, he would have realised that I was leading him on to say, and perhaps he will feel pleased about it, that in the case of a local authority the impact of the electors on the elected representatives is much stronger and more immediate than it is on the Parliamentary representatives.

Mr. Frank Allaun

That is democracy.

Mr. Cooke

I am glad that the hon. Gentleman and I find ourselves at one, perhaps for the only occasion in our Parliamentary lives.

A local authority is very much at the mercy of the electors, and that is where the question of finance comes in. There will always be a tendency to give in to strong local pressures. Local authorities have given in to them in the past, and no doubt they will do so in the future, but I hope that by passing the Bill we will not make it easier for them to do so.

Mr. Julius Silverman

Surely the greatest pressure is the other way. The pressure is exerted by the ratepayers to reduce expenditure, sometimes on things which are necessary.

Mr. Cooke

The ratepayers would like to see the rates go down but every ratepayer wants the city or county council to spend money on something, and the two never balance out. The result is that the expenditure continues to rise, not necessarily because of vitally essential things like housing and education—the right sort of education I hasten to add—but because of other things which are not so necessary. Nevertheless, if the money is available there will be a tendency to spend it.

Clause 1(2) says that the moneys are to be issued during the period beginning with the passing of this Act and ending on the day on which a further Act granting money for the purposes of those loans comes into operation. … This seems to be somewhat indefinite. It may be in accord with the precedents, but it seems that we are being asked to vote a large sum of money, and we are not being told when we will have to vote some more, and for that reason I think that the Government owe us a little further explanation.

My remarks would have been shorter had it not been for the fact that they seem to have aroused a certain amount of controversy, and even anger among some hon. Gentlemen opposite, albeit anger of a rather synthetic nature. I hope that the Government will be able to give some further explanations of the matters at issue here. Should they not do so, I must warn them that the Bill will have to be examined most carefully during its later stages.

10.44 p.m.

Mr. Eric Ogden (Liverpool, West Derby)

For a moment when I listened to the wide-ranging comments of hon. Gentlemen opposite, I thought that we were back on the Finance (No. 2) Bill. I resisted the temptation to join in that debate, but I am on home ground when discussing local government. It should be said from these benches at least that the Financial Secretary's announcement that some authorities in the North-West and other parts of England and Scotland are to be able to get an extra 10 per cent. from the P.W.L.B. will be welcomed in every town hall, parish hall, and council hall in those parts of the country. The need is very great. If my hon. and right hon. Friends have done nothing else in this Parliament they have won themselves many friends among the treasurers' associations. "A friend in need is a friend indeed". Local authorities are probably the biggest hire-purchase people in business, and I would have thought they would get rather more sympathetic treatment from hon. Members opposite than they have received so far.

I pay tribute to the treasurers in our town halls and parish councils. Over the last two or three years they have had to be financial wizards and jugglers. I know many who have had nervous breakdowns for various lengths of time through having to juggle money on a seven-day-in and seven-day-out basis in order to do their best for their ratepayers.

I want the Financial Secretary to answer two points. He said that he thought that it would be extremely difficult to foresee the demand that would be made on the Public Works Loan Board by local authorities. Can he give some indication of what forecast has been made and what sort of reviews are in process? This has been mentioned in different debates from time to time, but it is essential to mention it again at this time.

My hon. and learned Friend also said that £500 million should be enough to meet the needs of local authorities for the next 12–18 months. Frankly, we could spend that on Merseyside in 12 months and still ask for more. This is a welcome Bill, and I hope that it has a speedy passage but, as my hon. Friend the Member for Salford, East (Mr. Frank Allaun) said, it is an interim Measure, and if there is any responsibility for the complaint of hon. Members opposite that we have not got the second tier of our two-tier system of interest it is theirs. We could have had it if there had been a June election instead of an October one. Then there might have been time for my right hon. Friends to bring forward the necessary measures to give local authorities a two-tier system of interest.

Those who are members of local authorities know what happens. If a person is elected he goes through the highways committee, the housing committee, the health committee and the parks and allotments committee from May to January, saying, "This is a very desirable and necessary project. Put it on the list", but in January and February he goes through the list with a fine-toothed comb, and all the necessary and desirable things are cut, cut, cut, all the way along the line.

Mr. Robert Cooke

Does not the hon. Member agree that it would be very much easier if each committee were told at the beginning of the year what it could spend? It could then work out its plans accordingly.

Mr. Deputy-Speaker (Dr. Horace King)

Order. We cannot pursue the structure of local government at the moment.

Mr. Ogden

My point is in order—

Mr. Deputy-Speaker

I was not calling the hon. Member to order; I was calling the hon. Member for Bristol, West (Mr. Robert Cooke) to order.

Mr. Ogden

Any time you wish to call me to order it is quite all right, Mr. Deputy-Speaker. The point is that the criticism comes rather oddly from hon. Members opposite. Having delayed the Election from June to October they gave us no time to do anything to help local authorities in their finances for this year. Next year we hope for something. Certainly so long as we have a system in which a local authority which wants to do something necessary and desirable has to submit its plans to the Ministry in London, which says, "If you want to build a swimming pool, pay the current market rate of interest for it", there will be difficulties. Having received approval for a project which is regarded as desirable a local authority is entitled to expect a reduced rate of interest for that service.

There is no need to emphasise to my right hon. and hon. Friends the urgency of this need. I hope that we will take not only this interim step but that we will bring in speedily other proposals to help us and our people.

10.50 p.m.

Mr. F. V. Corfield (Gloucestershire, South)

I am only impelled to intervene by the intervention of the hon. Member for Salford, East (Mr. Frank Allaun). He will remember an Adjournment debate in, I think, the autumn of 1962 in which he deployed almost precisely the same arguments as he deployed tonight, and which it was my task to answer. I recollect the argument which I used in reply to the hon. Gentleman. In the first place, of course, I objected that help to local authorities or to owner-occupiers on the basis of a fixed interest rate was nothing more nor less than an open-ended subsidy from the Treasury, and one which the Treasury would have no means of calculating in advance because it would depend, on the one hand, on the market rate of interest and, on the other, on the size of the building programme.

I recall the latter years of food rationing, which was linked to food subsidy, when we had the ludicrous situation that the rations of this country were deliberately kept lower than they need have been—after five long years of war and for several years afterwards—merely because to have increased the rations would have increased the burden on the Treasury. This is the sort of danger into which one falls if one attaches a subsidy to this sort of criteria.

The second reason I attacked the hon. Gentleman was that I could not see and cannot see now how this argument can be confined to housing. What is the distinction in this sphere between houses and hospitals? What is the distinction between houses and schools and many other items of local authority expenditure or of national expenditure? All these programmes, whether roads, schools, hospitals, or old people's homes are, in their way, equally urgent and equally important.

I went on to say that if one visualises an extension of this sort, one would be taking out of the range of the monetary weapon a very large section of the economy. I would agree with hon. Gentlemen opposite if I believed for one moment the sort of propaganda which the party opposite were putting over at the General Election, that an economy such as ours, which depends entirely on our overseas trading position, can be run—at any rate in the foreseeable future—without an occasional touch of the brake or the accelerator as events demand.

It was the party opposite which fought the election on the basis of no more stop-go and which repeated the claim that they utterly rejected any policy associated with stop-go in what they described as an "emergency" White Paper on coming into power and on having, as they put it, assessed the financial position of the country. Nevertheless—I am sure the Treasury Bench will be the first to admit this—they have found the monetary weapon an absolute essential in stabilising the economic position of this country and fending off a run on the pound.

I would ask the Financial Secretary whether he really thinks that we would conceivably help the stability of the pound and the confidence of our overseas lenders which is an essential to it if we cast away the monetary weapon over such a wide field as this. I was surprised at the giggles which greeted my intervention reminding hon. Gentlemen opposite that it was they who made the promises. I am on record in the adjournment debate to which I referred as saying quite firmly that I did not believe in favourable interest rates as the basis of subsidy for items of this sort.

I am equally on record as saying that I do not believe that a Chancellor of the Exchequer can be deprived of the monetary weapon over such a wide field, in other words, that one cannot guarantee to run this country—

Mr. Frank Allaun

rose—

Mr. Corfield

I will give way in a moment.

One cannot guarantee to run this country without some element of occasional stop-go, or brake and accelerator. It is astonishing that any hon. Gentleman opposite should say that there is something meritorious in a party which makes promises which are clearly opposed to economic interest of this country, as against a party which says, "We do not believe in this and we shall not make promises."

Mr. Allaun

The hon. Member says that he is opposed to any kind of subsidising of public housing in this country—

Mr. Corfield

Yes, subsidising through special interest rates.

Mr. Allaun

May we take it from that that he is equally opposed to any kind of help to owner-occupiers of this kind? Does he oppose both pledges which the Labour Party gave at the election to help the two sections of the community in this way?

Mr. Corfield

Quite frankly, I do not think that this is the day to do it. There are far more dangers in it than advantages.

When we hear of these comparisons with other countries we should remember that they are entirely false unless we know the whole structure of their housing subsidisation. So far as I recollect, speaking off the cuff, the Americans do as the hon. Member said, but they have no other kind of subsidy, and the same applies in Germany. In Sweden, although they have subsidy for houses of all types in the form of slightly lower than market interest rates, they have no other form of subsidy for houses. The basis of subsidisation is a direct subsidy on an individual basis on what is their equivalent of P.A.Y.E. coding. We are wasting our time in trying to draw comparisons with other countries unless we draw them over the whole field of housing subsidies.

10.56 p.m.

Mr. Geoffrey Rhodes (Newcastle-upon-Tyne, East)

I shall not detain the House for more than about five minutes, but one or two points raised in the debate require an answer.

I agree with the hon. Member for Worcester (Mr. Peter Walker) that the educational policies of the present Government are likely to increase considerably the needs for capital borrowing over the next five to 10 or 15 years. Apart from the fact that there are many areas where there is need for a radical approach to clearing slum schools, which is particularly true of the north of England, the comprehensive plans of the present Government will increase educational expenditure in relation to capital development. It is obvious from existing evidence that the number of children who will stay at school and enter sixth forms and the other requirements in relation to laboratories which children who have been deprived of the benefits of grammar school education will get through the comprehensive system will increase capital development in future.

There is great capital development in my constituency in connection with a comprehensive school. Far from this being, as the hon. Member for Bristol, West (Mr. Robert Cooke) said, a nefarious doctrinaire scheme, people who speak in that way are doctrinaire. It would be out of order to pursue that point further, but the educational policies of the Government will rightly involve increases in capital development. This leads me to support the Bill because, although it does not go far enough to help local authorities, it will help them with some short-term problems.

I urge the Government Front Bench to pay attention to the soundly argued case put by my hon. Friend the Member for Salford, East (Mr. Frank Allaun). It may be that subsidisation on an interest rate basis is less effective than in some other way, but it is a fact that capital costs of housing are constantly spiralling and unless something is done by way of interest-rate subsidisation or by other means, the burden on the occupants of those houses will become tremendous. When I heard of what is happening in Manchester I was glad to know that in my constituency rents have increased by only 2s., but that is for this year and prospects of a further increase of 2s. are not welcome.

The hon. Member for Gloucestershire, South (Mr. Corfield) said that we did not want open-ended subsidies of this kind. That depends on the social priorities. For many years we have given open-ended subsidies to defence expenditure the eventual commitment of which we have never been certain about. If we really feel, as I do, that we are deficient in the housing standards which we maintain in this country—and there is abundant evidence to prove that we spend too small a proportion of our national income on housing—then the case for acting at least on the lines indicated by my hon. Friend the Member for Salford, East is worth considering.

Many of the difficulties which have been raised tonight and many of the problems which will remain even when this Bill has been passed point to the problem which my hon. Friends and I have constantly raised in the House; the urgent need for a complete reorganisation of the whole basis of financing local government. The hon. Member for Worcester may be justified in taunting the Government for not acting sooner, but it falls badly from the lips of those who for 13 years not only did not act in an effort to solve the problem but who, by their revaluation legislation policy and many of the other Measures which they took or did not take, made the problem even worse. I urge the Government to give the earliest possible consideration—although presumably that will have to be done in the next Session—to the introduction of a complete reorganisation of the basis of financing local government with the aim of getting rid of the antiquated system which we have at present.

11.2 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

I wish to concentrate on the problems we have on Merseyside in regard to the borrowing of money, because it is important that these problems should be kept in mind when discussing a Bill of this sort. I wish to make it clear at the outset that on Merseyside the Bill will be warmly welcomed. There is no doubt that the Government will find a great many friends in the Liverpool area as a result of the provision enabling authorities to borrow an extra 10 per cent. from the Public Works Loans Board.

Having said that, it should also be remembered that this additional sum will be insufficient to solve the problem in areas such as Merseyside, where a tremendous special problem exists. Consider the difficulties in an area which has 80,000 slum dwellings to be cleared and 40,000 people on the housing register. While some of those people are at present living in the slum dwellings, one has a picture of the special housing problems which some authorities have.

Borrowing money in the market at 6 per cent. or 7 per cent. places an enormous strain on the local authority. It also means that the interest on the borrowed money must be passed on to the tenants of council property. Much has been said about people who live in council property and people who live in private property. Whatever is said about either category, the time is approaching when—certainly in places like Liverpool which have special problems—one will have to be a millionaire to rent a council flat. [HON. MEMBERS: "Oh."] For a two-bedroomed council flat people are paying £4 10s. a week—this in an area in which some of the lowest wages are earned.

These difficulties have arisen because of rapidly increasing interest rates. I do not have the exact figures with me, but for some years the Liverpool local authority has been borrowing money for its housing programme at the same rate as it has been paying out in interest charges on the money it borrowed in the past. We cannot go on for ever with this increasing burden, which not only falls on the local authorities and the ratepayers, who, incidentally, are not living in council property, but equally on the council tenants themselves. Therefore, I want to make a plea particularly for areas like Merseyside that there must be special consideration. We need to go much further than we have done in this Bill.

I would ask the Government to tell us what will be the rate of interest at which we can borrow this money, because I am told that this has already been stated as being at the market level. I am going to say quite definitely that this is not good enough. The quicker we can reach a position where we have two-tier interest charges, particularly for areas like Merseyside with their enormous housing problems, the better it will be in order that we can overcome these problems. That is the only point I want to make, because it is vital that this must be stressed again, again and again.

Four years ago when the Conservative Party took office in Liverpool they introduced, not a differential scheme, but a similar type of scheme in which they overcame at that stage the problem of balancing the housing revenue account. They did it by increasing the rents of corporation tenants. The result was that in the first year or so we had a surplus. This surplus has now disappeared, and it is estimated that by next year we shall have a deficit of somewhere in the region of £1,250,000. It is an accumulating deficit, and so it will go on. I make a plea to the Front Bench that we should go much further than we have in the Bill and that something must be done quickly in order to overcome the problems which areas like Merseyside have.

11.8 p.m.

Mr. Alfred Morris (Manchester, Wythenshawe)

I rise with some sympathy for the party opposite, because in this debate theirs is a melancholy position. As one understands the attitude adopted by their principal speakers so far, they are extending a qualified welcome to this Bill. Their political philosophy, of course, is opposed to social enterprise of all kinds. When one hears Conservatives speaking about local government and the need for social enterprise to prosper, one realises that they have to adopt a certain hypocrisy in order to take part in debates of this kind.

As my hon. Friend, the Member for Salford, East (Mr. Frank Allaun) has said, the question of interest rates is of paramount importance for local authorities. While I welcome the promise in this Bill that there will be greater powers and possibilities for borrowing by local authorities, the gravamen of their problem is the rate of interest at which they can borrow money. My hon. Friend referred to the city of Manchester. He mentioned that there is a deficit in the housing revenue account of some £600,000. I appreciate that this is by no means the largest deficit facing a local authority today, but, believe me, there is strong feeling in Manchester about the consequences of the deficit with which we are faced. The increase in rents now recommended by the housing committee of the city of Manchester is of the order of 7s. 6d. for the average type house. Some council house tenants face increases of 12s. 9d.

I appreciate that the Government would have wished to bring forward their proposals about interest rates much earlier than September of this year, but what has not yet been mentioned is the appalling economic crisis which my right hon. Friends on the Treasury Bench inherited. There is now a widespread understanding of that crisis in the country. Nevertheless, I hope that considerable urgency will be attached to the drive to reduce interest rates. We are not likely to have an acceptable incomes policy unless we have, at the same time, an acceptable prices policy, and there is no more important aspect of that problem today than house rents.

Like my hon. Friend the Member for Liverpool, West Derby (Mr. Ogden), I am happy that the Bill will particularly help local authorities in the North, which, in the main, have the largest problem. The city of Manchester has the proudest record of all in slum clearance, but as it continues to tackle that problem so the deficit in its housing revenue account grows. I therefore appeal to the Government to do everything possible to ensure that there is a drastic reappraisal of local government finance and, in particular, a drastic reduction in interest rates.

Mr. Charles Morris (Manchester, Openshaw)

On a point of order, Mr. Speaker. The annunciator outside the Chamber indicates that the last contribution was made by me instead of by the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris).

Mr. Speaker

I beg the hon. Gentleman's pardon and that of the operator of the annunciator. The error was entirely mine. I am most grateful to the hon. Member for raising the matter, as it gives me the opportunity to apologise.

11.13 p.m.

Mr. R. W. Brown (Shoreditch and Finsbury)

I had not intended to join in the debate, Mr. Speaker, but since there has been so much special pleading for other parts of the country I should like to urge that special account be taken of the local authorities in the Greater London area. I do so particularly as this is the beginning of the period when those local authorities are under tremendous financial pressure due to the reorganisation of local government and are faced with the very severe problem of trying to obtain money at a reasonable rate at a time when everyone is under the same pressure.

I followed the hon. Gentleman the Member for Gloucestershire, South (Mr. Corfield) when he discussed interest rates. I had the privilege of meeting the hon. Gentleman when he was Parliamentary Secretary. I did not follow his argument particularly keenly then, and he still does not seem to have learned very much about the things I tried to impart to him then. I have never believed that the only way to finance local government is by subsidy. I believe that there is far greater merit in getting rid of the subsidy factor and giving either entirely interest-free or low-interest loans to local authorities. It is a subsidy in the sense that it is a specific subsidy in terms of a loan, but I think it will be found cheaper in the long run than giving subsidies in terms of special moneys for various factors, including the odd bits and pieces about which we know so much. If the loan were given at a cheap interest rate, a local authority would be in a better position to understand its affairs and would know what it was getting, which at the present time it does not know after its negotiation with the Ministry.

Secondly, I would ask my hon. Friend to bear in mind that one of the problems of local authorities having to finance their money by way of loan on the market is that they are all fighting each other to get the money at the same time. We have the silly situation where local authorities all over the place are trying to get money from the same broker, with the inevitable result that the interest rate is going up and the money is offered to the authority that can pay the most interest. In the end, because the local authority has to have the money, it pays a higher interest rate to get it and beats someone else who wants it for the same purpose.

Is it not possible for the Government to set up its own clearing house in this respect? In London, this has been achieved privately between the local authorities, but it seems to me that it would be of advantage if the Government broker did the work for the authorities. It would save them having to fight for the money and would save the broker's fee they have to pay. Seven-day money particularly, a large amount of which has to be borrowed, is very expensive from the brokerage point of view.

Mr. Julius Silverman

Would my hon. Friend not suggest that the Public Works Loans Board should act as the broker and the clearing house, and would it not be better for the local authorities to raise their finance not through a broker but through the Public Works Loans Board?

Mr. Brown

That is in fact the point about which I was asking my hon. Friend. Could the Public Works Loans Board not act as their clearing house?

I recognise the problem that the Government have run into, and I recognise the point that my hon. Friend from Salford, East (Mr. Frank Allaun) made—it is no good hon. Gentlemen opposite smiling and sniggering—but the financial situation which the Government found in October meant that the things one would have wanted to do at an earlier stage have not been able to be done. As soon as it is financially possible, my right hon. Friends will embody the promises they made, but, meanwhile, I ask them to consider these minor points, by which they could help local authorities to save money for the ratepayers.

11.18 p.m.

Mr. John M. Temple (City of Chester)

From these benches, I would make it quite clear that we give the Bill an unqualified welcome. In fact, it is an extension of Conservative policy.

We know perfectly well that local authorities at the present time need this assistance, and the matter which is uppermost in my mind in thinking about the Bill is the significance which persons overseas today attach to the great growth of local government expenditure and all other public expenditure in the country.

Very significantly, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), speaking over the weekend and reported extensively in the Press, said that it was no good blinding ourselves in this country to the financial facts of life, because those financial facts of life were very, very well known overseas. What I propose to deal with is the whole financial aspect of public capital expenditure in the local authority world, because that is what this Public Works Loans Board money is meant to meet, to a very large extent.

Before I turn to the main gravamen of my speech, I should like to deal with the various points that have been brought up in the debate. It was unfortunate that we had to commence a debate of this importance after 10 o'clock at night. However, I am glad that a good many hon. Members on both sides did get into the debate.

The hon. Member for Salford, East (Mr. Frank Allaun) speaks frequently on the subject of high interest rates. I remember a great number of his speeches. I can imagine his tremendous disappointment at the present time with the Labour Party's performance. After the promises made at the General Election, it must be very depressing for him and his constituents to see the results of the policies of the Labour Party.

My hon. Friend the Member for Bristol, West (Mr. Robert Cooke) rightly touched on educational expenditure, and I shall pick that up later. He also emphasised the necessity for financial discipline, and that is just what is being watched overseas.

The hon. Member for Liverpool, West Derby (Mr. Ogden) paid a very real tribute to local treasurers. I echo that tribute because I have personal knowledge of the great work which they do for local government and for the administration of our country. I know perfectly well of the difficulties which they have been facing for a considerable time. The hon. Member also asked for forecasts of spending. I shall reinforce that with some other comments regarding the programme of spending which the Government envisage under their policies.

My hon. Friend the Member for Gloucestershire, South (Mr. Corfield) dismissed the question of special interest rates for housing. I agree with him. If one has special interest rates for housing, one must have them for all aspects of local government expenditure. That point was emphasised by the hon. Member for Shoreditch and Finsbury (Mr. R. W. Brown). He wanted special interest rates for local authorities. He did not specify in what particular sphere, and so I took it to mean that he wanted them in all spheres.

Mr. R. W. Brown indicated assent.

Mr. Temple

I am glad to know that I have the hon. Gentleman's agreement on that point.

The hon. Member for Manchester, Blackley (Mr. Rose) spoke about the cost of comprehensive schools—

Mr. Geoffrey Rhodes

My hon. Friend the Member for Manchester, Blackley (Mr. Rose) has not spoken in the debate, although he was anxious to do so.

Mr. Temple

I was misled, as was the indicator. I understand that it was the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes) who spoke of the cost of comprehensive education. There was a leading article in the Sunday Times on this subject yesterday. I read it with great attention. It drew attention to the fact that comprehensive education would involve a great deal of capital expenditure by local authorities.

The hon. Member for Liverpool, Walton (Mr. Heffer) seemed to be addressing his remarks to his own Front Bench, and I hope he will get an answer to those comments from there. What he was complaining about was the high interest rates which exist at the present time under the Labour Government.

The hon. Member for Manchester, Openshaw (Mr. Charles Morris) said that the Opposition were giving a qualified welcome to the Bill—[Interruption.] I understand that it was the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris). I made it perfectly clear in my opening remarks that it was an extension of Conservative policy, and, therefore, we give it an unqualified welcome. I want to pick up a few of the points made during the debate—

Mr. Rhodes

The hon. Member says that the Bill is an extension of Conservative policy. I do not want to be pedantic about it, but surely he means that it is a continuation and extension of the previous Government's policy. There is nothing peculiar to Conservatism about the policy. In fact, public expenditure is peculiar to Socialism.

Mr. Temple

There is a certain amount of logic in what the hon. Gentleman says, but in 1963 the Conservative Party in its White Paper Cmnd. 2162 laid down that local authorities would be able in future, taking one year with another, to borrow 20 per cent. of their capital expenditure from the Public Works Loan Board, and that as one year followed another there would be annual 10 per cent. increments until in 1967 local authorities would be able to borrow 50 per cent. of their requirements from the Board. I should have thought that what has been said by the Financial Secretary today was very much out of line with that policy.

Mr. Stanley Orme (Salford, West)

Will the hon. Gentleman give way?

Mr. Temple

If I give way any more my speech will be extraordinarily long, I warn the House, but I will give way.

Mr. Orme

How does the hon. Gentleman answer the point that, under the Conservative Government, the rate of council house building—one of the most important and necessary things to the country—went down, while under this Government it will go up?

Mr. Temple

I was not treating this as a housing debate, but I will answer that point. On the Conservative benches we have always been more concerned with the total number of houses built, and during our period of office the number built consistently beat the target set by the Labour Government by 50 per cent. However, if I make this into a housing debate, Mr. Speaker will call me to order.

In this debate I want to say firstly something about the scale of local authority borrowing, then to refer to the difficulty of raising loan capital, and finally to the control of public expenditure, to which my hon. Friend the Member for Worcester (Mr. Peter Walker) referred, and then to draw some conclusions. This Bill, as I have said, is an extension of Conservative policy. The only difference is that, at present, the Government have laid down that there are to be special allocations of the Board's money to the less prosperous areas.

The Financial Secretary told us that the Government had decided to designate the less prosperous areas—and we were glad to hear that designation—as Scotland, Wales, the North-West and the Northern Region—and that they were to have a 40 per cent. allocation. But, of course, in addition to these less prosperous areas and in addition to the quotas laid down by the Board in January and rephased in March, we have the Board in the position that it is the lender of last resort.

I have been making a few calculations of my own on the basis of the fact that all the smaller local authorities can borrow 100 per cent. of their requirements, taking one year with another. I would hazard a guess that this £500 million will not last very long into next year, although we have been told that it will last well into next year. I would like a mere specific date, if possible, from the Government.

Here I give a welcome to the simplification of the mortgage procedure. It will be useful to local authorities.

I turn now to the scale of the problem of local authority borrowing. In 1962, the figure given in Command Paper No. 2612 was £550 million for new works. The total given in the Minister of Housing and Local Government's annual report for 1964 was £1,082 million, which was 19.7 per cent. up on the 1963 figure. I seldom quote my own speeches, but on 27th November, 1962, speaking in a debate on public investment, having special regard to the position of local authority capital borrowing and after a reference to sterling as a reserve currency—for I attach great importance to local authority borrowing particularly in the short term in the context of sterling as a reserve currency—I said: In these sectors, we may well end up with an increase of something like 20 per cent. If we are dealing with cumulative increases of about 20 per cent. we are facing a rapidly increasing rate of growth of capital expenditure in the local authority sector. … So my forecasts have been borne out by events. They were not entirely in line with those of the Government at the time. Later in that speech I added: I hope very much … that my right hon. Friend the Chief Secretary will not hesitate to cut back this rate of expenditure if the existing slack in the economy is seen to have been taken up. At the time, the Conservative Government were looking forward to an increase in capital expenditure through local authorities of about—and it turned out to be—20 per cent. just because there was slack in the economy at the time.

I make a forecast tonight. I am going to suggest, on a direct projection of a rate of increase of 20 per cent. per annum, the amount of capital expenditure by local authorities will be at least £1,300 million in the current year. I should like the Treasury Bench to say whether it regards that forecast as realistic.

In that debate on public investment I concluded by saying—and this again was with reference to local authority capital expenditure—that … we may be facing a serious state of affairs in which public investment will take far too large a share of the national cake. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber), the then Economic Secretary, winding up the debate, said: My hon. Friend the Member for the City of Chester was quite right to strike a warning note."—[OFFICIAL REPORT, 27th November, 1962; Vol. 668, c. 245–327.] Therefore, at that time, even against the background of there being a considerable slack in the economy, I was very much exercised in my mind about the amount of borrowing for public expenditure by local authorities.

Having dealt with the long-term loan position, I should like to turn now to the question of short-term debt. I have one or two comments to make as a result of Parliamentary Questions which I have asked comparatively recently. The short-term debt of local authorities is a very serious matter, particularly in the context of international finances. Between 1955 and 1963 there was an increase in the total short-term debt of local authorities from 3½ per cent. of their total debt to some 15 per cent. of their debt, and in 1963 the total of short-term debt of local authorities was £1,200 million and was causing great concern. This is largely why there was a change in Conservative policy for financing local authorities at that time.

It has been said in this debate that the target was set by the then Conservative Government for all local authorities within five years to reduce the total of their own individual short-term debt to 20 per cent. of their debt. On 8th July this year I asked the Chancellor of the Exchequer the current position of local authority short-term debt to the latest convenient date. If the Treasury Bench has more up-to-date figures I should be glad to hear them later, but as at 31st March, 1964, 446 local authorities had £311 million outstanding of short-term debt which was in excess of 20 per cent. of their own indebtedness. This was made up as to approximately £1 million each for 20 counties, approximately £1 million each for 172 borough councils, including county boroughs, and approximately £250,000 each from 253 district councils. The short-term excess of 20 per cent. of debt was therefore very widely spread throughout the local authorities of England and Wales.

I was concerned not only with individual short-term debt but with the total of short-term debt. The Chancellor of the Exchequer was kind enough to answer a Parliamentary Question of mine on 8th July giving the position of total short-term debt of local authorities as at 31st March this year. I was staggered to get the reply which stated that on 31st March there was £1,600 million of short-term debt owing by local authorities. This was 30 per cent. more than the figure in 1963, and the figure in 1963 was itself causing the gravest concern. I suspect that the present short-term debt of local authorities is greater than 15 per cent. of the total debt of local authorities. I hope that we shall have an answer to this question, because I am concerned about this short-term position.

I am deeply concerned about both the long-term and the short-term position of local authority borrowing and we must face the fact that these figures are being watched extraordinarily carefully by our friends abroad—and I ask the House to note that I use the words "friends abroad". I should like to quote from The Times of 15th July this year from a report by its European Economic Correspondent headed, "Warning to Britain by Partners". Britain has been strongly advised to take further action to tighten up her economic programme. … The exact measures which are needed have not been suggested. This is a political decision for the British Government but the general feeling amongst Britain's partners is that the over-riding priority is to make cuts in Government expenditure. That is what has been said by "Britain's partners in Europe". In 1963 in Cmd. Paper 2162 it was estimated that local authority capital expenditure was one-seventh of total capital expenditure in this country. What I would like to ask is what is the proportion of local authority capital expenditure today to total capital expenditure in this country? I believe that local government capital expenditure has been growing at a relatively much faster rate than any other growth rate of capital expenditure in the country.

Mr. Orme

So it should.

Mr. Temple

Maybe; what I am stating are facts. I believe that today local authority capital expenditure may well be 20 per cent. of total capital expenditure in this country. The figures we are talking about tonight are not peanuts at all, they are very important and very large figures indeed. Against such figures the total defence expenditure of the country—I will not say it pales into insignificance, but it is very much smaller than the total expenditure of local authorities on capital and the current account in this country year by year.

Now I turn to one of the great difficulties facing the whole world today the raising of loan capital. Loan capital is one of the most difficult things to raise today in what I call a "capital-hungry world" Demands for capital are worldwide. In farm and factory today there are two means of raising productivity. One is through an increase in the skills of the operator; a much more important way of raising productivity is to put more power behind the elbow of the farmworker, or more power behind the elbow of the factory worker, and that power demands capital. Here again I quote from The Times of 15th July, in a review of the 25 per cent. growth which is aimed at by the First Secretary of State. The article, by the City Editor, entitled "Limit on Economic Growth" particularly referred to supply of capital. It said: Achievement of 25 per cent. growth by 1970 looks incredibly unlikely. A report from the Department of Applied Economics at Cambridge, Exploring 1970, makes it seem virtually impossible. And makes it seem impossible for three reasons, the third of which was supply of capital. It goes on: Finally, the supply of capital seems unlikely to meet 1970 requirements. Savings as a proportion of total income in 1970 needs to be between 15.5 and 15.7 per cent. The corresponding figure for 1960 was 12.3 per cent. I would like to ask the Treasury Bench what they regard as being the percentage of savings to capital at the presentlame. I believe, unfortunately, that savings under the present Administration are dropping, and that is one of the reasons why taxation is going up.

Unfortunately, high interest rates in periods of high inflation such as we have, cease to attract the money. If we need proof of this I would like to look firstly abroad, and then to a recent example in this country. When France revalued the franc it was necessary for the French Treasury to issue bonds with a gold exchange clause.

Looking at the international bond market, I am afraid that people may well be looking for an inflation-proof bond or an inflation-proof debenture. It is significant—and I am sure that the Chief Secretary to the Treasury has not missed this point in the financial papers today—that there is a prospectus in the Financial Times advertising a cost-of-living debenture stock. I do not think that the financial world has ever heard of a cost-of-living debenture stock before, but perhaps, just because we have a Labour Government, it is necessary for borrowers to be sure that they will be repaid in terms which will be of value. Therefore, the Bandar Property Company Ltd., is issuing a cost-of-living debenture stock, the terms of repayment of which will be based upon the cost of living and the interest terms of which will escalate should the cost of living rise. These are significant developments and they have, I believe, a great bearing on the raising of loan capital in what I describe as a capital-hungry world.

I could not say that recent policies of the Labour Government have been helping the situation. My hon. Friend the Member for Worcester (Mr. Peter Walker), who played such a prominent part in the Finance Bill debates, has referred to the effects of taxation, and I will take up briefly some of the points that he made. I believe that the Corporation Tax will encourage debenture borrowing which will be in direct competition with local authority borrowing. I believe that the Capital Gains Tax, with its certain exemptions—

Mr. Frank Allaun

On a point of order. Would not you think, Mr. Speaker, that this was getting wide of the subject of debate?

Mr. Speaker

Yes, I would think so, but I think that it is just within Second Reading—just within.

Mr. Temple

Thank you, Mr. Speaker. This matter has been referred to earlier in the debate—

Mr. Speaker

That still does not render it proof against Rulings of the Chair.

Mr. Temple

The effect of the Budget, through both Corporation Tax and Capital Gains Tax, has had an unfortunate effect on fixed-interest borrowing, and what we are talking about tonight is definitely fixed-interest borrowing.

I sometimes think that theoreticians in finance do not always anticipate the results of their theories. This is, possibly, an unanticipated result which will certainly have a boomerang effect on the loans which will have to be raised so that the Public Works Loan Board can have money to lend to local authorities.

I said that I would touch upon the question of finance for comprehensive schools. I mentioned that this was referred to in the important leading article in the Sunday Times. I was glad that this was referred to by the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes). I noticed also what I regarded as an important reference to this matter in a leading article in The Times on 14th July this year referring to the policies laid down in the Ministerial Circular by the present Minister of Education and referring particularly to the financial effects of those policies.

The Times said: The circular is a little like a ship starting off on a long voyage with all its flags flying and no stores in the hold. That is exactly where the Labour Government is at the present time. It certainly has all its flags flying, but I very much doubt whether it has much in the way of stores in the hold.

Here I should like to express a strictly personal view with regard to commitments in local authority spending. I believe that there is a case today for reviewing whether the school-leaving age should be raised. [HON. MEMBERS: "Oh."] This is just as relevant to capital expenditure on school building as the question of comprehensive schools. I say that I for my part believe that a fresh review should be made as to whether this would be good value for money at the present time, because I believe that public money is scarce and that we should get 100 per cent. value for that capital expenditure which will be financed through local authorities borrowing from the Public Works Loan Board.

I only have one other aspect of Labour policy which I regard as being very detrimental to the question of local authority borrowing, and that is the abject failure of the Labour Party to hold down prices. This is at the bottom of the trouble of high interest rates.

Mr. Frank Allaun

On a point of order. I am sorry to trouble you, Mr. Speaker, but I raised with you the point whether bringing in Corporation Tax was in order, and you said that it was, marginally. Next we had comprehensive schools. Now we are coming to the prices level. Surely, Mr. Speaker, that is involving all political activities. Surely it is beyond the scope of the debate on Second Reading of this Bill?

Mr. Speaker

I do not think that the hon. Member has yet involved himself in all political activity. The immediate implication of the sentence was that extravagance on the part of the local authorities injures their prospects of borrowing. To that extent the hon. Member is still within order.

Mr. Temple

Of course, I readily recognise the sensitivity of the party opposite when I talk about rising prices, so I do not propose to make any further reference to that particular matter, because I know it is a very sensitive spot for the Labour Party. Many people no doubt noted an important article in the Economist on 3rd July. It referred to the question of control of public expenditure, and what that article said was that there should be a streamlined Cabinet in which there would be an economic overlord, and as the article said: No more nonsense about rivalry between economists and the money bags.

Mr. Speaker

No more nonsense about the way in which you make up your Cabinet in connection with this Bill.

Mr. Temple

I was going straight to the point from my quotation to saying that the Economist's view, which I share, was to put in an economic overlord, and I believe that that economic overlord should be the Chancellor of the Exchequer. I believe that the Chancellor of the Exchequer should be armed with economic advisers, and I know enough about economics to know—

Mr. Speaker

Order. I do not quarrel with the hon. Member's knowledge of economics, but I draw his attention to the fact that he must remain reasonably in relation to the purpose of this Bill.

Mr. Temple

I absolutely concur, and I certainly shall not be just out of order any more when I say that, having made that observation about the economic overlord, I was just drawing to my conclusions on this Bill.

My conclusions are that public expenditure on capital account is far outstripping savings at the present time, that that problem itself is accelerating, and that Labour policies have aggravated the position. I have already indicated in which direction they have aggravated the position—and that increases in taxation are no alternative whatsoever to savings. Further, squeezes must apply equally in both the public and the private sectors.

Here I would draw the attention of the House to a statement by Lord Cromer at the bankers' dinner on 1st February at the Mansion House. He was specifically referring to this question of local authority expenditure, and he spoke of activities in the industrial, commercial and financial world which contribute most to our economic strength. Room must be found for these essential wealth-creating activities to grow and prosper, even if this means, as it does, that major policy changes are called for to reduce the ever-growing burden of public expenditure at home and overseas. On my main line of argument I have the support of the Governor of the Bank of England, and I come to the inescapable conclusion that the only thing which will restore financial confidence at home and abroad is the immediate return of a Conservative Government.

We realise the need for the Bill. We have no intention of opposing it, but what we want to see is more effective control of public finance.

11.50 p.m.

Mr. MacDermot

With your leave, Mr. Speaker, and that of the House, I would seek to answer some of the questions which have been asked.

I can say, perhaps more aptly than is usually said, that this has been a wide-ranging debate. We have ranged from the question of comprehensive schools, to the school-leaving age, to the need for an economic overlord, and I know not what; but I would remind the House that the Bill deals with a fairly limited matter. It does not deal with the extent of the capital requirements of local authorities, still less with the means by which they should be controlled—the need for discipline in these matters, as it was put by the hon. Member for Bristol, West (Mr. Robert Cooke).

The system of financial discipline for local authorities is, of course, controlled by the Government in a number of ways. For a number of major services, like housing and education, both of which have been referred to quite a lot this evening, the authorities have to get their capital programmes approved by the responsible Department, and in addition most capital expenditure is met from borrowing, and local authorities must get loan sanction from the Ministry of Housing before raising loans to finance these and other services. That is the procedure by which the volume of capital expenditure by local authorities is subject to control by the central Government.

The hon. Member for the City of Chester (Mr. Temple) welcomed the Bill as being an extension of Conservative policy. In view of the welcome that he gave it, it might perhaps be churlish on my part to remind him that the Conservative policy to which he referred was a reversal of previous Conservative policy and was a somewhat belated move in the direction of Socialist policy.

Mr. Temple

I have already acknowledged that in my speech.

Mr. MacDermot

The hon. Gentleman is gracious enough to acknowledge it, and I thank him for that, so let us proceed on this amicable basis of agreement, that what we are seeking to do is to assist local authorities as far as we are able within reasonable limits, and within the limits of what we can afford and of our financial situation, and that it is right to do so through the medium of the P.W.L.B.

I was asked for more factual information, and in so far as I am able to I shall be glad to try to supply it. I was asked for more information about the extent of local authority borrowing last year. The figures are that their borrowing for new capital works totalled £845 million. These are the figures for Great Britain. Borrowing to re-finance maturing long-term debt was £630 million, giving a total borrowing requirement of £1,475 million. That was financed as to net increases in temporary debt of £320 million, P.W.L.B. loan of the same amount, £320 million, and other long-term borrowing of £835 million, that making the total up to £1,475 million.

In addition to being asked about the short-term borrowing of local authorities—which I have given as £320 million—I was asked how far local authorities had proceeded towards reducing to the level of 20 per cent. of their debt that part which is in the form of short-term borrowing. The House will remember that the great majority of local authorities are well within the 20 per cent. figure. Quite a substantial number—though few in relation to the total—of local authorities which have high borrowing commitments are above the 20 per cent. figure. Although there has been a net increase in temporary debt of £320 million taking local authorities as a whole and the increase itself was more than 20 per cent. of the net increase in total debt, the temporary debt outstanding at 31st March last was still only 19 per cent. of total debt. The House will appreciate that local authorities have been going through a difficult phase in the matter of borrowing, but we do not expect this to lead to any serious interference in the programme for the planned reduction in the excess temporary debt over a period.

Mr. Temple

The hon. and learned Member has given a figure of 19 per cent. Is that figure comparable with the figure of 15 per cent. which was extant in 1963?

Mr. MacDermot

Yes. The 15 per cent. figure is now 19 per cent. I was also asked, by the hon. Member for Worcester (Mr. Peter Walker) what proportion of the funds made available to local authorities came from abroad. That is a question which it is not possible to answer. The question was asked in the last debate. The reason is that the Exchequer operates in a variety of ways from a variety of sources.

Mr. Speaker

Order. It is not in order to read picture books unless they are associated with the immediate business of the House.

Mr. Robert Cooke

If I am the hon. Member to whom you are referring, Mr. Speaker, may I point out that I was looking at the Martin-Buchanan Report on the redevelopment of Whitehall for the Ministry of Public Building and Works, which I thought might help me to understand the debate?

Mr. Speaker

The hon. Member's explanation does not impress me.

Mr. MacDermot

It is not possible to identify the origin of particular issues from the Consolidated Fund for this purpose, or of some of their other sources of finance.

My hon. Friend the Member for Salford East (Mr. Frank Allaun), supported by my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Rhodes), spoke from his great knowledge and ability about the question in particular of housing finance and the problems which local authorities have in connection with it. They asked whether it was not possible to use the machinery of the Board by way of special lower interest rate loans for housing purposes to meet this problem.

In general, we have done what we feel was reasonable and possible in the circumstances to help local authorities, through the machinery of the Board, but the House will realise that there is a limit to the rate by which access to the Board can be increased. What we have done is, first, that since my right hon. Friend found it necessary to raise the Bank Rate local authorities have been assisted to meet that situation by the fixing of a rate for their quota loans. The result was that the difference between the quota rate and the last resort rate widened.

In addition, he has implemented the policy, which was already adumbrated in the previous White Paper, of increasing the general access for local authorities to 30 per cent. of their total borrowing in place of the previous 20 per cent. He also introduced the £100,000 limit in place of the £50,000 limit, making it effective as from 1st April, 1964. Then, as he announced in his Budget speech, he has made special further arrangements to assist local authorities in the particularly hard-pressed areas. These arrangements, of which I have given further details tonight, are that access up to 40 per cent. of their long-term borrowing has now been granted to four regions.

Bearing in mind our economic situation and the point which has been rightly stressed by the hon. Member for the City of Chester—the effect of our local authority financing programme upon opinion abroad, which has an influence on balance of payments problems—I hope that the House will agree that these are substantial measures which have been taken by my right hon. Friend to assist the local authorities. While, in these circumstances, we certainly do not feel that it is possible to do any more by the machinery of interest rates to help local authorities, it is, of course, accepted that the problem of housing and housing finance is a special one. As the House knows, my right hon. Friend the Minister of Housing and Local Government is reviewing the arrangements for local authority housing finance, but the House will not expect me, in a debate on a Bill of this nature, to try to anticipate in any way what his conclusions may be.

My hon. Friend the Member for Liverpool, West Derby (Mr. Ogden)—

Mr. Peter Walker

The hon and learned Gentleman has stated that, in these special areas, the rate will be raised to 40 per cent. Did not the Chancellor say 50 per cent. in his Budget speech?

Mr. MacDermot

I quoted what my right hon. Friend said. He said "up to 50 per cent.", in particular areas or perhaps in entire regions. In other words, he left open the question of how it would be dealt with, and he indicated the sum of money which would be available for this purpose—I think that the figure was £40 million—and, on looking into it and finding the difficulties there would be in trying to distinguish fairly as between the needs of smaller areas, he decided that the best and fairest way was to make this facility available to the four regions I have mentioned at a rate of 40 per cent.

Mr. Temple

This is an extremely relevant point. The hon. and learned Gentleman is constantly referring to a figure of 30 per cent., but in the last Public Works Loans Board instructions to local authorities, the quota figure is quoted as three-sevenths of the total borrowings effected in 1965–66. This is much higher than 30 per cent. How does he reconcile this with the 30 per cent. given in the instruction of 30th March?

Mr. MacDermot

I should have to seek instructions to answer that point, because I am not familiar with the document to which the hon. Gentleman refers.

My hon. Friend the Member for Liverpool, West Derby paid a tribute, in which I should like to join, to the valiant work of the local authority treasurers in the work with which they have been contending in recent years. I thank him also for the welcome which he and other of my hon. Friends gave to the announcement of assistance for the four regions. He asked me what estimate we had made for the coming year of the amounts which would be made available to local authorities through the Public Works Loans Board. Perhaps I could set that in its proper context of their borrowing. In the current financial year, it is estimated that the local authorities will need to borrow more than £1,600 million. That answers one of the questions put by the hon. Member for the City of Chester. This would be in order both to finance new capital expenditure and to refinance maturing long term debt.

In addition, there is a total of over £1,800 million of temporary debt to be refinanced. The figure of £1,600 million quoted by the hon. Member was for England and Wales alone. I would stress the fact and remind my hon. Friends—in particular, my hon. Friend the Member for Shoreditch and Finsbury (Mr. R. W. Brown), who was arguing, in effect that we should allow local authorities complete access for all their borrowing to the Board—that, from the point of view of monetary management, it would be quite impracticable suddenly to transfer the whole of this to the Exchequer. Nevertheless, local authorities are now able to borrow substantial sums from the Exchequer through the Board. It is estimated that the figure for this year will be £470 million. In order that there shall be no misunderstanding, I should make clear that that is effectively the same figure as the one given my my right hon. Friend in his Budget speech of net Exchequer loans to local authorities of £360 million. The reconciliation of those two figures is that the local loans fund has internal resources which amount to £30 million and net repayments from the Fund to the Exchequer amount to £80 million. The figure, for which I was asked by my hon. Friend the Member for West Derby, of the estimated total amount to local authorities from the Board is £470 million.

The hon. Member for City of Chester asked me a number of questions the majority of which I think I have answered in reply to other questions. This Bill is not concerned in itself with the total volume of local authority capital expenditure. The question we are concerned with here is the extent to which the financing of that expenditure which has been approved in other ways is to be through the medium of the Public Works Loans Board. There has been an increase this year of a general 10 per cent. in the access in accordance with the previous policy of an annual increase of 10 per cent. and an additional increase now for the four named regions.

I was asked by an hon. Friend what would be the rates of interest. I cannot give a precise answer because different rates of interest are charged according to the period of the loan and the method of repayment. Before the 1st April, 1964, all loans were repaid by annuities, but since that date local authorities have had a choice between the annuity basis or repayment on a maturity basis. I can give the current figures. At the present date the interest on quota loans dependant on the length of the period varies between 5⅝ per cent. and 6⅛ per cent. On non-quota loans it varies between 6⅞ per cent. on longer period loans and 7 per cent. on others. The total margin of difference between the quota loans and non-quota loans on the shortest term, that is up to five years, is a difference between 5⅝ and 7 per cent. That gives some indication of the advantage which accrues to local authorities at the moment in borrowing through the Board in respect of their quota loans.

With these explanations I hope that the House will see fit to give the Bill a Second Reading.

Question put and agreed to.

Bill accordingly read a Second time.

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

Committee this day.