PUBLIC WORKS LOANS BILL

HL Deb 13 February 1964 vol 255 cc676-93

4.53 p.m.

Order of the Day for the Second Reading read.

THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF HOUSING AND LOCAL GOVERNMENT (LORD HASTINGS)

My Lords, I beg to move that the Bill be now read a second time. It is some years since a Public Works Loans Bill was last before this House and it would perhaps be helpful to your Lordships if I were to sketch in the background to this Bill before going on to describe its main provisions. Some time ago the Government felt that the time had come to have a general review of local authority borrowing arrangements. This review was carried out in association with representatives of the local authorities. The policy changes decided upon in the light of this review were incorporated in a recent White Paper on local authority borrowing. The White Paper contained three main proposals. The first was that a limit should be placed on local authority temporary borrowing because of the consequences which an unchecked increase could have for monetary arrangement. The second proposal was that local authorities should be allowed greater access to the Public Works Loan Board, and the third that impediments to the adoption of modern lending and borrowing technique should be removed.

The Government intend that local authorities' temporary borrowing shall be limited to 20 per cent, of their outstanding loan debt and that authorities whose temporary borrowing exceeds this figure shall be allowed four years to get it down. There are perhaps 300 or so authorities in this position, mostly larger ones. The Government propose that local authorities shall have access to the Public Works Loan Board on a rising scale. The intention is that in the financial year 1964–65 they will be allowed to meet 20 per cent, of their long-term need from the Board. In the following year they will be able to meet 30 per cent., in the third year 40 per cent, and in the fourth year, the financial year 1967–68, 50 per cent, of their needs in this way. Thus by the time that the restriction on temporary borrowing becomes fully effective, local authorities will be able to meet half their long-term borrowing needs from the Public Works Loan Board.

It is recognised that smaller authorities do not find it as easy to borrow on the market as larger ones. It is accordingly intended that the percentage quota arrangements I have described should be coupled with a provision that favours smaller borrowers. It is proposed that any local authority should be allowed to meet the first £50,000 of its long-term borrowing needs from the Board. This arrangement will enable between 300 and 400 of the smaller authorities to meet all their long-term borrowing needs from the Public Works Loan Board—if they wish to do so—even during the first year of the new arrangements. It is hoped that in subsequent years it may be possible to allow local authorities to borrow up to £100,000 each from the Board, if this is greater than their percentage quota for the year would otherwise allow. Finally the Public Works Loan Board will act as lender of last resort, as now, and be empowered to make additional loans above a local authority's quota, if it is satisfied that the authority cannot raise the necessary funds on the market.

Greater freedom to borrow from the Board will be accompanied by a change in the terms on which loans are made. In future the rate of interest on loans from the Board will be mostly related to the rate at which the Government borrow, instead, as at present, to the rate at which local authorities borrow on the market. This should reduce the cost of their longer-term borrowing. It is impossible to say in advance what the saving will be, because the trend of interest rates cannot be forecast. All I can tell the House is that if the new arrangements were in force to-day charging interest on the new basis would mean that local authorities would pay up to ¾ per cent. less on loans from the Board, depending upon the period of the loan. I should add that not all the Public Works Loan Board loans will be made at the Government rate. This rate will apply only to loans within an authority's annual quota. Any additional loans which the Board makes as lender of last resort will be made at the local authority market borrowing rate, as at present.

The general effect of these new arrangements will be to introduce a measure of control over temporary borrowing and to permit substantially greater borrowing from the Public Works Loan Board. Noble Lords who are wondering whether the mixture of stick and carrot is suitably balanced may rest assured that the ratio of carrot to stick is agreeably high. It is estimated that the amount of excess temporary debt to be funded is about £300 million, whereas Public Works Loan Board loans to local authorities in the four year funding period will be several times as great as this. For example, loans by the Board in 1964–65 and 1965–66 are expected to be in the region of £240 million and £340 million respectively, and in subsequent years they will be even greater.

I turn now to the provisions of the Bill. Clause 1 makes the necessary new provision for funds for the Public Works Loan Commissioners. The clause provides that £650 million shall be available for making local loans. We believe that this amount will provide the Public Works Loan Board with sufficient funds for the next two years. The clause also enables the Loan Commissioners to undertake to make loans after the period during which money may be issued under this Bill. Because the commitment provision covers a rather longer period than the lending provision, we need to specify a larger amount. As is usual, and as has been done in past Bills of this nature, we have provided an additional £100 million for this purpose.

Clause 2 of the Bill specifies the Treasury's powers to fix and vary the rate of interest charged by the Board. To a large extent the provisions of this clause actually reproduce and consolidate existing legislation, some of which dates back to 1897. But the clause is also designed to provide for the introduction of the dual interest rate system which I have already described. The reference in Clause 2 in lines 9 and 10 on page 2 of the Bill to different rates of interest may be fixed in respect of different sums borrowed for the same length of time is a reference to the system of dual interest rates. It does not imply that different types of local authority will have to pay different rates of interest or that smaller authorities may have to pay higher rates than larger ones.

Clause 3 of the Bill provides for a number of procedural changes on Public Works Loan Board matters and in the law relating to temporary borrowing by local authorities in Scotland. It contains some useful reforms which I know that local authorities welcome and which my Ministry welcome, too, for the simplifications they will introduce into local authorities day-to-day accounting operations. Clause 3 (b) (i) for example gets rid of the existing restrictions that the P.W.L.B. loans must all be repayable by instalments. This will be a considerable convenience to the growing number of authorities which practise loans pooling in one form or another and prefer to borrow a fixed sum for a fixed period. Clause 3 (c), (d) and (e) simplify the accounting arrangements for the loans. The repeals here are largely designed to bring the law into line with existing practice.

I should perhaps also refer to Clause 3 (g), which repeals the existing legislation that restricts temporary borrowing by local authorities in Scotland. The present law provides that these authorities may not have more than 15 per cent. of their outstanding debt in the form of temporary borrowing. The effect of repealing this section of the Local Government (Scotland) Act, 1947, will therefore be to permit Scottish authorities to increase their maximum temporary borrowing from 15 to 20 per cent. of their outstanding loan debt. Incidentally, the new restriction is not provided for in this Bill. This is because existing powers under the Control of Borrowing Order, 1958, permit the new restriction to be imposed without the need for fresh legislation.

Clauses 4 and 5 provide for the write-off and remisison of various 19th century loans to four harbour authorities, three of them in Cornwall and one in Northern Ireland. These are loans where the outstanding principal is unlikely to be recovered and the Government feel that the time has now come formally to remit the loans in question. Clause 6 amends and clarifies the re-borrowing powers of local and other public authorities. The length and apparent complexity of this clause is due to the variety of circumstances which have to be covered, such as different methods of repaying loans and the different situations in which the need for borrowing may arise. There is some obscurity in the present thirty-year old law—the 1933 Local Government Act is the main provision—brought about by changes in accounting techniques, and in particular there is some doubt as to the situation when repayment is made through a loans pool. This clause is designed to put the matter beyond doubt.

Clause 7 increases the limit on outstanding Treasury advances to the Government of Northern Ireland for the use of the Northern Ireland Government Loans Fund. This fund makes loans for public works, mostly to local authorities. The effect of this clause is to increase the present limit of £30 million on outstanding loans in the Miscellaneous Financial Provisions Act, 1955, to the £40 million provided in the present Bill. At a time when we were increasing the funds available for local authorities to borrow from our own Public Works Loan Board, it seemed appropriate to extend the Treasury power to make advances to the Government of Northern Ireland for the purposes of its own comparable fund, since outstanding advances are over £25 million, less than £5 million short of the limit. Clause 8 provides for any increase in rate deficiency grant or Exchequer equalisation grant that becomes payable as a result of changes brought about by this Bill. It is customary to include a provision of this kind whenever there is a possibility of this sort of thing happening.

As your Lordships will realise from what I have said, this Bill, besides increasing the amount available for loans from the Public Works Loan Board to local authorities, also provides for a number of helpful procedural changes. These will be supplemented by other administrative changes, one of which will enable the P.W.L.B. to advance money in about half the time required at present. This will, I am sure, be welcomed by the local authorities.

In concluding my remarks, I should like to remind your Lordships of the general object of the policy changes that are being made. It is to reconcile the needs of monetary management with the natural and proper desire of local authorities to have ready access to capital as cheaply as is compatible with prudent finance. This demands some restriction on both the use of temporary borrowing by local authorities and the provision of long-term finance by the Exchequer. The Government believe that their proposals strike the right balance and that the new arrangements provide an answer to the needs of 1964 and the future. With this thought, I commend the Bill to your Lordships, and I now beg to move that it be read a second time.

Moved, That the Bill be now read 2^a.—(Lord Hastings.)

5.6 p.m.

LORD LATHAM

My Lords, I am sure we are all indebted to the noble Lord, Lord Hastings, for his explanation of the provisions of this Bill and for his compendious summary of the new proposals embodied in the White Paper. This Bill is, in fact, unobjectionable, and it is also unexceptional. It does not enshrine any element of high policy. Its main purpose, as is stated in the memorandum accompanying the Bill, is to give effect, in so far as legislation is necessary, to the new proposals as set out in the White Paper. Accordingly, there can be no objection to the Bill.

That is not the case, of course, with regard to the new proposals. They are objectionable, and they will have a serious effect upon the finances of local government. It is proposed to impose a restriction upon local authorities as regards the measure and volume of temporary borrowing. It is very difficult at the present time for local authorities to obtain the finance for capital projects which they need from year to year. The local authorities borrow in total something in excess of £500 million a year—in 1962 I think the sum was £550 million. The loan charges of local authorities are at present in the region of £415 million a year; in the future, the borrowings, and, as a consequence, the loan charges, are likely to grow very substantially. After all, we have a good deal to do in the field of local government in the building of houses, clearing the slums, building schools and rebuilding town centres; so the measure of increased finance that local authorities will need will grow and grow.

The noble Lord did not, I feel, explain why the Government are taking these steps at the present time. The result will be that loan charges of many local authorities will be increased, and there is no suggestion, in the White Paper or elsewhere, that this change, which is important, has been made in the interests of local government. It has been made, of course, in the interests of the national finances. To that one could take no exception, except on this basis: that the local authorities will have to pay, because the proposals embodied in the White Paper, which we understand will become effective as from April 1, will result in the local authorities having to pay higher interest rates for their monetary needs. My Lords, it is to these proposals that I shall address my remarks.

It is the case that, since 1954, successive Governments have forced local authorities to borrow temporarily as a result of denying them, except in the last resort, access to the Public Works Loan Board. The consequences of this will be seen in a moment, when I give the figures. But the Government now propose to restrict the proportion of temporary borrowing, which will inevitably result in local authorities having to go into the long-term market for at least 50 per cent. of their long-term requirements, and they will have to pay a higher rate of interest. No doubt the Government have become somewhat frightened at the consequences of their policy of non-access to the Public Works Loan Board since 1955—and well might the Government be frightened—for at the present time temporary borrowing of local authorities amounts to no less than between £1,200 million and £1,300 million, representing 15 to 16 per cent. of the total local government debt. Of this total, £800 million is on seven days' notice, and £160 million is from foreign bankers.

My Lords, it is an unedifying story of the actions of successive Governments since 1953 in regard to local government finance. It deserves recounting, and I am perhaps not wholly disqualified from recounting it by the circumstances that I was for fifteen years a member of the Public Works Loan Board and I was intimately concerned with the discussions which took place in 1945 and led to the very wise decision of the then Coalition Government, that the Public Works Loan Board should provide all the capital needed by local authorities except in certain quite unimportant special cases. Sir John Anderson, as he then was, later Lord Waverley, was Chancellor of the Exchequer. He realised that, on the conclusion of hostilities, there would be an enormous demand for money by local authorities to carry out war damage repairs, to replace destroyed buildings and to carry out accumulated repairs to houses which had been neglected for years—and, indeed, for repairs to roads. He knew that if the local authorities were left to their own devices to get this money, there would be an unholy scramble; that there would be the chaos of competition, with the result that the rate of interest would be pushed up.

To avoid that, as I have said, the Government introduced the Local Authorities Loans Act, 1945, under which the local authorities were required, save in special cases, to borrow money from the Public Works Loan Board. In short, it was a planned provision of the necessary finance. The rate of interest charged was roughly the same as the Government paid; and, as I have said, legislative effect was given to that by the Act of 1945. Experience has shown how wise that policy was. Over the seven years from 1945 to 1952, over £1,600 million was provided for the local authorities by the Government, through the Public Works Loan Board, and it was provided at a rate of interest of just under 3 per cent., taking one year with another. Contrast this with the state of affairs after the conclusion of the 1914–18 war, when there was no planning of the provision of finance. Local authorities were left to their own devices; there was a scramble for finance which pushed the rate up to over 6 per cent., and local authorities were compelled to finance housing schemes by money borrowed on long-term at 6 per cent.-plus. Some of these stocks were issued at a discount, and some of them for 60 years—and certain local authorities are still paying the high rate of interest of 6 per cent.-plus.

This arrangement of 1945, it is quite clear, was a sound and wise one, as the comparison I have given amply demonstrates, I submit. Indeed, it was so successful and so sound that the Tory Government of the day promptly put an end to it—I suppose in pursuit of "setting the people free". But it is the case that, as from January 1, 1953, that arrangement came to an end; it lapsed. Local authorities were told to get their money where they could, except that they could not, other than in very special cases, obtain any of it from the Public Works Loan Board.

That has been the position since October, 1955. The Board became lenders only in the last resort, and they became lenders in the last resort at a steadily rising rate of interest; so that, between 1954 and 1961, the rate of interest was, on occasions, 7 per cent. My Lords, 3 per cent. under a Labour Government and 7 per cent. under Tory Governments—which, I suppose, is how Conservative planning works! At any rate, it is an outward and visible sign of "setting the lenders free". The enormity of this increase in the rate of interest will be appreciated when I say that a 1 per cent. increase on an expenditure of £550 million on a 30-year redemption basis amounts, over the whole period, to no less than £83 million. On coming down to smaller matters, 1 per cent. on a house costing £2,200 represents 7s. 3d. per week on the rent for 60 years.

As I have said, this has been done, not to help local authorities but to help national finances—I suppose to avoid the approaching balance-of-payments crisis. It was, I submit, my Lords, to mitigate the consequences of the mismanagement of the national finances. It is really a little unworthy that the London County Council should go to the market with a stock carrying £5 17s. 7d. on redemption as a rate of interest and have most of it left for the underwriters. In my submission, that is monumental evidence of the mismanagement of the national finances. At a time when local authorities face vast expenditure they are very much concerned that the rate of interest should be as low as possible. Not only has the rate of interest been higher than it need have been, but it is higher than it was under the arrangements negotiated by the late Lord Waverley. It is not very comforting that money for local authority needs should be obtained from abroad. It is neither encouraging nor worthy that the credit of British local government should be hawked around the money markets of Europe. As I have said, £160 million of "hot money"—or, as some people a little more correctly call it, "vagabond money"—has been borrowed from foreign banks and is repayable at short notice. Waiting, I suppose, for another balance-of-payments crisis, the high priests of the Treasury sit around telling their beads in a state of buoyant pessimism.

As a result of Government policy, something of the order of £1,200 million worth of permanent assets, of schools, colleges, houses and roads, have been financed by short-term borrowings. I suggest that no sensible people can derive any comfort from that situation. Much of the borrowing—£800 million—is on a month's notice, and some of it is on seven days' notice. The Government are scared, no doubt, and propose some new arrangements. The noble Lord has indicated what these arrangements are. I am informed that there are 300 local authorities where the outstanding short-term borrowing is in excess of 20 per cent. of the total local debt; and some where the proportion is 50 per cent.

The application of this 20 per cent. proportion to those authorities where the short-term debt is at present in excess of that figure imposes on them a double obligation: they have first of all to bring their existing debt within the framework of the 20 per cent., and they must then see that in any future financing or borrowing they are still within that proportion. Therefore you are imposing on these authorities a double obligation. These authorities have not got into this position through any wilfulness; it is because they have, for the most part, been active, vigorous local authorities, getting on with the job of providing the social services which their ratepayers are entitled to have. The result will be that these authorities in excess of 20 per cent. will be punished—if I may use that term—because they will have to borrow more in the long-term market than would otherwise have been the case.

So, my Lords, we take the view that these new proposals ought not to receive the support of Parliament. They are not, as I have said, embodied in the Bill. As was the case between 1945 and 1952 the local authorities should be financed by the Government through the Public Works Loan Board; and the rate of interest should be the Government lending rate and not the local government borrowing rate. There is an enormous amount of work to be done by the local authorities. Since they are, for the most part, agents of the Government and are carrying out a social and welfare policy decided upon by Parliament, at the instance of Government, the local authorities who incur the capital expenditure should be able to obtain it at a rate of interest that is about the same as the Government's own rate of interest.

There is a case to be made for having a specially low rate of interest for local authorities, having regard to the social significance and social value of the services upon which the money is spent. There can be no expenditure of greater social value than that upon social services, schools, houses and roads. Indeed, it is the case that much of the infrastructure of society needs to be repaired, to be reconstructed, to be refurbished, as it were. Much of it is a survival from the Industrial Revolution. They had the spacious ease; we now have the liability squeeze. We have to rebuild the centres of many towns and cities, and it is not inappropriate that the money necessary for these social purposes should be provided by the Government at a low rate of interest. This is especially so at the present time, when the burden of revaluation is supposed to be bearing hardly upon a considerable number of ratepayers in a number of districts, and when legislation is being considered for the relief of the alleged hardships in those cases.

Side by side with that we have the proposals as set out in the White Paper for adding to the burden of rates by increasing, or taking steps which will increase, the rate of interest that will have to be paid by the local authorities. My Lords, here we are, after twelve years of Tory rule, reaching the edifying position of putting ratepayers on a means test. Councillors are to become guardians, and local government officers are to become relieving officers. That is the position regarding local government rates and the financing of local government to which the Government have brought this country. As I have said, the Bill is not concerned with any matters of policy; it is a Bill to correct certain anomalies and, principally, to give effect to the legislative aspects of the proposals set out in the White Paper. The consideration of the finance of local Government will have to be dealt with when the Rate Relief Bill comes to your Lordships' House. In those circumstances, there is no reason why the Bill before us this evening should not obtain a Second Reading.

5.30 p.m.

LORD HUGHES

My Lords, I should like to intervene briefly on one point: this question of short-term borrowing by local authorities. I think it is sometimes forgotten, and the White Paper rather tends to gloss this over, that local authorities indulge in short-term borrowing for two purposes, and only one of them is because it is cheaper from time to time to borrow on short-term than to take long-term loans. Sometimes this works the other way round and the local authority are prepared to pay a higher rate for a short-term loan rather than be committed for very long periods to what they consider to be a high rate of interest. I know that more than one authority has been prepared to pay 6 per cent. for loans of three months rather than be committed to a rate, which they consider very high, of 5½ or 5¾ per cent. for twenty or thirty years.

To that extent, I am pleased, rather than otherwise, to see in paragraph 19 of the White Paper that local authorities, in going to the Public Works Loan Board, will not require to take their loans for the full sanction period and may borrow for a shorter period, and then go back when the loan has been repaid to borrow the balance of their needs at that time. I am disappointed, however, to see that the minimum period for which they can borrow under these arrangements is being raised from 7 to 10 years, because I am certain that there are many authorities who would be reluctant to enter into an arrangement to borrow at high rates of interest, even for a period of ten years, if they thought that there was the possibility—in fact, one might say, if some of them foresaw the certainty—under another Government of being able to borrow for a much shorter time and at a considerably lower rate of interest. I hope, therefore, that the Government, who after all are seeking in this Bill merely to remedy some of the worst consequences of their own actions since 1953, as my noble friend Lord Latham has said, will reconsider this question of raising the minimum period from 7 to 10 years.

I have never been able to understand Government policy in relation to borrowing, either from the Public Works Loan Board, in relation to local authorities, or from the Treasury in the case of nationalised undertakings. Now that this Bill has been produced to improve the arrangements for local authorities, I wish the Government would give some consideration to the circumstances in which nationalised industries borrow. At the moment, the policy applied to them is the very reverse of that applied to local authorities.

To local authorities, the Public Works Loan Board was the lending authority of last resort and they only came to the Board if they could not get their money by other means, particularly by going to the market. The nationalised undertakings, by action of the Government, have been prevented from going to the market and must do all their borrowing, except for comparatively small amounts on overdraft, from the Treasury. They have had no other option. If the loan sanction period has been in excess of 30 years, they have had to take the money for 30 years, at this exceptionally high rate of interest, and they have no authority whatsoever to borrow short-term money, as have the local authorities.

Inasmuch as the Government's interest in relation to both these bodies is to exercise some measure of control over the total amount of money that is being borrowed at one time, it seems to me reasonable that the same set of principles should apply to both types of authorities, and the most favourable conditions which are to be enjoyed by local authorities should be extended to undertakings which, in many cases, are doing work which, prior to nationalisation, was being done by local authorities. We have the ridiculous situation that if a local authority had still been the electricity undertaking, it would have had the benefit of these operations in relation to its electricity undertaking, but now that there is a nationalised electricity undertaking they must go to the Treasury and pay the extortionate rates of interests that have been demanded over recent years, as high as 6½ and 6¾ per cent. There are quite a number of Boards which have this millstone round their necks for the next twenty or thirty years.

I recognise that this has nothing whatsoever to do with the Bill which is before the House, except that it is reasonable to say that if the Government think that this is good policy to apply to public borrowing in one field, it cannot be bad policy in another, just because the borrower happens to be another type of public authority. I am in favour of Her Majesty's Government's giving consideration to applying these conditions, unfavourable as they are, to nationalised undertakings also, because these conditions will be of considerable advantage compared with the present system.

5.37 p.m.

LORD HASTINGS

My Lords, when the noble Lord, Lord Latham, started by saying that he had no objection to the Bill, I was prepared to congratulate myself, but obviously that was rather premature, because he then raised a great many objections to the proposals for carrying out the principle of the Bill. I must therefore address my few remarks in winding up this short debate to some of the noble Lord's objections. The noble Lord started off by criticising us for restricting temporary borrowing, but, later on, he said that the Government were evidently dismayed by the extent of borrowing and added, "And well they might be". It seems to me that if he believes that the Government were justified in being frightened at the extent of temporary borrowing, he can hardly criticise them for wishing to restrict temporary borrowing in the interests of sound finance.

LORD LATHAM

My Lords, authorities had to borrow on short-term by reason of the Government's own action, because the Government ceased to provide money for the local authorities.

LORD HASTINGS

None the less, I think that the noble Lord's two arguments cancel each other out. The third one he has produced I shall mention later. The noble Lord went on to say that it was difficult enough already for local authorities to raise money in the open market. But I would remind him that it will be much easier in future, because no less than half their requirements will now be met from the Public Works Loan Board at the Government rate of interest. So there is no question of making it more difficult for local authorities to borrow money; it will be made much easier, and I am sure that they will welcome that.

The noble Lord said that loan charges would be increased for many local authorities. That is true in respect of 300 or so whose borrowing at short-term rates is in excess of the 20 per cent. figure which we are now going to fix, but that will not be true for the vast majority of local authorities—some 1,400 or 1,500—who, as a result of this, will still be able to borrow, and borrow more than they are doing at the moment, at short-term rates. The noble Lord quoted a figure of 15 per cent. as the overall national figure of the amount of short-term borrowing by local authorities. The preponderance of these authorities will be able to increase their short-term borrowing up to a figure of 20 per cent. It is only the minority of 300 or so who will face increased loan charges as a result of this Bill and the proposals to carry it out. One cannot argue that this is putting a greater burden on local authorities because this minority have simply wished to take advantage of cheaper rates or other reasons, such as those the noble Lord, Lord Hughes, mentioned, to borrow short. The majority have not done so and they will merely be facing the same sort of charges as the majority of local authorities are already facing. I do not think that one can call that unfair to the minority.

LORD LATHAM

My Lords, that is not the view, as the noble Lord probably knows, of the Institute of Municipal Treasurers and Accountants, who have definitely stated that for many councils it will mean an increase in the cost of servicing loan debt.

LORD HASTINGS

I have said that in some cases this will be so. The next point the noble Lord made was that this Bill and these proposals are not in the interests of local authorities, but of the Exchequer, the Government, or, in other words, the national economy. Surely the noble Lord cannot divrce the interests of local authorities, borrowing, £1,000 million a year either for new works or for servicing their loan charges, from the interests of the nation as a whole, especially when the Government are financing the local authorities to the extent of more than half all their expenditure. Surely, in the interests of sound economy the local authorities and the Government must stand together. One cannot sink while the other swims; and we hope that they will both swim. That is one of the purposes behind the Bill.

LORD LATHAM

My Lords, the local authorities stood together in the seven years when they obtained their finances from the Public Works Loan Board at a rate of interest of 3 per cent.

LORD HASTINGS

I am coming to that now, if the noble Lord will be patient. I think that what I have said so far also, to some extent, looks after the point made by the noble Lord, Lord Hughes, about the reasons why sometimes local authorities borrow short at high rates rather than accept a debt over a long period, in so far as they will still in the majority of cases be able to borrow more short-term money than they are doing at the moment.

The noble Lord has gone over old ground, of course, and we are really brought up against the fundamental difference of opinion between his Party and mine on the question of finance and the way to manage the economy. He said that the Government have forced temporary borrowing on local authorities by denying them the use of the Public Works Loan Board. It is quite true that there was after 1952 a transitional stage for three years when the local authorities could borrow either from the Public Works Loan Board or from the market, and then in 1955 they were obliged to borrow entirely from the market at large. As a result, and quite rightly and properly, they began to look around to see the advantages of short-term borrowing, especially for repaying their maturing loans. That was foreseen.

LORD LATHAM

Surely they did not borrow short in order to repay a long loan?

LORD HASTINGS

As the noble Lord himself said, they have to service charges of over £300 million a year, and have borrowed short in the pooling system to help repay. As I was saying, this was foreseen, and at the time of the Radcliffe Committee, which reported in 1959, the Government were fully apprised of the future possible difficulties of short-term borrowing. They arranged to collect a lot more statistical information than was available at that time. As a result of that information they began to review the situation two years ago and came to the conclusion that, in view of the great increase in local authority borrowing in general, which had doubled since 1955—that is an important point—it was now desirable to introduce the system by which half the requirements would be met from the Public Works Loan Board and half on the open market. This is not a reversal. It is a consistent policy, and an evolutionery one. We are not going back to the period of the Labour Government.

I would remind noble Lords opposite that their cheap money policy—which they are now advocating again—led them into serious difficulties and eventually ended up in inflation which they found they were unable to control. We do not intend that to happen. That is why we are adopting this system now. I hope that most noble Lords will be satisfied with these explanations and will give the Bill a Second Reading.

If I may just refer to this question of the nationalised undertaking—and as the noble Lord said, it is rather outside this Bill—this was mentioned in a speech of my noble friend Lord Amory when he was Chancellor of the Exchequer and the Radcliffe Committee was being discussed. I think it was in November, 1959. If the noble Lord will refer to that speech I think he will see that this particular point was then considered and was adequately answered. I now ask your Lordships to give a Second Reading to the Bill.

LORD HUGHES

My Lords, before the noble Lord finishes, he mentioned the fact that what is being done to-day is done because circumstances are very different from those in 1955. It may be that something which appeared satisfactory to the noble Viscount, Lord Amory, in 1959 is not necessarily satisfactory to-day. In fact, during the years 1959 to 1964 the nationalised under- takings have continued to suffer under this disability. I would suggest that the Government might have another look at this. As I say, what was considered reasonable in 1959, either before or just after an Election had been successfully fought, might not be so good in 1964 and I do not put this point forward for electoral reasons.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.