PUBLIC WORKS LOANS BILL (Hansard, 3 December 1951)

§ THE CHANCELLOR OF THE DUCHY OF LANCASTER (VISCOUNT SWINTON)
My Lords, this is a Bill with which your Lordships will be familiar. For the last fifty years and more, a Bill almost identical in this form has been presented to your Lordships, and passed with unanimity. The Bill does only two things. In the first place, it authorises the issue by the National Debt Commissioners, during the period which will start with the passing of the Act and continue until the new Act takes its place (and, as I say, they are generally hardy annuals), of sums of money up to a total of £500,000,000 for local loans by the Public Works Loan Commissioners. Secondly, it authorises the Commissioners to enter into commitments to make loans at a later time. The total liability of actual loans and commitments is limited to £950,000,000. These are the only two things the Bill does.
May I make it plain what the Bill does not do? In the first place, the Bill does 750 not in any way control the rate of spending on approved objects by local authorities. The programmes of local authorities for housing and other works are controlled in quite another way. All this Bill does is to provide the funds on which local authorities can draw as need arises. Your Lordships may ask why the figure of £500,000,000 is fixed as the maximum amount of advances. We have to take what is a reasonable estimate. It is not possible to say definitely in advance exactly what will be required. The financial resources of different local authorities vary. Some authorities will have loans maturing during the coming year, and will have to provide themselves with funds to repay these loans. Other authorities will have no maturities and will haw internal resources which they can apply temporarily to financing their capital works. In addition, the rate of progress of different kinds of construction which local authorities undertake varies greatly. Therefore, £500,000,000 has been taken as a figure which, on past experience, is considered to be a reasonable one. Secondly, I would point out that this Bill has nothing whatever to do with the rates of interest which are charged by the Public Works Loan Commissioners on loans which they are authorised to make. It happens to be a pure coincidence that I come to the House to ask for authority for the Commissioners to make these loans and that the rates at which they will in future make loans is higher than it was a short time ago.
I think perhaps your Lordships will wish to have some indication of the purposes for which the loans are likely to be used. We now have the figures of local authority expenditure by means of these loans up to the end of November, 1951. The amount advanced was £378,000,000 and of that amount, £273,000,000 was for housing, £37,500,000 for education, £10,500,000 for health, £9,000,000 for stock redemption—that is, for maturities—and the remaining £48,000,000 for a number of miscellaneous purposes, including transport, water, land drainage and other services. As one would expect, by far and away the largest amount is for housing, and the next largest individual figure is for education. I do not think there is any reason to suppose that over the coming period the ratio is likely to be very different. It may be asked what would 751 happen if we made a bad guess, and the £500,000,000 were not enough. The answer is that the Commissioners could not make any further advances without coming to Parliament for further sanction.
I am not going to re-embark on the interesting debate which we had on the questions of monetary policy and the Bank rate—to which the noble Lord. Lord Pakenham, made a remarkable contribution, as did the noble Lord, Lord Pethick-Lawrence, and which I, as a mere tyro in these matters, did my best to answer—because if we had any rules of Order I should certainly be wholly out of order in doing so. I will say only this, which does not go into that matter: the principle that loans by the Public Works Loans Commissioners should be made without loss to the Central Government is hallowed by tradition, and, I think, is generally admitted to be economically sound. That procedure, with one, shall I say, lamentable exception, has been followed ever since this system started, away back in the 'nineties.
The rate of interest has been varied forty-two times, and it has ranged from 2½ per cent. to 6½ per cent. for loans over fifteen years or more. The only conscious departure (I imagine it was a conscious departure) was made by the late Government in the autumn of 1949, when the long-term interest rate was definitely rising and when the Government of the day decided that they would not alter the rate of interest at which they lent to local authorities, although they themselves for the equivalent terms would have to borrow at a higher rate. Different opinions are held in different quarters of the House about the value of subsidies, but I think there is one thing on which almost every noble Lord will agree; that is, that a concealed subsidy is far and away the worst form of subsidy we could have. Therefore, if the Government were borrowing at a higher rate of interest than that at which the Commissioners were re-lending to the local authorities, that, of course, would be a concealed subsidy. So the present Government decided that they would revert to what I may call the regular and proper practice of bringing the interest rates once more into line with the market and with 752 the rate at which the Government themselves could borrow for a similar term of years.
The result was that the rate of interest was increased from 3 per cent. to 3¾ per cent. Quite naturally that caused some concern to some local authorities. But, as I have said, if that had not been done the local authorities would have been receiving a concealed subsidy over and above the open subsidies, given by the central Government and approved by Parliament, to housing and other local government activities. The Minister of Housing and Local Government has announced that in the forthcoming negotiations with the local authorities—and, as your Lordships are aware, these negotiations have been specially advanced in point of time—the recent increases in interest rates will be taken into account in determining the future of housing subsidies. I have explained clearly, though briefly, the purpose of this Bill, what it does and does not do, and I have given the House, without transgressing our non-existent rules of Order, such information as I hope may be of interest to your Lordships. I beg to move that the Bill be now read a second time.

LORD PAKENHAM
My Lords, I am sure that we are all obliged to the noble Viscount for the extremely lucid and, as it seemed to me, orderly account he has given of the Bill. He has described himself as a tyro in finance. All I can say is that I should be pleased to entrust any money that I had (if I had any) to him in a private capacity; though, of course, I should be more cautious about money of the State if I had any control over that—and even then it would be no reflection on the noble Viscount, but simply due to the political company he keeps. I hasten to say that we wish to support the Bill, and are grateful to the noble Viscount for bringing it forward. He has touched on this raising of the interest rates and, in view of that, and as discussion was allowed in another place, I am sure that in my turn I shall be permitted to say a few words on the subject, although I recognise, that this is not the occasion to cover once again the ground that we covered so well together during the de- 753 bate on the Address, when we discussed from our different angles the raising of the bank rate.
With great respect to the noble Viscount, I must inform him that, while he gave us a valuable account, from the Government point of view, of why the bank rate had been raised, we remain unconvinced as to the wisdom of that measure. We still wonder who is to get the £16,000,000 net which the taxpayer will lose. I understand that it will not be the banks, and I do not think any of us knows to-day whether it will be the banks, or who will get it. This £16,000,000 is still a kind of floating kidney.

LORD HAWKE
The noble Lord will get it on his deposit in the bank.

LORD PAKENHAM
I think it is very obscure as to whether we collect that £16,000,000 between us. We must wait and see who obtains it in the end. It is clear that the taxpayer loses, and noble Lords opposite have been such ardent champions of the taxpayer that I expect them to be as sorry about that as we are. We also wonder—although this is going outside the discussion to-night—in the way indicated by the noble Lord, Lord Pethick-Lawrence, about the possible implications of this inflationary policy. I do not like the word "disinflationary"—though I am not sure that it was not originally coined from this side of the House, so I must not say much about it—but I notice that one Government spokesman elsewhere said that we were trying to move in a disinflationary direction, by which I understood him to mean from an inflationary position to a point half-way between an inflationary and a disinflationary position. I do not think any of us really knows what this position is intended to be. But we are anxious about it, and we must simply await events.
I wish to refer, in a few sentences, to the effect on housing of this raising of the rates on loans to local authorities, bearing in mind that we are to have a debate on housing as soon as we resume after the Recess. I wish to inform the noble Viscount that we are much concerned about the effect on housing, and I am sure that will be one of the central issues on the housing debate. The noble Viscount has said, and has supposed that we should all agree, that a concealed 754 subsidy is inferior to an open subsidy. We could argue for some time as to how far a subsidy would have been concealed if the rate had not been raised. It is difficult to arrive at a precise answer to that question, because it is difficult to decide how much these loans will have cost the Central Government. But, leaving that point for the housing debate, I would ask the noble Viscount (I am afraid that he may not be able to answer now) only whether he can tell us to-night that any increased charges to the local authorities will be compensated by an increased subsidy. If that were so, from the point of view of the local authority it would be simply a change from one pocket to the other, and they would be completely compensated. I do not know whether the noble Viscount can give an assurance on that. I know the Chancellor of the Exchequer could not do so, but I give the noble Viscount this further opportunity to-night. Until that assurance is given, we must suppose that local authorities may lose; and, if local authorities lose, the question arises as to how they are to recoup themselves. Is there to be a rise in the rents of council houses? Will the ratepayer pay? Or will fewer houses be built? I conclude on that question to the noble Viscount: Can he give us an assurance that local authorities will be completely compensated; and if not, can he explain to us who will pay as a result of these increased charges?

§ VISCOUNT SWINTON
My Lords, the noble Lord, Lord Pakenham, will not expect me to go beyond the statement which I made in opening, that when the Minister of Housing conducts his negotiations with the local authorities the increases on interest rates will certainly be taken into account in determining what is to be the housing subsidy in the future. It would be both premature and improper for me to go further than that. The noble Lord will wait and see what are the results of the negotiations. I do not think he need be gloomy about our building only as few houses as the late Government did. I believe that the final result will give him social satisfaction, if not political satisfaction—at any rate, I hope so. I am certainly not going to get involved with him now on the old bank rate issue. But he has again made the mistake which, consciously or unconsciously, he made last time, when he dealt 755 with this £16,000,000 in isolation—I am glad that the figure has come down from £25,000,000 to £16,000,000.

LORD PAKENHAM
£16,000,000 net.

§ VISCOUNT SWINTON
Yes; it is better to give the net figure. As I explained to the noble Lord last time—indeed, he well knew it, because he is a first-class economist and a pretty good financier—if this change in monetary policy had not been made (and I described exactly the way in which we hoped and intended it would operate) the general effect on the level of costs and prices, which are the things that more than anything else affect the Budget, and therefore on the Budget itself, would have been out of all proportion to the £16,000,000. At any rate, that is what we in the Government hold very strongly. I deployed the argument fully in the debate upon the Address, and I do not want this debate to go on record without my having repeated that it is wrong to regard the £16,000,000 in isolation and as apart from the object and, I feel pretty sure, the effect of our improved monetary policy.