First Standing Committee on Statutory Instruments, &c.


Wednesday 23 March 1988



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The Committee consisted of the following Members:

Chairman: Mr. Ted Leadbitter

Alexander, Mr. Richard (Newark)

Allen, Mr. Graham (Nottingham, North)

Beaumont-Dark, Mr. Anthony (Birmingham, Selly Oak)

Beith, Mr. A. J. (Berwick-upon-Tweed)

Carlisle, Mr. John (Luton, North)

Clelland, Mr. David (Tyne Bridge)

Coombs, Mr. Simon (Swindon)

Douglas, Mr. Dick (Dunfermline, West)

Favell, Mr. Tony (Stockport)

Glyn, Dr. Alan (Windsor and Maidenhead)

Grylls, Mr. Michael (Surrey, North-West)

Haselhurst, Mr. Alan (Saffron Walden)

Howarth, Mr. Gerald (Cannock and Burntwood)

Lennox-Boyd, Mr. Mark (Morecambe and Lunesdale)

Lilley, Mr. Peter (The Economic Secretary to the Treasury)

McLeish, Mr. Henry (Fife, Central)

Michie, Mr. Bill (Sheffield, Heeley)

Smith, Mr. Chris (Islington, South and Finsbury)

Miss P. A. Helme Committee Clerk

3 First Standing Committee on Statutory Instruments, &c. Wednesday 23 March 1988

[MR. TED LEADBITTER in the Chair]

Draft Local Loans (Increase of Limit) Order 1988

10.30 am

The Economic Secretary to the Treasury (Mr. Peter Lilley): I beg to move, That the Committee has considered the draft Local Loans (Increase of Limit) Order 1988. 10.30 am

Mr. Chris Smith (Islington, South and Finsbury): The Economic Secretary has been remarkably brief and to the point in his remarks this morning. I am always wary when I discuss matters with the Economic Secretary because he has a tendency to say that I am constructive and lucid and that does my political credibility no good. However, the Minister also tends to reveal himself as an avid reader of that excellent newspaper, Tribune, which does his own political credibility no good either. The order is largely technical and I am sure that the Economic Secretary will tell us that it only increases the amount of money that can be loaned by the Public Works Loan Board and will not affect the amount of money that local authorities are entitled to borrow. Because this is largely a technical matter, we shall not oppose the measure or seek to divide the Committee. However, it would be useful if I put three brief points on the record that are related matters although not directly involved in the specific measure that is the subject of the order. First, while increased borrowing from the board is welcomed, it is important that funds should be available for local authorities which wish to avail themselves of that facility. However, we should remind the Government that progressively over the past eight years they have placed savage restrictions on the ability of local authorities to borrow, particularly for capital and housing work. That is of grave concern to the Opposition and we shall continue to criticise the Government about that. It is all very well to make funds available through the Public Works Loan Board, but the Government should really address themselves to the task of enabling local authorities to borrow more widely, and greater amounts to carry out much needed capital work. Secondly, the Government have also placed practical restrictions on the ability of local authorities to borrow elsewhere. Many local authorities placed in a financial straitjacket by the Government have actively intervened with banks and financial institutions to dissuade them from lending to local authorities in such circumstances. We condemn that intervention. Local authorities are legitimately 4 engaged in the search for further sources of funds and we regret the attitude taken by the Government. Thirdly, while I suspect that the economic Secretary will tell us that the order will have no impact on the public sector borrowing requirement, none the less it has always been a source of concern and puzzlement to Opposiion Members that local authority borrowing financed by local authority rate income counts as PSBR expenditure. A clearer, tighter and more sensible definition of what counts as public sector borrowing is needed. The PSBR has of late become a token of Government economic policy, and we believe that the need to redefine its content and nature is becoming urgent. I have made those three points because it is important to have them on the record. I should be interested to hear what the Economic Secretary to the Treasury has to say, and I shall listen carefully to what he says about the specific impact of the order. However, as it is largely a technical order, I am not minded to ask my colleagues to divide the Committee. 10.36 am

Mr. Lilley: I apologise to you, Mr. Leadbitter, and to the hon. Member for Islington, South and Finsbury (Mr. Smith) for not quoting from Tribune on this issue. The hon. Gentleman has unaccountably not yet addressed the subject in his otherwise admirable column in that newspaper, so there are no relevant aspects to bring up. In response to the first of the hon. Gentleman's three points, that allegedly there have been savage restrictions on local authority borrowing, I must state that if we are bumping up against the £42,000 million ceiling of the net amounts financed through the Public Works Loan Board on behalf of local authorities, that is a rather lax savagery. If my bank manager let me have my due portion of that, I should certainly not accuse him of savagery. The hon. Gentleman's second point was about the restrictions on more creative borrowing which, along with other measures, have been introduced to stop local authorities borrowing excessive amounts and imposing too great burdens on their ratepayers. All I can say is that when the bill finally comes in for the borrowings made on behalf of the inhabitants of Islington, they will regret that restrictions were not placed earlier on the amounts that could be borrowed on their behalf. The hon. Gentleman's third point was about whether local borrowing and expenditure should count as part of the PSBR. That is a long-standing definition. Governments of all parties have accepted that Government spending and borrowing should include the spending and borrowing of local authorities. That is not novel or unique to this Government. I welcome the Opposition's recognition that the measure is essentially technical and that they do not intend to divide the Committee. I concur with the hon. Member for Islington, South and Finsbury in his lucid and constructive description of the measure, and unless hon. Members request it, I shall not elaborate further.


10.38 am

Mr. Chris Smith: I am grateful to the Economic Secretary for what he said, but I must make two points. In his brief analysis of the public sector borrowing requirement, he completely ignored the fact that there is no difference between a local authority borrowing funds and being able to obtain finance through its rate fund and, say, ICI borrowing funds and financing them through the sale of its products. In economic terms, there is no difference between those two activities, and it is nonsense that one should count against the PSBR and the other should not. Secondly, the Economic Secretary referred to the increase from £42,000 million to £50,000 million and 6 said that local authority borrowing had not been savagely restricted. In doing so, he ignored the fact that allocations for the housing investment programme—the principle area where authority to borrow is given to local authorities—have been reduced by the Government by about two thirds. I call that savage and I am sad that the Government do not consider it as such.

Question put and agreed to.

Resolved, That the Committee has considered the draft Local Loans (Increase of Limit) Order 1988.

Committee rose at twenty minutes to Eleven O'clock.


Leadbitter, Mr. Ted (Chairman)

Alexander, Mr.

Beaumont-Dark, Mr.

Carlisle, Mr. John

Favell, Mr.

Glyn, Dr.

Howarth, Mr. Gerald

Lennox-Boyd, Mr.

Lilley, Mr.

McLeish, Mr.

Michie, Mr. Bill

Smith, Mr. Chris