HC Deb 15 March 1976 vol 907 cc1071-91

Motion made, and Question proposed,

That the Local Loans (Increase of Limit) Order 1976, a draft of which was laid before this House on 18th February, be approved.—[Mr. Denzil Davies].

10.15 p.m.

Mr. Ian Gow (Eastbourne)

The Order seeks to increase by £2,000 million the amount loaned under Section 55 of the Finance Act 1975. That Act received the Royal Assent as recently as 13th March last year. A year and two days later, the Government ask the House, at quarter-past 10 at night, to agree that the provision of £2,000 million in Section 55 is not enough and say that a further £2,000 million is required. It would not be right for the House to allow the Government's proposal to pass on the nod without the presentation of the argument against it.

The argument against the Order is that it allows the Government to proceed on their profligate path and it is not only in order for but the duty of the Opposition to point out to the Minister and to the country the consequences of increasing the amount of the limit on borrowing by as much as £2,000 million. The Order is an indication of profligate spending path on which the Government have embarked, and the House should oppose it.

10.17 p.m.

Mr. Geoffrey Dodsworth (Hertfordshire, South-West)

I am grateful to my hon. Friend the Member for Eastbourne (Mr. Gow) for drawing attention to the proposed increase in the Government's right to borrow money.

In January 1975 we debated the subject of the original authority for the Order, namely, the Finance Bill which became the Finance Act 1975. The authority was provided in Section 55 and we asked the then Financial Secretary for a number of assurances on matters contained in that section. In particular, we asked for an assurance that there would be proper control and monitoring of public expenditure, and the Financial Secretary said: It is right that from the beginning I should make it clear, as both hon. Gentlemen recog- nise, that this increase in the tranche and the increase in the ability of the Public Works Loan Board to raise money in no way derogates from parliamentary control over funds voted to local authorities, nor does it in any way imply any diminution in the present Government's intention to restrict the rate of local authority expenditure in real terms."—[Official Report, 22nd January 1975; Vol. 884, c. 1672]. That would be a heart-warming reassurance. But we are entitled to ask what progress has been made by Ministers in that task of controlling expenditure.

I have some doubts whether they have been successful. At the time this matter was discussed I was trying to obtain information about the levels of expenditure contained in various documents and reports. I was particularly concerned about the accounts of the Public Works Loan Board, which, under the 1968 Act, is required to lodge its accounts with the House.

Earlier this year I tabled a Question to the Chief Secretary to the Treasury asking him why he had abandoned certain information and, in particular, why he had ceased publication of the document "Public Loans from the National Loans Fund". I asked him whether he would resume publication and whether he had had any representations. He replied: I do not believe there is adequate justification for resuming publication of the White Paper "Public Loans from the National Loans Fund.""—[Official Report, 20th January 1976; Vol. 903, c. 442]. He went on to say that a Written Answer on 10th April 1975 made it clear that the Treasury was to discontinue publication of that document. He said that there had been no representations other than from myself and my hon. Friend the Member for Bedford (Mr. Skeet).

I took the understandable liberty of looking at that answer in April 1975. I found that it said that there was plenty of other information available. That is a familiar cry from the Treasury—"Don't worry too much. It's all in good hands. We have expenditure under control. If you use your head you will be able to get the information you want."

The answer in April said: Other information referring mainly to earlier years is available in the annual Accounts relating to Issues from the National Loans Fund."—[Official Report, 10th April 1975; Vol. 889, c. 474]. The point is that there is a quite clear reference to accounts relating to issues from the National Loans Fund. That is a strange thing. Last year I sought to obtain that document when it was laid before the House. I have here a copy of what appears to be the front sheet, dated February 1975. When I asked to see the original document I was told that it was not available. I thought that that was rather surprising, because I understood from the Order Paper that this matter had been laid before the House. I was told "Ah! It is a normal procedure. You don't really understand. It is a dummy." I was a trifle surprised but, being a new Member, understood that I had to be instructed in these matters. I caused inquiries to be made. I found that that document was not laid before the House until 10th March—five or six weeks later.

That would not be so bad, except that the explanation I received by letter was quite interesting. It was that when papers have, by Act, to be laid by a certain date and this cannot be done for practical reasons—usually printing reasons—a dummy is laid. In the case of a paper about accounts, it was said that it was sometimes impossible to bring it up to date in time for it to be printed by the due date. What an interesting explanation—"We cannot get it done in time."

It is said that when a Minister wants to hold a Press conference, which he cannot do before the paper is technically laid, a dummy is usually available in a few hours. In this case it was a few weeks. It was also said that that procedure was used—understandably—when a recess occurred and the paper had to be laid while the House was not sitting. Here we have a document that was supposed to be available to the House for its consideration of the activities of Government and the expenditure of funds which we are being asked to vote tonight, but it is not available this year, because that document apparently has ceased to exist. I checked in the Library this evening and discovered that it is no longer available. Yet the Chief Secretary to the Treasury said that it was a source of information we were entitled to use. All this appears not to imply the accurate control over public expenditure that we can and should expect.

It might be helpful if we were to have answers to a number of questions on the operation of Section 55 of the Finance Act 1975. In regard to the present Order, we would like to know what proportion of these funds is to be used to re-finance mature debt. Last year, apparently, the Financial Secretary experienced some difficulty in supplying that information. I hope that it will be available this evening.

May we be told how much of these funds are to be used for new loan advances? May we have an estimate of the figure for 1975–76? What is that figure likely to be? We know that the estimate for 1974–75 was £1,625 million. Has that figure increased? The speed at which we are being asked to approve another £2,000 million suggests that this expenditure has a momentum of its own. We are concerned to control expenditure before the event. It is not good enough to sweep up expenditure afterwards and then to say "Because we are getting close to the limit, we shall have to increase the limit." I hope that we shall receive a clear assurance that Ministers have laid down specific criteria for expenditure before it takes place. There is no evidence that we have such control.

Some alarming information comes to light from the White Paper on Public Expenditure. I wish to draw attention to Note (2) on page 156, in regard to the section on capital expenditure. That note says: Capital expenditure on key sector services is subject to specific Departmental approval. Local authorities are however free to set their own priorities within the local determined sector as a whole and for this reason the pattern of spending described in this part of the table can be no more than a guide. Here we have a document that is the cause of a great deal of controversy. In other words, the document says "One cannot believe the figures, because they are nothing more than a guide." They are an interesting comment on capital expenditure in local government, because it ran at a rate of £2,265 million in 1975–76, it reduced to £2,184 million in 1976–77, and continued at that kind of level until 1978–79. That looks to me like expenditure well in excess of the amount likely to be available for the re-financing of mature debt and for new advances. In these circumstances we must ask for some better assurances from Treasury Ministers that they are able to control and monitor levels of Government expenditure, and particularly local government expenditure.

Mr. John Nott (St. Ives)

Because this is the first occasion on which an Order allowing £2,000 million extra public expenditure has come before the House, and since it has not been formally introduced by a Minister, would the Minister like to speak now? I understand that, in error, this matter was sought to be put through "on the nod". Perhaps the Minister would now like to explain this very large piece of expenditure.

10.29 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

If it pleases the House, I shall be happy to speak now, and certainly if it makes things easier for the hon. Member for St. Ives (Mr. Nott).

I apologise for what happened at the start of the debate. I moved the Order formally, but as this is an affirmative resolution, I should have spoken first.

The Order increases by £2,000 million the amount available to the Public Works Loan Commissioners for lending to local authorities and other eligible authorities. The amount was originally fixed at £2,000 million in the Finance Act 1975, and the same Act gave the Treasury power to increase the amount by £2,000 million at a time on three further occasions. This power is exercised by Order, subject to affirmative resolution of the House of Commons. This is the first such Order under the Act.

As of today, the Public Works Loan Commissioners had about £335 million available for lending. This will be fully adequate to meet applications for loans within the formula governing local authorities' entitlement to borrow from the Commissioners until the end of March. From 1st April, however, local authorities will be able to borrow under their 1976–77 formula entitlement and it is essential, therefore, to provide the Commissioners with further lending powers to meet the demands that will be made upon them from April onwards.

The House is, therefore, asked to approve this Order so that the flow of essential capital funds may be maintained. I emphasise that the Order does not in itself sanction any increase in local authorities' capital spending. Capital expenditure by local authorities is controlled by the Government in other ways. Nor does the extent to which, within approved limits, local authorities borrow from the Commissioners, or in the market in their own name, affect the size of the public sector borrowing requirement.

The Order is a mechanism to allow local authorities to borrow up to their entitlement from the Public Works Loans Board, if they so wish. It does not affect public expenditure. The purpose of the Order is simply to ensure that the Commissioners have available the funds necessary to meet the demands by local authorities upon them. In 1976–77, local authorities will be entitled to borrow from the Commissioners 30 per cent. of their net capital expenditure—or 40 per cent. in the less prosperous areas—plus 3⅓ per cent. of their outstanding capital debt—or 4 per cent. in the less prosperous areas—for re-financing loans which may fall due. This formula, which is the same as that in operation in the current year, is intended to benefit both those authorities with substantial capital expenditure programmes and those with a significant requirement for financing maturing debt.

We are concerned not with public expenditure but merely with a mechanism by which local authorities borrow to meet their individual requirements, whether in the market or from the Board. The Order authorises, for a further year, borrowings of up to £2,000 million from the Board.

Mr. Gow

Is it not much easier for local authorities to borrow money from the Commissioners than in the market, and will this Statutory Instrument not increase the temptation of local authorities to borrow at cheaper rates from the Government than they would be able to do in the market?

Mr. Davies

Yes—local authorities borrow at cheaper rates from the Public Works Loan Board. There is nothing new in that. It happened under previous Administration and it happens under this Administration. They can borrow up to 30 per cent. or 40 per cent. of their expenditure. Some local authorities prefer to go to the market, where they have to pay a bit more. If the hon. Gentleman is concerned about the public sector borrowing requirement, he will think twice before forcing local authorities into the market, where they have to pay more for their money. At the end of the day someone has to meet the extra cost of borrowing in the market—either the ratepayer or the taxpayer—so it is not as simple as the hon. Gentleman implies.

Perhaps I may cite an authority—that of the hon. Member for St. Ives. When he was a distinguished Minister of State at the Treasury, in introducing a similar Order in the House he said: This does not imply in any way, however, that local authority capital spending generally will increase by more than is set out in the Government's programme… The Government spending programmes are contained in the White Paper on Government Expenditure in the PESC review,".—[Official Report, Standing Committee on Statutory Instruments, 18th July 1973; c. 6].

Mr. Norman Tebbit (Chingford)

For how long is this tranche of money expected to last?

Mr. Davies

It is hoped that the tranche of money will last for another year. I was asked how much would be borrowed this year, until 1st April. The sum is almost £1,500 million. Next year it is expected that about £35 million more will be borrowed. The levels are almost the same. When the £2,000 million runs out the Government will have to ask the House for a further tranche under the same procedure to enable the local authorities to borrow from the Public Works Loan Board.

Mr. Gow

Is the Minister saying that the Government's interpretation of Section 55 is that they can make application to the House on three separate occasions, for a total sum of £6,000 million? If that is the Minister's interpretation, I find myself in respectful disagreement with him. The limit imposed by the Government under that section is the additional sum over and above that which appears in the Act, of £2,000 million only.

Mr. Davies

I am sorry if the hon. Gentleman disagrees. I would not like to cross swords with him on the wording, but my understanding is that there was a total amount of £8,000 million, of which £2,000 was given under the legislation, and we are entitled to three further tranches of £2,000 million, but on each occasion we have to ask the House for it, by way of affirmative resolution. That is my understanding. I hope that the hon. Gentleman will agree that that is the correct interpretation.

I am sure that the House will join me in expressing thanks to the Public Works Loan Commissioners for the services which they continue to render to local authorities with great skill, on a completely voluntary basis.

I hope that I have made clear the purpose of the Order and that the House will approve it.

10.38 p.m.

Mr. John Nott (St. Ives)

The debate does not seem to be going with quite the verve that one would expect for an affirmative resolution under which the House agrees to further expenditure of £2,000 million. It is a not insignificant sum, even in these days.

It will be interesting to learn, when the Chancellor of the Exchequer makes his Budget Statement, how far the predictions he made last year have been falsified by events. Looking through the Chancellor's estimates of public spending and the out-turn that we can assume will arise in the current year, it is clear that the overall discrepancy in public spending generally is likely to exceed more than £2,000 million. No doubt my hon. Friend the Member for Blaby (Mr. Lawson) will correct me if I am wrong. I am referring to the difference between last year's White Paper and this year's White Paper.

Mr. Nigel Lawson (Blaby)

An even more striking fact should be borne in mind. In his last Budget Statement the Chancellor said that the borrowing requirement in 1976–77 would be £3 billion less than the £10 billion which he said it would have been in the current year had he not taken action. In other words, he said that the borrowing requirement would be £7 billion in the coming year. We now know that it will be about £11 billion. That is a discrepancy of £4 billion.

Mr. Nott

That confirms my own understanding of the position. The discrepancies are very great. I argue that the margin of error in local authority capital spending is not going to be so enormous as the kind of margin of error that we have had in other public expenditure generally, because the loan sanction procedure and the cost controls for local authority capital spending should provide a relatively close sanction.

The hon. Gentleman skated rather quickly over this matter, bearing in mind that we are operating in an entirely new environment in local authority expenditure. I glanced at the Chancellor's now famous series of inaccurate predictions of the future when he introduced his Budget on 15th April. He dealt at considerable length with the new regime that he was introducing for local government. It is useful to the Minister of State that he has studied my past remarks—I am sure I made an admirable speech on the occasion he referred to—but we heard the Chancellor boast last week of the dramatic changes he has made in local government control.

The subject of an additional £2,000 million of local government expenditure deserves a little more attention than it has had so far. Although this Order does not itself sanction an increase in spending, it provides the framework within which expenditure takes place. The relevant provision in the Finance Bill 1975 was debated—it was in the early hours of the morning—only because my hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth) had tabled an amendment. We were talking then of thousands of millions of pounds. I thank my hon. Friend the Member for Hertfordshire, South-West and my hon. Friend the Member for Eastbourne (Mr. Gow) for drawing attention again to the matter tonight.

As I have said, we are operating in a new environment and we should like to know more about it. Is it not the case that there can be considerable leakage from capital raising into revenue expenditure by local government? I recall making the remark that the Minster of State referred to when I myself introduced a local loans Order. We all learn as the years go by. I have had the benefit of thinking more deeply about my speech on that occasion.

Mr. Roy Carter (Birmingham, Northfield)

We have heard no evidence of it tonight.

Mr. Nott

My further thought leads me to wonder whether the local authorities do not in some cases raise money in the capital market and then use it for revenue expenditure.

Mr. Denzil Davies


Mr. Nott

The hon. Gentleman says "No", but I have an interesting document here—a memorandum of evidence submitted by Mr. Noel Hepworth, Treasurer of the London Borough of Croydon and one of the best-known treasurers in local government. It is entitled The Significance of Central-Local Government Relationships in the Financing of Local Government". It was, I believe, his personal evidence to the Layfield Committee. I quote from one paragraph about the control of capital spending: The capital controls can be avoided by switching capital expenditure to revenue by one means or another, although the cost controls over capital spending are rather more effective in limiting expenditure". The Minister of State gave a firm assurance that the Order did not affect the level of spending; he said that it provided purely the overall amounts within which loan sanctions operated. But according to the Treasurer of Croydon there can be a considerable amount of leakage from capital into revenue.

Mr. Carter


Mr. Nott

I do not know why. I am asking the Minister how this arises.

The other point, which is much more relevant now than it was when we had the last increase Order, is that there has been—I am sure that the Minister will agree with this—an inadequate recognition in local government of the impact of capital expenditure on the revenue accounts of local authorities. Only recently has it become clear to councillors and officers in local government that if they borrow money to build a welfare home, for example, it is not just the impact of interest on that borrowed money which affects the ratepayers for successive years but the fact that that home must be staffed and heated and other services provided for.

The forecasts of local authority capital spending over the next quinquennium are fully set out in the public expenditure White Paper, in which there are several tables analysing local government expenditure, but the relationship between the forecast revenue expenditure of local government and the forecast capital expenditure is difficult to understand. When I was winding up for the Opposition in the debate on the public expenditure White Paper on Wednesday——

Mr. Lawson

A first-class speech.

Mr. Nott

I am much too modest to believe that. I said that that morning the Secretary of State for Wales had announced in the Welsh Grand Committee that the housing allocation for Welsh housing alone was running at between £20 million and £30 million more than the estimated figure in the White Paper. [Interruption]. The hon. Gentleman is glad that it is running higher than the figure in the White Paper?

Mr. James Lamond (Oldham, East)

I said that, unfortunately, I heard the hon. Gentleman's speech.

Mr. Nott

I am glad. I shall not make it again.

In the public expenditure White Paper, Table 3.4, which is a Special analysis of local authority expenditure in Wales: 1970–71 to 1979–80", capital expenditure on housing in Wales is predicted for 1975–76 at £92 million, in 1976–77 at £80 million, and in 1977–78 at £68 million. Last week the Secretary of State for Wales suggested that it is running at about £30 million more than is suggested in the White Paper. In other words, within about a month of the publication of the White Paper, the estimates are approaching 50 per cent. above what they were when it was published. It is a remarkable increase.

All this is taking place within the overall figure which the Minister of State has mentioned, but the new regime of cash limits—and we shall have a White Paper on them at the time of the Budget—is relevant to this debate.

I have another question for the Minister, and it is the one put to him by my hon. Friend the Member for Hertfordshire, South-West. Can the hon. Gentleman give us a little information about maturing debt? How does he see the debt of local government maturing over the next few years? This is very important, because we are trying to analyse how the Chancellor of the Exchequer arrived at his estimate for debt interest. In the public expenditure White Paper, there is a fascinating table which Government supporters have no doubt studied with the care that we have. It sets out the forecast debt interest of local government in 1976–77 as being £1,400 million. May we have some indication how the estimate of £7.5 billion for debt interest in 1979–80, contained in the White Paper, is made up? What proportion of that is represented, at the end of the quinquennium in 1979–80, by local government debt interest? The figures must exist, otherwise there would be no way of arriving at the estimate of £7.5 billion which we have had for the period as a whole. It would be interesting to know how much of that £7.5 billion is relevant to local government expenditure.

In page 15 of the Financial Statement and Budget Report for last year there was a very interesting statement, breaking down public sector financial surplus and borrowing. We shall have another of these Red Books very shortly. There was an estimate there that, in the current year, local authorities would borrow from outside the United Kingdom only about £300 million, against £1,600 million for last year. Is it still the case that the figure of about £300 million is likely to be correct? I do not ask for a precise figure, but are local authorities finding most of their requirements on the domestic market and from the PWLB?

I am sorry to pose these questions to the Minister. It would have been much better if he had spoken at the beginning of the debate, but I understand fully why he did not. As I said, according to the Chancellor of the Exchequer, we are operating an entirely new regime, and I do not think that the hon. Gentleman's speech recognised this. Perhaps we may have a little more information about maturing debt. My hon. Friends have asked one or two questions. We are dealing with £2,000 million and, despite the fact that Government supporters, understandably, are eager to bring this debate to a close, I am sure that it is right to examine this Order with some care.

10.53 p.m.

Mr. Norman Tebbit (Chingford)

I wonder whether the hon. Gentleman can say whether the estimate that he gave me just now for local authority capital expenditure for the next financial year, as a result of this increase in loans, included the extra Welsh housing expenditure to which my hon. Friend the Member for St. Ives (Mr. Nott) referred.

It may be, of course, that the figure that the Minister dealt with was one of the out-dated White Paper figures from last week—that is, if the White Paper is still valid tonight. I am not sure whether this is one of the days on which it is in effect, or one of those on which it has been suspended.

Was the £30 million included in the estimate that the hon. Gentleman gave me, or is he working on the old White Paper figures?

10.54 p.m.

Mr. Peter Rees (Dover and Deal)

I hesitate to intervene in this rather esoteric debate, but my hon. Friends have uncovered some disturbing points of principle which need airing.

Of course, we are all aware that the party is over. We have had that on the best authority—the Secretary of State for the Environment. What he did not tell us was that the IOUs that finance the party are likely to come fluttering in for many years more. It must be our responsibility, as ultimate custodians of the public purse, to scrutinise closely all those IOUs as they are presented. I do not envy the Minister of State in his task of persuading us that they are valid IOUs, which have committed us to justifiable expenditure.

I do not want to offend the quivering sensibilities of the Marxists and blackmailers on the Government side below the Gangway—to use the language of the Chancellor of the Exchequer rather than my own. I am sure that if I were rash enough to use such phraseology you would call me to order, Mr. Deputy Speaker, so I rely on the precedent created by the right hon. Gentleman. I do not want to wound the sensibilities of hon. Members below the Gangway and go back over ground covered in two days last week. It is right, however, that we should try to relate the subject matter of the Order to the White Paper "Public Expenditure to 1979–80".

I am naive in these matters, but I should like to discover how these loans are reflected in the White Paper. It is a matter of curiosity that the previous White Paper "Public Expenditure to 1978–79" has a table 3.9, headed, portentously: Local Authority Expenditure in England and Wales: 1969–70 to 1978–79. It sets out in detail the anticipated and past current and capital expenditure of local authorities. Even I, with my limited financial acumen, have been able to grasp what the Government were about, or thought they were about, last year. But life has moved on 12 months and various political and economic pressures have developed. We have another White Paper. In it, the Chancellor, ably supported by the Minister of State, has not condescended to provide us with the same table.

Not being versed in these matters I find it hard to relate the projections on public expenditure in the latest White Paper with projections in the previous document. The only help I have been able to glean from the current White Paper is from Table 4.4. In a sense, this is the crux of what we were debating last week. It shows the breakdown as between local government current and capital expenditure. The thesis to which I am devoted at the moment—I made the point on Thursday night to a not-very-full House—is that what is crippling this country at the moment is not the scale of our capital expenditure, which diminishes as the years pass, but the scale of our current expenditure—in other words, the scale of our fixed overheads.

There is a temptation to which Chancellors and local government treasurers succumb in moments of economic anguish. They make immediate cuts in all capital expenditure. Roads, hospitals and schools are postponed. We felt the impact in East Kent very acutely. The new hospital that we so badly need in Dover recedes into the early years of the twenty-first century at the current rate, but the line that continues unabated is the current expenditure of both central and local government—the fixed overheads, the Government payroll.

We are apt to talk about the Government's payroll rather slightingly when we refer to the mass of Parliamentary Private Secretaries who receive nothing more than their parliamentary salaries and a mere 60 or 70 Under-Secretaries of State, Ministers of State and Secretaries of State. But that payroll is as nothing compared with the main payroll of central Government, which is now running at well over £17,000 million and is likely to continue at the rate of £16,600,000 into 1979–80.

If one's eye travels down, as your assuredly will, Mr. Deputy Speaker, to the local authorities' line, one sees that the current expenditure of local authorities remains obstinately at the £8,800 million mark for 1975–76, and so on into 1979–80, while its capital expenditure drops from £3,894 million in the current year to £2,983 million in 1979–80. In other words, the ratio between current and capital expenditure worsens every year.

I am all for economies on every front. I am a Gladstonian in the sense that I am for saving candle ends, as I hope the Minister of State is. Alas, there is little evidence of any saving of candle ends. The candelabra have been turned up—if one can turn up candelabra—over the last two years. We would like to see a dimming of the lights in Great George Street and in county halls throughout the country. We do not want cut-backs in schools, hospitals and roads programmes, but—this is no disrespect to devoted local government employees—there are too many of them at the moment. The cuts must fall somewhere and I believe that they must start there.

That brings me to the Order. We are asked to agree that the limit should be increased from £2,000 million to £4,000 million. I ask the House to relate that to the projected expenditure of local authorities in Table 4.4. It will be seen, as I have laboured over-long to the House, that capital expenditure in every year is below £4,000 million. The irresistible inference is that the loans from the Public Works Loan Board will be used to finance the current expenditure of local authorities.

I have a simple, almost nineteenth century, approach to these matters. I can see nothing more destructive of local authorities' economies than having to borrow to pay the wages of their employees. That way lies destruction.

I should like to address some simple questions to the Minister of State. First, to what local authorities, on the whole, are these loans to be directed? It is important to know, because there has been a tendency of late to channel funds to bodies such as the Greater London Council and away from bodies such as the Kent County Council. Of course, it can only be a coincidence that the Kent County Council is Conservative-controlled while the GLC, by misfortune, though perhaps not for long, is Labour-controlled. We should like some reassurance on where this largess is to be distributed. Will it be made with an even hand across the country or will it be channelled to the choice of a few? For what kind of projects will it be made available in a period of economic stringency? Am I right to infer or deduce that it will be used to buttress the current expenditure of local authorities, or will it be for worthwhile capital projects?

What interest will be needed to serve these loans? Many of my hon. Friends have come back to this point again and again. We need a reassurance on that matter. Finally, how is it likely to affect the rate burden?

These are small, niggling points, which have worried me. [Interruption]. Obviously they worry hon. Gentlemen opposite, too. I am happy to find this broad measure of agreement. There are obviously some candle-end men across the Floor of the Chamber. They, too, have seen the light. The traumatic experience of last week has made them Gladstonians. It might gladden the heart of the right hon. Member for Devon, North (Mr. Thorpe) to find that, even if they are not with him on this side of the House or in the voting Lobby, at least their hearts palpitate with his. We are all Gladstonians now.

These are important issues. It is possible to treat them lightly, but I hope no one has detected any levity in my approach to them. I notice the broad sympathy which unites the House on this occasion—so different from the taut debates that we had last week. But we shall come back, over the months, again and again, to the same theme. The same challenge will be presented to hon. Members opposite, and they too will have to decide whether they are Marxists or Stalinists. In which camp will they fall? Can they demonstrate, like us, that they too are Gladstonians?

11.6 p.m.

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

This mixture of seriousness and levity is a great insult to local government and those people who spend a great deal of time doing worthwhile things. I do not wish to count myself with them, because I am in a very modest mood. But one thing must be said—that, maligned as local government is, it not only has the capacity to respond to all these challenges, new duties and responsibilities which are thrown on to it by central Government—it can spend the money if necessary—but it also has the capacity to react to any situation in which a Secretary of State may say that the party is over and that we are living in a colder and harsher climate.

I think people would be surprised at the extent to which local authorities—these great "spendthrifts", which have been accused of going ahead at 10 per cent. a year—have shown a responsibility, and a responsibility that will be seen in years to come. I am very happy to say that of the two authorities of which I am a member, one of them—a county council—has increased its rate by 7 per cent and the other—a district council—has increased it by only 5 per cent. That is the point I want to make.

The hon. Member for St. Ives (Mr. Nott) insults local government in the sense that he asks whether we realise that capital expenditure, so-called, is really revenue expenditure in disguise.

Mr. Nott

What I said was that I should like the Minister of State to comment on the question whether some money raised as capital by local government finds its way, by leakage, into revenue expenditure.

Mr. Cant

The hon. Gentleman spoke of leakages, with a look in his eye that suggested that he disapproved fervently of this practice. He suggested that this was a blinding revelation that had come to him, probably as he sat on the Opposition Front Bench. Of course, this goes on, but it can be restrained in the circumstances of today. I feel very strongly about this. Does the hon. Member for St. Ives refer to the fact that many local authorities accumulate capital out of revenue in order to finance their capital expenditure?

I should very much like to continue——

Mr. Lawson

Go on.

Mr. Cant

If the Opposition want me to go on, I shall do so.

The whole area of public and local authority loans should be reviewed. The problems began when, in 1956, the wretched Tory Government threw the poor defenceless local authorities on to the market for a substantial proportion of their capital spending. It is time—[Interruption]. I cannot continue, because of the applause, but I suppose these problems will be solved.

11.10 p.m.

Mr. Denzil Davies

With the leave of the House, Mr. Deputy Speaker, I shall reply to some of the questions raised during the debate. The hon. Member for St. Ives (Mr. Nott), who understands these matters, rightly said that we were concerned here not with the public expenditure programmes of local authorities, but merely with their maximum borrowing after capital spending had been decided. I recognise hon. Members' concern about this matter.

The hon. Member for St. Ives asked whether it was possible to use capital funds for revenue expenditure. I shall read from a note that I have just received which says that loans of the Public Works Loan Board cannot be used legally to finance current expenditure. That may not give the hon. Member the complete answer but it goes a long way. I would be surprised if loans raised on the market could be used for current expenditure.

My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) said that he would be surprised if that were the case.

Mr. Cant

I hesitate to interrupt, because of the time, but surely that is not the case. On many occasions one gets the aggregation of a considerable number of small items of expenditure. Perhaps I said that this could be associated with some capital item, such as a school building, but I have always understood that having obtained the money for the school one could then go forward and aggregate the desks and pencils for loan sanction.

Mr. Davies

The hon. Member for St. Ives is also concerned with Welsh housing. [HON. MEMBERS: "Answer."] I am sure that hon. Members are satisfied with that explanation, and that it is as clear to them as it is to me. I suggest that the hon. Member for St. Ives joins the Welsh Grand Committee and asks his questions there. I am sure that hon. Members will be glad to see him, because he is an engaging speaker. No doubt the Opposition will find room for him.

The hon. Member asked me about the total burden of interest, but I confess that I do not know the answer. I shall send him the breakdown of local government's contribution to total debt interest.

The hon. Member for St. Ives is right to say that borrowing abroad by local authorities has fallen considerably. We do not expect it to be revived, because the terms available will not be acceptable.

The hon. and learned Member for Dover and Deal (Mr. Rees) proclaimed that he was a Gladstonian. I presume that he was referring to Gladstonian virtues and not Gladstonian vices. I assure the hon. and learned Gentleman that there is no question of discriminating against his splendid local authority in Dover. These matters are dealt with equitably and strictly.

The hon. and learned Gentleman correctly read out the figures of proposed capital expenditure in the White Paper, and said that he preferred capital expenditure to current expenditure. But schools need people to teach in them. It is not easy to isolate such expenditure, as the Opposition try to suggest. We do not accept that argument, because cutting current expenditure would increase unemployment, as most of it is spent on wages and salaries.

Mr. Lawson

Is the Minister aware that cutting capital expenditure also can have an effect on employment in the construction industry, and that therefore his argument about the employment effect of cutting capital and current expenditure does not hold water, as he would find if he read the recent Report of the General Sub-Committee of the Expenditure Committee?

Mr. Davies

I constantly read the Reports of the Committee, and I accept much of what the hon. Gentleman says. These matters are not simple. Cutting either current or capital expenditure will cause unemployment. The Opposition want to cut expenditure and thereby increase unemployment even more.

I have said that the requirement for the Public Works Loan Board in the coming year will be about £1,500 million, which is slightly more than last year. That accords quite well with the £3,412 million in the public expenditure White Paper. Local authorities are entitled to borrow according to a formula, so part of that expenditure would come from the Public Works Loan Board. Some would be borrowing to meet capital expenditure and some for the re-financing of debt. The figures are not out of line. They are fairly close to what is in the table.

This is purely a mechanism to enable local authorities to borrow. We shall continue to debate how we control Government expenditure—whether we should control more, and whether we should reduce capital expenditure, but in the Order we are concerned with carrying out decisions to enable local authorities to borrow.

The point may well be made by my hon. Friend the Member for Stoke-on-Trent, Central that we often impose obligations on local authorities. The Conservatives' hands are not clean in this regard. They imposed enormous liabilities and obligations on local authorities. We are merely giving the authorities the opportunity to raise money to meet their obligations. If we want to control public expenditure, it is our duty to do so, but failure to approve the Order would mean penalising local authorities.

Mr. Tebbit

May we construe anything about public expenditure from the fact that, curiously, the draft Order has a blank where the price should be, followed by "p net". Cannot we even fix the price of such items these days?

Mr. Davies

We cannot. I am sorry to disappoint the hon. Gentleman.

I hope that the House will approve the Order.

Question accordingly agreed to.


That the Local Loans (Increase of Limit) Order 1976, a draft of which was laid before this House on 18th February, be approved.

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