HC Deb 30 November 1970 vol 807 cc1041-50

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Goodhew.]

10.11 p.m.

Mr. Adam Hunter (Dunfermline Burghs)

I wish to raise the subject of high rates of interest granted by the Public Works Loan Board to local authorities in Scotland. I had hoped that this debate would have taken place in the context of a Scottish debate, but unfortunately I see that the hon. Gentleman the Minister of State at the Treasury will reply. His presence in this debate is a little forbidding—or should it be foreboding? However, I have no intention, nor am I capable of doing so, of going into the realms of high finance, nor into the intricacies of international money markets. I shall simply deal with a question which has a relationship to my constituency.

For a very long time many local authorities in Scotland, particularly the smaller ones, have been concerned about the high rates of interest from the Public Works Loan Board for development purposes, and this is my reason for raising this matter tonight. It is true that there has been a great lessening of the effects of high interest rates in the matter of housing construction, but other capital projects have been hard hit by the prevailing rates. There are certain projects in house-building which are excluded, namely, those relating to sewers and general open spaces, and which also come in for the high increased borrowing rates. Because of the absence of low rates, many local authorities are inhibited in bringing forward capital projects, projects which could mean very much better local amenities in their areas.

The question of high rates of interest from all sources has been a continuing grievance in my constituency. Many councillors do not understand why interest rates should be so high. They appreciate the benefits they receive in regard to housing, but they cannot understand why the rates in relation to development projects are so high. The Government should take appropriate action to dispel the objections of many councillors and dispense with the need to raise rents to meet the deficits on many housing accounts in Scotland.

This is not a political exercise, because I raised this matter when the Labour Government were in power. I made representations to the Minister of State on high interest rates and the consequential incidence of progressively increased local authority rates because of the high rates being paid for the various projects and other types of expenditure incurred by local authorities.

Two small burghs in my constituency have been hard hit by pit closures. The result has been a decrease in population. There is a philosophy going round in some quarters, though not openly canvassed, that the old towns where the traditional industry has gone should not get the same attention as the new towns in other areas regarding the provision of services and local amenities. I do not hold that this should be so. I still feel that many of the old mining towns and villages remain lively, close-knit communities and will be for many years to come if they are provided with local amenities.

There has been a great deal of expenditure on housing, schools and other infrastructure in those areas. It would be folly to lose this by not encouraging local authorities to make provision for community centres, swimming pools, modern administrative offices and public halls to allow the communities to carry on public activities.

The small burgh of Inverkeithing in my constituency has an extremely modern administrative and public centre, called a civic centre. This was built a few years ago and was opened by the hon. Member for Glasgow, Hillhead (Mr. Galbraith), then the Under-Secretary of State for Scotland. It is a wonderful, modern building with administrative offices for all departments to carry out their local authority work. It also has a large and a small hall for community activities. I should like every small town, or large town for that matter, and village in Scotland to have such an attractive centre.

Some relief must be granted by lower interest rates on a wider aspect of local authority expenditure, particularly on projects such as I have mentioned which are not covered by the housing subsidy.

I should like to give one or two examples. I refer particularly to my constituency interest—Cowdenbeath. This small burgh has problems finding money for development projects for local amenities. I feel that not only Cowdenbeath but many other local authorities in Scotland, large and small, have this problem. Cowdenbeath Town Council would like to build a community centre for young and old alike for recreational needs. The estimated cost for such a project is about £150,000. The annual loan charges over 30 years would be £14,860 on the present rate of the Public Works Loan Board, which I understand is 9.29 per cent. If this loan charge were reduced by 1 per cent. it would mean a saving of £1,284 for Cowdenbeath Town Council. This would mean 1d. in the £ off the annual rate burden.

Another example is that the same council is going through with the modernisation of older type houses, and the improvement also extends to the installation of central heating. It will get grants for improving the houses but will not get them for installing central heating. The cost of installation is £200 per house, and this means that the loan charge rate of 9.29 per cent. will be very high, indeed. But if the rate were cut by 1 per cent., it would mean a saving for the tenant of 7d. per week, or 28s. per year on a 48-week year. That may seem small but in the present climate of swiftly rising prices every little helps with the financial budget.

If work of the kind I have mentioned were treated in the same way as housing construction, it would mean simply that the percentage of loan charges between 4 and 9¼ per cent. would be met by the Government. This would mean a great saving in the installation of central heating in these old houses, rather than having the tenant meet the cost of £200 per house by way of increased rents.

I turn now to an aspect which may be contested by the Minister, It concerns housing construction. Under the Housing (Financial Provisions) (Scotland) Act, 1968, local authorities receive as subsidy excess borrowing costs over 4 per cent. The experience of Cowdenbeath has been that rates for subsidy purposes are fixed on the preceding financial year's rate, and the tendency has been for the rate so fixed to be below the current interest rates. The effect has been that local authorities are not receiving the full subsidy of interest rates over 4 per cent. This is a serious financial burden on the smaller authorities. At the same time, it is felt that the indicative cost factors, on which housing costs and, eventually, subsidies are based, are not keeping pace with the increased costs of housing construction. Unless there is a constant review of indicative cost factors, again local authorities are the losers in that the Government are comparing tenders submitted by local authorities in standard figures which are out of date.

Cowdenbeath County Council has been concerned for some time about the higher rate for borrowing for development purposes. It has many developments in mind, as have many neighbouring small burghs. I understand that Lochgelly, only a few miles away, also has the intention of building a large community centre with a concert hall. If there is no further aid from the Government, this project will be very costly for the ratepayers. Some more aid should be given by the Government to make these small towns, which are ex-mining towns, much better places to live in.

Cowdenbeath Town Council protested to the Scottish Development Department on 19th August and asked for a deputation to be received to discuss high interest rates and their effects. The Department refused the request because it felt that this was a matter for the Treasury. This is my experience tonight because, instead of a reply from the Under-Secretary of State for Scotland who is responsible for local government, we are to have a reply from the Minister of State, Treasury.

However, the Department, in its reply to Cowdenbeath, acknowledged that the present high level of interest rates made it very difficult for local authorities and also for the Government and private individuals. It also stated that the rates being charged were necessary in terms of the Government's own lending through the Public Works Loan Board. It was explained how the principle of the Public Works Loan Board lending had evolved, and how it had received statutory backing under the National Loans Act, 1968. It was claimed that the Government had gone some way towards protecting local authorities from the full impact of high borrowing costs, and also said that the Public Works Loan Board quota arrangements and the operation of rate support grants were used to keep down interest rates.

It further maintained that under the quota arrangements the board is able to meet a substantial proportion of local authority borrowing needs at rates which, although high, are normally below those at which local authorities are able to borrow on the open market. The purpose behind the debate is to submit to the Minister that local authorities require a greater proportion of their borrowing needs at lower interest rates to provide the services that I have mentioned.

Much of what is contained in the Scottish Development Department's reply is correct, but it is not enough to say that the rate support grant calculations take full account of increases in Public Works Loan Board interest rates or loans from any other source. More specific Government aid is required. The Minister should note that the small burgh council in question has followed a wise policy in its borrowing needs. If he studies the position he will see that it compares favourably with many other local authorities. Like the officials and members of this council, I feel that more assistance should be forthcoming from the Government.

10.27 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

I am indebted to my hon. Friend the Member for Dunfermline Burghs (Mr. Adam Hunter) for raising this topic this evening. He indicated that the small changes in the rate of interest issued through the Public Works Loan Board are detrimental to the financing of the infrastructure in Scotland. He has, naturally, spoken from a constituency level, but if we consider the picture as it concerns the whole of Scotland we see that since this Government came into office the Public Works Loan Board rates have risen by ⅛ per cent., but taking it over all, the total of local authority capital expenditure, excluding house building, the cost is still over £100,000. I welcome the Minister's contradicting or substantiating that figure.

We must consider that against the fact that the Government made certain promises in the General Election, and the Minister responsible for regional development in Scotland is on the Front Bench. The Government made certain promises to the effect that one of the key factors in their policy to attract industry did not necessarily involve giving grants to industry, but involved building up the infrastructure. They are at present taking credit for an infrastructure which the Labour Government built up. We want to see the Government taking their own direct policy of aiding local authorities and other Scottish agencies in building up the social fabric of the community, which is essential if we are to achieve what industry in Scotland increasingly requires.

We know that the Government's policy may be excused on the basis that they are only continuing the policy that the Labour Government embarked upon. Nevertheless, if they are going to develop an attraction policy for industry they have a responsibility to make clear that differential policies will be related in terms of interest payments to local authorities. We want some news about this. Local authorities in England have received a circular indicating that they will have more freedom in the granting of capital development. Scottish local authorities have not had that. We await a comprehensive statement on local authority finance from the Secretary of State for Scotland, and because the Treasury holds the purse strings we are entitled to a clear statement that Scottish local authorities will receive differential treatment.

10.30 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

I am sure that the House is obliged to the hon. Member for Dunfermline Burghs (Mr. Adam Hunter) for raising this matter, which is so important to local authorities and others in Scotland, so impartially and helpfully.

The hon. Member said that he had made similar representations to the Minister of State in the previous Administration. I was glad to hear that, but I am sorry that he did not tell us whether he had received any encouragement. The Minister of State was a senior Minister in an Administration which put up interest charges on local authorities to the highest point ever reached in modern times. We are now suffering from the imposition of these rates which have forced up rents, rates and costs on every aspect of local authority work. It ill becomes hon. Gentlemen opposite to parade their consciences in this way when they trooped into the Lobby time after time and year after year supporting the Labour Government in their incompetence in courses of action which forced up costs in Scotland.

The hon. Member for Clackmannan and East Stirlingshire (Mr. Douglas) might remember that just before the 1966 General Election his right hon. Friend promised the country that there would be more new jobs in Scotland by 1970. Now, in 1970, there are about 45,000 fewer jobs, thanks to the mismanagement of a Labour Government. The great cry in Scotland should be one of relief at having again a Conservative Government who recognise the true problems of Scotland and who have at last introduced a system of regional development and incentive which will be effective and will bring more jobs to Scotland in future, just as our policies did in the past.

10.32 p.m.

The Minister of State, Treasury (Mr. Terence Higgins)

Many matters of political controversy have been raised today, but it is one of the greatest privileges of the House that hon. Members can raise on the Adjournment matters of particular interest to their constituencies. It is right and proper that the hon. Member for Dunfermline Burghs (Mr. Adam Hunter) should have taken this opportunity, at the end of a fairly hectic parliamentary day, to raise these points. It is also forunate that we should have had two further speeches which broadened the debate to cover the question of regional development generally, rather than just housing.

In considering the rate of interest, inevitably, one becomes involved in the entire range of Government economic policies, and it is difficult to avoid straying into those fields.

Local authorities borrow their capital finance for house building from a variety of sources. Since 1963, they have, of course, been entitled to draw from the Public Works Loan Board in each financial year a quota of their longer-term borrowing needs. For 1970–71, the quota for Scotland is 50 per cent. of the likely capital requirements of the authorities. There are, of course, two rates of interest—a lower one applicable to borrowing under the quota and a slightly higher rate for borrowing in excess of the quota. The individual local authorities in the hon. Member's constituency are not all in the same situation in this respect. At all events, there are these two differential rates of interest. The current rates in November, this month, differ quite a bit between one period and another, depending how long the loan is for.

Local authorities can also borrow in other forms by short, medium or long term loans in the open market, by local authority bonds, or by issues of stock and negotiable bonds, with interest determined by market forces. But the interest rates payable by local authorities on their borrowing reflect the market, including international influences. For house building, on which the hon. Member concentrated, the present system of Government subsidy takes account of the rate of interest payable. The amount of subsidy is related to the cost of building a house and to the rate of interest on borrowing that cost.

The subsidy is an annual contribution calculated as the difference between the loan charges on the approved cost of a house at a rate of interest which is representative of borrowing by authorities in the year before the houses are completed and the loan charges which would have been incurred at a fixed borrowing rate of 4 per cent. Hon. Members opposite mentioned that some of these costs are escalating, but this is not something which can be laid at the door of the present Government. We have inherited a highly inflationary situation as a result of the economic policies of the previous Government, and this inevitably means that this situation is reflected in the position to which the hon. Member has himself referred.

A representative rate for subsidy purposes is calculated each year. The current representative rate—that is, the rate used for the calculation of subsidy on houses completed in the year ending 31st March, 1971—is 9.29 per cent., so that the annual subsidy is the equivalent of the annual loan charges on the approved cost of a house at 5.29 per cent. This calculation gives an annual subsidy of £49 4s. for every £1,000 of approved cost, or £196 16s. for a house with an approved cost of £4,000. That, broadly speaking, is the present situation.

The present subsidy system has the effect of limiting the interest rate on local authority borrowing for house building to 4 per cent. on the subsidy payable on completion of houses. That is the normal basis which has prevailed, but the present situation is very much as it was created by the previous Government.

The hon. Member for East Stirlingshire (Mr. Douglas)—

Mr. William Ross (Kilmarnock)

But what will be the position?

Mr. Higgins

The right hon. Gentleman must wait and see. It depends on the effect of our overall economic policies, and we are determined to cure the present inflationary situation. We made it quite clear in our election manifesto that we would do so. If we get that right, as I know we shall, it will do a great deal to offset many of the problems mentioned more specifically a moment or two ago by the hon. Member for Dunfermline Burghs.

In reply to the hon. Member for East Stirlingshire, I should like to stress that this Government are doing a great deal for the more broadly based development in Scotland, because almost the whole of Scotland has development area status. This means that we have a great many projects which are now to be encouraged as a result of the measures mentioned by my right hon. Friend the Chancellor of the Exchequer in his statement soon after the House returned from the Summer Recess. We have made it quite clear that we intend that these measures shall be made effective.

We shall, for example, provide loans on the more general industrial development side more flexibly. The rate of building grant for industrial development will be increased from the present 25 per cent. and 35 per cent. to 35 per cent., and 45 per cent. I do not have time to do so tonight, but if we look at debates that we have had on this subject, taken in conjunction with the measures mentioned by my hon. Friend the Under-Secretary of State for Development in an Adjournment debate on 7th July with respect to the Highlands and Island Board, we see that we now have positive proposals in the investment field which will enable us to encourage investment in Scotland.

I stress as strongly as I can that our approach is that we shall have a definite and effective regional development policy and that the measures that my right hon. Friend the Chancellor of the Exchequer has proposed will, we believe, be efficient in carrying this out and in providing more employment in Scotland.

I take the point of the hon. Member for Dunfermline Burghs that it is very important to have effective regional policies both in areas where there are traditional industries and in those which are developing other more recent technological developments. The whole of our policy in this respect is directed to this end, and it is vitally important for the position in Scotland.

One final point I should make in this connection is that the Government are pursuing a general policy of rates of interest which cover in particular the use of monetary policy, and I suggest that the special deposits for which the Chancellor called in his speech a short time ago have a differential effect for Scotland. before the Scottish banks, as on previous occasions, have only one half of 1 per cent. in percentage terms—

The Question having been proposed after Ten o'clock, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at nineteen minutes to Eleven o'clock.