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Clause 49

Volume 884: debated on Wednesday 22 January 1975

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Local Loans

I beg to move Amendment No. 66, in page 35, line 3, leave out '£2,000' and insert '£1,000'.

With this amendment, the Committee may discuss Amendment No. 67, in line 8, leave out '£2,000' and insert '£1,000', which also stands in the name of the hon. Member for Hertfordshire, South-West (Mr. Dodsworth).

Clause 49 permits an increase in the borrowing limits of the Public Works Loan Board and is an administrative arrangement. It is in itself a commentary that a clause which increases borrowing limits from £4,000 million to £8,000 million is taken at this late hour after protracted debate on many other matters which, while significant and important in principle, do not reflect the distribution of such large sums of money.

In its present form, Clause 49 doubles the amount of funds available to the board for lending. The amounts of authorised lending are, of course, fixed by the Chancellor of the Exchequer from time to time. Funds provided under the clause are not for any fixed period. They last just as long as there is money in the kitty—that is, until they run out.

Under the clause, the tranches of funds are double in amount from £1,000 million to £2,000 million, and the overriding limit is increased to £8,000 million. The original limit, specified in Section 132 of the Finance Act 1972, was £4,000 million. The last increase approved by the House was £1,000 million, on 8th November 1974, at that time bringing the total to £4,000 million. This clause therefore has the effect of doubling that permitted level.

I understand from the Second Reading debate—I am grateful to the Financial Secretary for his assistance and explanation—that the reason for the clause is primarily to account for and reflect inflation and so reduce the number of occasions on which the board has to apply to Parliament for more funds.

The board is, of course, purely a lending agency and its rôle does not include the control of the spending of funds. Any local authority which receives a loan from the board for a specific project is accountable to the Government Department concerned. For example, if the loan is to be used for a school building, the local authority is accountable to the Department of Education and Science for the way in which the money is spent.

That is fine as far as it goes, and it would be easy to say, as I believe the Financial Secretary did on Second Reading, that a change in these borrowing limits does not reflect any increase in local authority capital expenditure. However, discipline is good for the soul—that is, if the Treasury has one—and I see no reason why the Committee should do anything to make it easier for larger sums of money to be made available for approval for local authority capital programmes.

If there is one way to ensure that the loan quotas are reduced, it is to ensure that additional funds are not provided by Parliament. In that connection I wish to refer to Circular No. 37 of the Public Works Loan Board dated 21st March 1974, the first sentence of which says:
"I am directed by the Public Works Loan Commissioners to inform you that after consultation with the Treasury it has been decided that, subject to the provisions of funds by Parliament, the arrangements for the raising of financial year 1974–75 shall be as detailed below."
That circular contains hard evidence that approval of these new limits incites approval of increased quotas, and of course the approval of local authority programmes is subject to the scrutiny of the Treasury and of individual Government Departments.

But how successful have they been? In July 1974 the Secretary of State for the Environment said that there had to be a levelling off in the rate of growth in local authority expenditure. He said that the rate of public spending must be related to the national economic situation, and I agree with him. He went on to say that local government expenditure had been increasing at about twice the rate of public expenditure overall and three times the rate of growth of the gross national product.

That is evidence from the Government that the expenditure programme must be controlled. But the demand for funds is accelerating at an incredible rate. All the evidence that we have is that local authorities throughout the country are struggling to contain their rate demands. One of the most effective means of doing so is by a restriction of capital expenditure with often very substantial revenue costs and consequences. That is one way to help the local authorities. When we have a net borrowing requirement of £6·3 billion, surely the time has come to say that we must state some order of priorities.

As recently as the day before Christmas Eve—what an immaculate piece of timing—there was a joint circular from the Department of the Environment, the Home Office, the Department of Health and Social Security, the Department of Prices and Consumer Protection, the Department of Education and Science, the Department of Employment and the Welsh Office explaining that expenditure must be contained to meet only inescapable commitments.

The nation as a whole has a need for prudent housekeeping. The Chancellor of the Exchequer may have been abroad to renegotiate our borrowing position, but unless we curtail our national and local government expenditure we shall lose any remaining credibility abroad and the collapse of confidence involved would ensure national disaster and distress.

These amendments seek to set a standard and a target for the Government. It is important that if the Government wish to increase their borrowing limits, they should come back to Parliament. The next circular fixing quotas controlling local authority expenditure will be issued, I understand, in March. That is the time for the Chancellor to come to the House to report his success in controlling local authority expenditure. We can then consider whether the increased borrowing level should be approved, and that is the time to do so. Until then the matter must be kept under review. For that reason, I ask the Committee to support what at first may seem to be matters of only administrative significance. They are not. The strike at the heart of parliamentary control over Government affairs.

1.30 a.m.

I am grateful to my hon. Friend because the amendment raises an important point. On the last occasions when these authorisations have been required in Finance Bills, these tranches have been in £1,000 million groups. There has been an enormous increase in the last two or three years in the rate at which they have come before the House. There was one in May and another in November 1974. On the latter occasion, the Minister of State, Treasury, said:

"It is not possible to forecast with precision the timing of local authority borrowing from the commissioners, and in the last few months they have been taking up their entitlement more quickly than had been expected. The House, is therefore, asked to approve this order so that the flow of essential capital funds during the current period may be maintained."—[Official Report, 4th November 1974; Vo1 880, c. 831.]
We see in that one worrying problem about the rate of local authority expenditure and perhaps one reason for this present increase.

I understand that on 31st March 1974, the general level of borrowing from the Public Works Loan Board was about £9,000 million; now, it is about £10,000 million. This all shows the speed at which local authority expenditure has been gobbling up the tranches from the board. It has been going ahead much faster than any other form of public expenditure.

We know from the debates on the rate support grant that local authority expenditure has been increasing at roughly 8 per cent. in real terms per year over the last three or four years. I recognise that part of this was in the period before the present Government took office, but the oil crisis and the developing economic situation since then has made it clear that we must put real question marks over this rate of growth. Many Ministers have been saying as much recently. Our other economic objectives make this necessary, and the Government must justify this increase in the tranche. Part of it is no doubt the result of inflation, but that cannot be the only answer. What else is there?

This increase makes one wonder whether the Government are firm in their decision to control public expenditure. I certainly agree with my hon. Friend about the Government borowing requirement. If the tranche had been kept at £1,000 million, there would at least have been some sort of discipline in the Government having to come back to the House to ask for more. So I should like to hear their justification.

Second, to what extent is this provision necessary to refinance maturing debt and to what extent is it concentrated entirely on new expenditure? I understand that it does not take account of maturing debt in normal situations. I believe that the amount quoted in authorisations is usually the gross amount and I understand that a great deal of debt is maturing which must be refinanced, but, if that does not come into this area, it emphasises the need for restraint and for not increasing the tranches.

May we be reassured that the Government do not intend to allow an increase of more than the strict 4 per cent. in real terms to which the Secretary of State for the Environment has referred, and that indeed they intend to diminish that until the economic situation improves?

Third, the Public Works Loan Board circular says:
"The Commissioners will be prepared to make loans in excess of the quota"—
for local authority expenditure, which is normally 30 per cent., but 40 per cent. for authorities in development areas—
"only if they are satisfied that an authority cannot raise money elsewhere either from local sources or in the money market."
Again, the Government should exercise the strictest control over the way in which that discretion is exercised by the board.

Finally, I seek an assurance that none of the extra tranche we are authorising tonight will be provided for the nationalisation of development land. This is a costly exercise which neither the nation nor the ratepayer can afford and which the Public Works Loan Board should not be authorised to under-write and finance through this extra tranche.

In short, we seek assurances that, although in theory this is a technical matter, in practice the Government will exercise the strictest control over the way in which these extra tranches are used, and we want to know why it is necessary in these circumstances that the House of Commons should be asked to approve a doubling of the normal authorisation.

The Commitee is indebted to the hon. Members for Hertfordshire, South-West (Mr. Dodsworth) and for Norfolk, South (Mr. MacGregor) for speaking so lucidly and so fairly on this inevitably complex and possibly misleading subject.

It is right that from the beginning I should make it clear, as both hon. Gentlemen recognised, that this increase in the tranche and the increase in the ability of the Public Works Loan Board to raise money in no way derogates from parliamentary control over funds voted to local authorities, nor does it in any way imply any diminution in the present Government's intention to restrict the rate of local authority expenditure in real terms.

The hon. Member for Norfolk, South referred to the 8 per cent. real rate of increase in local authority expenditure. The two sides of the Committee are at one that such a continuing rate of increase in real terms is not acceptable and is not possible for the country to sustain. I am happy to endorse what my right hon. Friend the Secretary of State for the Environment said.

Once we have got those two firm assurances in perspective, most of the other points raised by the hon. Members fall into place reasonably easily. This is the first increase that has been requested in the size of the tranche since 1968, which is the real reference point. In other words, it is very nearly seven years. The powers voted in the National Loans Act 1968 lasted for about four and a half years, and the powers that were voted in the Finance Act 1972 lasted for just under three years.

Our estimate is that if there were to be a re-enactment now of the 1972-type powers—in other words, without an increase in the sums available to the Public Works Loan Board—those powers would last for only about two years. Even with the increase that we are proposing now, we estimate that they should continue to allow at least one parliamentry debate each year on the subject of these drawings by the Public Works Loan Board. I hope that hon. Members will agree that that will be an adequate frequency for these matters to be ventilated, as they should be ventilated by hon. Members.

When these matters were discussed in 1968, I believe that my then predecessor as Financial Secretary to the Treasury suggested that once about every 18 months would be an appropriate interval for these matters to be debated. I do not believe that there was any great dissent at that time from that proposition. Our estimate is that at the present rate these matters should fall to be debated at least once every year with the enhanced powers we are proposing to legislate in the clause.

I come now to two specific questions put to me by the hon. Member for Norfolk, South. He asked to what extent the funds were necessary to refinance a mature debt. I regret that I cannot answer that now. I am advised that the formula setting a local authority's entitlement takes account both of its needs for capital expenditure and for debt financing. I cannot help the hon. Gentleman further, I am afraid.

The loans which come from the Public Works Loan Board are available to meet all requirements for capital expenditure of local authorities, including such expenditure on land acquisition as is approved. I emphasise again "as is approved", which is the essence of the matter, as hon. Members are aware.

This debate, which very properly should take place to draw attention to the real matters of concern which hon. Members have raised, is not the occasion, I submit, on which we should seek to consider special or individual items of local authority expenditure, which fall to be discussed at a different time in our procedures.

I hope that I have managed to set at rest the concern which hon. Members have expressed. I recognise their concern, and I share it, as do my right hon. Friends. Our determination to reduce the rate of growth in real terms of local authority expenditure is in no sense diminished or affected by these proposals. In the light of those assurances, perhaps the hon. Gentleman will wish to withdraw his amendment.

I am greatly obliged to the Financial Secretary for his kind, helpful and thoughtful reply, although I have to tell him that it gives me no satisfaction whatever. It is not my view that the tranches of £2,000 million make no difference to parliamentary control. They halve parliamentary control. Twice as much money is available at each slice. That is a fact. It may be convenient for the Minister that we do not have to come to Parliament more than once a year. In the present state of the economy, I should prefer that we came every six months. We should have our debate at a different time of day, with a much fuller Chamber, so that we could fully examine what was happening to the resources which are made available. For that reason, I am not satisfied, although I am grateful for the thoughtful nature of the hon. Gentleman's reply.

Perhaps I can assist the Financial Secretary to reply to one question put to him by my hon. Friend the Member for Norfolk, South (Mr. MacGregor). I refer here to Cmnd. 5580, Loans from the National Loans Fund, where the estimate for 1974–75 for new loan advances is £1,625 million. If one adjusts that for the new formula, one finds, in effect, after making the adjustments for maturities and the new form of advances, that that is an increase of 14·3 per cent. I think that that information might be helpful.

I think that my hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth), since he has plainly done so much work on this matter, should cross the Floor for a few minutes and answer from the Government Dispatch Box.

We are under a certain handicap here in that the public expenditure White Paper is not published, so that we do not know what the increased money is being spent on. In fact, there should not be such a large increase as this in view of the substantial capital expenditure cuts of 17th December 1973, which should now be working through into the figures—unless they somehow did not turn out to be cuts at all.

The Financial Secretary spoke of the control over local authority expenditure. It is still very lax. We have only the rate support grant settlements coming before us here. My recollection—I am sure that the right hon. Member for Down, South (Mr. Powell) will know this better than I do—is that capital expenditure has to be sanctioned by loan sanction through the Department of the Environment, but we have no direct control over it apart from the large slices of expenditure. Our complaint now is that it is being used up rather fast on we know not what. By the time we come to Report, the Chief Secretary will, no doubt, have got out his public expenditure White Paper, and, if need be, we can re-examine the matter further.

Amendment negatived.

Clause 49 ordered to stand part of the Bill.

Bill ( Clauses 5, 14, 16, 17, 33 and 49) reported, without amendment; to lie upon the Table.