§ Order for Second Reading read.
§ 3.35 p.m.
The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)
I beg to move, That the Bill be now read a Second time.
This Bill was foreshadowed by my right hon. Friend the4Minister of State for the Board of Trade when he was Economic Secretary to the Treasury, as long ago as 4th February, 1959, when he announced that the Government had under consideration the need for legislation concerning building societies. This, therefore, is not an emergency Bill, rushed through to deal with any fundamental defects; on the contrary, it is a carefully considered Measure, designed to bring up to date in a number of respects legislation dating back almost a century. We have had the benefit of full and helpful discussions with the representatives of the building societies and other bodies.
As the House will be aware, the Bill was introduced in another place. It was examined there very fully and carefully, with the skilful guidance of my noble Friend the Lord Privy Seal, and I think that our labours on it will be much lightened by the good work which has already been done.
Before I describe the main provisions of the Bill I should remind the House of a few of the dominant characteristics of building societies as they have developed over a century and a half, because it is a remarkable history. The earliest societies were, in effect, syndicates of people, sometimes only a score and sometimes more, who clubbed together to raise by their pooled savings the funds necessary to provide each member in turn with a house of his own. When each member had been provided with a house the society was wound up, or, in the technical jargon, "terminated". That was the original simple pattern.
The enormous growth of these societies in size and financial strength can be attributed to three main developments: first, the recognition that funds could properly be borrowed from anyone with savings to invest, whether or 34 not he wanted a house; secondly, the development of the permanent society, which remained continuously in existence as against that which wound itself up as soon as the original members had got their houses; and, thirdly, the development of a statutory framework, starting with the Act of 1836 and carried on in the Acts of 1874, 1894 and 1939.
Within these Acts building societies have remained free to carry on their businesses with nothing more than the absolutely necessary minimum amount of State supervision, which, nevertheless, went far to protect investors against the risk of dishonest or incompetent employment of their savings.
So, today, we have the remarkable spectacle of about 725 building societies with assets totalling over £3,000 million, invested by about 4 million investors, and with money advanced to over 2 million house-purchasers. Those are very interesting figures. Yet, for all this enormous growth in scale, the building societies remain today what they originally were—institutions carried on for the benefit of their members, and under their members' ultimate control.
Clearly, no institutions could have developed on this scale unless they had enjoyed the fullest confidence of the public. That is perhaps one of the most striking features of the building society movement. The societies have undoubtedly earned a remarkable degree of public confidence, and I say without hesitation that that confidence has been well placed. I doubt whether anyone would question that the societies have played an historic part in raising the living standards of the British people. That is why we are bound to view with concern any trend or development which may in any way weaken confidence in the movement. That leads me to the circumstances which seemed to us to make legislation desirable.
First, most of the legislation is of considerable antiquity. The main Act which governs building societies is that of 1874 and it is hardly surprising that today, eighty-five years later, it should need to be modernised in various respects. I wonder what my task with the Finance Bill would have been like this year had there been no intermediate Finance Bills since 1874. It might have been lighter in some respects.
35 During the past few years it has become clear that the very confidence which the name "building society" inspires has its own dangers, since it may provide a convenient cloak for business which has very little in common with the traditional business of a building society. In his annual reports the Chief Registrar has on several occasions recently drawn attention to cases where the control of a society has been obtained and funds attracted to it on quite a large scale for purposes of advancing money to business or commercial undertakings at relatively high rates of interest.
There is, of course, nothing illegal about that type of business as such. If investors, acting with their eyes open, care to risk their savings in the hopes of gaining a corresponding attractive reward, that is their affair. What is wrong is that people should be able to attract capital for this purpose by trading on the prestige and reputation which attaches to the name "building society." I think that in the long run abuses of that sort could do a great deal of damage to this great movement and to the public interest in it, and it is one of the primary purposes of the Bill to stop the possibilities of that kind of abuse.
On the other hand, we must be careful that we do not go to the other extreme of tying up the societies in too tight a network of statutory rules and supervision and so rob them of their independent status and the responsibilities which they have carried out so well. With that introduction I will now turn to the provisions of this rather formidable-looking Bill, which, I suggest, to the House is not as bad in size and complexity as would appear at first sight.
The first two Clauses, which the House may find rather heavy going, come straight to the crux of the matter by seeking to ensure that building societies concentrate their main efforts on their traditional and proper business, which is advancing money on the security of owner-occupied property. Unfortunately, the difficulties of defining owner-occupation in legal language have made it necessary to achieve the desired result in a somewhat roundabout fashion. Clause 1 provides that not more than a certain proportion of the advances made 36 by any building society shall be made in certain forms which are called special advances; all these forms being defined in such a way as to exclude the great majority of normal advances to owner-occupiers.
The forms of advances which will rank as special advances, and, therefore, subject to limitation, will be advances in amounts of more than £5,000—that is the first category—and secondly, advances to persons who would, as a result of the new advance, owe the society more than £5,000 in total; and thirdly, advances to a company or other body corporate. The limitations imposed on special advances of this type are that at the end of each financial year the building society will calculate the proportion which its special advances, as now defined, bear to all its outstanding advances.
If the proportion is less than 10 per cent. then, in the next financial year, the society may not make more than 10 per cent. of its total new advances in the form of special advances. If the proportion is between 10 per cent. and 25 per cent., the society may not make more than 2½ per cent. of its new advances in this form. If the proportion is over 25 per cent., it may make no additional special advances at all. At the end of the following and subsequent financial years the calculation will be reworked in the same way.
If this sounds complicated or difficult to administer perhaps I ought to make it clear that the great majority of building societies are unlikely to find that this Clause will have any effect whatever on their business. The available figures for 1959 show that in the case of relatively few societies did advances of the kind which would be classified as special advances represent more than 10 per cent. of the total sum advanced. Indeed, I am told that the average proportion is probably well under 5 per cent.
If the hon. Member is fortunate in having an opportunity to speak in the debate I shall be interested to hear him tell the House how he calculates that figure. From the information which I have there is no reason to fear that a normal building 37 society carrying on business on traditional fines will be hampered by the provisions of this Clause.
Nor would it be right to interpret the Clause as implying that there is necessarily anything in the least reprehensible about advances by a building society on commercial property or against some commercial security. Many societies are in the practice of making advances to farmers, tradespeople or builders and, within reason, that is a perfectly healthy practice. It is only when advances of this kind become an extensive part of the society's operations that any element of risk to investors creeps in. Whether or not 10 per cent. is exactly the right figure is, of course, a matter of judgment. I believe that it leaves plenty of scope for building societies to make a reasonable volume of commercial advances.
Taking the building society movement as a whole, 10 per cent. of the advances in 1959 would have amounted to £50 million. In fact, it seems likely that the volume of "special advances", as now defined, actually made in 1959 was a good deal less than half of that amount so that I think the Clause leaves a good deal of room for manoeuvre.
Nevertheless, we think it right to include a measure of flexibility in these provisions. Subsection (8) of Clause 1 gives the Chief Registrar power to alter the figure of £5,000 used in the definition of a special advance. In the present circumstances we think that £5,000 is the right figure, but one cannot be certain that it will always be the right one and it seemed wise to take power to alter it subject to Parliamentary authority, without the necessity of seeking fresh legislation.
§ Mr. Charles Royle (Salford, West)
When the right hon. Gentleman refers to loans to commercial undertakings it is clear that a body corporate includes a limited company. But what about an association of people working together who may be the owners of property? Would they be included as a body corporate?
I should like to look into that point. I will ask my hon. Friend the Economic Secretary to the Treasury to reply to the hon. Gentleman, 38 but if, in the meantime, he would, informally, tell me a little more about the type of society he has in view, and whether for this purpose it could be defined as a group owning premises which its individual members occupy, that would have a hearing on the matter.
§ Mr. Glenvil Hall (Colne Valley)
What my hon. Friend the Member for Salford, West (Mr. Royle) has in mind is, I think, a housing association or a similar body. I am inclined to think, from my reading of the Bill, that that would be included.
My hon. Friend the Economic Secretary will be saying a word later specifically about housing associations. I hope that in his reply he will deal with the point which has been raised. I am grateful for the intervention of the right hon. Member for Colne Valley (Mr. Glenvil Hall), who has a great deal of knowledge of this subject. I shall not go through at this length the whole of the 72 Clauses in the Bill because the most important part of the Bill is the beginning.
Clause 2 provides for exemption from the restrictions of special advances in two sets of circumstances. The first is where the exemption seems to be desirable to facilitate the building of houses or flats to let. This is not to imply that building to let is necessarily more meritorious than the building of houses for sale. There is room for both types of activity. In practice, there is no doubt that the sources of finance available to bodies or individuals building houses to let tend to be more restricted, and it seemed to us possible that circumstances might arise in which some dispensation from the limitations of Clause 1 would be justified.
The second case in which provision is made for special exemption is where a building society has taken possession of a property and needs to make an advance, which would otherwise count as a special advance, in order to sell it. In such circumstances, it would serve no good purpose to frustrate the sale by limiting the society's power to make an advance. With these two Clauses behind me, I think that we can probably make more rapid progress.
Clauses 3 and 4 tighten up the conditions which have to be fulfilled when a new society is set up. My hon. Friend the Member for Cheadle (Mr. Shepherd) 39 drew attention in an Adjournment debate last year to the almost absurd ease with which no more than three persons with £20 between them can at present register a new society. The new provisions require a minimum of 10 persons with a joint subscription of not less than £5,000.
Clause 5 provides that a newly formed society shall not start to advertise for funds until it has the Registrar's authority to do so. I might at this point mention two other Clauses which relate to new societies. Clause 28 enables the Registrar to prevent a society from adopting a name which is likely to mislead the public or which is in some other way undesirable. Clause 9 provides that a small or dormant society which is being revived or expanded may be required to go through much the same hoops, as it were, as a new society. The object of this provision is to restrict the activities of people who seek to obtain control of a building society by taking over a small dormant society as an alternative to registering a new one.
Clauses 6 to 10 equip the Chief Registrar with certain powers which we believe to be necessary if the interests of existing and potential investors are to be properly protected. There is existing power whereby the Chief Registrar may, with the consent of the Treasury, prohibit a building society from further advertising for funds. The fact that the making of such an order has to be announced publicly is clearly helpful as a warning to potential investors. On the other hand, that public announcement may well cause existing investors in the society hurriedly to withdraw, or seek to withdraw, their funds. This might lead to a run on the society which could not be met and would, therefore, be bound to cause inconvenience and hardship, even if not ultimate loss, to the members of the society.
The Chief Registrar may find himself in rather a dilemma in weighing up the interest of potential investors against the interest of existing members. That is one difficulty. The other is that under the existing provisions a society can be stopped from advertising for funds, but cannot be stopped from accepting funds. In a really serious case it may be desirable to protect existing members from the risk of adding to their investment in a society and that will not always be 40 achieved merely by prohibiting advertising for new funds.
We have reached the view that, in these circumstances, there is need to replace the procedure which I have described by two alternative procedures, one more drastic than the other. The more drastic power is contained in Clause 6. which virtually reproduces the existing provisions in the Prevention of Fraud (Investments) Act, 1958. The main change is that, for the reasons which I have just mentioned, the power extends to prohibition from accepting deposits or otherwise raising money instead of merely from advertising for new funds.
A new and less drastic procedure is provided in Clause 7. This would enable the Chief Registrar, again with the consent of the Treasury, to prohibit a building society from advertising or, without going necessarily to that length, prohibit it from including in its advertisements particular types of statement or information which, on past experience, seemed likely to mislead the public.
There has been a number of cases in recent years in which building societies have couched their advertisements in terms which were likely to mislead potential investors, and some check on this practice, without necessarily going to the lengths of an order under Clause 6, seems to be desirable. As under Clause 6, the Chief Registrar would be required to give notice of his intention to make an order and to consider any representations which the Society might make. It is, however, proposed that the making of an order under Clause 7, in contrast to that under Clause 6, should not be announced publicly, since it will be part of the object of this alternative procedure to cure the mischief without taking any action which would be likely to cause hardship or inconvenience to existing members of the society concerned.
The last Clause in this group—Clause 10—again deals with the question of advertising and empowers the Chief Registrar, with Treasury consent, to make regulations of general application governing the contents of advertisements issued. This question of advertising plays a very large part in building society business. Indeed, when a large proportion of societies are offering the same rates of interest, it is easily understandable that the persuasiveness of their advertising has 41 a marked effect on a society's success in attracting funds.
We have no intention of trying to lay down a detailed code, but this Clause will make it possible to prescribe and enforce certain minimum standards, without which the public might be misled. There is no intention that this provision should be used to hamper or inconvenience building societies and I can readily undertake that the representatives of the societies will be consulted in the preparation of any regulations which are made under this Clause, if it is passed.
It might he useful if, at this point, I pause to make a brief comment on the powers which are to be conferred by the Bill on the Chief Registrar, particularly in this group of Clauses, 6 to 10, which I have just outlined. There is no doubt that the Bill gives far-reaching discretionary powers to the Chief Registrar. I am not altogether surprised that suggestions have been made—hon. Members may have seen that the point was discussed in another place—that some right of appeal from his decision should be available.
I wish now to draw the attention of the House to only two considerations. The first is that most of the decisions with which we are here concerned must, in their nature, be matters of judgment. Whether, in a certain set of circumstances, it is or is not in the best interests to prohibit a particular society from advertising, cannot be a question of fact. Nor, obviously, is it a question of law. As I see it, it can only be a matter of judgment to be exercised by an authority capable of taking a decision of this sort.
It would undoubtedly be possible to devise a system of committees, or tribunals or advisory panels to take decisions in these cases, but in a field where experience and knowledge of the subject is bound to count for so much it seems doubtful, as a matter of practice, whether there is any way of getting better results than to appoint an experienced and carefully selected man to the task, to give him the best possible staff and clear, statutory directions as to what his powers and duties are, and to rely on his judgment as being likely on these kind of matters to be the best available.
Certainly, there is nothing in the history of the past century, during which the Chief Registrar has exercised quite wide discretionary powers, to suggest that, 42 in practice, it is a bad system, or that it leads to unjust or unsatisfactory results. There are, however, I think, at least two qualifications to be made. The first is that in so far as there is a judicial element in the exercise of the Chief Registrar's powers it is clearly desirable that it should be possible to challenge in the courts any neglect of the principles of natural justice. A recent case in the Court of Appeal clearly established that in such a case a writ of certiorari will lie to the Chief Registrar.
The second qualification is that it is never very satisfactory to arm the individual with discretionary powers the exercise of which cannot be challenged or discussed in Parliament. It is mainly for this reason that all the important powers conferred on the Chief Registrar in the Bill—for example, those in Clauses 6, 7, 10 and 11—are exercisable with the consent of the Treasury. That has the practical effect that if any hon. Member thinks that wrong use is being made of these powers it is open to him to question the Chancellor of the Exchequer, as the responsible Minister, on the matter. I think that the House would agree that that is a useful safeguard.
§ Mr. Donald Chapman (Birmingham, Northfield)
The right hon. Gentleman has spoken of the history of the past century showing the good exercise of these powers, but does not history show that in the Act of 1894 there was a right of appeal to the High Court on the suspension of a building society? Why should we not retain that right of appeal to the High Court under the 1894 Act?
That is a matter we can discuss at a later stage, but we have looked at all the types of discretionary power which are provided in the Bill and the great bulk of them are matters of individual judgment on which we think it would not be helpful to give an opinion. That is one of the important points on which I have no doubt further discussion will take place.
§ Mr. William Shepherd (Cheadle)
It seems that the severest type of action taken must have a drastic effect on the fortunes of a building society. Would it not, therefore, be desirable, not merely to rely on this House or upon the courts, but to have a form of appeal which did not involve full disclosure? If the 43 Registrar were acting in a manner which was unreasonable, it would not be fair that the society should suffer this penalty if that were not justified.
What my hon. Friend has said is, of course, important. We looked very sympathetically at it and with a bias towards finding a kind of appeal which, in our opinion, would be practicable and also useful from that point of view. This is a very important point and I am sure that the House will want to give a great deal of consideration to it. My hon. Friend or I will be glad to deal with it at greater length when we come to a later stage of the Bill.
If I may return from that brief excursion to the Bill itself, Clause 11 deals with the manner in which a building society may employ any surplus funds it does not immediately require for its normal business purposes. Clearly, if there were no control over the employment of such funds it would be easy to evade the limitations provided for under Clause 1. Broadly speaking, the intention is to prescribe those forms of investment in which the majority of societies at present keep their surplus funds. The most important are 4he various National Savings securities—other than Premium Bonds—short-term deposits and mortgages with local authorities, and fixed-interest securities issued or guaranteed by the United Kingdom Government, or by a Commonwealth Government or authority and maturing within five years.
It is not proposed to authorise building societies to invest in equities, which are clearly unsuitable for the purpose, and I have heard no suggestion that the societies themselves would want such a power. Our general desire is to give societies all reasonable freedom to make proper and profitable use of their surplus funds and to impose no more than the minimum restrictions necessary to curb abuse. Again, we shall be glad to discuss with the building societies the preparation of the Orders to be made under this Clause.
I now come to an important Clause—Clause 14—dealing with valuations. This Clause provides for two separate stages in the valuation process. First in order of time is a written report which 44 has to be prepared and signed by a suitable person as to the value of the property in question and a proper record of such valuation has to be kept. The second step, which must follow later in time, is that the adequacy of the security to be taken is to be assessed in relation to the size of the proposed advance in the light of the valuation report and of any other relevant considerations. There is, I think, no question that the right people to carry out the second function, that of assessing the adequacy of the security, are the directors of the society. That, I suppose, is one of their main responsibilities.
Differences of view, however, have seemed to arise on the question of who should be authorised to carry out the first function, that of reporting on the value of the property. Subsection (2) lays down three classes of person who are to be disqualified for this purpose: first, someone who is a director or the manager or secretary of the society; secondly, someone who has introduced to the society the applicant for the advance in question and who receives a commission for the introduction; and, thirdly, someone who has a financial interest in the disposition of the property in question.
I should like to explain the reasons for the proposed disqualification of the directors, or managers or secretaries. Given these two stages in the process of valuation, it seems to us likely that they will be best served if they are performed as separate operations by separate and distinct people. If the valuation report is prepared, as we think it ought to be, by a suitable member of the society's staff or by someone outside engaged for the purpose, the directors of the society will feel in no way inhibited from commenting on the report, criticising it if necessary, or even asking for a second report by someone else.
But if the report has been prepared by someone as it were sitting round the boardroom table—a director, a manager, or a secretary—then, I think that, in practice, the situation is bound to be rather different. The board will find greater difficulty in commenting freely on the report, and the director who has prepared it will, naturally, be in no position to view it with the impartiality 45 of mind and the independence of mind that seems to us to be necessary if the board is to carry out its function conscientiously.
I know that in many societies over many years directors have been carrying out such valuations with skill and absolute probity. No slur is intended on them by this Clause, but I suggest that, on balance, if we are proposing new arrangements, the practice proposed in the Bill is the sounder. I am fortified in that view by the knowledge that it has been the firm practice of a large number of building societies, many of them those whose names are household names—
§ Dr. Horace King (Southampton, Itchen)
Can the right hon. Gentleman tell the House that on this, as on previous matters that have been raised in this Second Readi.g, his mind is not finally made up? The considerations that he is now giving the House are of due weight, but I would just put to him that the restriction he is at present proposing to make will weigh very heavily on the small building society, and will penalise directors who are also qualified valuers, and whose interests are exactly the interests Which both the Bill itself and all the building societies seek to serve.
I can assure the hon. Gentleman that throughout the discussion of the Bill I shall attach very great weight to all views put forward by hon. Gentlemen on both sides of the House. Many hon. Members have considerable knowledge of the subject, and this is the kind of Bill where we require all the practical experience we can possibly bring to bear. The views that I am now putting forward are those that, after a good deal of consideration, the Government have formed for themselves and which influenced us in bringing forward these specific proposals, but, of course, we shall listen with very great interest to any criticism brought forward.
I think that I can skip through the remaining Clauses with extreme rapidity. Unlike another Bill that has been occupying our attention in recent weeks, the House will find that a number of the Clauses in this Measure prove to be comprehensible on a second if not at first time of reading, and in so far as they are not, 46 the Explanatory Memorandum provides a useful "crib".
Clauses 15 to 20 amend the law relating to building society advances in a number of useful but relatively minor respects, and the next group of Clauses—21 to 36—is designed mainly to strengthen the rights of members and depositors; for example, by amplifying and bringing up to date the provisions relating to the keeping of a register of names of members, the calling of meetings, and so forth.
The next group—Clauses 37 to 50—is designed to bring into line with modern practice and conditions the various statutory requirements for keeping books, making returns and accounts, and for audit, and so on. These Clauses provide for two documents, the precise contents of which will be prescribed by the Chief Registrar in regulations. The first will be the annual balance sheet and appropriation account which it is intended should be made available to members, together with the directors' and the auditors' reports. The second will be a more detailed annual return to the Registrar on much the same lines as the return that is made at present.
I should like to say how much, in preparing this part of the Bill, we have valued the help not only of representatives of the building societies, but also of the Institute of Chartered Accountants. I think that the detail of these Clauses, and of the remaining Clauses and the Schedules can probably be most effectively discussed at the later stage, so perhaps I might close by summarising the purposes of the Bill as I see it.
This remarkable group of institutions which comprises the building society movement is, as I have said, the custodian of nearly £3,000 million of money invested by the public and entrusted to those institutions in many cases by people of small means and little or no knowledge of finance. It is inevitable, therefore—and this has been accepted for over a century—that to minimise risk of abuse that might undermine public confidence in them the building societies should operate within a statutory framework and under the supervision, in certain respects, of the Chief Registrar.
This legislative code needs to be brought up to date from time to time, and the time is now ripe, since the main 47 Acts have remained unaltered substantially for almost 100 years. For those reasons, and because there have been signs in recent years of certain developments that seem to involve an unwarranted degree of risk to investors, I think that it will be generally agreed that this is not only a desirable but a timely Bill. It has been one of the attractive characteristics of the building societies that they have traditionally played a considerable part in helping the Government of the day to shape the statutory framework within which they operate, and that tradition has been carried on in the preparation of this Bill.
Having said that, I want to make it clear again that these are, of course, the Government's proposals that we submit to the judgment of the House on our own responsibility, but I can say with all sincerity that this would be a less good Bill if we had not had the wholehearted and constructive assistance of the Building Societies Association and others in framing it. I believe that it will be welcomed on both sides of the House, as it was in another place, as a sound Measure that will help to protect the public and, by so doing, to assist the building societies 'to serve the community as successfully in the future as they have in the past.
§ 4.18 p.m.
§ Mr. G. R. Mitchison (Kettering)
On this side of the House we shall be in general sympathy with the right hon. Gentleman's intentions in the Bill. He is perfectly right in saying that the time has come to reconsider building society legislation; and in saying that I would add that there have been abuses in recent years, some of which are at the moment sub judice and to none of which shall I refer in any detail.
I entirely agree with the Chancellor that the building societies, as a whole, have a most creditable record, and that they represent for many people opportunities, on the one hand, of investing money and, on the other, of buying a house, which we should all desire to see exercised to a full extent and in a manner that will not lead to misfortune for those concerned.
This Bill, therefore, is perhaps primarily a Bill for safeguarding the investor 48 in building societies—or the member, if I may put it more accurately, of the building society, because, after all, though we talk about shares and deposits in building societies, the type of placing they represent is not analogous to what we commonly call an investment, but is something much more like that in a savings bank.
Without going into detail, it seems to me that the main dangers have proved in recent years to be, first, excessive loans to one person or group of people, usually in connection with something other than dwelling-houses and, in connection with that, the inducement offered by "mushroom" societies, if I may use that adjective, of a very high rate of interest, or what, on their advertisements, appears to be a very high rate of interest. The building societies have an association. It makes recommendations to its members about rates of interest and those recommendations are usually, though not necessarily, followed by the vast majority of societies in the movement, whether or not they happen to be members of the association.
There is one other matter that has led to trouble, and trouble of a different character. In at least one case that I have in mind—and I dare say the right hon. Gentleman would find little difficulty in identifying it—a very large society got into trouble because, although I think it was ultimately perfectly solvent, its liquid funds at the moment were insufficient to meet the calls that were made on it. I think that it is very important that there should be a proper provision for liquidity. There will be cases where, without any dishonesty or malpractice whatever, a society that in other respects has been perfectly well run may find itself in serious difficulty simply by having, as some societies have had in the past, a considerable proportion of its reserves or liquid funds in the form of irredeemable or long-dated loans.
The right hon. Gentleman will allow me to point out that as a result of his monetary policy and that of his predecessors there have been very considerable falls in irredeemable securities—no doubt, in other cases, too—and they cause this difficulty. We therefore welcome the provision that is intended to be made by regulation that investments should be in short-dated securities. I think that it is 49 a matter for consideration at a later stage of the Bill whether that provision ought not to be put into the Measure itself instead of being left to regulations, but that is a point which we can consider later in that connection, and perhaps in others.
I regard Clauses 1 and 2 as providing for something that, no doubt, requires to be examined but which, on the face of it, is a reasonable arrangement for securing the public against the misuse of their funds—misuse in the sense that when the public think that they are lending on the security of bricks and mortar they may, in fact, be lending to an excessive extent on the security, say, of a business or something that has not got the tangible security of bricks and mortar.
Clauses 3, 4 and 5 and the other Clauses which I think the right hon. Gentleman mentioned, dealing with what I may call the pocket or mushroom building societies—they are slightly different things—appear to us to be on the right lines. As to the remedies, I welcome the double remedy that is provided—in the first case by Clause 6, which will certainly have a most drastic effect if only because of publication, and in the second case by the quieter pressure of Clause 7.
Clause 10 gives power to make general regulations about advertisements, and no doubt the building societies will consult Messrs. Colman Prentis and Varley and be happy to tell the world that they have never had it so good before. These matters should be quite easy of arrangement.
I turn to another question. The point about building societies is that they do not build. It is very doubtful whether they ever have built. They may have done so at the beginning, but now they have become lending societies, and their value and importance depend on the contribution they can make to the housing problems of the community. They are a means of canalising savings, largely small savings, into the provision of houses. Therefore, when we come to legislate about them and consider what is required of them we must look at the kind of house that is particularly required at the moment.
I welcome the introduction, in Clause 2, of a special provision which is really destined to allow the building societies to lend more liberally than they other 50 wise would on houses to be let. The question that I should like to raise, and which I hope will be raised as the Bill proceeds further, is whether that is quite sufficient. We on this side of the House have done a very great deal to help the owner-occupier, and we are in favour of continuing to do so. But there is no doubt that there are very many people in the community at present who are perfectly solvent and competent to have a house but are not in the position to buy one, even with the aid of building societies' advances, and who may want a house to let because of the possibilities, for instance, of changing their job and the like.
It is, therefore, going back a little to say that the primary object of building societies must necessarily be to lend for owner-occupation. We recognise that object. We recognise that it was the first object of the building societies, but we recognise, also, that there is a very great need for houses to let at present and for finance for houses to let, and, therefore, we should like to see the possibilities of using building societies for that purpose explored a little further. It ought to be possible to make some provision of the kind in the Bill.
When I talk about advances of that kind, I take the general position about houses to be let to be this: in the first instance, the building societies will not come into the financing of the actual building operation. It will be when houses are built and let afterwards that they replace the earlier stage, which was possibly one of bank advances. On those lines and subject to the finding of the earlier form of finance, I should have thought that it was possible for them to be extremely useful in this direction.
I would mention one instance which was referred to in another place. Housing associations are very useful bodies, and advances of this kind to housing associations might be encouraged and, indeed, made a definite percentage of the advances which building societies are asked to make. We are at present saying to building societies, "You shall use your funds to a given extent for a particular purpose and you shall not depart from that purpose beyond certain smallish percentages." It seems to me no different in 51 principle to say, "You shall to a certain extent use your funds for the provision of the type of house that is most required by the community." While I mean houses for letting in particular, I have another matter in mind.
Section 5 of the 1894 Act provides, in connection with what were called special continuing arrangements, certain safeguards about the quality of the house itself. It seems to me possible that safeguards of that kind should be considered. After all, if the building societies are given privileges in connection with advances for the purposes of letting, I imagine that we take some responsibility for the terms of the letting and that which is let. I am not asking to introduce rent control by a side wind, or anything of the sort, but we ought to say something or other about what is to be done, and the more so because the shortage of houses in some of the large towns at present has led to exceedingly onerous conditions both as regards purchase and as regards the letting of houses.
I make that point for this reason. I imagine that when we are dealing with an institution of this type we do not merely correct abuses. We try to use what exists in the community at present—the building society movement in this case—to the best advantage of the community, and we recognise, as has been recognised in one Act after another, that there is, in addition to the building society's right to run its own affairs up to a point, also a public responsibility that what is, in effect, public money shall be used to the best advantage of the public—that is to say, the community.
I do not propose to go in detail through the provisions of the Bill. There are many of the matters which have been mentioned by the right hon. Gentleman which seem to be matters to be considered at a later stage, and upon which I was glad to hear that his mind will remain open. I should like, however, to say a word or two about the question of valuation. I appreciate what the right hon. Gentleman said about the first stage of an independent valuer and the second stage of a decision by the directors of the building society. On the other hand, I see that there may well be some difficulty, particularly in 52 the case of the smaller societies, and it is sometimes possible to meet difficulties of this sort by appropriate provisions in the Bill itself.
I feel, and I have always felt, that the position of the report itself is at present rather unfortunate. It comes to this. The report is made for the benefit of the society, and the person who makes it owes a duty to the society and to no one else, but, under the Bill as it stands at present, a report will disclose, in the opinion of a proper and competent person—I am now referring to Clause 14 (1, b)—…the value of, and any matter likely to affect the value of, any freehold"—and so on.
These are matters which much concern not only the societies, but also the person who is seeking the advance, and it has long been the practice of building societies, although, I repeat, the report is made for the society's benefit by a person who owes a duty only to the society, to get it paid for by the person who is receiving the advance. I can see no reason why the contents of an objective report of that sort should not be disclosed to the person who proposes to take the advance. Nor can I see any great difficulty about it, from the point of view of the building society—I know that the societies hate the idea—provided that it is made perfectly clear what the report is, for what purpose it is made and to whom, and provided that it is also made clear that there is no responsibility towards the borrower by the person making the report.
Subject to that, I feel that there is a very strong case, now that this independent report is sought to be introduced, at any rate in some cases, for making it available to both parties to the transaction. I feel that a transaction between a building society and a borrower is to some extent, and ought to be, a matter of mutual confidence. There ought to be a certain degree of trust in the society by the person borrowing and in the borrower by the society itself. It is not an arm's-length transaction, or it ought not to be, and therefore I should like to explore that possibility as we go further with the Bill.
In connection with that, there is one small point which I should like to mention. It appeared in another place that 53 although the person who made the valuation had to be an independent valuer, he could be a partner of one of the directors of the society. That was commented on, but no step was taken about it. In cases of this kind, tit is not only advisable that people should be independent, but, also, that they should appear to be absolutely independent, and I regard it as rather unfortunate that that situation is still unresolved in the Bill.
Anyone who is borrowing from a building society at present feels to some extent in its hands. People find that the valuations are made by and for the building societies. They find that solicitors are acting for both parties. They find people who will negotiate insurances for them, because advances are very often connected with life insurances, and they may very well have the feeling, as I myself should have, that there are a tot of commissions and what-not flying about, and wonder who is to get them and why. I am not suggesting that anything wrong is done, because I do not think it is, but it is very important that there should be full disclosure of everything 'of this sort in connection with an advance by a building society. I do not believe that it would do the societies any harm. I do not think that they have anything to hide, and I therefore think that it is advisable that it should be done.
There is one other point to which I want to turn. Between the wars, it was the practice of the building societies, I believe, to make their advances at given rates of interest and to stick to that rate of interest whatever happened afterwards, and the change to the present practice took place subsequently. What is the present practice? As I understand it, in general, it is that an advance is made at a rate which corresponds roughly—with some time lag, because there is a certain amount of slowness about it—with the money rate at the time. If there are changes in the money rate, and I am using the word quite generally, the building societies will follow, rather reluctantly, rather slowly, and they will not want to follow if they think that it is merely a temporary change.
They will follow, and they are bound to follow, for the reason that they are in competition for the savings of the community with a number of other borrowing 54 agencies, including the Government themselves, who are, in fact, guided by the Bank Rate on short-term borrowing and by other monetary factors on longer term borrowing. It is obvious, for instance, if there are changes in the rate of borrowing, that the advances made by local authorities will have to vary in the rate itself. There is a fixed margin between local authority borrowing and the rate at which they can make advances on houses. Consequently, local authorities' loans vary from time to time, and lately local authorities have, I believe, changed increasingly to the building societies' practice of varying rates, not only on new loans, but on existing loans.
I make no comment on that, for it is a matter which we may have to consider later, but I do say that if, in fact, the building societies do that—and I can see their reasons for it—they must not be surprised if they get a good deal of adverse comment. They certainly do get people who borrow from building societies protesting loudly at the rate of interest charged on loans which may well have been made some time ago. This is not the fault of the building societies, and nobody says that it is. It is the result of the Government's financial policy, and all the building societies can do about it is to exercise a gentle brake on it of the character I have described.
What I understand—and the evidence of the building societies before the Radcliffe Committee was to the same effect—is that they do not, in the vast majority of cases, increase the weekly or monthly contribution that is required from the borrower, but simply extend the period of repayment, and in that way get back a larger sum by way of interest than they would have got if they had adhered to the original rate. At present, it depends on the building societies themselves, and, so far as I know, they are under no obligation whatever to do so.
I should like to see the borrower given some protection in this matter. Since the present series of Tory Governments have been in office, there have been some very startling changes in the rate of interest and some very startling increases as a result in the amounts which people have had to pay to building societies for loans contracted when they did not expect trouble of that sort. 55 The least one can do in affording protection is to allow borrowers a quite definite option to deal with an increase, if they wish, by way of extending the period of repayment, as is, I believe, the practice in the majority of cases, instead of having to pay a larger periodical amount.
I suggest an option, because in many cases people will prefer to pay a larger amount. There are sometimes good reasons for doing so. For instance, a borrower may be a little better off from the tax point of view—I think that the Chancellor will confirm this—if he increases the amount he pays back. For other reasons, too, borrowers do increase the amount. It was interesting to note in the evidence before the Radcliffe Committee that, although the average contractual period for building society advances is now about twenty years, the actual average is very much shorter, about nine years, I think, the reason being that people buying houses in this way often of their own accord choose to repay sooner than they otherwise need. They are, of course, driven to do that by increases in the rate of interest for which monetary policy generally and the right hon. Gentleman, in particular, are responsible. Be that as it may, I feel that borrowers ought to have what protection we can give them.
§ Mr. Lipton
Would my hon. and learned Friend consider, perhaps, introducing into the Bill provision for some power in the Chief Registrar to control the rate of interest charged by a building society? That might provide a way out of the difficulty.
§ Mr. Mitchison
I think that these are matters which we shall have to consider in Committee. When considering the rate of interest charged by building societies, I have regard also to the rate of interest which is charged to local authorities and by local authorities to other people in matters of advances.
My hon. Friend the Member for Brixton (Mr. Lipton) has just referred to the Chief Registrar, and I wish to say a word about him before I conclude. I recognise that the Bill gives the Chief Registrar very sweeping powers. They are, of course, subject to Parliamentary control 56 in the sense that, with one exception, they are subject to negative Resolution, the one exception being subject to affirmative Resolution. I find it a little difficult, at any rate at first sight, to see how this can be avoided.
There is, I suppose, the possibility of having an advisory committee, or something of that kind, althought I am not quite sure how it would work. Really, the strongest argument in favour of such powers is that similar though not quite so extensive powers have been exercised in the past in such a way, I think, as to meet with general approval from all those concerned. I must reserve our right on this side of the House to examine the position of the Chief Registrar in relation to the various new powers which are given to him.
The Bill may have been introduced primarily to protect the investor, the man who lends money to building societies and who may sometimes find that his money, as he sees it and as we see it, has been misused, but there is also the borrower to be considered. In present conditions, we on this side of the House feel that the borrower is faced with certain difficulties in connection with such matters as the report, the difficulty of getting advances in respect of houses for letting, commissions and the like which probably amount to nothing wrong in practice, but which make him rather suspicious and uncertain, and in connection, also, with changes in the rate of interest and the effect which they have had on a movement which, after all, was founded originally on a tolerably stable interest rate.
It is up to us in this House, I suggest, to make sure that the building society movement keeps up to date, by which I mean that it serves not only the objects for which it was originally founded, but those objects modified by the changing society in which we live. In particular, where there is a shortage of some kind of accommodation, and the shortage is not met by public house-building, as it is not being met at present, then the building societies and the savings of the community should be channelled, so far as we can properly and reasonably arrange it, to meet what is a need of the community and of the very people who subscribe their savings to the building societies.
§ 4.45 p.m.
§ Sir Cyril Black (Wimbledon)
Although I have done so on former occasions, it is, perhaps, right that, at the beginning of my short speech, I should declare a dual interest in the subject matter of the Bill. For about twenty years I have been a director of a building society and for a considerably longer period I have been a Fellow of the Royal Institution of Chartered Surveyors.
Notwithstanding that duality of interest, I fully support the proposals of the Bill in so far as they would prevent surveyors who are directors of building societies being employed in making valuations for the societies on the boards of which they serve. Such a possible conflict of interest seems to me to be undesirable. I know that there is a good deal to be said on both sides and, no doubt, we shall be able to go into the whole matter in detail in Committee. At present, however, I agree with the proposals in the Bill in that respect.
I wish to welcome the general proposals of the Bill and to express the view that it is both necessary and timely. I regret the necessity for it. Although it will be agreed, I think, that the Bill will alter very little, if at all, the code of practice which the great majority of building societies at present adopt and have adopted for many years, experience has shown, unhappily, that, just as there are "black sheep" in many other walks of life, so there are a few "black sheep" among building societies, and their operations, if allowed to continue, would bring criticism and discredit upon the movement as a whole. I am quite certain that I speak for the great bulk of building societies when I say that we welcome this Measure, and we are glad that the undesirable operations of a small minority are now effectively to be curbed.
There are only three specific matters to which I wish to refer, two of them being in the Bill, the remaining one being a matter not referred to in the Bill, but which, I hope, it will be possible to discuss in detail when we consider a new Clause in Committee. Both my right hon. Friend and the hon. and learned Member for Kettering (Mr. Mitchison) have referred to the very great enlargement of the powers of the Chief Registrar provided for in the Bill, particularly in Clauses 6, 7, 10 and 11. I hope that it 58 will not be considered inappropriate if I say that the present Chief Registrar enjoys the good will and the complete confidence of building societies in this country. We welcome the way in which he has endeavoured in recent years to use the very limited powers which he possesses for the good management of building societies in general. Therefore, nothing that I say must be regarded as in any way critical of the Chief Registrar, in whom the movement has the greatest possible confidence.
I incline to the view, however, that, inasmuch as these Clauses virtually give the Chief Registrar for the time being what may, in certain conditions, amount to the power of life or death over certain individual building societies, there should be the right of appeal to some tribunal. In the main, this is a Committee point and it will, no doubt, be examined and debated in Committee, but it seems to me that, as the Bill stands, the almost completely unfettered power of the Chief Registrar needs serious consideration.
I should now like to say a word or two about Clause 27, to which very little reference has been made. This Clause lays down that a register of members shall be kept by building societies. I am sure that we all agree with that, but it goes on to provide that the register shall be open to the inspection of members. It seems to many of the societies, particularly the small ones, that this will create a very considerable difficulty. I do not think that the Clause raises any difficulty with regard to the large national societies.
In the case of a society with 50,000 or 100,000 members, it is very unlikely that anyone would be interested in inspecting the register of members. If someone wished to do so, probably no harm would result from the inspection, but we must bear in mind that there are many small societies which operate in small towns where nearly everyone knows nearly everyone else, knows a good deal about other people's business, and is curious about other people's business. It seems to me a doubtful and, I think, undesirable precedent that a member of a small community, by investing perhaps £1 in the local building society, should be allowed to roam at leisure over the 59 list of investors to see who the members are and how much money their fellow citizens have invested.
§ Mr. Mitchison
I looked at this Clause for the reasons which the hon. Member has indicated. Apparently, all that someone inspecting the registrar is entitled to see is the names and addresses of the members.
§ Sir C. Black
I am glad to have that point made clear. I am indebted to the hon. and learned Gentleman and, of course, I accept his reading of the Clause.
However, even if the amount of the investment is not disclosed, I am not sure that it is a good thing that in a small local society, the whole membership of which may be drawn from a very limited area, members of the public should be able to find out who are the other members of the society. That is a point which requires some consideration, and it can be examined with advantage in Committee.
I now come to my final and most important point. It concerns what I regard as an important omission from the Bill. I had hoped that the Bill would empower building societies to operate to a limited extent, as far as the amount of the funds to be employed is concerned, in Colonial Territories. The House will know that under the present legal position—and it has been the legal position for more than a hundred years—building societies, apart from the investment of their surplus funds in Government securities, can invest only upon first mortgages in freehold or leasehold properties in England, Wales, Scotland or Northern Ireland.
No doubt, fifty or a hundred years ago, when building societies were comparatively small, and the funds at their disposal very limited, there was a reason for that. But the policy of successive Governments of both parties in the economic sphere has been to make it easier for and, indeed, to give encouragement to the investment of money in the Colonial Territories, particularly those which are developing rapidly and are moving towards political independence.
If the building societies had the necessary power, there are two ways in which they could powerfully aid the development of the building society movement 60 in various parts of the Commonwealth. The first and most important way in which they could help is by the "know-how" that the building societies have as a result of more than a hundred years of successful business. The second way—perhaps this is a less important way but, nevertheless, it is vital to the whole scheme—is by the application of a certain amount of the funds of building societies for the purpose of promoting, assisting and developing the building society movement in the Commonwealth and Colonial Territories.
I am not advocating that the building societies should be free to invest more than a very limited amount of their funds in this way. I suggest that there should be two main restrictions. First, they should be limited to the investment of only 5 per cent. of their total funds outside the United Kingdom, and, secondly, those funds should be utilised only according to certain general conditions to be laid down and prescribed from time to time by the Chief Registrar.
Subject to those two restrictions, it seems to me that much good and no harm could follow from the writing into the Bill of a right of the building societies to use that limited part of their funds in that way.
§ Mr. Douglas Houghton (Sowerby)
Would the hon. Gentleman tell the House what funds the building societies would invest in the manner he suggests? We are told by the building societies that they cannot satisfy applicants who come to them wanting to buy houses for owner-occupation. Does the hon. Gentleman suggest that these funds, which would otherwise go to these applicants, or that other funds should be invested?
§ Sir C. Black
I should have thought that the answer to that is clear. The banks in this country have not the necessary funds to make loans to all the people who want to borrow from them, yet it has been recognised that it is a good thing that they should use part of their funds in overseas territories. The insurance companies for many years have been able to use part of their funds for the development of their business overseas. I am not suggesting that there should be a large diversion of funds. I would put a limit of 5 per cent. on it. On my suggestion, that 5 per cent. would come not from the 7½ per cent.
61 minimum liquidity ratio, but from the 92½ per cent. of the funds of a society which are available for loan on mortgage in the normal way.
I do not envisage that these investments would stay in the Colonial Territories very long. They would merely be the nucleus with which a local society in a Commonwealth country or in a Colonial Territory could begin, and, as the society developed, it would attract investments in the territory in which it operated. Part of its funds thus collected locally could be and would be used in repaying the initial investment made from this country. It would merely provide the initial capital on which our societies at home could promote societies overseas and it would come back to us as those societies developed and attracted share money and deposit money in the areas in which they operated.
This matter was, of course, debated in another place, and I do not wish to spend much time in dealing with the arguments advanced. However, I want to mention one or two of the difficulties then raised, which seem to me not to have the validity which was apparently attached to them. First, it was said that it would be difficult for the Chief Registrar, or whoever might have the duty, to supervise the making of these investments overseas. The answer to that surely is that the same problem arises in regard to the banks and to the insurance companies. I do not think that it would be by any means impossible to lay down certain minimum requirements for safeguarding the funds which would be invested overseas.
Secondly, of course, the point was made, and repeated here today by the hon. Member for Sowerby (Mr. Houghton), that this would be a diversion of funds from the societies in this country. I agree that that is so, but it would be a very small diversion of funds, and, surely, this would be a very small contribution to make towards the development of the under-developed areas which are in desperate need of the raising of their housing standards and of the "know-how" and the facilities which the building society movement in this country would gladly give to them, but which at present it cannot give to them owing to the unduly restrictive law in this 62 respect under which we operate at present.
There is, I think, a third difficulty to which reference was made. It is that the laws in regard to property and mortgages in parts of the Commonwealth are, of course, very different from the laws of this country. The point has been raised whether the legal systems in some of those countries would give adequate security for the mortgages to be granted by the building societies to be established there. In a word, the answer to that, I think, is that there is ample evidence that the Governments and the authorities in those areas are so very anxious for the building societies in this country to be able to start the building society movement in their territories that they would gladly, willingly and immediately carry out any reasonable alterations in their legal systems in order to give proper and adequate security for the mortgages that would be granted.
I do not want at this stage to develop the matter at greater length, because it is a matter on which, I am sure, a lot of time may have to be spent in Committee. I know that there are a good many hon. Members on both sides of the House who share the belief that this is a move which is overdue. It is in line with everything that is being done in other fields by the Government in the development of our overseas territories. It is something for which there is an urgent need in many parts of the Commonwealth, and I consider that it is our duty to do what we can to help. I believe that we can do it without any real detriment to the interests of our own people.
I hope that this will be considered very seriously by the Chancellor before the Committee stage, because it is certainly something that will be pressed upon him very hard when that stage is reached.
§ 5.4 p.m.
§ Mr. Glenvil Hall (Colne Valley)
I agree with much that the hon. Member for Wimbledon (Sir C. Black) has said. So far as making it possible for building societies to operate in other parts of the Commonwealth is concerned, I would, however, like to consider that suggestion further. It was a matter which, I think, all of us are aware was briefly considered when the Bill was before another place. 63 I have not the slightest doubt that when the Bill is considered in Committee Amendments will be moved and that we shall be able to discuss the matter much more freely than we can this afternoon.
There are problems connected with it. Perhaps when the Economic Secretary replies later he will inform us whether the difficulties arising in this direction with Northern Ireland have been settled. It may well be that the Minister will be able to tell us just what the position there is. Northern Ireland is much nearer geographically than some other parts of the Commonwealth.
We are indebted to the Chancellor for thinking the Bill sufficiently important to come here himself to move its Second Reading. It is an important Bill. It is eighty-six years since the previous main Measure, which is still on the Statute Book and much of which will still be the law of the land, was passed. It is interesting to note that the Building Societies Association was concerned in the original draft of that Measure, and I am glad to hear from the Chancellor that the council of that association has taken a hand in formulating some of the Clauses of this Bill.
It is desirable that we should look at the Bill with the knowledge that the Building Societies Association, which has had to work the previous Acts during the last century, knows what the position is and what kind of procedure should be adopted. The building society movement, as the Chancellor and other speakers have said, is deeply embedded in the national life of the country. The earliest societies were formed nearly two hundred years ago. Of the 732 societies which now exist, 149 were founded over a hundred years ago. As the Chancellor said, the total assets of the building societies now amount to more than £3,000 million, and well over 4¼ million people invest their savings, often small savings, in building societies.
The mortgage advances at the present time are at the rate of over £500 million a year and the amount lent on mortgage by the building societies collectively exceeds £2,400 million. These are formidable figures which show both that the building society movement is deeply embedded in our national life and that it fulfils a real and genuine purpose.
64 The Building Societies Association, to which I propose to refer particularly, represents 80 per cent. of the assets of the total number of societies. Although not all building societies belong to it, I think it can be said without exaggeration that the majority of the more important societies—341 to be exact—belong to it.
I believe that, irrespective of what Government had been returned at the last General Election, the need for a Measure of this kind was plain. I think the party opposite made reference to it in its election literature, but, whether that is so or not, it was quite obvious from the trend of events in the building society world since the end of the war that it was necessary sooner or later—and the sooner the better—that a Bill of this kind should be produced.
As we have heard from the Chancellor, there has grown up a small minority of people who use building societies for purposes other than that for which they were originally intended. They offer fairly high rates of interest and they lend out the borrowed money at exorbitant rates in order to make big profits. That is not the purpose for which the building societies were founded and it is not what the Building Socities Association wishes to see happen.
I have said that the building societies have taken a hand in the elaboration of some at least of the Clauses of the Bill. That does not mean, as the hon. Member for Wimbledon pointed out, that the societies agree with every provision of the Bill. I think I am right in saying that there are about three or four of its provisions to which they would like amendment made. I am not sure whether the hon. Member for Wimbledon mentioned them all, but the first relates to Clauses 6 to 10, which confer upon the Chief Registrar powers to control, if necessary, certain activities of the societies. As the Chancellor of the Exchequer made clear, these provisions will give the Chief Registrar large powers over societies when he considers that they have gone astray. He can prevent them from investing further money. If he considers that the occasion warrants it, he can insist upon the funds being invested in certain named securities. He can prohibit advertisements by a society; 65 he can even edit the advertisements which a society is allowed to put out and he can, if necessary, write the advertisements himself.
These are drastic powers. As the hon. Member for Cheadle (Mr. Shepherd) indicated in an intervention during an earlier speech, it may make a good deal of difference to a small society if these powers are used arbitrarily. We must, however, remember that the Chief Registrar is a responsible person and is hardly likely to use them in a way he should not. On the other hand, there is always that risk. That is one of the points that the Building Societies Association considers should be given further consideration. The association feels that a right of appeal should be available to any society placed in this position.
Exactly how such an appeal could take effect is a matter for argument. One suggestion is that any action by the Chief Registrar should not become effective until the change had been agreed to by both Houses of Parliament by the affirmative Resolution procedure. I am not sure that that method would be possible in view of the length of time normally required for a Statutory Instrument to pass through this House. In addition, the publicity given to a Statutory Instrument of that nature would, sometimes at least, defeat its purpose and be unfair to the society concerned.
Clause 14 is another Clause to which the association has directed the attention of some of us. The association fears that, particularly in the case of small societies, it would be unfair to prohibit directors and secretaries or managers of such societies from valuing properties which come before their societies for such a purpose.
What the Chancellor of the Exchequer said contained, I thought, a good deal of merit. It is difficult to look again at a valuation if the person responsible for it is sitting as a fellow director and helping to judge the case before the board. Nevertheless, there is something to be said for the claim made by the association and by some of the smaller societies who have written to some of us that the Clause should be examined again to see whether it is not possible to find a middle course notwithstanding 66 the fact that, on the face of it, what the Chancellor of the Exchequer said has a good deal to be said for it and we should not lightly reject his advice.
When the Clause was discussed in another place, the noble Lord the Duke of Devonshire, who is president of the Building Societies Association, indicated during the debate that the council of the association had agreed unanimously to accept it. That was a slip of the tongue. It was in fact accepted by a substantial majority. As the noble Lord did not have an opportunity to correct his mistake later in the proceedings in another place, he asked me to correct it here for the sake of the record. What is clear is that the council was divided on the Clause although I believe that afterwards, when the matter was discussed at the annual meeting of the Building Societies Association, it was decided by a majority to oppose the proposals contained in the Clause.
Apart from one or two of its provisions, the Bill is almost an agreed Measure and finds acceptance in ever quarter of the House. Those who have spoken before me have already fairly exhaustively dealt with what the Bill proposes to do. Therefore, I do not desire to delay the House long at this stage. I should, however, like to say to the Chancellor of the Exchequer that realising, as we now know he does, the importance of the building society movement and the supreme need for that movement to be financially sound, it is a pity that of recent years at least, if not earlier, it has had to pay more than its fair share of taxation. The building society movement consists entirely of people who are not out to make large profits. They are there to help each other, either as small savers or as home buyers.
I do not know what it will cost the societies to implement the provisions in the Bill, but I should imagine that there will be some extra cost to them as the result of the passage of this Measure. It seems to me a pity that so much is taken by the Exchequer in taxation which could be used either to assist the plan outlined by the hon. Member for Wimbledon or to help those who wish to become house owners.
I hope, therefore, that in the light of this debate today and the further passage of the Bill, the Chancellor will realise the 67 need to lighten the burden which now falls upon the societies in the way of heavy taxation.
§ 5.20 p.m.
§ Mr. John Barter (Ealing, North)
The right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall), towards the close of his remarks, drew attention, I think in very kindly terms, to the function which those who run the affairs of building societies perform. They run them, as I think he said, as a matter of public service more than anything else. It is in that way that I have looked upon my own service upon the board of a comparatively small building society, and that has given me some interest in and some insight into this matter.
I think that in all respects, and in almost every corner of the House, we welcome the introduction of this Bill. The comments which I should like to make upon it do not arise from the fact that I have a particular interest in the building society movement myself. Indeed, they are quite unassociated with the operations of that building society on whose board I serve.
My comments refer firstly to Clause 27, to which my hon. Friend the Member for Wimbledon (Sir C. Black) has referred. I was disappointed that he did not carry his argument a little further in relation to the requirements for the provision of a register of members. I know he will forgive me if I say that I do not follow his argument all the way since the comments he made are comments which could equally apply to membership of limited companies, where requirements exist similar to those requirements which are now proposed, and where the register would be available for inspection.
The point I hoped he was going to make, and which applies particularly to the smaller building societies, was the considerable administrative burden which would be placed upon them by this requirement to have available a register of members. After all, the whole problem of the movement is the problem of equating interest rates which are paid to lenders as nearly as possible with the interest rates which are required from borrowers, and the narrow margin between the two is the margin of administrative costs. I think it is in the interests 68 of both parties, of all those concerned with the building society movement, that administrative costs should be as small as possible, and I believe that this proposal may add to the administrative costs, particularly of the smaller societies.
The other point to which I particularly wish to draw the attention of the House is that of the famous Clauses 1 and 2, which, as my right hon. Friend has said, contain the main purpose of the Bill. Here there is the provision which restricts—only to a limited extent—advances in excess of £5,000. I should like to draw attention to what I consider to be a very important point about this: the differences in valuations and levels of valuation as between one part of the country and another. A loan of £5,000 on a particular property in the London area may represent a smaller type of house than a loan of a substantially similar amount on the same percentage of valuation in another part of the country. I hope that at a later stage of the proceedings on the Bill my right hon. Friend will give some attention to that point and perhaps widen the opportunity which has been given to the Registrar to vary the amount for a particular area as well as to apply a general increase or reduction.
Those are the main points to which I wish to draw attention, but much has been said today on the history of the building society movement, and I think it would not be inopportune to draw attention to the fact that in its origin at the end of the eighteenth century, at a time when there were perhaps only 2 million houses in the whole country, as compared with about 16 million today, it was designed both for the building of houses and also for the assistance of owner-occupation of those houses which were built. Therefore, I think that perhaps some extension may be provided in present circumstances to the function of some building societies in aiding what has been referred to as "bridging finance" in appropriate circumstances.
After all, the Bill is designed in the main to add to the protection of the investor, and the protection which the investor wants is that not too great a proportion of the assets available to him, the assets of the society in which he is interested, is directed in any one direction. That is the main protection, and I 69 should have thought it would provide a better method of dealing with the requirement than the complicated procedure which is adopted in Clauses 1 and 2.
§ 5.26 p.m.
§ Mr. Charles Royle (Salford, West)
If I had been trying to make this speech ten years ago I should have had to follow the example of the hon. Member for Ealing, North (Mr. Barter) and the example of the hon. Member for Wimbledon (Sir C. Black) and declare an interest. I was a director of a small local building society until I became an acting, temporary, unpaid Government Whip in 1950 and I received a letter from No. 10, Downing Street, to say that I had to resign any directorships which I held. Accordingly, I felt that I was called upon to sacrifice something like £10 per annum, which was subject to Income Tax. Today I am perfectly free and can talk in this debate because I have never got that directorship back. However, during the years which intervened I have retained an interest in the work of the building societies, and therefore I want to say one or two things about it in this debate.
Let me say, in the first place, that I am in complete agreement with everything that has been said from both sides of the House today about the realisation of the need for a Bill at this time to bring building society legislation completely up to date. However, that does not take away from my appreciation of the people who are carrying out this kind of work. I admire the way they are carrying it out and have carried it out over many years. I think the right term would be "altruistic". The men who have engaged in the work of directing building societies, and particularly the smaller ones locally where there is such little reward for them, have really undertaken an altruistic task on purpose to help their fellows who are desirous of getting their own homes. Building societies, in the main, have rendered tremendous social service to the country.
We have had discussion, and particularly at the time of the General Election we had discussion, on the future of house building and house ownership, and at some time it may be well to consider that local authorities should be used a lot more than they are at present in lending for house building; but in my 70 experience as a Member of Parliament, and in trying to tender advice to my constituents who were desirous of buying houses, I have not had a lot of encouragement from local authorities to think that they desire to do this kind of work. That I find disappointing. It may well be, of course, that responsible officers of local authorities have to be very careful about how they employ the ratepayers' money. Therefore, perhaps they are super-careful in their approach to this problem and are not as ready to take any kind of risk such as a building society might take. It is certain, therefore, that, at all events for the present, we have to depend entirely on the building societies for this kind of help.
In spite of the good things that I want to say to the credit of the building societies, I believe nevertheless that it is right that there should be legislation which will give full protection to the people who borrow and to the country in general. I want to speak in the main about Clause 14. I feel very strongly about it, but first I should like to ask the Economic Secretary to the Treasury one or two questions about Clause 1 which deals with special advances. When the Chancellor of the Exchequer was speaking I had the temerity to interrupt him and ask whether we could have some kind of interpretation of the words "body corporate" and I understand that the Economic Secretary will be good enough to say something about that later.
As I said in that interruption, it is perfectly clear that a limited company might come under the term "body corporate", but I am a little concerned about the ability of building societies to lend money to associations, groups of people who come together for some objective and who wish to borrow money to acquire or erect a building. It might be, for example, a local trade association which would want to build or to buy an administrative headquarters, or it might be a local political party which wished to buy premises for its own use. I cannot imagine that any local Conservative party would need to borrow money for anything, but I know that in the Labour Party it is often necessary to borrow money.
§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
It is all a question of credit.
§ Mr. Royle
I appreciate that, but, seriously, I should like some clarification of the question whether "body corporate" can be interpreted to mean an association of that kind.
The Bill provides that a sum of £5,000 in one or more advances is to be regarded as a special advance. I think that this will have the effect in subsequent years of further restricting special advances and that the smaller societies particularly would be very much restricted in making advances of over £5,000 although such an advance might be only a small proportion of the value of the property. The easiest example to give is one where the sum is 20 per cent. of a property valued at £25,000. An advance of that kind, surely, could be safely and easily carried without repercussions in later years.
I hope that the Government will give a little more consideration to this question. Where securities of that kind are involved, I cannot help thinking that there is nothing to prevent anyone who wants to borrow going to a second society to obtain another mortgage. I know that second mortgages are not looked upon very favourably but if it is a question of £5,000 out of £25,000, it seems to me that the borrower could easily go somewhere else and get more money.
As to my main point on Clause 14, to establish my argument I think that it would be well, first of all, to quote subsection (1, b) which reads:that there will be made available to every person who is to assess the adequacy of any security to be so taken a report as to the value of, and any matter likely to affect the value of, any freehold or leasehold estate comprised in the security, being a written report prepared and signed by a competent and prudent person who is experienced in the matters relevant to the determination of the value of the estate…I believe that that is a repetition of Clause 12 (1) of the Building Societies Act, 1939, but in the present Bill there is a qualification in subsection (2, a) which reads:a person who is a director or the manager or secretary of a building society shall be disqualified for reporting on any freehold or leasehold estate comprised in security to be taken by the building society in respect of any advance;I am deeply concerned about this and I would ask the Chancellor and the Treasury to have another look at it. It 72 is far too sweeping for the small local societies. My right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) has pointed out the attitude of the Building Societies Association to this matter, but I want to express myself more strongly about it and ask the Government to consider amending the Bill in Committee in this respect.
Earlier I used the term "altruistic" in speaking about the directors of small societies and I said that these societies exist in the main to help people who wish to have houses of their own. These directors usually have a much better knowledge of properties in their district than has any professional valuer. They are aware of tendencies to deterioration in certain districts and tendencies in others to an increase in site values as time goes on. In many cases the directors of small local societies have been in office for ten or fifteen years, and I know of one case of a director who has been in office for forty years. These people are now to be treated as incompetent for this purpose under the Bill.
I am not so much concerned about the surveyor or valuer who happens to be a member or director of a local society. I am concerned about those people who have no professional qualification but who have had tremendous experience over the years in the valuation of property. Surely their record is borne out by the soundness of so many small but efficiently managed societies.
In any case, there are many matters other than the value of property which directors must frequently take into account before they finally decide the amount to be advanced on mortgage on any property. It was my experience many years ago that it was particularly essential that the adequacy of the applicant's income and his general status and character should be taken into account. These are things which can be considered by the local director who has knowledge which cannot possibly be possessed or obtained by an outside professional man who is called in to make an inspection and valuation.
It is also surely worthy of consideration that the charge for professional services falls on the borrower. Many of my constituents come to me when they are worried about housing matters and 73 sometimes they are persuaded to go to a building society before they undertake to purchase a house. Only last Saturday a constituent came to me having bought a cottage property with possession because of his great need. He had paid £400 for it. His complaint was that the legal charge was over £24. This is a shocking proportion. It is a matter which is worthy of examination by the Law Society, and perhaps of legislation. If we add to the £24 about £10 for a valuation, it really amounts to punishing working-class people who are trying to buy homes of their own. In some circumstances £10 may not be a great deal of money, but when it is added to the legal charges in transactions of this character it becomes a real punishment of men and women who desperately want a home.
Yet I know that the societies with which I am now concerned will, by the action of their directors, carry out a valuation and an inspection for very much less money than that—perhaps two or three guineas—which makes it much easier for the person who is seeking to buy a house. Also, the valuer envisaged by the Bill will not make a surveyor's valuation; he will not examine the house inside out. He will merely make the same kind of valuation that the lay director of a society will make. Consequently, it is wrong that this type of director should be prohibited by the Bill from making a valuation.
I listened very carefully to the Chancellor's defence of this subsection. I was not a bit impressed, and I hope that we may do something about it in Committee. We might be able to find a line of demarcation so that the smaller societies might be exempted from the Clause. On second thoughts, it might be a good thing to delete the subsection completely.
It was this kind of thing that made me begin to wonder whether it was the intention of the right hon. Gentleman and the Treasury to place obstacles in the path of the smaller societies. There is a tendency these days for the great societies, which are doing a tremendously good job, to get hold of this business, I should regret it very much indeed if anything were done to impair the work of the smaller local societies 74 which were the originators of this idea and have over the years done such a tremendously good job of work. I should not like it if there were anything in the Bill when the House finished with it to indicate that there was any attack on that type of society.
Consequently, I ask the right hon. Gentleman to give further consideration to this very difficult subsection so that we may have full opportunity to amend it in Committee. Apart from that, I feel that the Bill is so excellent and so greatly needed that one has no hesitation at all in giving a blessing to it, and I hope that it will quickly proceed on its way.
§ 5.44 p.m.
§ Mr. William Shepherd (Cheadle)
I am sure that we all echo the views of the hon. Member for Salford, West (Mr. C. Royle) about the merits of the small societies. I feel certain that it is not the intention of my right hon. Friend in any way to damage the assistance which they have rendered over a long time to the community.
I have listened with sympathy to what the hon. Gentleman has said about Clause 14. I must confess that it gives me some cause for concern, but, on balance, I am persuaded that what the Government have set down is in essence the best thing for the movement and for the community.
We have had an interesting debate in which speakers have tried not to make party points. I shall also try not to do so. I thought that the speech of the hon. and learned Member for Kettering (Mr. Mitchison) was particularly interesting, and I support his view about the valuation. It is very regrettable that a person who tries to buy a house cannot see the valuation. Appointing an independent valuer removes the obstacle which hitherto has 'prevented societies from showing valuations. Obviously, if a society did not make the valuation, it and its directors could disclaim any responsibility arising from it. I should regard this as an argument in favour of Clause 14.
I was somewhat terrified when the hon. and learned. Gentleman said that we ought to have some form of rent control via this Bill. It is a frightening thought that even today rental values are not, in the main, high enough to induce building 75 for rental purposes. If that situation obtains, haw can the hon. and learned Gentleman talk about instituting rent control via the Bill? It is a complete negation of reality. I hope that he will, on second thoughts, realise that, too.
When the Bill first appeared it surprised me because it was so massive. It is a massive bolt with which to lock the stable door after, it appears, one or two horses have escaped. Nevertheless, on reflection, I appreciate that the Bill could not have been made shorter than it is. It is, on the whole, a very creditable effort on the part of the Government, the Registrar and the Building Societies Association, and I feel that everybody is to be congratulated.
I have a personal statement to make. It does not refer to the fact that I am a director of a building society, because my only relationship with a building society has been as a borrower, which was more or less satisfactory to me, though I am not so sure it was so very satisfactory to the building society.
My personal statement relates to the fact that in April last year I raised on the Adjournment the question of the necessity for legislation. As hon. Members will appreciate, that involves a certain amount of acrobatics, because one cannot refer to legislation on the Adjournment. I am afraid that during the debate I had to allege, if only obliquely, that the Chief Registrar was less zealous in carrying out the regulations than he might have been.
I want hastily to set that right and say that I do not think that anybody could have been more zealous than the Registrar in carrying out the limited powers which are now at his disposal. Indeed, I think that we are well served by the Registrar, and I say at once that the way in which I presented these arguments during the Adjournment debate was dictated by the rules of the House and not by any criticism of the Registrar himself.
A noble Lord in another place said that the fact that since 1874 there had been no material building society legislation was a tribute to the legislative foresight of our predecessors. That is true. However, I think that it is an even greater tribute to the building society movement that over this long 76 period there has been little or no modification of the law. This is due to the care and public-spiritedness of those who run the building society movement.
I am sure that we would all want to pay tribute to them, for they have very difficult problems. Indeed, they fall foul of the general financial maxim in that they have of necessity to borrow short and lend very long. That is why I thought the hon. and learned Gentleman was a little unkind to them in his strictures about their varying their rates of interest. How one can borrow short—very short at times—and lend very long without having regard to fluctuating rates of interest escapes my reasoning.
§ Mr. Shepherd
Perhaps the hon. and learned Gentleman will read his speech, when he will see that there was a delicate and implied rebuke in his words. But I do not want to take too much time, so I will hurry on without dealing at length with what the hon. and learned Gentleman said.
Quite clearly, these somewhat extensive provisions are essential, because we cannot ensure that all building societies will be run by men of integrity. If we could, we would not need the Bill. We have no means of ensuring that they will be men of integrity even if we give the Chief Registrar the unenviable task of vetting every director. Therefore, we have to accept these somewhat tedious regulations, and I am sure that most building societies will accept them in that spirit.
The hon. Member for Salford, West was very keen about avoiding the provisions of Clause 14 as they affect directors' valuations. I feel that the Government are right. On the whole, it is dangerous to allow directors to value, because we are concerned not with the director of integrity, but with the director who has no integrity. Nothing in the Bill will prevent men without integrity from becoming directors of building societies. Therefore, it is desirable, on balance—I say no more than that—that those people who are directors should not themselves value.
Indeed, most people who will be affected by the valuation provisions will be affected by another provision in 77 Clause 14, which is that they shall not be responsible for introducing business. In many small building societies, the directors are also estate agents who introduce the business and who do valuations at the same time. Some of them will be caught by the introduction of business provisions, even though in other circumstances they might not have been caught by the valuation provision. Therefore, on balance, I favour the retention of Clause 14 as it now is.
I am very much exercised about the right of appeal. Clause 6 is a very drastic provision. I have had discussions with people who will be affected by it, or with their lawyers, and I know that they are not satisfied that they will always get justice. I think that they will, but it is very desirable, When one is virtually eliminating a society—and the House must face that it is elimination—and, at the same time, causing considerable distress to those who are depositors, that there should also be a definite attempt to satisfy everybody concerned that justice has been done.
Clearly, recourse to the courts is difficult because disclosure of the name is difficult to avoid, although in certain circumstances it might be possible. Recourse to the House is clearly impossible, because that, too, would involve disclosure, but it might be possible to appoint a person to whom an appeal could be made. I hope that in Committee my right hon. Friend will think very seriously about the desirability of appointing a person to whom an appeal could be made against the very drastic provision of Clause 6.
I very much welcome Clause 7, because Clause 6, which has hitherto been the Registrar's only weapon, is such a vicious instrument. Clause 7 is very sound and may well prevent many societies from going off the rails before it is too late.
There are still some dangers inherent in the building society movement, even with a Bill as detailed and meticulous as this. I am not entirely satisfied with the Bill as it stands and the first thing which causes me concern is that it deals only with those people holding official positions in building societies. That is to say, it deals with the conduct of directors, managers, secretaries and others, but not with the conduct of a person who 78 may be able to exercise control over a building society.
I direct the attention of the House to the fact that as soon as the Bill is passed, all the gentlemen who want to do little tricks will say that they have now been prevented from doing this, that and the other as directors, so they will now obtain control of building societies without becoming directors. I hope that my right hon. Friend will study the possibilities of applying as much restriction to those who are capable of exercising control over building societies as to those who might be directors for the time being.
A danger which I have not heard mentioned is that of mutual assistance. One noble Lord in another place naively said that if a director wanted a loan he could go to another society. That may be a perfectly harmless proposition, but it may be particularly dangerous. I invite the House to consider the situation in which there are two questionable gentlemen, both in a position to manipulate building societies—and we are concerned only with questionable gentlemen and we would not have the Bill but for them—and who say to each other, "If you lend me £10,000 for my building development, I will lend you £10,000 from my society for your building development". A little mutual aid can be arranged to bypass the regulations. I am not sure how far we can circumscribe that device, but I invite my right hon. Friend to apply his mind to it, because I assure him that it has been done and, as far as I can see, will be done again.
My hon. Friend the Member for Ealing, North (Mr. Barter) mentioned the desirability of building societies assisting in building finance. I am not happy about that, any more than I am about what my hon. Friend the Member for Wimbledon (Sir C. Black) said about wanting to export building funds raised here to Timbuctoo. We can give good advice, but that is as far as we should go.
§ Mr. Bernard Braine (Essex, South-East)
As my hon. Friend the Member for Wimbledon (Sir C. Black) is not here, will my hon. Friend accept it from me that I was listening to my hon. Friend the Member for Wimbledon and his suggestion was the exportation of building society funds not to Timbuctoo, but to 79 Commonwealth countries under the same stringent conditions which would obtain here.
§ Mr. Shepherd
Perhaps Timbuctoo was a little wide of the mark. Geography is not my strongest subject. I was not sure where Timbuctoo was.
§ Mr. Shepherd
My hon. Friend the Member for Wimbledon involved himself in a committal to export capital. My arithmetic is better than my geography and I have worked out that his suggestion is that £150 million of money raised in this country should be sent overseas. Frankly, I am against it.
I see no reason why industrial bankers, or societies specially formed for the purpose of financing building finance, should not be set up. After all, it is possible for people undertaking building development to pay 10 per cent. for their building finance and still make a profit. If that sort of business is to be done, let it be done by organisations other than building societies which should be restricted, very properly, to the requirements of the Bill.
Another item which caused me some concern was the splitting of units by building societies. I see nothing in the Bill to stop the splitting of units. Hon. Members will probably know that when these dubious gentlemen want to carry out a transaction, obviously under the existing law they do not want to say that they have lent £135,000 to somebody to buy a block of flats in Marylebone, and so they proceed to issue a loan on each of the individual flats in the building. In that way, all the loan is covered up for the purposes of the annual declaration, and no one knows that they have lent £135,000 to one body for commercial purposes.
As far as I can see, this situation will continue and I hope that my right hon. Friend will see whether he can do something about it. When I sign leases, as I do frequently, I see—though I do not understand all the terms—that there is a declaration that the transaction does not form part of a larger transaction. I hope that my right hon. Friend will look at this matter again and see whether a provision of that kind could not be 80 put into building society documents so that we can stop the splitting of loans in the manner which I have described.
The next point about which I am somewhat dissatisfied is that, as far as I can see, there is no attempt made in the Bill to stop any director from taking a procuration fee. I know that if one went along to the director of a building society which I know and said that one wanted to borrow £10,000, but that the security was not so hot, and offered him 4 per cent. for himself, one would get the loan. This is not a desirable way of running a business, and only a very small number of building societies would ever behave like that, but when credit is tight some of them do behave in this way.
I would like to see a provision which would prevent any director from taking a procuration fee. It may well be that the Bill already does include one—I am not quite sure on that point—but I invite my right hon. Friend to look at it in the sure knowledge that when credit is tight a small minority of disreputable building society directors will resort to this practice. It is our duty, in engaging in this rather comprehensive legislation, to try and stop them from doing so.
The last point about which I am concerned is the dormant—or, as I call it, the moribund—society. It is a great source of danger, because when a questionable gentleman wants to raise money for his own devices by a building society movement he says, "We will not start a new society which says 'Established in 1960'. We will get hold of a society established in 1820. That will look more imposing on the letter heading." He then buys up a moribund society.
§ Mr. Glenvil Hall
Surely the hon. Member knows that that is one of the devices which is aimed at in the Bill and can be stopped.
§ Mr. Shepherd
The right hon. Gentleman is not taking my point. If he will listen more carefully and patiently for a moment he will understand it.
It may be desirable to put into the Bill provisions in respect of moribund societies similar to those which exist in respect of companies. If one has a company which does not trade for a certain period of time, the Registrar writes and says that unless he can be shown good reason why the company should not be 81 struck off the list he will strike it off himself. I believe that a provision of a similar kind ought to be included in the Bill to get rid of moribund societies.
There is no point in allowing these societies to hang about inviting the attention of these gentlemen who want to manipulate them. They should be struck off in the same way as public companies and some prospect of mischief avoided.
§ Mr. Chapman
If they still have assets and liabilities and small advances in existence, how can they be struck off?
§ Mr. Shepherd
Some of them have no assets at all, and certainly no liabilities. When a society has ceased to trade it should, in my view, be struck off in the same way as a public company is. That is a worth-while proposition.
I wish to echo what was said by one hon. Member opposite. I hope that nothing in the Bill will reduce the assistance which the building societies may give to housing associations. The Government have done a great deal to solve the housing problem, and private enterprise and local authorities have assisted. But there still remains a residual housing problem—the housing of people with relatively low incomes who cannot be housed by private enterprise. It means, as a result, that large numbers of houses are going to waste because of the inability of their owners to put them in good condition. I feel that there is need for housing associations on a much larger scale than hitherto.
This may be one of the ways in which the problem of low-rent houses which are deteriorating can be dealt with without the hideous resort to municipalisation. I hope, therefore, that nothing in the Bill will, in any circumstances, damage the prospects of housing associations. They should receive material assistance from the Government and be very much expanded in their efforts.
Like most Members, I welcome the Bill. The number of bad building societies is infinitesimal when compared with the number of good societies which are performing excellent service to the community. Every worth-while building society will welcome the Bill. It will 82 enable the building society movement to fulfil its duty to the community with more security and more prestige than ever before, because we must not ignore the fact that the misdeeds of one or two societies can reflect very badly upon a most noble movement. With those sentiments, I commend the Bill to the House.
§ 6.8 p.m.
§ Mr. Donald Chapman (Birmingham, Northfield)
I disagree with two or three points made by the hon. Member for Cheadle (Mr. Shepherd). I wondered whether he had read the Bill as carefully as he usually reads Bills, because, for example, When he was talking about the dangers of speculators helping each other out of society funds and of advances in split units, was he not disregarding, or failing to note, the fact that in both these cases if they came to any magnitude they would become stopped as "special advances" under the terms of the Bill?
§ Mr. Shepherd
Of course, I did not lose that point, but 10 per cent. of the building societies assets can be dealt with in this way, and it still, therefore, represents a substantial problem.
§ Mr. Chapman
I am sure that it does, but by and large the Bill as drafted will cover most of the abuses and all the grave dangers to the individual small investor. The hon. Member was, I think, disregarding the very careful provisions of the Bill. Indeed, he never even mentioned the way that that was covered by the Bill.
The hon. Member referred to the dangers of moribund societies. The dangers arise not so much with societies that are completely moribund as those which are in a very small way of business, and are dying. His suggestion would not cover the danger of their being bought up, since they could not be struck off the register, as they are still in business in a small way.
However, I agree with a great deal of what the hon. Member said. Like him, and like every other hon. Member who has spoken, I welcome the Bill and am happy that it is doing the two jobs it set out to do, namely, to bring up to date the legislation governing building societies—in the way that we brought up to date the legislation covering companies in the Companies Act, 1948—and, secondly, to protect the movement and 83 its good name from those who seek to take advantage of it and of the Acts protecting it in order to run what amount to finance companies devoted to speculation. I am sure that the Bill adequately covers those two main aims.
Many hon. Members have mentioned Committee points, and I wish to give notice that several points will be raised by hon. Members on this side in Committee. I join with the hon. Member for Cheadle in being very unhappy about the provision for appeals in Clauses 6 to 10. I am not happy that the Registrar should be the final judge in this matter. As I pointed out in an intervention, the right of appeal to the High Court exists in Section 6 of the 1894 Act, which governs the compulsory ending by the Registrar of the activities of certain building societies; and as the relevant Clauses virtually do that in the new Bill, some right of appeal must be provided. For five or ten years Parliament has been legislating to protect the rights of individuals from arbitrary powers conferred by many of our wartime Acts, and I do not want to see the removal of any small safeguard for the individual in other fields. It is not so much a question of the right ever being used; it is a final protection against the activities of the Registrar.
My hon. Friend the Member for Salford, West (Mr. C. Royle) made an eloquent plea in relation to Clause 14. I do not want to say much more about it, except that I would have thought we could cover the objections which he and other hon. Members have raised by providing that a director shall not make a valuation in the case of any advance above a figure of £1,500 or £2,000. The estate agent who is introducing the business, and who might be a little suspect, will in any case be disqualified under the remainder of that Clause. The impartial directors of experience, mentioned by my hon. Friend, should be allowed to continue what they are now doing, which is, in the main, to make valuations of small houses, especially in the Northern towns. If we provided that an impartial valuer had to be brought in in the case of an advance above £1,500 or £2,000, everybody would be happy and we should be preserving these building societies and the social service done by their relatively poorly paid directors.
84 I want to raise one other point, in case the Economic Secretary can look into it and say a word about it before the Bill goes to Committee. Clause 31 says, in effect, that the societies are to be given fifteen months to alter their rules, after which the model rules contained in the Bill shall be deemed to be in existence. I do not know whether that period will be long enough. Nobody yet knows whether some of the rules of existing building societies cover the intentions of the Bill. Only after a period of trial and error and discussion with the Registrar, and even a discussion of any suggestions by the Registrar as to amendments of the rules, will anybody be in a position to be certain whether a building society has conformed to the provisions of the Bill. A guillotine after fifteen months seems to be too drastic.
I have some sympathy with Members representing London constituencies, who have queried the £5,000 limit. It is not only in London that this limit will now present a problem. Nowadays in South Coast areas it will be found that a quarter-acre building plot is worth £2,000 or even £2,500, and by the time a person has built on such a plot at £3 or £4 a sq. ft. a 1,500 sq. ft. house will cost him £6,000 or £7,000, if he has modern conveniences such as central heating. Such a house would tend towards the luxury level but would not be one which should be ruled out for a building society advance, or be subject to the limitations of a special advance. I doubt whether such a limit can be sustained if land values go on soaring. I should have thought there was a good case for setting the limit almost immediately at a figure of £7,000 or £7,500.
The Third Schedule, in effect, gives an individual member of a building society the right to insist that any sort of motion should not only be put on the agenda for the annual meeting but should also be circulated, at what might be considerable expense. In the case of the calling of a special meeting a member must have the support of another group of members before the motion has to go on the agenda, or even before a meeting has to be called, and I would have thought there was a case 85 for putting some limitation on the individual who can make himself a continuous nuisance by having tabled printed resolutions at annual meetings. As we know from experience, one person can be a nuisance to a whole body of people, year after year, simply by paying a deposit of £1 to a building society. That point must be examined very carefully in Committee.
The building society movement ought to be protecting itself more than it is against the attacks of people who misinterpret its difficulties in connection with rates of interest and similar problems. As hon. Members have pointed out, building societies are in a difficult position because they have to raise their rates to borrowers when they, in turn, have to pay more to lenders, according to the fluctuations in the general rate of interest in the country. In the case of many building societies, when this happens no adequate explanation is sent to the individual borrower.
Members of Parliament are apt to receive heartbreaking letters from people who have misunderstood the purpose of the action, not having had from their building society any explanation for the rise in the rate of interest and the extension of the time for which they must pay mortgage interest. These letters show that people are extremely worried when rates of interest rise. Building societies should set out to explain their position in the community much more adequately, especially at such times.
§ Mr. Chapman
Yes, when making the advance in the first place, but particularly when the building societies find themselves in this difficult situation. Not only would that save a great deal of correspondence with Members of Parliament, but it would prevent a lot of heart-burning on the part of people who have mortgages which they feel are too heavy.
I think that building societies ought to protect themselves against the attacks of a number of people—I know that my hon. Friend the Member for Brixton (Mr. Lipton) is hoping to make one of those attacks today—who maintain that building societies are moneylenders in the most derogatory sense of the term. 86 In reality most building societies are creditable institutions, and my hon. Friend and others who think like him should take note of the fact that they do not make profits in the accepted sense of the word. My hon. Friend knows as well as I do that out of every £100 of the mortgage assets of building societies only 5s. 11d.—I think it is—is surplus. Even that surplus cannot by law be distributed. It goes into reserves and no one is the final recipient of any "profits" in the accepted commercial sense.
The building society movement ought to explain the social service which is undertaken by building societies. It should combat some of the unhelpful and misleading interpretations of the functions of building societies that are current at the present time and which are heard every time the rate of interest is increased, which is generally due to Government action. We are on the eve of another rise in the interest rates, and this time I think the Treasury is responsible, partly because of the increase of the Profits Tax by 2½ per cent. That will prove a considerable burden to building societies. But again the cry will go up from those who are anxious to mislead that this increase in interest rates is part of the dues being extracted by these dirty moneylenders. I think it time the building societies set out to explain themselves a little more carefully to the public.
A number of hon. Members have mentioned that at the beginning of their existence building societies were concerned with the building of houses as opposed to merely lending money for house building. I should like to see building societies take a hand in improving the design of the houses for which the money is advanced. As I am involved in the building industry I must declare an interest. I do not think there is anything more depressing about the present state of the industry than to contemplate some of the disgusting post-war building of small houses which is going on up and down the country.
The design of these houses is no better than before the war. Indeed, in many cases one feels that the houses are being built to plans which must have been brought out of cold storage from before the war. There has been no improvement whatever. These houses 87 usually consist of two bedrooms, a box room and a bathroom, three rooms downstairs and a front door. They have bulging bay windows of a hideous design and roofs which vary in colour and degree of monstrosity. Bricks are used of a colour which makes one shudder. There is no real protection against the weather nor is there proper interior insulation.
The erection of such buildings all over the country is going on on a scale which is a scandal. I could take any hon. Member to sites where such houses form the backbone of the properties for which building societies have advanced loans. Having reached its present pitch of eminence in the community, I maintain that the building society movement has a social duty to do something to improve the design of these houses. It should employ architects to advise customers who apply for advances and try to encourage a right type of design when making advances to builders who are building houses for sale. The building societies could do a great deal of work in this way.
At present this job is left to one or two magazines and architectural journals, to things like ideal home exhibitions, and to competitions to provide the best design for an average small house. The building societies should look again at their original function and take a hand in curbing this rash of houses of hideous design which is creeping over Britain. As my hon. Friend the Member for Salford, West (Mr. Royle) knows, I live in the middle of a number of such houses at Saltdean near Brighton. I have never seen such rubbish as is being built, particularly on the South Coast, but also on the fringe of any big city. No one would think that we had made any progress in the last 25 years in the design of small houses.
Having said that, I wish to say also that I know of many reputable builders and estate developers who have taken a hand in improving the design and insulation of houses. Some builders and estate developers really do find out which is the north and which is the south of a site before designing a house for it; but after looking at other sites one would not think that some estate developers worried about such things as whether rooms faced the sun and simple matters like that. We 88 must appeal to building societies to encourage their borrowers to take advantage of the better types of design which they ought to be able to produce.
§ Mr. Lipton
My hon. Friend is wasting his time. If he will look at the May issue of Building Society Affairs, which is issued by the Building Societies Association, he will find that there is a page headed:The attitude of building societies to modern architecture".The first sentence on that page states:This subject has generated a good deal of controversy so perhaps it would be wise to state at once that, from the building society point of view, it is not a major problem.
§ Mr. Chapman
I know the view adopted by my hon. Friend about building societies, and I think he is deliberately misreading that paragraph. I have a copy of the publication to which he has referred, and I think that the article is devoted to a discussion of the difficulties which some architects may have in putting forward an original design and the resistance which they meet from building societies. In that sentence it says that this resistance by building societies is not a major problem, and that is what is meant. On the whole, building societies are not resisting change. The trouble is that they are not giving it adequate encouragement.
I wish finally to refer to a matter in connection with Clause 14 and the difficulties regarding inspections. My hon. Friend the Member for Salford, West mentioned the point about small building societies and the activities of directors who were virtually unpaid. We should not get an exaggerated idea of a valuation made by a building society through a surveyor. It is not a structural survey made with great care. Most of the building societies work on a reduced rate of fee to the surveyors who do the work and all that happens is that a report is provided on the current market value of the property and the prospect of the house retaining its market value. There is no careful structural survey in the accepted sense.
I apologise if I am failing correctly to interpret my hon. Friend, but I think that he might have added to his list that the opinion of a building society director of many years' experience is often as good as any such survey by a professional 89 valuer for which is paid a fee of twenty guineas or whatever a building society may charge. I think that note might be taken that we are perhaps through Clause 14 tending to think that a survey by an independent person is really more than in fact it is. I hope that my hon. Friend will continue his pressure on this point, and I shall certainly be glad, as I think many other hon. Members will be, to support him when we reach Committee.
Generally, like every other hon. Member, I approve of the Bill, which will be of great benefit. I think that these organisations, with their magnificent history and the fine reputation they have built up, have a great future before them. My main plea today has been that they should now explain to the public how very much they are limited and emphasise that they are not profit-making institutions. They should protect themselves against ill-advised attacks. They should then go a little further and look to the next half century, reflecting that they may now be well advised to take a hand in promoting good house design as well as merely making available the cash with which to buy bricks and mortar.
§ 6.31 p.m.
§ Mr. John E. Talbot (Brierley Hill)
This Bill is designed to arrest the progress of the building society movement towards large-scale financing of the City type and to redirect its energies to its original purpose. So far as that is the underlying purpose of the Bill, I think it meets with the approval of both sides of the House.
In the form of the provisions in which it is couched, there are many matters which are onerous to the small type of society for which I speak today. I am the manager of the Kidderminster Permanent Benefit Building Society, and as such I am paid, so I declare an interest. I have been the manager of that society for twenty years. I succeeded my father, who was its manager for fifty years before me, so we have not merely a cash interest but a long sentimental and hereditary interest in the building society movement in the provinces.
I might add that the society was founded by my grandfather in 1851 and that five generations of us have served it since. Therefore, from our point of 90 view the interference which the Bill brings to our traditional methods of management of a society of this kind is very great. I am hoping that the Chancellor of the Exchequer will listen to the voices of others than myself who have spoken in this House today with a view to easing the burden that the Bill imposes on such societies.
My society is one of the few remaining unincorporated building societies. It was stated in another place that only eight of these are left. We have preserved, and we preserve today, not only the appearance but the manner of operation of a friendly society. The directors of my society, like the hon. Member for Salford, West (Mr. C. Royle), are unpaid. They do not get even the £10 that he receives. We have a system of valuing our mortgages similar to that which has been described in the House. They are valued by our directors, who are practical men, well acquainted with the property values of the limited district that we seek to serve. It may, perhaps, not be known to people whose experience is mainly in the Metropolis that the further one gets into the country the less talk one hears of these conflicting interests.
Very often a local solicitor may be acting for a vendor who is mortgaged to the society, for the purchaser who wants to borrow from the society and also for the society. All this may shock the purist, but none the less I can vouch that it works by the fact that in 109 years the society has had only three losses. I hope that the Bill receives a little sympathetic consideration from the point of view of societies like mine.
We have many members of our society who are grandsons and sons back to the fourth generation. They start usually by investing a small sum in the society, such as 10s. a month, and increasing it as their jobs get better. Then when they want to get married they draw on their savings, we lend them the money and they pay on the mortgage. When the mortgage is repaid they often start saving all over again. There is in that type of society a community of interest between investors and borrowers which is not to be found in many other societies. They are part of the locality in which they live, and unless the strongest reasons can be 91 adduced against it, I urge that the traditional way of management may be left undisturbed.
I should like to examine some of the provisions of the Bill, which are, as I have said, onerous to societies of this kind. The first point in relation to Clause 1 is that the type of investment which a local society of this type seeks to make is not necessarily that which the general body of the public considers a building society is mainly for. A local society does not compete to any great extent in the owner-occupier mortgage market where the borrower wants to borrow 90, 95 or 100 per cent. My society has a special rule. We lend two-thirds; in some cases we extend it to 75 per cent., but no more. We get enough business from people who are prepared to put down a stake which renders the mortgage safe by reason of the personal interest which a man has in the property.
I think we sometimes go too far in these days. We encourage people to buy property when they ought not to be property owners. They have no stake, or not a sufficient stake, in the premises, and we are doing a disservice if we press these people to become property owners. I think we should coax them to save enough money to start. To do everything for somebody invariably means that there is a lack of real interest in the matter, and those are the sort of cases where there is default. That may be covered by insurance guarantees of a costly type, but nevertheless it is in these cases, not so much in larger matters, that the building society movement needs to watch its step. In a society of our type, an advance under Clause 1 of a sum exceeding £5,000 has seldom to be made. The next stage is the advance of an amount of £100 to someone who is already a borrower of £5,000, and immediately we cut out that class of borrower, although almost invariably he is a 100 per cent. safe investor.
I will give an example. My society has a member who is 80 years of age. He is a well-to-do man and owns a lot of property in the town. He owes the society £9,000, which is probably secured four times over. That man started 50 years ago with two houses and £30 and, by his hard work, savings and living an abstemious life, he has built up a very fine estate of property. Are we to tell 92 that man that he is finished with us, that he may not come back for any more money until his aggregate mortgages fall below £5,000? We shall have to do so. He has a son of 50 years of age who is in exactly the same position. I feel that if we are to be prevented from helping that type of case we are not only doing social damage but injuring the society itself by refusing to allow it to undertake such risks.
§ Mr. Houghton
Is there anything in the Bill which would prevent the building society lending more than £5,000?
§ Mr. Talbot
That comes under the heading of special advances. I have with me an account of another society which has lent £55,000 during the last year. Of that, £20,000 was on four mortgages exceeding £5,000, that is to say, the average of each was over £5,000. In the directors' report, that society says:Mortgages offering satisfactory security were difficult to obtain and, rather than take risks, funds were retained in the bank at a low deposit rate.If we pass the Bill as it is, the difficulties of that society, which is not mine, will be still further accentuated. I think the figure of £5,000 is unreal. It can, of course, be evaded in the manner referred to by an hon. Member by splitting units.
I think it far better to give a higher figure and not one which the Registrar may alter from time to time. An amendment made to this Clause is another place has made the Bill worse, not better, because it has enabled the Registrar to lower the figure as well as to raise it. If we went out boldly and said that £10,000 is a reasonable figure we should not desert the purposes of the Bill, but at the same time we would allow societies of the type I have described to have proper investments.
I want to deal with the question of valuations. At this point I ask any civil servant to sit back in his seat and brace himself. Mortgages in my society are obtained without filling up a form of any sort. The way in which the matter is dealt with is that a manager interviews the applicant. He then goes to inspect the property, accompanied by a director if it is a loan of any complexity, and the business is then brought before the twelve directors who, as I have said, are quite unpaid.
93 Incidentally, there is competition to get on our board. It is regarded as a matter of social service and not as a matter of fee getting. The board considers that report and, contrary to what has been said, it is by no means embarrassed by the fact that the manager or a colleague has recommended it. If the members of the board do not agree with it, they turn it down. That has happened on more than one occasion. What is the alternative? If we insist that every single advance has to be certified by a valuer it may be that someone who wants £100 to paint his house must go to a valuer and pay a 10 guineas fee. There should be latitude on the question of valuation.
Valuation, after all, is nothing more than common sense. It is an art; something one learns over a period by intimate acquaintanceship. I flatter myself that I can value any property in my district of an owner-occupier type. I should not attempt to value a 400-acre farm. In cases like that the board would have the valuation made by someone who was not merely competent and prudent, but experienced in that type of valuation. I feel that we might be allowed a little discretion in handling valuations, in the same way as local authorities are allowed discretion and in the same way in which it was allowed under the 1939 Act. The 1939 Act said that there must be an assessment of the risk by a prudent person, but it did not bar a director or manager of a society from the category of prudent persons.
It is not a question of any great principle. It merely is that by methods of that sort considerable economy in costs can be effected. It is in fact considerably cheaper to operate in that way and, as our records show, without risk, because we understand what we are doing. I hope, therefore, that there will be some possibility—one might almost say in every case other than that of the special advance up to a limit £5,000—for mortgage directors and managers of societies to he entrusted to do what they have hitherto done successfully and honestly for upwards of 100 years.
I too feel diffident about Clause 27. It provides for a register of members to be available for anyone who is a member of a society to see. They might have £1 or £25 in for use for any purpose. In a 94 small country place where a man is entitled to have his business kept secret that is a very doubtful proceeding. It probably would have the effect of making some people who are sensitive about their affairs take their money out of the society. They would say, "I am not going to have Mrs. Jones coming here and seeing that I am a member of the society." It would not matter that the ledger records were kept out of sight, the fact that someone was a member of the society would be enough to set gossip going.
Later in the Bill special note has to be taken of advances to directors and managers. That is equally objectionable. If I want to borrow from my society there is not the slightest reason why I should not do so. Why should someone come and inspect my account and say. "He paid £7,000 for that property and they lent him £6,500 on it." This would not affect the moneylending monoliths, who are not societies in the proper sense. They, quite properly, require an entirely different approach through this Bill.
The difficulty is for anyone fairly to reconcile the very different types and qualities of need and of methods in a mammoth concern like the Halifax or the Abbey Road and a little concern like mine with £600,000 total assets. It cannot be done. It is quite a different type of proposition to deal with one and to deal with the other. That is why I shall make two suggestions of a practical type. I hold the view that one should not criticise and leave criticism in the air, but should suggest remedies for the evil of which one complains.
First, I ask that a number of these restrictions should not apply to the unincorporated society. There is a precedent for that in the Bill. In a later Clause those who drafted the Bill, with a sudden access of Christian charity which one sees so seldom and acclaims with much joy when it appears, say that an unincorporated society is not to be fined for its crimes. That is perhaps of only slight value because I am sure that any bench, finding it was unable to fine a society, would stick the balance on to the directors and managers. That is the way in which I think this could be dealt with.
My other suggestion relates to the fact that on about £1 million total assets a 95 society ceases to be little and begins to get branch offices with marble halls and chromium-plated window frames—or imitations of either—advertises that it has agents which it pays, and takes a public lead to appeal for money outside its own district from people to whom it is no more than a name and who themselves are no more than names or numbers in ledgers. That takes place roughly at about £1 million total assets.
I therefore ask as an alternative that that figure should be the point at which some of these restrictions in the full force of this Bill, necessary as it may be to prevent the scandal which we all know has taken place and to which I cannot refer today for obvious reasons, should be relaxed. Then justice would be done to the smaller societies while at the same time the evils this Bill seeks to prevent would be stopped.
I will finish with a little story. In 1939 I was in Luxembourg, which was then celebrating a centenary of some sort. Large placards in a German patois were on the walls, and they were translated for me. They read, "We want to remain as we are." I speak today for the Luxembourgs of the building society movement: "We want to remain as we are. We have not proved ourselves unworthy of our trust. Will you continue to trust us?"
§ 6.51 p.m.
§ Dr. Horace King (Southampton, Itchen)
I have no interest to declare in the topic of this debate except, perhaps, that I am owner-occupier, and could never have been one had it not been that in my younger days I managed to get a mortgage from a building society and—equally important, I think—managed to get a lot of useful advice from it when I was endeavouring for the first time to purchase a house. Moreover, if it is a question between mammoth and the little man, I always have a desire to be on the side of the little man.
I was very interested in what was said by the hon. Member for Brierley Hill (Mr. Talbot) about his own experience as one with a family tradition in a small building society dating back for over a century. If the mammoth is akin to the great Mammon of finance, anything we can do in this Measure to 96 curb unscruplous finance we should do, but we need not hurt the little man in doing so.
I have constituents who are members of the Hampshire Building Society. I believe that that society goes back as long as does the Kidderminster Society. It is long-established and has an excellent reputation, but it is very small compared with the giant societies. My constituents asked me to voice, if I got the opportunity, their disquiet about Clause 14.
I am sure that all reputable building societies welcome this Bill, and when I say "all reputable building societies" that means practically all the societies in the country. The movement is an important one. During the last sixty years its assets have risen from £52 million to £2,900 million, its annual advances have increased from £10 million to £511 million, and at present it is estimated that about 4¼ million English citizens are saving money in the movement either as investors or as mortgagees.
As has been pointed out, the movement is not a profit-making organisation. All surpluses go to reserve, and if the building societies are under criticism at the moment—as they are amongst my friends of the next generation to mine who are borrowing money to buy their houses—it is partly because of the high cost of house building, but more particularly because of the high rate of interest. If I make one criticism of the societies it is that when the rates of interest go up nationally the societies rush to raise their rates, but when the Chancellor, as occasionally he does, lowers the present heavy rates of interest, there is a lag on the part of the building societies to reduce theirs.
The common criticism of the building societies is, I think, an unfair one, because it is a criticism not really of the conception and work of the building society, but of the usurious rate of interest that the Government's present financial policy has led us to, a rate of interest not only harmful to young, ambitious, would-be property-owning democrats, but one that threatens to cripple local government, and this, plus the present racket in land values, may even, within the next generation, endanger the whole structure of the society in which we are living.
97 Reputable building societies—and that means nearly all of them—obviously support any measure that promotes and safeguards probity, integrity, safety, and the security both of the investor and of the person who is buying a house through a society. I hope, therefore, that the Government spokesman and the Chancellor will give special weight to the criticisms we make of Clause 14 against that background. Everyone in the House wants repute and integrity in these societies, and the societies themselves want everything that the Chancellor wants. If the societies make criticism of various aspects of the Bill it is not because they have any hostility to the Bill's main purpose.
I imagine that every building society welcomes most of Clause 14. They have no criticism of Clause 14 (1, b) which provides for there…being a written report prepared and signed by a competent and prudent person who is experienced in the matters relevant to the determination of the value of the estate…They cannot have any objection to the disqualifications in subsection (2, b). If someone's business is to introduce a prospective house-purchaser to a building society he may have a financial interest outside the purpose of the building society, and it is, therefore, right that he should be debarred from acting as a valuer. For that reason, the paragraph states that:…a person to whom a building society has made or undertaken to make a payment for introducing to the building society an applicant for an advance shall be disqualified…from acting as valuer for that society.
I am quite certain, too, that the societies cannot object to subsection (2, c), which says that any person who has a financial interest in an estate in relation to part of which the society has to decide whether it shall advance money shall not act as a valuer for the society. Obviously, such a person should be 'barred. Wherever anyone has some other financial interest outside that of the building society it is quite obvious that we should not count on him as a scientific, trustworthy adviser to the society as to the value of property.
What I do object to is subsection (2, a) which bars, in the same way, anyone from making a valuation for the society if he is a director of that society. This 98 is a hardship to small societies, and to them alone. When the Bill was first under consideration in another place, the Council of the Building Societies Association, by a majority vote, seemed not to worry very much about subsection (2, a), but at the annual conference of that association it was the pressure coming from little societies like those at Kidderminster and Hampshire that made the major bodies realise that there was some hardship involved in this restriction if it was applied to small societies.
Technically, it is a tidy proposal. A director has one job, a valuer has another. No major building society would employ its director as a valuer, The great mammoths of which the hon. Member for Brierley Hill spoke, obviously, under the theme of the division of labour, regard a director's function as one thing and a valuer's function as another, and are big enough to employ even many expert valuers, who do nothing but assess the value of property. In the small society, 'however, the director is often a qualified valuer, and even though he has all, the qualifications of a valuer, under this subsection he will be debarred from acting as a valuer for the society of which he is a director. Even if he is not a valuer, we have just had a graphic example from the hon. Gentleman's own experience of a director of a small building society, being a working director and not one who merely sits on the board, who is intimately concerned with every aspect of the work of that building society and who can bring to the question of valuing a piece of property in the area which he knows so well greater qualifications based on his experience than those of the professional valuer.
It is more economical for the small society, I should imagine, to share these duties. I should imagine, too, that many a director of a small building society earns his living partly as a valuer and partly as a director. It seems to me to be very wrong that in a Bill which contains so many excellent features we should almost be casting a slur on the small director, that we should be assuming for some unknown reason, that, whereas valuers should always be men of probity, there is a likelihood that the director of a building society may not be. Yet in this Bill we trust him to assess the valuer's 99 report after it is made. Not only do we trust him to do it, but we are enacting in Clause 14 (1, a) that he must do it. This subsection gives the director, against whom we are taking safeguards in the matter of valuing property, the much greater responsibility of having to weigh up the valuer's report when it is before him and making a financial decision on behalf of the society.
If there were any danger in allowing the director of a small building society to act as its valuer, I am certain that the building societies themselves would have supported this part of the Bill. The Chancellor has certainly not proved so far in this debate that there is any danger of corruption; and, indeed, the interest of the director in acting as a valuer is to protect the society for which he is acting, and the interests both of investors and of borrowers. My lifelong criticism of the building societies has not been that there is any danger of a corrupt person over-valuing a piece of property on which a mortgage is sought to be obtained. On the whole, what a valuer does do is to under-value the property so that having attracted a person to a society by saying, "We lend 80 per cent. of the value of the property", the society then underwrites the value of the property by about 20 per cent. and really lends 60 per cent. or 65 per cent. of the price which has to be paid. No director is likely to do anything in his valuing but over-ensure the safety of the building society—except perhaps in the case for which there is a special Clause in the Bill, Clause 1, the type of advance which is called a "special advance."
A "special advance," as the House has been told again and again today, is an advance either of a sum of over £5,000 or an advance of a sum to a corporation rather than to an individual—and it is in that field, with our knowledge of what has happened in recent times, that we must take every possible precaution—or an advance to someone who has already borrowed £5,000 from a society. Just as Clause 1 says that special advances should not amount to more than 10 per cent. of the total advances made by the building society, it may well be that we should call for a valuer who is external to the 100 board of directors when we are dealing with a "special advance."
Otherwise, I hope that the Chancellor and the Economic Secretary will listen very sympathetically indeed to the representations which are being made from both sides of the House on behalf of the smaller building societies. They have done a very honourable job. Some of the men who have served for a quarter of a century, and possibly for longer, are in jeopardy by the Bill, and I hope that before it leaves the House we shall remove this restriction from Clause 14.
§ 7.6 p.m.
§ Mr. Nigel Fisher (Surbiton)
I do not agree with the hon. Member for Southampton, Itchen (Dr. King) about Clause 14. It is interesting that this is practically the only Clause which has been a serious bone of contention between us today. I cannot remember for a long time the Second Reading of a Bill which has gone so well, without the slightest element of party politics in it. Although we have not had as great an attendance as we have had on other occasions, in many respects we have seen the House of Commons at its best this afternoon because no politics have been introduced into the debate, and we are all genuinely seeking, from our collective and individual experience, to put on the Statute Book the best possible Act that we can.
As the right hon. Member for Colne Valley (Mr. Glenvil Hall) said, the Bill is certainly needed because it is eighty-six years since the first and principal Act was passed. But that Act has stood up very well to the test of time; we must acknowledge that. It is only fairly recently that loopholes have been revealed in it and abuses have come to light. They have obviously got to be dealt with, and I think they are effectively dealt with in the Bill.
We all remember that unfortunate case during the last election campaign which spotlighted this matter, and I think it made ordinary people conscious, perhaps for the first time, that all was not well with the great building society movement. But it is only fair to say that the Building Societies Association had been aware of the problem for a good many years. It started work on this matter, I believe, as far back as 1954, and we could well 101 have had a Bill in the House by 1958. I believe the only thing that prevented it was the difficulty of the Government programme, and the fact that other Measures were considered to be more urgent than this one. I think that was a pity because we could have avoided some of the incidents that have occurred in the last year or so.
All the same, my hon. Friend the Economic Secretary announced the prospect of legislation as far back as 1959, so that I believe my right hon. Friend the Chancellor was justified in saying that this is not a rushed or ill-considered Measure. It is designed primarily to protect the investing public and to safeguard the good name of the building society movement. The overwhelming majority of societies are certainly the safest and most reputable form of investment imaginable. It was, therefore, rather a serious matter for the building society movement as a whole when the activities of a tiny minority of societies—literally a handful—began to receive unfavourable publicity in the Press. They were, as we know, being used by property speculators for their own ends and in a way which had nothing to do with the practice or the objects of this great movement.
The speculators are dealt with very effectively under the Bill without it being at all prejudicial to the operations of the ordinary society, be it large or small. As such, the Bill is warmly welcomed by the Building Societies Association and by every reputable society in the country. As a leader in The Times commented,…it prevents excessive speculation without introducing excessive restriction.I think that is a fair comment. The Bill will ensure, and this is the main provision, that 90 per cent. of the business of every building society is in future confined to the traditional owner-occupier advances, which were the origin and have always been the basis of the very existence of building societies in this country.
The main merit of the Bill to my mind is that it will restore the investor's sense of security, so that no one in future need be in any doubt at all that any society is not a safe deposit for the funds of the investing public. Therefore, by and large, and as a director of a building society, an interest I should perhaps have 102 mentioned before, I am delighted with the Bill; but no Bill is ever perfect, least of all at its Second Reading stage. Like other hon. Members, I should like to see some changes. Like my hon. Friend the Member for Brierley Hill (Mr. Talbot), who made such an interesting speech a short while ago, I should like to see the sum specified in Clause 1 (1, b) raised to £7,500 or even £10,000, instead of £5,000. I think that £5,000 is too low a figure in practice. It was no doubt perfectly suitable in 1894, when it first appeared on the Statute Book, but in those days £5,000 was a very large sum of money. Unfortunately today it really is not a very large sum of money any more.
§ Mr. Fisher
I do not think it is. I think that point was very well dealt with by the hon. Member for Birmingham, Northfield (Mr. Chapman)—and I think the hon. Member for Sowerby (Mr. Houghton) was present when he spoke—when he described the sort of advances that are common in the south-east of England, where my society operates, and where £5,000 is not a very big advance in these days. The value of money has fallen very considerably, whatever the cause, and the very fact that £5,000 was considered a suitable sum of money sixty years ago makes it seem to me quite unrealistic in present conditions. I recognise that the Chief Registrar may vary this figure, subject to the consent of the Treasury, and I suppose that is something, but I still feel myself that it is too small a sum at which to start.
Regarding the powers of the Chief Registrar, which have been referred to a good deal, the City Editor of the Daily Telegraph commented in March, when the Bill was published, that the Billequips the Chief Registrar with much-needed teeth".It certainly does, and my main concern is whether the teeth are not a little too sharp. The Chief Registrar can make a lot of new and drastic regulations which he has never been able to make before. I will not go through them all again in detail, but they are very wide and sweeping powers. I do not say that they are not necessary. I think that it is probably advisable to include them, but there should be some right of appeal. 103 I do not know whether it should be an appeal to the courts or to some other independent tribunal, but I think that some right of appeal against the decision of the Chief Registrar should be written into the Bill during the Committee stage. I think that these very wide new powers in the hands of one man should be subject to some sort of right of appeal from his decision.
I also agree with my hon. Friend the Member for Wimbledon (Sir C. Black) and other hon. Members who have spoken about Clause 27. I think that Clause requires some amendment. It provides that any member can inspect the register, and I agree with my hon. Friend the Member for Brierley Hill that that provision might cause quite serious misgivings in local societies and in small communities. People do not like to feel that their neighbours can find out whether they are members of a society or not, and whether they are lending members or borrowing members. The private nature of a building society transaction is not only traditional, it is also rather important, particularly in the "small town" context. Members like to feel that their position is just as confidential with a building society as it would be with a bank or with a Post Office savings account.
So far as I can see, this Clause is so drawn that a member might very well consult the register and make a copy of it for one purpose, and then use the information which he had acquired for some quite different purpose totally unrelated to the subject-matter of the original application. I do not think anybody could stop it, and I think it might be better if the right of inspection were limited to certain circumstances. If the society were obviously in financial difficulties, perhaps it would be justified, or if a member could not withdraw his money, or there was some possibility of the society being taken over or amalgamated with another society; but, except for this sort of condition, I do not think there should be any general right to inspect the register. I believe that the Building Societies Association would support such an amendment, which has been talked about a good deal this afternoon, and, I hope that the Government will give it consideration.
104 I believe that the Association would also like to see an Amendment to Clause 14, and certainly many hon. Members who have spoken, including the hon. Member for Itchen, favour that course. I am afraid that I do not agree about that. The Clause was discussed at very great length in another place, as it has been here today. We have all talked about it a good deal, and I believe that the attitude of the Government is the right one. It is perfectly true that some of the smaller societies find it convenient to employ members of their own boards to make the valuations and that is always profitable, no doubt, to the director concerned; but I think that an independent valuation is preferable. The director, of course, may be and probably is perfectly competent to make the valuation, or, alternatively, he may have been competent to do so many years ago. He may have lost touch with market trends. Some directors of building societies are very old men.
§ Mr. Fisher
I will come to that point in a moment. It may be that his colleagues on the board are rather reluctant to tell him that he is too old or too out of touch to continue the job. I think there is a certain embarrassment in doing that. In my own society, the directors do not make any valuations at all, and I should not like to see them doing so. I do not say that in any criticism of them, but I do not like the idea, although when I was myself a partner in a firm of surveyors many years ago, my firm did make valuations for the society which I directed, but I never thought that it was a very good arrangement. After all, if the report is independent, one can say what one likes about it, but it is a little embarrassing to criticise the report and valuation of a fellow director, because one is, in effect, criticising a colleague, which one is reluctant to do, at least on this side of the House. Hon. Members opposite seem to have fewer inhibitions on that point.
A board should be quite free to appoint the most suitable person to make the valuation without the feeling that one of their own colleagues is rather anxious to get the job. After all, a director might be hard up, and his colleagues on the board might be rather 105 anxious not to deprive him of the fees. It would 'be much easier to give him the work, but it might not be in the best interests of the society to do so. For these reasons, I think that the Government's view should prevail.
I wish to refer to one other matter which has already been raised by my hon. Friend the Member for Wimbledon. In the debate in another place, Lord Milner moved a new Clause, which was not accepted by the Government, to enable United Kingdom building societies to operate overseas in the Commonwealth. I hope that one of us will have the opportunity to put down a similar new Clause during the Committee stage of the Bill when we reach it, because there is a considerable demand for this in many parts of the Commonwealth. In some of the older Dominions like Australia and New Zealand, where housing is still the great bottleneck, the operations of building societies would be of immense value, especially to British migrants going from the United Kingdom who do not have a very high place on the local housing lists. As we know, it is very difficult to rent a house in New Zealand or Australia; houses there are mostly for sale and at rather high prices.
The same applies in a great many of the Colonial Territories, especially in the West Indies, which I know very well. It is well known that housing conditions in the Caribbean are still very difficult, and the local Governments have all that they can do to house the poorest people from the worst slum areas. They really cannot devote any money or resources at all to meet the needs of what one may call the middle group of people who cannot afford to buy their own houses but who could do so with the help of a building society. The establishment of building societies in places such as those would really provide the answer to the problem facing a great many people. There is a real demand in the Commonwealth for such facilities, and some of the larger societies in this country would be delighted to provide them if they were given permission to do so.
I have read the arguments advanced in another place by the noble Lord, Lord Hailsham, and I must say, with respect to him, that I have never heard weaker arguments advanced anywhere against a 106 serious proposal of this kind. The noble Lord questioned whether it would be a proper use of building society money. Why should it not be? Money is advanced on the security of house property. Why should it not be advanced in the Commonwealth on the same basis as it is in this country? Why should it not be advanced to British citizens living overseas just as it is to British citizens living in this country?
He said that he thought that overseas operations of this kind might not be properly policed—"policed" was the word—to ensure reasonable security for the investor. I really cannot see why not. We are not living in the days of the sailing ship. Great business houses have subsidiary companies overseas and seem to run them perfectly well. Banks and insurance companies operate overseas in the Commonwealth with great success, and I really cannot see why building societies should not do the same. Indeed, although it is not particularly qualified professionally to operate building societies, the Colonial Development Corporation has already started one in Malaya with very marked success. It has been a very successful operation financially from the Corporation's point of view and it has met a local demand.
Another point Lord Hailsham made was that there was no shortage of business here. That may be perfectly true. It is so today, but circumstances may change. The suggested provision is only permissive; there is nothing obligatory in it. The fact is that some of the larger societies would be able to do it and would much welcome the opportunity to do it, with benefit to themselves and to the Commonwealth countries concerned.
The fourth point made by the noble Lord, that what is suggested is not wanted in 'the Commonwealth, is simply not true. I have an enormous amount of evidence to show that it would be very much welcomed. My right hon. Friend the Prime Minister made a speech in Australia in February, 1958, when he held out the prospect. I suppose that, when he came back, the Treasury told him that he could not do anything, and nothing more has been heard about it. But it has been remembered in Australia. I 'have had an enormous number of letters from people in Australia 107 saying that they feel let down; the Prime Minister held out the hope and said that it would be seriously considered, but they have heard no word about it since.
There is certainly a demand there, and I know from my own knowledge and observation what the demand is in the West Indies, especially in Jamaica and other Colonies in the Caribbean. There has even been an official request sent from the Government of Jamaica to the Colonial Office asking for this very thing. There is definite proof that the demand exists. I hope that the Government will bear these proposals in mind and will be prepared to consider them during the Committee stage of the Bill.
Subject to those suggestions, I congratulate my right hon. Friend on the Bill. It brings building society law up to date. It will, as far as I can see, hurt no one except those who have abused the law in the past. It will bring renewed confidence to the investing public and it will further enhance the good name of the building society movement.
§ 7.25 p.m.
§ Mr. Douglas Houghton (Sowerby)
When the hon. Member for Surbiton (Mr. Fisher) began his speech, I thought that I should agree with almost everything he said, but I am in violent disagreement with his concluding observations about building society investment in the Colonies and Commonwealth. I listened with care to the remarks of the hon. Member for Wimbledon (Sir C. Black) on the same theme.
I suggest that we should remember what the building societies are and what they are for. They are not overseas development corporations. They are not bankers. They are not insurance companies. They are not financiers of business enterprise or capital development outside this country. They function by tradition and by law in a strictly limited and clearly defined field. In my view, we ought to stick to that. We have quite enough problems in respect of building societies operating as they do now in this country, and I think it would add greatly to our difficulties if we were to contemplate the export of building society investment to countries overseas, giving rise, perhaps, to serious problems of security, of land tenure and legal difficulties 108 in the overseas countries concerned. Also, such a move might begin to undermine the confidence of the building society investor in this country.
§ Mr. Fisher
Naturally, I respect the hon. Gentleman's point of view, but, on the subject of different conditions and possible legal difficulties overseas, I should tell him that it has been put to me that there is such a demand in many Commonwealth territories that people there would be very ready to alter their own laws to make them conform precisely with the laws under which building societies operate here. They are so keen to have the facility that they are prepared to do that.
§ Mr. Houghton
I am grateful to the hon. Member for that interjection, and I recall that the hon. Member for Wimbledon said the same earlier, but, if I may say so, I am not impressed. Moreover, I wonder why these countries are so anxious to get money from this country for that purpose and, presumably, for that purpose alone. However, I do not want to follow the hon. Gentleman in an excursion into colonial and Commonwealth investment by building societies, because I really believe that it is taking us too far off the track which the House should follow today. If the opportunity occurs, we may discuss the matter more closely during subsequent stages of the Bill.
It is very greatly to the credit of the building society movement that we so rarely discuss its affairs in the House. This is a very rare debate indeed. I cannot recall that, during the eleven years I have been in the House, we have ever spent so long in examining any of the problems of the building society movement, its impact on the housing situation, its investment and borrowing policies, interest rates, and so forth. When interest rates rise under the stimulus of Government financial policy, perhaps, there is a considerable outcry from those who have borrowed at a rate of interest which they thought they could afford when they find that the rate has gone up. In that connection, however, I think that borrowers do not sufficiently appreciate that they cannot be borrowers unless they are investors.
As the hon. Member for Cheadle (Mr. Shepherd) said, the building 109 societies are borrowing short and lending long. Normally, a building society cannot recall a mortgage once granted, but an investor in the society can withdraw his money on comparatively short notice. So that during the lifetime of a particular mortgage the money lent and continuing to be lent by the building society can turn over time and time again on short-term lendings on the part of investors. They are demanding a return at the current rate on their investment irrespective of the rate of interest at which the money was lent. In my short and not very close contact with a small building society in the public service, I found that we were dealing with two sets of people, investors and borrowers, and they never seemed to meet. They each had two different claims to make on the society, and neither seemed to understand the point of view of the other.
I am never very happy about the sort of provisions contained in Clause 22, which enables building societies to admit to membership people who have no investment in them. My first contact with a building society—and how nostalgic was the speech of the hon. Member for Brierley Hill (Mr. Talbot) who spoke about the Kidderminster Permanent Benefit Building Society—was when my parents first had to put money into the building society and reach a certain target before they could borrow money and buy their own house. The requirement of the worthy institution from Kidderminster that a borrower should have a substantial stake in the ownership of the house is a very good one, but we find in the administration of the building society movement generally that pressure all the time is to reduce the stake which the borrower has in the house which he is to buy. Today, a 95 or 100 per cent. mortgage is wanted to enable a borrower to buy at all.
It is remarkable, however, how rarely a borrower, when required to find a deposit on the house which he wanted to buy, has to withdraw his money from a building society to do it. This underlines my point that most borrowers from building societies are not investors and do not understand the point of view of investors in building societies. The rates of interest to the borrower are certainly high. They are probably not unduly liberal to the investor, who has 110 other attractions for his investment and naturally wants a return on his money in the building society which he regards as being in keeping with the return on investments in general. Access to his money is a great consideration to an investor in a building society.
What troubles me is the part and place of the building society in the housing problem of today. Whatever may be said about house ownership, it is not a good thing for everyone. Some people are forced to buy against their will and against their own interests. We shall not solve the housing problem by owner-occupation of houses. There must be houses to let. Many people in mobile occupations who are liable to be transferred in the course of their job or business from one part of the country to another sometimes find home ownership a very great disadvantage. The recent development of the sale of flats means that there is scarcely any property to let. The blocks of flats which are being built are for sale. Presumably those who wish to buy them seek building society mortgages to do so, so that building society money is being lent to buy flats which hitherto, whatever their rent, have at least been to let.
One infrequently finds flats which are to let, especially new constructions. With the reduction in municipal housing, no doubt many people who wish to have their own home are being forced to buy against their will. The greater the ease and the lower the cost of lending money to buy houses, the greater is the tendency for land prices and building costs to go up. There is a famine in land, and there is, no doubt, heavy pressure on our diminishing resources of land available for building.
We must keep a balance in the very big human problem which is confronting the nation, but do not let us run away with the idea that the building societies can solve our housing problem. They cannot. There is a great deal else which needs to be done. I think that home ownership should be put in its proper place and not overstressed and certainly not forced on people who do not desire it and to whom it would be of no great advantage.
Another thing that needs reconsideration is the tax position of building 111 societies. In the early days, the special arrangement with the Inland Revenue authorities was based on the fact that building society investors were, on the whole, ordinary working people who were not taxpayers. The tax paid by the societies was low and the benefit to the investor of the low tax paid by them was undoubtedly reflected in the rate of interest which he received. On average, tax paid by building societies is about 5s. 4d. in the £, which obviously reflects the higher tax bracket of many people who are investing in building societies. Since a few years ago, when this House prevented any investor in a building society who is exempt from tax from claiming back any of the tax which the society paid on his behalf, there are many investors in building societies who are not taxpayers and are getting a poor return on their investment. That is because the society is having to pay the tax on behalf of investors who are in the higher tax bracket.
I wonder whether the time has not come to scrap that arrangement. I am not suggesting that tax should be deducted from the building society interest at source, as with dividends and many other interest payments. It should be paid, like War Loan and many other Government stocks, without deduction of tax, leaving the taxpayer to declare the interest received. Societies would then be relieved of the incubus of paying the tax on behalf of their investors, and they could pay a higher rate of interest. This would benefit the small investor with a low tax liability instead of making him subsidise the tax of investors in building societies who are better off. I do not think that this point is fully appreciated among building society investors.
Recently, a very wise man in my constituency, as soon as he retired and became exempt from tax under the age exemption Clause in the Income Tax Act, immediately withdrew his money from a building society and invested it in something else at a much higher rate of interest which was subject to tax and which he claimed back. Obviously this was of more benefit to him than if he kept his money in the building society. I see no reason why the tax position here should not be on the same basis as all other interest payments. It would then be either subject to tax at source, which 112 might be too irksome, or without deduction of tax and would be declared on the taxpayer's tax return.
When I heard the complaints about the Clause 27 provision for the register of members, I wondered whether the Inland Revenue would be empowered to make every local inspector of taxes a member of the local society in order that he might inspect the list of members and pick out the Surtax payers. Of course, he is not really interested in the Income Tax payers because, as I have explained, the building society already discharges that obligation itself. I think that this is a needless complication, to have Income Tax paid by the society but not Surtax.
Another question which has been the subject of differences of opinion is that of valuation. Here I am behind Clause 14. I think it is right, but I want to see this go much further. We all recall—those of us who are old enough—the famous case before the war in which a building society was involved and in which a borrower claimed that she had been sold a pup: the house was defective, and there was a long legal struggle on where liability lay. I think any house which is the subject of a mortgage should be properly surveyed, and the borrower ought to know exactly what he is buying.
As I said, my own small connections with a building society revealed the constant complaints of the borrower that something had gone wrong in the house after he had gone into it, probably a year or two afterwards—dry rot, other defects which came to light only in actual occupation. Whether these were in the report of the valuation, I do not know. They probably were, some of them, but were not disclosed to the intending borrower. Sometimes he would be warned that the house he was proposing to buy was not really a good investment, but only in general terms.
Why this secrecy, especially as, as my hon. and learned Friend the Member for Kettering (Mr. Mitchison) said, the prospective borrower is made to pay for the valuation in most cases? Would it not be better to require a proper survey? If the borrower is charged for that, at least he gets value for money. I really think that in buying a house at several 113 thousands of pounds on which the borrower is entering into long-term and possibly heavy financial commitments it is preferable that the borrower and intending purchaser should have a proper survey of the house. It is not enough, in my submission, for the building society to have a valuation which merely covers its narrow interest in the security of the house for the mortgage. I think that that is a reform which ought to be introduced into the relations between building societies and their borrowers. When we come to Clause 14 we shall be able to look at that in its wider context.
I certainly do not think it is satisfactory, generally speaking, for directors to value houses on which their societies are going to lend money. They may know—I do not dispute that they know—the value of houses locally and that they can probably give one a valuation to £100 or so, but they are not qualified in most cases to decide on the condition of the house, on its fabric, on the possibility of deterioration. And we know that there is a great deal of jerry-building still in Britain; a lot of it from years gone by; there is not so much, I believe, today. However, there is no doubt that a great many people who have borrowed money through building societies have come very badly unstuck when they have budgeted to the limit of what they can afford in mortgage repayments and have then found themselves confronted with a major job of repair and renovation.
There is a paradox in connection with the increase in the rate of interest which I was referring to earlier. When the rate of interest goes up it is customary for a building society not to increase the amount of repayments but to extend the life of the mortgage, but what that does is to increase that part of the total monthly repayment which represents interest, and that in turn receives a higher tax relief on mortgage interest paid, so that the strange paradox is that in many cases when building societies put up their rates of interest the net outgoings of the borrower are less than they were before, but the full impact of the rise in the interest rates of course strikes the new borrower, the person who is taking on the mortgage at the fixed rate.
§ Mr. Charles Loughlin (Gloucestershire, West)
I wonder if my hon. Friend would clear up that point for me? He 114 says that when the interest rates are raised there is an extension of the loan, and by virtue of the tax relief it may be that the outgoings are lower as a result of the increase in interest rates. That, as far as it goes, is correct, but surely the full impact is in the fact that the borrower is in practice paying more for the amount he borrowed for a longer period of time so that it is costing the borrower much more than if interest rates did not go up at all?
§ Mr. Houghton
If the capital repayments are reduced in order to extend the period of the mortgage then the amount of interest in the total repayment is increased in order to accommodate a higher rate of interest that has to be paid. I cannot do the arithmetic in my head, but I think it will be found that that is the result of a rise in the interest rates and an extension of the period of the mortgage.
I want, in conclusion, to refer to this proposal in Clause 27 which deals with the register of members. I think that on the whole it is a good thing that investors in building societies should have access to a list of the other members. Reference was made a few moments ago to the secrecy of investments of this kind, like the Post Office or the banks. Well, the Post Office is being run by the State, and the question of security does not arise in the same way as it might arise in connection with a building society; and the banks are established institutions of great strength and reputation. The larger building societies probably enjoy a similar repute and similarly the confidence of the public, but the smaller societies may not, however worthy they may be, and there may be something about the administration of a society which prompts some member or members to communicate with other members.
This would give them the right to do so. So I think it is desirable that they should have access to a list of members. It is not, as the hon. Member for Wimbledon (Sir C. Black) mistakenly thought to begin with today, disclosure of the amounts of the investments. It is a list of members, and I think that it is in that sense justified. However, we may come to consider later whether it is susceptible of abuse and what, beyond the reason which I have mentioned, the justification may be for the right of other members to have access to the list of members.
115 The Bill is welcome. It is overdue. I hope that we shall not weaken it without very strong reasons indeed. The hon. Member for Brierley Hill, who spoke about the Kidderminster Permanent Benefit Building Society, alluded to the difficulty of legislating for the larger and the smaller societies within the scope of one Bill. There is a difficulty and we shall have to get over it as best we can.
The alternative would be to have one law for the smaller building society—the true building society, if I may put it that way—and another for the large finance corporation, if that is what the larger building societies may become. But it would be undesirable to split the movement in that way and we should make this attempt to legislate for both large and small within one Bill. If this leads to modifications and exemptions which are minor and not open to abuse we should consider them, but the Bill should remain strong. The House would not do service to the movement or to the public generally if it were to weaken the Bill during the later stages of its passage.
§ 7.52 p.m.
§ Mr. Bernard Braine (Essex, South-East)
This has been an extraordinarily interesting and informative debate. I agree with the conclusion which the hon. Member for Sowerby (Mr. Houghton) reached, that if we have not discussed building societies for a good many years it is, in a way, a tribute to the soundness and credit of the movement. Many attractive ideas have emerged in the debate, which I hope will find expression in Committee. In particular, I hope that my right hon. Friend the Chancellor of the Exchequer will pay attention to the interesting ideas on taxation which were advanced by the hon. Member for Sowerby. Anything that the hon. Member says on that subject is worth listening to and is worthy of examination.
I am not a director of a building society. I am neither an investor in a building society nor a borrower from a building society. I have purchased my home by other means. But I have always regarded the building society movement in the same way as does the 116 hon. Member for Birmingham, Northfield (Mr. Chapman)—as a social service, as a movement which in a quite remarkable and typically British fashion combines an effective means of encouraging small savings with the promotion of home ownership.
Those who have spoken so far and who regard the great building society movement as a social service have undoubtedly been alarmed by some of the unhealthy and dangerous practices which have been creeping into the movement in the last few years. The need for legislation such as that embodied in this Bill has been apparent for some time. If anything, the Bill is overdue. A few black sheep have been lending on inadequate security or have been lending too much to too few borrowers. Some have been charging exorbitant rates of interest. Some have failed to maintain adequate reserves. It is utterly wrong that the few should be permitted to damage the standing and reputation of the many.
Building societies have existed primarily to promote the building and ownership of homes and because that is socially desirable the movement has rightly enjoyed the high regard and confidence of the public. I therefore welcome a Bill which seeks to tighten the regulations, to get rid of these dangerous practices to which I have alluded and to correct anomalies in the existing law.
We should be always on guard, however, against becoming unduly restrictive when we are seeking to check abuses and to close loopholes in the existing law. I have three criticisms of the Bill some of which have been touched upon by other speakers. The first is that in present circumstances a ceiling figure of £5,000 as the limit of loan to a single borrower is too low. The second criticism is that the Bill does not make adequate provision for the financing of rented houses. Thirdly, the Bill makes no provision for building societies to conduct business under appropriate safeguards in Commonwealth countries.
It is possible to argue that there should be no arbitrary limit on the amount that can be loaned by a building society to any one borrower. After all, the basic security of a building society mortgage is the property itself and it should be feasible and proper to set a ceiling on the amount that may be loaned by laying 117 down a percentage of the market valuation. That provision exists now, and I doubt whether there are many instances of building societies lending more than 100 per cent. of the valuation. But if there is to be a ceiling for normal advances it should be nearer £10,000 than £5,000.
Now, my right hon. Friend the Chancellor, in introducing the Bill, said that he thought that £5,000 was about the right figure. I beg him to think about that again. It seems to me to be an utterly unrealistic figure. Indeed, it dates back to the Building Societies Act, 1894, which if I remember correctly laid down that mortgages of over £5,000 must be published in a special schedule in a society's accounts.
As my hon. Friend the Member for Surbiton (Mr. Fisher) pointed out, £5,000 was a lot of money in 1894. The value of money has deteriorated a great deal since then. Numerous speakers on both sides of the House have pointed out how building costs have risen since the war, and today it is not at all unusual to find houses costing from £6,000 to £8,000 being built in fair numbers in the outer suburbs. I would not have thought it was undesirable to promote, alongside mass-produced smaller houses or bungalows, the building of larger architect-designed houses. If present trends continue, the maximum of £5,000 could put the intending borrower in the position a not being able to borrow more than 50 per cent. to 60 per cent. of the purchase price of his home.
I question not only whether this is fair but whether it is socially desirable. I am not at all sure that a house costing £6,000 or £7,000 today is a luxury, for the reasons which the hon. Member for Northfield pointed out in his interesting speech. If, therefore, a man wishes to buy a more expensive house and he wants to borrow 80 per cent. of the valuation and if the security which he offers satisfies the stringent requirements of a building society's mortgage department, I see no reason why such a loan should not be made. Indeed, the security that he offers may be better from the building society's point of view than that of a man buying a much cheaper house and requiring a 90 per cent. mortgage. Therefore, I join with all those who have asked that this point should be looked at in Committee.
118 If this argument be accepted, surely it is only a short step to acceptance of the further argument that loans should be made available to the owners of rented homes. The Bill makes very limited provision in Clause 2 (1) for new properties to let. It makes no provision at all for the acquisition of existing properties. Why not? As the hon. Member for Sowerby pointed out, the need for rented homes has not diminished. There is, and always will be, a section of the population which, not necessarily from choice, has to be mobile and has no desire to shoulder the burden of a building society mortgage. Moreover, it is also a fact that whether a house is tenanted or owner-occupied, the security for a mortgage is still there, in bricks and mortar.
I ask the House to consider the illogicality of the present position. Let us take an owner-occupier who represents to a building society everything that it desires. He is employed in a secure position and has an assured income. Let us imagine that the man has purchased his own house at a reasonable figure, that it is in a desirable district and that his salary covers the mortgage repayments many times. Suppose that this man, who is regarded as an ideal borrower from the building society's point of view, wishes to purchase an identical house next door for letting, that its value is the same and he wishes to borrow on exactly the same terms as before and is prepared to submit himself to the same stringent requirements.
I think I am right in saying that most building societies, if not all, would refuse the business. They would refuse even though the advance would be against the sitting tenant value of the house, which might, of course, be only half the value with vacant possession. That difference would give the building society, if it were prepared to make a loan, a very considerable extra margin of security. Surely all that is required in such cases in order to make advances to owners of rented property as secure as those to owner-occupiers is to insist on separate mortgages for each property entered into directly with the building society with exactly the same safeguards as obtain in the case of a normal mortgage.
119 I ask my hon. Friend to consider this point. No one else has raised it this afternoon. In their earliest days building societies encouraged the practice of thrift and encouraged the ordinary working man to invest not only in his own home but in homes for others. I cannot understand why in these days when there is such dire need for rented accommodation business of this kind should be frowned upon. If the Government are anxious to tackle the problem of providing rented houses, a problem which still exists on a major scale, I should have thought that they might look at this aspect and perhaps deal with it in the Bill or by way of regulations.
I come now to my third criticism. Almost every kind of financial institution in the country can do business in the Commonwealth, but a building society cannot. The hon. Member for Sowerby made about the 'best case against so doing. He said that, after all, the building societies are traditionally operated, have always been subject to restriction and have operated in the narrow field of providing houses in this country. In an intervention when one of my hon. Friends was speaking, he implied that there is an insufficiency of funds available to the building society movement to furnish at the moment all those who want them with loans—I am not sure that he is correct, 'but that is what he said—and, therefore, the making of advances to borrowers overseas might limit the opportunity of applicants in this country to obtain mortgages. I suppose there is a third argument, which I have not heard anybody advance today—namely, that if we encourage business of this kind to develop on any scale it might have adverse repercussions on the balance of payments.
Frankly, I think that not one of these arguments stands up to any examination, but there is not time to deal with them now. Perhaps we may have the opportunity during the Committee stage. Suffice it for me to say at this stage that no one who has advanced the proposal that a building society should be enabled to operate overseas would think it could do so or that it would be attractive for it to do so, unless the safeguards in that country were as stringent as, if not more so than, those in the United Kingdom.
120 When my hon. Friend the Member for Wimbledon (Sir C. Black) talked about Colonial Territories generally, I had some misgivings. There are certain countries in the Commonwealth which would welcome an extension of British building society activity. They are for the most part countries like Australia, New Zealand, and probably Southern Rhodesia and Canada as well, countries to which people of British stock have gone and are going, countries where the law in general is much the same as it is in the United Kingdom, countries where regard for property and for probity in financial affairs is as great as it is here.
§ Mr. Braine
It might well mean discrimination in the sense that a building society at the moment exercises discrimination of a very stringent kind in respect of applicants for mortgages.
§ Mr. Braine
No, the hon. Gentleman is on a bad point. The main reason why I would ask for a concession in this respect would take us a little wide of the debate and I should quickly be called to order if I began to argue the case for more British emigration to the Commonwealth. But it is a well-known fact that the main stumbling block to the movement of British families from the United Kingdom to Australia, New Zealand, Southern Rhodesia or Canada is the lack of accommodation there. It is not the lack of passage money nor the lack of assisted schemes. It is the fact that a family used to decent accommodation here cannot be sure of getting decent accommodation at the other end. This has deterred thousands of people whose dearest wish otherwise was to emigrate and to make new lives for themselves in a British country overseas. A country like Ghana does not come into the picture simply because British families are not wanted there and do not emigrate to Ghana.
Therefore, in practice, if this concession were granted on the very limited scale suggested by my hon. Friend the Member for Wimbledon, with only a 121 small percentage of building society funds allowed to be used for the purpose, it would apply to a very few countries and I think that those countries would be prepared to legislate the safeguards which I have mentioned. The countries concerned would probably be only Australia, New Zealand and Canada.
§ Sir Wavell Wakefield (St. Marylebone)
There are several building societies in the Commonwealth and there is nothing to prevent anybody living in this country from investing in those building societies, be they in South Africa, Australia, New Zealand, or anywhere else in the Commonwealth.
§ Mr. Braine
There are building societies in certain Commonwealth countries, but I think that I am right in saying that there is a dearth of the kind of societies which my hon. Friend the Member for Wimbledon, my hon. Friend the Member for Surbiton and I have in mind. What is more, large numbers of inquiries are coming from Commonwealth countries to building societies in this country. I did not want to say, but I will say now, that as the demand for such facilities increases and we fail to meet it, so American undertakings will move in, and are in fact already doing so.
That brings me to the balance of payments argument. It has always been part of our purpose to provide capital for the Commonwealth. The capital required for home building overseas would secure a steady return. It would be based on real security and it would be of immense value to our sister countries in the Commonwealth. I ask for far more serious attention to be paid to this subject than the authorities yet appear to have given it.
Subject to those three criticisms, which do not strike at the heart of the Bill, I warmly welcome this Measure. It will offer protection to investors of a kind which is enjoyed by the investors of no other institution. I hope that the Bill will have a safe and speedy passage through Committee, and that due attention will be paid at that stage to the many constructive views which have come from both sides of the House during the debate.
§ 8.13 p.m.
§ Mr. Marcus Lipton (Brixton)
The House has very rare opportunities to discuss the problems of building societies, and this is therefore an opportunity of which I should like to take advantage. The case for building societies has been more than adequately expressed by most of the speakers who have taken part in the debate, but, with one or two exceptions, the case for the borrowers has not been so extensively put. It is from the point of view of the borrower that I regard the virtues or demerits of the Bill.
The house borrower is in an extremely difficult position. On the one hand, the Government talk about a property-owning democracy—and tomorrow we shall see how many hon. Members opposite will insist on the abolition of Schedule A—while, on the other hand, rates of interest go up and the borrower finds himself in serious difficulties.
What we have to do is to analyse the rôle of the building societies in this year of grace and not as it was 50 or 100 years ago. Conditions are now entirely different, for reasons to which I can only briefly refer. Rising interest rates—a matter within the control and discretion of the Government—and the cutting down of most of the housing subsidies, thus reducing the number of council houses built for letting, have compelled more and more people to go to a building society for a loan who would not otherwise have done so.
That merely establishes the point that the system of private landlordism is incapable of providing sufficient accommodation for letting purposes. That is the crux of the problem which faces us and which has faced every Government since the war. My hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) spoke of the need for building societies to be more closely concerned with better design. In the last week, Sir Basil Spence, knighted in the recent Honours List, referred to that subject and confirmed the grievance expressed by my hon. Friend. I shall not quote verbatim what he said, but his argument boiled down to saying that our precious land is becoming a casino for speculators who are cornering our limited supply of land and holding the community to ransom.
123 Building societies are incapable of doing anything to solve that problem. The only contribution a building society can make is to transfer the burden, the ransom which is being extorted from the community, to the shoulders of the borrower. Money which should be going to better architecture and higher standards is thus taken by people who have made no contribution whatsoever to the building process.
That is becoming a public scandal and threatening to make good planning and the reconstruction of our towns prohibitively expensive. At the conference at which Sir Basil Spence spoke, Mr. Hubert Bennett, chief architect of the London County' Council, said that comprehensive planning on a great scale was needed. We all know that to be true, but the building societies cannot do anything about it. All they can do is to subsidise the present unsatisfactory state of affairs.
During the speech of my hon. Friend the Member for Northfield, I pointed out the attitude of building societies towards modern architecture. They are not interested in it. It is not part of their job. Art and artistic considerations form no part of a money-lending transaction. The hon. Member for Brierley Hill (Mr. Talbot), who spoke with such experience of the work of a small and reputable society in Kidderminster, was quite right when he described the larger building societies as money-lending monoliths.
The hon. Member for Essex, South-East (Mr. Braine) made a strong plea for more building society activity in the Commonwealth, and in that respect supported his hon. Friend the Member for Wimbledon (Sir C. Black). The hon. Member for Essex, South-East is not in his place and so I will not deal with his speech at such length as would otherwise have been the case. However, the hon. Member for Wimbledon is present.
I want to put forward one argument which shows that the idea is one that ought not to be supported. The hon. Member for Wimbledon must have been in the House to hear the discussions which took place only a year ago when the House Purchase and Housing Act of 1959 was considered. What was the position then? The building societies 124 were incapable—and admitted their incapacity—of advancing loans for the purchase of old houses built before 1919. But in large cities like London, and possibly, Birmingham, the unfortunate person looking for accommodation was compelled, if he could not find it at a reasonable rent, to buy one of these old houses. Yet when approached for a loan the building societies said "No. We have not the money to do it."
What happened then? The Conservative Government said they would advance up to £100 million to building societies to enable them to advance money to borrowers who wanted to buy these old houses. In the face of that, members opposite now argue that apparently there are sufficient resources at the disposal of building societies to enable them to embark on ventures overseas.
§ Sir C. Black
Does not the hon. Member realise that if we are to give any reality to our oft-repeated protestations of intention to assist the under-developed parts of our territories, we can do it only at some detriment to our own interests and at some cost to ourselves? The plan I advocate merely involves a small diversion of funds, admittedly to the detriment of the people of this country, in order to confer great benefits on more needy parts of the world.
§ Mr. Lipton
I should be more willing to accept that argument if the Governments of Australia, or New Zealand, or Canada—which seem to be the principal countries involved—announced that they were willing to follow the example of the British Government and advance money to building societies in their own countries to carry out the operations that are, apparently, required there. Apparently, it is those countries which are in the minds of Members opposite. Why should not their Governments follow the example of the British Government and make a similar or proportionate contribution to the development of building society activities in their own countries? I am sure that the hon. Member for Wimbledon and other experienced directors and managers of building societies here would be only too willing to go to those countries for a few months to give them the benefit of their valuable experience.
125 A point strongly stressed by the hon. Member for Essex, South-East concerned the borrowing limit. He said that the limit of £5,000 by way of mortgage on individual houses was unrealistic, and argued that the rôle of building societies should include assistance for people wanting to buy a house worth £6,000, £7,000 or £8,000. He said that the security is there. My answer is that the money is not there. The societies say that they have not sufficient money to enable them to meet existing demand. I beg leave to doubt that an increase in the rate of interest offered to depositors from 3¼ to 3½ per cent.—5s. in every £100 invested—would stimulate such a flow of investment into building societies as would enable them to grant mortgages of which so many people are in need.
The unrealistic nature of the argument is confirmed by a quotation from the May issue of "Building Society Affairs", which is issued by the Building Societies Association in London. This says:…the average price of a new house in Britain is now £2,400, which is within the range of a man earning between £15 and £16 a week, and it is mainly with these buyers that the building societies are concerned.In my submission, that destroys the argument about the £5,000 or £7,00u house—if it is true. I should like to have a look at these £2,400 houses which the building society pundits consider to be within the means of someone earning £15 or £16 a week. My advice to such a man is: "For heaven's sake, keep away from a building society because you will be undertaking a liability which will break you in the end."
I will quote one or two more figures in support of my argument. The steep rise in the price of land has been referred to. This makes the cost of private house building less and less attractive. Land in Surrey which, in 1952, fetched £1,500 an acre, now realises £8,000 an acre. A small estate in Camberley, which sold in 1958 for £25,000, was re-sold recently, in the same condition, for £210,000. I make so bold as to say that this is a shocking comment on Tory freedom, and the fact that these figures were given by my right hon. Friend the Leader of the Opposition affords me the opportunity of being so bold as to say that I agree 126 with every word he said. It is absolutely true that the position has become a scandal.
We have areas in London and other large cities which the Parliamentary Secretary to the Ministry of Housing and Local Government has described as "twilight" areas. In these cases what contribution can the building societies make, except to enable people to buy houses in those "twilight" areas and live in them as best they can?
A further warning ought to be uttered to anybody embarking upon house purchase. The rates are going up steadily. It is worth recalling that in 1956 the rate revenue was £400 million and that it is expected to top £600 million this year. These rates must be borne by the house purchaser, on top of the interest charges he pays to the building society. I wonder how many building societies trouble to advise intending mortgagors of the possibility that in 1963, when houses are revalued at current rates instead of at 1939 valuations, the rates will rise enormously. That will be an additional burden on the mortgagor, especially the £15-a-week man, who did not know what he was letting himself in for when he embarked upon his mortgage.
§ Mr. Donald Wade (Huddersfield, West)
The effect of the rate rise will apply equally to tenants as to house purchasers.
§ Mr. Lipton
That is so, but the tenant does not have to pay interest on a substantial advance obtained from a building society, so the two categories of people are not comparable.
In any event, there is no doubt that one effect of the Rent Act and the expiry of the three-year agreements which is now taking place under it, will be to drive a few more desperate people to building societies because they will have nowhere else to go, since they can no longer afford to pay their rents. Only the other day the hon. Member for Brentford and Chiswick (Mr. D. Smith) was approached by a number of his constituents at Kew Bridge Court, in Chiswick, who are very alarmed at the prospect of a 100 per cent. increase in their rents, which they expect will come into operation in December next. What advice did they receive? The Parliamentary Secretary to the Ministry of 127 Housing and Local Government, in a letter to the hon. Member for Brentford and Chiswick, said:If the rents are increased those who find them too high and who can move further out would, I feel sure, have a better chance of finding a solution of their problems than if they stayed in the district.What a prospect the Government hold out. I have no doubt that some of these unfortunate people will run round to some local building society. If the only advice they get from the Ministry is to move somewhere a little further out and travel a few more miles to work they will come to the conclusion that it may be better for them to find something to buy on a mortgage. In that way the Government will be increasing the property-owning democracy of which they have always boasted.
It is true that the dilemma in which building societies find themselves arises from the fact that they have a dual responsibility—one to the investors and one to the borrowers. They borrow short and lend long. In my opinion, the time has come when an entirely new organisation should be set up, either through local authorities or through the Government, which will borrow long and lend long. In that way we shall be able to devise a system under which the biggest bugbear to all borrowers from building societies will be removed—a fluctuating rate of interest.
I wish building societies were a little more forthcoming in advising would-be borrowers of a standard clause which appears in all their contracts and which in my view ought to be printed in large block letters. This clause gives every building society the right, as and when it thinks fit, for whatever reason it thinks fit, to alter the rate of interest. I am sure that many people who go to building societies, voluntarily or otherwise, do not realise what a tremendous power is vested in a building society to alter the terms of the contract. The borrower thinks he is entering into a binding contract, but he finds that the contract fluctuates to the advantage of the building society, because the society is there to lend the money on security, and if the security is not there the society will be in trouble.
The primary rôle of the building society—and this has been the case from 128 the days when the movement started—is not to provide opportunities for investment. There are many ways in which small people with a few hundred pounds to invest can do so—in National Savings Certificates or other Government securities, or in the Post Office. It is not the job of the building society to compete with the National Savings movement. Its job is to enable people who want to do so to become owner-occupiers. It is not its job to do what the hon. Member for Brierley Hill described as the very good job of work done by the Kidderminster Building Society—to enable someone to build up a property investment trust out of which he can make a good income.
Building societies do not exist primarily for the purpose of creating more landlords. They were created for the purpose of encouraging owner-occupiers. That is why it is desirable that these special advances should be reduced to an even greater extent that the 10 per cent. limitation now provided for in the Bill. To give building societies the credit to which they are entitled, I understand that, on the average, 95 per cent. of the advances made by them are to owner-occupiers. In those circumstances I do not see that they want this 10 per cent. concession in respect of special advances.
The Bill confers important powers upon the Registrar of Building Societies, to which I have no objection; the reputable building society has nothing to fear from the powers to be exercised by the Registrar. But many of those powers would be quite unnecessary if one specially important power were vested in the Registrar, namely, the power to provide that interest charges for mortgagors should not be altered except with his approval. It is true that when interest charges had to be increased the Building Societies Association advised its members to increase the rate from 5½ per cent. to 6 per cent., but the association has no power over its own members. It cannot insist that 6 per cent. shall be the maximum. Although I have no evidence that I can quote, I have no doubt that there are still many building societies which are charging more than 6 per cent. That is something which needs further consideration.
129 I have already said that I do not think that this extra¼ per cent. on deposits will make all that difference. The curious thing is, if it be necessary to increase the interest rate to depositors by a ¼ per cent., why is it necessary to increase the rate of interest to borrowers by ½ per cent? I know that a society may argue that it is not a profit-making organisation, that costs have increased and that taxation is higher, and all that sort of thing. But I wonder to what extent building societies have tried to cut down on management and administration costs.
Reference has been made to the unnecessarily luxurious offices erected by building societies and the unnecessary competition in that regard which is now going on. References to that were made in another place when this Bill was discussed. I think that this competition between moneylending monoliths is socially undesirable and not essential in the public interest. The bulletin issued by the Building Societies Association sets out the way in which the money is allocated and, according to the figures I have here, 11s. per £100 net is spent on management. I should like to know the gross figure and what deductions are set against the gross figure to arrive at a figure of 11s. per cent. net. In my view, that is not an inconsiderable figure.
What may be of interest to would-be borrowers is not the affairs of a society like the Kidderminster society, where, apparently, the directors work for nothing because they are animated by a spirit of social service, but how much is expended on directors' fees by some of the other larger societies. How are the directors appointed? What are their qualifications? There are grounds for believing that many building societies are operated as closed corporations. If one is "in", one becomes a director, but if one does not belong, of course one just becomes a borrower.
Those are a few of the points that occur to me as we debate this Bill which is designed to increase the extent to which public control will be exercised over building societies. There is nothing wrong about increasing the extent of public control, because, if the building society movement wishes to provide a public service and is willing to accept up to £100 million from the 130 Government to enable it to advance money on old houses, it must realise the need to be subjected to a much greater degree of public control in the future than has been exercised in the past. In any event, I think the time is coming soon when the building society movement, as we have known it, will cease to have the capacity to deal with the housing needs of the population of this country. The extent to which the movement will find it necessary or possible to advance money to people desiring to build houses to let will prove quite derisory; and the rôle of providing houses, either for purchase or for rent, will to an ever increasing extent fall on the local authorities which are much more democratically controlled than are building societies.
§ 8.44 p.m.
§ Mr. Hugh Rees (Swansea, West)
I will return to discussing the Bill and not go along the highways and byeways of the building society movement and the housing problem as time is getting short. I support the Bill because I firmly believe that it will strengthen the building society movement which has done so much in the past to develop home ownership. I am a chartered surveyor and valuer not connected with a building society, but I wish to correct one or two mistaken impressions which may have been gained during the debate regarding the matter of reports and the question of building society directors valuing properties from the point of view of a mortgage security.
I believe that Clause 14 (2, a) should be amended to enable suitably qualified directors to carry out valuations. I am of opinion that it will be detrimental to small building societies of the type upon which the movement has been built if qualified directors are to be deprived of the opportunity to carry out such tasks. I am in full agreement as regards the big national building societies. They organise their affairs most efficiently and most effectively, either by having staff surveyors or by appointing surveyors in the district, and it works well. In the case of the small society, the Bill as it now stands can have the effect of excluding, perhaps the most competent valuer in the district because in the past he has been prudent enough to gather men together around him and start off a society for the benefit of the community. Now 131 because he is taking a leading rôle in it, he is prevented from protecting their interests.
In considering any security, there are two aspects to be taken into account. One is the personal security of the borrower, which is the most essential aspect, in my opinion far more important than the actual value of the property—the personal bond to repay, the personal union, the stake which he has in the property and the personal interest in it which all adds up. As was suggested in another place, and it has been said here today, it is the duty of the director to decide on its value.
Now we come to the value of the property itself. I believe that a director who is a local man who has skilled knowledge professionally as well as local knowledge is in an excellent position to value the property and submit his report. Around the directors' table he may be questioned about it. There has been a suggestion—I think an unfair suggestion—that directors may be hesitant of criticising one of their colleagues. Surely if criticism can apply when his partner is valuing it, that is a criticism of his firm. We have heard from reports from another place that that will be permitted and that an employee of a director can do the work. If we are to be as flexible as that, I cannot see why we should exclude the director himself, who is a qualified man. The Registrar has come into this matter on many occasions, and I am sure that in Committee arrangements can be made whereby the Registrar could have some control over the appointment of the director to a limited extent. I am quite prepared to admit that there should be restrictions. We must look at these things, otherwise it would be detrimental to the small society.
§ Mr. Chapman
Does the hon. Member mean by restrictions that every director he would allow to do valuations must be professionally qualified? What does he mean by qualified?
§ Mr. Rees
That is the whole crux of the matter. The reason this Clause has come in is that the drafters of the Bill are not in a position, as the law now is and the accepted standards of valuation in this country are, to describe 132 who is a qualified valuer. That is why I kept out of it as a chartered surveyor myself, because I thought that it would perhaps be invidious for me to suggest who should be and who should not be doing valuations and, therefore, I shelter behind the Registrar.
I come to the other part of the report. When the valuation is made the suggestion that it should be available to the purchaser of the property is very desirable when we talk about this matter here, but very often we find that a person has committed himself to a contract before going along for the mortgage and when he is told that the property is riddled with dry rot or woodworm or any other malaise, it is too late for him to do anything about it.
It is very important that a purchaser should seek advice before committing himself to a contract in this way. The building society's report is prepared for one purpose only, and that is the security on the property to the building society for a period of twenty or twenty-five years, or whatever it may be. As rightly said by an hon. Member opposite, what people are wanting is a structural report, which involves putting bungs in the drains, testing the lights and testing everything. That is not required by the building society. It takes much longer and involves a higher fee. The building society fee is very low, but nevertheless it is an effective service, though I think it would be misleading to the purchaser if it were given in any way as a full report on the property.
The hon. Member for Brixton (Mr. Lipton) suggested that a building society should not go to the general public in competition with National Savings and other forms of Government security. Whether he thinks money grows on trees I do not know, but if societies are to borrow money for helping home ownership they have to go to the public. One has to be sensible and to look at these things with a fair balance between the building society and the property owner. I think this Bill will go a long way to help.
§ 8.51 p.m.
§ Sir Wavell Wakefield (St. Marylebone)
Like other hon. Members who have taken part in this debate, I have an interest to declare. I am a director of a building 133 society. I am also a borrower in the concluding stages of paying back a debt which was incurred with a building society other than the one of which I am a director.
Throughout this debate there has been a marked difference of opinion, which was referred to by my hon. Friend the Member for Swansea, West (Mr. Rees), as to whether a director of a building society should be able to carry out valuation duties as well as directorial duties. I hope that the Chancellor of the Exchequer will not budge from what is now in the Bill. We heard from the hon. Member for Southampton, Itchen (Dr. King) of great hardship which will be caused to people in small building societies who earn their living by surveying and through fees they draw as directors. I cannot see why that should be so, because there is no need to stop a person being a director of one building society and carrying out valuations for other building societies. If he is a director of a building society there is no need for him to do valuations only for that society.
Surely when this Bill is an Act there will be the same number of valuations to be done among the same number of surveyors and, presumably, with the same vacancies for directors. They might have to shift around a bit, but I cannot see where hardship comes in. I suggest that it is undesirable for a person to be a director and to decide policy and perhaps at the same time judge his own valuations. The suggestion was made that it would be useful for a person who valued to be a director because he could then comment on and discuss round the board table any valuation he had made, but a board of directors is not prevented from bringing in any surveyor to give verbal amplification of any written report. I cannot see where the difficulty is in this.
I hope that the Chancellor of the Exchequer will not be persuaded by the fact that at the annual general meeting of the Building Societies Association views were expressed which were different from those of the Council. Frankly, I am not surprised at that, because we know that a lot of surveyors are also directors. I think that in the interests of the building society movement as a whole what is now in the Bill is good.
134 I wish to refer to the special advance requirements and to the restrictions which are being introduced. It seems to me that in Committee this ought perhaps to be looked at again in the light of the fact that many building societies are doing useful and valuable work in making substantial advances for estate development. A builder may borrow money on freehold land for an estate and put in the roads, sewers, services and so on, having borrowed substantial sums. Then houses are put up, and stage advances are given. All that means quite a substantial advance of money. Before those houses are built and sold perhaps the same society which advances a substantial sum may grant individual mortgages on the houses or they may be made by other societies, or persons may have sufficient money to buy houses outright.
From what I have been told, it would seem that this type of advance may be seriously interfered with and prejudiced if the Bill remains as it is now. I hope that further examination will be given to this in Standing Committee, so that when the Bill finally becomes an Act it will be found to contain the restrictions quite properly necessary to prevent abuse while, at the same time, not unhappily restricting the proper and legitimate advances made by reputable societies for the provision of home ownership.
In view of the great powers to be given to the Chief Registrar, I support the suggestion that the Bill should include some form of appeal. I hope that ways and means may be found so that any society or people who may feel aggrieved will have a right of appeal.
I congratulate the Government on the introduction of this Bill. I hope that, once enacted, it will further the great work that building societies have been doing for us for upwards of two centuries, and that it will be found to give protection where protection is needed, but will also enable building societies that are genuinely endeavouring to carry out the work that they are properly charged to do to carry out that work all the better.
§ 8.58 p.m.
§ Dr. Alan Glyn (Clapham)
We have had a very full debate and I should like to bring to the attention of the House the various points that have already been 135 made. I cannot agree with my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) on Clause 14. This matter was orignally mentioned by the hon. Member for Southampton, Itchen (Dr. King) in an intervention, and a number of hon. Members on both sides of the House have presented a very reasonable case for the small societies in country towns. I do not think that a single case has been cited where a director of a building society has abused his right to value the property concerned.
The fact is that he is not only in close touch with property values, but probably knows more about the local circumstances than anyone else. The suggestion made by the hon. Member for Birmingham, Northfield (Mr. Chapman) that there should be a limit of possibly £1,500 or £2,000 and that above that an independent valuation should be made, was very reasonable. That would give room both for the big building societies to make their normal valuations and for the small ones, that have not the facilities but do render a very great service, to continue to do their own valuations.
I also support the plea made by my Friend the Member for Wimbledon (Sir C. Black) that the building society field should be allowed to extend to the Commonwealth. It would be only a permissive right, and not to put it in at this stage represents a very insular view and not an advanced view for the future. The building societies would merely be allowed to extend in this way if they so desired. We are planning for the future, and this could be a great link between the Commonwealth and ourselves. The banks have already provided one link, and this could well be a further very substantial link with the Commonwealth.
In my opinion the £5,000 special advance should be raised to £10,000, because the former figure is quite unrealistic when modern values of properties are taken into consideration. It was fixed many years ago, and is now out of date.
The only other point that I should like to raise is the question of premiums which have been charged in the past by certain building societies, which are not illegal and which unfortunately are not made illegal by this Bill. I have already given 136 private notice of this point, and I should be grateful if the Economic Secretary would deal with it.
I believe that the right of appeal from the Registrar should be made a legal appeal to a court of law and that the matter should not be left to the arbitrary decision of the Registrar.
Building societies have rendered a great service to the community and they continue to do so. They can make this country a great property-owning democracy, and this could be extended to the Commonwealth. I welcome the Bill very much indeed.
§ 9.1 p.m.
§ Mr. James MacColl (Widnes)
My hon. Friend the Member for Brixton (Mr. Lipton) criticised a good many of the speeches which have been made during this debate, on the ground that Members who made them were looking backwards too much, that they were looking too much at the functions of the building societies in the past 150 years and not sufficiently at what they were doing at present.
I would carry my criticism further. I think that the weakness of the debate, and probably of the Bill, too, is that it does not really look forward. There is no real appreciation of the fact that if the Government are seriously to carry out their housing policy as they apparently envisage it, building societies in the future will have to shoulder very many more commitments and responsibilities for housing the people than they have done in the past.
To think in terms of the kind of figures which have existed until fairly recently is to miss the point that the chosen instrument of the Government's policy of providing housing, as i understand it, is the building society. That means that they must cater for many people who in the past have never gone to building societies and have never considered doing so. Therefore, a lot of this rather wistful looking back to the good old days and the early years of the nineteenth century is not taking us very far in our attempt to assess the position of the building societies in the future.
I do not agree with a great deal of the Government's policy. I should like to see other bodies playing a much larger part in the provision of housing, particularly the local authorities. But on the 137 assumption that the building society is to be the backbone of housing for the future, one must look with more detail into what the building society is going to do. When I began to think about this, I was struck by the fact that so far as I know—and certainly not in this century—we have never had an inquiry into the working of the building societies. An analogy has been drawn with the Companies Act, but we have had a good many inquiries into the working of the Companies Act. So far as I know, there has never been a dispassionate inquiry into the way in which building societies work, what their functions are, and what changes ought to be made.
This Bill shows all the signs of being one of those Government Departmental Bills which come out of the bottom drawer. We understand there is a drawer into which all the scandals, difficulties and complaints are pushed and left for future legislation, and that when the time comes for introducing a Bill they are brought out. This is a scrappy sort of Bill without any really constructive approach to the work and contribution that building societies ought to be making.
A point was made by my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) with which I agree entirely, that building societies, if they are to take these responsibilities, must pay more attention to quality and design of houses. If building societies are to be the bodies which, on the whole, are to provide the finance and the drive for the production of houses, they must safeguard the quality of the houses.
One of the features of the whole problem of home ownership is that most of us are not skilled in these matters. We are not skilled architects or builders. Yet we take on a very serious responsibility if we own a house. We take on an asset which is diminishing in value, which has got to be carefully looked after and nursed if it is to continue to perform its function. That is the kind of work in which the building societies ought to be playing a much more active part than they have done in the past.
My hon. and learned Friend the Member for Kettering (Mr. Mitchison) and other speakers have said that more attention should be paid to building for 138 letting. It is difficult to believe that a situation can ever arise—certainly not in the immediate or any contemplated future—when people are going to earn so much money or when house costs are going to decrease so much that it will be possible for people of less than average earnings to be able to undertake the responsibilities of home ownership, unless the houses they buy are not worth building at all.
That is one of the disquieting features of the present position. Whereas there are a lot of very good and well-built houses that are being constructed for owner occupation, most of us when we look at our own constituencies can find houses being bought in large numbers, because they are cheap and within the financial compass of people of average means on the waiting list of the local authority, but which, if we look at them, we find to be really not worth putting up and not worth investing in at all. That is the problem which, again, nobody is taking seriously at the moment.
§ Mr. J. T. Price (Westhoughton)
May I also draw my hon. Friend's attention to this aspect of building society policy which seems to me to be quite antisocial? I do not wish to be unfair to the building societies, but, surely, this system by which a speculative builder, who may have no standards at all, is given an advance loan in order to begin to buy a plot of land, and, when he has laid six courses of bricks receives another loan, and so on until the chimney pot goes on, is encouraging the wrong sort of people?
§ Mr. MacColl
I think that my hon. Friend the Member for Westhoughton (Mr. J. T. Price), as usual in his interventions, has put his finger on an important point that needs examining very carefully indeed.
If I may come to the main points raised in the course of the debate on the actual contents of the Bill, the first one mentioned was the question of the £5,000 maximum. I should have thought that that was about the right figure. If the building societies are providing homes for owner-occupiers of average income, I should have thought that it gave them enough scope. However, it is a matter on which I certainly would not want to commit myself or anybody else. 139 It is a point that certainly ought to be examined in Committee, but my own immediate reaction is that the Government have chosen about the right figure.
My hon. Friend the Member for Brixton made a point, which again I think is a fair point which he was entitled to make, that building societies sometimes give the impression that they are rather close corporations which leave people feeling uncertain as to who is getting something out of them and how much they are getting. My hon. Friend mentioned, for example, the question of remuneration. I happened to look at the rules of two building societies which I picked out at random, and found what I imagine is a fairly common rule showing that the basis of remuneration was 6d. for every £100 of assets. I did a calculation on the basis of a building society with about a dozen directors and assets of £150 million, and found that there was on the average about £3,000 a year available for the directors. On that basis it is not too bad, but I believe it is quite common for directors not to draw the full amount of remuneration which they are entitled to draw under the rules. It is no great satisfaction to the public to feel that such an important question as the remuneration of the directors should 'be a matter which depends entirely on the sense of moderation or the good will of the particular directors.
One of the points which, if we had an inquiry, could be looked into is the remuneration of directors in what the hon. Member for Brierley Hill (Mr. Talbot) called the "monolithic moneylenders"—the really big corporations. Is their remuneration really comparable with the responsibilities falling on the directors?
I come now to Clause 14. I find myself in a quandary here because, although I see the weight of the case made against Clause 14 as it affects the smaller societies, I feel that the difficulty is really this. Most of us think that we are "competent and prudent" persons, but in most cases our friends do not agree with us. It seems to me that the difficulty in the building society world is that the man who is to decide who is a competent and prudent person is one of the directors sitting at the same table. 140 I cannot believe that that is a good principle. It is possible—this again is something we can look at in Committee—that the suggestion made by my hon. Friend the Member for Northfield might provide an answer. It might be possible to limit the application of the veto in the case of valuations up to a certain amount; in other words, it could be said that the mischief is not very great in the case of the smaller house and the advantages might outweigh the disadvantages. I am not sure about that myself, but, if I may say so, I feel that my hon. Friend's suggestion was the most constructive suggestion made in that matter.
My immediate reaction is to feel that we ought to maintain the principle that people should not be judges in their own cause. The man who is to accept the responsibility of deciding the amount of the advance ought not to be the person making the technical and professional valuation.
This leads me to what I know is the hoary old problem of the publication of the survey report. I was glad to hear the hon. Member for Cheadle (Mr. Shepherd) adopt the same view about that as did my hon. and learned Friend the Member for Kettering. Now that, under the Clause, there is to be a written survey report provided for, there is no reason why it should not be disclosed to the borrower. It may be said that it is not all that the borrower requires, but it is a good deal more than the borrower has if he does not see anything at all. After all, the borrower is a member of the society. The word "member" must have some meaning. The borrower is not at arms' length with the society. If the society has a document which indicates that something is wrong with the house about which the borrower ought to know, there seems to be no reason why he should not be shown the document, for what it is worth. All manner of notices and warnings can be put upon it to say that responsibility is not accepted, that it is not a full valuation or a full survey, but, with all such safeguards made, if the survey report were shown to the borrower it would make for healthy relations between borrower and society and also help in the campaign to improve the standard of houses and to protect the home owner from being sold a bad house.
§ Sir C. Black
Is the hon. Gentleman aware that it is the practice of many building societies to acquaint prospective borrowers with any matters referred to in the report or valuation which they feel that they ought to know? It is the standard practice of many societies, for instance, if defects are disclosed in the report to give notice of those defects to the prospective borrower.
§ Mr. MacColl
I am sure that any society with which the hon. Gentleman was associated would conduct its work extremely wisely, liberally and fairly; but, of course, we should not be having this Bill at all if all societies were run by the hon. Gentleman. Unfortunately, this is a world in which mankind has fallen and we cannot all be in such a state of grace as the hon. Member. There are many building societies which cannot be relied upon to play the game, and that is why we must have legislation. We must apply the best practice more generally.
Another matter which aroused considerable discussion across the Floor of the House concerned Clause 27, which deals with access to the register. This caused me some uncertainty and bewilderment. It seemed crystal clear to me, however, that the general principle of the Clause was absolutely right. In a democratic society run by elections, if it is not to be a closed corporation and to be run by a clique, and if there is to be free voting, there must surely be access so that one may know who are one's fellow members. How one can run an office in a building society if one cannot find who are the electors to whom one has to appeal, I do not know. From that point of view, I felt very strongly that Clause 27 was right.
Under the Third Schedule, before one can requisition a meeting the signatures of either one-tenth of the membership or of 100 members, whichever is the smaller, have to be obtained. If it is thought that a society is being run by a clique and run badly and ought to be run in a better and more efficient manner, and if it is thought that not enough meetings are being called, if one wants to requisition a meeting one must find 100 members. It would not be easy to find them if one does not know who they are, unless there is a secret handshake by which a member of a building 142 society can recognise another member. How is one to tell who are one's friends? My hon. and learned Friend the Member for Kettering and I may be members of the same building society. We might be able to get together and run for office, but I would not think of asking him.
Surely, from the point of view of the working of the democratic system, there must be access to the register of membership of the society. It is a society run by the democratic control of its members. It is not a family affair or an oligarchy, however well and efficiently it may be run by a family or oligarchy. It is, on paper at any rate, meant to be a society of members. Therefore, from that point of view, I should have thought that we would want access to the register of membership.
On the other hand, it has been said with great force by Members on both sides that there are great risks of abuse. When people with experience in these matters say that with authority and knowledge, we cannot lightly disregard their advice. Again, this is a matter which must be looked at carefully in Committee. I am certainly prejudiced in favour of finding some way of ensuring that the ordinary working of democratic control is, I will not say preserved because in some cases that is not a happy word, but is created and allowed to develop.
There has been a good deal of criticism of the arbitrary power of the Chief Registrar. On balance, I think it important that he should have the authority to act in an emergency even at the risk of embarrassment to the people managing a society and even at the risk of the ultimate good of the society. A situation may arise where there is maladministration about which everyone knows and where the Chief Registrar wishes to act. Notice of appeal is given and there is a hold-up while the appeal is heard. An atmosphere of suspicion is created and there are whispers as to which societies are involved in the disputes.
The damage done may be very much greater than if there were a perfectly straightforward and open declaration by the Chief Registrar of what was happening. Publicity ultimately seems to me to be the main sanction for the good conduct and good management of the societies. Nobody supposes for a moment 143 that the Registrar is going to work this Bill to the letter in many cases. What happens, I imagine, in this matter as in many others is that any suspicion that the Registrar is thinking of interfering is quite enough to bring a recalcitrant society to heel, and I think that in most cases it is an essential safeguard for the proper, good management of societies.
The only other point I wanted to speak about was the question of overseas work. Again, there was a difference of opinion. I do not want to appear to have a closed mind one way or the other, but my emotional sympathies are entirely on the side of the development of this work overseas. I think there was weight in the point which was made by the hon. Member opposite who said that we cannot really talk seriously about helping the Commonwealth if we are going to do it only in cases where it costs us nothing. My hon. Friend the Member for Sowerby (Mr. Houghton) will forgive me, but the argument that because we are short of capital for buying houses in this country, therefore we should not help people in the Commonwealth, is applicable over almost the whole of capital investment.
We have responsibilities in the Commonwealth which we want to recognise and which we ought to recognise, and, therefore, my immediate feeling—it may be a sentimental feeling, it may be an emotional feeling which after some hours with my hon. Friend will dissipate by the ruthlessness of his logic—is to say that we ought to go ahead with this and that it is something which building societies ought to be able to do. It may be, though, that when we look at it more closely we shall find the practical difficulties are too great.
This has been in many ways a very congenial debate, because most of these disputes have not been disputes of great principle. They have certainly not been disputes of party. They have been the disputes of people giving different weight to factors which we all recognise exist. There are pros and cons about all these questions. The Government in the Bill have struck a balance between the pros and cons. There are other balances which could be struck by other people. I recognise that. In some cases I think the Government balance is wrong, and I hope that in Committee we shall be able 144 to persuade them that they are wrong. I hope that they will listen and will be reasonable about it. In other respects I think the Government balance is about right and I would hope that we should be able to support them against criticism.
Although I think the Bill is an inadequate Bill, although I think this is a loss of opportunity, that, perhaps, if we could have had a little more inquiry into this, if the Government had shown a little more awareness of the future of the building society movement, and there had been a little more time for creative work, the Bill would have been a much better Bill, which would have provided for more fundamental treatment of the problem, nevertheless, on the whole, for what it is worth, I think the Bill should have a Second Reading.
§ 9.23 p.m.
§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
First of all, I should like to thank the hon. Member for Widnes (Mr. MacColl)—and I am sure that I shall have the whole House with me—for the agreeable way in which he has wound up the debate on behalf of the Opposition.
Anyone who has listened to the whole of the debate will have noticed that one thread has run through almost every speech, and that has been the tribute which has been paid to the building society movement. One exception was probably the speech of the hon. Member for Brixton (Mr. Lipton), but I think that even he will agree that his approach to the question of building societies is really unique. Therefore, he will forgive me if I do not tonight deal in great detail with what he has said. At any rate, the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) who opened for the Opposition, referred to what he called the creditable record of the building societies, and his words have been echoed by almost everybody who has spoken in the debate. I think that hon. Members will agree that some of the points raised are more appropriate to be dealt with in greater detail in Committee, but at this stage I should like to refer to and comment upon some of the remarks which have been made.
The hon. Member for Widnes criticised the Bill on the ground that it was, in his word, "scrappy". I realise that there 145 is not a constant theme running through it, but our purpose in including all these various provisions in the Bill was to do what we considered to be necessary. If the Hon-se approves the Bill there will be four major enactments affecting building societies, and several smaller ones. As the hon. Member for Widnes knows, there is now a special procedure for consolidation Measures. We thought it best to amend the law and consolidate it on this occasion in two separate Bills rather than to try to combine both processes in a single Bill, but it is hoped that if, as I hope, this Bill is passed a further opportunity will arise for consolidation, and the work has already been put in hand. The House will realise, however, that this consolidation will have to takes its place in a larger programme.
I should like to express my gratitude to my hon. Friend the Member for Brierley Hill (Mr. Talbot). Considering his great practical experience, not as a director but in managing a building society, and being concerned with its day-to-day affairs, I thought that he spoke with great modesty. We shall certainly consider very carefully the plea which he made for smaller societies such as his own.
The hon. and learned Member for Kettering suggested that the Bill might do more to help those who wish to build houses for letting. The hon. Member for Widnes spoke to the same effect, but it would be fair to say that the Bill already does as much as it can, short of dictating to societies what their lending policies should be. The majority of advances on houses to let will probably be "special advances" because they will be made either to companies or in amounts in excess of £5,000. I think that it is right that in general they should come within these restrictions, because in certain circumstances they can be open to the same objection as other types of special advances. But the Bill recognises that it is possible that in the future some societies might wish to advance more on such properties than they could within the 10 per cent. limit of special advances and that they might be able to do that without any danger to the soundness of their financial position.
One example would be advances to housing associations, to which the hon. and learned Member for Kettering and my hon. Friend the Member for Cheadle 146 (Mr. Shepherd) referred. It is for these kinds of reason that Clause 2 gives the Chief Registrar the power to increase the limit for a particular society in a particular area and by a specified amount if he thinks that the society's financial position justifies it and if he is satisfied that the additional special advance will be used solely for new dwellings to let. The Bill therefore will limit advances on new dwellings to let only in so far as the Chief Registrar considers it necessary in order to safeguard the particular society's financial position.
Several hon. Members have referred to rates of interest. The hon. and learned Member for Kettering suggested that borrowers should always be given the option of extending the period of repayments rather than increasing the rate of repayments when there is an increase in the rate of interest. As he recognised, this is already the practice with the vast majority of societies and we feel that this is essentially a matter for the mortgage agreement, in other words, a matter between the society and the borrower. It is, of course, open to any borrower to find out what is the normal practice of the building society with which he is contemplating entering into arrangements.
I think it is right to add that there are circumstances in which a society might feel that it was right in the interests of its investors to require borrowers to increase their rate of repayment, assuming that the mortgage agreement provided for it—for example, if a society needed capital repayments in order to meet the demand for withdrawals by its investors. I should have considerable doubt about introducing into this Bill, which, after all, is primarily concerned with protection of investors, a provision which might conceivably actually jeopardise their position. A short time ago the hon. Member for Brixton gave us his view that the rate of interest ought to be static. This ignores the fact that building societies must borrow the money which they lend and that they generally borrow short and lend long. The hon. Gentleman said that there was need for new institutions which not only lent long but borrowed long. The fact is that in the Bill we are concerned with building societies as they are today, and this means that they must offer their investors a sufficiently 147 attractive rate of interest both to attract new investment and to retain existing investment. As many hon. Members have pointed out, building societies are non-profit-making bodies, and the rate which has to be charged to borrowers is, therefore, primarily dependent on the rate which they have to pay to their investors.
§ Mr. Mitchison
Without necessarily associating myself with what my hon. Friend the Member for Brixton has said on this point, is it not a fact that between the wars the building societies used to lend at a rate which was not altered, whatever happened to the Bank Rate and so on during the currency of the loan? Did they not give evidence to that effect before the Radcliffe Committee?
§ Mr. Barber
If the hon. and learned Gentleman says that that is the case, I accept it of course, but the point that I am trying to make is that I think this is essentially a matter for agreement between the society and the borrower concerned. To give a purely personal opinion, I agree that if I were dealing with a building society I should prefer that the interest rate should remain static; but I think that is a matter which must be considered between the parties.
The hon. Member for Widnes referred to the difficult matter of Clause 27, which deals with access to the register. This was also referred to by my hon. Friends the Members for Wimbledon (Sir C. Black), Ealing, North (Mr. Barter) and Surbiton (Mr. Fisher). Clause 27 provides that in certain circumstances members of building societies may consult the register of names and addresses of the members. Broadly speaking, the argument for these provisions is that a building society is, as the hon. Member said, essentially a society carried on for the benefit of its members, and it is fundamental to the membership of any society that a member should be entitled to know who his fellow members are.
Furthermore, in the case of building societies the legislation gives members rights in various circumstances to act in concert if they think some action is needed. The hon. Gentleman referred 148 to the right under the 1894 Act of 100 members or more to apply to the registrar to call a meeting of the society. A right of this sort, which may in certain circumstances be of very great importance, could largely be frustrated if members were not able to consult a register of names and addresses. This is, as I understood it, the sort of difficulty which the hon. Member for Widnes had in mind.
The suggestion was made by my hon. Friend the Member for Brierley Hill and by some other hon. Members that in some cases—more particularly, I suppose, in the case of smaller societies where the members are in the main drawn from one district—that people might find embarrassment in that the register could be inspected by other members who might be their friends or neighbours. I assure my hon. Friend the Member for Brierley Hill, and other hon. Members who spoke about this subject, that we have been very conscious about this matter, because if people genuinely feel that this is something which could cause embarrassment we should wish naturally to avoid it if we could without prejudicing the rights of members.
§ Mr. Glenvil Hall
Why should one be ashamed of the fact that one has money invested in a building society? It is only on that side that the matter has arisen. I can understand that a mortgagor might be anxious that people should not know that he is borrowing money, but I cannot see that people investing money should not want others to know that fact.
§ Mr. Barber
It is not for the right hon. Gentleman or for me to say that people who invest in a building society are right or wrong in not wanting others to know about it. It is a matter of personal opinion. All I can say is that if we could have avoided that difficulty we would have done so.
However, the Clause goes a fair way to meet the criticism, because it restricts access to the register to names and addresses only. It follows that no other information—for example, about the amount invested and so on—need be shown to other members. It will also be seen that the application must be in writing, which effectively cuts out the 149 casual or anonymous caller. Finally, it restricts access to the purpose of communicating with other members on a specified subject relating to the society's affairs. I am sure that the basic principle of the Clause is sound.
It is, nevertheless, still suggested that it leaves room for embarrassment. I find it difficult to accept the suggestion that there is no more reason to allow a member of a building society to consult the register than a depositor in a savings bank or a customer of a normal commercial joint stock bank. That suggestion ignores the essential difference between the principle of membership of a building society and the position of a customer of a bank. After all, if I patronise my local public house I do not expect to be given a list of my fellow drinkers, but if I am a member of my local tennis club, sharing in the members' collective responsibility for the proper management of the club, I want to know or be able to discover who the fellow members are if the need arises. However, in view of what has been said, will certainly consider whether, without abandoning the point of principle which is very important, it would be possible to restrict the Clause in such a way as to meet some of the comments which have been made.
§ Mr. J. T. Price
When he is giving further consideration to the matter, will the hon. Gentleman take into account the fact that co-operative societies, which in every respect are mutual societies with the members accepting common membership, observe exactly the principle about which he seems so diffident? What is good enough for co-operative societies and embodied in industrial and provident societies legislation should be good enough for building societies.
§ Mr. Barber
I am pleased to know that I have the hon. Member's support.
It has been suggested by hon. Members on both sides of the House that the figure of £5,000 in the definition of special advances in Clause 1 is too low and that it will handicap building societies in their work. My hon. Friend the Member for Essex, South-East (Mr. Braine) said that it was not high enough. The hon. Member for Birmingham, Northfield (Mr. Chapman) said that it was not high enough in certain parts of 150 London. My hon. Friend the Member for Ealing, North said that it was too low in certain parts of the country and suggested that we might provide for the limit to be varied according to the part of the country.
That would be rather difficult, because the limit in question is a limit which refers to and is tied to a particular society. With the way in which the machinery of Clauses 1 and 2 operates, one could not differentiate on a geographical basis within the operations of one particular society. As my right hon. Friend explained in his opening speech, we believe that in the present circumstances £5,000 is an appropriate figure.
§ Mr. Braine
Will my hon. Friend accept that nobody suggested that there should be discrimination on a geographical basis? Will he also explain why it is that £5,000 is thought to be the right figure now when it was considered to be the right figure in 1894?
§ Mr. Barber
With all due respect to my hon. Friend, it was suggested by my hon. Friend the Member for Ealing, North that there should be a variation on a geographical basis. That was the point with which I was dealing—not the point raised by my hon. Friend the Member for Essex, South-East. He asked why we chose this figure of £5,000. I can give him the answer shortly. It was suggested by the Building Societies Association. After all, they have a pretty good idea of what is required.
§ Mr. Barber
It is for Parliament to decide, but in view of the tremendous help we have been given by the Association and by societies outside it, which has gone a long way to improving the Bill, on a matter as fundamental as this it is not a bad starting point to accept the figure suggested by those who will have the responsibility for much of the operation of the Bill, though, of course, it is my right hon. Friend's responsibility to put this Bill forward and for Parliament to decide the figure.
Of course it seems true, as has been said, that some advances are greater than £5,000 but the number is surprisingly few. I had sought out for me at random 151 some accounts for 1959 of one of the large societies with assets of £30 million. Out of a total of 3,900 advances, only 10 were for sums of more than £5,000. That, I think, is fairly typical. I think it is probable that the relatively few advances to owner-occupiers of over £5,000 would just about balance those which do not fall within the definition of special advances but which are not made to owner-occupiers—for example, a small commercial advance of £4,000 to a shopkeeper or to a farmer.
While I agree that the figure of £5,000 is, to some extent, arbitrary, I hope that my hon. Friend the Member for Essex, South-East will soon be persuaded that it is a fair one. I know that some smaller societies specialise in lending on property in the more expensive parts of London, and that advances of more than £5,000 are fairly common in those cases. The hon. Member for Salford, West (Mr. C. Royle) referred to the difficulties which might arise with some of those societies. It may well be that one effect of this Bill will be to lead such societies to diversify their activities a little. From the point of view of investors in them, that might not be a bad thing. There is no force in the argument that the result will be to make it difficult to obtain advances on such property. There will be ample scope for advances by other societies well within the 10 per cent. limit.
So much for the present position. We realise that the situation changes and that the figure may also need to be changed. We realise that it may not be an appropriate figure for all time. It is for those reasons, as my right hon. Friend explained, that in Clause 1 (8) it is possible for the Chief Registrar, by order made with the consent of the Treasury and subject to the approval of both Houses of Parliament, to alter the £5,000 figure in either direction. I hope the House will agree with this provision. It disposes of any suggestion that the definition of a special advance, which is so fundamental to the Bill, is too rigidly drawn.
I now turn to another matter which has been raised by many hon. Members and is one of considerable importance, namely, investment in Commonwealth countries. The hon. Member for Widnes said that he found himself in a certain difficulty in resolving the conflict 152 between emotion and logic. I agree that this is a difficult problem; it has been referred to my hon. Friends the Member for Wimbledon (Sir C. Black), the Member for Essex, South-East and the Member for Surbiton, whose speech I am sorry I was not here to listen to. I know they are all very concerned about this matter. Although it was debated fairly fully in another place on two occasions I am glad to have the opportunity of saying a word about it.
Almost immediately before the debate, after lunch today, I had the advantage of discussing the matter for an hour or so with my hon. Friends the Member for Wimbledon and the Member for Surbition, and the hon. Member for Sheffield, Hillsborough (Mr. Darling). I would say that the main objective to which their proposals are directed, that is to say helping other countries in the Commonwealth to raise their housing standards, is one which will commend universal sympathy, especially in so far as it relates to those Commonwealth countries, which I know those hon. Members have in mind, where the need for higher standards is greatest and the available resources are very limited.
To show that this is not empty sentiment I would mention that substantial loans have been made by the Colonial Development Corporation, which has power to invest in enterprises for the improvement of housing. When my hon. Friend the Member for Surbiton first approached me I made inquiries, and I am told that sanction has already been given for loans amounting to over £9 million for housing. In the case of Malaya, Borneo, Nigeria and Jamaica these have been in the form of loans to building societies, while in the case of Kenya, Nyasaland, and Southern Rhodesia they have taken other forms. I realise that the need is very great, and I hope that the House will agree that we are doing quite a lot.
I recognise that the question raised by my hon. Friends and the hon. Member for Hillsborough is not whether it is desirable for us to assist Commonwealth countries to raise their housing standards and encourage owner-occupation but whether it is right that the funds of United Kingdom building societies should be used for these purposes. As 153 my right hon. Friend said, over the past 150 years building societies have developed in a form quite different from that of any other institution in this country. They are designed for a single and relatively limited purpose—to make advances to persons wishing to buy their houses. The societies achieve this by borrowing money, mostly in small sums and mostly from people of small means.
It is not part of their object to make profits for their members or to run risks with their members' funds. Indeed, their whole mode of business is designed so as to minimise the risk. Advances are made and carefully secured in such a way that in case of default the society can take possession of the property, and the value of the property should be sufficient to discharge the loan. In this way the society achieves the maximum security with the minimum risk. I do not think that anybody would disagree with me when I say that the situation of building societies is in this way quite different from that of a commercial enterprise, whose objective is to make profits and which may be able to accept a certain degree of risk.
When hon. Members consider in detail the procedures by which building societies would invest their funds in another country they will probably agree that there are considerable difficulties to be faced. Building societies would be operating in countries outside the jurisdiction of United Kingdom courts, where laws of mortgage and property might be different. There would inevitably be considerable difficulties in safeguarding the funds advanced. My hon. Friend the Member for Wimbledon said that overseas territories are crying out for this help, and I was assured that if we were able to help in this way they would readily change their laws in order to meet this point. This, I think, is very important.
Even if special arrangements with other Governments were made, it would be extremely difficult in respect of a building society operating in some other country to ensure that the sort of statutory provisions in this Bill and in the earlier legislation for the protection of investors were applied effectively.
I am not saying that there is no way in which our building societies could help the Commonwealth. In 154 fairness to the building societies, I would mention that I understand that they in fact do give considerable help to other countries inside and outside the Commonwealth by making available their skill and experience. I know my hon. Friends consider that this help does not go far enough, but I think it right to say my information is that building societies give a great deal of assistance by way of know-how and by the loan of personnel and in other ways in establishing building societies within and without the Commonwealth. I know that this does not go so far as my hon. Friends would wish. I discussed the matter with them and with the hon. Member for Hillsborough earlier this afternoon. I hope they will acquit me of any discourtesy if I go no further today than saying that, while we see considerable difficulties in their proposals, my right hon. Friend and I would certainly like to consider them further.
The hon. and learned Member for Kettering and my hon. Friend the Member for Cheadle suggested that it might be made compulsory for a society to disclose the report of the valuer on the property to an intending borrower. The hon. Member for Birmingham, Northfield made the point that these reports are not detailed reports on the value of the property but a brief report sufficient to enable a society to judge the adequacy of the security. The society does not require a detailed report because it is concerned only to see that there is more than sufficient cover for the advance. Consequently the society normally asks for a limited kind of report for its immediate purposes as a matter of economy. After all, the cost of the report is borne by the intending borrower, and were borrowers given the right to see reports there might be considerable trouble if they were inaccurate. The borrower might well feel that he had at least a moral if not a legal complaint against the society. The borrowers would have to meet the additional cost of the full report and the introduction of such a requirement would not necessarily be to their advantage. Therefore, I agree with my hon. Friend the Member for Swansea, West (Mr. Rees) that whether the society should have a short report which is not disclosed to the borrower or a full report which is disclosed is something to be 155 left for negotiation between the borrower and the society.
§ Mr. Shepherd
Is that really so? Is it not a fact that it would be almost disastrous to give a full surveyor's report to a prospective purchaser? He would never buy the house. Might not the shortened version as supplied to the building society be the most useful report for the purchaser?
§ Mr. Barber
The difficulty is that it might be misleading to an intending buyer who might think the report was a correct indication of the value of the property whereas in fact it was not meant to be an exact indication. All that it is meant to do is to give sufficient information to ensure to the building society that there is sufficient cover. That is a different purpose which might not be appreciated by an intending purchaser.
§ Mr. Mitchison
The Bill says that it has to be,…a report as to the value of, and any matter likely to affect the value of, any freehold or leasehold estate comprised in the security…
§ Mr. Barber
Yes, it is certainly concerned with the value. My point is that it is not concerned with the exact value but only to enable a building society to be sure that the value is more than sufficient to cover the advance. It is not a valuation in the strict sense of the term providing for a strict valuation of the property.
I have come to the stage where I have to be somewhat selective. A considerable amount of discussion took place on Clause 14, which excludes directors from valuing property on which sums are to be lent by the societies of which they are directors. I do not want to add to what my right hon. Friend said in opening the debate this afternoon. We realise that it is an important provision and that there are different opinions about it which are sincerely held. The hon. Member for Salford, West regretted the provision. My hon. Friend the Member for Cheadle thought that on balance the provisions were rather good. Later, we were told by my hon. Friend the Member for Surbiton and the hon. Member for Sowerby (Mr. Houghton) that they were adequate. My hon. Friend the Member for Swansea, West took the other view. 156 My hon. Friend the Member for St. Marylebone (Sir W. Wakefield) came out in favour, and finally the hon. Gentleman the Member for Widnes said that he found himself in a quandary. I think this is something with which the House will sympathise.
§ Mr. MacColl
I should not like to leave my very eloquent speech so tersely summed up. I thought that the most likely solution of this dilemma was the placing of a ceiling on the value of the property which could be valued by the directors.
§ Mr. Barber
The last line of my note is: "Widnes limitation of amount, consider."
I wish to say something on premiums and various other matters. Perhaps I may refer to the point made by my hon. Friend the Member for Clapham (Dr. Alan Glyn) about premiums, because he was kind enough to give me some notice of this. Demanding premiums for advances does, in effect, I agree, mean a slight increase in the mortgage interest rates for the first year of the loan. I think my hon. Friend thought that this should be made illegal. I agree that this practice has certain unpleasant features, but I think that in the end, as every one is free to go to another society which does not demand a premium, it is something which must be left to the two parties concerned.
The Bill has been the product of long consideration, based on experience and all the better for the assistance we have received from the building societies. It was, I think the House will agree, considerably improved in another place, and I think it fair to say that, apart from a limited and small number of points, although important ones, it has the wholehearted support of the building society movement. It is also clear from the debate that the Bill has the general support of the House of Commons. To any spokesman of the Treasury such support at this particular time is indeed very welcome, and I commend the Bill to the House.
§ Question put, and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 38 (Committal of Bills).