THE NEW TOWNS

11

capitalise interest due on development that has not yet begun to earn. They
have, however, been instructed by the Minister that they must pay interest
on capital spent on assets still under construction, and this practice understates
 the capital cost of these assets and throws an additional charge on the
current account. In Basildon, the deficiency on revenue account for 1953-54
was £33,589, but of this £32,000 was interest on unfructified assets. - The
whole deficiency is thus carried forward as a charge on future rents and
revenue, though the true current deficiency was only £1,589. Moreover, of
the total deficiency, £21,500 was the net cost of sewerage and road construction,
 and this will never produce revenue. It is clear that, even at this stage.
when there is still much housing and industrial development to come, and
when the proportion of capital spent on unremunerative projects is likely to
diminish steadily, the Corporations are almost managing to make ends meet.
Bracknell, for example, found that £20,800 of its total deficiency of £28,360
was due to this interest charge on non-earning capital; in Crawley it was
£40,000 of a total of £46,075; and if it had not been for interest of this kind
Hemel Hempstead would have shown a surplus of £25,000. Harlow. indeed.
managed to show a surplus of £2,649.
Such figures suggest an optimistic conclusion. There is a very good
chance that, by the time the New Towns are completed, they will be producing
sufficient revenue to repay interest and capital, and possibly provide an annual
working surplus. . When the sixty-year loans run out, moreover, the Corporations
 or their successors in title will possess very profitable properties, on
whose substantial revenues the cost of maintenance and provision for depreciation
 will be the only heavy claims. If this conclusion is justified, it raises
very important questions about the future ownership of these New Towns.

The Rate of Interest

Since the passage of the New Towns Act and the establishment of the
Development Corporations, their finances have had to carry two additional
burdens that were not foreseen, for no one foresaw the extent of post-war
inflation, the recurrent crises in balance of payments, the Korean War, the
re-armament programme and all the consequent economies. The first of
these burdens has been the steady rise in building costs, and the other was
the increase in interest rates after the Conservative Government took office
in 1951.
It is true that Mr. Macmillan, the then Minister, raised the housing
subsidy in an effort to offset some of the additional interest charges these
increases laid on housing authorities. But, so far as the Corporations were
concerned, the higher subsidies, which met the additional interest charge
only for houses costing less than £1,300, did not offset more than a portion
of the higher charges. For a majority of the houses built by the Corporations
 cost more, sometimes much more than £1,300, and, in addition, a
considerable part of the Corporations capital expenditure, on which more
interest had to be paid, did not attract subsidies. As I showed above, millions
of capital have been paid out on general development; rents have had to
cover interest and capital repayment for such development purposes.