Extension of Borrowing Powers of Certain Statutory Corporations

Orders of the Day — Statutory Corporations (Financial Provisions) Bill – in the House of Commons at 12:00 am on 21st January 1974.

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Mr, Joel Barrett:

I beg to move Amendment No. 6, in page 5, line 1, leave out Clause 4.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

With this amendment we are to discuss Amendment No. 8, in page 5, line 6, leave out paragraph (b).

Mr. Barnett:

Amendment No. 6 is exploratory. The clause is the one that provides the Government with the power to encourage statutory corporations and others to borrow abroad with the assistance of the Treasury. Shall we need the clause to the extent originally envisaged if, as is sometimes said, and as the Chief Secretary to the Treasury intimated in answer to a Question last Thursday, there is a possibility—I put it no higher—of a loan from the International Monetary Fund? That loan would obviously need to be substantially larger than anything likely to be borrowed by corporations with the assistance of the Treasury.

Even though substantial sums have been borrowed, anything likely to be needed by the Government in the coming years to sustain their deficits would need to be substantially higher than is likely to be borrowed by corporations under the clause. At least, I assume that, unless the Minister can tell us that they hope to finance the whole of their deficit over the coming years by this method. I should be surprised if that were so.

The Government's case on the balance of payments is incredible. Another disastrous trade deficit, of about £330 million, was announced today, and we have heard yet further excuses. I suppose that the Secretary of State for Trade and Industry will never run out of excuses, and that diamonds will for ever remain the right hon. Gentleman's best friend. He managed to find them again today as the reason for the deficit.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Did my right hon. Friend use diamonds again?

12.30 a.m.

Mr. Barnett:

Yes—at least, according to the tape, which is the best information I have so far. We must have had a hell of a lot of diamonds in this country over the past 12 months—diamonds and ships or whatever. Perhaps they were industrial diamonds, or perhaps the tape got it wrong. If there was another excuse, I should be happy to hear it.

Nobody will dispute that the country was running a serious balance of payments deficit before the oil situation began. I am sure that hon. Members did not need the Governor of the Bank of England to tell them. We can see that we shall be having next year a non-oil deficit of about £2,500 million, plus possibly £2,000 million or more as a result of the increased oil prices. That is the level of the sums which over the next few years we shall have to finance. By comparison, the amounts that so far have been borrowed, large as they are, under the same arrangement as that embodied in Clause 4 are a drop in the ocean.

If the House is to give the Government this power, we are entitled to know how they intend to use it. We have not had it made clear to us yet. In Committee we did not have sufficient time to go over it in the detailed way one would wish, but the Minister of State in Committee told us: I know that some of my hon. Friends took a different view when we were in opposition —he meant some hon. Gentleman opposite, including some on the Front Bench, who took a different view about borrowing which is likely to change even more in the coming months when we hear of further substantial borrowings— but I have never seen how it can be wrong to borrow abroad when there is known to be a substantial net outflow on capital account."—[OFFICIAL REPORT, Standing Committee F, 20th December, 1973 ; c. 178.] The Chief Secretary did not quite put it in that way when we discussed the matter on Second Reading. The Chief Secretary referred to it as meeting deficits on current account. He said: This is essentially a matter of general economic strategy. In a period when the economy is expanding rapidly and, in particular, when the terms of trade have been moving substantially against us, deficits on current account must be expected. Financing the deficit requires the use of foreign currency reserves, and the simple and straight-forward point is that foreign currency borrowed increases our reserves. The current account deficit in the first 10 months of the year has been almost fully covered from this source."—[OFFICIAL REPORT, 21st November ; Vol. 864, c. 1356–7.] So it seems that the Chief Secretary is borrowing for the current account and the Minister of State for the capital account. Which one is right? Which one are we borrowing it for? It would be interesting to know just what the Minister of State has in mind. He often, pleasantly, moves away from his brief and he is rather better when he does. Perhaps he has something different in mind from the Chief Secretary or, indeed, anybody else on the Treasury Bench.

We also heard from the Chief Secretary at that time that the borrowings under Clause 4 were sound borrowings. Given the way in which they were borrowed, the currency in which they were designated for repayment—the major one being a floating loan, as it were—and our substantial devaluation against the dollar in recent weeks, I wonder whether the Minister is still prepared to say that these were sound borrowings, or whether, with the benefit of hindsight, he considers that there were better ways of borrowing the money required.

I made it clear in Committee that I believe there is a case for borrowing. I do not agree with the hon. Member for South Angus and the right hon. Member for Wolverhampton, South-West (Mr. Powell) and others who argue that rather than borrow in this way we should use what is euphemistically called money supply. But whether we say that we should use money supply, or cut public expenditure and personal consumption and balance the budget, we need not borrow by reducing the money supply through the measures we take.

I would not want that to happen at the pace desired by those who argue for the use of money supply because of the horrific levels of unemployment which would be created if it were done quickly. I would rather have some borrowing balanced with some cuts in public expenditure and some cuts in personal consumption, which I believe to be inevitable. But I would not want to do it at the sort of pace which would create massive unemployment implied—I put it no higher—by the exponents in the House of money supply.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Gentleman is making a fairly false comparison. I do not think that in Committee or at any other time—and I think that this applies to my hon. Friends—have I suggested that there was a choice between the use of monetary policy and borrowing overseas. That is not the equation which presents itself. In any case, as far as I am aware, those who have advocated the observance, among other things, of monetary discipline have always emphasised that it would be highly undesirable to use such a discipline speedily and thereby try to achieve a rapid cure for inflation. Many of us have argued that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) fell gravely into error in trying to do that in 1969–70.

Mr. Barnett:

I am delighted to hear that that is not the hon. Gentleman's view, but I should be surprised if it was not the view of some of those who have advocated more forcefully the use of money supply. I accept the need for some borrowing rather than expect to correct a balance of payments deficit of the enormous magnitude we are likely to have in 1974, and, indeed, for a number of years beyond that, even if I am not prepared to go to that great year of 1984 which the Governor of the Bank of England seemed to like.

Therefore, I am not prepared to take the opportunity of reversing the strictures which hon. Members now on the Treasury Bench used to place on Labour Ministers who indulged in large borrowings between 1964 and 1970. No doubt that will come from some of my hon. Friends—they may not be able to resist it as I am able to—especially when the borrowings in the next few months are likely to be considerably in excess of anything borrowed between 1964 and 1970. But that is another matter.

I wish to hear from the Minister what the Government propose with Clause 4 in relation to other borrowings which are almost certain to be required in the next few months.

Photo of Mr John Loveridge Mr John Loveridge , Hornchurch

I hope that my hon. Friend will forgive my intervening at this late stage in a Bill that I have not followed through in detail before, particularly at this moderately late hour, but when, earlier this evening, I looked at Clause 4 I could not help feeling a certain sense of misgiving. Subsection (1)(a), speaking of extended borrowing powers, provides that the Act will extend to the borrowing of money in a currency other than sterling from any person and in any manner Those words are hardly an encouragement to thrift. Whatever Treasury controls and consents may be required, one cannot help feeling that the words imply a possibility of encouragement that the statutory bodies concerned should borrow short overseas at high rates of interest to meet their losses at home, on the one hand, or their long-term capital spending on the other.

I ask my hon. Friend how much borrowing abroad has already been done by public bodies—by the nationalised industries and local authorities? What has been the increase in each of the past three years? How has this borrowing been divided between short-term and long-term commitments for repayment? Surely Clause 4 should at the very least state that Treasury approval will not include short-term borrowing for long-term spending.

Then there are the Treasury guarantees. How are they to be implemented? At what prices of sterling are they to become effective? Are we to continue the situation in which it is possible to find that for one part of the economy we have the floating pound and for another a floating pound guaranteed at fixed and higher levels? Which levels of sterling will apply to these debts if the guarantees are ever called upon to be effected? Could they be applied to exchange levels above the ordinary exchange rates for Sterling at the settlement dates?

Is it reasonable so to extend the powers of statutory corporations to borrow at a time when we have seen vast increases in world liquidity—much greater than any comparable increase in world trade—when liquidity, as the United Nations Statistical Year Book tells us, has grown by over 62 per cent. in the last two years alone, and when we know that at home we have been increasing our money supply at a rapid rate? At the same time, we find our own pound forced down against a stronger dollar and there is a large impending deficit on our balance of payments to be expected this year, following the bad past year.

All these threats are coming about—in spite of the low value of the pound, which should encourage our exports and, we hope, will increasingly do so ; in spite of the very high interest rates in the United Kingdom ; and in spite of the salutary and substantial cuts announced to reduce or postpone public spending in the year ahead.

12.45 a.m.

I cannot help but feel that the use of the words in question in the Bill is unfortunate in the light of all these factors, and even more particularly at a time when we have experienced secondary bank failures. I repeat the question which seems to me to be cardinal. Will the Treasury always ensure that the terms of borrowing are long enough?

If, however, the Treasury control is adequate, and if the Treasury ensures that the terms are long enough and the interest rates reasonable, why on earth does not the Treasury do all the borrowing? Why put the borrowing on to the statutory corporations, on to the nationalised industries? Either they are to be free agents to borrow under certain rules or, if the rules are to be drawn so very tight, the Treasury should do it itself. In that case, what is the point of Clause 4?

I have no wish tonight to divide against the proposals of my hon. Friend the Minister of State, but I felt that, having sensed the misgiving of which I spoke earlier, I should make these points about the need for thrifty legislation which encourages sound borrowing. There is no objection to borrowing as long as it is absolutely safe. It has always been the height of folly, however, for any business undertaking to borrow short and lend long. I shall be obliged by my hon. Friend's reassurance that no Treasury permission will be given for such action.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

The preceding contribution was important although it failed to take into account very many issues that the clause presents. The issue has been tackled so far, particularly by my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett), from the standpoint of its financial implications for the economy.

The Government can be accused over the last couple of years of using the nationalised industries as a method of backdoor borrowing from other countries. In this respect, of course, the arguments that have been presented are very important. It would have been more straightforward of the Government to have stated clearly and loudly what was being borrowed abroad by the nationalised industries.

The hon. Member for Hornchurch (Mr. Loveridge) asked for a statement of account. This has appeared. I asked the Minister to list the borrowings by the nationalised industries and others from international sources over the last two or three years. If the hon. Member cares to look it up, a full answer will be given to him.

I cannot see how, with the present reported massive balance of payments deficit, we can do anything else than borrow from abroad. Having got into the terrible mess that we are now in, if we are to avoid massive unemployment and a substantial reduction in the standard of living of our working people, I cannot see how we shall ever be able to do it without borrowing from abroad. It is then for the financial wizards to consider methods by which this borrowing should be done. It may well be that it would be better for it to be done through the Treasury—although, because of arguments which are adduced at present, I wonder whether that is so. But whatever method is used, we have to accept that the present Government will go heavily into debt because of the balance of payments crisis which they themselves have created. That debt can be only international debt, and this is something we shall have to face.

The development of the crisis has put into perspective our arguments on this Bill on Second Reading and in Committee. This borrowing has to be done—and this is where I differ from my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett)—taking into account not only the interest of the economy but also the interests of the nationalised industries. My hon. Friend's contribution showed that he is, albeit a shadow Minster, very much a Treasury man. His arguments concentrate on issues of monetary management rather than on whether they take into account the interests of the nationalised industries.

We have not so far in this discussion mentioned Clause 4(1)(b) which says that the bodies corporate set out in the first column of Schedule 2 will be able to borrow money in sterling from the Commission of the European Communities and from the European Investment Bank. I should like the Minister to say something about the reason for this provision and why we should go to the Commission and to the European Investment Bank for loans in sterling. We see from Schedule 2 that the provision applies to the transport industry, the Railways Board, the Electricity Council, the British Gas Corporation, the Post Office, the British Airports Authority, the British Overseas Airways Corporation, the Civil Aviation Authority, the British Steel Corporation, the Covent Garden Market Authority and the Maplin Development Authority.

The answer must lie in the fact that there must be a European concern for the development of a European infrastructure—a feeling that it is important for the development of Europe that transport, the steel industry, the energy industry and the telecommunications industry should be developed. I believe this to be a fundamental reason why the European Investment Bank should wish to lend money to develop projects essential to the infrastructure. I do not want the Government to deny the nationalised industries the right to go to those European bodies for funds. It could be one of the benefits of the Community that it opened up a fresh source of capital for our nationalised industries.

Our people see the very many disadvantages of belonging to the Community, and it would be very desirable if they were to see some tangible proof that membership of the Community was leading in some way to industrial development. That is why I say that Clause 4(1)(b) is very important and one about which the Minister should tell us. I should like to know what money has been borrowed already in sterling from the Commission and how much, if any, from this European Investment Bank.

I put my name to the amendment because I thought that it was the wish of my hon. Friends to probe the intentions of the Government in this connection. I said just now that I thought that my hon. Friend the Member for Heywood and Royton had spoken with a shadow Treasury brief. I speak as one who is interested in the welfare of the nationalised industries and, however much my hon. Friend may smile, I consider it very important to speak in their favour.

Clause 4 could be very much to the advantage of our nationalised industries. According to figures which I have from the Treasury, it is not true that under the Labour Government the Post Office borrowed substantial sums abroad for use in this country. I understand that the borrowing abroad which occurred was for the purpose of developing international overseas installations. However, in more recent times the Post Office decided to borrow substantial sums, and I tell my hon. Friend the Member for Heywood and Royton that that has been very much to the advantage of the Post Office. My hon. Friend shakes his head—

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

My hon. Friend must not misinterpret movements of my head. I agree with everything that he says.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

I am glad to have that on the record. I have no doubt that it will be quoted to my hon. Friend after the General Election. It was a pleasure to hear those words coming from him—

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I shall qualify them any minute now.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

They could be of importance later.

It has been to the advantage of the Post Office to borrow abroad, for a number of reasons. One is that, before the cut, the Post Office was in difficulty in that it could not obtain the investment money that it wanted from the Treasury. The level of self-financing fell, the Treasury itself has had to raise the money that it was lending to the Post Office, either from taxation or from its own borrowing, and the pressures have been very heavy. Consequently the Post Office has been to Europe to borrow.

1.0 a.m.

It cannot be said that that was a bad thing. The rate at which the Post Office has borrowed is lower than it would have had to pay for borrowing direct from the Treasury. The source of not cheap, but cheaper money for telecommunications investment is Europe. That has been a great advantage to the Post Office, because, with our crippling rates, it has been paying almost £200 million in interest charges. It is important in those circumstances for any nationalised industry to be able to go to Europe and other money markets for cheaper capital. That is preferable to obtaining money on the open market, which the Treasury could not permit because of the element of private financing involved.

Following the hon. Member for Horn-church, may I ask the same question but in a different way? Is it true that the nationalised industries will go separately to Europe for funds, particularly from the European Commission and the European Investment Bank? The bank is prepared to finance particular infrastructure projects, whereas it will not lend willy-nilly to Governments in balance of payments difficulties or Treasuries short of money. Will it lend to administrations and corporations that want to finance projects which will strengthen the infrastructure and general health of the economy? That is an important question. If the Minister says, "Yes", it would not be appropriate for the Treasury to go to Europe to borrow money for itself.

Perhaps the Minister of State could reiterate the conditions on which the money is borrowed. The hon. Member for Hornchurch seemed to think that the money could be easily borrowed without Treasury sanction. It is apparent, as I said earlier, that the Treasury is always willing to apply the brake on progress, and I cannot believe that it will not meticulously scrutinise every application, giving permission to borrow only when it believes that to do so will be in the interests of the nationalised industry concerned and, as my hon. Friend the Member for Heywood and Royton might say, perhaps more importantly, in the interests of the economy as a whole.

Perhaps the Minister will be able to reassure us that the Treasury will look carefully at each application, although I should not like that to happen every time, because the Treasury is sometimes a barrier to progress. With its money mind, its accounting mind—and I say that without disrespect to my hon. Friend the Member for Heywood and Royton—the Treasury is often more interested in the commas than the productive potentials of a borrowing agreement.

On what terms would the nationalised industries borrow? I have heard it suggested that a fault in borrowing abroad is that the terms, periods and rates of interest are not the most advantageous. Perhaps the Minister will make that clear and will say what guarantees are included. Were the nationalised industries themselves to take the risk of the rate at which the British currency is being devalued, I should have serious reservations, but I understand that they are protected from the severest devaluations of the pound in world markets by the Treasury itself. I would like to hear the Minister speak on this subject tonight because, again I say, he might bring reassurance to those of us who have argued that the Government should not be persuaded away from going to Europe—going, indeed, to the world—to find funds for the development of nationalised industries. I cannot help but ask him how far the cuts in the investment programmes of the nationalised industries have made this course unnecessary.

I also ask him these questions. What were the fundamental reasons for deciding to go abroad to borrow money? Was it that it was becoming difficult to finance the programmes of the nationalised industries from self-generated incomes? Was it becoming increasingly difficult to finance the nationalised industries from money borrowed by the Government from small savers? Was it because it was becoming increasingly difficult to get money by way of taxation to meet the rising cost of public expenditure, of which the capital expenditure programmes of the nationalised industries were only a part? Was it because of all these reasons? Was it because of the difficulties of balancing the books at home? Was it because the Government wanted to borrow by the back door from Europe? I know that many hon. Members would be pleased to hear an answer to that question.

If the answer is not that the Government were sneaking off to borrow when the electorate were not watching but that they were trying to avoid further taxation, and trying to find other ways to finance the nationalised industries' programmes, other than by raising money from the British public, then I repeat my hon. Friend's question: now that the nationalised industries' programmes have been slashed, will it still be necessary to go to Europe to borrow money?

These are the questions I want answered tonight. I hope that we shall have satisfactory answers, because this is a very important part of the Bill, to which we shall have to return on Third Reading if we do not have satisfactory answers now on the amendment. I assume that my hon. Friend will not press the amendment to a Division. I assume that it is only a probing amendment. However that may be, it is still very important that the Minister gives us straight answers to the questions which have been put to him from these benches.

1.15 a.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I am sure that we shall all wait with bated breath to hear the reply of my hon. Friend the Minister of State to the detailed questions which the hon. Member for Newcastle-under-Lyme (Mr. Golding) addressed to him—all two of them, if I counted right. I hope that the hon. Gentleman will forgive me if I move on to slightly different territory, namely, the rather narrower context of the amendment which we are discussing.

I am very glad that Mr. Speaker has enabled us to return to the question of Clause 4 on Report, because, for reasons which we need not go into here, it is fair to say that my hon. Friend gave us a somewhat encapsulated reply to our debate on these matters in Committee, and the House would benefit from some further elucidation on one or two points before we leave this very important clause tonight.

In Committee it seemed to me that my hon. Friend broadly advanced four arguments in support of the proposition that the nationalised industries and local authorities should be encouraged—because, as the hon. Gentleman rightly said, the purpose of the clause is not simply to permit ; it is to encourage local authorities and nationalised industries to borrow in the currency markets overseas.

The first argument was the point of view that this clause only extends the authority which most of these bodies already enjoy to cover those which do not enjoy that authority at present. One accepts this, but I do not think that my hon. Friend will complain at my suggestion that we consider at the same time the whole strategy of encouraging borrowing abroad by the public sector in this manner at this point.

The second point my hon. Friend advanced in Committee seemed to me then and seems to me today rather more questionable. It was that there was no good reason why the local authorities and nationalised industries—the local authorities in particular—should not be encouraged to go out and raise their financial requrements in the Eurocurrency markets, for example, if they could do so more cheaply than they could do at home. I can see very good reasons why they should not be encouraged to do so at present, because in principle I thought that it was our objective that the local authorities should be dissuaded from excessive and sumptuary expenditure at present.

My hon. Friend frowns, but my right hon. Friend the previous Chief Secretary spoke in no uncertain terms to the local authorities about the Government's determination that they observe a certain amount of restraint in their spending programmes. I cannot see that it is exactly helping to observe restraint in local authorities' spending programmes to encourage them to borrow money more cheaply than they would have to pay for it at home. Therefore, I am not sure that that argument entirely stands up at present.

The third proposition my hon. Friend advanced was the one which the hon. Gentleman touched on about the fact that there was nothing immoral about borrowing overseas. As it happens, broadly speaking I agree with my hon. Friend and with the hon. Gentleman on this point. I think that it was a fair point which my hon. Friend made in Committee when he perhaps dissociated himself from many of those—I do not think I would include myself among them—on what was then that side of the House who criticised the previous Government for going to the international pawnbrokers. I think that there was a certain amount of exaggeration in that argument, and I should not necessarily dissent from the proposition to that effect which my hon. Friend advanced in Committee. But it is clear—I do not think that the hon. Member for Heywood and Royton (Mr. Joel Barnett would dispute it—that this can be only a temporary phenomenon and it does not eliminate the long-term need to correct the reasons why the overseas borrowing has arisen in the first place.

There is, however, one point on which one might encourage my hon. Friend the Minister of State to comment. Notwithstanding what he said about the way in which this borrowing was to offset the capital outflow, the general impression that has been created is that the borrowing, recalling what my right hon. Friend the then Chief Secretary said on Second Reading, was required to finance a balance of payments deficit which was acceptable as part of the basis of our growth strategy.

The trouble here is that the growth strategy is not what it was. I say no more about that, but since the growth strategy—to the relief of some of us, I confess—has been a bit demoted, should we not ask whether the raison d'être which led to the desirability of the borrowing in the first place has not also more or less disappeared with it?

The fourth argument which my hon. Friend advanced was that there was no need to worry about the scale of the borrowing which had already taken place and was likely to take place in future under Clause 4 because the main burden of capital repayments would not occur until we had the riches from the North Sea. I sometimes feel that we are counting our blessings from the North Sea with rather excessive enthusiasm and haste. I hope that in this respect we have done our sums aright.

However, if I may say so, I do not think that my hon. Friend, in advancing those four propositions in Committee, entirely answered some of the other questions which were raised on this clause. He was asked by the hon. Member for Heywood and Royton, and by me, I think, but was unable to give a clear answer, what was the additional burden of servicing charges which we were incurring by financing the deficit through local authority and nationalised industry borrowing as opposed to that which we should have incurred if we had exercised our rights with the International Monetary Fund. I wonder whether he can elaborate on that tonight.

Before we leave the clause, we should be clear on the justification for using local authorities and nationalised industries rather than exercising our rights with the IMF. I realise that the attraction of using Glasgow Corporation or the Central Electricity Generating Board to finance the balance of payments deficits is that they do not incur the visitations of Mr. Richard Goode or his successors. I have seen the comment recently in the newspapers—it seems to be fashionable now ; one finds it in the Economist, and nothing could be more fashionable than that—that it was untrue to suggest that the visitations of Mr. Goode or his successors induced Governments, let alone a Government such as our own, to pursue policies which they would not otherwise have intended to pursue. I wonder a bit about that when I contemplate the impact which the visitations of Mr. Goode appeared to have on the course of policy under a Labour Government.

In consequence I wonder whether, if we had been receiving such visitations because we had chosen to finance the balance of payments deficit by exercising our drawing rights with the fund rather than through the local authorities and the nationalised industries, we should have continued to indulge in a growth in the money supply varying between 20 per cent, and 30 per cent. over the last two years and whether we should have had a net borrowing requirement of £4,500 million this year.

That draws me to the suspicion that we might not have been experiencing the current rate of inflation if we had chosen to invoke our borrowing rights at the IMF and if we had accepted consequential drawings. I do not know, but that seems to me a not impossible proposition. However, we need to know how much further we are to go along that road. The first point in that respect is how much overseas borrowing has already been incurred by the local authorities and nationalised industries. I was interested to see that whereas my hon. Friend the Minister of State told me before Christmas that the average burden of interest payments incurred over the next five years would amount to around 200 million dollars a year, in an answer given since the House resumed that figure had gone up to 270 million dollars for the current year, which would seem to indicate that the burden of interest rates was already escalating at a fairly horrific rate.

Reference has been made to the comment of my right hon. Friend the Paymaster General who pointed out that my right hon. Friend the Chancellor had made it clear some months ago that he might, if necessary, approach the International Monetary Fund. We have all read with interest the reports of the meeting of the Committee of 20 in Rome last week. It might have been constructive if we had had a statement today about the course of that meeting because it had some fairly far-reaching implications and, possibly, repercussions. That apart, however, it was reported in the Press over the weekend that during the course of this meeting discussion had been initiated about the possibility of the United Kingdom activating the first tranche of our borrowing entitlements to the IMF amounting to approximately 800 million dollars.

Against the background of the latest trade returns such a borrowing might be a little reminiscent of Mr. Micawber going round trying to importune his friends for a flybutton. One would not have thought that 800 million dollars would have made a very big impact, but it would be interesting to know whether my hon. Friend can shed any light on the extent to which such reports are based on fact and whether he can shed any light on the Government's intentions regarding future borrowing from the IMF rather than further reliance on the borrowing capacity of the nationalised industries and the local authorities.

I notice, on re-reading the speech of the hon. Member for Heywood and Roy-ton in Committee, that he complained about the manner in which we were liable to get locked in to a parity situation because of the obligations we had incurred from exchange rate guarantees on borrowings that had already been carried out. I must confess that I would not necessarily regard that as an unmitigated disaster. I have always been highly sceptical about the virtues of floating. My scepticism has in no way diminished because of what has happened in recent weeks.

We would be very much better advised, rather than continuing to try to dirty the float, as it were, to use the borrowing powers of the nationalised industries and the local authorities to fix the rate, to seek international support from the IMF and from the other Governmental sources of supply of overseas borrowing, and to accept the strings which would undoubtedly be entailed therewith.

1.30 a.m.

Photo of Mr John Nott Mr John Nott , St Ives

I must explain to my hon. Friend the Member for Horn-church (Mr. Loveridge) that the powers that are granted in this part of the Bill do not represent in any way a new policy. Nationalised industries first began to acquire foreign currency borrowing powers in the 1960s under the then Labour Government. The air corporations were the first. The others followed as opportunities for legislation arose. The Bill merely completes the process so that all the nationalised industries and public corporations will be in a position to take advantage of opportunities which might be available.

Powers are given in the Bill to those industries which do not already have them. The opportunity has also been taken to remove an anomaly in the existing powers of the electricity authorities and the Co vent Garden Market Authority. I must tell my hon. Friend the Member for Hornchurch that we are not embarking on any new policy.

I should explain to the hon. Member for Newcastle-under-Lyme (Mr. Golding) that within the framework of the borrowing programme, and having regard to the substantial sums that have been raised so far, I am confident that the terms which have been obtained are in general very satisfactory. The majority of public sector borrowers have received an exchange rate guarantee and, therefore, they bear no exchange risk. I can assure the hon. Gentleman, he having asked about the scrutiny which the Treasury gives to each of the loans, that each loan is considered separately and that its terms are studied to ensure that it is in the national interest, and in the interests of the public sector authority itself, to borrow overseas in the manner proposed.

My hon. Friend the Member for Hornchurch asked how much we had so far borrowed abroad. In 1973 the public sector borrowed to the extent of 2,495 million dollars. The resulting inflow of funds was sufficient to finance approximately three-quarters of the current account deficit estimate for 1973 as a whole. When interest rates abroad are competitive with sterling, and when we need in any event to finance a payments gap, I have always believed this system to make considerable sense.

Moreover, it should be remembered that this country normally exports more structural capital than it imports, largely in respect of export credit, aid and other forms of overseas investment. Therefore, the fact of my stressing in Committee primarily the structural capital account and my right hon. Friend the previous Chief Secretary's stressing on Second Reading primarily the current account deficit was of no great significance.

The fact is that as a result of this policy we had an inflow of 2,495 million dollars, which was of great benefit to our balance of payments. In Committee I referred to the reasons of my right hon. Friend the then Chief Secretary, saying that it makes sense to borrow foreign currency in this way in order to increase the resources available to help finance our balance of payments deficit on current account."—[OFFICIAL REPORT, Standing Committee F, 20th December 1973 ; c. 178.] I was referring to both the structural capital account and the current account.

Of course, overseas borrowing involves an exchange risk. But whether there is a loss of real resources for the country is an entirely different matter. We may be obtaining capital at a lower real cost than would otherwise be the case.

My hon. Friend was worried about borrowing short and lending long. It is an understandable matter of concern, but I can assure him that we have not allowed any public sector borrowing for terms of less than five years up to now. I pointed out in Committee that the repayments of principal arrive towards the end of the decade and early in the 1980s. Over the period ahead we can expect the underlying balance of payments to improve as the measures taken by the Government and the competitive value of sterling become reflected in our trading flows. By then we shall be benefiting from North Sea oil.

The recent oil price increases will tend to mask changes elsewhere in the balance of payments, but the oil price problem affects all oil-consuming countries, and will need international arrangements to handle it.

The extent of our overseas borrowing is not, in the Government's view, such as to cause any serious worry about the repayments schedule, which is reasonably well spread over the late 1970s and early 1980s. The hon. Member for Heywood and Royton (Mr. Joel Barnett) looks unhappy about that, but it was a point of great concern to my hon. Friend.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I was only recalling that I had asked about the other loans which will come later and which will have to be repaid at the same time.

Photo of Mr John Nott Mr John Nott , St Ives

I will come to that in a moment.

As I said in Committee my right hon. Friend the Chancellor has stressed that our reserves are strong and that if the circumstances required it he would not hesitate to have recourse to the IMF or other facilities.

My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) asked a number of questions about the relative costs of borrowing in Eurodollars in the way we are now doing and borrowing from the IMF. It is difficult to specify precisely the interest cost of the public sector loans, because a little less than half of the total amount is represented by the Electricity Council loan, which is on a floating basis, geared to the inter-bank rate, and the interest rate charge on the balance of payments will vary with interest rates generally. At present our interest payments amount to over 200 million dollars a year, and a little under half that amount is at a floating rate. Our invisible surplus is now running at 2,000 million dollars a year, so there is a substantial difference between the interest payments and our invisible account surplus.

Capital account repayments at the moment show maximum repayment by 1980 of 670 million dollars. These are figures which I set out in an answer to my hon. Friend the Member for South Angus on 28th November 1973. I would be happy to bring that repayment schedule up to date as we go along if my hon. Friend would table further Questions. None of these figures is of an order which need cause us concern so long as the balance of payments develops as we expect and which Government policies are designed to achieve.

These loans bear a higher rate of interest than that which would be paid by central Government on drawings by the International Monetary Fund. One could take 10 per cent. as being roughly the cost of borrowing in Eurodollars. Borrowings from the International Monetary Fund would be considerably less, but to base this amendment, which I realise is a probing amendment, on that is to ignore completely one of the beneficial effects of these loans.

If the amendment were to be carried, the nationalised industries and other authorities mentioned in the Bill would not be able to take advantage of the lower interest rates payable on Eurocurrency loans. They would have to pay domestic rates on all borrowings at a time when sterling rates are unusually high. The saving to public sector borrowers who go by this route and borrow overseas is now about 1 per cent. per annum and, given the size of the borrowing, this is not negligible.

I must make it clear to my hon. Friend the Member for South Angus that because a local authority borrows abroad that does not in any way increase the total of local authority borrowing. I think he was implying that it was strange that at a time when we are going into a more rigorous period of capital expenditure—he was referring to the announcement of my right hon. Friend the Chancellor on 17th December—we should continue to allow overseas borrowing by the public sector. But capital expenditure by local authorities requires loan sanction and the capital expenditure of the nationalised industries is controlled by the Government. This does not increase the total of borrowing by the public sector.

The hon. Member for Newcastle-under-Lyme said that he thought this was probably something to do with the fact that the Government could not borrow what they needed within the United Kingdom. A Government, by its very nature, can always borrow. What it cannot do is always to borrow in a way which is not inflationary in its consequences. Overseas and domestic borrowing have precisely the same effect on the money supply either way. If a local authority borrows abroad, the equivalent amount of sterling has to be purchased in the United Kingdom and therefore the money supply is unaffected either way.

There is no question but that a Government can always borrow. The question is what it can borrow without inflationary consequences for the economy. The question whether the public sector borrowers at home or overseas does not have any effect on the money supply. Whether the public sector borrows overseas or within the United Kingdom does not affect the money supply in either case.

1.45 a.m.

I was asked about the subsection dealing with borrowing from Community institutions. The reason for it is that the European Investment Bank, in particular, normally lends in a package of currencies which include sterling. Therefore, we needed to insert the clause in the Bill to ensure that project borrowing in the United Kingdom which might be suitable for loans from the European Investment Bank was not inhibited thereby. There have, I think, been two borrowings from the European Investment Bank—one for the British Steel Corporation, and, subject to my memory, one for the Industrial, Commercial and Finance Corporation.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Can my hon. Friend shed any light on the news we have had of the discussions in the Committee of 20 about possible activation of our borrowing rights with the fund?

Photo of Mr John Nott Mr John Nott , St Ives

I cannot go beyond what my right hon. Friend the Chancellor has said. He has made it clear that if we need to look elsewhere for additional borrowing facilities overseas, and if the circumstances require it, he will not hesitate to do that.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

I asked whether the investment fund would loan to Treasuries or whether the loans would be for specific projects. It has been asked whether it would be better for the Treasury to borrow all the money from abroad rather than that the nationalised industries should go separately to Europe or elsewhere for funds.

Photo of Mr John Nott Mr John Nott , St Ives

The European Investment Bank was set up primarily to lend for projects such as the Teesside project, where it made a loan for the British Steel Corporation. As part of the arrangements under the Treaty of Accession, we have subscribed to the capital of the bank, but its principal purpose is to make loans on projects and for regional development and structural and other purposes.

The public sector borrowing programme remains part of our general balance of payments strategy. The borrowing needs to be regulated if it is not to have possible adverse effects on credit ratings and on availability. That is why we are not allowing every local authority to borrow. We have had to set a limit on the size of local authority which can borrow by this means abroad, but generally we expect that borrowing in the current year will be more or less the same as in the past year. We intend this policy to continue because of the considerable benefit which it is bringing to the financing of our balance of payments.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I was interested to hear from the Minister that the invisible account now exceeds the interest which we would be paying on these loans. However, I always thought that we were using the invisible account to reduce the deficit on the visible account. I should like the invisible account to be used twice, but I doubt whether that is possible.

This has been an interesting debate and will have been helpful to hon. Members. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

1.50 a.m.

Photo of Mr John Nott Mr John Nott , St Ives

I beg to move, That the Bill be now read the Third time.

I am sure that hon. Members would not wish me at this late hour to outline in detail again the main purposes of the Bill. Its main purpose is to authorise the payment of compensation to certain nationalised undertakings for the deficits they have incurred or are incurring as a result of price restraint policy and to widen slightly the borrowing power of a few of the public corporations, in most respects to bring them into line with the powers already exercised by the majority.

If there are any extremely pressing and urgent matters which hon. Members wish to raise, perhaps I may, with leave, reply to them later.

1.51 p.m.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

That contribution hardly did justice to the importance of the Bill that is before the House tonight. It is an oddity that during the Second Reading there was little interest in the Bill, and a poor attendance. Tonight it has been taken as the second debate of the day. This is very odd, when one looks at the sums involved, because one sees that the Bill provides for £145 million in respect of losses in 1970–71, 1971–72 and 1972–73. For 1973–74 and 1974–75 we are talking of total payments which may not exceed £400 million or, by Treasury order, a maximum of £500 million.

They are very substantial amounts, and are worthy of discussion. [Interruption.] The hon. Member says, "Not now". If that is the attitude of those on the Government benches, the Government Whip should not have moved the Third Reading tonight ; he should have moved it tomorrow or the day after, or on some subsequent occasion.

The Bill is an important one, because it provides for—in some cases without redistribution—an income which is undesirable. In respect of 1970–71, 1971–72 and 1972–73 the Bill provides compensation of nearly £146 million to meet the deficits of the nationalised industries. Some of us believe that if the nationalised industries are to be compensated at all they should not only have compensation for the losses recorded but there should be some element, however difficult to define, of compensation for the profit that they did not earn.

I said that the Bill redistributed income, and so it does. As I understand it, the sum of £146 million is to come from moneys provided by Parliament—which is a euphemism for taxation. The money will come not from Parliament but from the people. The money will come from general taxation. Therefore, it is not a case, as it would be in private industry, of the people having avoided paying amounts from their pockets. They will pay, whether they pay for the services of the nationalised industries or their products or later through taxation for compensation payments. Thus we are not talking about improving the lot of ordinary people through this measure.

There are services which are to be compensated for from sums obtained by Parliament from working people. Some services have been, and will be, provided at a lower cost to people who could well afford to pay for them. The basic objection to Clause 1, with Schedule 1, is that it provides for the subsidising of groups and individuals who require no subsidy. Clause 1 and Schedule 1 contain a policy which is undesirable in itself. If these compensation payments are being paid to the nationalised industries on this scale, this money—nearly £146 million—will not be available for other projects.

On Second Reading I made the point, which I reiterate, that I could see no logic in the payment of compensation to a telecommunications service which could be very profitable and which could expand easily on its own account. I cannot see why we should, in effect, pay subsidies to those who use telephones in their inessential businesses when we refuse absolutely to subsidise many food products. I cannot see why we should pay this £146 million at all. It would have been better for the nationalised industries to pursue a pricing policy which was on all fours with private industry.

Many of us believe that the nationalised industries have been discriminated against in two ways. First, the formal codes have discriminated against them. Secondly, however, many of us believe that there has been arm-twisting of those who take the decisions in nationalised industries. We believe that the amendments raised by price increases in the nationalised industries have been less than the code permits. Because of this those industries have suffered severely.

Clause 2 will perpetuate the difficulties. I dealt earlier with the difficulties caused by cuts in capital expenditure. The same point can be made about the provision for compensation of £400 million for 1973–74 and 1974–75. By passing this Bill we are saying that these policies will continue until the end of 1975. I emphasise the point that restriction of price increases in the nationalised industries has had important repercussions, particularly in terms of investment.

On Second Reading I said that because the nationalised industries will be unable to raise sufficient capital, they will have to borrow from the Treasury or from Europe at highly inflated rates of interest. They will incur costs which otherwise they would not have incurred. But the overriding objection to the policies in Clauses 1 and 2 is that they will lead to a lowering of morale among management and men in the nationalised industries. When losses are made and compensation is paid, outside critics claim that this illustrates the inefficiency of the nationalised industries. They do not draw the obvious conclusion that the deficits can be directly attributable to Government policies. It is argued that these are not compensations payments but are subsidies to the nationalised industries. I believe this to be bad for the nationalised industries. It can lead only to a lowering of morale, accompanied by a drop in productivity.

The Treasury's attitude has been to look at the interests of the economy first with the nationalised industries somehow or other having to accommodate themselves to the wellbeing of the economy. The future health of the economy depends upon the present health of the nationalised industries. Without coal, steel, communications and transport there can be no successful British economy. By damaging that large sector of the nationalised industries, Britain's competitive base for the late 1970s and the early 1980s will be undermined.

By their present policy the Government are preparing the ground for great economic difficulties later on. It would be far better for the Government to try to reach a steadier policy in respect of the nationalised industries. It would be better not to penalise those industries so severely in terms of their revenues. It would be beneficial not to put them into a situation where they lose all the targets that they had previously for managerial efficiency.

I was pleased to hear the Minister confirm, with one exception, my arguments in favour of borrowing from Europe. It is important that we use the investment bank when it is willing to support British projects. It is important to borrow abroad when it is possible to get for the nationalised industries cheaper finance than can be obtained at home. I was pleased to hear that the nationalised industries would not have to accept the exchange risk in these circumstances.

This Bill should never have been necessary. The Opposition are forced to support it because the deficits have been created and the compensation is worth while and because the losses will be there in 1973–74. But it would be undesirable for a Labour Government to pursue the policies of this Government. It is bad at any time to kill the goose that lays the golden eggs. The nationalised industries do not lay golden eggs, but they provide the basic services and products which are essential to this country's prosperity. The sadness of the Government's policy is that they have discriminated against the public sector to the extent that we shall lose the potential for production and productivity in the 1970's and 1980's. The quicker this Bill is reversed the better.

2.10 a.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I am in broad agreement with several of the points made by the hon. Member for Newcastle-under-Lyme (Mr. Golding), and I hope they lost nothing by reiteration.

I said on Second Reading that this was a bastard Bill and its parentage has not become more attractive as we have learned more about it. This is one of the numerous consequences of the foolish attempt to try to control inflation by passing laws against it. So long as we indulge in that folly, we shall be faced with Bills like this. It will not be the last unless and until we abandon the attempt the deficiencies of which we so roundly exposed for many years. Every word we said then has been borne out in the event.

I hope that my right hon. and hon. Friends took careful note of the Report of the Select Committee on Nationalised Industries. In paragraph 108, it said: To sum up, your Committee believe that the evidence which has been presented to them shows that, in the last five years, the impetus towards a more rational control of the nationalised industries has tended to decrease. That is a grave charge to be levied against those responsible for public supervision of these industries. It is not an unfair judgment of the consequences of statutory control of prices and incomes and (he attempts to manipulate the price system which preceded them and of which the Bill is the consequence.

In paragraph 111, it said: Your Committee believe that the Government should make an early statement setting out the steps which they propose to take to restore the industries to profitability. I hope that the Government will act on that proposal, not least because it will be impossible to do so as long as they pursue the follies of a statutory control of prices and incomes.

2.13 a.m.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The shadow Treasury Bench has noted all that has been said by my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding). We are aware of all that has been done to the nationalised industries over the years, and when the positions are reversed in the near future the treatment of these industries and of the economy will be very different.

The Bill, like other aspects of Government policy, is left even at this late hour very confused. The Minister of State expressed a pious hope when he talked of getting back to commercial targets or a favourable balance of payments in the near future. I hope that he is right, but I fear not, at least in the near future.

We support the idea of subsidies, given the level of inflation. We recognise the need for borrowing, given the balance of payments deficit. In those circumstances, we do not propose to divide against the Bill.

Question put and agreed to.

Bill accordingly read the Third time and passed.