Clause 1.—(GRANTS FOR PUBLIC WORKS.) (Hansard, 26 July 1965)

§ Mr. Peter Walker (Worcester)
During Second Reading the hon. and learned Gentleman the Financial Secretary was kind enough, in his winding-up speech, to give to the House statistics of local authority borrowing. We have now had a week in which to consider these figures and I should now like to put to the Financial Secretary certain queries, because under the Clause it is intended that a sum not exceeding £500 million should be put at the disposal of the Public Works Loan Commissioners.

§ The Chairman
Order. I hope that hon. Members remaining will listen to the debate. I must be able to hear whether the hon. Member is in order or not.

§ Mr. Walker
I should like to query with the Financial Secretary whether, in view of the facts and statistics which he disclosed, this sum of £500 million is appropriated. The first thing which disturbed us was a statement made by the hon. and learned Gentleman that the average amount of temporary borrowings of the local authorities was 19 per cent. of their total debt, compared with the figure of 15 per cent. when the previous Public Works Loans Bill was before us. The reason for that Bill was to assist the local authorities to reduce the amount which was borrowed by means of temporary borrowings.
In practice, therefore, one would have expected between the time of the last Bill and the present Bill for the average percentage of temporary borrowings by local authorities if anything to have gone down below 15 per cent., yet we have the startling news from the Financial Secretary that they have actually increased to 19 per cent. This means that many local authorities must be over the average of 20 per cent. which was considered to be 166 an undesirable height for temporary borrowings. If the Government are to attempt to follow the advice of the Radcliffe Committee to reduce the amount to below the previous averages the sum of £500 million will not be adequate.

§ The Chairman
Order. The hon. Member can denounce the sum of £500 million, but he cannot amend it now. He has lost the opportunity of doing that.

§ Mr. Walker
I am asking why the sum of £500 million was decided upon in circumstances in which one would have expected far more heavy borrowings to be required by local authorities.
The second disclosure since Second Reading is the figure provided of borrowings from the Board during the first 15 weeks of this financial year. It shows that in those weeks the borrowings were running at the rate of over £700 million a year. These are very alarming figures and I felt that the Committee would want to know why if this is the current rate of borrowing by local authorities the Government consider that £500 million will take us well into next year. Naturally, there is widespread concern at the seemingly swift increase in local authority spending and borrowing during the early months of this year. One has the position that in the first three months the amount of local government capital expenditure was £330 million compared with £845 million for the whole of the financial year 1964–65.
I feel that the Government's suddenly coming to ask for borrowing powers for a further £500 million at a time when local authority capital expenditure has risen to such heights requires further explanation. I should like the Financial Secretary therefore to explain to the Committee why the Government decided on £500 million which, if they intend to reduce the levels of temporary borrowing, would not be adequate and if they intend local authority borrowing to continue at the same rate as for the first three months of this year would not be adequate. Can we be told what are expected to be the future developments and why we are to see the £500 million last, as the Financial Secretary said, well into next year?

§ Mr. Robert Cooke (Bristol, West)
I should like to add a little to what my hon. Friend the Member for Worcester (Mr. Peter Walker) has said, because Clause 1 says that The sums so issued shall 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 me to be for an indefinite time. We had an indication from the Financial Secretary of what the time will be. Nevertheless we are asked to pass the Bill and the occasion for the new money will be for some indefinite time in the future. My hon. Friend has pointed out that the sum shall not exceed £550 million and he has made some criticism of that. If the provisions in the Clause will enable the Government to limit or control local authority borrowing, why have we this sum of £550 million mentioned in it? If the provisions of the Clause are to apply for an indefinite time, then why not a smaller sum for a shorter period?

§ The Chairman
The hon. Gentleman had his chance to suggest a smaller sum for a shorter period when the Clause was at the stage of being amended. We are now discussing the Clause as it stands. This is, in effect, the Third Reading debate on the Clause.

§ Mr. Cooke
With respect, Dr. King, I was merely asking why this sum was in the Bill—

§ The Chairman
May I try to help the hon. Gentleman? He may ask why this sum is in the Bill, but he may not ask why some other sum, which he thinks should be there, is not in the Bill.

§ Mr. Cooke
I am very much indebted to you, Dr. King, for putting it in that way. I am sorry that the way I put it, perhaps, transgressed the bounds of order.
I think that the Government now realise what my criticism is, and I can only hope that I have not put it in such a way that it will not be in order for the hon. and learned Gentleman to answer my question. At an earlier stage, there were words across the Floor on the subject of discipline in local authority spending, and I hope that, by passing Clause 1, we shall 168 not make this more difficult. I hope that I have said enough to give the Financial Secretary a chance to answer some of these questions.

§ Dame Irene Ward (Tynemouth)
I shall at once follow your advice, Dr. King, and attack the £500 million referred to in the Clause. I want to know how the special areas or development districts are now to fare in the division of this money under the Clause. On Second Reading, the Financial Secretary, in answer to my hon. Friend the Member for Bristol, West (Mr. Robert Cooke), departed from what the Chancellor originally said about the spending of this money in the special areas. This is extremely disconcerting for all authorities in the special development areas. I have tried to read what the Financial Secretary said, with as much intelligence as I command, but I have been able to find no reliable information about the change from the Chancellor's original reference to the special areas and the allocation of funds to help them.
Should I be right in assuming that, when the original speech on the subject was made, the detail had never been thought out? It makes matters very difficult and it is very disconcerting for our area—I am arguing at the moment for the North-East Coast—suddenly to find that we are not to be allowed to borrow up to 50 per cent. through the Public Works Loan Board. I want a much better explanation than the rather fluffy one which the Financial Secretary gave on Second Reading. Why did the Chancellor have a different idea when he made his Budget speech? Had he not made any calculation of the amount of money which would be provided under the Bill?
I want a detailed statement of how much less my local authority, the County Borough of Tynemouth, will be allowed to have under the altered policy. How much less will the North-East Coast get under this new arrangement for borrowings from the Public Works Loan Board? The matter cannot be left like this. It is a quite inhuman approach to the problems of a development district. The hon. and learned Gentleman must know that our difficulty in a development district, apart from the problem of building up new industries, is that over the years, following various depressions, we have had a tremendous leeway to make up.
169 I was talking to my town clerk last weekend. We have a very efficient local authority, one which has been regarded by the present Government as being too parsimonious because we try to consider, quite rightly, the ratepayer as well as the expenditure which is necessary. My local authority will be extremely upset because, as the town clerk pointed out the other day, we are under pressure or meet all sorts of commitments.
For instance, we have an enormous bill for cleaning the Tyne, about which hon. Members opposite, when they were in opposition, were very vocal. My county borough is committed to an enormous amount of money for developing our town centre. We have an enormous number of commitments being poured in upon us. As my town clerk rightly said, ratepayers throughout the area are getting very worried about how the local authorities are to meet the commitments which are being pressed upon them.
My local authority has a first-class record in housing. It has always been near the top of the list of county boroughs in house building. We have done extremely well. We have done extremely well with roads—

§ The Chairman
Order. The hon. Lady is usually perfectly in order. She must not however go into the details of the merits of Tynemouth. She can only ask how much of the £500 million it can now borrow.

§ Dame Irene Ward
It is not so much how much it can borrow that I am interested in, Dr. King, but how much less we shall be able to borrow under Clause 1 of the Bill compared with when the Chancellor made his Budget speech. That is what matters to my local authority. I want to know how much extra money, if we meet all the commitments that we are asked to meet, will have to be found because of the change of view since the Chancellor's Budget, and I want to know this in detail. Perhaps when he made his Budget speech the Chancellor thought that money was unlimited, that the sky was the limit and that he could get on by promising everything.
I think that it is much more important to give so me guidance from the very beginning to the end rather than make promises and lift up people's hearts, making them feel that perhaps they are 170 to have a little relief from the financial burdens put on them, only to find that the Financial Secretary then clamps down on them. I should like to know the Financial Secretary's assessment of the clamp. I will not repeat all that was said by my hon. Friend and the reply given to him, for that is in HANSARD for all to read, but I should like to know what it means. How was it that there had to be a retreat from the explanation originally given by the Chancellor? We shall take it very badly indeed. I want to know exactly where we stand. I hope that the Financial Secretary will not give us such a woolly answer as he did when my hon. Friend originally raised this point.

§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
I was asked, first, by the hon. Member for Worcester (Mr. Peter Walker) whether the sum of £500 million in the Clause was appropriate. He asked that question in relation to two points. The first point was the answer which I gave to the question which was asked on Second Reading: what is the percentage of total local authority borrowing now which is a temporary debt? That figure, as I said, is now 19 per cent., whereas at the time of the last Bill it was 15 per cent.
The hon. Member pointed out that it was the policy, and it still is the policy, to keep the overall figure within 20 per cent., and also that individual local authorities should keep their borrowing within 20 per cent. At the time when this policy was laid down in the White Paper of the previous Administration, there were a quite substantial number of the larger authorities whose temporary borrowing was considerably over the 20 per cent. The real objective is to get them down.
The fact that the total figure is now 19 per cent. and not 15 per cent. is not at all a situation that calls for complacency. Local authorities have, however, been going through a difficult period from the borrowing standpoint. The total figure is still within the 20 per cent. ceiling and it is considered by those qualified to judge that the target—which was not an immediate one; it was over a four-year period—should still be attained of local authorities funding their debt so that their temporary debt is within the 171 20 per cent. figure. I am not, however, suggesting that that is something that can necessarily be achieved within a short time.
The relevance of the £500 million figure in this connection is that it is a relatively small figure, a smaller figure than appeared in the previous Bill of this nature, and it means that we would have to review the matter again during the course of the next year. As I said on Second Reading, it is estimated that this £500 million will last well into the next year, but it means that we will have to look afresh at the whole position of local authority financing and have another Bill of this nature next year.
The hon. Member's second point referred to the figures which have been published of the borrowing by local authorities over the first 15 weeks of the present financial year. He said that those figures showed that they were borrowing at an annual rate of over £700 million. The hon. Member will, I am sure, be the first to recognise that that is a somewhat unreal way of looking at the position, because at any time there is a tendency for local authorities to want to exercise a higher percentage of their borrowing and borrowing powers at the early period of the year. This year, with a high Bank Rate and with the quota rate being fixed, there obviously was some incentive to local authorities to borrow a higher percentage in the earlier period.
Hon. Members who have followed the figures will, no doubt, have observed that the borrowing for the third month is substantially lower than that for the first two months. That third month's figure supports the advice which I gave the House on Second Reading that the figure of £500 million in the Bill should last us well into next year. It was on that calculation that this figure was arrived at. We wanted a figure which would last into next year but which would ensure that the House would have an opportunity to reconsider the whole position again during the course of the next year. What I have said answers the question of the hon. Member for Bristol, West (Mr. Robert Cooke), who asked why this sum appeared in the Bill.
The hon. Lady the Member for Tyne-mouth (Dame Irene Ward) referred to the 172 matter which I dealt with on Second Reading about the special assistance being given to local authorities in the less prosperous areas. The hon. Lady found some conflict, she thought, between what I had said and what my right hon. Friend the Chancellor of the Exchequer had said in his Budget speech. I remind the hon. Lady that what my right hon. Friend said was: I propose to give a special measure of assistance to local authorities in the less prosperous areas, or, indeed, in entire regions. In other words, he made it clear that at that stage it was not yet decided whether to confine this assistance to certain limited narrow areas or to grant it to regions as a whole.
My right hon. Friend was saying that this was a matter which needed looking into carefully and that he had not yet reached a conclusion. After referring to what were the existing limits and the decision to raise the 20 per cent. to 30 per cent. generally, he went on to say: I now propose that authorities in the areas eventually selected should be allowed to anticipate the arrangements which we hope to introduce later for all authorities and should be able to get up to 50 per cent. of their long-term money from the Public Works Loan Board this year. I am at present allowing for this purpose a further £40 million for Exchequer loans to local authorities, bringing the net total to £360 million. He went on to comment: This is money which the local authorities would otherwise have had to borrow on the market, and the change does not, therefore, make new demands on our resources."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 283.] My right hon. Friend made it clear in that speech that he had not yet decided what was the scope of the areas to which assistance should be given, but he was calculating the sum which he was proposing to allow for this purpose, namely, £40 million and that the assistance could be up to 50 per cent. But he did not intend to convey by that that it would in all cases be 50 per cent. to whomever the assistance was granted. Looking into the matter, as I explained on Second Reading, he concluded that it would work more fairly and cause less sense of discrimination if, instead of selecting particular areas, he were to grant this additional assistance more widely to the four regions I mentioned.
173 The consequence of that within the ceiling of the total sum which he was proposing to make available was that the assistance which he was able to give was 40 per cent. This is not a reduction or a clamp on what he proposed to do, but my right hon. Friend felt that it was fairer to spread the assistance in this way so that in the end it resulted in 40 per cent. in all cases.

§ Mr. Peter Walker
But surely the hon. and learned Gentleman must agree that, listening to the Budget statement, the development districts must have understood that they at least were bound to get 50 per cent., that although some regions might not come under the scheme the development districts had every reason to anticipate 50 per cent. in the last three or four months. Yet, suddenly, there has been the announcement not only that not everybody will get 50 per cent., but that nobody will get 50 per cent. and that the maximum will be 40 per cent. This must have been very disappointing for the development areas.

§ Mr. MacDermot
That certainly was not my right hon. Friend's intention. It shows the difficulty of choosing words precisely so as to avoid confusion if that is how the matter was understood. That is why the decision has been given in this form.
The hon. Lady the Member for Tyne-mouth asked what would be the amounts which particular areas—and she mentioned Tynemouth—would be able to borrow. Since the right is given in terms of percentages, that is a question which I cannot answer and it is a question which nobody can answer at this moment, because it is not until the local authority has determined what its long-term borrowing will be that it will know at what figure the 40 per cent. will work out.

§ Dame Irene Ward
After that explanation about our misunderstanding of what the Chancellor of the Exchequer said, can the hon. and learned Gentleman say whether anybody in any of these regions has had up to 50 per cent.?

§ Mr. MacDermot
Up to 40 per cent.?

§ Dame Irene Ward
The right hon. Gentleman said that they could borrow up to 50 per cent. After the new 174 arrangement, has anybody had up to 50 per cent. on any ground whatever, as the Chancellor said they would? I understand about the £40 million, but why say "up to 50 per cent." and not "up to £40 million which will be fairly distributed"? Why did the Chancellor use the expression "up to 50 per cent."? Has anybody had up to 50 per cent.?

§ Mr. MacDermot
No. The result of the decision which I announced is that no authority will be able to borrow 50 per cent.

§ Dame Irene Ward
So it was wrong.

§ Mr. MacDermot
What my right hon. Friend said was that he had not yet decided what were the areas which were to benefit and, obviously, what could be the ceiling in percentage terms must depend on the decision about the areas. What he indicated was the total amount of funds which he was proposing to make available for the purpose.

§ Dame Irene Ward
Why did he not say that before?

§ Mr. MacDermot
Because he was making clear that in no case, whatever way matters turned out, would more than 50 per cent. be allowed. That is what "up to 50 per cent." means, but the terms in which the final arrangements were made resulted in a decision which gave 40 per cent. for all the authorities concerned.

§ Mr. Graham Page (Crosby)
This really is not good enough. We have not had a proper explanation of this drop from 50 per cent. to 40 per cent., except for a rather vague statement that one must take an overall figure, and not the figure which the Chancellor specifically mentioned in his speech on this subject.
The hon. and learned Gentleman the Financial Secretary was very clear and very precise in the priority class of this £500 million. Any local authority can get the first £100,000 of its borrowings, 20 per cent. of its capital expenditure, the larger authorities get 30 per cent. and then, quite definitely, the authorities in the regions of Scotland, Wales, northern and north western regions are to get a quota of 40 per cent.
However he may try to argue that, that does go back on the 50 per cent. which was promised by the Chancellor. The 175 words which the Chancellor actually used were "up to 50 per cent. for those in the distressed areas." This is not the first drop in the quotas. My hon. Friend the Member for the City of Chester (Mr. Temple) argued, during the Second Reading, about the Public Works Loan Board instructions to local authorities concerning quotas out of this £500 million, instructions which had mentioned three-sevenths of total borrowings for 1965–66 as being the quota which they could draw.
The Financial Secretary could not explain that discrepancy at the time, but he may have an answer now as to why it has dropped from three-sevenths to 30 per cent. for the local authorities quota generally. Perhaps there is to be a further reduction before the Bill reaches the Statute Book, as a result of the weekend announcements about cutting public expenditure? We are relying on what the Financial Secretary said in the Second Reading in not putting down amendments to this Clause. Now, over the weekend, we have been told that there is to be a cut in public expenditure. Does this mean there is going to be a slowing-down in the rate at which local authorities can withdraw from the £500 million?
There is a second matter which the Financial Secretary has left in doubt, and that is the amount of the £500 million to be used for the remainder of this financial year. In his Second Reading speech he stated that the estimated borrowing for 1965–66 from the Public Works Loan Board would be £470 million, but that only £360 million has to be found. Of that £360 million does any come from the previous £650 million provided by the Public Works Loan Board, or does it all come out of the £500 million about which we are now talking?
The Financial Secretary said that the £500 million will last well into next year. Could he say what we shall have left of the £500 million by next April? How much of the £360 million which is to be drawn by local authorities, or which it is estimated will be drawn by them this year, will come out of the £500 million and how much has already come out of money previously provided? These are the sort of questions which have not been answered, which leave us in grave 176 doubt, particularly as we have been given one set of figures by the Chancellor and another set by the Financial Secretary. Are we to expect a third set from the Prime Minister tomorrow?

§ Mr. Eric Ogden (Liverpool, West Derby)
Some hon. Members opposite—

§ The Chairman
Order. The hon. Member must learn not to speak until he is called. Mr. Ogden.

Mr. Odgen
I apologise, Dr. King. Some hon. Members opposite have changed their ground since the Second Reading debate.

§ Dame Irene Ward
I did not speak in that debate.

§ Mr. Ogden
I said that some hon. Members opposite have—especially the hon. Member for Worcester (Mr. Peter Walker). There was no suggestion by them then that local authorities would be disappointed in receiving an extra allocation—from 30 per cent. to 40 per cent. My experience is that no local authority expects money to be made available until the precise terms are made known. They do not count the cash until it is in their share of the "kitty".
The authorities with which I am particularly concerned, in the Liverpool and Manchester areas—although they would have preferred all the authorities in the area to have had 50 per cent. instead of 40 per cent.—are quite willing to accept a situation in which the whole area is included, because they do not regard themselves as island cities.
In the Second Reading debate hon. Members on this side said that the Bill was welcome, and nothing has happened since then to make them think that it is any the less welcome.

§ Dame Irene Ward
I want to return to what I was saying before. I cannot understand why the Chancellor, if he knew that he was going to allocate only £40 million, said "up to 50 per cent." If he had thought the matter out at all he would have known that he should have said "up to 40 per cent." I am sure that since all this was planned the Chancellor and the Financial Secretary and the whole of the Treasury are now trying to reduce expenditure, because, having had such vast expenditure thrust upon them, very few local authorities in my part of the country have any money left to spend.
I am certain that the whole reason for this drop from 50 per cent. to 40 per cent. is to be found in the fact that the Treasury is trying to save money out of the special areas, in spite of all its promises and pledges. Will the Financial Secretary, instead of merely nodding, kindly say why, if the Chancellor had not got his plans quite settled—as I would quite understand—he gave the impression that everybody might be getting 50 per cent., when it turns out that they will get only 40 per cent.?
Are not we to have some explanation why, as soon as it was announced that some areas and regions would be specially favoured, there was a tremendous amount of representation through the Association of Municipal Corporations and all the county council associations, which caused the Treasury and the Chancellor to get cold feet about the special areas? Special areas which require help in my part of the country are easily defined.
Why did the Chancellor say, "Up to 50 per cent." when any sensible person could have simply given the figure? It is as simple as that—and that is the explanation which I seek.

§ Mr. Peter Walker
I rise to support my hon. Friend the Member for Tyne-mouth (Dame Irene Ward). The Financial Secretary must admit that the Chancellor made a complete mistake in mentioning 50 per cent. It was foolish of him to mention it. It was reasonable of him to say that he would allocate £40 mil- 178 lion for this purpose, but when he said that for special reasons he would give up to 50 per cent. he made certain parts of the country feel confident that they would have up to 50 per cent. Now we are told that no part of the country will get 50 per cent. and that the maximum will be 40 per cent. It would be much easier for the Financial Secretary to admit that the Chancellor should not have said 50 per cent. but should have given a specific sum.
We on this side of the House have accepted the Bill because we think it necessary to assist local authorities in getting out of the great financial difficulties into which this Government have put them. Local authorities have had to pay more for borrowing money than ever before. Such was the lack of confidence in the Government that there was a great withdrawal of loans to local authorities and the money had to be replaced.
Let us make no mistake about why we have a Bill which is to last probably less than 12 months. That has never happened before with a Public Works Loans Bill; such Bills have always been for longer periods. The only reason that this is for a shorter period is that if it had been for a normal period the sum involved would have been so gigantic that the Government would have been embarrassed. The amount is £550 million, which is likely to last less than a year at the present rate.
The Government have promised a fundamental examination of local government finance. Like so many of their promises, nothing has come of it. There is no sign of it. Local authorities are continuing to have to borrow money at high rates of interest, where they can get it. Although we consider that the Bill is necessary to help local authorities in the great dilemma in which the Government have put them, we want to make it clear that if the economy had been handled properly, the taxpayers of this country would not have been called upon to lend this money.

§ Mr. MacDermot
One would almost think that the hon. Member for Worcester (Mr. Peter Walker) was a candidate for an office judging by the fervour with which 179 he spoke. But his fervour comes ill from that side of the House, particularly when we recall the estimates of the previous Administration as to how long the sum would last which was authorised by Parliament under the previous Public Works Loan Act. On Second Reading I sought to be generous and conceded that it is difficult to estimate in these matters.
But if local authorities are suffering under a difficulty in meeting their borrowing needs, that is not a result of any situation which we have created but as a result of a situation which hon. Members opposite bequeathed to us. They know full well what was the situation with which they would have had to deal had they been returned to power at the last election.
The hon. Member returned again, supporting his hon. Friend the Member for Tynemouth (Dame Irene Ward), to the question of the 40 per cent. of this assistance for special areas. I can only repeat what I said; that my right hon. Friend did not promise that there would be a 50 per cent. entitlement. If he had intended that he would not have used the phrase, "They should be able to get up to 50 per cent.". My right hon. Friend made clear the amount of money which was being made available for this purpose, which was £40 million. I assure the hon. Lady that there is no question of any resiling from that figure, of my right hon. Friend changing his mind or of there being some intervention of Treasury meanness. This figure was thought right, and I do not think that any one has criticised the decision that it would be fairer and better to spread this assistance over the four regions. To get that result within the ceiling which my right hon. Friend had indicated resulted in an entitlement of 40 per cent. of long-term borrowing.

§ Mr. Robert Cooke
I intervene briefly to support the remarks of my hon. Friend the Member for Tynemouth (Dame Irene Ward) and to point out that the Financial Secretary's explanation of this whole matter was completely unsatisfactory.
We have heard that 40 per cent. is somewhere up to 50 per cent., so to speak, or is four-fifths of the way up to 50 per cent. The Financial Secretary has not answered the question at all, and I am glad of this opportunity to tell him that. 180 Indeed, it is typical of the sort of explanation we have had on so many Measures, although I will not digress and attack the Financial Secretary on other matters.
I welcome the Bill for what it gives us, although it does not give us what was promised. The Measure is vitally necessary in the present crisis of confidence and it must go forward to provide money for local authorities. For that reason, but somewhat reluctantly, I support its Third Reading.