§ Order of the Day for the Second Reading read.
§ LORD TEMPLEMOREMy Lords, this Bill is introduced periodically at intervals of about a year. As your Lordships are aware the last Public Works Loan Act was passed in February of this year, and fixed at £20,000,000 the maximum amount which could be advanced by the National Debt Commissioners to the Public Works Loan Commissioners. It was expected that this amount would last for a year, but there have been increasing demands in recent months and it is now expected that the £20,000,000 may be exhausted about the middle of next month. It is therefore necessary to pass a new Bill before Christmas to authorise a further amount. I should like to assure your Lordships that if there is any balance unused when the present Bill with its fresh provision receives the Royal Assent, that balance lapses automatically. Clause 1 fixes the maximum amount which may be advanced under the Bill at £25,000,000, which it is hoped will suffice for about a year. Clause 2 is in common form and deals with certain bad debts—loans advanced under the Agricultural Credits Act, 1923. These debts are written off the Local Loans Fund and will be made good to the Fund out of Votes next financial year. The 480 effect of this is to leave the borrower liable but to substitute the Exchequer for the Fund as his creditor. Hope has not been abandoned of recovering some part of the balance outstanding.
Clause 3 is the only clause outside the usual routine. The Commissioners are empowered to lend to local authorities for the purpose of any work for which the council of a county, borough, district or parish are authorised to borrow. But these general powers do not enable them to lend for the purchase of land by a local authority except where the purchase of the land forms part of the works to be carried out; for instance, the purchase of land in connection with works of water supply or sewage disposal. Instances have occurred and are becoming more frequent where local authorities desire to borrow for the purchase of land but, though the Commissioners are the natural lenders, it has been found that under the provision referred to they have no power to lend owing to the absence of any "work" to be undertaken in connection with the scheme in question. A common case is where the local authority wishes to purchase land for an open space, recreation ground or games field. Clause 3 rectifies this technical deficiency. It does not increase the powers of local authorities who already have power to buy the land, and also to borrow for the purpose, but are debarred from borrowing from the Public Works Loan Commissioners. I think I have explained sufficiently the provisions of the Bill which, with the exception to which I have referred, is in a form well known to your Lordships. I beg to move that the Bill be read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Templemore.)
§ LORD MANCROFTMy Lords, as my noble friend has explained, Bills of this kind frequently come before your Lordships, sometimes once a year and sometimes oftener than that. The noble Lord has drawn attention to Clause 2 in this Bill. It is upon that clause that I propose, with your Lordships' permission, to offer a few observations. It indicates a position of affairs which I think is very disturbing. I do not intend to oppose the Bill, but merely to bring before your Lordships certain aspects of the position which I think should be taken into consideration. Clause 2, or a clause with similar provisions, has, to the knowledge 481 of noble Lords, been included in other Bills of this nature. In fact I think I have several times taken part in debates in another place on clauses of much the same purport in similar Bills.
I have, for the purpose of explaining what is in my mind, obtained a copy of the Memorandum which was circulated with the Bill in another place. Your Lordships have received the information in a more tabloid form in the Bill now under discussion. It appears that year after year, or more frequently, we have to write off a loss in respect of loans—mortgages I think we may call them—which have been advanced under the Agricultural Credits Act, 1923. Year after year money has to be looked upon as lost, if not entirely—the noble Lord said it might be hoped that something would be recovered—at any rate in part. In order not to worry your Lordships with detailed figures, I will ask to be allowed to refer to them in round thousands. From the Memorandum which was circulated in another place, I find that the loans set out in die Schedule to the present Bill refer to seven borrowers and seven mortgaged properties, one in Wales and others elsewhere. The total valuation of the properties on which money was lent was £26,000, and the amount lent was £19,000. Now we have to face the fact that on foreclosure only £15,000 in round figures has been received. There is a loss, to give the exact figure this time, of £4,286. It is very disturbing to find a difference of such a large proportion of the valuation. These properties were valued not many years ago. I find, on looking up the properties, that with one exception none were valued as far back as 1924. The others were valued in 1925, 1926 and 1927. The losses on realisation occurred in 1933, 1935 and 1936. That is to say, these properties, upon which £19,000 was lent, not before 1924, on a valuation of £26,000, have only realised £15,000 in eleven or twelve years, and there has been lost to the public purse £4,286.
Properties which were valued at £26,000 were found to be worth only £15,000 twelve years later. How does that come about? How does it come about that in the case of these properties valued after the War, in 1924, 1925 and onwards, it is found, eleven years later, that the judgment of the Government valuer was so far out that they realise only about 482 60 per cent. of the value put upon them, when they came into the market on foreclosure. It may be said that the values placed upon the property by the valuers were the values when the loans were made. Noble Lords are often holders of mortgages as trustees for charities and public institutions and private funds; and we know also that mortgages are often taken up by the great friendly societies and building societies. They do not manage their mortgage affairs like that. Their valuations are not made to bring losses in that way. When they make valuations they take into account the fact that the value of things goes down. They know that things go down in value. If you buy a house to-day, or a ship, or a motor car, or a picture by Sir Joshua Reynolds, you know that if you try to sell to-morrow the price will have gone down. Every prudent man knows that. What would any of your Lordships think if you asked your solicitor to find an investment for a certain sum of money and the valuer to whom the solicitor went put such a valuation on properties on which a mortgage was granted that, in eleven or twelve years, when the money had to be realised, the properties were found to be worth only 6o per cent. of the value placed upon them? Would the reply be satisfactory that the value of the property had gone down in the meantime?
Of course, the value of property goes down, but the prudent man who lends money on property takes that into account. Apparently the Government valuers do not take that into account. That is not the way to carry on business under the Agricultural Credits Act. More prudence should have been used in arriving at the valuation. As I have tried to point out, this applies not only to losses in the present Bill but to similar losses in Bills of this same kind which have come before your Lordships' House. This position is disturbing for another reason. If the Government valuers are seen to be so wide of the mark in fixing valuations when these mortgages are arranged, what will be the thoughts of a taxpayer when, as an executor, he has to pay Estate Duty upon some property for which he is responsible? What faith can he have in the competence of Government valuers when he sees that they make such mistakes? He will say: "The Government valuers will put a value on this property, but they may be very 483 wide of the mark, and I may be called upon to pay Estate Duty upon a value which cannot be realised when the property comes to be sold." It shakes public confidence in the judgment of official valuers.
Then I see that noble Lords opposite, members of the Labour Party, say that they wish to have a National Investment Board; they wish to nationalise banks and insurance companies. If they are going to have boards to lend money under Government valuations, as under this Bill, they will soon wreck the whole of the public purse. Investments are carried out in mortgages with loan grants and money is lost time after time, as is shown here. This is a very good example of what we may expect if we have a National Investment Board.
§ LORD MANCROFTI say no more than that I do not like the system under which these valuations are made. I do not accept as an excuse or explanation that the values which were put on are what they were at the time. What is the value of property? The value of property is what it will fetch. It is not a question of the time of the loan but of what the property will fetch if or when there is a foreclosure. The value to be put on at the time of loan should include provision for what may be lost by the fall of value when the time comes, if there should be a foreclosure. One must forestall what will happen if the contract under the mortgage be not carried out.
I do not propose to delay your Lordships with my views any further, or to impress them upon you at greater length. I would merely say that the time has now come when a return from 1923 to date should be made, and should appear in future Public Works Loans Bills, so that when properties on which money has been lent under the Act of 1923 have to be dealt with by writing off losses, as we are doing to-day, the return shall show over the whole period to date the details of mortgages foreclosed, the names of properties sold after foreclosure, the aggregate valuations, the aggregate sums lent on mortgage, and the aggregate amount realised on sale. All of those facts should be shown when we are again writing off 484 such a loss as is here, £4,286. We must not forget—and noble Lords will always bear in mind—the cost of realisation and the loss of interest. This loss, although it is a notional one as far as interest is concerned, is an actual one as far as the cost of realisation is concerned; that is to say, even in addition to the £4,286 to which I have just drawn attention and which appears in this Bill.
§ LORD TEMPLEMOREMy Lords, I am a little diffident in replying to my noble friend, because he said just now, shortly before he sat down, that he would take no explanation or excuse. However, I will do my best to meet the points which he has made. As my noble friend and the House are aware, the Agricultural Credits Act, 1923, authorises the Public Works Loan Commissioners, subject to certain conditions, to lend money to persons who had agreed to purchase their farms during the currency of the Corn Production Act—that is, between April 5, 1917, and June 27, 1921, when that Act was repealed. The loans were to be made on the mortgage on the land up to 75 per cent. of its then value, or up to an amount equal to thirty times the current annual value as ascertained for Schedule A Income Tax.
As my noble friend says, in the seven cases dealt with under the Bill, which are in the Schedule, loans totalling £19,325 were made and the total of the valuations made at the time was £25,800. The amount now to be written off totals £4,286 14s. 11d. In every case but one the loans were of the maximum amount allowed under the Act—that is to say, 75 per cent. of the value of the property. It is important to notice that the Act clearly prescribed that the value to be taken for the purpose of the loans was to be the value as existing at that time. If it is found that the properties now realise rather less than the valuations made under the Act, no blame can be attributed to the valuers.
§ LORD MANCROFTMay I interrupt my noble friend for just a second, if he will forgive me? How does he define the word "value"? I define the word "value" as what the property will fetch if it comes to be sold under foreclosure.
§ LORD ADDISONIt is defined there.
§ LORD TEMPLEMOREPerhaps my noble friend will allow me to make the 485 answer which I am trying to give in my own way. I cannot enter into definitions of the word "value" now. I am afraid it would not be possible to do so under this Bill. As regards the valuers, however, they discharged the duty deliberately laid on them by Parliament, and all the evidence goes to show that they discharged it carefully and well. It is possible to argue, as the noble Lord is arguing, that the scheme which the Act introduced was not in the strict sense a good business proposition. That is perfectly true. I do not deny it. It was generous of Parliament to direct valuation at a time when land prices were very high and to allow loans of so great an amount as 75 per cent., but it was never intended that this scheme should be on strict business lines. In fact, it was intended to be, and was, an act of generosity. The Act was in fact part of the Government's policy of those days for helping farmers, and was only one of the ways in which the Exchequer has provided financial assistance to agriculture. It will be seen, therefore, that it would be a mistake to say that the valuers are to blame for any of the loss which the Exchequer is called upon to make good. And finally I should like to say that, in point of fact, losses under this Act have been surprisingly low. A large number of the loans, which were all at 5 per cent., have been fully repaid without loss, and the losses to date have been trifling compared with the total advanced. Considering the circumstances of the loans and the slump in agricultural prices, the result has been satisfactory to the Exchequer and reflects credit on the work of the valuers. I have replied to the noble Lord as well as I can. I hope he will take my answer and that we may now get a Second Reading of this Bill.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.