Local Loans (Hansard, 11 May 1981)

§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)
I beg to move, That the draft Local Loans (Increase of Limit) Order 1981, which was laid before this House on 16 April, be approved. After the tranquil waters of the Finance Bill, we now move on to the highly controversial and electrifying subject of the Local Loans (Increase of Limit) Order 1981.
The order increases by £3,000 million the amount available for lending to local and other eligible authorities by the Public Works Loan Commissioners. The Finance Act 1978, which was passed by the Labour Government, increased the lending powers of the commissioners by £12,000 million, that sum to be made available in tranches of £3,000 million, each tranche after the first requiring an order subject to affirmative resolution. This is the second of those tranches requiring an order. It is the third of the four tranches altogether.
I hasten to reassure my hon. Friends that the order does not sanction any increase in local authority capital expenditure, which is controlled by the Government by other means. The order, therefore, does not affect public expenditure in the slightest, nor does it affect the amount which local authorities may borrow from the commissioners, which is fixed by quotas which are related to their agreed capital expenditure. The impact on the PSBR is wholly neutral as regards borrowing from the market or from the commissioners. Either source of borrowing has the same effect on the total of the PSBR. The purpose of the order is to give the House an opportunity to debate the matter.
The commissioners still have about £1,333 million, which is nearly 45 per cent. of the £3,000 million which was made available to them under the 1980 order. That is a sizeable sum. However, under the arrangements for access to the commissioners, the local authorities can draw 45 per cent. of the 1981–82 quota between 1 April last and the end of June. That amounts to about £1,600 million. While that it is only an entitlement and while, so far since 1 April only £21 million of it has been drawn, it is obviously necessary for the Government to have the legislative authority to fulfil that commitment. That makes it prudent for us to seek the additional tranche tonight.
Hon. Members will be aware of the important role played by the commissioners in providing local government with finance at virtually the rates at which the Government borrow, which cuts down costs for local government and assists local authorities to maintain adequate debt maturity.
The Government consider that it is in the interests of local authorities, individually and collectively, and of monetary policy, that progress should be made in lengthening the residual maturity of local authority debt. To help local authorities achieve that end, the Government have extended that facility for privileged borrowing in a number of ways.
Firstly, there has been a reallocation of the lapsed 1980–81 quotas. Secondly, we have continued the 1981–82 quotas at the level prevailing in 1980–81, that is to say, 50 per cent. of approved capital expenditure plus 4 per cent. of outstanding long-term debt, with a minimum entitlement of £5 million. Thirdly, we have continued to 589 allow authorities with a borrowing requirement of up to £5 million in 1981–82 to draw the whole amount from the commissioners.
Finally, I am sure that the whole House will join me in expressing thanks to the Public Works Loan Commissioners for the services that they render with such skill and dedication and entirely on a voluntary basis.

§ Mr. Jack Straw (Blackburn)
We are pleased that the Financial Secretary has come to the House to increase the Public Works Loan Board's borrowing powers by no less then £3,000 million so soon after the substantial Labour gains in the county council elections, not only in metropolitan counties but also in what were previously Conservative strongholds such as Lancashire, Cheshire, Humberside and Avon. I hope that this means that they will respect the decision of an electorate which voted in large numbers for Labour councillors, who are committed to restoring many of the public expenditure cuts imposed by Conservative councils.

§ Mr. R. B. Cant (Stoke-on-Trent, Central)
Would my hon. Friend add to his short list of Labour-controlled authorities the shire county of Staffordshire, in which the Tories were unexpectedly but totally routed?

§ Mr. Straw
I am glad that my hon. Friend reminds us of the great triumph in Staffordshire, with which he was associated. He has a long-standing association with Staffordshire. It is a long list and I referred only to some of the major triumphs. My selection of Lancashire was entirely impartial.
I hope that the Financial Secretary's decision to come to the House today of all days—the first possible day after the local elections—to seek the increase in borrowing powers means that the Government recognise that the mandate of the new Labour-controlled councils is clearer and more recent than theirs. I hope that the Government will not follow the recommendations of the Secretary of State for the Environment. We read in the Sunday newspapers that he regards all Labour local councillors as extremists and wishes to control local authorities even more tightly.
We object to controls on local freedom introduced by the Government. In introducing controls they are going against the long-standing Conservative tradition of respecting local democracy. In the 1970 Conservative campaign guide, we see the words of the right hon. Member for Sidcup (Mr. Heath) when he was Leader of the Opposition. He said of the Socialist Government: They lose the argument, they lost the local elections, but they refuse to abandon their doctrines. Instead, they impose them by force on local representatives where democratic authority in these matters is clearer and more recent than their own. What was good for a Labour Government and newly elected Conservative local authorities in 1968 is good for a Conservative Government and newly elected Labour local authorities in 1981.
The Financial Secretary said this year, as indeed he said on 6 May last year when he introduced the first of these orders, that the order by itself would not increase the public sector borrowing requirement, and of course we understand that. He said tonight that it does not affect the PSBR or the level of local authority loans in the slightest.
The House, however—and, I think, even the hon. Member for Chippenham (Mr. Needham) who, I note, is 590 not showing his usual assiduity in attending to the debate—needs to know why the authorisations of the Public Works Loan Commissioners have increased threefold, from the modest sum of £3,000 million that the Labour Government left to the Conservatives in 1979, to £6,000 million last year and £9,000 million this year. I note that perhaps the rest of the House takes a more relaxed view of the matter than those of us who remain here tonight. Nevertheless, by any analysis, those are substantial sums.
When the Financial Secretary spoke on this matter last year he said that he hoped that it would be "well over a year" before the Government sought a further increase in the order. It is, in fact, only a few days over a year. Why have the Government had to come back so soon for an increase?
Does the decision to ask for an increase of such a sum in the Public Works Loan Commissioner's funds herald a change in the Government's policy towards the methods by which local authorities raise their funds? Does it mean that the Government wish local authorities to raise a higher proportion of their capital requirements from the board rather than directly through the markets or through the sale of bonds? I note that the proportion of local authorities' total borrowings represented by Public Works Loan Commissioner funds rose from 23 per cent. in 1979 to 39 per cent. in 1980. Is it the Government's intention that that proportion should increase still further?
When questioned on the reasons for last year's order, the Financial Secretary said: In so far as there is a shift from local authorities' borrowing from banks to borrowing from the board, that can assist monetary control."—[Official Report, 6 May 1980; Vol. 984, c. 239.] Has there been a shift in borrowing from the banks to the Public Works Loan Commissioner, bearing in mind that borrowing from banks accounts for only about 18 per cent. of the total outstanding debt by local authorities? I should be grateful if the Minister would answer that as well. If that is not a reason for introducing the change, perhaps he will say what other reasons there are.