Clause 1.—(GRANTS FOR PUBLIC WORKS.) (Hansard, 20 May 1966)

§ Mrs. Margaret Thatcher (Finchley)
We cannot let a sum of £900 million go without saying a word or two about it, although we did have some discussion on the subject this time last week.
The Financial Secretary will remember that one of my hon. Friends asked him on that occasion a question—it was towards the end of the hon. and learned Gentleman's speech—to which, I believe, he has now found the answer. The question my hon. Friend asked was what was the cost of holding the interest rate on borrowing through the Public Works Loan Board down to 5⅞ per cent. when probably the Government could not themselves borrow at less than 6½ per cent. I would be grateful if the Financial Secretary would let us know how much that cost the Exchequer.
I would also like to know if he has any further information about how local authorities can plan their finances in the next financial year. If we allow this Committee stage to pass—which I assume we shall—the Treasury will be authorising the payment of about £900 million, of which in this financial year about £398 million net will issue from the Exchequer. That leaves about £500 million, which was the sum which the White Paper envisaged would be available in the fourth year of the scheme. Thus, the sums work out quite well, although the question is the basis upon which those sums will be made available to local authorities.
In their planning, are local authorities to assume that the same percentage basis and the same method of calculating the quota will be available next year as has been the rule this year? Or perhaps the hon. and learned Gentleman will say when the discussions with the local authorities, which he mentioned, are 1744 likely to take place, whether they will be formal and how soon we are likely to know the results. I hope he will help us on these two points before we dispose of the Clause.

§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
On the first point raised by the hon. Lady the Member for Finchley (Mrs. Thatcher), I have answered a Written Question giving the answer in full. I am sorry that I have not got the precise wording, because these are matters for precise words, in front of me. As we estimated it approximately, as a result of the loans issued in the last financial year at the lower interest available for the quota loans, the amount which will be repayment in interest to the Board from those loans will be some £5 million a year less than it would have been if the money had been borrowed at the full rate of Exchequer loans.
This is a temporary feature related to the high interest rates prevailing as well as to the high Bank Rate. When my right hon. Friend put up Bank Rate to 7 per cent. he explained to the House that he was proposing to leave the quota rate of interest at its present rate, particularly in order to help local authorities with their housing programmes. This is something which will be kept under review and must be regarded as of a temporary nature.
The hon. Lady also asked what help or guidance we can give to local authorities for the coming year for the purpose of planning their finances. We discussed this, to some extent, on Second Reading and, as I indicated then, I am unable to predict at this stage what further measures or relaxations we will be in a position to make in the coming year towards the fulfilment of the White Paper policy. The only point upon which it is right to repeat the note of caution which I sounded on Second Reading is on the issue raised by a number of hon. Members about the possibilities of what I called evading the spirit of the new rules by 13 month loans entered into just before the end of the financial year. There are regular meetings between the Treasury and local authority representatives, when we discuss such matters, and this would clearly have to be discussed. I hope that we shall be able to reach agreement with 1745 them and find a suitable solution to what is a difficult problem. I hope that it will be possible to do this by the end of this year, so that they will know where they stand in any arrangements that they are making towards the end of the financial year. Fortunately we have this period of time in hand in which to carry out these discussions and I hope, reach a satisfactory agreement.

§ Mr. Brian O'Malley (Rotherham)
I hope the Financial Secretary will realise that his reply will have been very disappointing to local authorities who had been hoping to raise a larger percentage of their total borrowing from the Public Works Loan Board in the next financial year. As I originally understood the position in the White Paper, we were to go forward from year to year, from 20 per cent. to 50 per cent. When I spoke on the Second Reading of this Bill last week, my attitude was that of a number of my hon. Friends—we appreciated that there might be external considerations and general factors which justified the Government holding the quota rate at 30 per cent. for this year, but we were not then under the impression that the whole of the principles laid down in the White Paper were to be shelved, apparently on a permanent basis.
Now we are told that there will be no promises for the next financial year to move to 40 per cent. By that time we should have been at 50 per cent. In examining the decisions of the Government and looking at the caution of the Government in this respect, we should bear in mind that wherever the capital borrowing of local authorities comes from, whether from the Public Works Loan Board or through the open market, the total pressure on financial resources remains the same.
If the Treasury were looking at this because of external considerations and because of the general economic situation, what would have worried them most was the large amount of money at present being borrowed on unsecured short-term loans. Members of both sides would agree that this was a real danger to the position of the country and to the balance of payments position should chilly winds blow around us. To the extent that local authorities could increase their quota 1746 borrowing in the next financial year, this would assist the Government in cutting down or at least pegging the amount of the short-term debt of the local authorities.
I hope that the hon. Gentleman will give very serious consideration in the months ahead to the possibility of allowing the local authorities to increase their quota borrowing from the Public Works Loan Board to 40 per cent. and to go along with the principles of the White Paper, so that we may deal with this problem of short-term debt more effectively than we have been able to do in the past and so that we can allow the local authorities to borrow money from the Public Works Loan Board, at least at the Government credit rate, rather than driving them on to the open market on both longer term loans and short-term loans at the more expensive rates which it is necessary to pay.

§ Mr. Peter Hordern (Horsham)
The hon. Gentleman the Member for Rotherham (Mr. O'Malley) has raised a number of important points with which I hope the Financial Secretary will deal. Both the Financial Secretary and the Chancellor, in his Budget Speech, said that the Government adhered to the general principles of the 1963 White Paper. They may be adhering to the general principles, but they are not putting it into any form of practice so far as we can see. The fact is that this year local authorities should have been allowed to borrow at the rate of 40 per cent. and at the rate of 50 per cent. in the following financial year.
The Financial Secretary has said nothing at all about the Government's proposals on that longer-term strategy. We have the curious position that the Government are, on the one hand, subsidising local authorities to the extent that they are allowed to borrow from the Board at a special rate of interest, namely 5⅞ per cent., which is costing the Exchequer £5 million a year, while on the other hand they are restricting the local authorities total access to the Board. If the Government are saying that they adhere to the general principles of the 1963 White Paper, then local authorities and the House should be given some positive assurance that this is so.
1747 Can we have from the Financial Secretary a real indication that it is the purpose of the Government's plans to follow the lines of the 1963 White Paper, and to get the local authorities to borrow longer? The present position is, although short-term debt is worrying, the longer term debt is not all that long—it is only just over a year in many cases. We seek an indication of the Government's proposals for the future. Some indication must be given as to what extent they will allow local authorities further access to the Public Works Loan Board.

§ Mr. MacDermot
In answer to my hon. Friend the Member for Rotherham (Mr. O'Malley), I do not think that this will prove, as he suggests, a shock or disappointment to the local authorities. I believe that they understand that it has been, and must be, the practice that the Government can say for only a year ahead what access will be possible for the coming year. We cannot go, and cannot be expected to go, farther than say that we shall adhere to the strategy and policy laid down in the White Paper, which clearly my right hon. Friend the Chancellor did in his Budget Speech and which I repeated on Second Reading.
What we are able to do next year remains to be seen. No doubt, if things go favourably, we may be under pressure, not merely to increase the expected 10 per cent., but to make good some of the 10 per cent. increase which we were not able to make good this year. One simply cannot predict at this stage what can be done next year. What is important from a longer term point of view is to make clear our adherence to the policy laid down in the White Paper which is aimed, within a five year period, at enabling the access to be increased to 50 per cent. The Government are firmly which we will try to fulfil as soon as we can.
Meanwhile, as I made clear in answer to questions on Second Reading, it is estimated that the total borrowing requirements of the local authorities will be about the same as last year. The access which they will be able to get through 1748 the Board will still be substantial and the gross Exchequer issues for the coming year, estimated at £485 million, will still be £85 million in excess of the figure projected in the White Paper for this year. Therefore, I do not think that it is fair or right to suggest that there has been any departure from the principles of the White Paper. What we all hope is that we shall be able to make speedier progress in fulfilling the programme set down in the White Paper.