§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR
My Lords, I move the Second Reading of the 946 Public Works Loans Bill. It is a Bill of five clauses. The first four clauses are in common form and I do not think any description of them will be called for. The fifth clause is of more special interest. Your Lordships will know that since the beginning of the war there has been a ban on the conversion of stocks issued by local authorities. That ban was laid down at the beginning of the war in order to exercise a strict control and to conserve our capital resources. The time has now come when rather more latitude can be given, and in Clause 5 there is a provision that local authorities can be allowed to exercise their options under the plan as therein set out which will still avoid any direct dealings on the market, and thus reduce to a minimum interference with the Government's borrowing operations.
Clause 5 (1) will enable the Treasury to make advances out of the Local Loans Fund to local authorities to enable them to pay off any stock which is not taken up by holders under a conversion scheme, and it is a condition of this assistance that the local authority should exercise this option and hand over new securities in exchange only with the approval of the Treasury. I know from the time when I was at the Treasury how important this is to some local authorities in the country, and I think it will give great satisfaction that we are now able to relieve them, to some extent at any rate, from what they had felt to be a highly inconvenient bar.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ LORD MANCROFT
My Lords, we are all very familiar with these Public Works Loans Bills. As a matter of fact, it was my privilege to introduce several of these Bills into another place. I will only refer cursorily to the writings off under the Agricultural Credits Act, 1923, because quite recently the noble and learned Viscount on the Woolsack drew attention to the fact that in the War Damage Act the Board of Trade would have the assistance of the Inland Revenue valuers. That is so, but I am inclined to think that the public, if they have to fall back on that, will not have much confidence in the valuers. If the noble and learned Viscount on the Woolsack will look at the Schedule on page 5 he will see mention of eleven defaulted 947 loans. I have gone to some pains to find out from the Bill itself what they were officially valued at, and what these properties realized when the Government foreclosed. I think I shall not be far wrong if I say that the valuers were so correct in their separate valuations that they valued these eleven properties at a total of £76,000 odd and they fetched £38,000—exactly half. Why? It is not encouraging to the public to be told that under this or any other Bill they may look to the guidance of the official valuers, when they see valuations so much out of actuality. It is too late to do anything now, but when we offer our thanks, as no doubt we shall do, to those gentlemen who will give their public-spirited services as members of the Commission, we might ask them to consider for a moment how it is that valuations were so much out of gear when loans of public money had to be made. Is it a normal occurrence?
I pass from that to Clause 5. It is a novel clause. I am in accord with this clause. It is a proper decision that municipalities and public authorities generally should be allowed to pay off their loans bearing high rates of interest, by issuing conversion loans, provided they do not infringe the contractual obligation under which the money was borrowed. If the dates at which they propose to pay off loans which carry a higher rate of interest than is now justifiable, are the contractual dates for repayment, well and good. But there must not be a repetition of the short-sighted policy shown by the Treasury recently in requisitioning securities of a trustee nature with fixed dates and repayable only in sterling. I say under reservation, the currency being only sterling. I may be wrong on that point. I am referring to the India stocks. Apart from the fact that paltering with the sanctity of contract is wrong, such a policy may have expensive and damaging repercussions on future issues by the Treasury of British Government loans, or even on municipal loans, and for this reason. Nervous investors or trustees may say to themselves, "The Treasury, or those acting for the Treasury, or the county councils or municipalities are about to ask for subscriptions to loans with fixed dates of repayment. What is that promise of fixed date worth? We have seen in March, 1941, what hap- 948 pened in regard to the fixed dated India loans. Were the contracted terms of issue respected?" They may hesitate, and it may cause the borrowers—that is, the public authorities of Great Britain—to pay a slightly higher price for their money because doubt has been imparted into the mind of the public regarding the ultimate interpretation of the contractual obligation by the borrower as to the date of repayment. This is not the time or place to go into the recent requisitioning of the long-dated India loans, but I put in this caveat so that the Treasury may see that their action in regard to that matter has not passed unnoticed and that even as a war measure it is regarded as imprudent.
I would say this with regard to the municipal loans to be repaid. No doubt many people who hold loans, which are now giving them a higher rate of interest than is at present justified, will be willing to take conversion loans at a lower rate of interest. If steps are taken by the banks to whom dividends are sent, to get into touch with customers who are holders of these municipal stocks, advising them not only that they can be converted but that they should be converted, I do not think much of the loans will go untaken up by the public. I do not think the National Debt Commissioners will be asked to take up much of them. But if any money has to be found the National Debt Commissioners will find it without difficulty. I would put this point to my noble and learned friend on the Woolsack. When conversion loans are issued to the holders, who are probably people of small means and trustees or public institutions, if it were made quite clear that there are to be sinking funds and that the sinking funds for these loans would be applied to the loans either by way of purchase or as cash and later available for repayment purposes, that would give an additional inducement to the public to take up the loans. Indirectly it would keep up the market price of the loans and thus enhance the credit scale of the borrower.
There has crept in of late years the habit on the part of municipalities to use their sinking funds by re-borrowing them. A municipality may have a sinking fund on a loan, and when it requires fresh money, say, for some local improvement in the municipality, it borrows from 949 the sinking fund and thus hides from the ratepayers that it is spending money and increasing debt. That is a bad system. A sinking fund should be used for the purpose for which it was intended, not to float loans for the earlier borrower. Subject to these remarks, I feel, speaking for 950 myself, that I should be justified in giving my vote in support of this Bill.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.
§ House adjourned.