With respect, the fallacy in the hon. and learned Gentleman's argument stems from his failure to appreciate that it did not climb repeatedly under a Conservative Administration. The rates varied substantially during our 13 years, both up and down. The present level of interest rates is the clearest possible indication of the difficulties which the Labour Government brought on themselves. The Conservative Government, on the other hand, were able to handle the financial side of our economy with success during their 13 years.
I entirely agree, however, with the hon. and learned Gentleman in his devastating argument against the financial policy of his own Government and his indictment of the circumstances which their policy has brought about, circumstances due essentially to the high level of public expenditure and the running of great external indebtedness, stemming mainly from the policies which they have followed, but initially from the regrettable attitude of the present Prime Minister in destroying confidence in sterling way back in 1964. Confidence has not been restored or regained since that time, and I predict that it will not be under the present Government. The Government are demanding a high level of expenditure on local authority services without finding the means to meet the financial commitment involved.
I am sure that I speak for all my right hon. and hon. Friends when I say how pleased we are that the Minister of Housing and Local Government has now joined the debate. I thought it a little unfair that his hon. Friend the Financial Secretary to the Treasury should have been left to carry a somewhat awkward burden for the remainder of the debate.
It is strange to see the extent to which the Government have not sufficiently recognised the incidence of the high level of interest rates and their effect on local government budgeting. There was only one reference to this point in the Minister's Report on the Rate Support Grant Order of 1968. I quote from paragraph 15, page 6 of the Report, in which it was said:
It takes into account the increase in loan charges …
the reference there being to expanded expenditure on education.
In contradiction to that, however, the Department of Economic Affairs in its Progress Report of March this year, referring to local government expenditure on page 4, said:
Debt interest is excluded because it is a function of other expenditure, largely in the
past, and is not subject to independent control as a programme,
There seems to be a clear contradiction there in the Government's attitude towards the level of interest rates in local government expenditure.
To emphasise the point which I made in reply to the hon. and learned Member for Northamption, I refer to the level of interest on seven-day money in recent years. At 31st December, 1963, the rate to local authorities for seven-day money was 4·3 per cent. In December the following year, 1964, it has risen to 8 per cent., an indication of the effect of the Government's policy and the Prime Minister's statements during the short period in 1964 when the Labour Government were in office. By December, 1968, there had been a slight fall to 7·6 per cent.
Now, I quote from Housing Statistics No. 12, for February, 1969, issued by the Ministry of Housing and Local Government seven-day money on 17th April this year was at 8·4 per cent., with three-month money at 8·6 per cent., a clear indication of the view of the market on the movement of interest rates immediately ahead.
It is at their pooled rate that most local authorities charge their loans to the various departments. In December, 1966, according to the Institute of Municipal Treasurers and Accountants, the average pooled rate was 5·14 per cent. The high interest rate period which we are now experiencing, with a high level of borrowing, must put up the pooled rate substantially for many years ahead. What does the future hold for local authority borrowing?
A Bank Rate of 7 per cent. used to be considered an emergency rate, but the present 8 per cent. seems to be regarded as normal under the Government's policy. Interest rates are rising throughout the world, and one would be bold to predict that by the end of the year the general level for borrowing will be less than 10 per cent. Indeed, as my hon. Friend the Member for Worcester (Mr. Peter Walker) pointed out, the move in the past few days since the Budget Statement leads one to think that the interest rate will be at 10 per cent.
The extent of the commitment of local authorities in the capital market is indicated by the following figures of annual capital expenditure, which include a figure of about 10 per cent. from revenue and resources. Local government loan indebtedness has risen from £4,615 million in 1957 to £9,280 million in 1966. The current total is in the region of £10,000 million, of which just over half is for housing. These figures emphasise the borrowing problem which local authorities face.
It is noteworthy that it is county councils which have a rapid expansion of population to deal with which are meeting the greater proportion of their expenditure from capital rather than from resources. For example, Warwickshire, Surrey and Buckinghamshire are meeting only 9 per cent. from revenue and funds, leaving 91 per cent. to be raised in the money market. It is clear that heavy penalties are being incurred for a substantial number of years ahead by loan financing in times of high interest rates such as we have now.
The Public Works Loan Board, which has special arrangements for the development areas, is prepared to meet one-third of local authority funding, but the present rate on quota is no less than 9 per cent. The figures, therefore, clearly demonstrate greater and greater borrowing at steeply rising rates of interest, to which must be added the increased costs arising from devaluation, rising excise duties and an almost perpetual state of financial crisis—a nightmare situation for local authority treasurers.
The new Housing Bill, upon which so much hope rests for the conversion and improvement of properties, may well flounder in circumstances in which local authorities and private owners, on whom the success or failure of the scheme depend, could well find the present interest rates penal to the proposals which the right hon. Gentleman and his colleague advocate. We have yet to see the full impact of the recent substantial rise in interest rates upon housing subsidies Under the 1961 Act they cost the Exchequer about £17½ million a year. Under the most recent Act, in 1967, the cost is already £26 million. It will be interesting to have the Government's idea of the extent to which they think housing subsidies will rise under the recent Act.
Statutory Instrument No. 1184 of 1968 indicates that the representative rate of interest for dwellings completed for 1968–69, which is fixed annually, was fixed last July at 7·07 per cent. What is that rate to be for the current year when it is fixed in July? We could well see a rate of about 9 per cent. What effect will that have on the level of housing subsidies under the housing programme? It will be a fantastic housing subsidy; I think that in a year or two the level of annual subsidy will be equal to the whole of the previous housing subsidy level. With the Government's failure to require selectivity in housing rents, this is a completely unnecessary burden of expense on the Exchequer.
The Government have a clear inability to take appropriate decisions across the full spectrum of our economic affairs. Is it for good reasons or mere partisanship that they have not? They have handled issues piecemeal, setting off one pressure against the next, as time and circumstances seem opportune, a disastrous policy for which the country is now paying a heavy price. High interest rates, which we are discussing today, form only one piece of evidence of an overall financial failure for which the Government stand condemned.