HC Deb 24 June 1969 vol 785 cc1374-83
Mr. Edward M. Taylor (Glasgow, Cathcart)

I beg to move Amendment No. 144, in page 11, line 2, leave out '£20,000' and insert '£50,000'.

Mr. Deputy Speaker (Mr. Harry Gourlay)

With this Amendment we can take the following Amendments:

No. 145, in page 11, line 3, leave out '£10,000' and insert '£25,000'.

No. 147, in line 16, leave out 'thirty' and insert 'twenty-five'.

No. 148, in line 18, leave out '£500,000' and insert '£350,000'.

No. 149, in line 20, leave out subsection (4).

No. 150, in line 29, at end insert: Provided that the relevant Minister shall report the lending of any sum under this subsection to Parliament forthwith. No. 151, in line 34, leave out 'twenty' and insert 'ten'.

No. 152, in line 35, leave out 'fifteen' and insert 'eight'.

Mr. Taylor

Yes, Mr. Gourlay. I want to ask a few questions in connection with these Amendments. I should explain that I was not a member of the Standing Committee, but I tried to follow its proceedings with interest. I find it difficult to understand the reasons for certain figures and restrictions in the Clause. The Amendments are concerned with various restrictions which the Government have placed on the freedom or flexibility of the Board towards loans for new hotel projects or extensions.

I find it difficult to understand why these restrictions were put in at all, when there is provision in one of the subsections we propose to remove that the Minister can exceed these by special direction and that any loans of any sort are subject to directions which may be made under Clause 18, by the Treasury at any time. If we assume that there must be restrictions, it is difficult to understand the figures the Government have put forward in this Clause.

The first two Amendments relate to the minimum figures at which loans can be given, and looking at the figures, I wonder why a minimum restriction was put in at all. The first figures relate to new hotels and it is stated that loans cannot be made unless the project, or the eligible figure, amounts to a total of £20,000. This appears to be an absurd figure, if it is meant to be a restriction of any kind. Under previous Clauses in the Bill, a new project must have at least five letting bedrooms; facilities to provide breakfast; facilities to provide meals and there must be a lounge. The structure must also be permanent. It is also indicated that eligible expenditure includes not only the building, but the fixed equipment in it.

I and my hon. Friends find great difficulty in envisaging any new hotel project including all these things which could be built at this time for less than £20,000. It seems an astonishing figure and if the Government mean this to be in some way a restriction on a board in giving loans, we wonder how the figure was arrived at and whether it is meant to be a restriction.

The second Amendment relates to the alteration or extension of a hotel. The Government have put in a minimum figure of £10,000 and this is intended for major reconstruction which would result in a hotel having all these facilities and fixed equipment. Can this be a serious figure? Is £10,000 a restriction, particularly when we bear in mind all the qualifications written into this Clause? There is a provision that if a variation is required in the figure, there could be a direction from the Treasury, and under subsection (4) if the Minister is not satisfied that circumstances are normal, he can exceed 30 per cent. and make it 40 per cent. for a particular project. We have a provision in subsection (5) that if a loan is given for a new project, it must be paid off in not more than 20 years. That is a long time and I wonder if the Government envisage any circumstances in which a loan might be given for more than 20 years or, for a major reconstruction, for more than 15 years.

We can understand the Government's wish in some way to show that Government money is carefully allocated at a time of financial stringency when many business men are having to face harsh rules to obtain credit, but I suggest to the Minister that in seeking to impose many restrictions which appear to be largely meaningless, he is creating unnecessary bureaucracy and restriction which will have no meaning in practice.

For the maximum figure of £500,000 in this Clause we have suggested substituting £350,000 as being more realistic. The reason for our Amendments is to establish why the Government have put in these figures which in practical and normal circumstances would be meaningless as restrictions. Are the Government seriously suggesting that a hotel project could be envisaged today, in 1969, or in 1970, providing all these splendid facilities, five bedrooms, lounges, meals, facilities for breakfast, and for a figure of £20,000, while at the same time providing all the fixed equipment which is required for a hotel with five bedrooms and, indeed, all the facilities which are needed for residence in it?

11.45 p.m.

Quite frankly, I feel that, for the sake of sensible law, it would be better to have no restrictions at all than to have restrictions which certainly would appear in all practical circumstances to be largely meaningless. If the Government feel that there is reason in them, they have to remember that they have an escape Clause, Clause 18, which provides for directions by Ministers. What meagre restrictions there are can be removed or can be adjusted by direction under that Clause.

What we are trying to do by these Amendments is not in any way to hamstring the efforts of the board, hamstring giving assistance to small hotel projects, as opposed to large hotel projects. What we feel is that the restrictions under Clause 13 are meaningless in practice and will not be a deterrent in considering one case against another and would be much better removed. That is why we have proposed these Amendments.

I hope the Government can give some indication why they chose the figures they did and what meaning they will have in reality.

Mr. Eldon Griffiths

I echo everything which my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor) has said so economically and so well. I support this series of Amendments for all the reasons he has put, and I would summarise them as follows. First, on grounds of economic reality. It is not reality, as my hon. Friend pointed out, to suggest that it is possible to build in this country at this time a hotel providing all the facilities required under this Bill for the sum of £20,000. It is not reality to insist upon that. The Government ought to explain why they have come down on this figure in particular. My own view is that we should not be providing this money at all, but if we are to provide it, let us at least make sure that it is provided in sensible fashion.

Secondly, alongside economic reality we ought to have financial prudence. If hotels are to be able not to repay loans for periods as long as 20 years, then, on the present economics of the hotel business, I wonder whether we are lending money to the right business in the first place. It seems to me, at a time when credit is short and profits ought to be high in a risky business of this kind, that the period of repayment should be substantially shorter than that indicated in the Bill.

Finally, we have put down an Amendment to leave out this obnoxious subsection (4) whereby the Minister is entitled, on his own discretion, apparently, to dip into public funds and bang up to a substantially higher figure the amount which can be lent—and we are here talking of very large sums of money indeed. Under Clause 13(3)(b) the figure for extensions and alterations can be as high as £500,000, and, under subsection (3)(a), 30 per cent. of a large hotel can be a very large amount indeed. I say to the Minister that the fact that on occasion, when he feels it is warranted, the "relevant Minister" can simply dip into public funds and increase the loan when he wants, is not, to me, a happy one, but might improve a little in my eyes if the Amendment were accepted, namely, that when the Minister increases lending by his discretionary power he should report the sum to Parliament.

The Minister would be exercising a very large discretionary power and he should show cause for exercising it. There is nothing that I can discover in the Bill to make the Minister accountable for these exceptional sums that he would be lending. For reasons of economic realism and financial prudence and accountability to this House, I support the Amendment.

Mr. Pardoe

I speak only to refute the argument about the figures of £20,000 and £10,000. I have recently seen in my constituency a hotel, consisting, admittedly, of only nine bedrooms, which would not qualify at present. It has cost, from completely flat ground, including the cost of the land, to completion, with all the facilities, substantially less than £10,000 to build. The figure was, in fact, about £8,000. If we could not build hotels for this kind of figure in Cornwall then the Cornish hotel business would fail. If it cost substantially more than £10,000 in Cornwall to add five bedrooms we should not be able to make ends meet.

Mr. Buchan

I am pleased to note that, from time to time, hon. Members opposite change their mood. We usually find them moving Amendments which would increase public expenditure. This Amendment is refreshing because it would actually decrease it and they have indicated how it could be done, which is perhaps even more unusual for them.

We have been asked whether we are concerned with any particular criteria or whether the number has been pegged. The main point concerned the figure of £20,000 and has been partially answered already. I, too, have investigated this aspect. Although there will be variation, I think that the average cost of building per bedroom is about £4,000, varying according to circumstances of construction, land purchase, and so forth.

Quite apart from this, perhaps the most significant objection to the Amendment is that the figure of £20,000 was given in the White Paper and some hoteliers and developers may have acted in good faith on that basis and gone ahead with projects. The Amendment must be rejected, therefore.

The issues involved in Amendment No. 145 raise the same kind of principle. The minimum of £10,000 expenditure before loan assistance can be considered for existing hotels was set with regard to the fact that the qualifying extension under Clause 8 must consist of at least five additional letting bedrooms. This thinking was consistent and based upon a careful study and assessment of the situation. That Amendment must also fall, therefore.

Then there is the argument about Amendments No. 147 and No. 148, particularly concerning the sum of £500,000. I accept that a loan of this size—which will be exceptional—means that the project will amount to about £1.6 million in construction cost, the cost of purchasing and installing fixed equipment, and so on, on top of which will be the cost of land and the provision of unfixed equipment. Such a hotel, if in the luxury class, would be likely to have about 150 bedrooms, and, in the moderate range, perhaps 300 bedrooms. We expect that cases of such expenditure will be few. When such a project is launched those behind it would normally be capable of raising the money themselves.

Mr. Rees-Davies

Can the Minister say whether the new hotel groups which are to provide medium-price accommodation in London have any figures available? I understand the cost would be in the order of £1 million to £3 million per hotel to provide accommodation for 150 to 300 bedrooms. Are there any figures to show what would be the anticipated loan?

Mr. Buchan

I will write to the hon. Gentleman on that; I cannot answer him now. It was necessary to set some maximum and £500,000 seemed a reasonable figure to cater for those odd, exceptionally large projects, justifying a loan from public funds. Hon. Members have resented the presence of subsection (4), but often we have to include these things in legislation to provide for exceptional cases. What we have in mind is where a small enterprise may have special problems in raising money for a new hotel in the absence of existing chargeable assets.

The amount advanced would be subject to the maxima I have already mentioned. I see no objection to the tourist board setting out in its annual report the number of cases in which the provisions of the subsection had been operated. It would be difficult for the "relevant Minister" to report to Parliament forthwith about the lending of such money, because it would be pointless to make such a report without details of the projects, which would breach the confidence which must exist between the tourist board as lender and the applicant as the borrower. This is normal practice, applying to industrial matters.

Mr. Eldon Griffiths

Would the hon. Gentleman agree that the tourist board, in the annual report, could give the sums and the recipient?

Mr. Buchan

I would rather not make that commitment. I will look at the suggestion, but the boards have not been established yet, and we want to consider the kind of details that should be forthcoming. I am by instinct a believer in maximum information being made public, but we must keep in mind the caveat I have entered.

Dealing with Amendments No. 151 and No. 152, we have a reason for specifying different maximum periods. A new hotel is not earning during the construction period, which may be two or more years. There is also a build-up period before profitability is achieved. The maxium period for repayment of loans on new hotels may be longer by five years than the period for existing hotels. With existing hotels where loans would be given toward alterations or extensions, there is a necessity to provide immediate earnings for repayment and servicing of the loan. The repayment periods represent maxima. One hopes and expects that in most cases a tourist board would specify a shorter period, since many applicants would require shorter periods and would wish to free the assets of a hotel from all the encumbrances of loans and charges as quickly as possible. But I am opposed to reducing maxima, since it would impair the flexibility of the provisions on loan assistance. It would also go back on the proposals in the White Paper which may have been acted upon in good faith by hoteliers and developers.

12 m.

Mr. Rees-Davies

There is one important point which the Minister has not mentioned. In Committee I drew attention to the question of what constituted a new hotel. I said The word 'new' does not mean a freshly built hotel. It does not mean, as with a new egg, one which has been freshly laid. It merely means an alteration of the existing building. This again is not a matter on which I should press for a reply now, if it does not suit the Minister, but I hope that the situation will be clarified in due course."—[OFFICIAL REPORT, Standing Committee E; 6th May, 1969; c. 603–4.] We drew attention to the fact that a new hotel as planned may be the conversion of an existing building to a new house. It then becomes a hotel which is a new hotel for the first time. This was the reason given for saying that the figure of £20,000 was too small. A "new" hotel presumably means what it says. It does not mean a freshly constructed one, but a hotel which has become a hotel for the first time.

Mr. Buchan

The hon. Member must make a distinction where alterations or extensions take place or where a new hotel has been created. I recognise the difficulties of definition. But the main definition is recognisable and in most cases there is no dubiety. We then say that any existing building which has not been used as a hotel should be considered in this way. I should not like to give an ex-cathedra, off-the-cuff statement on the matter. I will look into it, and perhaps the tourist boards will have to consider the matter.

Mr. Rees-Davies

We pointed out in Standing Committee that this Clause was the most important in the Bill from the point of view of its practical effect. I am indebted to my hon. Friends who moved Amendment No. 144 and I recognise the importance of not wasting public money.

In almost every European country today there is some means by which the hotel industry, in its need for rapid expansion, can call on loan facilities of a governmental nature as well as from private sources. This is particularly true of the great Swiss hotel industry which is able to take advantage of special methods by which it can obtain the necessary loan capital. This is of even greater importance under the present Government since it is impossible to borrow money except at excessive rates of interest, in some cases amounting to as much as 14 per cent., which would make many propositions less than viable.

We feel that flexible criteria for loans should be carefully laid down, but there is no reason why substantial loans should not be obtained. If the Government were to give grants of 20 per cent. in respect of new hotels, together with a further 40 per cent. in special cases—in development areas it could be as much as 65 per cent. it could be regarded as reasonable, bearing in mind the capital which the industry itself would have to find.

It is important to ask what is meant by a "new" hotel. I said in Committee that, if we are to have speed of execution to obtain the extra 40,000 to 50,000 extra bedrooms which we require for the rapid development of tourism in the next three years, it cannot be done by seeking planning permissions, acquiring land and building new hotels with fresh bricks and mortar.

I said in Committee: When I conceive the idea of a new hotel, my first thought is whether we can convert existing buildings into hotels. For example, I think that many of our historic homes may well become the leading hotels of the future. I know of one or two places, such as former working men's institutes and clubs, former nursing homes, and buildings of that kind, which could become new hotels. I hope, therefore, that this type of building will qualify for both grant and loan. I imagine that if, within the concept of a new hotel, they can change its use it will qualify as a new hotel. It is important that the position should be clearly understood by those who may wish to convert such buildings into hotels."—[OFFICIAL REPORT, Standing Committee E, 6th May, 1969; c. 603.] I went on to deal with the fact that such a building would not be a freshly built hotel. I assumed that that was why one had a figure of £20,000 at the lower end of the scale.

I hope that the Minister will give careful consideration to this matter, not only with a view to taking instructions for the purposes of Third Reading, but looking ahead to when the Bill goes to the other place. If the Government want to see the development of hotels in this country, they must realise that it will not be done by the big groups in London alone. It can be done by the conversion of many existing buildings in country areas where it is hoped to meet the driving upsurge of modern tourism.

This will not cost the Government anything other than the facilities to ensure that there are fair loans for those willing to risk their capital in such ventures. I do not ask for the expenditure of public money, nor do I suggest that it should be given to anything other than a viable concern of a substantive nature.

I think that the Ministers have overlooked completely the passage which I have quoted, and I was not the only hon. Member to take up the point. My hon. Friend the Member for Blackpool, South (Mr. Blaker) raised it, my hon. Friend the Member for Honiton (Mr. Emery) touched upon other aspects of loans, and we all put down specific Amendments which were not called. I make no complaint about that, because we have had an admirable opportunity to ventilate the whole matter on this Amendment. I recognise entirely what my hon. Friend the Member for Yeovil (Mr. Peyton) and others have said about the need for care and the fact that it was not essential to contain this criterion in the Bill. They are right about that, but it has had at least one welcome effect if it has brought attention to the need to clarify the position and recognise that it is not just a question of thinking in terms of new bricks and mortar but of finding the alternatives which are essential for the sort of development the country needs if tourism is to expand.

Mr. Buchan

With the leave of the House, the hon. Gentleman referred to the borderline difficulties that there might be in deciding about an existing building which was to be converted. However, the use of existing buildings is covered in Clause 16(3), which says: … references to providing a new hotel include references to providing it by converting into a hotel a building or buildings previously used for a different purpose.

Amendment negatived.

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