The Press MONDAY, MAY 29, 1950. Development Loan

Press, Volume LXXXVI, Issue 26124, 29 May 1950, Page 6

The Press MONDAY, MAY 29, 1950. Development Loan

The loan programme announced by the Prime Minister (Mr Holland) is tied to a programme of Government works which, the Government judges, meets the two requirements of being within the nation’s means and of providing a proper balance of investment of manpower and capi- . tai as between the State and private industry with, presumably, i ' the requirements of local body j works taken into account. The | | Government has put its capital : works programme for the year at ! £37,000,000. This is less than the , £38,000,000 at which Mr Holland sets last year’s proposed expenditure of borrowed money on capital works by the former Government, : but some £2,500,000 more than last ! year’s actual expenditure from the National Development Loans ' Account. The programme thus envisages little change from the level of last year’s works programme, i The elimination of “ non-essentials ” of which the Prime Minister speaks ' is obviously a pruning from what ' he terms the “ dangerously expandj “ ing ” development programme of j the former Government. When he I reviewed the nation’s finances in ; February, Mr Holland said it was 1 officially estimated that the pro- • gramme of works planned by the j old Government “ for this and the I “ next seven years ” would cost i £368,000,000, which would include • the expenditure of some £92,000,000 of sterling funds. In addition, there I was a programme of local body works estimated to total £45,000,000. The Government will finance its works programme for the year mainly by direct borrowing from the nation. The surplus of slightly more than £4,000,000 in the Consolidated Fund will be used, and that “ with moneys already in “hand” presumably unexpended works moneys will leave the amount required at £30,500,000. National savings will be applied to : the works programme, and these, if ! last year’s savings are equalled, will provide the £ 10.500,000 the Government wants from small savi ings. Most of the money will be I found by a National Development I Loan of £20,000,000, which opens for subscription to-day. i This loan is the most interesting I and in some ways the most import- ' ant part of the works and worksfinance programmes announced by ’ the Prime Minister. As a loan for a specific sum for specific purposes, and open for a specified time, it differs in each respect from the “ tap ” loan it replaces. The “ tap ” loans, by which Mr Nash raised some £80,000,000 in the last four years, were available for most of the year, were never for stated

amounts, and apparently received investments of State departments. The tap loans drew to the State surplus investment capital, competing over the year with private investments—the scope for which was already restricted. Nor could the response be precisely calculated in advance to provide for any particular capital requirements. The new I arrangement, which tightens the I loose “ tap ” loan arrangement, has ' much to commend it. The amount by which the State wishes, this financial year, to draw on the investment market for capital works is defined; and it will be earmarked for the purpose in the four weeks the loan is open. Experience with recent internal Government loans has suggested a need for better terms if the £20,000,000 development loan is to attract investors. The Government rightly fears detrimental effects from upsetting the present basic interest rate of 3 per cent., and interest for the longer term stock of the new loan adheres fairly closely to this figure. A small discount on issue raises the return on money invested to £3 Is per cent. Shortening the term from 17 years, the maximum term for the last loan, to 11 years . for the main classes of stock, should prove an attraction. Investors may find even greater attraction in

the Prime Minister’s announcement about the abolition of the surcharge on income from savings. Though this will not apply only to income from the new loan, it will at once attract more relatively idle money into more active use. The new loan provides an immediate channel to this end. The loan deserves the support of the public on its several merits—lesser and greater. One of the greater is that as a method of paying for capital works entirely from genuine savings and without recourse to the printing press, the loan is part of a scheme for more orderly and more satisfactory public finance.