FINANCIAL ARRANGEMENTS (Hansard, 2 November 1976)

§ Mr. Guy Barnett

I beg to move, That this House doth agree with the Lords in the said amendment.

The effect of these amendments is to enable the Secretary of State to determine that a specific amount of the development corporation's total capital loan debt, rather than a proportion of it, is to be attributed to the assets which are transferred to the district council or are subject to management arrangements.

I make it clear that nothing in these amendments changes the basic principle behind the financial arrangements in the Bill, namely, that assets will be transferred on the basis of outstanding loan debt. Their purpose is to clarify the detailed application of the basic prin- 1310 ciple and to remove some doubts expressed by representatives of both the local authorities and the new towns.

These doubts stemmed from one fundamental problem, namely, that development corporations do not formally allocate their borrowing to specific purposes. During any one year a corporation may, for its general development requirements, including housing, receive a number of separate advances from the National Loans Fund, each repayable over a fixed term of 60 years at a stated rate of interest and by equal annual instalments of principal and interest. The amount spent on housing in that year may, therefore, derive from several different loans, and this process continues from year to year. Thus after, say, 30 years' work the total spent on housing will derive from a whole range of different segments of borrowing.

For subsidy, rent and other purposes, however, the annual revenue consequences of that expenditure must be determined and each development corporation therefore maintains a housing account under rules laid down from time to time by the Secretary of State. In this account loan charges notionally reflecting the year's housing capital expenditure are debited at interest rates based on the average rate of borrowing during the year. This account therefore gives a fair picture of the annual cost to the development corporation, but it is based on notional figures, rather than specific attribution of each segment of borrowing used for housing purposes.

Because the total accumulated housing capital debt, which under Clause 9 is to form the basis for the determination by the Secretary of State of the annual amount payable by the district council, is in fact made up of all the various segments referred to, doubts were expressed whether the use of the concept of "proportion" would require detailed examination in every year of each segment of borrowing, taking account of the period of that particular segment of loan remaining outstanding compared with the total. It was also suggested that the use of the word "attributable" might actually require such a detailed examination of historic borrowing.

A further complication in relation to attribution of debt is that the proceeds 1311 of houses which have been sold by development corporations have not generally been used to redeem the original capital borrowing. Instead they may have been used to finance further development, which may or may not have been housing. Thus the original segment of "housing debt" remains but the moneys which it now represents may have been recycled for other purposes.

These complications would render a detailed attribution of actual use of borrowed money an immensely complicated task. Therefore, it has always been the intention that there would be an arithmetical attribution of capital loan debt for the purposes of Clause 9 and that the annual payment by the district council would be based on average rates of interest. The representatives of the development corporations and district councils have pressed, however, that the annual payment by the council should, as far as historic debt existing at the date of transfer is concerned, be a fixed sum over a known period—this period to be the average of the repayment periods for the corporation's various outstanding loans at the time of transfer, between 40 and 50 years for most corporations. This has been agreed and these amendments enable this to be done.

There is one final point. Under the provisions for management arrangements, a development corporation may continue to incur expenditure on house building and this will clearly increase the portion of debt to be attributed to the provision of housing. But this new debt will be readily identifiable, and these amendments will mean that it can simply be added, year by year, to the "historic" figure instead of involving a full recalculation of the proportion of the total debt attributable.