LOCAL LOANS (INCREASE OF LIMIT)

HC Deb 26 April 1977 vol 930 cc1175-90

10.25 p.m.

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

I beg to move, That the Local Loans (Increase of Limit) Order 1977, a draft of which was laid before this House on 6th April, be approved. This order seeks to increase by £2,000 million the amount available to the Public Works Loan Commissioners for lending to local authorities and other eligible authorities[Interruption.]

Mr. Speaker

Order. Would hon. Members realise that someone is trying to address the House. Mr. Denzil Davies.

Mr. Davies

I am much obliged, Mr. Speaker. As I was saying, this order seeks to increase 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 by Section 55 of the Finance Act 1975. The same Act gave the Treasury a power to increase the amount by £2,000 million at a time on three further occasions. This power is exercised by order subject to an affirmative resolution of this House. This is the second such order under the Act. The first order was debated on 15th March last year.

After tomorrow, when the next fortnightly meeting of the Commissioners takes place, the Public Works Loan Commissioners are expected to have about £120 million left available for lending. This will be used up within the next few weeks and it is essential therefore to provide the Commissioners with further lending powers to meet the demands that will be made upon them subsequently. Total gross lending by the Commissioners to local authorities for the 1976–77 financial year was £1,679 million. I should emphasise that that is a gross lending figure. It does not represent new lending only but a total of new lending and a reborrowing in respect of debts which have become repayable. For the 1977–78 financial year, our estimate is that gross lending will be about £1,900 million, although I must emphasise to the House that that is an estimate and that the actual out-turn will depend, of course, on how far authorities resort to the market and how far they resort to the Commissioners.

Our 1977–78 estimate for net borrowing—that is, new borrowing from the Public Works Loan Board for 1977–78—is about £700 million. These forecasts for 1977–78 are not, of course, limits on what the local authorities may borrow from the Commissioners; the limit is established by the quotas and, as I have indicated, the forecasts could be exceeded.

The extra £2,000 million facility which is sought in this order is expected to provide sufficient funds to the Commissioners for the rest of the current financial year, but of course that cannot be entirely guaranteed and it may be that the third order will have to be made before rather than after the end of next March.

I should emphasise that if it were required to be made before the end of this current financial year, the reason would almost certainly not be that local authorities were spending more money but rather that they were resorting more to the Commissioners for money for capital expenditure and less to the market.

I emphasise, as I did last year, that the order does not in itself sanction any increase in local authorities' capital spending. Capital expenditure of local authorities is controlled by the Government in other ways. Thus, the order does not affect public expenditure. Nor does the extent to which local authorities borrow from the Commissioners rather than in the market affect the size of the public sector borrowing requirement.

Section 55 of the Act and the order that can be passed under it are a mechanism to allow local authorities to borrow a proportion of their financing requirements, according to their quota entitlement, from the Public Works Loan Board if they so wish. The House will know that, since 1974–75, local authorities have been entitled to borrow from the Board 30 per cent. of their reckonable capital expenditure, plus 3⅓ per cent. of their outstanding capital debts, subject to a minimum of £500,000. The figures for the less prosperous areas are 40 per cent. reckonable capital expenditure and 4 per cent. of their outstanding capital debt.

The local authorities have been informed that these quotas will remain the same for the first six months of this current financial year and that they will be confirmed or modified for the year as a whole in October 1977. The order, therefore, is merely a mechanism to empower the Commissioners to satisfy the local authorities' needs for finance from the Public Works Loan Board. Local authorities do not, of course, have to avail themselves of this facility, they can, and indeed many do, borrow more from the market.

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 with much skill and, of course, on an entirely voluntary basis.

Mr. Dudley Smith (Warwick and Leamington)

How many local authorities at present avail themselves of this facility?

Mr. Davies

I cannot answer that question. Local authorities generally borrow more than half their funds from the market, as I understand it, and I cannot say how many avail themselves of this facility at any given time. Local authorities borrow from both sources from time to time.

I hope that I have made it clear that the purpose of the order is to give power to the Commissioners to help make up the difference that is required, and I hope that the House will see fit to approve it.

10.33 p.m.

Mr. Graham Page (Crosby)

On 13th March 1975, the date when the Finance Act 1975 was given the Royal Assent, the Public Works Loan Commissioners were authorised to lend £2,000 million to local authorities. A year later, on 15th March 1976, the House was told that the Commissioners had lent to local authorities all but £335 million of that first £2,000 million—in other words, that they had lent some £1.665 million, a little over one-third of the total capital expenditure of local authorities for the year 1975–76. If I read the public expenditure White Paper correctly, the figure for local authority capital expenditure for that year was £4,520 million and they borrowed some £2,783 million.

Nevertheless, the House authorised a further £2,000 million to be borrowed by local authorities from the Commissioners. Today, a year later, we are told that the Commissioners have lent all but £120 million—that is to say, in two years they have lent local authorities £4.215 million, and for 1976–77 have lent a part of that sum against the local authority expenditure of nearly £4,000 million. According to the cash limits—this is where I get a little confused—the figure should have been about £2,800 million. It is difficult to tie up the figures in the public expenditure White Paper with the cash limits.

On those figures, whatever the House authorises tonight by way of allowing local authorities to borrow from the Public Works Loan Commissioners, will bear little relationship to local authorities' capital expenditure. Frequently such debates as this involve the Minister saying that the matter has nothing to do with public expenditure and Back-Bench Members saying that it has everything to do with it. I join the Minister in saying that this has nothing to do with capital expenditure, which in 1976–77 was over 30 per cent. more that the cash limits set by the Government.

The House is being asked to authorise a further £2,000 million to help local authorities spend about £2,873 in 1977–78. That looks a little nearer the mark. But one becomes more confused when one looks at the limit of about £4,400 million, which does not tally with the public expenditure White Paper. We deceive ourselves if we think that by refusing, reducing or even by wishing to increase the figure we shall have any effect on the total expenditure of local authorities.

We are entitled to ask the Minister upon what estimate of that expenditure by local authorities he judges the amount that they will want to borrow from the Public Works Loan Commissioners. That must involve a judgment upon how much they wish to borrow from that source and how much they wish to borrow from alternative sources on either the domestic market or in foreign currency.

In making that judgment one must examine the terms of loans from the Public Works Loan Commissioners. Most local authorities can borrow 30 per cent. of their borrowing requirement from the Public Works Loan Commissioners. Development area authorities can borrow 40 per cent. of their requirement. But such loans are for 10 years and are repayable by instalments. The Commissioners offer long-term borrowing to local authorities. If local authorities do not wish to borrow in that form they can borrow either on the domestic market or abroad.

Contrary to what has been said on this side of the House on previous occasions, there is a strong argument for saying that more money should be made available for local authorities by the Public Works Loan Commissioners so that a larger proportion of local authority borrowing comes from that source and is therefore long-term. Long-term loans from the Government give greater stability to local government finance and reduce fluctuations in interest rates that occur in short-term borrowing. If money is not available from the Public Works Loan Commissioners, local authorities have an excuse for increasing their temporary borrowing, which is not desirable at present. I shall return to that, but first I want to ask one or two questions about the order itself.

The Order is made under Section 55 (2) of the Finance Act 1975. So, first, may I ask some questions directly related to that section? The section is very similar to Section 132 of the Finance Act 1972 which authorised loans up to £1,000 million at that time, with tranches of £1,000 million for each of the following three years, or on three occasions. That section of the 1975 Act authorised loans by the Public Works Loan Commissioners in addition to any loans made by them under Section 132 of the Finance Act 1972.

Then it goes on to talk about the aggregate of the loans and authorises £2,000 million plus three tranches of £2,000 million each. I do not understand what is meant by the aggregate of the loans". Are we talking about the aggregate of the loans authorised by the 1975 Actor the aggregate of the loans authorised by the 1972 and the 1975 Acts? If it is the latter, the limit has been exceeded, and it may be that the validity of this order is in question. Be that as it may, there is now, I assume, outstanding under these two Acts some £2,000 million to £3,000 million under the 1972 Act—no doubt there were at least a couple of tranches under that—£2,000 million under the 1975 Act, and £2,000 million under last year's order. So, under this order, we are asked to increase the figure of £6,000 million, perhaps £7,000 million under these two Acts by another £2,000 million now. We are talking about £9,000 million under these two authorities.

But that does not tally with the total indebtednes of the local authorities to the Public Works Loan Commissioners. Of the total loan debt of local authorities, which is now more than £25,000 million, less than half is owned to the Public Works Loan Commissioners. In 1975–76, it was £10,150 million, and I suppose that it has gone up by another £2,000 million or £3,000 million in the last year. We are really talking about increasing about £12,000 million owed by local authorities to the Public Works Loan Board by another £2,000 million—at least, I think that that is what we are talking about—

Mr. Denzil Davies

There have been repayments.

Mr. Page

There have been repayments over the past, but the figure of outstanding debt, which is given in an annex to the Layfield Report, was £10,150 million in 1975–76. I want to try to get clear what we are authorising the Public Works Loan Board to lend in total to local authorities.

Secondly, the loans are those made in pursuance of Section 3 of the National Loans Act 1968. That Act has a schedule which allows the Public Works Loan Commissioners to lend to all sorts of other people other than local authorities. It may be that what they lend to other people is very insignificant. But it seems to be included in this total figure for the £2,000 million tranche that we are asked to authorise. Perhaps the Minister can give us a breakdown of that. If it is insignificant, let him put on record that that is so.

The third point on the order itself is that, under that section of the Finance Act 1975, the aggregate amount to be loaned, if we are coming up to the £2,000 million, includes both commitments as well as actual loans.

I am not sure how far ahead the Public Works Loan Board's Commissioners commit themselves. It may be that there is a substantial sum in the kitty which has not been paid out but which they have given undertakings to pay or to lend to local authorities. If the Minister could give us some indication of that it would be helpful.

The major point we ought to be debating is the timing of this order. Whether these tranches of £2,000 million every so often—and the Minister has told us that it will not be once a year but may be more frequent—is too much or not enough depends entirely on the outcome of discussions which are now proceeding on the draft code of practice on local authority borrowing.

This draft code has come into existence in the following circumstances. Local authorities have been raising more and more short-term loans. By that I mean loans of under a year to maturity. They have been borrowing short-term to pay for their capital spending.

There is some restriction on the amount which they can borrow. They must not borrow more than 20 per cent. of their total outstanding debt nor more than one-and-a-half times last year's capital expenditure. Both those figures can be substantial. Indeed, they are substantial sums in some cases and, in addition, there are one or two loopholes. If local authorities borrow for just over the year such borrowing does not come within the restrictions. If they borrow on what is called "option borrowing", again they can get out of the restrictions.

The advantage to local authorities of borrowing in this way is that, generally speaking, the shorter the loan the lower the rate of interest. Also, they can take advantage of any drop in interest rates and any fluctuations in the rates. Many of the authorities are tempted to go in for short-term borrowing in a big way. The proportion of outstanding debts of local authorities borrowed on short term—under a year maturity—is 45 per cent. to 50 per cent. of their whole indebtedness. That is about £12,000 million.

In the West Midlands over three-quarters of its £52 million debt is on seven days' call. There is a serious risk in this. There may easily come about a liquidity crisis with this sort of borrowing, when money has to be repaid quickly. Suppose that local authority could not meet its redemption dates. We might even go so far as to have a New York situation. It could be serious. I do not say that it is serious at the moment, but there is this risk.

The solution to this is for the Government to put statutory restrictions on short-term borrowing but at the same time to increase the availability and attraction of Public Works Loan Board borrowings.

That is why I come back to the order and say that its introduction is untimely, when this draft code of practice for cutting down short-term borrowing and swinging over to long-term borrowing is under discussion and will, if accepted, have to be backed up by making Public Works Loan Board borrowing far more attractive. The alternative to statutory restrictions is the voluntary code.

The voluntary code has been drawn up by a group of local government officials, and—if I am correctly informed—would form an agreement with local authorities to change over from this very short-term borrowing to get an average of four-year loans throughout their indebt ness in this year, working gradually to an average of seven-year loans, instead of less-than-one-year loans, by 1980.

The success or otherwise of that plan must depend on how far the Government will go in backing it with the public works loans system. That is why I think that we could have waited a little longer for this order, to see what would happen about the agreement with all local authorities and the Government on this code.

If local authorities can successfully switch to borrow long term, and have the average of their borrowings on as long as four-year terms, they will not—let us admit this—be as attracted to banks, insurance companies, developers, building societies, and pension funds, and so on as they are at present. If those sources of revenue and of capital for the local authorities were taken away, the Government would have to be prepared to step in. The only way in which it can step in is to make the public works loans system far more attractive.

It would have helped if the Minister had informed the House a little more about the progress of consideration of this draft voluntary code and if he could give us some assurance that, if we approve this order, he may well have to come back again in a fairly short time with a back-up to the code, with a difference—perhaps an increase—in the amount available in public works loans.

I believe that the Minister said that this order would last for only six months.

Mr. Denzil Davies

I did not say that the order would last for only six months. I said that the quota limits for this year had been fixed for six months and that they would be confirmed or modified for the rest of the year at the end of the six-month period.

Mr. Page

I am sorry. I misunderstood the hon. Gentleman. That means that the 30 per cent. quota, or the 40 per cent. quota in development areas, may be altered in the year. In those circumstances, if they were increased we should need a further amount from the Public Works Loan Board if the local authorities took advantage of that. We still have one more tranche to go under the 1975 Act, so it could be brought in this year.

I hope that the Minister will give us some assurance that the Government are well disposed towards a voluntary code in this way, and that, if it needs backing up by Government assistance in making Government loans more attractive to local authorities—the loans come through the Public Works Loan Board but they come from Government sources—he will not hesitate to come to the House to ask for that authority.

10.54 p.m.

Mr. Dudley Smith (Warwick and Leamington)

My right hon. Friend the Member for Crosby (Mr. Page) is always so erudite in these matters that one hesitates to intervene in a technical subject such as this. I was sitting in the Chamber because I shall be involved in the next debate. I was amazed to hear mention of these vast sums of money being bandied about, when the draft Statutory Instrument before us is a matter of only a few lines.

My only question to the Minister is this: when we come down to it—Article 3 refers to an increase of £2,000 million in the amount which can be available—is this not a direct result of inflation and does it not underline how serious is the inflationary situation facing the country today?

10.55 p.m.

Mr. Ian Gow (Eastbourne)

It is, I think, symptomatic of the climate in which we live that the Minister of State made a speech lasting six minutes, to a House attended by six hon. Members, inviting us to authorise the Public Works Loan Board to increase the amount which it can lend to local authorities by £2,000 million, and that the maximum length of this debate can be only one and a half hours.

The Minister invited us to approve the order without any reference whatever to the purposes for which the loans would be made. The Minister will correct me if I misunderstood, but I believe that we are invited to assent to the order on the basis that there would be no increase in the public sector borrowing requirement. Yet if the order were denied to the Government tonight, local authorities which required to borrow money would have the facility from the Public Works Loan Board denied to them and would be compelled to make their borrowing in the market place, compelled, in effect, to go to the private sector for the £2,000 million—although, as the Minister rightly pointed, there is no sense of compulsion save to the extent that local authorities are not permitted to borrow more than a certain amount of their requirements in the market place.

I found it difficult to follow the Minister when he said that the passing of the order would make no difference to the public sector borrowing requirement. I can fully understand the argument that local authorities have to borrow somewhere the money which they require, but there is a distinction between local authorities being able to finance their requirements from the public sector—in effect, the Public Works Loan Board is a euphemism for the Government—and their being able to borrow in the market place.

I address myself to that issue, the issue whether the order will increase the public sector borrowing requirement. I think that the Minister of State, with all the briefing from the star-studded cast of faceless civil servants in the Treasury, could have presented the argument, if I may say so, with greater financial rectitude than he did. Moreover, as I have said, there was not a word about the purposes for which this increased facility of £2,000 million would be required. When dealing with such a substantial sum of money, the Minister ought to have explained some of those purposes.

Those of us who are concerned about the level of public expenditure and the comparative ease with which orders of this kind are passed through the House ought to make at least some protest about the manner in which very large sums are authorised, as I interpret it, as an increase in the public sector borrowing requirement, at this hour of the night and after just a short speech from the Minister.

11.0 p.m.

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

I had not intended to make any contribution to the debate. I was prepared to sit and listen to it merely out of interest. However, tonight the remarks of the hon. Member for Eastbourne (Mr. Gow), who, despite his political allegiance, very often talks a good deal of sense, have been somewhat outrageous, especially in respect of the comment he made about my hon. Friend the Minister. I shall not defend the Treasury. It is full of faces, and it is passing along a sort of confetti of notes that must be almost unprecedented.

The fact that we are going through these motions of giving power to the Public Works Loan Commissioners to make this money available to local authorities does not imply in any sense that we are being unnecessarily profligate or irresponsible. Those of us who have some interest in local authorities and who have been concerned with the work of devising budgets for local authorities and estimating the expenditure of local authorities and how a local authority is likely to stand in, say, 1977–78, know only too well that whichever faceless civil servant devised this concept of cash limits, certainly it is bringing a power to bear in terms of restraint on local authorities that some of us would hardly have deemed possible.

Having been associated with local authorities for some 25 years as an elected member, I know how easy it is to get into the habit of increasing expenditure by 8 per cent. per annum quite gaily, without any thought even of not being reelected on the next occasion.

However, whether what we have now is a matter for congratulation or otherwise, whatever may be the administrative devices that make it possible for local authorities to borrow within a certain ceiling, we certainly have a system of restraint on local government spending which has been difficult to handle in the current year and will be doubly difficult in both 1977–78 and 1978–79. Therefore, it is quite irresponsible for the hon. Member for Eastbourne to say that we are spending money on a grand scale at this late hour of the night and in such a circumscribed period.

I am waiting to hear the reply of my hon. Friend the Minister to the more important points raised by the right hon. Member for Crosby (Mr. Page), but I should like to refer to the technical point—we are all monetarists now—in relation to whether the order is significant in terms of the public sector borrowing requirement. Surely that cannot be true at all. What is important is the extent to which the Government, in making up their accounts, have found that they have gone in for deficit financing of one financial magnitude or another.

If we say that local authorities have contributed, that their component of this public sector deficit is £X billion, in a sense the operations of the Public Works Loan Commissioners are not significant in this context at all. What is significant is the public sector deficit itself and how that is financed. All that is significant there is whether it is financed outside the banking system or by resort to the banking system. I imagine that it is quite possible—although, like the hon. Member for Eastbourne, I am not an expert in these matters—for any funds that are made available to the Public Works Loan Commissioners to come from sources that are completely non-inflationary. Equally, it may be said that it does not really matter in the monetarist context whether local authorities' moneys are found by the Commissioners or by borrowing in the short-term market, although that might have other consequences.

Coming from Stafforshire, which is part of the West Midlands geographically, I was horrified to hear the right hon. Member for Crosby say that short-term borrowing is up to 75 per cent. That raises some interesting problems.

Although this is perhaps the wrong time, it may be that during the next financial year the Government will use the situation that we are discussing to introduce an experimental variable interest bond. We know that at one period when there was a slight tendency for interest rates to rise it was stated in the responsible newspapers that the Government were thinking in terms of ideas that had been put forward earlier by a broking firm—namely, that the best way to tackle the problem was to have a variable interest bond.

It may be that to help local authorities and to conduct an experiment responsibly, my hon. Friend will recommend to his right hon. Friend the Chancellor of the Exchequer that if there is a slight tendency in future for interest rates to harden, which I believe will be the case in the autumn, he should consider introducing variable interest bond financing into local government.

11.7 p.m.

Mr. Denzil Davies

I deal first with a number of matters raised by the right hon. Member for Crosby (Mr. Page). In effect, the papers that have been passing to and fro are a tribute to the right hon. Gentleman. When I knew that he was opposing me in the debate I took great care to ensure that there would be a supply of papers. Having experienced his great skill in asking difficult questions of Treasury Ministers in the past, I try to come as well armed as possible.

The right hon. Gentleman asked me a number of questions. I shall try to go through them although perhaps not in the order in which they were asked. As for other bodies that might be able to borrow from the Public Works Loan Board, I understand that housing associations are empowered to borrow. I understand that harbour authorities are also entitled to borrow. However, over the past two years there have been no loans from the Public Works Loan Board to bodies other than local authorities. The balance outstanding of loans to bodies other than local authorities at 31st March 1977 was approximately £1 million. That is in respect of the period before the past two years.

The right hon. Gentleman asked about the 1972 Act and how this measure ties in with it. It is my understanding that all the funds authorised under the 1972 Act were exhausted before the 1975 Act money, as it were, started to come into operation. There was £2,000 million then arising under the 1975 Act. Last year there was the order for £2,000 million which I moved and now we have a further £2,000 million. The 1972 Act money was exhausted before the 1975 Act came into operation. Therefore, we are concerned now only with the 1975 Act.

I was also asked about commitments which had been made by the Public Works Loan Board, but where the money had not actually been advanced. I am told that commitments are entered into only a few weeks before corresponding advances take place, so the money moves out very quickly after the commitment has been made.

The right hon. Gentleman mentioned cash limits and said that he found it difficult to square the figures. There is a complicated explanation. Perhaps I could write to the right hon. Gentleman and try to explain the matter fully. As the House well knows, for 1977–78 almost all capital expenditure by local authorities is now within the cash limits regime. It should reassure the hon. Member for Eastbourne (Mr. Gow), who expressed concern about these matters, to know that the expenditure is strictly controlled.

The right hon. Gentleman also said that loans by the Public Works Loan Board were for 10 years. That is true, but it was explained to me this afternoon—though I still do not understand it—that in fact they are effectively for five years. I could not possibly explain to the House how that is so, but I was assured that although the period may appear to be 10 years it is effectively five in respect of annuity loans. Perhaps it is not as bad for local authorities as it may seem. I am sure that treasurers are well aware of this.

Mr. Graham Page

The hon. Gentleman said "not as bad". I was rather approving the fact that the loans were long-term. I want the local authorities to turn to long-term loans—even 10 years—rather than short-term.

Mr. Davies

I misunderstood the right hon. Gentleman. I thought he was saying that that was rather a long period, but I entirely agree with what he says about longer-term borrowing.

The right hon. Gentleman also asked on the basis of what figures we arrived at the figure of gross lending which I gave in opening. He will know that in the public expenditure White Paper, Cmnd. 6721, capital expenditure in 1977–78 is estimated to be, and will be, £2,873 million. It is on the basis of that figure, plus an assessment of what money will have to be repaid and then reborrowed, that we arrived at the figure forecast for 1977–78.

The right hon. Gentleman then rightly dealt with the local authorities' problem, which my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) also mentioned, in relation to short-term borrowing and the need, which we accept to move towards a situation in which they are not so reliant on short-term borrowing, because of the obvious dangers. We are having discussions with the local authorities about drawing up what I hope will be a voluntary code. One does not want to use compulsion, and I hope that agreement will be reached. The right hon. Gentleman rather suggested that perhaps we should have waited until we had that code before introducing the order. The trouble is that we should possibly have run out of money, because there is only about £120 million left. That is why the order was brought forward.

The right hon. Gentleman suggested that later in the year, if there were a code the effect of which was to force local authorities to go more to the Public Works Loan Board and away from the market, I might have to return here in a few months' time. We do not believe that that will happen. If it is necessary to come back next March rather than April, it will not be because the local authorities are spending more money. It will be for other reasons, in that local authorities will be making more use of the Board than of market funds.

The hon. Member for Warwick and Leamington (Mr. Smith) raised a point as I was sitting down at the end of my opening remarks, and I did not give him a proper answer because I did not have the figures. I am now told that in 1976–77 three-quarters of the local authorities borrowed from the Board. The figure I gave of over half total borrowings being from the market is probably still correct, but here we are concerned with the number of local authorities.

The hon. Member for Eastbourne raised the point that he raised during last year's debate on this subject. I make no criticism of that. He seemed to imply that I was being profligate in coming here for this purpose, but I have not come here to spend money. Spending by local authorities, as he will appreciate, is another matter entirely and the control of expenditure is through authorisations of borrowing in respect of key sector schemes given by the Departments concerned. This is merely a mechanism to enable local authorities to borrow in one way rather than another. It does not affect the public expenditure borrowing requirement—as the hon. Member implicitly accepted, because he said that if authorities do not go to the Board they go to the market. That does not affect the public expenditure borrowing requirement because they are still borrowing.

Local authorities are allowed to borrow in the key sector areas, but this order is not concerned with the purposes of that borrowing and nor is the Public Works Loan Board. Provided that the authorities are borrowing to finance capital expenditure, they are entitled to borrow from the Board in accordance with their quotas and in accordance with legislation.

This is a way of enabling local authorities to borrow from the Public Works Loan Board. It is beneficial although, perhaps, in some cases local authorities may prefer to go to the market, and that is a matter for them to decide.

I am sure that the House will not reject the order because hon. Members will appreciate the purpose of it. If the House refused the order it would force local authorities into the market at higher interest rates with the effect on ratepayers of the authorities having to recoup the interest rates through higher rates or on Government in providing larger grants for public expenditure. I hope that I have answered all the questions and that the House will approve the order.

Question put and agreed to.

Resolved, That the Local Loans (Increase of Limit) Order 1977, a draft of which was laid before this House on 6th April, be approved.