LENDING BY REVENUE ACCOUNTS TO NATIONAL LOANS FUND (Hansard, 5 July 1999)

§ The Economic Secretary to the Treasury (Ms Patricia Hewitt)
I beg to move, That the clause be read a Second time.
New clause 8 allows any cash balances held at the close of business in the bank accounts of the two Revenue departments at the Bank of England to be lent overnight to the National Loans Fund, which will repay what it borrows by close of business on the following business day. That will help the Debt Management Office to manage the Government's cash requirements efficiently when it takes on that role. The DMO will be able to rely on these Revenue department balances being available to help to balance the daily cash flows into and out of the National Loans Fund. That will decrease uncertainty for the DMO, and will, most importantly, prevent it from having to pay to raise cash in the market when there is already cash available within Government.
At the same time, the money will still be available during the business day to cover the possibility that tax repayments due exceed tax receipts on that day. The change will benefit Government, but will not have any effect on the Revenue departments' dealings with taxpayers. New clause 8 is a sensible piece of housekeeping by the Government, and I commend it to the House.

§ Mr. Howard Flight (Arundel and South Downs)
This certainly sounds like a sensible piece of corporate management: the corporate treasurer approach making the 715 National Loans Fund the cash flow management vehicle for Government. The rate of interest and terms will be decided as the Treasury sees fit. It would be interesting to know whether the Treasury will see fit to pay market rates or some other specific rate.
It would be valuable to know the balances that go through Customs and Excise during the year, whether its overall budgeting has hitherto taken account of interest earned and whether that level will change.
The new clause implies that the sums may be lent at the volition of the commissioners of Customs and Excise and the Inland Revenue. Surely the intention is that it will be at the direction of the Treasury, whether the commissioners want it to happen or not.
I ask myself why, at this stage of the Bill, the Government have suddenly had a conversion to corporate efficiency. Why was this measure not introduced long ago? It has been slipped in quietly at the end of the Bill. Surely this is what the Bank of England, as the Government's banker, has done, in that the different organs of Government have had positive and negative balances. The Government own the Bank of England, so why do they need to step back from the Bank and allow the National Loans Fund to manage cash flows? Does it, by any chance, have anything to do with European Union obligations, and the fact that the Government will not be able to borrow from the Bank of England? It would be undesirable for one Government account and the National Loans Fund to be overdrawn at the Bank of England as a result of a temporary cash flow problem. Perhaps the pooling of these cash flows into the National Loans Fund is designed to avoid that.
It is surprising that the Government have slipped this measure in at this stage of the Bill, unless there is some reason beyond virtuous corporate treasurer efficiency, which should not be necessary as the Government own the Bank of England. Perhaps there is some other reason that the Government are not disclosing.
Will the Economic Secretary deal with the specific organisational questions to which I referred earlier, and tell us the reason for using the National Loans Fund as the cash manager, rather than the Bank of England?

§ Mr. Michael Fabricant (Lichfield)
Like my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I also wonder why this new clause has been introduced on Report. The explanatory note produced by the Treasury says that this is merely a technical provision. Unlike my hon. Friend, who believes that it has been introduced by the treasurers for some Machiavellian reason, I suspect that it was tabled at this late stage of the Bill merely due to incompetence.
What will be the market test for this borrowing from one Government Department to another, or from one series of funds to another, rather than on the open market? The Minister said that it was obviously cheaper to borrow internally. I accept that, but will a nominal interest rate be set? If such a rate is set, who will charge it against whom? Will it be entirely within the Treasury, or will a particular Department benefit from the loan funds overnight?
716 When the moneys are chargeable, will we see a transfer of funds? And—this may interest the House more—how much does the Paymaster General think will be loaned overnight, as an aggregate sum, over a year? Are we talking about millions, or about billions?

§ Mr. Nick St. Aubyn (Guildford)
I am listening carefully to my hon. Friend's speech, but, apart from the Minister's Parliamentary Private Secretary, no Government Back Bencher is present to listen to this important debate.

§ Mr. Fabricant
I find that extraordinary. We may be speaking about billions or, for all I know, trillions of pounds. The Paymaster General gave no indication of the amount that we are discussing. Let us not forget that this is not Government money; it is our money. It is their money—taxpayers' money. We need to know how the taxpayer will be affected. Will he or she benefit from the interest rates that are being set, or will he or she suffer a disadvantage because the money is not sought from outside sources?
It is not good enough to try to slip a measure through late in the evening when Labour Members—all 300-plus of them—are wining and dining in the fleshpots of London. We are talking about taxpayers, money. Thank God we have an Opposition who are at least opposing these proposals.

§ Ms Hewitt
I rather regret the fact that I do not have the chance to wine and dine, whether in the fleshpots or simply in the Members' canteen.
We engaged in a full and interesting debate on this subject in Committee. Clause 125 completes the separation between monetary policy and cash management—debt management operations—that we undertook when we gave the Bank of England operational independence in regard to monetary policy. The new clause is simply and genuinely a technical consequence of the main provision that we introduced in the Bill. It follows from the assumption of cash management by the Debt Management Office, a Treasury agency that already handles debt management.
As the hon. Member for Arundel and South Downs (Mr. Flight) said, at present the Government's daily need for cash to balance the books is met through the Bank of England, and through the ways and means overdraft facility with the Bank's issue department. However, once we start managing the cash separately and allowing the Debt Management Office to manage it on behalf of the Government, it would be inefficient to allow money to sit in separate accounts—those belonging to the Revenue departments—if it could be made available to meet a deficit on the National Loans Fund, when the alternative to using that spare cash would be borrowing by the DMO from the markets.
Let me reassure the hon. Gentleman and his colleagues that this has nothing whatever to do with our possible entry into the single currency in years to come. We have simply completed the separation of monetary policy and debt management operations, in order to avoid any conflict of interests—or perceived conflict of interests—between the two. In particular, as I explained in 717 Committee, the separation will assure the markets that debt management decisions are not influenced by inside information on interest rate decisions.

§ Mr. Fabricant
Will the Minister answer the specific questions that I asked her? I see that her official has passed her a note, so perhaps she will be able to do so. First, what amounts are we talking about on aggregate—millions, billions, trillions or what? Secondly, if she is in effect market-testing between internal transfers within the Treasury and borrowing on the open market, what interest rates will be set and what criteria will she use to set them?

§ Ms Hewitt
I was just coming to that. All in good time.
There will be no interest rate charges, because money is simply being lent from one Government account to another. It would be no more appropriate to charge interest on the loans than it would be if I were transferring money from one account to another in my own name. As for the amounts that might be lent, we estimate that the maximum that Customs and Excise might lend would typically be about £700 million. We do not expect to be able to meet the loans from the Inland Revenue to the National Loans Fund, although the new clause gives the power for that to be done.
As I say, this is simply a technical provision that will further improve the Government's housekeeping arrangements and, by reducing any possible need for the DMO to raise money on the open market, will save the taxpayer modest amounts of interest that would otherwise have been paid.