PUBLIC WORKS LOANS BILL (Hansard, 22 March 1955)

LORD HAWKE
My Lords, this is rather a formal Bill, and I hope your Lordships will forgive me if I move it in very few words. It is a periodic Bill to enable the National Debt Commissioners to replenish the till of the Public Works Loans Commissioners, from which they can in turn lend to local authorities and certain other bodies. The limits of 26 lending are £500 million of fresh loans, and any unlent balance from the last Act is automatically cancelled on the passage of this Bill. The last Act was passed on December 18, 1953, and advances from then up to March 19 last have been £454 million, leaving a balance of £46 million still unadvanced. In addition to prescribing lending limits, the Bill also limits the total commitments to lend, in that the sums lent plus the commitments must never exceed £1,000 million at any one time. On March 19, commitments were £490 million.
The figure of £500 million for loans is the same as in the last six Acts, but the figure for commitments plus loans is reduced from £1,200 million last year to £1,000 million this year. This is as a result of the general examination and striking off of commitments never likely to mature. It is impossible to say precisely how long the figure of £500 million in this Bill will last. It depends on two unknown factors. First, it is not known what volume of work the local authorities will want to do. Most of the work covers Government grant and the final say is not with them. Secondly, the local authorities have access to private lenders and one does not know to what extent they will want to take advantage of those sources. The Bill is usually calculated to last a year or a bit over. The last one will have lasted fifteen months, but there is nothing to prevent the Government from coming forward with a fresh Bill if funds run out earlier. The Bill speaks for itself, but if there are any questions that noble Lords wish to ask, I will do my best to answer them. I beg to move that the Bill be now read a second time.

§ LORD PETHICK-LAWRENCE
My Lords, this Bill is, in itself, as the noble Lord has just told us, a routine Bill. As such, I think it is very unlikely that anyone in this House, and certainly not the members sitting on these Benches, will wish to oppose its passage into law. In the other place, however, considerable debate arose on the Second Reading on a matter which, though not directly in the Bill, is germane to it and which, therefore, it was perfectly relevant to discuss on the Second Reading of the measure there. The matter arises on the decision 27 by the Chancellor of the Exchequer to raise the rate of interest on loans to local authorities more or less simultaneously with the introduction of this measure into Parliament. If that were purely a financial question it would hardly be necessary to trouble your Lordships with it, but it is not only of interest to financiers but in a way likely directly to concern the man in the street. Therefore I think it is of some importance to mention it in this debate, though I have no wish to weary your Lordships with a long discussion on this subject.
Your Lordships are, of course, aware that the rate per cent. which is charged to local authorities for borrowing is a long-term or at least a medium-term rate. Therefore, it is not directly connected with the bank rate. Nevertheless, an alteration in the bank rate, as we have seen recently, does have effect on the price of securities, including gilt-edged securities: the higher the bank rate the more the price of gilt-edged securities tends to fall. Therefore, this rate, which the Chancellor of the Exchequer has recently raised, owes its origin to the raising of the bank rate. It is not precisely connected, but indirectly connected. When the present Chancellor of the Exchequer some years ago raised the bank rate, he simultaneously raised the subsidy for house building, with the result that, though the local authorities had to pay more for the money they borrowed to build houses, owing to the fact of the increase in the subsidy at the same time the net cost to the local authorities, and therefore the rents which they charged, were not affected by the change. In the present instance the Chancellor of the Exchequer has decided not to increase the subsidy correspondingly to the increase in the rate of interest. Therefore, unless the ratepayers are to bear a heavier burden, the tenants of houses built or started to be built from this day onwards will have to pay an increased rent which may run into shillings a week.
I am not going to make a speech about the bank rate now; I have talked to this House about it before and I am certainly not going to do it again to-day. All I desire to point out to your Lordships is that there does arise the curious result that in future there will be two tenants, one in a house in one street and the other in a house in an adjoining street, and one tenant will be paying a rent greater 28 than that of his fellow by shillings a week, just because the plan for building his row of houses took place after a certain date in 1955; whereas his fellow tenant will be paying a lower rent because his set of houses was built before a certain date. I think that is rather curious. I conclude by saying that I have pointed out a number of disadvantages in attempting to govern the economic life of the country through the bank rate. This is one of the anomalies which arise out of the decision to take that course.

LORD HAWKE
My Lords, we all know that the noble Lord, Lord Pethick-Lawrence, is a little allergic to the bank rate. We have often argued with him across the floor of this House on the subject. This time he does not make any strong arguments one way or the other. I think we must agree to differ on that matter. At the moment, however, the present Government are running the economy, an economy where our bias is towards freedom. When our economy gets a little too much buoyancy, the medicine that we prescribe is to give a dose of sedative in the shape of the bank rate. I think it only fair to say that one does not give the patient a continued course of sedatives for longer than is necessary. I think the noble Lord, Lord Haden-Guest, would agree that one withdraws the prescription from the patient at the earliest possible moment. I have little doubt that my right honourable friend the Chancellor of the Exchequer will wish to do that to our economy.

§ LORD PETHICK-LAWRENCE
My Lords, will the noble Lord kindly allow me to say that you do not get the rent down again? The poor unfortunate tenant will have to go on paying the higher rent for the rest of his life.

LORD HAWKE
I was just coming to that matter and was about to point out that I think the noble Lord is under a slight misapprehension there, at any rate as regards the vast majority of cases. I have not seen it myself, but I was told that there was an article in the Economist not long ago headed "Mythical Local Authority That Built One House." I believe the noble Lord is referring to that. Undoubtedly, the mythical local authority that built one house would have to charge a higher rent for that house, ad infinitum; but in the vast majority of 29 cases these loans are averaged over the whole economy of the local authority. The bigger authorities have a consolidated fund, and every year they work out the interest rate for the total amount in that fund. They charge their services out accordingly. For instance, suppose there was a local authority with a £20 million consolidated fund, and suppose during a period of higher bank rate, when there was a rise from 3¾ per cent, to 4 per cent., they chose to borrow another £1 million: at that one-quarter of one per cent. higher rate, the rate over the whole of their fund would go up by approximately one-eightieth of one per cent., and the amount charged on and spread over the whole of their housing tenants, would actually come to something less than an extra penny a week. We have only to wait for the bank rate to go down again, for them to borrow an amount of about £1 million plus a fraction, and the average would come back to what it was last year. I think the noble Lord is under a misapprehension in thinking that this particular rate will apply for ever to any specific works, at any rate in the vast majority of local authorities. Even if it did, it would amount to nothing like shillings per week. I do not think the noble Lord made any further points, and I have done my best to reply to those he has raised.