§ Dr. Twinnasked the Chancellor of the Exchequer if he proposes to make any changes to the loan terms and facilities offered by the National Loans Fund and the Public Works Loan Board.
§ Mr. Ian StewartWe have recently completed a review of the terms and facilities offered by the National Loans Fund and the Public Works Loan Board, and decided to make certain improvements in lending arrangements. These are designed to reduce interest rates for borrowers, and to increase the flexibility of the facilities offered.
877WInterest rates charged on NLF lending are governed by section 5 of the National Loans Act 1968 as amended by the Finance Acts 1982 and 1983. There is no room for a reduction in fixed interest rates from the levels charged at present, which already reflect the minimum rates consistent with the Act. However, we have concluded that interest rates on variable rate loans made by the NLF and PWLB can and should be reduced. In future the rates on variable loans will be calculated on a formula designed to reflect more closely the rates at which the Government itself could borrow. This will be calculated by reference to eligible bill rates and inter-bank rates. NLF temporary lending and deposit rates will also in future be based on this formula. The new rates will apply as soon as the necessary arrangements for calculating and monitoring the revised variable rate formula can be put in place.
Further changes are being made to improve the flexibility of NLF variable rate facilities. The maturity range will be extended to 1–10 years (previously 3–5 years); provision will be made for one and six month roll-over periods (previously three months only); and there will be an option to convert to fixed rate terms at any roll-over point. New arrangements for premature repayment for refinancing existing loans, including conversion from fixed to variable interest rates, will be introduced. The minimum advance from the NLF temporary lending facility will be reduced from £5 million to £1 million.