This Bill is necessitated by the fact that up to the present what has been known as the Local Loans Fund has had no statutory basis. It has been merely an account in the Exchequer under the control of the Minister for Finance. The moneys in that account are available for advances to local authorities for housing, for the purposes of the Small Dwellings (Acquisition) Act, for sewerage and water supply schemes, for arterial drainage works and other analogous activities.
The moneys are also available, to a limited extent, for granting loans to farmers on holdings of small valuation for the purpose of improving their lands and erecting hay barns and other farm buildings. As I have already explained, the account, though perfectly legal, has had no statutory basis, and the sums which have been required as capital for the fund have been voted annually by the Oireachtas and placed to the credit of the account as an advance by way of a Grant-in-Aid. This procedure has occasioned, as I shall explain later, very grave administrative difficulties—difficulties which have been intensified as the sums to the credit of the account have grown in magnitude.
The existing account was initiated in 1922, as a temporary measure, to make issues on foot of loans sanctioned before 1st April of that year, where work had actually commenced before the issues from the old Local Loans Fund, set up under the National Debt and Local Loans Act, 1887, had ceased. Later, the account was opened up for one service of new loans after another until the present position was reached, in which the Fund is available for all purposes for which loans might have been made from the old pre-1922 Local Loans Fund as well as for a number of services peculiar to Saorstát legislation of recent years. The Fund, having grown up in this rather haphazard way, was never the subject of deliberate planning and its growth has been responsible for a number of serious difficulties in administration which, as I have already stated, were not so serious when the amount to the credit of the account was small, but which have been greatly intensified recently. Some of these difficulties I may briefly describe.
The voting of the annual provision for the additional capital for the Fund involves a theoretical, though not an actual charge on the Budget for large amounts. I might qualify that by pointing out that though the capital sum is not an actual charge on the Budget, nevertheless, provision must be made to meet the consequential charges for interest and sinking fund. In 1933-4, the amount which had to be provided in the Budget for the Local Loans Fund was £2,150,000 and, as originally contemplated in 1934-5, the amount was to have been £4,200,000. The Minister for Finance is thus placed under the objectionable necessity of having to defend the exclusion of this item from the charges against normal revenue, while the exclusion does not prevent attention being directed to apparent deficits in the revenue at the end of each financial year, since, under the present system, the money, even though not actually spent, must, in view of the fact that it is treated as a Grant-in-Aid, be classed as expenditure. Moreover, it is not possible, in the present circumstances, to provide in the Budget for the amount which may actually be required for the purposes of the Fund. As the Fund has no statutory basis, the sum voted each year must be sufficient to cover the amount of loans likely to be sanctioned in that year. Otherwise 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. Again, I may refer to the experience of 1933-34 and 1934-35. In 1933-34 the amount which was sanctioned by the Oireachtas and ultimately placed to the credit of the account was £3,050,000, approximately, while the actual cash advances made during that year from the Fund amounted to less than £1,500,000. In 1934-35 the corresponding figures were £3,150,000, and somewhat less than £2,000,000, the latter being the sum which will be approximately required for loans sanctioned. It will be seen, 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, even if the Oireachtas were to decide to close down the service as a whole as soon as possible. This practice, as I have already pointed out, results in a large and rapidly growing cash balance, which the Minister for Finance has no power to invest, which is drawn from the public either by way of borrowing or taxation and which, as the examples I have given indicate, is sometimes in excess of the requirements of the service.
Even if the total of the Local Loans Fund advances in any year is classed as capital and is not met out of capital, the Budget for the year must actually be loaded with the debt charges necessitated by borrowing for this purpose. There is no offset to this by way of additional revenue, as the Local Loans Fund pays no interest to the Exchequer. A further disadvantage of the present system arises from the fact that while the existing Local Loans Fund is managed on the principles laid down by statute to apply to the older Fund established under the National Debt and Local Loans Fund Act, 1877, the applicability of these statutory provisions to the existing Fund is very doubtful. As the rights of third parties are at times affected by these provisions, it is desirable that the position should be regularised.
There are a considerable number of other difficulties of relatively minor importance. Possibly the most important of these is in connection with the audit of the accounts of the Fund. These accounts, showing the total receipts and the balance available, are sent to the Comptroller and Auditor-General each year and he carries out the audit. But as the Fund is non-statutory, he presents no report to the Oireachtas and does not give the Accounting Officer a final clearance. In addition, his audit is limited in scope and he does not, for example, carry out any examination of the relevant mortgage deeds or of the loan securities or any analysis of the treatment of arrears. The accounts of the Fund are, of course, not published. In view of these difficulties, it is proposed to enact this Bill to put the Fund on a statutory basis. The main principle of the legislation will be that all loans made through the existing account will be treated as assets of the new statutory Fund and all repayments of these loans and the payment of interest thereon will be credited to the new statutory fund. In addition, all future moneys required for an issue of local loans will be obtained by borrowing on behalf of the Fund either from the Exchequer or from other Government funds or from the general public by the issue of securities charged on the funds. These securities will be guaranteed by the Exchequer as to principal and interest and will therefore be trustee securities.
The Bill also contains provisions regarding the treatment of surplus balances on capital or income account, the treatment of arrears, prior payments, audit, reports of accounts and procedure as to issuing and collecting local loans. It is also proposed to take advantage of the present Bill to clear up the position of the sums paid annually on foot of loans made prior to the 1st of April, 1922, out of the fund established under the National Debt and Local Loans Act of 1887. The present position of these annual collections is unsatisfactory. Under the terms of the Constitution, they have always been treated as miscellaneous revenue available 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. It will be appreciated that each repayment contains an element of capital which tends to grow either absolutely or relatively as the process of repayment continues. Up to the present all these capital repayments are treated as current revenue by the Exchequer. Formerly, that Exchequer receipt was offset by an Exchequer issue made under the terms of what is known as the Ultimate Financial Settlement. That position no longer obtains and, therefore, it is not proposed to continue to appropriate these capital assets in aid of the current revenue. Instead, it is intended, subject to suitable adjustments in the Exchequer, to transfer to the new statutory loans reserve the whole of these assets and to provide that the repayment, whether of capital or interest, will go to the new Fund. From what I have said, it will be appreciated that two groups of assets of the Exchequer are being transferred to the new Fund viz.:-(1) the unpaid balance of the loans of the new fund and (2) the unpaid balance of the fund prior to the 1st of April, 1922 —the old local loans fund. To these we should add such portion of the unissued balance of the voted grant as it may be necessary under Section 3 of the Bill to transfer to the new fund to meet its liabilities on the appointed day.
When the Fund has been set up, it is proposed that it should reimburse the Exchequer for the transfer of these assets by the creation of a debt on its books in favour of the Exchequer equivalent in value to the assets transferred. The debt will be deemed to be advanced and 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 the issue of Local Loans stock, or out of the surplus capital or income arising out of the Local Loans Fund. The Exchequer will treat as current income all interest paid to the Fund on its advances so long as they remain unpaid. But the repayment of the advance itself will not be brought into the Budget accounts and will not, therefore, be treated as current income but as a capital repayment available for the reduction of the debt or new capital expenditure or advances.
I should like to emphasise that the Bill is designed to deal with the very limited question of the finances and administration of the fund. It does not in any way 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, at any time, it should be found desirable to extend the powers of the Fund to make loans, that will be a matter for separate legislation. Furthermore, the Bill does not alter in any material respect the normal procedure and practice relating to the granting and collection of local loans. Owing to the magnitude of the present operations of the Fund, and the serious administrative difficulties to which I have drawn attention, the Bill is an urgent one and it cannot be further deferred. It deals with machinery only and I think it should be largely non-contentious. It does not introduce any new or untried principles of finance or administration. The scheme which it outlines can be readily modified to bring it into line with any broad principles which may be adopted later in consequence of the Report of the Commission of Inquiry into Banking, Currency and Credit which is at present sitting. I may say, in conclusion, that the proposals of the Government in relation to local loans have been brought under the notice of the Commission.