§ 3.22 p.m.
§ Order of the Day for the Second Reading read.
§ THE MARQUESS OF LANSDOWNE
My Lords, on behalf of my noble friend, I beg to move that the Public Works Loans Bill be read a second time. During the short time that I have had the honour of sitting on the Government Front Bench of your Lordships' House, it has seemed to me that Lords in Waiting share with my noble and learned friend the Lord Chancellor the privilege of hearing more of your Lordships' speeches than most other Members of this House. But although we share this privilege, we naturally do not so often have the compensation, so to speak, of "getting our own back". This is the first occasion upon which I have had the honour of being entrusted with the Second Reading of a Bill, and if I address your Lordships on it in some detail, let me assure noble Lords at once that it is in no spirit of retaliation that I do so, but simply in an honest attempt to give the House all the important facts contained in this Bill.
The main structure of the Bill is already familiar to your Lordships from previous Bills of a similar kind. The purpose of the Bill is to make available to the Public Works Loan Commissioners, funds which they can lend to local authorities, housing associations, river boards, harbour boards and other such bodies. Your Lordships will recall that previous Bills of this kind have been introduced whenever the provision made by the last Act has been nearing exhaustion. The last Public Works Loans Act received the Royal Assent on August 2, 1956, and empowered the Commissioners to make loans up to a total of £300 million. By November 29 last the 973 Commissioners had lent £183.4 million; and at the average rate of lending that has ruled since last July the resources made available to the Commissioners would be likely to be exhausted early in July, 1958. The rate of lending has been at about £3 million per week, on average. It will therefore be necessary to make a further provision during this Session.
Clause 1 of the Bill authorises advances up to £300 million from the time the Bill becomes law, and, at the same time, it cancels the existing authorisation. In other words, any unused balances when this new Bill receives the Royal Assent will lapse automatically. Provisions of this kind do not determine the amount of money lent by the Commissioners. They simply renew the Commissioners' powers at intervals convenient to Parliament. At the rate of lending since last July the provision of £300 million will keep the Commissioners in funds for about twenty months. Your Lordships may care to know for what purposes the £183.4:million, to which I have referred, has been lent by the Commissioners up to November 29 last. The breakdown is as follows: £138.4 million have gone on housing; £9.5 million on education; £13.6 million on public health; £2.5 million on redemption of debt; and £19.4 million on transport and water, land drainage and other purposes. Local authorities, in Scotland drew £15.8 million of this total, which is in line with the average Scottish drawings for the previous eight or ten years.
Clause 2 enables the Commissioners to incur commitments to lend over and above what they have actually advanced. It provides that the total commitments, together with advances actually made, shall not exceed at any one lime a total of £400 million. The limits in the present Bill are the same as those written into its predecessor, and the policy under which the Board are operating has undergone no change since the last Act was passed. Prior to December 2, 1954, the practice was for the Public Works Loan Board to approve loans which the borrower could take up at an unspecified later date, and he might even not take them up at all. This, of course, meant that commitments to lend could accumulate on the Commissioners' books to an unlimited extent. In December, 1954, by agreement with local authorities the loan 974 procedure was revised so that the Board's approval was sought only if it was virtually certain that the money would be taken up. In October, 1955, further new lending procedure was introduced whereby borrowers were required to take up loans approved by the Board within approximately one month of approval. In March, 1956, all unexercised loan approvals given by the Board before December 31, 1954, were cancelled. The resulting reduction in outstanding commitments amounted to a sum of £213 million.
As I have already outlined to your Lordships, since October, 1955, approvals have been translated into loans within approximately a period of one month, so it is no longer necessary for the statutory limit for commitments to lend to be substantially greater than the limit for advances. The arrears of commitments incurred since 1954, together with current commitments, amount to about £60 million. It has therefore been thought that £100 million is a reasonable margin to propose above the limit for actual advances.
Clauses 3 and 4, which I will take together, deal with three loans that now prove to be irrecoverable. The method of dealing with these is governed by the requirements of the Public Works Loans Act, 1875, and the National Debt and Local Loans Act, 1887. When a loan made by the Commissioners is irrecoverable it has to be dealt with in two stages. The first stage is to write it off as an asset of the Local Loans Fund; this is what Clause 3 does. But the loan still remains as a debt due from the borrower, not as before to the Local Loans Fund, but to the Exchequer. To write the loan off completely it is then necessary to extinguish it altogether. This is what Clause 4 does. The House will see that these two clauses are only the formal steps by which we clear from the books loans which can now never be repaid. Similar steps have frequently been taken since the Public Works Loan Commissioners were reconstituted in 1875; the last occasion was in 1952.
Before I sit down I should like to take the opportunity of expressing, on behalf of Her Majesty's Government, thanks to the Commissioners themselves, who receive no emoluments for their 975 highly responsible work. We owe gratitude to them for the public spirit that they show in exercising their experience and judgment in the service of the community. My Lords, I beg to move.
§ Moved, That the Bill be now read 2a.—(The Marquess of Lansdowne.)
§ 3.30 p.m.
§ LORD SILKIN
My Lords, I am sure the whole House will wish to congratulate the noble Marquess on his debut this afternoon and on having what appears to him to be the unusual privilege of speaking instead of listening. I hope he will not think I am impertinent or patronising if I say that he spoke exceedingly well. I wish that the subject matter of what he had to say was as agreeable as the manner in which he said it. The Public Works Loans Bill, for all its technicality, is a very important measure for the local authorities of this country. The noble Marquess, in going through the history of the work of the Board, did not explain to the House how the local authorities were getting on as regards loans. Until a certain date, they were able automatically to go to the Public Works Loan Board, to borrow whatever they needed and were authorised to borrow. But at a certain date—I do not carry it in my mind because, like Lord Mancroft, I was not prepared to speak to-day—they were prohibited from going direct to the Public Works Loan Board and were required first to seek out all other alternative means of borrowing and only go to the Board if all else failed.
The result of that is that they have been compelled to borrow at much higher rates of interest than they would have had to pay if they could have got the money from the Board itself. Consequently, this has been reflected in higher expenditure of local authorities and, of course, higher rates. I have never been able to understand why this provision was made, and why local authorities were debarred from borrowing money automatically from the Board as they had done formerly. I wonder if the noble Marquess is prepared for this question; whether he can tell us what has been the effect of this prohibition against borrowing, and to what extent the lending of the Board has been reduced as a result. I quite understand that there may be other factors which have brought about 976 a reduction in lending by the Board. Local authorities, generally, owing to increasing rates, for the last year or so have not been as active in incurring capital expenditure as they have been hitherto.
There is also to be borne in mind the fact that the constant changes in rates of interest have been rather embarrassing for local authorities, and we must hope that rates of interest will come down. I am sorry that the noble Marquess did not deal with this question of rates of interest in his speech, because a statement on that would have been of value to the House. He said that the amount of money which the Board was authorised to lend was sufficient for—I think this is what he said—twenty months. I should be interested to know on what basis he works that out. Is it on a basis of loans made in the past, or is there any anticipation of what the local authorities are likely to borrow in the future? To me it seems most unlikely that the rate of borrowing will be the same as it has been in the past so long as the high bank rate is in existence.
Now local authorities and others who may borrow from the Board are being actively discouraged from borrowing. That is part of Government policy. I am not arguing at the moment whether that is right or wrong policy; but it is Government policy to reduce the amount of expenditure on capital. Therefore, one must expect that the rate of borrowing will be substantially less than it has been in the past and that the noble Marquess will not have to come back to this House for further money for far longer than the twenty months which is now his estimate. I hope that the noble Marquess can give us further information, particularly about what has been the effect of the high rates of interest and of the varying rates of interest on the lending of the Public Works Loan Board. Subject to that we do not wish to stand in the way of the activities of the Board, and we certainly have no objection to giving the Bill a Second Reading.
§ 3.36 p.m.
§ THE MARQUESS OF LANSDOWNE
My Lords, by leave of the House, I should like to attempt to reply to some of the points which have been put to me by the noble Lord, Lord Silkin. Of course, 977 what the noble Lord has said is substantially correct. I do not want to take your Lordships far back into the history of the Public Works Loans Act though I could do so. As the noble Lord well knows, the reason for making the local authorities go to the market was to relieve the Exchequer, and the effect of that has been to reduce the authorities' demands on the Exchequer from about £360 million in 1955–56 to £120 million in 1956–57. That, I think, will give the noble Lord some indication of the effect of the Government's policy.
§ LORD SILKIN
My Lords, can the noble Marquess also say how much more local authorities have had to pay for the money they have had to borrow from the market than they would have had to pay had they been able to get it from the Board?
§ TFIE MARQUESS OF LANSDOWNE
I think I can help the noble Lord over that matter. The position really is that if local authorities are encouraged—as they are—to go to the market, the rates offered by the Public Works Loan Board must reflect the rates in the market, otherwise there would be differentiation in favour of the smaller local authorities, which are those which come principally to the Public Works Loan Board, because, as your Lordships no doubt know, a ban was put on loans of less than £3 million. That at once put out of court a number of the smaller local authorities. So, in fact, if the rates offered by the Public Works Loan Board did not reflect the rates in the market there would be an unfair situation favouring the smaller authorities, which I am sure your Lordships would agree would be completely inequitable.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.