Wednesday, 18 October 1939
Dáil Éireann Debate
General Mulcahy: asked the Minister for Finance if he will state whether he has recently increased the loan charges for money issued from the Local Loans Fund from 4¾ per cent. to 5¾ per cent., and if he will state the reason for this increase in loan charges and the date of its application, and whether he has considered the possible result of placing this additional difficulty in the way of carrying out housing schemes in those areas where additional building is a matter of urgent public necessity and where it is of serious importance that employment in the building industry should be maintained.
Mr. Belton: asked the Minister if he is aware that advances from the Local Loans Fund are now charged at 5¾ per  cent., whereas the joint stock banks are accommodating their customers at 5½ per cent., and if he will state the reasons for the higher rate.
Mr. O Ceallaigh: I propose to take questions 4 and 5 together. Consequent on the increased cost, due to war conditions, of financing the operations of the Local Loans Fund, it has been necessary to fix the rate of interest on advances made out of the fund on and after the 12th September, 1939, at 5¾ per cent. This is the same rate as was generally applicable prior to the 1st October, 1934. The revised rate is the minimum reckoned to be necessary to cover the cost of new borrowing for the fund under present and prospective conditions, the expenses of its management and contingencies. It is not intended or expected to bring in a profit. In considering the increase in the rate regard was had to its likely effect on essential housing schemes and other services financed out of the Local Loans Fund, as well as on employment hi the building and other industries. When account is taken of the generous scale on which the repayment of housing loans, which comprise the bulk of the borrowing by local authorities, is subsidised out of the Exchequer, I do not think that the new interest rate is excessive or so high as, of itself, to affect adversely the carrying out of operations dependent on the fund for their financing. The rate of interest charged to local authorities on advances out of the Local Loans Fund and that charged by the joint stock banks on ordinary commercial transactions, which I understand has been raised to 5½per cent., are not comparable since loans from the Local Loans Fund are for long periods, usually 35 years, whereas advances by the joint stock banks are normally for short periods.
General Mulcahy: Can the Minister state what exactly is the fact upon which he bases the suggestion that the cost of financing the Local Loans Fund is at present, and will be in the future, higher than it was previously?
Dr. Hannigan: Is the Minister aware that the advances for the Local Loans Fund offered to the Dublin Corporation in connection with the North Crumlin housing scheme will have the effect of increasing the rents of the houses under this scheme by one shilling a week? Is he further aware that as a very high percentage of Corporation tenants are in receipt of home assistance and in a very large number of cases are receiving a special subsidy in connection with their rents, they will hardly be able to undertake this additional burden?
Mr. Belton: Arising out of the Minister's reply, how is it that prior to the 1st September of this year—prior to the outbreak of war—the interest on local loans was one quarter per cent. below the bank rate to their customers and that now it is a quarter per cent. above it? I would like if the Minister would explain that.
Mr. O Ceallaigh: There is not any relation between the rates asked to be paid on loans from the Local Loans Fund and the rates given by the banks, and received by their clients, with regard to private business transactions. There is no relation whatever between the two.
Mr. Belton: Does the Minister hold that our Government is not able to borrow money in the market as cheaply as an individual? The Minister must know that the Dublin Corporation are paying a quarter per cent. more for money to the Local Loans Fund than either the Minister or I could get money from our bankers. As Deputy Hannigan has pointed out, that means an increase of 1/- a week on working-class houses in the City of Dublin, 490 of which are being built at the moment on the promise of finance from the  Minister himself when he was Minister for Local Government and Public Health.
Mr. O Ceallaigh: The rate of interest that the banks give to their private customers is an entirely different matter. As private individuals, Deputy Belton and other Deputies might be able to get very special terms from the banks. That all depends on the credit of the individuals, on the security that the individual is able to offer, and naturally on the terms of the loan. As the Deputy knows, private transactions are usually short term transactions. Loans under the Local Loans Fund, under present conditions, are for a period of anything from 20 to 35 years, and naturally the terms have to be different.
Mr. Belton: Arising out of the Minister's reply, if it is a question of security and I can borrow from my bank more cheaply than the Government can borrow, I am a lot richer than I thought I was, and the Government must be a lot poorer than the people thought they were.
General Mulcahy: Can the Minister give an assurance to the House that this matter will be reconsidered, or is he able to say that this price for money from the local loans is going to stand for 12 months?
Mr. O Ceallaigh: I cannot say that. I cannot say that it might stand for 12 months; I think it is possible that there will be fluctuations. There have been changes in the bank rate even inside a month.
General Mulcahy: Can the Minister assure the House that the matter will  be kept under close review, particularly in view of the possible effect of this on the price which the Government itself may have to pay for money that it may have to borrow?
Mr. Corish: Would it not be right to say that the Government itself borrows money from the bank and other places, in connection with moneys for the Local Loans Fund? Would it not also be correct to state that this increase was made immediately after the bank rate had been raised by 2 per cent., and that the bank rate has since been reduced by 1 per cent? Surely that ought to have some bearing on the question.
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