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Dáil Éireann debate -
Thursday, 28 Mar 1935

Vol. 55 No. 12

Public Business. - Local Loans Fund Bill, 1935—Second Stage.

I move: "That the Bill be read a Second Time." As the House is, no doubt, aware, what is generally regarded as the existing Local Loans Fund is no more than an account in the Exchequer under the control of the Minister for Finance and the moneys to the credit of this account are available for advances to local authorities for housing, for operations under the Small Dwellings (Acquisition) Act, for sewerage and water supply schemes, for arterial drainage works and other analogous activities. The moneys in the fund are also available, to a limited extent, for loans to farmers on holdings of small valuation for the purpose of improving their lands and erecting farm buildings, such as haybarns, etc.

The existing Local Loans Fund, although perfectly legal, has, however, no statutory basis. The sums required as capital for the fund are voted annually by the Oireachtas and are placed to the credit of the fund as an advance by way of Grant-in-Aid. This Local Loans Fund account, as I think it ought to be more properly described, was initiated in 1922 as a temporary measure to make the issues on foot of loans sanctioned before 1st April, 1922, where work had actually commenced before issues from the old Local Loans Fund, set up under the National Debt and Local Loans Act of 1887, and which ceased on 1st April, 1922. Later, this Local Loans Fund account was opened up for one new service of loans after another, until the present position was reached when it was available for all the purposes for which loans might have been made out of the pre-1922 loans account, as well as for a number of services which are peculiar to Saorstát legislation of recent years.

The design of the fund in its present state was never the subject of deliberate planning and its growth, in a rather extemporised fashion, has been responsible for a number of serious difficulties in adminstration which were not so obvious and not so serious in the earlier years of the account, when the amounts involved in it were comparatively small. One of the principal difficulties which has developed, particularly in recent years, arises from the fact that the voting of the annual provision for additional capital for the fund involves a theoretical, though not an actual, charge on the Budget for large amounts. For instance, in 1933-34, the amount of the Vote for the Local Loans Fund account was £2,150,000 and, in the current year, the amount provided is £4,200,000. The Minister for Finance may make and, in fact, has customarily made it clear that this item should not normally be borne against normal revenue and that, therefore, it is to be excluded from the Budget services which are to be provided normally out of taxation. But notwithstanding this, it does not prevent people who look at our accounts and are not familiar with the special position of this fund and the special uses to which it is devoted, from assuming that there is a deficit in revenue at the end of each financial year because of the fact that the advances to the Local Loans Fund under the present system must be classified as an ordinary supply service.

Another disadvantage which arises from the fact that the fund has no statutory basis is that the amount voted in each year must be sufficient to cover the amount of loans likely to be sanctioned in the year, the amount which it is reasonably probable will be sanctioned; in fact, in some circumstances we might say the amount which it is possible will be sanctioned. The amount which is so devoted cannot be confined merely to the amount likely to be required in the year for the actual cash issues. If it were the Oireachtas would be committed to expenditure to an extent which it had not approved and for which its approval ought not to be assumed, having regard to the magnitude of the sums involved. As an example of what I mean, I might refer again to the years 1933-34 and 1934-35. In the first year the amount sanctioned for issue from the fund was approximately £3,050,000. The actual cash advances from the fund were less than £2,000,000. In the current year the amount sanctioned for the fund was about £3,150,000, but the actual loans sanctioned will again be to the order of about £2,000,000.

It is clear, therefore, that under the existing system the fund must always possess sufficient reserves to enable it to discharge its commitments on foot of loans agreed to. That is to say, when the Department of Local Government has sanctioned a loan it must make an immediate provision for the loan, even though it may not be called upon to make any issues in respect of it until a later date, and may even ultimately not be called upon to make an actual issue as great as the amount originally sanctioned. This practice has resulted in a large and rapidly growing surplus cash balance which the Minister for Finance has no power to invest and which is, consequently, a most unremunerative asset. Even if the total Local Loans Fund advances in any year are classed as capital and are not met out of revenue, the Budget for the year must be actually loaded with the debt charges necessitated by the borrowing for this purpose because the moneys cannot be used for any other purpose, cannot be invested in any other way, and yield no interest. There is no corresponding offset by way of additional revenue to the Exchequer.

Another disadvantage which has disclosed itself in relation to the present system is that while the existing Local Loans Fund is, in fact, managed on the principles laid down by statute to apply to the older fund established under the National Debt and Local Loans Act of 1877, the applicability of these statutory provisions to the existing fund is very doubtful, and it is desirable that the position in that regard should be regularised without further delay. There are other difficulties of a relatively minor nature, but there is one which, from the point of view of Parliamentary control of the public finance, is a very important one and that is in connection with the audit of the accounts of the funds. These accounts, showing the total receipts and issues to date and the balance available, are sent to the Comptroller and Auditor-General each year and he carries out an audit. As the fund is non-statutory, he presents no report and does not give the accounting officer a final clearance. In addition, his audit is limited in scope. He does not, for example, carry out any examination of the relative mortgage deeds by which loans are secured, nor does he analyse the treatment of arrears, while, of course, the accounts of the fund are not published.

In view of these difficulties which have arisen, it is proposed to enact this Local Loans Fund Bill to put the fund on a statutory basis. The main principle of the legislation will be that all the loans made from the existing fund accounts are to be treated as assets of the new statutory fund and all repayments of these loans and the payment of interest thereon are to be credited to the statutory fund. In addition, all future moneys required for the issue of local loans will be obtained by borrowing on behalf of the fund either from the Exchequer, from other Government funds, or from the public by the issue of securities charged on the fund. These securities will be guaranteed as to principal and interest by the Exchequer and will therefore be trustee securities. The Bill also contains sections regarding the treatment of surplus balances on capital or income account, the treatment of arrears and prior repayment, audits, reports and accounts, and the general procedure of issuing and collecting the local loans.

It is also proposed to take advantage of the present Bill to clear up the position in relation to sums repaid on foot of local loans made prior to 1st April, 1922. The present position of these is unsatisfactory. Under the terms of the Constitution they have always been treated as miscellaneous revenue applicable to meet the current expenditure falling on the Exchequer The loans are of two types, those repaid on the equal annuity system and those repaid on the principal and interest system; that is, repaid by equal instalments of the principal, with interest charged only on the amount outstanding from time to time. It will be appreciated, accordingly, that each repayment of those loans, whether by way of annuity or by an equal instalment of the principal, contains an element of capital, an element which tends to increase either absolutely as in the case of the annuity payment or relatively as in the case of repayments by the equal instalment principle. As I have already stated, the present position and the position since 1922 has been that all these capital repayments are treated as current revenue for the Exchequer. It is proposed to discontinue this practice of appropriating these capital assets in aid of current revenue and instead, subject to a suitable adjustment with the Exchequer, to transfer on the appointed day to the new statutory Local Loans Fund the whole of these assets and to provide that repayment. whether of capital or of interest, will go to the new fund.

From what I have just said, it will be appreciated that two groups of Exchequer assets are being transferred to the Local Loans Fund. The first of these are the unrepaid balances of loans made from the fund by means of advances from voted moneys; that is moneys voted by the Oireachtas. The second are the unrepaid balances of loans made prior to the 1st April, 1922, and to these must be added such cash portion of the unissued balances of the voted grants as it may be necessary, under Section 3 of the Act, to transfer to the new fund on the appointed day. When the transfer has been made, the Local Loans Fund will reimburse the Exchequer for the transfer of these assets by the creation of a debt in its books in favour of the Exchequer to an equivalent in value of the assets transferred. The debt will be deemed to be an advance made by the Exchequer to the fund. It will bear interest at a rate to be determined and will be repaid as opportunity arises out of the proceeds of issues of the Local Loans Fund stock or out of surplus capital or income arising on the Local Loans Fund. The Exchequer will treat as current income all interest paid by the fund on this advance as long as it remains unrepaid, but repayment of the advance will not be brought into the Budget Account, but, instead of being treated as current income, will be regarded as a capital repayment available for the reduction of debt or for new capital expenditure or advances.

It is desirable, in conclusion, to emphasise that the Bill is designed to deal with a very limited question of finance and the administration of the fund. It does not, for instance, propose to extend the scope of the fund by authorising the making of loans for purposes for which loans, under existing legislation, cannot be made by the State. If it were desirable to extend the powers of the fund in that regard, that would be a matter for separate legislation. The present Bill does not alter in any material respect the normal procedure and practices relating to the grant and collection of local loans. These have operated in the Saorstát area for well over half a century, and borrowers and those on whom will devolve the management and administration of the new fund are perfectly familiar with the procedure.

Again, I should like to emphasise that, owing to the magnitude of the present operations of the fund—I think that over £8,000,000 has been placed to the account of the fund within the last three years—and owing to the magnitude of the other assets which will be transferred to the fund in due course, and in view of the seriousness of the administrative difficulties to which I have drawn attention, the Bill is urgently required and cannot be further deferred. It deals with machinery only and I think it should be largely non-contentious. It does not introduce any novel or untried principles of finance or of administration, and the scheme it outlines can readily be modified in any particular feature so as to bring it into line with any broad principle which may be adopted later in consequence of the Report of the Commission on Banking, Currency and Credit which is now sitting and whose attention has been drawn to the proposals of the Government in relation to the existing Local Loans Fund.

I wonder would the Minister mind repeating that portion of his statement which referred to the interest of the fund? The Minister, I think, said that the Government will treat as income the interest of the fund, and then the Minister hesitated for a moment and went on, but I missed what he said. I think the Minister repeated one portion of it twice. He was speaking of treating the interest paid by the fund as income, and then he dealt with capital repayments. I did not gather from his speech whether sums which have been owing to the fund will come in as assets to it or whether sums owing previous to the 1st April, 1932, will be treated as assets of the fund or will come in as in relief of the Exchequer.

They will come in solely as assets to the fund.

That is, any sums outstanding and not yet paid will be regarded as assets to the fund?

With regard to the Bill itself, I am prepared to accept the Minister's statement that it is an administrative necessity. There is one thing, however, that is written right through the whole Bill, and that is a certain amount of suspicion regarding the repayments. There is a clause in the later sections of the Bill, dealing with penal interest, which, I think, the Bill would be better without. The main thing which concerns local authorities is not the administrative management of the fund which produces the money for them but rather the rate of interest, and it would appear as if this measure added heavily to the cost of distributing this fund certain expenses which, formerly, had not been paid. For instance, there are fees, the auditing of the account, the flotation of securities and so on, and it is quite possible that in the long run all these items will amount to a considerable sum. There is also this difficulty in connection with the measure—which appears to have envisaged every possible complication that could arise—that the Minister has power in certain cases to allow a discount for the repayment of a loan, and in the same section there is a reference to the Minister having power also to insist upon a premium. Nowadays, I think that a man who has £100 owing to him is fairly lucky to get that £100. But to tell him that he will get £101 in discharge of a debt of £100 is at least an innovation in finance. We are dealing now, I suppose, with a cheap money period but we will not always have it. What struck me about the measure is that it is an innovation to allow a certain Department of State to issue securities in respect of a fund when one might expect that the central Government itself, perhaps, might be able to borrow at the lowest rate. In connection with local schemes, it so happens with a great many economic works, in the sense of regarding them as matters of finance, that the cheaper the rate of the advance the more likely it is that those economic works will be undertaken.

Some little persuasion would be needed, I think, to convince the House of the difficulty of estimating what the outgoings in connection with the Local Loans Fund would be in a year. Most people's experience in connection with local authorities is that a very long period elapses between the inauguration of a waterworks, sewerage or housing scheme before the whole sum is needed, and, in consequence, a fairly close approximation could be made if there is contact with the local authorities, and there must be in connection with such a matter, as to when the money might be needed.

In this case we are starting off presumably with a fund of about £2,000,000: the Bill is so framed that money can flow in or out of the Exchequer to this fund almost at will. If there is too much money in the fund, it can be lent to the Exchequer; and if the fund is short of money, the Exchequer can lend money to the fund. I wonder, in that connection, if these transactions are going to take place, whether these extra costs which the Local Loans Fund has generally charged the local authorities will be the rule or the exception. The vital thing in connection with the issue of local loans is to have them at such a low rate of interest that there will be an inducement to local authorities to undertake necessary public works. There is no indication in the measure as to what the rate of interest will be. It is quite obvious that local authorities themselves cannot borrow these moneys. There are many reasons for that, into which it is not necessary to go; but to make an extra charge on them is an objectionable feature. To charge any interest in excess of what it costs the central Government is not good business.

The Local Government Department is a very expensive item in our annual Budget. Some years ago it was complained that it amounted to over £2,500 per county. Of course it was fairly expensive at that cost, but it is now much more expensive. It amounts to about £3,000 a county, or perhaps more. You do not charge the local authority anything for the extra cost of supervising them. But, by reason of any extra costs incurred in the Department of Finance in connection with the management of this fund, an addition, either by way of increased interest, on the one hand, or fees on the other, does not seem to be justified in the circumstances. If the intention of the Administration is in the direction of having an extension of such necessary public works as sewerage, drainage, waterworks, housing, etc., the lower the rate of interest the better.

It might be just as well now, when there are assets in the Fund, that some loans which were issued when money was dear should be reviewed in the light of present circumstances and the burden eased. I think the interest on some of these loans is about 5¾ per cent. You are able to borrow the money at present at a little over 3½ per cent., and you can quite see the natural objection that there is to paying that high rate of interest. Again, assuming that the money which was lent at 5¾ per cent. was borrowed by the State at a fraction over 5 per cent., some particular proportion of the money borrowed in order to enable loans to be made has been repaid. But the State takes all the advantage, and no corresponding reduction is given to those who borrowed from the Local Loans Fund. If there is an opportunity of getting rid of that loan, those who borrowed from the Local Loans Fund are still liable for the whole of what I think we would be entitled to call penal interest, as it happens to be a half or three quarters per cent. over the sum mentioned in this Bill as payable.

In the last few months there has been a barrage from the Government side as regards their Christian principles and practice. It is very questionable indeed if it is in accordance with Christian principles to impose a penal interest, and the penal interest in this case is taken by somebody who has no immediate interest arising out of it. It is quite true that under the Bill as it stands if default be made, or if some of the money has to be written off as irrecoverable, the Oireachtas will be called upon to vote the money necessary to make it up. But it is not on the face of it made clear why that is a justification for imposing penal interest.

Let us examine what particular case there is for penal interest. If a local authority defaults it is not simply because it is in a cranky frame of mind, but because it is unable to pay it; it has not got the money; the rates have not been collected, or there is some reason of that sort. At the time that their difficulties are most pronounced, if this clause is to stand, there is to be added to their difficulties 5 per cent. interest on this class of money. The matter does not warrant as much as I have said about it, because it is a small item in the Bill; but it just manages to discolour the Bill and it would be better without it. When we come to the Committee Stage I hope that particular matter will be removed from the Bill.

My experience of local authorities extends over 25 years and very rarely indeed, and then only under abnormal or exceptional circumstances, have I ever noticed any disposition on the part of a local authority not to repay a loan. This will not make them pay it, and it simply disturbs the business. I should like the Minister to explain in the course of his reply why it is thought advisable that the Central Fund would not itself find all the money needed for the Local Loans Fund; why it would not raise the securities. What is the reason for handing over that function to whoever will be administering the Local Loans Fund? Presumably it will be the Minister for Finance. A case might be made that, at a time when there is glut of money, it may be possible to issue short date bearing securities at a lower rate of interest. It is not a very advisable form of financing, particularly as the loans to be made are long-term loans, and these are, in the main, long-term loans. A great many things go to make up the credit of a country. In our case we must remember the dangers which attend our public finances. There is a sum exceeding £5,000,000 invested in Savings Certificates which, although not likely to be called upon to be repaid at short notice is, nevertheless, payable at short notice. While it is not a sum which would stagger us, nevertheless short date bearing securities in connection with the financing of this fund would not be advisable as long as such a sum is outstanding which, although not likely to be called upon to be repaid at short notice, nevertheless is repayable at short notice.

What are the prospects of getting money for this Local Loans Fund at a cheaper rate—having them called local loan securities—than that at which it would be possible for the Central Fund to get it? It would certainly be inadvisable to have considerable sums of money outstanding on a loan for the Local Loans Fund, running for a shorter period than the local loans would be themselves. Those who have had experience of the finances of local authorities during the last 20 years will realise that a number of people who were in a position to lend money to local authorities lent it in pre-war days, and in fairly big sums, repayable over a period of years, but in exceptional circumstances likely to be called upon at short notice, and payable within six months if so called for. The rate of interest was moderate, but, when the war came, practically every one of those institutions demanded their money. It meant that the local authorities in question had got to go into the money market at a time when money was much dearer, and raise money in order to pay off those loans. Alternatively they were faced with a demand for an increase in the rate of interest payable. It was a time of very great difficulty and stress.

Just now our public indebtedness is high; there may be assets, but the fact is that it is high. According as it is high, the credit position must be secure. If a number of estates in which the securities of the State were held were suddenly placed upon the market, which occurs in the normal course through debts and so on, although the credit of the State might be perfect and although the investing public might not be nervous, the unloading of a large number of holdings of State loans on the market, at any time when there is no corresponding demand, would lower the price. As the price is lowered, the public confidence gets shaken, and so it is that when our public indebtedness is high particular attention must be paid to ensuring that no such complication will arise in connection with the floating of public money as would make that situation any worse.

The Minister has not persuaded me that it is advisable to have special borrowing on the part of the local loans body itself, whoever is managing the Local Loans Fund, even though it may be the Minister for Finance. The Bill, as the Minister said, is an administrative necessity. I am not convinced that it was impossible to have invested this money, although there was no statutory authority to do so. As theologians say, even though there is no power to do a great many things the fact remains that there may not be prohibition against doing them. There is no statutory prohibition against investing those moneys. Personally, I should have taken the risk if I had any responsibility in the matter, and if there were no statutory prohibition. However, the first point which concerns people who have had any occasion to use the local loans is the price at which money will be available; the second point is to get it when it is needed; the third point is to have the rate of interest as low as possible, and to have the administrative costs in connection with the machinery which is going to be set up made as low as possible. The Bill, on the face of it, presents a complicated measure for dealing with a small fund. Although the fund may have £7,000,000,000 in it at the present moment, it is after all a small fund. It does not require very much staff to regulate the income and outgoings of a fund of that sort. It is certainly advisable that the local authority should not get an excuse for complaining of the cost of the administration of this fund. It will have to bear it, and it will raise the price of the interest accordingly upon the local authorities, small as that increase may be. There is no check as far as they are concerned. Anybody who has had experience of the service of a local authority knows that if there is no check there the costs may easily grow. That ought not to grow and there is very little room for it having regard to the high cost on the local authorities for these necessary public works such as drainage and housing.

I agree with the Minister that it is very much better to have this fund on some statutory basis rather than continue the present haphazard arrangements in respect of advances through the fund, and accounting for sums advanced and repaid to the theoretical Local Loans Fund. But there are some aspects of the Minister's speech upon which I should like some further enlightenment. In the course of his speech the Minister mentioned that it was contemplated that the Local Loans Fund would be empowered to make loans. I want to know from the Minister if that is a contingency or a live possibility and if it is intended that the Local Loans Fund should have public issues and go to the public market. I should like to ask the Minister to inform the House what is the advantage of having a separate fund even though it has statutory authority to issue bonds to the public? I think, as Deputy Cosgrave suggested, it would be much better if the State itself would take the responsibility and make advances to the Local Loans Fund, raising the money with the better credit the State must have and being able to borrow money through the Local Loans Fund at a cheaper rate of interest than that of which a public body could get it in the public market itself.

The Minister indicated that the present repayments in respect of advances to the Local Loans Fund are treated as miscellaneous income for Budgetary purposes. I understood from the Minister that it is proposed that these repayments which are so treated will be regarded as assets of the new Local Loans Fund and that some time after the appointed day the Local Loans Fund will accept liability in respect of these repayments to the Exchequer. I wonder if the Minister would say what his present income is from these miscellaneous receipts, and if he could give any indication as to what method of calculation will be utilised in determining what amount the Local Loans Fund will owe to the Exchequer in respect of these new assets, namely, the repayments which are going to go into the Local Loans Fund in the future? The Minister mentioned also that the repayment from the Local Loans Fund to the Exchequer in lieu of miscellaneous items and receipts which will be transferred from the Exchequer to the Local Loans Funds will not now be brought into Budgetary requisition; will be disregarded for the purpose of the Budget and will be made available in the future for, possibly, capital advances of one kind or another. I want the Minister to say how he is to treat the money so repaid to him by the Local Loans Fund and what kind of advances he has in mind and are these advances of the kind which in the ordinary way would be helped from the Local Loans Fund? In other words, is the Minister visualising making advances from these repayments from the Local Loans Fund for an area already covered by the Local Loans Fund; or what particular kind of advances had the Minister in mind in respect of the repayments which will be made by him to the Local Loans Fund in the future?

I should like also to know if, in calculating the amounts which will stand to the credit of the Local Loans Fund at any time from this forward, payments are to be kept down in anticipation of demands? Are the funds to be kept at a point to satisfy the demands of the local authorities? Or is it intended, as it were, to overstock the fund by the local authorities, or to say that there is plenty of money now available for such loans as they require. Is the Local Loans Fund going to enter into competition with the insurance companies and the banks and say: "borrow your money from this; we have plenty of money?" Is it intended that the Local Loans Fund should carry on that kind of operation or is it intended to keep the fund in such a condition as would be necessary to meet the local demands for loans? The Minister mentioned that there might, under certain circumstances, be a surplus capital and surplus income and that that would necessarily mean a surplus of assets in the funds. I would like to know from the Minister whether this fund is to be regarded as sacrosanct so far as Budgetary requirements are required? Is it to be free from raids from time to time if its assets exceed its liabilities? Is it to be regarded as a stand-by, something that might be attacked if there is a lean Budgetary position? Or, is the fund one which cannot be touched under any circumstances?

I know that under the Bill the advances under the Small Dwellings Acquisition Act will be financed out of the Local Loans Fund in the future. I suggest to the Minister that in respect of such advances every possible effort should be made to keep down the rate of interest. For instance, six or eight months ago advances were made under the Local Loans Fund, under the Small Dwellings Acquisition Act at 5¾ per cent. Since then there has been a reduction in the rate of interest to 4¾ per cent. Many persons anxious to avail of the provisions of the 1932 Housing Act borrowed money from the local authorities under the Small Dwellings Acquisition Act and they were charged interest repayable over a period of 35 years at 5¾ per cent. Then money was made available at 4¾ per cent. The position now is that those who borrowed money one month will continue to pay interest at the rate of 4¾ per cent. Others because they wanted to take advantage of the provisions of the Act and so help to reduce the housing shortage had to pay 1 per cent. more. Those who waited and were not so desirous to take advantage of the provisions of the Small Dwellings Acquisition Act found the delay profitable by reason of the fact that the rate of interest was lowered by 1 per cent. in the meantime. I suggest that something should be done to equalise the rate of interest chargeable for advances under the Small Dwellings Acquisition Act and that all the advances should be on the basis of the lower rate of interest or possibly a newer rate of interest. It is obviously unfair that money borrowed in the same year or possibly in the same month should bear over a period of 35 years a difference of 1 per cent. in the rate of interest.

I think a special case can be made for treating borrowers of small amounts preferentially in the matter of sums advanced under the Small Dwellings Acquisition Act. I hope that in the administration of the fund the Minister will give sympathetic consideration to that matter. A case has come to my knowledge where a certain local authority makes advances under the Act for a maximum sum of £50 to, mainly, agricultural workers, small farmers, and such people anxious to erect a dwelling-house. Those are the people who have made application for the maximum advance of £50 under the Small Dwellings Acquisition Act. But in the particular case to which I am referring in order to secure the advance of £50 it was necessary to pay £7 in legal expenses. I think it is obviously unfair that an ordinary working-class man or small farmer who desires an advance of £50 should be required to pay this £7 in legal fees in order to obtain such a small sum. I hope the Minister will be able to devise some means by which a good portion of that charge will be borne by the local authority and that the legal adviser of the local authority will be able to accept that class of work at a much lower scale of fees than obtains to-day.

I think the new development of establishing a statutory Local Loans Fund has everything to commend it. I hope that in his reply the Minister will clear up some of these doubts and give us some more clarification of the functions of the fund, so that we may be able to see established a statutory fund even in a more favourable light than has been indicated by the Minister's speech.

The Minister said truly that this was a non-controversial Bill, but he managed to make a fairly controversial statement. The Minister will remember saying that in respect of the sums which were repaid on loans connected with the Local Loans Fund prior to 1932 that it had been his predecessor's practice to bring these sums into revenue.

Yes, that was the practice.

Yes, that is perfectly true. But his predecessor paid to the British Government £600,000 per annum out of the revenue in redemption of the local loans in respect of which these payments were coming to the Exchequer. Is not that so? Was not that a fact? While the local loans were coming to the Exchequer on the revenue account they were going out on the capital account and were, in fact, being appropriated for their proper purpose—that is redeeming the capital. The Minister may think that that was a bad agreement and that this £600,000 should not have been sent out of the country. But an examination at this juncture of the genesis of the economic war would carry the House further than the Chair would agree.

The Chair is in complete agreement with the Deputy on that point.

The Minister will agree with me that the payment of that £600,000 a year to the British Government, on foot of local loans, was in fact an appropriation to the revenue, coming into capital, and was in accordance with the most Spartan Treasury practice, and, to put it mildly, he was guilty of a suppressio veri in suggesting that his predecessors were appropriating this money to revenue, when, in fact, he knew perfectly well that its subsequent disposition made the appropriation one to a capital account.

I was puzzled by the Minister saying that under the existing system the moneys voted to the Local Loans Fund, and lying there, were earning nothing. Surely they must be earning something? Are they not on deposit in the Bank of Ireland or on deposit somewhere and if they are on deposit, surely some deposit interest is being paid on them? I should be interested to hear from the Minister if he is prepared to stand over the bald statement that under the existing arrangement, the Funds are, and have been, earning nothing while they are not employed as a loan to a local authority. The Minister told us that the sums which would accrue due in future, on foot of loans made prior to April 1st, 1922, would pass straight into the new Local Loans Fund as an asset. Section 6, sub-section (5), which deals with that very question, I take it, says:

The amount stated in the certificate made and issued by the Minister under the foregoing sub-sections of this section which is for the time being the latest such certificate shall be deemed to be an advance made under this Act to the fund by the Minister on the appointed day out of the Central Fund or the growing produce thereof for the purpose of making issues from the fund in respect of local loans.

That is his method of disposition of moneys coming in on the foot of loans made prior to 1st April, 1922. Is that not so?

That is how we propose to deal with them in part.

Section 9 says:

All sums paid to the fund in or on account of repayment of the principal of any local loan shall be included in and credited to the capital of the fund and shall be regarded and dealt with as a sinking fund for the redemption of securities issued under this Act on behalf of the fund.

Here we find a distinction made, in the way the moneys will be treated, between those moneys which accrue due on loans made prior to April, 1922, and moneys which accrue due on loans made subsequent to 1st April, 1922. I should be glad if the Minister would explain exactly the differentiation he proposes to make between those two classes of incoming money, because I gathered from his remarks that one of the objects of this Bill was to treat all future receipts from local loans, without regard to when they were made, in the same way and to pour them in as capital to the Local Loans Fund.

Only the pre-1922 fund.

Section 9 provides that, in future, once money has been transferred by the Oireachtas to the Local Loans Fund, it will simply start going round and round and going out at one end of the fund and coming in at the other. Is that not so?

The Minister will explain to us the difference in the methods whereby he proposes to deal with those two classes of money. There is one other matter about which I wanted to get an assurance from the Minister. I am in favour of the principle underlying the Bill, that is, setting up a separate fund, but I should like to be reassured in this one regard. At present, most advances made from the Local Loans Fund are contingent on expenditure by the local authority to which the advance is made, but there may be occasions on which the Local Loans Fund would undertake to advance to a local authority the entire cost of some scheme which is in contemplation. In that event, I should like an assurance that if the local authority, for social reasons, determined to undertake some scheme which was not of itself economic and turned to the Local Loans Fund for a loan to finance it, there should be advanced to the local authority no greater sum than the redemption scheme made economic. I will give an example to clarify the point. If a local authority propose to spend £1,000,000 on a housing scheme but to fix a rent thereon which would only finance principal and interest on £750,000, the scheme would be uneconomic to the extent of £250,000. I want an assurance that, in the event of a local authority seeking to borrow that money from the Local Loans Fund, they would receive from the Local Loans Fund no more than £750,000, so that the scheme would pay for itself in so far as the Local Loans Fund was concerned, and that there would be an Estimate for Supply Services for the sum of £250,000 which the central Government recognised was the uneconomic part of the loan. Subject to those matters, I am in agreement with the Minister in the general principle of setting up a Local Loans Fund for the purpose of clarifying Budget discussion and removing this question from its annual appearance in the Supply Service Estimates.

I should like to inquire from the Minister whether, when this Local Loans Fund has been established, it will affect in any way the grants which are often made by the Local Government Department for such services as waterworks, sewerage, and so on. Will the discretion, or, rather, the benevolence, which is at present vested in the Minister for Local Government pass in any way to those who are conducting the Local Loans Fund? I gather from the Minister's expression that I need not bother about that—that that discretion will still remain with the Minister. In listening to Deputy Cosgrave's very interesting speech, it occurred to me that he was criticising a section of this proposal unconscious that his Government had done something similar. He found fault with the idea of separate issues by this Local Loans Fund and suggested that it would be much more economic and, on the whole, a better method of financing that fund if the central Government itself were to borrow the money.

It must have occurred to everybody that that criticism would also apply with regard to the Agricultural Credit Corporation. Under the Cosgrave Government, the Agricultural Credit Corporation was established and was authorised to obtain its own capital by public issue. As we all know, the first efforts were not a great success. The same principle, I think, was applied to their issues which it is proposed to apply now to this Local Loans Fund which is being established, whereby principal and interest were guaranteed by the Government of the day. Why is it, I wonder, that Deputy Cosgrave finds that, in respect of this Local Loans Fund it is not a desirable method that it should be entitled to make its own issues, when the money is to be used for such services as waterworks, drainage and so on, and yet it was a commendable principle in the case of credit for farmers?

One of the points that he made in his criticism of that proposal was that the interest would probably be higher than it would be if the National Government were themselves doing the borrowing. Assuredly, if cheap money is desirable for such services as I have mentioned, it would also be desirable for the farming community, and while it might be slightly irrelevant to the present debate, it would certainly be useful information if the Minister for Finance could tell us what it is that determines the decision in regard to such proposals. What benefit is it to the Government of the day to have another body, a department of its own, making an independent issue in respect of which the Government is itself taking responsibility for both principal and interest? This is very confusing to the ordinary member who is not familiar, or, at least, intimate, with Government methods of finance. It seems on superficial survey as if there are several anomalies in the present system. You have, for instance, the Electricity Supply Board being financed by loans by the National Government, though, one would think, it could readily raise its own loans since it is a purely productive enterprise. You have the Electricity Supply Board being financed in the manner which Deputy Cosgrave wants applied to the Local Loans Fund; you have the Agricultural Corporation being financed by its own efforts; and now you are going to have the Local Loans Fund financed in a similar way to the Agricultural Credit Corporation.

Why is there this lack of uniformity, and what is the advantage to the State in having what might be called subordinate bodies, making separate issues of securities, while it has to take the responsibility for the repayment of both principal and interest? So far as I understood Deputy Cosgrave's argument, I am ready to agree with his criticism that there may be substantial expenses in connection with separate issues for this Local Loans Fund, and that the rate of interest may, possibly, be higher than if the National Government were making the issues. I await with considerable interest the Minister's defence of that proposal.

With regard to his statement that at present there is no power to invest surplus moneys which are in the Local Loans Fund and that they are not earning any interest, that is very surprising. Are we to understand that in the financial year 1933-34, when there was over £1,000,000 of a surplus issued to the Local Loans Fund, there was a loss of the interest on that sum, that it did not earn even the deposit interest? The interest that would be gained by having it on deposit would amount to 1½ per cent. Does that mean that there was a loss of £15,000? If so, surely the Bill ought to have been introduced long ago. A sum of £15,000 in one year is a large sum in the finances of this country. I think it is quite probable the Minister merely meant that there was no power to invest the money in securities, but that the money must have been earning ordinary deposit interest, at least. This Bill looks like one that will fulfil a very useful purpose and play a very important part in our national finances.

Perhaps I might deal first of all with the point raised by Deputy Moore and Deputy Dillon as to how it comes that the unissued balances of this fund bear no interest, or interest at an insignificant rate. The unissued balances of the Local Loans Fund are held in the deposit account on the Paymaster-General's books, the Paymaster-General being the immediate banker of the Government. It is true that they are available for the purposes of the Government from time to time on a month to month basis, but the Government for the ordinary supply services cannot rely on funds advanced on the month to month basis and when it borrows it borrows for a long term and immediately it borrows it repays to the Paymaster-General any month to month advances which he may have made to the Exchequer account of ways and means. The amounts thus repaid go to the Paymaster-General's supply account in the Bank of Ireland and that account cannot earn interest and cannot be invested. That is why these moneys, though the balances may be considerable, earn very little or nothing.

Another point with which I think I might deal has been referred to by Deputy Moore and Deputy Cosgrave and also by Deputy Norton—that is, why has it been found necessary to raise money by separate issues for separate and specific uses. Why, for instance, do we raise money for the Agricultural Credit Corporation in one way by one issue, for the Industrial Credit Corporation in another way, for the Electricity Supply Board in a third way, and now for the Local Loans Account in a fourth way? I think the answer will be quite clear if you will consider how diversified these purposes are, how they differ from one another, and, if you consider the ordinary investor, you will find he will possibly be disposed to lend you money at a cheaper rate, say, for the present purposes of the Electricity Supply Board, than he would be for the present purposes of the Agricultural Credit Corporation and possibly at a cheaper rate than for the general purposes of the Exchequer, if it were clear to him or if he for a moment even imagined that the moneys which the Exchequer was borrowing were being used to defray expenditure that ought to be met out of taxation. One of the reasons why I have considered it desirable to put the Local Loans Fund upon a statutory basis is that I believe that we ought to be able to borrow money more easily for Local Loans Fund purposes than we would be for the general purposes of the Exchequer.

That sounds bad for the Exchequer.

A Government loan covers a multitude of purposes—a multitude of sins, some people might say—but the Local Loans Fund issues will be devoted mainly to purposes which are on the face of them capital purposes, on the face of them also remunerative and desirable purposes. In some cases there will be behind these issues the security not of one party, as is the case in an Exchequer loan, that party being the State and the community, but two and sometimes three parties. Take the case of moneys advanced from the fund for the purpose of the Small Dwellings Acquisition Act. There you have as the first security of the investor the thrifty citizen whose habits of life are such that he has saved sufficient to put down the deposit and wishes to buy a house, establish a family and make himself in the State a man of property. He is the first security that the lender has. Then behind him stands the local authority which has made the advance to him and has borrowed from the Local Loans Fund, and behind these two is the security of the State. It seems to me it is reasonable to expect, in a situation like that, that the Local Loans Fund will be able to raise money at lower interest than the State would be if among other things it were going to invest the citizens' money in the provision of anti-aircraft guns or tanks or any one of these instruments of war from which it is very difficult to collect a dividend at any time.

That is one of the big reasons why we have felt it desirable to put the Local Loans Fund on a statutory basis and to take power to issue securities which will be charged on that fund and which will, I believe, by reason of the purposes for which they are issued and by reason of the sureties which stand behind them, enable us to get money in convenient instalments, from time to time as we require it, upon more reasonable terms than we would be able to get it if we had to go for a composite loan of large amount which would have to cover a multitude of purposes, some good, some not so good, and some perhaps not appealing at all to the citizens, but in connection with which the good purposes would have to pay a premium for the bad purposes to which the loan might also be applied. There is also the risk that a succeeding Government might not take the same view of the matter. There is always the danger that the successors of this Government may not live up to their good record.

In general, it is not the intention of the Government to issue short-term securities in connection with the Local Loans Fund, as Deputy Cosgrave appeared to think would be our ordinary policy in that regard. I do not wish the House to understand, however, that we may not issue short-term securities. I think that one of the things which would be necessary, from the point of view of the future development of our financial organisation here, would be to create a market in short-term securities, and, quite possibly, the Local Loans Fund may play an appreciable part in that connection. I do not know, Sir, whether it is strictly ad rem to bring this forward, but Deputy Cosgrave, in dealing with this question of short-term securities, mentioned the present position of savings certificates, and it gives me an opportunity of dotting the i's and crossing the t's of his statement. I think it is desirable that that should be done at this juncture in view of statements which have appeared in journals associated with Deputy Cosgrave's Party and of statements made by a colleague on his own Front Bench.

May I ask, Sir, is this in order?

It is in order in that it is a reply to a statement by Deputy Cosgrave. I presume that is all the Minister intends to do?

That is all I wish to do.

I did not hear Deputy Cosgrave speaking on this matter, but I question very much whether he could have gone into this subject on this Bill except merely in passing.

Deputy Cosgrave devoted a few minutes of his remarks, at any rate, to this question, and I merely want to emphasise that it is my considered opinion that borrowing on savings certificates is a most expensive method of borrowing, and that it is not in general as desirable, from the point of view of the encouragement of thrift so far as the State is concerned— not nearly as desirable a method of attracting the small investor and the small depositor as the Post Office Savings Bank. Before I had any responsibility at all in the matter, I felt that it is undesirable, in regard to savings certificates, to build up a large uncovered account payable practically at call, and one of the reasons which have actuated the Department of Finance in reducing the rate of interest on the savings certificates is to keep that uncalled liability within easily manageable bounds. It is not at all a serious situation or anything like that, but I shall be quite easy in my mind and have no qualms whatever if the amount of savings certificates at issue is reduced and a corresponding increase takes place, as it is taking place, in the deposits of the Post Office Savings Bank.

As the Minister has gone so far, perhaps he would go a little bit further and explain what he considers to be the reason for the change—why it is that there is a decrease in the one and an increase in the other.

Because we have, in the last issue of the savings certificates, substantially reduced the rate of interest.

That is the only reason?

That is the only reason, and because we have brought it down to within a penny or two of the British rate. I do not feel moreover that, at even this particular moment, a change in the direction of a further reduction would be not warranted.

The Minister will not claim that the reduction has been out of proportion to the general reduction in the rate of interest in gilt-edged securities?

For these savings certificates, where the rate of interest has been very much higher, the present rate of interest bears a very much closer relation to the rate of interest on ordinary long-term securities than it did previously and, consequently, is much less attractive. Whatever we are losing on the savings certificates, we are, at least, making up for in the increase in the Post Office deposits. Deputy Norton asked whether I thought it would be necessary, in connection with the Local Loans Fund, to make a public issue at an early date, or whether the possibility of such a public issue existed only in the remote future. I do not think it will be necessary to make a public issue in connection with the Local Loans Fund at an early date but we intend to operate the fund in the manner I have described. It will be a live fund and there is some probability that we may make an issue chargeable on it within the next one or two years. It is too early for me to say what the ultimate requirements of the fund may be. The Deputy also asked whether it was the intention to maintain the fund at a large figure. There is no predetermined figure for the size to which the fund will ultimately attain. Neither is it the intention to keep in the fund, irrespective of the demands upon it, a large capital sum. If the calls upon the fund are such that a reduction in the capital of the fund can be secured without damaging the efficiency of the fund, a reduction in the capital of the fund will be secured either by way of repaying some of the Exchequer advances and allowing the money to be utilised for other purposes for which it may be required, or by making fresh advances to the Exchequer or to some other fund under the control of the Government, or by using it to repay capital absolutely and thus reducing the general burden of taxation. On the other hand, if it is found that the amount to the credit of the fund is insufficient to enable it to function effectively, then the Exchequer will provide the fund with fresh money. As has been said by Deputy Cosgrave, that money can flow in and out between the Exchequer and this fund with great facility. That is the proper way to utilise money. It is in that way that you get the advantages of holding and utilising large capital reserves at the smallest possible cost.

Another important point which Deputy Norton referred to was as to whether this fund, having large sums in hand, was going to go touting around the local authorities and prospective borrowers and offering them advances at lower rates of interest than the normal market rates. One of the principles upon which the fund has to be managed is that it will make no profit and no loss, and I do not think that the fund will be at any time in the position of having such a large excess balance on hands which could not be devoted to some other useful purpose such as would make it necessary for it or the Exchequer to enter into competition in the market with the ordinary concerns whose main activities are the provision of public and private finance. It is not the intention of the fund to be a competitor with insurance and banking institutions. We assume that local authorities will come to the fund only when they can get better terms from the fund than can be secured elsewhere. But the terms which they can get from the fund are conditioned by the terms upon which the Exchequer itself can raise the money and administer and manage the fund, without, as I have said before, any profit or any loss.

Deputy Moore mentioned a matter which was also referred to indirectly by Deputy Dillon. He asked whether if a local authority wish to carry out a scheme which was not wholly economic and want an advance from the Local Loans Fund they can get an advance which would cover the scheme as a whole—that is the economic and the uneconomic elements in it at one and the same time. As I pointed out in my opening speech, this Bill does not interfere in any way, either by extending or restricting the scope of the existing Local Loans Fund, and moneys will be available from this fund for any of the purposes for which they are available at present from the existing Local Loans Fund account; that is to say, for purposes which the Minister for Local Government has approved. So far as the fund is concerned, no advance will be an uneconomic advance, because every advance made must provide for repayment of the advance and the interest on it. The local authority may repay one part of the advance and the interest on that advance directly, and the Exchequer may repay the other part of the advance and the interest on that advance indirectly by making a contribution to the local authority in aid of the capital charges for such a purpose as housing.

Deputy Norton also referred to the case of people who had borrowed money under the Small Dwellings Acquisition Act and then found shortly afterwards that the rate of interest chargeable on these local loans had been reduced. It is not possible to deal with these cases. Every individual, when he borrows from the Government or from a local authority, has to run the same risks and stand the same losses as he has when he is dealing in his private affairs with another citizen. If he happens to borrow at a higher rate of interest this month than he might have been called upon to pay if he borrowed next month, he has to stand or fall by the conditions existing at the moment. In any event, in connection with the whole of this matter of local loans advances, I should like the House and the local authorities generally to remember that the Government is only acting as the agent for the borrower. That is the reason why the Local Loans Fund was established, because it was felt that the local authorities, and particularly those who are responsible for the administration of the smaller communities, might be able to borrow more cheaply and more easily if they borrowed upon what was, in fact, a co-operative basis from a large central fund; and that when these securities are issued in respect of the fund they will be issued, even though they will carry the Government's guarantee and all that, really on behalf of the local authorities who are the ultimate borrowers from the fund. The Government in this matter is merely acting as the agent and, in view of the amount of assistance which is given directly to local authorities in regard to housing, public works, and other matters, by way of free grants it cannot give money to local authorities on any more favourable terms than it is possible for it to borrow the money itself.

Deputy Cosgrave referred to the fact that some local authorities have to pay 5¾ per cent; but they are paying 5¾ per cent. upon money which cost the Government 5½ per cent. to raise and which this Government must continue to pay for the term of the loan. We cannot carry through a forcible conversion of these loans. The people who advanced the money advanced it for a term of years, expecting to enjoy that rate of interest for a term of years. The State borrowed the money on behalf of the local authorities upon terms that now appear possibly onerous; but the State has to charge, and to continue to charge, until the original loan is repaid, the rate of interest which was current at the date upon which the local authorities borrowed the money. You cannot get over that.

Could not the Government redeem the loans?

I advise the Deputy to go and look at the dates upon which these loans fall for redemption. There is one falling due at the end of this year. It is the First National Loan, the terms of which are particularly oncrous. We have to set aside for the service of interest and sinking fund a sum of £750,000 per year. It is one of our difficulties which we have to try and face when the right time comes, but at the present moment we are not in a position to do anything in regard to that loan except to make the necessary provision for the payment of interest and sinking fund, and we have to ask those to whom the money was advanced to fulfil their part of the bargain to help us to do that.

Deputy Cosgrave, in the course of his speech, said that he thought it was an innovation to permit a Government Department to issue securities apart altogether from the Exchequer. The account with which we are dealing at the moment is an account which was based in principle on the National Debt and Local Loans Act, 1887, under which the National Debt and Local Loans Commissioners were empowered to issue separate Local Loans Stock. There is nothing novel in what we are doing any more than there is anything novel in charging penal interest. Penal interest has been a feature of Local Loans Advances since 1892. One of the reasons why one has to charge penal interest is this: if a lender is dealing with a normal borrower he gets some realisable security, such as a mortgage on property, on which if the debtor fails to pay he can foreclose, but when you are dealing with local authorities you are not in a position to step in and realise all the house property or the public health works which they own in the town. Because you have not the resort which an ordinary lender has in dealing with an ordinary private individual you have to devise some way of penalising a defaulting debtor. We all know that very often without any proper excuse beyond unwillingness to do an unpleasant thing—I do not say it is general—local authorities will not levy the necessary rates to meet their obligations. I do not say that is general, but this is not meant for the general case. It is meant for the exceptional case just as all such penal measures are meant to deal not with the ordinary citizen, but with the exceptional citizen. Human nature being what it is, and the pressure which local representatives are often subject to being what it is, you have to substitute some machinery for that which the ordinary individual would have at his disposal in enforcing his rights in regard to a loan transaction.

I think I have covered most of the points which have been raised, with possibly one exception, and that is the question raised by, I think, Deputy Dillon about the pre-1922 loans. The sections which he referred to, with the exception of 6 and 9, have really nothing to do with the matter. It merely prescribes the form in which accounts will be presented. The intention is that so far as the pre-1922 loans are concerned they will be treated both as to interest and principal as the capital asset of the fund. When the account is being made up we will transfer to the fund the capitalised value of those assets, and any interest or principal accrued in respect of them will go into the fund. There is nothing in the Bill to provide that that should be so, but there is nothing in it to prevent its being so, and accordingly so far as we are concerned we will treat them as a capital asset retained in the fund and not to be utilised for ordinary Exchequer expenses.

Question put and agreed to.
Committee Stage fixed for Thursday, 4th April, 1935.