LOCAL LOANS

HC Deb 04 November 1974 vol 880 cc831-47

10.15 p.m.

The Minister of State, Treasury (Mr. Robert Sheldon)

I beg to move, That the Local Loans (Increase of Limit) (No. 2) Order 1974, a draft of which was laid before this House on 23rd October, be approved. This order increases by £1,000 million —[Interruption.]—the amount available to the Public Works Loan Board—[Interruption.]—for lending—

Mr. Speaker

Order. Will those hon. Members who wish to withdraw from the Chamber do so and not stand talking by the Bar?

Mr. Sheldon

The order increases by £1,000 million the amount available to the Public Works Loan Board for lending to local authorities and other eligible authorities. The amount was originally fixed at £1,000 million in the Finance Act 1972, which also gave the Treasury power to increase the amount by £1,000 million at a time on three further occasions. The power is exercised by order, subject to affirmative resolution of the House of Commons.

This is the third such order. The first order was made in July 1973 and increased the a mount available to £2,000 million. The second order was made in May 1974 and further increased the amount available to £3,000 million. This order, the last under the Finance Act 1972, increases the amount to £4,000 million. We shall be taking an early opportunity to provide the Public Works Loan Commissioners with further powers to lend.

As of today, the commissioners had about £100 million available for meeting the new applications, and at the present rate of lending this would probably run out within the next fortnight. It is not possible to forecast with precision the timing of local authority borrowing from the commissioners, and in the last few months they have been taking up their entitlement more quickly than had been expected. The House is, therefore, asked to approve this order so that the flow of essential capital funds during the current period may be maintained.

The order does not in itself sanction any increase in local authorities' capital spending. The local authorities are currently entitled to borrow from the commissioners 30 per cent. of their net capital requirements—40 per cent. if they are in the less prosperous regions—plus a further element to assist them with the refinancing 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.

I am sure the House will want to join me in once again expressing our thanks to the commissioners for the services which they have continued to render with such skill and on an entirely voluntary basis.

10.20 p.m.

Mr. David Howell (Guildford)

May I begin by congratulating—this is the first opportunity I have had—the Minister of State upon his translation from the Civil Service Department to the Treasury. He can now rejoin what some of us remember as the well-known firm, in opposition, of economic advisers—"Messrs. Heywood and Royton and Ashton-under-Lyne." I hope that they will soon have the opportunity to renew their excellent partnership in Opposition.

My first reaction when notice of this order appeared, and I suspect it was the reaction of many of my hon. Friends, was "What? Already? Is it so soon that we need a further tranche of £1,000 million on top of the £1,000 million extra loan capacity which was approved in May? "That was the occasion when the last order was made. The one before that was when my right hon. and hon. Friends were in Government, in July 1973.

The hope in July 1973, when the first order was made, was that it would last for about eight months. Ten months passed until 23rd May 1974. The hope in May, I think the Chief Secretary to the Treasury told us this, was that it would last until the end of the year. Here we are, not yet six months from the last order. This time the £1,000 million has been gobbled up in five and a half months. I shall have a word to say on the speed with which this is apparently to be swallowed up by ever-rising capital demands from local government.

The debate raises fundamental questions about local government expenditure. The House will have an opportunity fairly shortly to debate in full the question of rates on the Second Reading of the General Rate Bill. It is worth noting that when this extra £1,000 milion is spent, then, assuming quite moderate rates of interest of say 10 per cent. or 12 per cent. per annum—and I should like to know what the rates of interest will be—we are nodding through a potential further £120 million a year in interest which someone will have to pay.

We know that, as 40 per cent. of local authority expenditure comes from the ratepayers, 40 per cent. of that £120 million will be placed on the already hard-pressed ratepayers. That is an appalling burden. The House would be less concerned if it felt that there was any attempt beyond pious hopes to get a firmer check on local government spending. We do not see that. We hear the Secretary of State for the Environment talk about "utter realism". That is to be his slogan in the review of local government finance.

When we look at the Government's approach to public spending—and we had a marvellous example earlier today when the Secretary of State for Energy was hardly able to tell us where the thousands of millions of pounds will come from which he will need to borrow to finance his North Sea oil plans—we can see that what we have is not utter realism but utter unrealism in the Government's attitude towards public spending. Already rate demand increases of 25 per cent. to 50 per cent. are being predicted and two boroughs have predicted a 100 per cent. increase for the coming year. This creates a grave background against which we must look at this order. In addition to its implications for local government expenditure and the way in which it points to increasingly uncontrolled, although I hope not uncontrollable, local government expenditure, there are implications for overall financial policy. The Public Works Loan Board loans add to the Government deficit, which is already rising at a precipitate rate. It is far in excess of what was predicted for the year as a whole, and we want to hear more about that.

I should like to know one or two details from the Minister of State. By my calculations, the net figure for loans from the Government was £1,020 million, of which the Public Works Loan Board loans amounted to £978 million. For the first quarter of 1974 the figure was £297 million. May we have more up-to-date figures? Is the figure for the second quarter running on that trend and what is the prediction of the net figure for the whole year?

What proportion is the figure of Public Works Loan Board loans to local authorities of the total loans from the Government? Will the Minister say a word about other sources as well as the Public Works Loan Board. Is the share from the Public Works Loan Board rising or falling? What are the prevailing interest rates for a 10-year or 25-year term loan? Are they falling? The prediction we heard in our last debate on this subject was that they would be falling. It is hard to come by information about that.

I know that it is not strictly within the terms of the Public Works Loan Board, but how much is being borrowed by local authorities in foreign currencies? That has important implications for our overall monetary policy. I hope to have an answer to those questions.

I know that my hon. Friends are also anxious to comment on the colossal facility which we are renewing so soon after the last colossal facility. The main question is: what is being done to check local government expenditure? What is being done to alter the climate in which ceaseless commitments build up and to check the impossible rate burdens that are accumulating? "Impossible" is the only adjective that can be used. On the evidence during the election campaign the answer is "Nothing". The Secretary of State for the Environment, in a speech he made in July, said in rather benign terms that there should be a levelling off in the growth of local authority expenditure. He added that he was a passionate believer in a high rate of public expenditure, which rather undermines the whole point of his observations. The answer is that the qualifications betray the heart of the Government's policy, and the small print about levelling off betrays financial intentions behind which there is little serious purpose.

There is no evidence that there is to be a serious check on local government spending, whether capital or current. This time it has been five-and-a-half months, the time before it was eight months and next time I fear that within four months the Government will be back again, perhaps under new powers, and the next time within two months. That seems to be the geometric progression. The time will come when the House will no longer stand for what is in effect a bland and lackadaisical surrender to one inflationary force after another, and that time may well be soon.

10.29 p.m.

Mr. Bryan Magee (Leyton)

Unlike the hon. Member for Guildford (Mr. Howell), I welcome the order. I share his concern about the strain on rates, but I draw different conclusions from those of the hon. Gentleman. I wholeheartedly agree that the order raises fundamental questions of local government finance, and I wish now to draw attention to one such fundamental question.

We are facing a situation in which nothing less is required of the central Government than a financial rescue operation for local government. Local authorities face a crisis of unprecedented magnitude from which only a massive increase in assistance from the central Government can rescue them. For this there is one reason above all others.

As people's incomes rise, so they pay more income tax. This means that in a period of unprecedented rises in prices and incomes, like the one we are in at the moment, the central Government's income automatically to some extent keeps pace. But local government is in an altogether different situation. Local government income is based on rates, which can only be altered by political decisions from one year to another. One might say, therefore, that, whereas the central Government's income is to some extent buoyant with inflation, local government income is not. As a result, the rate of inflation that is on us at the moment hits local government in a peculiarly ferocious way that is not suffered by the central Government.

The prospect is now so alarming that it is difficult to talk about it in measured language. Local authorities face not just the same price increases as are faced by everybody else—an increase for next year which my own borough of Waltham Forest estimates for itself at £1,300,000—but they will also have to face threshold payments of £1½ million, and that figure is certainly an underestimate. On top of that there will be an increase of £2¼ million due to national awards. In the case of Waltham Forest there will be yet another increase due to the rise in London weighting—for next year this is estimated at £1,300,000. And on top of all this there is the rise in interest rates. The total of these increased costs is bound to be of the order of £7 million for next year.

Most of these increases are in the form of increased wages and salaries, and the Government will take an enormous slice of that in the form of income tax. It is therefore right, as well as necessary, that the central Government should help local authorities to pay them. That is the central point I wish to make in tonight's debate.

There will be demands from the Conservative benches—they were clearly to be heard implied in the speech of the hon. Member for Guildford (Mr. Howell)—that the crisis should be met by cuts in expenditure. That can only mean cuts in capital expenditure and in services. That was what the Conservatives did when they came to power in local government in 1968–71. But we must not accept that as a way out of the crisis in local government finance. We must never forget that it is local government which sustains the basic fabric of civilised life for our people. It maintains the houses and their sewerage systems, the roads and their lighting and paving, the schools and so on. It would be wrong if in our present condition of financial stringency we were to allow our standards in those matters to come under attack. There are huge areas in our national economy which should be squeezed before those standards are touched. We look to a Labour Government to get their priorities right in this respect almost before any other. But that will require a degree of additional financial assistance to local authorities that goes far beyond anything this Labour Government have so far indicated as their future intentions.

10.34 p.m.

Mr. Graham Page (Crosby)

I join the hon. Member for Leyton (Mr. Magee) in saying that a rescue operation is needed for local government on the question of rates—and a quick rescue operation, too.

I commend to the Government the speech which I made in the House only last week—a speech which I made at seven o'clock in the evening and which was never reported in the Press, so nobody read it. I advocated a year's moratorium on household rates, that there should be no rates collected from householders next year and no increase in industrial and commercial rates for that one year, and that the money should be found by sixpence on the income tax for that year. I am convinced that by the end of that year the Layfield Committee will have reported that we should abolish rates and have a local income tax.

However, that may be a little out of order in this debate, because we are debating the Local Loans Order. As my hon. Friend the Member for Guildford (Mr. Howell) said, it was only on 23rd May last that the House was asked to approve a similar order making available for local authorities a loan from the Public Works Loan Commissioners of £1,000 million out of the National Loans Fund. It seems, therefore, that every six months local authorities borrow £1,000 million from the fund. That means a borrowing rate of £2,000 million a year, which is just about double the figure for 1973. My hon. Friend mentioned that for 1973 the borrowings of local authorities from the Government were £1,020 million, so we are now running at double that rate. Why is it double for 1974? No explanation was given to the House by the Minister.

Local authorities are entitled to borrow 30 per cent. of their capital needs—it is 40 per cent. for some local authorities —from the National Loans Fund. One looks at the £1,020 million which local authorities borrowed in 1973 and the £2,000 million which they will borrow this year to see what relation they have to the total borrowings. I have only the 1973 figure, which was £2,369 million net borrowing from all sources. If the borrowings from the National Loans Fund double in 1974, one must assume that the total borrowings will increase proportionately.

What the order is recognising, therefore, is that the total net borrowings of local authorities for this year will be £4,750 million—nearly £5,000 in round figures. Let us consider that against the total loan debt of local authorities. At the end of March 1973, the total loan debt was £20,604 million, and it will be up to £25,000 million by the end of this year. In short, local authorities are increasing their loan debt by about one-quarter a year; £5,000 million this year will bring it up to £25,000 million outstanding.

What is that costing the ratepayer? One is here speaking of tremendous figures which are difficult to comprehend. I suppose one could take an average rate of interest of 10 per cent. on that £25,000 million and say that local authorities have to find £2,500 million a year to pay the interest on the money borrowed by them. By the rate support grant the taxpayer finds 60 per cent. of that, but the local authorities, the ratepayers, have to to find the remaining 40 per cent. of that £2,500 million, which is £1,000 million a year. That is not far short of what the local authorities collect in rates from the householders. It may be ironical to tell the householder-ratepayers that all they are doing by paying their rates is paying interest on the money borrowed by their local authorities.

What a simple solution one could have found for all the difficulties over rates if the Government had included in the order a provision for a moratorium on all interest payments, and a moratorium, therefore, on household rates, because they just about balance out. Perhaps that is too much to expect, however, because the Government would be taking on the payment of interest on borrowings other than from the National Loans Fund. But the Government could have written off all interest on National Loans Fund loans to local authorities. The financial statistic volume for September 1974 shows that the interest paid to the National Loans Fund by local authorities for 1973 alone was £441 million. The ratepayer finds 40 per cent. of that, which is £176 million. If the hard-pressed ratepayer were let off that, it would be a nice little windfall for him.

At least the Government might have included in the order freedom of interest on the £1,000 million now sought to be authorised by the draft order. That would have shown that they were conscious of the burden being imposed on ratepayers for next year. I see from the volume of statistics that the average rate of interest is now about 14 or 15 per cent., depending on the length of term of the borrowing. Let us assume that the rate of interest is 15 per cent. and, therefore, that there is £150 million to be paid on the £1,000 million to be authorised by this draft order. Forty per cent. of that is £60 million to be found by the ratepayers.

It would be a nice little windfall if the Government had the courage to say "We realise the burden falling on the ratepayer next year. This is something that we can do to help." Here was an opportunity for the Government to show that they were conscious of the burden on the ratepayers, and I am sorry that they have not seized it. They could have done even more by abolishing the rates and replacing them with a local income tax, but at least it would have shown that they have some appreciation of the burden falling on ratepayers.

Mr. John Lee (Birmingham, Handsworth)

Are we to understand that the right hon. Member wants to insulate local authorities from market rates of interest? This is a novel suggestion. Certainly it will not please the monetarists amongst his right hon. and hon. Friends.

Mr. Page

Not at all. I am suggesting an emergency measure this year to find a way of assisting local authorities with their rate burden this coming year without taking away from them their powers and discretions. If we talk about relieving them of the expense of, say, education, the fire service, the police and so on, there is the suspicion that in doing that we are taking away their powers. By the means I suggest, we would be taking away no discretion and no power. It is a nice little subsidy for local government which I wish the Government had taken the opportunity of giving.

10.43 p.m.

Mr. Eric Ogden (Liverpool, West Derby)

I wish to make two comments and to ask two questions. My first comment concerns the proposal of the right hon. Member for Crosby (Mr. Page) about a moratorium on the rates for this year. What the right hon. Gentleman said seemed to contradict his hon. Friend the Member for Guildford (Mr. Howell). A moratorium of that kind would be a way of giving money to people, directly or indirectly, whereas the hon. Member for Guildford was criticising the Government for making too much money available.

A moratorium for ratepayers is an attractive idea, but why only ratepayers? Why not have a moratorium on mortgage payments and other payments? Certainly that was not the proposal advanced by the right hon. Member for Crosby last year when he was Minister with responsibility for local government.

Then I wish to comment on the strange phrase used three times by the hon. Member for Guildford. He said that the House was "nodding through" £1,000 million tonight. There are at least 50 Government supporters present in the Chamber. The hon. Member for Guildford has been able to muster a dozen, including two Liberal Members. It does not seem to me that the sum in question is being "nodded through" and taken for granted. The hon. Member might correct that; the House was taking an interest.

It is time that someone said a word for the rating system, which is under attack. It has faults, which must be improved, but it is still the best value for money in local government or any other services. We should not dismiss it entirely.

How long does my hon. Friend estimate that this further sum is likely to last? It is dangerous to give estimates in these times, but he should be prepared to give a rough one if that is the best he can do.

10.46 p.m.

Mr. Tim Renton (Mid-Sussex)

I very much support what has been said about the crisis facing local government. My constituency was fortunate—although none of my constituents thought of themselves as such—in that our rate increases this year were only about 30 per cent. But now there are rumours of much higher increases next year. This is leading to a profound sense of disquiet throughout the country. We have all seen the proliferation of ratepayers' action groups, some of which incite people, certainly against the wishes of those of us here, not to pay their rates. To quell this, it is essential that the Secretary of State for the Environment should announce quickly what instructions he will give local authorities about their level of expenditure for next year and what rate support grant he will give.

I agree that the most alarming thing about the order is its size and the accelerating rate at which requests for further money for local authorities come before us. There are two specific questions I should like to ask the Treasury. First, I understand from the newspapers that the National Water Council may be the first organisation to draw, to the extent of one-third, upon the $1,200 million credit arranged by the Government with the Government of Iran. Is it not strange that non-elected bodies which are now performing the functions previously performed by the elected authorities should have access to foreign currency borrowings raised by the Government under their name when similar borrowings under Government guarantee are not available to the local authorities? To help the local authorities in the face of the present interest rates, will the Government consider extending the Government guarantee to foreign currency borrowings by local authorities? After all, why should water and sewerage have priority over hospitals and schools?

Secondly, although the interest rate on yearling bonds for local authorities has fallen substantially in recent months, the long-term interest rates charged by the Public Works Loan Board now stand at record levels. Its rate on the non-quota loans for more than 25 years went up on 19th October from 15½ per cent. to 16 per cent. Presumably this reflects the fall in the gilt-edged market and it is the Government's intention to keep the rates charged by the board on really long-term loans comparable to the rates of interest prevailing on the gilt-edged market.

If that is so, we look at what has happened to the gilt-edged market in the last few weeks thanks to the tremendous increase in the Government deficit and we see that the outlook for local authorities is bleak indeed. If the Government announce new financing requirements every week and these are reflected in the gilt-edged market and yields on that mar- ket increase, this will mean higher interest rates being paid by local authorities to the Public Works Loan Board. I fear that the rates will reach astronomical proportions.

In view of the weakness in the gilt-edged market at present, will the Government consider pegging the interest rate to be charged by the Public Works Loan Board to local authorities so that in these unusual times, with the Government planning to spend thousands of millions of pounds in participation in industry, including offshore oil development, at least the local authorities should to some extent be insulated from the folly of the Government's actions?

10.51 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I am sorry to disappoint the Deputy Chief Whip, but having just been presented with a gold badge for 21 years' service in local government I feel justified in making a very brief contribution to the debate, although I am conscious of the fact that most of the points I want to make have been made already.

Taking up the point made by the hon. Member for Mid-Sussex (Mr. Renton), I think that the whole area of local government borrowing is a bit of a shambles. We were thrown out into the cold as local authorities by the Opposition when they were the Government in 1956, at which point we could borrow almost entirely from the Government. Since then we have had a proliferation of types of borrowing which I do not fully understand but to which I think that the Minister should pay attention, particularly as virtually the same pieces of paper nowadays attract such different amounts of interest. A yearling bond now stands at 12.7 per cent. A 365-day mortgage bond for a splendid place like Rotherham will attract 14 per cent. There is much to be said for the remarks of the former treasurer of Manchester that at any rate short-term borrowing should be rationalised.

Equally, we are entering a rather bizarre period in which for long-term rates of interest the yield gap is growing substantially, so that anybody with the money and the courage can invest in long-term gilt-edged securities and get about 17–18 per cent. I share the forebodings of those who feel that if the Public Works Loan Board rates of interest are too intimately linked with the long-term rates in the market, heaven help local government.

The whole area of borrowing for local government needs very substantial review. I should like the Government to make some of the gestures mentioned by the right hon. Member for Crosby (Mr. Page), who is very learned in these matters but whose generous impulses seem to escape him when he is up in a Committee room in charge of a Bill, although he did not do so badly with land compensation.

To take up the point mentioned by the hon. Member for Guildford (Mr. Howell), the other aspect of this is the question of the relation between the undoubtedly large increase in local government borrowing and the money supply. To some extent this might be overcome by a technical point. Again, I take up a point made by the hon. Member for Mid-Sussex. If one borrows in Euro currency markets, the effect of this on money supply is not the same as a direct budgetary deficit. In this particular context of local authority borrowing I hope that we can persuade the Government not to treat local authorities as the Cinderella.

Why should superior status over and above local government be given to nationalised industries and the new wretched water authorities? I know that occasionally the Greater London Council has crept into the Euro currency markets. But why cannot this gate be opened more freely to small local authorities, such as that which I represent—Stoke-on-Trent? That is something to which the Government should give serious consideration.

Being something of a monetarist, to the disgust of some of my hon. Friends, I entirely agree that we must watch money supply very carefully indeed. But when the Chancellor begins to put on the screws he should to a very large extent exempt local government. That is not a bit of special pleading because I have got my gold medal. It is simply because I think that the things that local government does are so intimately concerned with the welfare of people that to a very large extent they should be exempt from many of the cuts.

And not only that. I am talking about capital and not revenue expenditure, although this delightful "capital from revenue" capital expenditure has always interested me in local government. So much of what the local authorities do by way of capital expenditure has a very low import content. I hope that my right hon. Friend the Secretary of State for Education and Science will say that Stoke-on-Trent can have a generous allocation of the moneys which have been made available for schools. If we build houses, schools or a prestige office block, or if we build—as we intend, despite the ratepayers' association—a new museum, the import content of this type of construction activity is very low. It is much lower than with many other types of more sophisticated expenditure which is indulged in by other sectors of the economy.

The other aspect of this matter is quite simply that it is terribly important from the point of view of local employment. At present the construction industry—house building and general construction —is going through a desperate period. It is up to local authorities to take their courage in their hands and carry out some of the projects which they have said in the past they intend to carry out. It is up to the Government also to give them the financial support that is necessary.

Certainly it may be that the overall Budget deficit will have to be reduced. I believe that the money supply, even adjusted for inflation, must be prevented from increasing unduly. But in the process I hope that local government, which makes a much bigger contribution to human welfare than even perhaps this august place, will not be sacrificed.

11.0 p.m.

Mr. Stephen Ross (Isle of Wight)

I feel desperately sorry for councillors, particularly those elected to our new local authorities and who came into office last April. They are facing frustrating demands without any financial ability to carry them out.

I know that this order is necessary, particularly as I understand that there is now to be no advance on the rate support grant given to local authorities in the next financial year. Originally I understood that they were likely to get some advance payment in September or October, but I now gather, in answer to a Question, that this will not now happen. Therefore, this money must be made available by some other means.

I feel that hon. Members who criticise local government should put themselves in the position of the councillors who comprise these new authorities. The authorities in some cases, including mine in particular, which were set up by the last administration were misdirected. They are facing enormous problems. They have to make cuts, and they do not know in which direction to make those cuts. They receive complaints with every step they take. I ask the Government to give some guidance to local authorities and to give them some hope. The new councillors took office with ideals, and now they are frustrated and are wondering whether they are doing a worthwhile job.

I am certain that if demands are made for ratepayers to pay substantially higher rates we shall have a revolution of a size that we have not witnessed before. The Government have got to do some rapid thinking on this subject. The country will not take 50 per cent. rate rises. I go along with the right hon. Member for Crosby (Mr. Page) in much of what he said. I understood that over a five-year period his party intended to abolish domestic rating, and in view of the extreme situation, the Government should be thinking on those lines.

11.2 p.m.

Mr. Sheldon

I should like first to thank the hon. Member for Guildford (Mr. Howell) for his kind words about me. I should also like to point out that he and I have trodden that unusual path from the Civil Service Department to the Treasury, although in my case for a rather longer period.

The hon. Member was quite right to say that it was announced in May that the further £1,000 million would last only until the end of the year. I suppose that November can be regarded as something near the end of the year. At any rate, the precise timing of these loans and their nature is up to the local authorities, and I think I ought to say that at the beginning of my remarks in reply.

When we consider the £23,000 million which is the latest estimate that I have of the total loan debt of local authorities, and when one considers that within that total there is a considerable amount of maturing debt, it is evident that refinancing is something for which this money has to be used.

The hon. Member for Guildford asked about the total sums of money available. The following are the figures which I have for the Public Works Loan Board gross lending: for the quarter to March 1974, £440 million; for the next quarter to June 1974, £285 million; for the quarter to September 1974, £418 million. I think those figures help to put the matter into perspective.

In reply to the question put by the hon. Member for Guildford, there are no other loans of any consequence from the Government to local authorities beyond those from the Public Works Loan Board.

The hon. Gentleman and others asked about interest rates. Indeed, the right hon. Member for Crosby (Mr. Page) referred to the subject in some detail. This is a fairly complex area because, as the right hon. Gentleman is aware, there is a large number of interest rates. They range from 11⅝ up to 16⅝ per cent. depending on terms and whether they are in or out of quota. The figure that might be of most interest to right hon. and hon. Members who are interested is that the rate on a 10-year annuity loan is currently 12¼ per cent.

I was also asked about foreign borrowing. The local authorities have borrowed about $1,250 million in foreign currency since the introduction of the exchange cover scheme in March 1973.

The hon. Member for Guildford and others suggested that the check on local government spending was not as rigorous as it might be, but that question does not have much to do with the order. The control of local government spending is decided in conjunction with the Chancellor of the Exchequer, and the capital expenditure is a separate agreement made between the Chancellor and the local authorities. The quota they get for the finance they are seeking from the Public Works Loan Board is 30 per cent. in the case of most local authorities and 40 per cent. for those with certain problems in the regions. What we are debating tonight is really largely the technical matter of financing those loans which are the subject of separate agreement and on which discussion can be pursued on other occasions in the House.

Mr. Graham Page

We are in some difficulty. We seldom get the advantage of having a debate on the amount allowed for local authorities to borrow. This has been our only opportunity to tackle it.

Mr. Sheldon

I know the right hon. Gentleman's great expertise in this subject and I recognise his dilemma, but I suggest that rates and the problem of rates are likely to come before the House on a number of occasions and I shall be surprised if there is no opportunity of debate.

What is important in relation to foreign currency loans is that there is an orderly market. These arrangements are made under a process whereby only one borrower negotiates at a time, with the result that borrowers are not bidding up against each other for the foreign currency. This process is restricted to the large local authorities, those with relevant loan debts equal to or in excess of £400 million.

In reply to the hon. Member for Mid-Sussex (Mr. Renton) I would point out that it has always been understood that local authorities have the right to obtain rates of interest under the National Loans Act sufficient to cover the cost to the Treasury of borrowing similar sums for similar periods. The Public Works Loan Board's rates of interest reflect this.

What we have dealt with is obviously an essential measure but I do not think that it has the wide implications that a number of hon. Gentlemen have sought to give it. I look forward to further debates that might be initiated dealing with the points raised.

Question put and agreed to.

Resolved, That the Local Loans (Increase of Limit) (No. 2) Order 1974, a draft of which was laid before this House on 23rd October, be approved.