§ 4.25 p.m.
§ Order of the Day for the Second Reading read.
§ BARONESS PHILLIPS
My Lords, I beg to move that this Bill be now read a second time. The Bill provides a fund for the Loan Commissioners for lending to local authorities. The sum provided is £900 million. It is hoped that this will be adequate to enable the Public Works Loan Board to meet the requirements of the local authorities until about 1290 the end of 1967. There is also provision of a further £50 million which will enable the Loan Commissioners to enter into commitments for loans which will, in practice, be taken up after the expiration of the present Act. This follows the provisions of the previous Act.
It might interest your Lordships, as it has done me, to learn a little about the Public Works Loan Board, one of our smaller public offices, but one with a very long history. The first Commissioners were appointed in 1817, though they did not receive their present title until later that century. Throughout their history the Commissioners have had one function—to lend money for public purposes. Over the years, the purposes for which they have lent money have varied, and some of them, such as the Cattle Diseases Prevention Act, compensation for damage during riots, emigration, and a Thames Tunnel, seem a little strange to us now. But throughout their long history the Commissioners have been lending to local authorities towards their capital expenditure. Today, this is almost the only lending the Commissioners do, although I am told that they will lend occasional sums for harbours under the Harbours and Passing Tolls Act, 1861.
The Commissioners themselves meet frequently to approve loans and deal with any other business. They are appointed from persons with financial experience, especially with experience of local authority finance. They are unpaid—yet another example of people giving their time voluntarily for public service, part of a tradition of which I think this country has every right to be proud. Their staff is small, but they manage to deal with many thousands of applications for loans in a year, and last year the sums they lent out added up, in all, to over £600 million. I am sure the House will join with me in paying tribute to them and to their staff.
I think that I ought to refer briefly to the arrangements for lending to local authorities which the Board will be operating this financial year. All local authorities will be able to borrow from the Board, at advantageous rates of interest, 30 per cent. of their total long-term borrowing needs for the year. For authorities in less prosperous regions (Scotland, Wales, the North, and the 1291 North-West of England), the proportion will be 40 per cent., and any authority, whatever its total borrowing needs, will be able to get up to £100,000 from the Board. This last provision means that many hundreds of the smallest local authorities are able to finance all their capital works from the Board. These arrangements are the same as those that were in force last year. One change has, however, been made. An authority's quota will be reduced to the extent that it has already drawn a quota loan in one year on borrowing maturing in the succeeding year.
I know that there has been some disappointment that it has not proved possible to increase local authorities' quotas this year. However, I think that it is generally understood that in present circumstances the Chancellor did not feel himself able to do this. It does however remain the policy of the Government to adhere to the policy on local authority borrowing laid down in the 1963 White Paper on Local Authority Borrowing and to increase local authorities' quotas as soon as this is possible.
I hope that I have said enough about this very short but important Bill to commend it to your Lordships. It has only one clause of substance, which in its first part provides for the sum of £900 million to be put at the disposal of the Public Works Loan Commissioners, in its second part limits issues under the Act to the period during which the Act is operative, and in its third part permits the Commissioners to undertake to make loans which will be met out of funds to be made available by the next Act. I beg to move.
§ Moved, That the Bill be now read 2a—(Baroness Phillips.)
§ 4.29 p.m.
My Lords, I do not propose to detain your Lordships long on this matter this afternoon, even though the purist in me tells me that I should avow, as I now do, an interest in this field. I must confess that I should be hard pushed to it to talk at great length on this exceedingly æsthetic subject. Moreover, we have a certain amount of other Business to come. First of all, may I thank the noble Baroness for her lucid and informative introduction 1292 to the Second Reading of this Bill, and join with her in expressing, from these Benches, our gratitude to the Public Works Loan Commissioners. As she has said, they render valuable service, which is given voluntarily; and that should endear their work to your Lordships.
I believe that the 1963 Act on local borrowing, from which this Bill stems, struck just about the right balance of policy. It was right that a rather tighter discipline should be placed on short-term borrowing by local authorities, and in my view it was also right that they should have been given the expectation of easier access to the Public Works Loan Board for their longer-term financial requirements. At the same time I am not one of those who feel that all their longer term financing should be provided by the Public Works Loan Board. That would make them far too dependent in all financial respects upon the centre.
As the noble Baroness has indicated, the White Paper looked forward to a situation in which local authorities would have been able to raise up to 50 per cent. of their longer-term financing from the Public Works Loan Board, and I think that in the ordinary course of events the general platform this year would have been raised to 40 per cent. We have now been told by the Government that for the time being the general platform will remain at 30 per cent., and, in addition, that a tighter quota system will be imposed. This curtailing of the local authorities' expectations is, of course, regrettable. The services which they provide are extremely important, and expenditure on these services is bound to increase. If the proportion which they can raise at Government credit terms is docked, then inevitably they will be increasingly forced upon an already hard-pressed capital market. Nevertheless, I feel that, although the Government decision is regrettable, and the need for it is perhaps even more regrettable, I cannot bring myself to question the actual decision. We must recognise that in present circumstances the Government have no option but to restrict borrowing, and if that is so it would be illogical not to place restrictions on access by local authorities to the Board.
1293 The first point I would put to the noble Baroness is this. I shall be grateful if she can confirm that the Government still adhere, at least in principle, to the general doctrine, to be found in the 1963 White Paper, of easier access to the Loan Board. Secondly, do they view this temporary cutting as a purely interim measure; and can she tell us anything of the discussions, which I gather from the debate in another place have been going on, about impact, so far as the quota is concerned, between the local authority associations and Whitehall?
Finally, I should like to revert to one specific suggestion for easing the present situation which was advanced in another place when this Bill was given a Second Reading there. Some of your Lordships may be familiar with a recent innovation in the field of local government financing called the negotiable bond. It is now often called the "yearling bond", which is something of a misnomer, because the life of this bond can vary between one and five years. But already these bonds finance well over £100 million per year of local government expenditure, recourse to which is restricted by a ceiling of £1 million imposed by the Government. This is a flat and rather arbitrary ceiling, because it has been imposed not only on great corporations but also across the board, and so covers the tiniest of rural district councils as well. It was suggested in another place that in present circumstances it would make access to the market easier for local authorities if the £1 million ceiling were waived and they were permitted by this means to borrow up to 10 per cent. of their net outstanding debt. The Financial Secretary to the Treasury said that he would be glad to consider this suggestion. It seems to this semi-amateur to be rather a good aim, and I wonder whether the noble Baroness, when she replies, can confirm that the Government are prepared to look upon this proposal favourably.
Although this is not, to my surprise, a Money Bill I would conclude by saying that, while we deplore the need for this rather more restrictive policy on the part of the Government, we do not, of course, wish to oppose the Second Reading of the Bill which, as I have said, the noble 1294 Baroness has moved so lucidly and comprehensively.
§ BARONESS PHILLIPS
My Lords, I should like first to thank the noble Earl for his great courtesy in giving me prior notice of these two points. I will be quite frank and say that, had he not done this, it would have been impossible for me even to attempt to give an answer; and therefore I greatly appreciate his action. I have endeavoured to get the answers. Of course, as the noble Earl knows only too well, the mere fact that one has notice of the questions does not mean that one can necessarily give the answers.
With regard to the point about the discussions which were mentioned during the debate in another place, I understand that this referred, in fact, to discussions with the representatives of local authorities: not only the discussions on the point of the quota but those which continue all the time. I have no information to give the noble Earl on this matter, because the discussions are still continuing.
I would confirm that the Government still adhere to the policy set out in the 1963 White Paper, and say that the present restrictions are regarded, as he so rightly said, as temporary and sadly necessary. On the last point, again I am sorry that I am unable to give him a very specific answer. I will merely repeat the statement made by Mr. Niall MacDermot, the Financial Secretary to the Treasury, in another place, in which he said that they would be prepared to look at the question raised by the honourable Member who had made the suggestion. As this was only quite recently, I am afraid that I cannot add anything to that. I am grateful to the noble Earl for his help in this matter. I have spent a rather busy weekend trying to assimilate these facts and to anticipate all the questions he would ask, and I am grateful that he has made this task relatively easy.
My Lords, may I merely say to the noble Baroness that having, like herself, spent part of the weekend "mugging up" this complex subject, and since we are now both experts in it, I hope she will bring to the attention of her colleague, the Financial Secretary, the view of these two great experts on 1295 the merits of the suggestion put in another place.
§ BARONESS PHILLIPS
My Lords, I will certainly bring to the attention of the Financial Secretary the points put forward by one expert.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.