HC Deb 23 May 1974 vol 874 cc741-51

10 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

I beg to move, That the Local Loans (Increase of Limit) Order 1974, a draft of which was laid before this House on 9th May, be approved. I hope that that will reduce the noise in the Chamber.

This order increases by £1,000 million the amount available to the Public Works Loan Commissioners for lending to local authorities. The Finance Act 1972 made available for this purpose a sum of £1,000 million and gave the Treasury power, by order subject to affirmative resolution of this House, to increase this sum by amounts of up to £1,000 million on each of three subsequent occasions.

This is the second such order. The previous order was made last July and increased the amount available by £1,000 million to £2,000 million. This order increases the amount to £3,000 million.

As of today, 23rd May 1974, the Public Works Loan Commissioners had £83 million available for lending. At the present rate of lending, that sum will run out before the end of next month. The House is therefore asked to approve this order now so that the flow of essential capital funds, expected to amount to £1,625 million during the current financial year, may be maintained. This forecast figure was published in March in the White Paper on the National Loans Fund. At the expected rate of lending to local authorities, the £1,000 million made available by this order will last only until December. A further order will, therefore, be needed before the end of the year.

I remind the House that the order does not in itself sanction any increase in local authorities' capital spending. Local authorities are currently entitled to borrow from the commissioners 30 per cent. of their net capital requirements, or 40 per cent. if they are in the less prosperous regions, plus a further element to assist them with the re-financing of existing debt as it matures. The purpose of the order is simply to ensure that the commissioners have available the funds necessary to meet these obligations.

Perhaps I may say that I hope that the House will join with me in expressing thanks to the Public Works Loan Commissioners for the service that they have continued to give with such skill and, of course on an entirely voluntary basis.

10.3 p.m.

Mr. Terence Higgins (Worthing)

1 welcome the Chief Secretary to the late night show in place of the usual performer in the shape of the Financial Secretary, who is not with us tonight. Consistency has always been the strong feature of the Opposition, and I join the Chief Secretary in paying tribute to the work of the Public Works Loan Commissioners. I must have spoken on this issue from both sides of the House on a number of occasions. Certainly the Chief Secretary is right to pay tribute to the commissioners, and I am delighted to join him in that tribute.

I welcome the Chief Secretary to the late night show because it is worth recalling exactly how many measures have been introduced by the present Government at roughly this hour of the night or later during the last few weeks. We have had one measure concerned with food subsidies and an extension of the Contingencies Fund which involves an amount of public expenditure of about £50 million. We had an estimate concerned with mortgage subsidies, which was then embodied in a Consolidated Fund Bill, for a sum of—

Mr. Speaker

Order. I hope that these are passing references.

Mr. Higgins

With great respect, Mr. Speaker, no. I am seeking to make a quite specific point, which is the cumulative effect of the measures the Government have introduced, and this particular order is increasing the cumulative effect still more. I do not think, therefore, that this is a passing reference. I am seeking to make a positive argument, but of course I will bear in mind the point you have made. We have had one extension of £50 million, another of £500 million, and now we are being asked to authorise an extension by a further £1,000 million. If we cumulate these, it comes to a grand total of over £1,500 million authorised at this hour of the night in the course of the past three weeks or so.

This must be seen against the background of the statement of the Chancellor of the Exchequer in the Budget debate, when he took great credit for reducing the Budget deficit. It is true that this order is concerned with local authority expenditure, but none the less the economic effect is the same. It is all very well to say in a Budget speech that the Budget deficit or the borrowing requirement is to be controlled; but since then we have had these vast sums of additional authorisation all of them, one cannot help feeling, necessary as a result of the Government running out of cash, whether Contingency Fund, Consolidated Fund or, as in this case, local loans finance. Therefore, we need to look at it in that context, and it is right and proper that we should ask the Chief Secretary to give us a little more detail of the actual likely pattern of expenditure.

Many of the Chancellor's economic statements have been related, for example in connection with corporation tax and the cash flow of companies, to the pattern of expenditure within the coming year. I would hope, therefore, that he can give us some idea, when he speaks of a total sum of £1,625 million— a vast sum of money even by present-day standards—of the periods in which these are to be concentrated, because if we are to have some idea of the flow between the various sectors of the economy and the way in which the impact of this order is likely to be effective it is necessary for us to know that.

A second specific point is that the order is founded on the one hand on Section 132 of the Finance Act 1972, which in turn refers back to the National Loans Act, 1968. That Act lays down the terms on which loans can be made and deals with the question of rate of interest. If I understand the proposal correctly, one of the groups which will be able to call on funds made available by this order, if we approve it this evening, will be water authorities. I gave the Chief Secretary notice of this as I would not like to spring a question on water authorities on him at short notice. As I understand it, water authorities are amongst eligible borrowers of the extra £1,000 million covered by this order. That being so, the question of water authority rates is a matter of considerable controversy.

In the last few days I have had reason to go into the exact financial provision they are making. One of the arguments put forward is that water rates have increased substantially because of the terms on which water authorities are allowed to borrow. I understand that the present rate, fixed by the Treasury under the 1968 Act, is a fraction over 16 per cent.—but only, I am told, on the basis of a 25-year term. I would be glad if the Chief Secretary could confirm whether that is correct, because he and his hon. Friends have told us frequently in recent days that they expect interest rates to fall. The Paymaster-General, who has occasionally been a little "cagey" about it, said that interest rates will fall, if not immediately, after a period of time, though he would not pin himself down to precisely how long a period. It seems somewhat unreasonable that if that is the Paymaster-General's view, and, presumably, the Chief Secretary's as well, they should then say that the terms on which the eligible borrowers shall borrow shall be a basis of 25 years and the very high rate of interest which I understand is being charged at the moment.

I should be grateful, therefore, if the Chief Secretary will confirm that the situation is as I have explained it. I may be mistaken, of course, but I should like to know, or to be told whether the Treasury is charging the rate of interest I have described only on the duration of the loan which has been specified. If that is so we should like to know whether, if the authorities borrow at that rate and the rate of interest falls—and I express some doubts on that—they will be able to renegotiate the loan from the Public Works Loan Board at a lower rate of interest in the course of the term; that is to say, not when the loan falls in but at an intermediate stage?

10.11 p.m.

Mr. Graham Page (Crosby)

I had not realised that if I caught your eye tonight, Mr. Deputy Speaker, I should be taking part in a late night show. I do not think that I am elegant either as a stripper or a streaker. I shall content myself with referring to the order, which, as my hon. Friend the Member for Worthing (Mr. Higgins) has pointed out, is certainly expensive. It is a draft order which, if the House approves it, will sanction the loan of a further £1,000 million to local authorities. That means over £100 million in interest or, if my hon. Friend is right in referring to a rate of 16 per cent. a lot more than that. That means that another £40 million or £60 million a year will go on to the rate bill in the form of interest on money borrowed in this way. It means even more than that because, as the Chief Secretary says, it represents 30 per cent. and in some cases 40 per cent. of the permitted borrowing of a local authority, so that my figure represents only one-third of the local authority borrowing.

If we approve the draft order, therefore, we are nodding our approval of an increase of about £120 million a year in the rates. The rates will provide 40 per cent. of the interest and the rate support grant the remainder. With the current national explosion over rates, that should certainly cause us to pause for thought before we approve the order, but, to be practical about it, if we do not approve it and if we do not make £1,000 million available from the National Loans Fund the local authorities will still be at liberty to borrow the money elsewhere. At least they would be at liberty to borrow up to the limit which the Government have set outside the ambit of the order.

It is only right when we are asked to approve an order of this kind that we should consider to what extent it is an encouragement to increase the burden on the ratepayer. Loans to local authorities from the National Loans Fund have increased enormously even over the last four years. In 1971–72 the figure was £1,038 million; in 1972–73 it was £1,225 million; in 1973–74 the estimated out-turn is £1,367 million and this year it is estimated at £1,625 million. That is a 62 per cent. rise in four years. I do not have the figure for the total loan debt of local authorities later than 1972, but in April of that year the figure for England and Wales was £15,287 million. That was two or three years ago. I imagine that it is nearing the £20,000 million now. I cannot say how much of that was borrowed from the National Loans Fund, but I suppose it would be about a third.

The debt charges on that £15,000 million in 1972 were £1,273 million, which was more than one-fifth of local government expenditure, of which I suppose about £1,000 million was interest, the rest being to service the loan by amortisation. That was about the same as—and it is now probably a little more than— the whole amount collected from the domestic ratepayer. Therefore, it is rather significant, when we are talking about the amount of interest paid on money borrowed by local authorities on an outstanding loan debt, that we are talking about the same figure as the total amount of rates collected from the domestic ratepayer.

Interest on the present amount of outstanding loan, which I put at about £20,000 million, must be a great burden on the ratepayer. I hold the view that it should be collected by a local tax on incomes, and not by a local tax on houses, but that is a matter not entirely free from controversy. What is, I think, uncontroversial is that we must move certain items of local government expenditure off the local rates and on to the central Government Exchequer.

I think that I am not going out of order, in discussing the encouragement of the increase of burden on the local ratepayer, if I say that education, law enforcement, the police, the courts and the fire service are all candidates when we look for other items to move off the back of the ratepayer. The only reason for hesitation is the fear that moving the finance might mean moving the responsibility.

Therefore, one looks for an item or items on which the local authority has little or no discretion or responsibility. What discretion is left to the local authority in the amount or the rate of interest it pays on its loans? Local authorities are told by the Government how much they can borrow. If they borrow from the National Loans Fund, as they are encouraged to do by the order, they are told the rate of interest they must pay.

Above all, the new local authorities which came into being on 1st April were saddled with the debts of the previous, quite different, local authorities. There is every justification in the present crisis over rates for relieving the new local authorities of the liabilities incurred by the authorities from which they took over, certainly as regards the loans from central Government—that is, the loans from the National Loans Fund.

We have not hesitated to do exactly the same thing with nationalised industries and to write off debts in that case. The Government already repay 60 per cent. of that interest in the rate support grant, which makes a rather ridiculous and farcical position of the Government giving with one hand and taking back with the other.

Before the Government proceed with the order, and hang another millstone of interest round the ratepayer's neck, I ask them to forgo the 40 per cent. of the interest on the loans which is paid by local authorities and to write off the debts owed to the Government by the old local authorities.

Spread over the whole body of taxpayers, the amount of that loss of revenue to central Government falling on each individual taxpayer would be insignificant, but it is a more than significant burden on the individual ratepayer. I ask the Government to write off the debts of the old councils before encouraging the new councils to enter into new debts by making this £1,000 million available. By that means we should at least be taking one fairly substantial step towards relieving the ratepayer and doing so by nothing very much more than a book entry. At least it would relieve the ratepayer at this time—and I use the phrase again—of a national rate explosion. I hope that the Chief Secretary will give the matter consideration.

10.20 p.m.

Rear - Admiral Morgan - Giles (Winchester)

These are relatively uncharted waters for me. Having heard the figures that have been bandied about, I have two or three questions to put to the Chief Secretary. What are we discussing? The order, in effect, is a huge loan in addition to the exorbitant increases in rates to which reference has already been made. The increases apply particularly to rural areas such as Winchester where they may be 200 per cent. or even more. Does the loan authority which is now being given authorise local authorities to borrow abroad in addition to the authority which we are now granting them?

In view of the incredible figures involved and the vast load that is carried by the ratepayers, are the Government doing anything to try to control spending? Are they pointing out to local authorities the extraordinary economic situation in which the country finds itself? Are they asking the authorities to throttle back and to minimise their spending to the greatest possible extent? From a philosophical point of view, is it not extraordinary that the Government are coming to the House at this time of night, when there are by my count exactly 10 hon. Members in the House, and asking us to give authority more or less on the nod for exactly £1.000 million? It makes me feel a little over-generous.

10.23 p.m.

Mr. Joel Barnett

I can assure the hon. and gallant Member for Winchester (Rear-Admiral Morgan-Giles) that we are not spending £1,000 million tonight. We are ensuring that the money is available to meet the expenditure of local authorities that was agreed by the hon. and gallant Gentleman's right hon. and hon. Friends when they were in Government.

Rear-Admiral Morgan-Giles

It is £100 million for each hon. Member present.

Mr. Barnett

I know that these are uncharted waters for the hon. and gallant Gentleman. All that we are doing is making the money available for expenditure which was planned a long time ago.

Rear-Admiral Morgan-Giles

But to the extent of £100 million per hon. Member present in the Chamber.

Mr. Barnett

When I look at my right hon. and hon. Friends I feel that they are worth every penny.

The hon. Member for Worthing (Mr. Higgins) began by telling us about the number of late night orders that have been put before the House in the past few weeks and suggested that they have a cumulative effect. I can only say to him that all of them were every bit as good as the present order. I am sure that they were all well worth considering at any time of the day or night.

The hon. Member for Worthing has suggested that we are running out of funds. It is rather surprising that he should talk in that way. I suppose it is possible that his three months of freedom from office have made him a bit lightheaded. However, I am sure that he understands that the £1,000 million that we are talking about is to meet expenditure that had been planned. We are not running out of funds, as he knows only too well, as does his right hon. Friend the Member for Crosby (Mr. Page).

The right hon. Member for Crosby has also raised the issue of local government expenditure. The sum required is £1,000 million. We are not talking about local government expenditure as such but merely making the money available to meet local government expenditure that has been planned. This is not a matter of finding £1,000 million for new expenditure. The £1,000 million had already been decided upon. If we had not introduced the order local government in various spheres would have come grinding to a halt.

Mr. Higgins

Of course I understand the point the hon. Gentleman is making. It would be extraordinary if I did not. My question is how does the timing of the claim on the fund seem likely to develop over a period. That is important, given the emphasis put on the cash flow between different sectors and the view which the Chancellor of the Exchequer and others have taken on the liquidity of various sectors.

Mr. Barnett

This was taken into account in advance, and the speed with which it will be taken up between now and December will depend on the activities of local authorities. Therefore, I cannot answer the hon. Gentleman's question specifically.

The hon. Member also asked about the water authorities. They are outside the scope of this debate, strictly speaking. The borrowing powers of the regional water authorities are laid down in the Water Act 1973, which I think the right hon. Member for Crosby introduced. That Act was passed under the Conservative Government. Like the nationalised industries, the water authorities may borrow for long-term capital purposes only from the National Loans Fund. In other words, that matter has nothing to do with the order.

However, the hon. Gentleman asked me a question on this aspect, and in fairness I should answer it. The length of loan by each operator from the National Loans Fund is determined by the average life of the assets which the loan will serve to create. This policy serves to eliminate disputes which would otherwise arise as to the length of individual borrowings. The water authorities are subject to this regime in common with the nationalised industries. It has been decided, following discussions with the water authorities, that the average life of their new assets will be 25 years. This is, therefore, the period of their borrowings for new assets from the National Loans Fund. The rate of interest payable is that appropriate to a 25-year maturity loan. This is currently 14⅛ per cent. compared to the 16 per cent. the hon. Gentleman was talking about.

Apart from the need to borrow to create new assets, the water authorities will also need money from the National Loans Fund to re-finance, as it matures, debt inherited from local authorities. For this purpose, it has been agreed that the water authorities should be allowed to borrow for a shorter period of 10 years. I hope that explains the point which the hon. Gentleman was asking about, even if it is not entirely to do with the order.

Mr. Graham Page

Let us be clear. This does not come within the £1,000 million we are talking about in the order, but the regional water authorities can borrow from the Public Works Loan Board outside the £1,000 million.

Mr. Barnett

I did explain, in fairness to the House and the Chair, that I was moving slightly beyond the order. I did so in deference to the hon. Member for Worthing—indeed, because it was the hon. Gentleman who asked.

I turn now to the question of foreign borrowing. This is not done through the Public Works Loan Fund, as I am sure the House is aware. Local authorities have power to borrow abroad but this has nothing to do with the fund.

The fact that the right hon. Gentleman used such emotive language at this time of night about rates is surprising. He talked about a "national explosion" over rates. At any other time of day, I would call it damned cheek. The explosion over rates arose under the Conservative Government. The 1974–75 rate levels were settled before we took office. Therefore, I am prepared at any time of the day or night to tell the right hon. Gentleman that it was an infernal cheek to pretend that this Government were responsible for this order or any other of a similar nature.

Mr. Graham Page

I was not necessarily implying that, but the Chief Secretary knows perfectly well that the Government mucked about with the formula for rates and made it very much worse by across-the-board domestic relief.

Mr. Barnett

I totally disagree with that. What the right hon. Gentleman calls mucking about was, in fact, action to help the high cost areas, such as urban areas in large towns and cities, which desperately needed money. I have heard no complaints in this regard, and I doubt whether my right hon. and hon. Friends have. I would be happy to pursue this point, but it is not quite within the scope of the order which we are debating. However, I would be happy to discuss it on some other occasion. To blame the Government and this order for high interest rates, as the right hon. Gentleman and the hon. Gentleman have attempted to do, is, I must say, taking things a bit far.

Bearing in mind the way interest rates were moving when we took over and taking into consideration what my right hon. Friend the Chancellor of the Exchequer has done to reduce the level of interest rates, I have no need to apologise for anything. The right hon. Gentleman talked about hanging a millstone around the necks of ratepayers, but when we came into office we found that there was already one hell of a millstone, and we are now engaged in removing it as rapidly as we can—outside this order, because that has nothing whatever to do with the order. I am happy to ask the House to confirm the order.

Question put and agreed to.

Resolved, That the Local Loans (Increase of Limit) Order 1974, a draft of which was laid before this House on 9th May, be approved.