The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)
With permission, Mr. Speaker, I should like to make a statement about the control of credit.
In opening my Budget I said that the time might soon arrive when it would be right that we should take other steps to restrain further expansion of private credit.
One of the possibilities I had in mind was that it might become necessary to exercise some restraint on bank advances. As the House will recall, when the restrictions on bank advances were lifted in July, 1958, I announced a new arrangement under which the Bank of England would, if need be, call for special deposits. The Radcliffe Committee showed a preference for an alternative method but, having re-examined the matter, I have decided that this is the most convenient one.
In the light of the figures for bank advances in recent months, and particularly those for the month ended 20th April last, the Bank of England, with my approval, have made an intial call on the London clearing banks and the Scottish banks to make special deposits with them on or before 15th June next. In the case of the London clearing banks, the initial special deposit is to be 1 per cent. of each bank's total deposits; in the case of the 396 Scottish banks, whose present circumstances are different, the figure is ½ per cent.
At the same time, the Government have decided that some restraint should be placed on the growth of credit extended under hire purchase. For this purpose, Orders have been laid today by my right hon. Friend the President of the Board of Trade. Their purpose is to restrict the terms on which cars, wireless and television sets, kitchen equipment, furniture and a wide range of other consumer goods may be bought on hire purchase. The initial deposit will be 20 per cent., except for furniture and some other items, for which it will be 10 per cent. The normal period of repayment will be two years, except for a small number of items for which the period will be four years. Capital goods are, in general, excluded from the Order.
These measures, together with the Budget, will act as a check on the tendencies making for overstrain on the economy while not preventing the continuance of sound and steady expansion within our resources.
Mr. H. Wilson
This statement will come as a great shock, if not—after the experience of the present Home Secretary a few years ago, when he was Chancellor of the Exchequer—as a great surprise. We are now back in the position in which we were in the autumn of 1955 and early 1956—[HON. MEMBERS: "Nonsense"]—that after a long-delayed increase in national production and, of course, after the election, the Government have felt it necessary to put the screws on again.
We do not object to the technique of special deposits. Indeed, I may say that we first suggested it from this side of the House on 9th May, 1956. I am sure that that will commend it to hon. Gentlemen opposite. Does not this mean that the Chancellor is choosing this moment, after a not very ambitious expansion compared with other countries, to put on the squeeze—even in Scotland where, as we have already heard, there is developing a problem of unemployment?
Having won the election on a hire-purchase boom, is not there something shabby and cynical about putting on these curbs once again within a few months of winning it?
What the right hon. Gentleman has imputed is wildly contrary to the facts. This step was foreshadowed in my Budget speech, and is fully in line with the objective that I declared then of not halting expansion but of putting a slight brake on its rate to ensure that the rate of continued advance would be within our resources. I am perfectly clear that these steps are completely in line with that objective.
While this was foreshadowed in the Budget speech, it was not foreshadowed at the election. Will the right hon. Gentleman say whether it is still the policy of the Government that industrial production should continue to expand? Is that still the Government's policy, because it is quite clear, from some of the measures which the right hon. Gentleman has taken, that, owing to the failure of the Government to expand capacity through adequate industrial investment over the past few years, the Government are now putting the screw on, with a danger of a down-turn before long?
In my last reply I gave the answer to the question which the right hon. Gentleman has just asked. It is our aim that industrial production should continue to expand, and production generally, but at a rate within our resources. Both before and during the election I made it clear that if, at any time, there was any risk of a return of excessive pressure and inflation, I would not hesitate to take whatever steps were necessary.
§ Mr. Grimond
Is the right hon. Gentleman taking any steps to get us out of this recurrent dilemma that whenever production rises—and it has risen by smaller amounts than in most European countries—we have to have restrictions, accompanied by a vague threat that these are only initial deposits? May I also ask why, when restrictions are put on hire purchase, they are always imposed on kitchen equipment? These things are not luxuries, but the tools of trade of many people.
If the hon. Gentleman has any specific questions to ask about different percentages, I hope that he will address them to my right hon. Friend the President of the Board of Trade. The 398 hon. Gentleman will find that certain kitchen equipment is given exceptional terms for a much longer period of repayment.
The rate of increase in production recently has been quite exceptionally rapid. I can answer the hon. Gentleman's question by saying again that it is our continuing aim to ensure that production will continue to expand, as I have no doubt it will under our present policy, but not at a rate which will endanger our balance of payments.
§ Mr. Thorneycroft
While not quarrelling with the decision which my right hon. Friend has taken—it may be regarded as almost inevitable in the circumstances in which he finds himself— does not he agree that the introduction of a special deposits scheme is an economic act by the Government of prime importance? In those circumstances, would it not be right for a full day's debate to be given to an act of this character? I am not quarrelling with it, but it does seem that the debate on the Second Reading of the Finance Bill, which is inevitably concerned with a great many complex legal matters, is somewhat inappropriate to a decision of this sort.
This is an important subject and it is a new procedure, but it is a procedure which I explained to the House at the time we devised it in July, 1958. I have made it perfectly clear that we have had it available and that it would be used directly circumstances justified it. It is not, therefore, a newly-devised scheme in that sense.
I do not remember either the right hon. Gentleman or any of his colleagues objecting to any of the removals of restrictions made during 1958 or 1959.
§ Mr. H. Clark
Has my right hon. Friend considered the possibility of insulating the less prosperous parts of 399 the United Kingdom from these deflationary restrictions? I refer particularly to Northern Ireland, which has twice the amount of unemployment of Scotland.
The special deposits scheme does not apply to Northern Ireland, though the hire-purchase restrictions do.
§ Mr. Lipton
Has not the need for this unhappy statement been brought about by the unpatriotic refusal of bank directors to listen to the right hon. Gentleman's request to cut down on advances? Has not the time come for the Government to tell the people "You have never been had so good"?
I have made no direct request to the banks, and this device is an alternative to making a request to the banks.
As to the latter part of the hon. Member's question, there are no signs that the nation at large is dissatisfied with its lot.
§ Mr. C. Osborne
Will the special bank deposits mean that the "Big Five" will have to sell big amounts of gilt-edged? What effect is this statement likely to have on the gilt-edged market? Is my right hon. Friend confident that the articles which would otherwise have gone to the home market in hire purchase can find a ready export sale? Will my right hon. Friend do his utmost to see that these goods can be sold abroad?
My hon. Friend will note that I have given the banks a reasonable time in which to adjust their existing commitments to the effect I want to see, which is a moderation in their advances. That being so, and the fact that the initial deposit that I have asked for is a deliberately moderate one, will influence them in the direction of moderating their advances rather than selling gilt-edged stocks. What they do will be entirely up to decision by the banks concerned.
My hon. Friend will also find, if he looks at the list of industries covered by the hire-purchase control, that most of them have good, and, I think, increasing opportunities for exports at present. I hope very much that cutting back demand for their products in the home market will enable them to expand their exports.
§ Mr. T. Fraser
Can the right hon. Gentleman say what possible justification there is for imposing these restraints in Scotland? Is he aware that Scotland has 4 per cent. unemployment—85,000 people? The Scottish people will wonder why he is able to say that these special deposits will not apply in Northern Ireland, but will apply in Scotland, although at ½ per cent. as compared with 1 per cent. south of the Border? Why impose any curbs or restraints in Scotland? There has not been too much expansion there.
The position is by no means as simple as the hon. Gentleman seems to think. The Scottish banks have a practice of lending not only to Scotsmen north of the Border but to a great many others south of the Border. There is a great deal of cross-lending both from south to north of the Border, and vice versa.
I am quite satisfied that the differentiation here between ½ and 1 per cent. does complete justice to the Scottish banks and to Scotland in general. Northern Ireland banks have never been subject to the requests or controls to which Scottish and clearing banks have been subject.
§ Mr. Steele
Does not the Chancellor realise that his explanation makes the position much worse? The banks in Scotland will now have to consider whether the money is to be lent in Scotland or in England. If we get our usual proportion, we shall get less. Surely there is no overstrain in the economy in Scotland. If the Chancellor takes this view, surely he could say to the Scottish banks that in Scotland at least any business which wishes to have an overdraft and needs the money to ensure that Scottish industry will be helped should get it.
Again, the position is not as simple as the hon. Members implies. I am certain that this differentiation does complete justice to Scotland. I had hoped that hon. Members from Scotland would be grateful to me for ensuring this discrimination as far as it has been possible to make it. I have referred to different circumstances in Scottish banks. One of them is that the conventional liquidity ratios on which Scottish banks work are a good deal more flexible than those in England.
§ Mr. Woodburn
In view of the difficulty of cross-lending, would not it be wise to say that where both English and Scottish banks lend for development in Scotland there should be no restriction? Indeed, this should be so not only in Scotland. This is not only a Celtic matter. The North-East Coast and other places of high unemployment are concerned here. It is wrong to treat those areas as though inflation existed in them. Cannot the right hon. Gentleman make some discrimination between places which require development and those which are over-developed?
I am sure that I can continue to rely on the Scottish banks, like the banks south of the Border, to give high priority to genuine requests for advances for development. They have always done so to date. I would remind the right hon. Gentleman that even loans to Scotsmen do not always result in increased employment or development in Scotland.
§ Several Hon. Members rose—
§ Mr. Speaker
Order. This is a vastly interesting subject, but, clearly, we cannot debate it without a Question before the House.