Seanad Éireann debate -
Wednesday, 28 Aug 1940

Vol. 24 No. 24

Local Loans Fund (Amendment) Bill, 1940—Second and subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Finance (Mr. O Ceallaigh)

As I explained to the Dáil the main object of this Bill is to get authority for further issues of loans out of the Local Loans Fund to enable the social activities financed from it to be continued. The fund was set up on a statutory basis on the 1st May, 1935, under the Local Loans Fund Act, 1935, Section 4 (3) of which put a limit of £5,000,000 on issues. This was extended to £11,000,000 by Section 2 of the Local Loans Fund (Amendment) Act, 1937, and authority is sought in the present Bill for a further extension of £6,000,000 which will bring the limit to £17,000,000.

From its establishment in 1935 up to the 30th June, 1940, the loans issued from the fund aggregated £10,319,309. Of this £7,989,132 was for housing loans the apportionment being — urban, £2,877,009; rural, £4,387,548; small dwellings acquisition, £658,718, and Gaeltacht, £65,857. The balance of £2,330,177 went in loans for public health, £941,865; hospitals and county homes, £736,382; vocational education, £452,711; drainage, £149,593, and other services, £49,626.

Over the same period the total commitments of the fund, including the carry-over of loans sanctioned, but not all given out before the 1st May, 1935, were £13,246,487. The aggregate of loans sanctioned up to any date will always be substantially more than the total issues up to that date as the full amount of a loan is sanctioned before any issue is made and loans are ordinarily given out in instalments. The existing statutory limitation of £11,000,000 applies only to issues of loans; the same will, of course, be true of the new limitation of £17,000,000.

It will be seen from what I have said that by the end of June last the margin available for issues within the £11,000,000 limit was less than £700,000. This should be exhausted by about the end of September. The extra £6,000,000 provided for in Section 2 of the Bill should do for about three years, or up to about the summer of 1943; fresh legislation will then be required if the granting of loans from the fund is to continue, as no doubt it will.

The Bill also provides for some subsidiary matters. Section 3 extends to all borrowers from the fund the provision in the existing law respecting local authorities which enables arrears due by them to be recovered out of any Government money payable to the borrowers; Section 4 applies to borrowers like harbour boards and public utility societies, provisions like those in Section 2 of the Local Authorities (Miscellaneous Provisions) Act, 1936, which protect the Local Loans Fund against evasion of repayment of a loan on the plea that the borrowing body is not properly constituted or has exceeded its powers. Section 5 confirms the arrangement as to the making of loans by the Minister for Finance through an intermediate body—the Commissioners of Public Works. Section 6 is designed to remove doubts that have arisen as to the powers of the Commissioners of Public Works concerning the making of harbour and other loans. Sections 7 and 8 are intended to clarify the position as to the disposal of money received in repayment of loans before the present statutory Local Loans Fund was established.

Sir John Keane

I should like to ask the Minister what is the policy with regard to the retiring of these loans. I take it that the borrowers pay interest into a sinking fund and ultimately, I presume, the capital is repaid. Is it intended to leave this total of £17,000,000 in a sort of revolving fund, or is it the intention that, when the capital is being repaid, the Exchequer will be refunded? The Minister may say that that is all laid down in the Principal Act but I should rather like to know what the position is as I do not know whether or not it is in the Principal Act. I should also like to know from the Minister the reason for these provisions in Section 5. It seems rather strange, on the face of it, that when ordinary lenders have to have scrupulous regard to the regularity of the borrower, the Government should not have to have the same regard. Take the case of a bank, for instance. When a bank lends to a person who has not got the power to borrow, it is not a legal loan. Apparently, however, the Government is absolved from any vigilance in these matters and does not appear to be concerned with the regularity of the position of the borrower. I suggest that these provisions are new, and perhaps the Minister would tell us why they are being adopted now.

Mr. Cummins

There is one little point that I wish to raise. It is the experience of local bodies, in borrowing money, that they can get it at a much cheaper rate of interest from outside bodies than from the Local Loans Fund. I think that the rate, as it stands at present, will be prohibitive from the point of view of encouraging building. Will the Minister give some reason why local bodies, as I understand, are not encouraged to borrow from outside sources where they can get money much cheaper—at least, up to recent times—than from the Local Loans Fund. I think that the interest in the case of the Local Loans Fund should be reduced if it is the intention, as I understood it was, to encourage the building of houses in the country.

Mr. O Ceallaigh

I think, Senator, it is hardly correct to say that local authorities are discouraged from looking elsewhere than to the Local Loans Fund for moneys for loans. Nothing has been done that I am aware of to put any obstacle in the way of local authorities getting money anywhere else that they can get it, especially if they can get it cheaper than from the Local Loans Fund. There have been one or two cases, when I was Minister for Local Government, that came under my notice, where sanction was not given, but there were special reasons because, in the two cases that I have in mind, there were conditions attached to the loans that the then Minister for Local Government and the Minister for Finance then and now could not accept as conditions that a local authority ought to accept.

With regard to the question asked by Senator Sir John Keane, the money is put into the Local Loans Fund as it is received from the local authority in respect of sinking fund and interest and reloaned.

As to the vigilance of the Minister for Local Government, the Minister for Finance and the Commissioners for Public Works, I think vigilance is exercised by all these authorities and very strict examination is made not alone into the bona fides but the legal status, the position generally, of the local authorities and individuals seeking loans from the Local Loans Fund. There was one case came to my notice when I was Minister for Local Government where a local authority claimed that its predecessors in office, firstly, had not a legal status and, secondly, exceeded their powers. That is the only case I recollect in which a question was raised in court as to the status of the borrowers, and the verdict was given against the then local authority which sought to prove that its predecessors had exceeded their powers. No case that I know of has been established wherein a verdict has been given against the Commissioners of Public Works or the Minister for Finance on the ground that those to whom they loaned the money, the local authority, had not proper legal status or exceeded their powers. I think very great care is taken to establish that the loans are properly given.

Question put and agreed to.

Agreed to take the remaining stages to-day.

Bill considered in Committee.

Section 1 agreed to.

Question proposed: "That Section 2 stand part of the Bill."

Sir John Keane

On Section 2, I want to ask the Minister if there is any principle followed in fixing the total amounts which can be borrowed from the Local Loans Fund. I see that the fund has grown very considerably in the last six years. I think the Minister said that it was £6,000,000 and is now £17,000,000. Presumably, there is some basis on which this total amount is fixed. It is all bound up, of course, with the borrowing powers of local authorities, but I take it that a point is reached when it is dangerous and unsound finance to lend, in the aggregate, more than a certain amount to local authorities. In fact, there must be some attempt at a more or less definite ratio between the revenues of local authorities and the amount which they should legitimately, in the interests of sound finance, be allowed to borrow. I do not know if the Minister has had the matter examined from that standpoint, but, if he has, could any indication be given as to what the total amount of sound borrowing at present is likely to be because there is no evidence that the wealth of the country is increasing at such a rate as to justify the unregulated growth of this fund? I should like to know if that aspect of the problem has been examined.

Mr. O Ceallaigh

I think Senator Sir John Keane, as well as members of the Seanad in general and particularly those who have or have had, any intimate association with local governing bodies, is aware that the law relating to local government regulates and limits the amount that may be borrowed on valuation. There are certain exemptions. Certain items that may be borrowed for do not count against the limitation of borrowing. I am sorry that I could not, without notice, give the Senator any idea of what the total borrowing powers of all the local authorities in Éire would be at any given time, but I am sure that, in the Department of Local Government and in my own Department, that figure would be available or, at any rate, could be made up.

There is, therefore, a statutory legal limit, so far as local authorities are concerned, in the case of each local authority and, presumably, we have a total legal limit for the aggregate of all the local authorities in the country, but in every individual case, first, the local authority itself, generally speaking, examines its borrowing powers when it has any scheme of work for which borrowing is necessary under consideration. The scheme then goes before the Minister for Local Government and he, through his officials, generally makes a very keen examination of the financial position of the local authority, with particular reference to the law limiting its borrowing powers for certain purposes.

It is true, as the Senator said, that the Local Loans Fund has increased its total considerably in the last few years. That is due to the rapid rate at which housing schemes, public health schemes of various kinds and other social services have developed in recent years. I do not think that so far as the legal limit is concerned, we are anywhere within measurable distance of it, taking the country as a whole. It is, of course, another question whether it is wise for us to go near that limit at all, or whether the rate of borrowing is too rapid. I think that, generally speaking, members of the Seanad, as well as the Dáil and public bodies, wish to see these social services go ahead.

Mr. Fitzgerald

Question.

Mr. O Ceallaigh

I think that is the general view, although I am sure there are individuals like Senator Fitzgerald who would probably object.

Mr. Douglas

We should all prefer a condition in which they would not be necessary.

Mr. O Ceallaigh

Certainly, but we have not reached anything like that condition yet, and, until we do, I think there will be a demand, if not a clamour for further borrowing for the improvement of these services.

Question put and agreed to.

Sections 3 to 9 agreed to.

Title agreed to.

Bill reported without amendment.

Question—"That the Bill be received for final consideration"—put and agreed to.

Question proposed: "That the Bill do now pass."

Mr. Baxter

I should like to put this point to the Minister because I think it has a bearing on the question raised by Senator Sir John Keane. There is no doubt about it: there is a great deal of work to be done in this country. Hundreds of millions could be spent in making conditions better than they are. The trouble is that you do not know whether you have got the income to repay the expenditure or not. The amount of income which you require is determined to a considerable extent by the demands which are being made upon it for carrying out drainage schemes, housing schemes or the like. I am thinking mainly as a countryman with regard to the problem of drainage, and, like the problem of housing, none of us can ever see the end of this problem or its final solution, so long as the cost of the money which has to be used in the carrying out of the work is as high as it is to-day. I would like to know what the Minister has to say on that point.

Apparently, we can only get money from the people who have earned it in the past and who have it stored up and are prepared to give it to us if we give them absolute guarantees that it is going to be repaid in full and that, in the meantime, they are going to get a very high service for the use of the money. I have a little experience of this and I know that local authorities down the country want to go on with the good work of providing more and better houses, but their difficulty is that when they look at the expenditure and at the rates year after year, they see that they are mounting up, while there is work still there to be done. Many of our towns are paying 20/- in the £ rates to-day, yet hundreds of new homes remain to be built, or ought to be built, in order to give the people the chance to live there in them.

When you discuss this matter with members of local authorities, they tell you that money is too dear and that, if it could be brought down 1 per cent. or even ½ per cent., it would make all the difference in the world in the rates. It is the same thing in the case of drainage schemes. You are going to spend, perhaps, £100,000—more than £100,000 was spent on one particular scheme in my own county—but when the local authority has to bear portion of the charge and farmers have to bear another portion—the farmer, particularly, tries to get it out of his land, and the income from the farm is hardly adequate to meet the charge.

With regard to any of our schemes in the future, I think we are never going to find a solution for our problems, social and economic, so long as local authorities have to borrow money at 5½ or 5¾ per cent., or even at 5 per cent. Looking at it from the human standpoint, I must say that I cannot see how it is justifiable to expect human beings, first of all, to give the kind of service that they have to give to live and that so much is to be exacted from them for the use of money. Money costs more than humanity itself can afford to give. That problem is there—and it has been debated, one might say, in a somewhat oblique way in this House—but it still remains unsolved. The world is employing curious methods to-day to provide solutions, but those methods will only create greater problems. I feel that this is an aspect of our whole national question which we are not facing up to as we should. I do not know what enlightenment the Minister can give us, but I would like to know that he was just as disturbed about it in his mind as I am and that he and his colleagues are concentrating on finding a way out. If he cannot find a way out, I would go no further than to say that there are strange ways of doing things.

Mr. Madden

There is one point which I should like to put to the Minister. From my experience of over 15 years, I have never heard of any instructions issued by the Department to the public bodies pointing out to them that the maximum borrowing power is set at such-and-such a figure. We seem to go on borrowing indefinitely. I have raised this question many times at council meetings, that the amount we have already borrowed in the last six or seven years comes to a colossal figure. Speaking from memory, I think that, at the moment, we have already borrowed something in the neighbourhood of £1,250,000. I have tried to point out that we are most desirous of co-operating with the Government in the very proper drive that was made some years ago—and by the previous Government in a lesser way, if you like —to meet the demands of social services and to give what was urgently and pressingly important — decent hygienic homes to the poor.

There is a danger point, however, if we are taking risks and borrowings are never questioned. I have raised this matter in the council and asked the limit of our borrowing powers and the chief executive officer told me he did not know. I ask him if we could continue indefinitely until the condition of things would arise—and it seems that we are coming to it—when the taxpayer and ratepayer will be just as badly off as the people for whom we are getting these services, whom we now regard in the category of the poor. I heard the Minister saying to-day that there is a definite limit to the borrowing capacity of our local authorities, but for the last 15 years I have never heard of a letter having being issued by the Department drawing the attention of the public bodies to the sum which may be spent on this wild escapade for all kinds of social services. There is a limit to the capacity of our ratepayers to pay. I was glad to hear the Minister speak on this matter, but I never heard of any documentary proof that they cannot go on indefinitely in such an escapade until the condition of things will be, as I have said, that those who pay the money for these social servces may find themselves very much poorer than those for whom they provide.

Mr. O Ceallaigh

I wish I could announce a solution to the problem set me by Senator Baxter, but I am afraid I cannot. Money is dear at present and it is just as hard for the Minister for Finance to get it as it is for the local authorities. We have to go to the country, to the banks and to the people to borrow the money and, as Senator Baxter has said, we have to guarantee, on the credit of the State, that that money will be returned and, in the meantime, we have to pay a heavy rate of interest for the use of the money. I do not know any other way of getting money and I do not know any way at present of getting cheap money. Of course, if it were thought proper, even though the Government had to pay four or even more than 4 per cent. interest on the money it raises for local loans and other purposes, the Government presumably could decide to saddle the taxpayer in general with part of the interest and let the local authorities off that, but it would simply be "robbing Peter to pay Paul" and, in the end, the local authorities would not be any better off as, if they escaped the taxation in one way, they would get it in another. Probably the straightest way to bring it home most clearly and definitely to the country as a whole and to the local authorities that they have to pay for this money and pay pretty dearly for the improvement in the social services they are demanding, would be to let them know directly in a straight and clear way what it costs to provide these services, by charging them the full interest.

With regard to the point raised by Senator Madden, certain services are excluded from the limit of borrowing powers. At different times—in the British days and in our own days—the law has eliminated certain items— social and other services—from the limits of borrowing; but the chief executive officer of any local authority should be in a position at any time to tell a member of the local authority, or the ratepayers in his county, how much they have borrowed, how much they are paying for their borrowing, what are the limits fixed by law under the various headings and what margin still remains. That should be available and, if that is not done in the case of every local authority, it would be wise for the members of the local authority to get that set out in the annual statement of finances of the local authority itself.

Question put and agreed to.