§ 9.3 p.m.
§ The Economic Secretary to the Treasury (Mr. Maurice Macmillan)
I beg to move,That the Building Societies (Special Advances) Order 1963, a draft of which was laid before this House on 19th November, be approved.The Building Societies Order to which this Motion refers does nothing except alter the sum mentioned in Section 1 of the Building Societies Act, 1960, from £5,000 to £7,000. When the Building Societies Act was introduced, its most important object was, as the then Chancellor of the Exchequer put it at that time,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."—[Official Report, 20th June, 1960; Vol. 625, c. 35.]The legal definition of "owner-occupier" presented some difficulty, and so this objective was achieved, at least in part, by the stipulation that the advances which a building society made to companies, as distinct from individuals, together with advances which it made of amounts over £5,000, should be classed together as "special advances." The special advances were restricted to a minimum in any one year, of 10 per cent. of the society's total advances. That is to say, advances to companies plus advances for the sale to individuals of houses involving loans of over £5,000 were lumped together for the purposes of this restriction.
At the time it was accepted that £5,000 represented the maximum advance which would normally be 1174 required by the owner-occupier for whom the Bill was intended. But provision was made for varying this figure at a later date should this be necessary, and it is this provision which is the basis of the Order before the House.
After about three years' experience of the working of the 1960 Act, the suggestion was made by the building societies that the figure of £5,000 should be increased. There are certain valid grounds for this contention. Since 1960, there has been some increase in demand for the more expensive type of house and, in general, house prices have risen in that period. One of the main drawbacks of the £5,000 limit as it operates now is not so much that building societies are finding the ceiling of 10 per cent. of total advances a serious limitation, but rather that they tend to regard advances of over £5,000 as in some way undesirable. This is because we have always regarded it as useful to have a "special advance" category prescribed by law. This draws a line in the eyes of the public and the building society movement between what is and what is not the proper business of building societies.
§ Mr. G. R. Mitchison (Kettering)
Would the hon. Gentleman refer me to the part of the Act which lays down a ceiling, as he calls it, of £5,000?
§ Mr. Macmillan
If the hon. and learned Gentleman is referring to the limit of 10 per cent. of total advances, the part to which he can refer is Section 1(1,b) of the 1960 Act and Section 21 (1,b) of the 1962 Act. The provision for raising this figure is in the Building Societies Act, 1960, Section 1(8) and the Building Societies Act, 1962, Section 21(4). That covers both the original figure and the provision for raising it.
Advances for the more expensive houses have been felt to be rather at one with the advances made to companies and for more speculative purposes. This has somewhat inhibited the building societies from using their special advances to the full within the 10 per cent. limit, which they would otherwise be able to do. Taking these various factors into account and granted, as I think the House will accept, that it is not desirable to make very frequent changes in this limit, it was decided that once a change was made it 1175 would be appropriate to raise the figure from £5,000 to £7,000.
This does not imply any alteration in the overall limitation of special advances to 10 per cent. of building societies' total advances. The House need not fear that by raising this figure we shall divert funds from would-be purchasers of smaller houses to those purchasing the more expensive types. The building societies are, in fact, not short of funds. Many of them have already got room within their ration of special advances to make money available for the purchase of more expensive houses. For the reasons I have touched upon, and since they are not being used to the full, I do not think that it is right to force the societies to use their special advance allowance on owner-occupied property in this way.
On a purely factual point, the raising of the limit of special advances to £7,000 will in no way affect the ability of building societies to lend to housing societies which are receiving finance from the Housing Corporation set up under the new Housing Bill. Advances to housing societies are not to count as special advances, and a separate ceiling of 15 per cent. of a building society's total advances is being instituted for them. I believe, therefore, that the Order fulfils the intentions of the 1960 Act and I commend it to hon. Members accordingly.
§ 9.15 p.m.
§ Mr. G. R. Mitchison (Kettering)
I am far from convinced that the Order is necessary, or, indeed, advisable. We had better get clear, first, what the £5,000, to be changed to £7,000, really is. It is not a ceiling beyond which the building societies may not go. It simply relates to what are called—and I refer to the 1962 Act—special advances.
These special advances were introduced and certain provisions were made about them in the1960 Act as a result of the Jasper scandal and the difficulties into which the State Building Society got itself. When they were introduced they contained, as they still contain, provisions with which we are not directly concerned about advances to bodies corporate, but they also contained a provision that an advance of a sum exceeding £5,000 should be a special advance. That provision is now in Sec- 1176 tion 21 of the 1962 Act, and that Section is entirely occupied with defining a special advance.
Section 22 gives the penal provisions, because there is a penalty attached, relating to these special advances. There is no prohibition on making advances beyond £7,000. As far as I can see, there is no prohibition on making special advances to an amount exceeding 10 per cent. of the society's funds, and there is a passage in Section 22 which clearly contemplates special advances amounting to 25 per cent. What happens is that when the special advances amount to more than 10 per cent. of the total advances, the making of further special advances is restricted, and beyond 25 per cent. it is prohibited. These are the penal sanctions in connection with which special advances were defined.
It is, therefore, quite incorrect to say that the building societies are at present forbidden to make advances of over £5,000 or to make special advances amounting to more than 10 per cent. of their advances in a year. But it is true to say that if these special advances exceed 10 per cent. provision is made in the Bill for bringing down the proportion during the course of the years to 10 per cent., and when they get as high as 25 per cent. the society must stop making special advances. This, too, is in the Section.
§ Mr. Graham Page (Crosby)
The hon. and learned Member has missed one point which he should have brought out in the figures. It is that whenever the special advances have reached 10 per cent. the society is restricted to 2½ per cent. in special advances for the next 12 months.
§ Mr. Mitchison
The hon. Member will find from HANSARD tomorrow that I did not miss it. I did not mention 2½ per cent., but I said that the special advances were restricted to 10 per cent. and that they were gradually brought back to 10 per cent., and that beyond 25 percent. they were prohibited. The Act is clear, although, with respect, I do not entirely agree with the Economic Secretary's exposition of it. Be that as it may, there is no disputing that that is the effect of the Act.
Turning from that to what happened in this case, when the figure of £5,000 was introduced in 1960 it was, as I 1177 think the hon. Gentleman explained, the figure suggested by the building societies themselves. There is no doubt about that; it was stated in the Standing Committee at the time, and the Government agreed to it. The question is: is that now the right figure? The hon. Gentleman relies, in effect, on more demand for expensive houses, increased cost of houses, and so on. He admitted that the primary business of the building societies is not to lend on more expensive houses but to lend what is required on less expensive houses. That has traditionally been their business.
I do not know whether or not they have been inhibited; the only thing we have is the Report of the Registrar of Friendly Societies relating to 53 large societies which have between them about 5/6ths of the advances of the whole building society movement. Their special advances were only 1.8 per cent. of the total in 1962. Two of them made no special advances at all, 20 made special advances representing 1 per cent. or less of their totals, whilst only two advanced more than 6.2 per cent. of their totals in this way. The Chief Registrar points out, in relation not only to these societies, but to all the societies concerned, that out of the total amount they could have used in making special advances, only about 20 per cent. was used for this purpose.
It is an extraordinary proposition to be told now that they were inhibited from using the remaining four-fifths of what they could have used—I am taking the 10 per cent. as a kind of limit for this purpose, and I say no more—and are not to be inhibited if the amount is increased. I do not understand that argument in the least, and I do not appreciate the need for increasing the amount unless there is to be some pressure of some sort on the building society, or the building societies themselves, to go beyond their traditional business and embark on something quite different.
There is some support for this. The price of houses has increased. The Building Societies' Gazette, in a special autumn issue, described the rise in prices all over the country under the heading, "House Prices Rise Again." The figures given, for instance, by the Co-operative Permanent Society indicated that prices for existing houses have risen by over 1178 50 per cent. in the London region in the last four and a half years, and by an average of only 25 per cent. in the North of England. These very sharp rises in four and a half years are not rises in building costs; they are due to the increased price of land, to the scarcity of houses in the London area, and to the complete failure of the Government to meet the London housing problem—a problem that London shares with other large towns.
Therefore, if that is the practical reason for this Order, all I can say to the hon. Gentleman is that it is very largely, if not entirely, the Government's fault that this position exists. At any rate, they have done nothing about it. However, assuming that it does exist, what is the purpose behind this increase? As I see it, it cannot be any purpose to enable the societies to fulfil their ordinary functions. We see to what extent the increase was not needed in the last year, and that is the relevant year for this purpose.
Again, I refer to the Building Societies' Gazette, in which there is a remarkable article in the issue of December, 1963, written by an anonymous author who might perhaps find more agreement with his arguments on the opposite side of the Chamber than he is likely to find on this. The article is headed, "Modernising building societies". That, of course, is the election cry. We all remember the Prime Minister's exhortation to the assembled Conservatives that everything they do in the course of the next few months must be directed to winning the election. They are to tell us that the right body to modernise the country is the Conservative Party; whether or not the country will believe that, is another matter.
The article states that building societies…most respond to the greater freedom in respect of special advances. It is no secret that although the Building Societies Association had put to the Registrar the need to raise the level to £10,000"—not the £7,000 we now have—very few societies were deeply interested.The author then refers to the figures I have just given from the Chief Registrar's Report, and continues:…some societies, particularly in the North, are unwilling to do this kind of business;"—1179 That is to say, advances on expensive houses:They regard their duty as that of providing mortgages on smaller houses for working men and the lower middle class.And a very laudable ambition, too.
So far, I find nothing in the article to quarrel with. Now we come to the outlook:…but this is not the image to project in a modernised Britain. The image should be that any man, whatever his income, can turn to a building society for a reasonable loan on a reasonable property.The author then gives instances.
When the building societies gave their evidence in 1958 to the Radcliffe Committee on the Working of the Monetary System, they expressly disclaimed any wish to make advances on these more expensive houses. They said, rightly, in my opinion, that in that kind of case the borrower should go elsewhere. There are other resources open to the borrower. He can, for instance, get a bank advance if he wishes. One has in mind, I suppose, people of the type contemplated here, the doctor, the lawyer, the young businessman, the young scientist—who, I read,is prepared to pay, perhaps, £10,000 for a house and who is as much entitled to be assisted towards owner-occupation as any other man.That may be, but there is no particular case for giving the building societies special powers to do it, unless, of course, they are getting so much money in that they can and should use it under this extension.
What is the position in this respect? We had an excellent comment this morning from the chairman of the Woolwich Equitable Building Society, one of the very largest societies. He pointed out that plenty of money was coming into the Woolwich Equitable and he hinted in no uncertain terms that, if plenty of money was coming in, the opportunity could be taken to reduce the interest charged to borrowers. Of course, the two things go together. The interest to borrowers and the interest given to lenders go hand in hand, and the difference between them represents the expenses of the building society.
That is the way in which the societies do business and have done for a long time. No one disputes the importance 1180 of it for a moment. But, if an additional sum of money is to have the effect suggested by the chairman of the Woolwich Equitable, is not that much preferable to using this change for the purpose of securing more advances for people who are prepared to spend £10,000 on a house?
It is far from clear that this extension, if granted, will do anything to lead a few building societies—not many—to start a type of business for which they are not particularly fitted and that the general effect will not be to prevent the lowering of interest. As I understand it, the argument of the chairman of the Woolwich Equitable was this: "We are being offered at a given rate more money than we really require to carry on our proper business. Consequently, the moment has come to lower the rate to both borrowers and lenders and in that way to check the amount of money which is coming in." This must have been behind the attitude of the Halifax Building Society, which, a short time ago, on its own, voluntarily reduced its rates below those of the other building societies. When it did so, there were intimations from other building societies, including the Alliance, a very large one, that they were thinking of doing the same.
In the present state of the housing problem, it is very much better that the building societies should keep to the type of business that they have always carried on, that they should do it at the very lowest possible rates of interest, and that they should reduce those rates rather than keep them up and embark on a kind of business which they expressly disclaimed in their evidence to the Radcliffe Commission in 1958.
I hope that I have made the point clear. It is a substantial one. One now asks oneself: Are we to oppose the Order? I feel some difficulty about this. The Order represents a very indirect approach. It is to raise a limit which, as I have said, does not really prevent building societies from making larger advances, so that, whether the Order is passed or not, they will be as much at liberty tomorrow as they are today to make advances of £10,000 or £20,000 if they choose. As far as I know, there is nothing to prevent their doing so, although, at the end of the year, they 1181 have to count up the total and see how it matches the rest of their advances. Therefore, from that point of view, this is a somewhat minor matter.
It is right, nevertheless, that the point should be raised, for two reasons. First, it shows very clearly the extraordinary sharpness of the housing problem in London and the way in which prices have risen and this sort of change has been forced on building societies and on the Government. Secondly, it makes quite clear that, while only a very few societies are concerned, there is a danger if they choose to prefer making advances on expensive property and not doing what I believe is the real alternative, that is, lowering their rates of interest and getting less money in as a result, confining their business to that which is undertaken in the North of England now and which was the original business of building societies.
I hope that the Government will give full answers to these questions, explaining far more clearly, if I may say so, than was done at the beginning of the debate the reason why they want this change to be made.
§ 9.33 p.m.
§ Mr. Graham Page (Crosby)
The hon. and learned Member for Kettering (Mr. Mitchison) was absolutely wrong when he suggested that the Order is unnecessary and that there is something improper about it. He will, perhaps, expect me to say that, since I am a director of a building society. In fact, the Order will be extremely beneficial to those who need and desire to borrow from building societies.
The hon. and learned Gentleman was wrong in taking the 1962 figures as a criterion. At the end of 1962, money began to flow fairly freely into the building societies, enabling them to lend it out again. Up to that time the demand for loans on mortgage exceeded the amount of money coming into the building societies. Therefore, the societies felt that the right thing to do was to carry out what the hon. and learned Member called their traditional duty, namely, that of lending to the more modest borrower. But during 1963 they have had sufficient money to meet, also, the demand of the borrower who wished to borrow up to £5,000, £6,000 or £7,000.
I could not follow the hon. and learned Member's argument when he seemed to 1182 imply that lending that amount to one borrower was outside the duty of building societies and that there was something improper in the lending business of building societies if they went above a certain figure. The figure of £5,000 which was put in the 1960 Act was not intended as a boundary between what was proper and what was not proper to lend. As my hon. Friend the Economic Secretary said, it was a boundary between lending to the owner-occupier at that time and any other form of lending. It was a way of describing the limit of the lending to the then owner-occupier.
There is a now a market for the building societies to lend, quite properly, sums up to £7,000, as mentioned in this Order, to the class of man described in the article which the hon. and learned Member read out—the professional man or the high executive who wants, rightly, to purchase a house of that sort of price. Why should he not have the services of the building society? Why should he be excluded from going to a building society and receiving the same service as the man buying a quite modestly priced house?
§ Mr. Page
He is excluded to this extent, that if the building society to which he applies has already made a large number of advances—that is to say, up to 10 per cent. of its total outstanding advances it cannot advance him the money.
The hon. and learned Member took some figures from the Registrar of Friendly Societies' Report of 1962 to show, as be thought, that this special advance facility was not being used by the building societies even in 1962. I have explained, I think, that in 1962 the building societies did not have in their coffers as much in funds as they have had during 1963. Therefore, they were not making special advances to any very considerable extent. If the hon. and learned Member looks carefully at the figures in this Report he will see that 96 building societies were precluded in 1962 from lending up to 10 per cent.; they were down to the 2½ per cent. limit. Therefore, in 1961 they had already gone up to their limit. In 1961 money was fairly short for the building societies and 1183 the demand was certainly far greater than they could meet. The figure of 96 building societies represents one in seven. One in seven used up their quota as long ago as 1961. I think that the statistics for this year would show very many more building societies have gone up to their 10 per cent. limit in making special advances. It will be very beneficial to those who wish to borrow if the limit is raised from £5,000 to £7,000.
There is one way in which I believe it will be particularly beneficial. Under Section 23 of the Building Societies Act, 1962, the building societies which have gone up to their limit in making special advances and which then wish to lend money on houses deliberately constructed to let, can apply to the Registrar of Friendly Societies for leave to make a special advance. A building society is reluctant to take those special measures, going to the Registrar of Building Societies to make special application for a particular kind of advance.
§ Mr. Mitchison
The hon. Member is not quite right. They do not have to apply for leave to make a special advance. They have to apply for leave to have the advance which they propose to make not counted as a special advance. It is clear that a society has to give the advance if the facts are right.
§ Mr. Page
There is no dispute between the hon. and learned Member and myself. He puts it in different words from mine. If a building society has used up its quota of special advances and it then wants to make an advance of over £5,000 to somebody who is building houses deliberately to let, it has to ask the Registrar of Friendly Societies for special leave to do so.
Building societies have not done that in the past. It is a special application and they are not very inclined to make special applications to the Registrar. With the raising of the limit under the Order, they will be freer to make those loans to people who are building houses or blocks of flats to let. This is what, I should think, the Government wish to encourage. We shall find that the Order has a side result in allowing more advances to those who are building houses to let.
1184 On the whole, the hon. and learned Member for Kettering has taken the wrong basis for his criticisms by using the year 1962. The position has altered considerably since the end of that year and I am sure we shall find that the raising of the limit to £7,000 by the Order will be beneficial to those who seek advances from the building societies.
§ 9.43 p.m.
§ Mr. W. T. Rodgers (Stockton-on-Tees)
Like my hon. and learned Friend the Member for Kettering (Mr. Mitchison), I am notably unenthusiastic when confronted by the Order. I welcome the opportunity of looking at it and considering the proposal to raise the limit to £7,000 in the light also of the alternatives which are available to building societies to use the funds which are now flowing in. I was interested to hear the Economic Secretary to the Treasury say that the funds were flowing in rapidly and that there was no shortage of them. The question arises, however, whether, if this money is available, it should now be spent in the way proposed by those who wish the limit to be raised.
Sometimes we treat building societies as if they were charitable institutions and as if their managers were in them for love and not for money. When we consider an order of this sort, we should look a little more closely at the alternatives which are open to them in the light of desirable public policy.
The arguments of my hon. and learned Friend the Member for Kettering were very convincing. It is important to stress that there is no great enthusiasm within the building societies themselves for the raising of the limit. As my hon. and learned Friend said, this is a view which has been stated in the Building Societies' Gazette. Perhaps I might also quote from an article which appeared in the Financial Times on 13th July this year, which said thatSmaller societies—and a few of the larger ones, who feel their social purpose better served by financing two smaller houses than one large one—do not support this move.In a way, the crux of the matter is whether we can afford a priority in the expenditure of building society funds to the extent which we would anticipate if tonight's Order is implemented 1185 or whether we feel that the building societies might be able to use their funds in a rather different way.
I should make it clear that there is, of course, no objection in principle to a man earning £2,000, £3,000 or £4,000 a year being able to buy a higher-priced house from a building society. The objection to the Order is not in any sense an objection to that right being enjoyed by those who are, perhaps, moving into higher income brackets. During discussion of the 1960 Act it was pointed out that a £5,000 house is something which a man earning £1,750 a year might reasonably expect to buy. We should be realistic and acknowledge that this is not really a very high figure. We do not object to the Order on these grounds and should not be represented as doing so.
Nevertheless, I think that there is reason to believe that increasing the limit to £7,000 will have the effect of diverting money from first requirements and discouraging or not encouraging building societies to use their existing powers more effectively.
Here again I refer to the Building Societies Association and the remarks of its chairman, Mr. John Dunham, at its annual conference this year. Talking about the role of the building societies, he said that he thought they were in a position to consider the liberalisation of lending policy and hoped that they were not so conservative-minded on such questions as housing design and building techniques as they were supposed to be.
However, I think that a number of us would feel that they are still very conservative-minded and have not liberalised their policies either in the way hoped for by leaders of some of the larger societies or, for that matter, in the way hoped for by the Minister of Housing and Local Government. He has asked for liberalisation, but there is an absence of evidence that it has taken place. I cannot see that raising the limit in this way will in any sense encourage liberalisation, which I think we agree to be a proper object of public policy towards building societies.
My hon. and learned Friend referred to the desirability of building societies mainly concerning themselves with 1186 traditional business. I fully understand what he meant. I am sure that he did not mean that they should continue broadly in their traditional way, however, for they have traditionally been conservative and cautious, which has not been in the best interests of the community or of the great majority of people who have been seeking housing advances.
I shall give one or two examples of the priorities which building societies might reasonably consider as alternatives to the spending of funds up to the limit of £7,000. There is, first, the question of lending on older properties. There is still an absence of evidence that they actively seek to lend their money in this way.
Secondly, there is lending policy towards unusual property, whether terraced house, flat, maisonette or house of unusual design and construction using, for example, industrialised building techniques. In the light of the hopes expressed by the Minister of Housing and Local Government and the Minister of Public Building and Works, I expected that the Government, through their interest in building societies, would seek mainly to ensure that they were prepared to lend on unusual buildings. It has traditionally been the view of building societies that they would not lend on flat-roofed houses. It this was the case in the past, might they not show the same reluctance now towards new designs? I understand that this has been the experience in the United States.
§ Mr. Graham Page
Can the hon. Gentleman quote any building society which is at present refusing advances on any of the modern industrialised forms of building?
§ Mr. Rodgers
No. I could not give an example, but I think that it is common knowledge that the purchaser who wishes to get an advance—
§ Mr. Rodgers
It is the view taken, for example, in the report of the Consumers' Association and published in Which? in April, 1961. The Building Societies Association took the view that that was a very fair report.
§ Mr. Rodgers
I would like to believe that there had been a radical change in policy in the last two and a half years, but if there has it has been a much more rapid change than any which occurred in the previous twenty-five years.
Apart from the character of the property upon which building societies might be encouraged to lend, there is another respect in which help might be given. The figures of the Co-operative Permanent Building Society have been mentioned and are common currency. It is very interesting that more than half the borrowers from this society are still required to find a deposit of £400 or more. In present circumstances, a young couple having to find £400, plus legal charges and all the oncoming costs of moving into a house, have to accumulate a considerable sum in a very few years while living in very difficult housing conditions. I do not think that the needs of public policy are met by placing such an obligation on young people and not facilitating their purchase of houses.
If we are considering the more expensive houses, there is another respect in which the Government's policy might be more imaginative. It is common knowledge that houses in the centre of London in a very dilapidated state can be bought for, say, £3,000 but made very acceptable by the expenditure of another £2,000. Unless it has changed in the last two and a half years, the present policy of building societies is to refuse the likely purchaser of such property if he has limited capital and asks for a mortgage of 50 or 60 per cent., or even 95 per cent., of the cost of the house plus its modernisation and reconstruction. The building societies are prepared to lend only a percentage of the valuation or purchase price, whichever is the lower.
These properties, which may be in the higher ranges, are available only to those who have a large capital sum, perhaps as much as £4,000. There is everything to be said for encouraging a new approach to lending for property of this kind when the prospective purchaser has only a small capital sum available. It may be said that the building societies are able to do this and that some do, but we must face the hard fact that in areas where there is a great shortage of 1188 accommodation, houses which come on the market are quickly bought.
Perhaps I might be allowed to refer to a leading article in the Guardian of 25th April, 1963. Under the headline "Broader minds on Mortgages" the article said:It is not unusual for a house buyer to apply for a mortgage…on the understanding that the society is currently lending at, say, 90 per cent.…Having paid his survey fee and waited several weeks for something to happen, the buyer discovers that the Society values the house at only two-thirds of the price he is prepared to pay.He is therefore back on square one. He loses his house, and he has to start all over again. Whatever is the policy of societies, the truth is that they are not enthusiastic enough in searching out purposes for which to lend, except in the most conservative fashion, and for that reason advances are often not made to the people who need them most.
My hon. and learned Friend the Member for Kettering also referred to the great difference between the Metropolitan problem and that in, say, the North. This is most important when we are considering priorities for the use of the funds which are available to building societies, and considering whether one priority is that of raising this figure from £5,000 to £7,000. I should have thought that it was wholly in accord with the Government's policy to help to make money most freely available in areas like the North-East where we want to modernise and improve property which is selling at quite a low price, and where we want to create facilities which will encourage people to stay up there and not move to the South.
If that is the case, it seems extraordinarily perverse to make it easier for people living in London and the South-East to buy houses, and, by definition—because there is a limit to the funds available—in the long run to make less money available to societies in other parts of the country to lend to people buying smaller and cheaper houses.
Building societies are unusual institutions, and I am among those who believe that they perform a most useful function. I am buying my house through a member of the Building Societies Association, one of the most imaginative and go-ahead ones, but it seems that the Association has not done a notable service either to 1189 the building societies movement, or to the many people which it claims to serve, by urging on the Government, through the Registrar, the raising of this figure from £5,000 to £7,000.
I am comforted only by the belief that the Association was in two minds on this, as on many other things at the present time. But if it was in two minds, if the pressure from the Association was not strong, it seems wrong that the Government have wasted the time of the House by bringing in this Order this evening instead of giving us time to encourage building societies to fulfil a public policy in a better way than they are doing now.
§ 9.59 p.m.
§ Sir Anthony Hurd (Newbury)
I want to say a word of welcome for the action which the Government are promoting by this Order. I am a director of a building society which operates mainly in London and the southern counties. We consider that there is no good reason now to check the ordinary business of our society, or of any other society, on this £5,000 limit.
We are operating and serving the house-buying public in an area where house prices and land prices have risen. We are finding that more people today are prepared to invest in the future by way of buying their houses. Often they are houses which will cost considerably more than we imagine those people would have faced a few years ago. I have in mind an instance which came to me only last night when a man drove me to Paddington Station. I asked him where he lived and he said, "In Wood Green". He said he was very busy because he was doing up his house. I asked what kind of house he had, and he said, "I bought it for £3,500, but by the time I have finished the bathroom upstairs it will be worth £7,000." That happens to be the very figure that we are considering.
I should be perfectly happy, as a Member of Parliament and also as one with a little knowledge of building societies, to see the figure £10,000 instead of £7,000. I do not think that would have any ill-effect on the work of the building societies or on the services they render to the public. I ask my hon. Friend the Economic Secretary to what extent the Treasury consulted the Building Societies Association in reaching the conclusion we find in this Order.
1190 We have had some rather sinister reflections from the Opposition about the attitude of conservatism of building societies. We are not as "stuffy" as all that. Only a month ago the board of my society were looking at some, to me, very original designs for houses which where being put up on an estate and deciding whether we would offer generally to finance their purchase. We agreed that so long as they were sound structurally and approved by the Ministry of Housing and Local Government, we certainly would do so.
These will be quite expensive houses which will not be bought entirely by well-to-do people retiring on dividends, but by up-and-coming business and professional people. These, surely, are the people we want to encourage. They have to live in this part of the country where their jobs are and where they earn their bread and butter. We have to encourage building societies to help these people to live the kind of life they want to live. If they are prepared to make sacrifices of other things in order to own their houses, that is what we should do. I am certain that we shall find more and more of this better type of house in the better areas will go up to the £7,000 limit mentioned in this Order.
Most societies have not been inhibited from making special advances until this last year, as my hon. Friend the Member for Crosby (Mr. Graham Page) truly said. We have found in recent months that we have to keep a watch on the special allowances with a limit set at £5,000. Otherwise, we would be standing in the way of some families who want to own better homes. If that is the way they want to spend their money, God bless them; there are worse ways of spending one's earnings.
The action we are talking about is timely. I think that we could very well go further by raising the limit to £10,000. The societies are fairly responsible about the way in which they lend their money and they will not do foolish things even if the limit is raised to £10,000. I am sure that what has been said about the North and some parts of the Midlands is perfectly right, but conditions are different in the South. We have to im- 1191 prove conditions in the South. This action will help us to do our job rather better, and more fully, than we have been able to do it this last year.
The action that we are taking tonight will not stop any society from lending on the smaller or the old house which needs money spent on it. We are quite prepared to do that, and we are doing it all the time. This Order will ensure that everyone will be able to turn to a building society to get the help needed to own a home. It will be a better home than that to which they could aspire ten or twelve years ago.
§ 10.5 p.m.
§ Mr. Cyril Bence (Dunbartonshire, East)
The assumption some hon. Members have made is that raising the borrowing limit from £5,000 to £7,000 shows that in the last few years rising incomes have led to the situation in which people will increasingly buy better houses.
I do not look at it in that light. During the twelve years I have been in the House, nearly every Session I have seen all sorts of draft Statutory Instruments introduced raising the level of subsidies and grants and raising the ceilings of financing operations to cover ever-increasing costs. I regard this Order, which raises to £7,000 the limit over which advances are treated as special advances, as another Order designed to cover the further increasing costs of housing to the consumer.
I deplore this progression in our society of raising financing ceilings to match ever-increasing costs instead of us pursuing the more difficult, and in my view, the more worthwhile, task of discovering what we can do as a Parliament to reduce costs and make homes cheaper. That would be a far more useful exercise than bringing in draft Statutory Orders to enable us to keep up with the financing of ever-increasing costs.
I am a member of a building society, not a director. There has been a good deal of talk tonight about building societies being institutions for lending money to people who wish to buy their own houses. I have taken advantage of this facility. As a member of a building society I never forget that building 1192 societies are a great national institution and recipients of people's savings. They have to act in accordance with that responsibility.
If, as my hon. Friend the Member for Stockton-on-Tees (Mr. W. T. Rogers) said, there is a conservatism and caution in the building society approach to new designs and techniques, it is because as the custodians of the savings of millions of ordinary working people they have to be cautious in how they use those savings. They are competitors with unit trusts, the National Savings institution, municipal banks and trustee savings banks.
We all know of cases in our constituencies in municipal building when building contractors have submitted designs and tenders which have been accepted and blocks of houses have been erected. After two or three years the floors have sunk or the draughts in the chimneys have not worked. All sorts of difficulties have arisen. Local authorities have been put to tremendous expense in rectifying faulty structures.
A building society is in such a position as the institution between the lender and the borrower that it cannot afford to finance a new design unless it has been thoroughly tested. I would be thoroughly cautious about levelling charges against an institution which is the recipient of the savings of ordinary people, because it is ordinary people like myself who put their savings into a building society.
We cannot afford to go into the equity market and on the Stock Exchange. We put our savings into trustee savings banks and building societies. This has been the habit of the working classes for centuries. It is this habit that has made the country strong. I am glad that the building societies exercise a certain amount of caution, thus assuring their depositors that the money they save through building societies will be properly used. I say that in support of the argument that building societies should be cautious in the way that they use their financial resources.
The hon. Member for Crosby (Mr. Graham Page) said that this increase from £5,000 to £7,000 would be an advantage to building societies. In certain areas, as a short-term measure, this 1193 may be of benefit, but when we speak of institutions we must remember that we are speaking not of inanimate or inorganic things, but of collections of individuals functioning together. I do not believe that the increase in the cost of providing ourselves with homes is beneficial to anybody. It is an unfortunate symptom, not only in our own industrial society, but in every industrial society, that a young married couple find it easier to buy all the gadgets of our modern civilisation than they do to possess themselves of a home. It is one of the most extraordinary features of our modern society that engineers should be able to provide all these gadgets for people with the most modest of incomes, and that men with good salaries are finding it increasingly difficult to get homes.
My hon. Friend the Member for Stockton-on-Tees said that people with incomes of £2,000 a year might be prepared to pay £7,000 for a house. That may be so, but most people I know, whatever their incomes may be, are always searching around—and some have been doing it for years—to see if they can get a house at the lowest possible price. They do not fix a figure that they are prepared to pay; they try to get a house at the lowest price.
I know of a professional couple who have been looking for a house in London, and the lowest price they have been asked for a six-roomed house in the area in which they want to live was £11,000, Ten years ago they could probably have bought it for £5,000 or £6,000. Why we should try to chase these ever-rising prices, I do not know. It is time for the State to take action to stop these cumulative increases, year after year.
I do not know when the process will stop. If it carries on for another twenty or thirty years at the same rate, goodness knows what people will be paying for all sorts of products. Somewhere, this must stop. The Minister of Housing and Local Government told us the week before last that penal taxation would be imposed upon high land values. But that will not help the person who wants to buy a home. What is the use of telling a man who has to pay £7,000 for a new house that the man who has received that price will be taxed at 50 per cent.?
1194 I am very worried about this. These increases go on year after year. We have had an increased grant for our fishing fleet, because it cannot meet its obligations to the White Fish Authority, or its interest payments. Now we have this Order. The price of land and houses is going up and up, and the building societies want to raise their limits. In another two or three years' time I wonder whether the limit of £7,000 will be raised to £10,000, simply because the price of land has continued to rise.
If this is what our people are to be faced with in future I do not know how those in our lower professional classes—our young scientific workers and doctors—will be able to house themselves through their own financial resources.
My hon. Friend mentioned that it would be far better if interest rates were to fail. Building societies have competitors for public money and if the societies, wish to lend they have to pay interest to their investors to match that paid by other institutions. I sometimes wonder why the building societies need such palatial offices in which to do their business. Some of them seem very expensive. I cannot accept—I do not think that I ever shall—that the function of a building society should be to build blocks of flats to let.
The hon. Member for Crosby said that societies should build houses. I think that the function of a building society should be to provide home-seekers with a mortgage so that they may acquire a house for their own habitation. Building societies should not finance property speculators or investors, who should obtain their finance through public trustee companies through solicitors or from the bunks, but not from building societies. I hope that we shall not open the door any wider to enable building societies to function as the general financial institutions of the speculative building industry.
I hope that building societies will be regarded as great national institutions designed to enable people with modest incomes to acquire modest houses. The vast majority of borrowers from building societies do not wish to buy big houses for which they may have to pay £7,000 or £10,000. Most of them would be delighted if they could get a six-room or eight-room house for £5,000. It 1195 is not a question of securing better houses, but meeting increasing costs. It is a sickening fact that each decade young people are faced with the necessity to pay ever-increasing prices for furniture, clothes and houses. Prices keep rising and the House of Commons, instead of trying to do something to stop that, brings in Orders which are designed to raise the limits of assistance to meet rising costs. More often than not the costs are increased by the big landowners, property owners and property developers.
§ 10.18 p.m.
§ Sir Cyril Black (Wimbledon)
I think that hon. Members know that I am a director of a building society. I wish to say a few words of welcome for this Order. I do not think it correct to suggest, as has been suggested, that there is any substantial division of opinion among building societies about this Order. I am not aware of any division about it in the Council of the Building Societies Association. My view is that the movement as a whole, and those connected with it, welcome wholeheartedly the comparatively small change in the existing position which will be made if this Order is approved.
There are two compelling reasons for accepting the Order and I wish to confine myself to the narrow points raised by the Order rather than to deal with a number of other matters which seem to me rather wide of the point which we are considering, but which have been mentioned by other hon. Members. If £5,000 was the right limit at the time when that limit was fixed, it is reasonable, in present circumstances, to look at the figure again to see, as was envisaged when the Building Societies Act was passed, whether present circum- 1196 stances justify an alteration in the figure. If £5,000 was right then I suggest that £7,000 cannot be wrong now. The latter figure is about right.
It has been suggested that the Government might have been more adventurous and increased it to an even higher ceiling. There may come a time when the figure will need to be reconsidered, but at the moment £7,000 is about as good a figure as could be found and, I believe, is one which will be generally supported by the building societies.
The second reason why I support the Order is that if it were the case that building societies were now short of funds and the raising of this limit might have the effect of syphoning off money that would otherwise be available for loans on cheaper houses—and might, therefore, penalise the purchasers of cheaper houses—it would be unwise to raise the limit. I do not believe that either now or in the future, as we can foresee it, there is any real danger of that happening.
The building societies have, during the last 12 months, been attracting adequate funds by way of shares and deposits. They are able to take care of all the demands of the public for loans on smaller and cheaper houses and it will not operate to the detriment of purchasers of these houses if this comparatively small change is made and the limit is raised for special advances from £5,000 to £7,000.
This is a modest and reasonable proposal that should, without question, be accepted by the House. After all, anything that is reasonable and opens a little wider the door to home ownership is something that hon. Members should encourage and favour. The Order is a small step in that direction and for that reason I welcome it.
§ 10.23 p.m.
§ Mr. B. T. Parkin (Paddington, North)
The hon. and greatly experienced Member for Wimbledon (Sir C. Black) began his speech by saying that there was no division of opinion in the building societies about the desirability of the Order. That may be true, but there is a division in the building societies about something much more important; but I will come to that later.
I am grateful to the hon. Member for saying, with such confidence and authority, that a figure of £5,000 which was appropriate 12 months ago—on 19th July, 1962, when Her Majesty signified her assent to the Measure—should now go up by 40 per cent. because of the exactions perpetuated on those seeking a home in the London area.
§ Sir C. Black
I am sure that the hon. Gentleman does not wish to misrepresent me. I said no such thing. I said that now that the building societies had much more adequate funds available than was the case a year ago they could, without detriment to loans on smaller houses, deal with the comparatively small addition to their applications that would be brought about by raising the limit. That is an entirely different thing.
§ Mr. Parkin
I will deal with that aspect of the hon. Gentleman's remarks later, but I was not unaware of what had happened and I wanted to get the matter into perspective.
I had tonight been looking forward, particularly since the debate on the previous Order ended earlier than was expected, to an exciting and stimulating survey by the Economic Secretary of the whole sphere in which building societies operate and the influence they have on the national economy.
After all, the Economic Secretary is a very interesting person in himself to be handling this Order. As an individual he is well-known and respected for his forward-looking and questioning, adventurous ideas on wider ways within the Conservative philosophy of spreading the ownership of property and of equity among the community. As a constituency Member for Halifax he will long be remembered as a faithful supporter generally, whatever they say, of what the Halifax Building Society 1198 has chosen to do. That society, of course, is a rebel society as well as being the great giant of them all.
It is interesting that in his latest manifestation as a Minister and as a poacher turned gamekeeper, or a rebel turned orthodox, he has to turn the Treasury spotlight on what has happened to what were once new and exciting devices and has to give us an opportunity, which we must seize when we can, to see whether any of these devices which started off so admirably and idealistically have been twisted by ignoble men for unworthy purposes.
It is a strange coincidence that this Order should be based upon an Act of Parliament which had to be passed because of investigations into the Jasper-Lintang-Murray-State Building Society affair. I will come to that in a moment, beause I have certain questions to ask about later developments in that sort of field, and particularly about the use of certain building societies. I do not propose to name them, but they must be known to the Treasury. I should like to know whether further legislation is contemplated, or whether it is possible to cope with them within the existing machinery.
We must first of all, however, look for the missing figure. My disappointment at this absence from the Government From Bench of a representative of the Ministry of Housing and Local Government is to some extent palliated by the thought that perhaps the Economic Secretary, with the leave of the House, will be able to speak again and answer some of the questions I have put to him. I have been waiting to see how late the Parliamentary Secretary to the Ministry of Housing will be. He has not turned up yet. My heart leapt at one time when I saw the Solicitor-General come into the House for a moment and I thought that we would have an interesting reply.
The reason why the hon. Member for Crosby (Mr. Graham Page) fidgeted so much when my hon. Friend the Member for Stockton-on-Tees (Mr. W. T. Rodgers) was talking about this subject is that the building societies are bursting with money at present. They cannot bear the thought of any more money 1199 coming in. If an executive director of a building society sees somebody coming down the road who might make a deposit he tells the girl to pull the blind down and he rushes down the road screaming. He would not know what to do with the money. This is precisely why these big giants are rebelling. They do not want the money. There will be an increasing flood of funk money—trustee money—coming into the building societies from people who do not know what is to happen to the country in the future. They intend to wait and see how things work out and in the meantime put their money on short-term deposit with the building societies.
The Economic Secretary was bound to come here and talk about it, but his manner was a little bit too masculine, too casual in the way he brushed the matter off. There was no problem about these special advances for the housing associations at all. There were special regulations to provide for 15 per cent. in special advances for them.
I believe that behind all this casual brushing aside by the Economic Secretary and behind the pointed absence of the Ministry of Housing and Local Government from the debate lies the secret of this quarrel in the building societies, this anxiety and this Order, which will not make much difference one way or the other. What the building societies have to do is to face up to the pressure from the Government which is already gently beginning to be exercised.
The Minister of Housing and Local Government has put into the first Clause of his new Bill the great showpiece of the Housing Corporation. It will be responsible for an enormous number of houses. The Government will put up £100 million, which sounds a great deal of money. But the building societies have been quietly told that they have to double that and cough up £200 million in support of it.
§ Mr. Deputy-Speaker (Sir W. Anstruther-Gray)
I am sorry to interrupt the hon. Member, but the Order seems to be concerned with raising the figure of £5,000 to £7,000. The hon. Gentleman seems to be going further than that.
§ Mr. Parkin
I am afraid that you have been deceived too, Mr. Deputy-Speaker. That was the intention of the Order, and that was the intention of the Economic Secretary's speech. Joking apart, perhaps you will allow me to submit that within the scope of this debate one is entitled to advance a reason why the Order should not be passed.
The reason I advance why this Order to increase the limit from £5,000 to £7,000 should not be passed is that it is irrelevant to the present situation, that the crisis in the building societies has been caused by the Government themselves and that the Economic Secretary ought to have said a great deal more about the pressure being put on the building societies from another direction as well as referring in the most casual way to the fact that at the moment they have ample funds available for this apparently very trivial increase in the number of loans that they make.
In order to restore your confidence in my capacity to remain in order, Mr. Deputy-Speaker, perhaps I may go back to examining the effect that this could have on the resources of building societies. One piece of arithmetic is fairly simple. It will reduce the number of loans that can be made to the £5,000 borrower by two-sevenths, because for every seven loans of £5,000 made one can make only five of £7,000. When the time comes, as soon it must because of this looming threat of the demand for the housing associations, the smaller societies will perhaps be tempted administratively to make a smaller number of deals, because it may be easier to keep the accounts. I find that sum simple.
What I do not find so easy, not being an expert—the benches opposite are stiff with directors of building societies who will help me if I go very far wrong—is to estimate what this means in numbers of deals for societies of different sizes. From the Report of the Registrar of Friendly Societies I find that the amount advanced last year by all the societies was about £600 million and that the balance due at the end of the year was no more than £3,000 million, which seems to indicate that the average advance is repaid in five years.
1201 Now, of course, that cannot be a very useful calculation, because this money, this £7,000 instead of £5,000, would be tied up for a very long time. I do not think it is right to deduce from the fact that the total amount due is only six times the advances made in a year. These must refer to sales of the same house to another person. That is what building societies are for, to facilitate early ownership of a house and transfer when one moves from it to another house. So the money must be tied up in particular houses, however many times the borrower or owner changes, over a period of twenty years over which the repayments are made.
If we look at the figure of £7,000 here we very soon find what a tremendous difference this would make to the activities of a small society. Even the big societies, the giants with £100 million—the Alliance was one of those; I do not know what the Woolwich is—only do somewhere between seven and ten deals a day. One can work it back from this £100 million of assets. If payment back is over 20 years there will be an average advance of £3,000, and that means 30,000 deals, but they remain for 20 years. This can be worked out. That is about the number of deals which a building society does, going by the Registrar's figures.
But to come back to the small society which has only £500,000. The smallest recorded one was £500,000 upwards. Then we get to the point where they seem to be doing only about seven or eight deals in a year at this rate. So it is quite clear that small societies are very sensitive to a slight change of this kind, an increase of 40 per cent., means a great deal of difference to the number of deals which they can carry out.
I hope the Economic Secretary will say that he personally and the Government are prepared to do any small thing they can to encourage the small society, because we have got to the unfortunate stage now where the little local society, bearing the name of the locality, run by half a dozen local, well known and respected people, borrowing money from people who know the people who are going to reborrow it, has been swallowed by these great giants, which have to be considered every time the Treasury 1202 makes any plans about investment, because this in so enormous a factor now.
I would like to insist that we cannot leave this Order tonight which makes so great a difference to a small society but so little difference to a big society without looking at the problem of keeping the rates of interest down. At the moment there are many societies which would very willingly put them down—very willingly—because they want to deter people from coming in and putting too much money with them at the present time. Whatever the reason for keeping them up, whether it be this Order, whether it be the proposals in the mind of the Minister of Housing and Local Government for housing corporations, the price to be paid is to be paid by the small, legitimate owner-occupier who uses a building society. A difference of 1 per cent. on a £5,000 loan means £1 a week in interest rates out of the pockets of the young married couple at the time that they can least afford it and when they have the maximum amount on mortgage. That is part of the pulling down of their standard of living. If it is true that the anxiety to keep rates up at present—
§ Mr. Deputy-Speaker
I am reluctant to interrupt the hon. Member again, but I do not see rates of interest mentioned in this Order.
§ Mr. Parkin
They may not be mentioned in the Order but they have been mentioned by the Minister. It is said that there is plenty of money available and that rates of interest will not go up as a result of this Order. It was said, "It must not be thought that this little Order will put up the rates of interest". But what prevents them from going down? They could come down in present circumstances if there were not some deep-seated, forward-looking reason why they should be kept up.
If that is so, it is a reason why we should resist the Order or have an explanation from the Minister. He told us that there will be special relief as to 15 per cent. of the total resources in connection with special advances to housing societies. This must be relevant because it was in his brief. He did not tell us what these total resources were, but we can calculate for ourselves. The total advances, according to the 1203 Registrar's Report, were £2,500 million, and 15 per cent. of that is £125 million, which is a great deal less than the £200 million which the Minister is asking building societies to provide for housing societies. At £5,000 a house—it is not likely to be less because of the sort of person who will acquire a house from a housing society—it provides only 25,000 houses in total over the whole operation of money which will be tied up for 20 years.
This is a very poor bargain for an increase in the rates of interest to be paid by every legitimate owner-occupier who applies to any building society in the country for a loan to buy his own house. I hope that we shall be given an explanation. Although my Parliamentary procedure may be a bit shaky I do not think my arithmetic is.
I will move to a question which I hope I shall be allowed to ask the Economic Secretary. This Order has arisen on a provision in an Act passed as recently as 1960 to deal with an abuse of building societies. Is the Minister satisfied that this Act gives him sufficient powers or does he feel that he is in an undignified position in having to come to the House late at night for a fiddling little Amendment of this kind?
§ Mr. Deputy-Speaker
I very much hope that the Minister, replying, will not go so far a field from this Order as to answer the question that the hon. Member is putting to him. I hope that the hon. Member will keep strictly to what is in the Order we are now debating.
§ Mr. Parkin
I am obliged to you, Mr. Deputy-Speaker, for your consideration, which I know to be genuine, and helpful to me. But the Order alters the sum prescribed under Section 1 of the Building Societies Act, 1960, and Section 21 of the Building Societies Act, 1962, which was a consolidation Measure. But altered from what? Altered from a figure fixed when this House was debating the results of the Murray-State Building Society—Jasper-Lintang scandals, and we are now being asked to alter one of the devices that was inserted then to prevent malpractices.
I hoped that it would still be possible to discuss whether those devices have been successful in the task for which they 1204 were invented. If they have not been successful, we ought not to continue them. We should not have our time wasted tonight in discussing whether they should be used for some other purpose, or whether it is necessary to go through this charade of the form of an Order in connection with a device that is not working. I submit that there are very good reasons for a re-examination of the law relating to building societies even so soon after an inquiry by a distinguished lawyer—
§ Mr. Deputy-Speaker
Order. I am sorry to interrupt the hon. Member again and again, but surely this Order is, in fact, concerned with raising a figure—the increase happens to be from £5,000 to £7,000—and not going back to all these other points that the hon. Member is now bringing up.
§ Mr. Mitchison
On a point of order, Mr. Deputy-Speaker. Is not my hon. Friend justified in pointing out that the figure in question was part of a Section designed to deal with the position that arose out of what I will call the "Jasper frauds"; and to inquire whether the change that is being made by altering the figure in that Section results from the previous figure proving to be insufficient for the main purpose of the Section.
§ Mr. Deputy-Speaker
If the hon. Member were to do so in those terms, I think that he would find that his speech would be much more acceptable to the Chair.
§ Mr. Parkin
I see the hon. Member for Paddington, South (Mr. R Allan), who could display a more felicitous command of language in this connection; so much has happened in his constituency in this disastrous history. This Lintang scandal did not end with the passing of the Act of 1960, and this device that building societies should not lend more than £5,000 without creating a special advance was no problem to those who were manipulating a building society, which I shall not name, because it is under new management, and is making strenuous efforts to pull itself up by the boot straps—which is another good reason for not mentioning it. Another reason is that there are two others about which I am not sure, and may have to mention in due course.
The device itself did not help. It was still possible for people to inflate the 1205 prices of houses—and that, at least, Mr. Deputy-Speaker, you have allowed to be in order, because my hon. and learned Friend the Member for Kettering (Mr. Mitchison) made it the main basis of his argument that this Order would increase the price of houses.
If people sell houses in fraudulent circumstances and take their profit by pushing up prices, it is not how much an individual has that fixes the price of a house. It is how much somebody can promise to lend him. The devices used in the Borough of Paddington were a building society plus a second mortgage issued by the member who was introducing the purchaser to the building society. That had a disastrous effect on the prices of houses.
Each of the previous speakers has raised the question of what effect the Order will have on the prices of houses. The hon. Member for Paddington, South and I can certainly join together in agreeing that these financial "fiddles", through the use of building societies, which have not been sufficiently chained by the previous Order and cannot be chained by the present Order, have had the disastrous effect of pushing up prices of houses, as a result of which there is inflation and the creation of money which did not previously exist. The man who merely takes a profit on a house pays back that profit—he can afford to do so—if he sells a bad house for a high price. He can well afford to invest part of that profit in a building society, which is good security. Repossession is always possible if payment is not made and he can exact not only repayment of capital, but a handsome rate of interest, too.
This is a fascinating story which the Treasury should investigate. I should not have to ask these questions tonight. The Economic Secretary should have said at the outset, "I will not weary the House with details, because we are engaged in a thorough investigation of the Rachman scandals", out of which the Treasury inadvertently lost millions from Income Tax. It will still have to be done sooner or later, and the company business and the building societies—
§ Dr. Alan Glyn (Clapham)
On a point of order. Is it in order, Mr. Deputy-Speaker, for an hon. Member to dis- 1206 cuss the Rachman scandal, which has no connection with the matter which we are discussing?
§ Mr. Deputy-Speaker
I am bound to say that the intervention of the hon. Member for Clapham (Dr. Alan Glyn) was entirely correct. I was reluctant to interrupt the hon. Member for Paddington, North (Mr. Parkin) more often than I had already done, but I hope that he will try to come back to what we are debating.
§ Mr. Parkin
Thank you, Mr. Deputy-Speaker. I do not want to have to argue this either now or at any other time in this House by the laborious system of innuendo or spelling out little bits of a story one at a time. I am making the case that there is a story to be told and that the Treasury should be finding it out and looking again to see whether the Act has any validity in the present circumstances. If it has not and if it is not, as I believe, effective in checking the evils that it was intended to check—I shall not recite them now—the Treasury should tell us that it is preparing fresh legislation.
§ Mr. Deputy-Speaker
Order. I hope that the hon. Member will not abuse his position. We are considering one perfectly simple Order and he is not entitled to go further than that.
§ Mr. Parkin
I was merely saying that I would not develop that, Mr. Deputy-Speaker, but that the Economic Secretary should tell us that he was going through all that in different circumstances and would in due course deal with it and that this was merely a passing formality which he felt obliged to bring before the House while those further investigations into the operation of the Act took place. He ought to have mentioned it, because that was the object of the Act.
§ 10.55 p.m.
§ Dr. Alan Glyn (Clapham)
So far as I can see, this Order has one effect and one effect only. It raises the limit from £5,000 to £7,000, which means that in normal circumstances it is possible to borrow an extra £2,000. I would have thought that that was a very short point which needed little debating, except to 1207 say that nowadays it would encourage people wanting to buy houses in the £5,000 to £6,000 range to do so. Many of the subjects which have been raised tonight are quite outside the scope of the Order.
I hope that the House will approve the Order which will make it possible for many people in these circumstances, with the normal machinery of the building societies, to buy their own houses. There are now many people in present circumstances who want to buy their own houses in the £5,000 to £6,000 range, and the Order is a better method than special advances for helping people to do so and will regularise the present position.
§ 10.56 p.m.
§ Mr. Maurice Macmillan
By leave of the House; I am prepared to see some sort of conflict and conspiracy, but I have to disappoint the hon. Member for Paddington, North (Mr. Parkin) of the comprehensive survey of the finances of building societies and a property-owning democracy which he hoped that I would give him. But I am happy to tell him that the conflict which he thought might exist between the Economic Secretary and the hon. Member for Halifax (Mr. M. Macmillan) is in his imagination, as was the greater part of his argument about conspiracy and crisis and difficulties arising from this comparatively simple little Order. I was not quite sure whether to be flattered by his imputations of subtlety, or merely to fear that he might think that I might have as tortuous a mind as his.
I do not want to labour the point, but building society mortgage rates are not controlled by the Government. They are not even fully controlled by the Building Societies Association, as the hon. Gentleman well knows. The greater part of his argument which was relevant to the Order was based on the fallacious assumption that it was mandatory and that it would put a burden on building societies which they would not be able to sustain. In fact, it liberates some of them to take action which they cannot now take. His argument made sense only on the assumption that the Order had a significant effect on the capacity of the smallest societies to act independently of the Association and the larger societies.
1208 I should fall into the same difficulty of getting out of order if I followed the rest of his argument or attempted to deal with any of the imputations and innuendoes which he made in the course of it. If he examines it carefully in HANSARD tomorrow, he will find that even on his own reasoning the raising of the figure is likely to make the provisions more rather than less effective. I do not want to go into it. It is a complex argument based on the fact that raising the figure from £5,000 to £7,000, if it has any effect on the prices of houses, is apt to reduce that of those below the £5,000 level.
I admire the immense skill with which the hon. and learned Member for Kettering (Mr. Mitchison), aided and abetted by the hon. Member for Dunbartonshire, East (Mr.Bence), managed to extract the maximum amount of controversy and party political advantage from an innocuous Order. It is my task to commend the Order to the House rather than join in argument about the merits of the taxation of land value and the theories of Henry George, which I thought the hon. Member was raising at one time. However, I was glad that the hon. and learned Member went into detail about the 10 per cent. annual limit on special advances. It was a rather academic point, as his second point showed when he said that the amount of special advances made was only 2 per cent. over the whole building societies movement. Even that is, I think, slightly irrelevant, because the point that I was trying to make was that the vast majority of building societies concentrate on financing owner-occupation. There are a few who prefer to make advances on commercial property, and the 10 per cent. requirement was a necessary curb on their activities.
The hon. Member for Paddington, North was apparently calling into question the 10 per cent. requirement and not the effect of raising the limit of special advances from £5,000 to £7,000, which was really almost entirely irrelevant to his point. Whatever the hon. Gentleman feels about it, it is useful to have a special advance category, and if the hon. Gentleman has cases in mind I wish that he would let us know of them. It is useful to have a special advance category prescribed by law, because, in 1209 the eyes of the building society movement, this draws a line between what is and what is not their proper business. I do not think that there is a great deal of difference of opinion in the House about what is the proper business of the building societies, and all that the Order seeks to do is to extend the definition of a normal owner-occupier from one who borrows £5,000 for a house to one who borrows £7,000.
I was a little confused by the argument—though I was glad that it was not put forward seriously—that it is all right for building societies to deal with working class and lower middle class houses but it is not all right for them to deal with middle class houses. I thought that my hon. Friend the Member for Crosby (Mr. Graham Page) refuted that argument completely. It is the view of a large proportion of building societies that they should help the whole community with house purchase. They take the view that they should help all owner-occupiers and not just the poorer sections of the community, and it is up to the individual building society to decide on its own lending policy in this respect.
I do not think that the Government should attempt to steer them one way or the other, and here I should like to re-assure my hon. Friend the Member for Newbury (Sir A. Hurd) that there was full consultation with the building societies movement before this Order was brought before the House. As my hon. Friend the Member for Wimbledon (Sir C. Black) pointed out, there was no basic disagreement. I think that at different times various ideas were put forward as to the figure to be adopted, but broadly speaking the figure of £7,000 was regarded as high enough to be an effective definition of a genuine owner-occupier, and low enough not to divert funds. To put it higher would have weakened the definition to some extent, and to put it lower would have inhibited the free choice of building societies in different parts of the country.
The fifth and major argument put forward by the hon. and learned Member for Kettering, and later taken up by other hon. Members, was that this would cause some diversion of building society resources from their proper 1210 function, which again rather begged the question of what is their proper function. But even accepting that there would be a diversion of their resources into other less worthy channels, that is, making larger advances on more expensive houses, I find the argument difficult to follow, because, as far as I can see, the main piece of evidence brought forward was that building societies already could lend money on these more expensive houses but did not do so. I find it hard to deduce that when they can do so without making special advances they will suddenly devote the greater part of their resources to such property. It seems a complete non sequitur, I think that my hon. Friends dealt with that argument, and I think it improbable that the building societies will divert their money from smaller houses for the less well off sections of the community. My hon. Friend the Member for Wimbledon made this clear.
As to the effect of this increase on prices, I suppose it could be argued that to the extent that it pushes up a little the price of a fairly expensive house—for example, a house in the £7,000 plus bracket—it will have an equal and opposite effect on the price of a house in the slightly less expensive bracket—that is, £7,000 minus. I never much care for arguments which seem to me to owe slightly more to physics than to economics for their strength; but in so far as prices will be affected, that is the most likely result. I think that the effect will be marginal in the extreme.
This really alters the boundary which was used in the 1960 and 1962 Acts to define the genuineness of the owner-occupier definition. As this point was raised, I should point out that the 1960 figures had to be repeated in the 1962 Act without Amendment, because we had not the power to do otherwise. The 1962 Act was passed under the special consolidation procedure of the House and no innovations could be made. That is why this question was not even debated or considered before.
The hon. Member for Stockton-on-Tees (Mr. W. T. Rodgers) departed slightly from some of the arguments 1211 advanced by the hon. and learned Member for Kettering. Again, I must decline to answer him on the general question of building society policy. This is not my responsibility, nor that of the Treasury, nor that of the Government. I do not think some points the hon. Gentleman raised would be affected by the Order. It is not the function of the Government to select the priorities of building societies for them. As to the question of the regional priority, I do not think that it would be right to distort building society legislation to give some special treatment to different areas. Indeed, I do not think it is possible under the terms of the 1960 Act. As far as I recollect, there is no provision for raising the limit in a discriminatory fashion. It would be better for the problems of the North-East to be dealt with in a different way. I am not trying to minimise the problems there. I am merely saying that an Order of this nature, even if it were possible to make a distinction for certain parts of the country, is not the right way of doing it.
The building societies themselves have a regional flavour. We are not trying to impose on societies in one part of the country activities which are suitable for those in another part of the country. We are merely enabling the second class of society to undertake them if they wish to. My hon. Friend the Member for Wimbledon, with his expert knowledge, pointed this out.
It is a comparatively small point. My belief is that the Order will fulfil a useful function. The hon. and learned Member for Kettering and some of his Friends appeared to have a slightly selective view of when the Building Societies Association's activities are good or bad. Perhaps this is natural in the circumstances. However, the Order has the approval of the Association, and building societies in general agree with the Order.
If I may end with one party point, which I make in return for the many which have been made by hon. Mem- 1212 bers opposite, it is at least arguable that the fact that this change is needed does not reflect so much the specific housing problem and all the various troubles we have about prices as the rising standard of living, meaning that more people than before are beginning to buy their own homes and more people can buy the homes to which the Order refers. Therefore, I commend the Order to the House, for that among other reasons.
§ Question put and agreed to.
§ That the Building Societies (Special Advances) Order 1963, a draft of which was laid before this House on 19th November, be approved.