HC Deb 19 January 1965 vol 705 cc20-3
39. Mr. Bruce-Gardyne

asked the Chancellor of the Exchequer what progress he has made in his examination of ways of mitigating the effect of the 7 per cent. Bank Rate on the housing programme.

Mr. Callaghan

I have decided for the time being to leave the interest rates charged on the quota of loans which local authorities are entitled to draw from the Public Works Loan Board at the levels ruling before the Bank Rate was increased. Local authorities will also be able to get from the Board the first £100,000 instead of the first £50,000 of their long-term borrowing for the current financial year. These measures will be of real help, especially to the smaller local authorities.

Mr. Bruce-Gardyne

While thanking the right hon. Gentleman for that measure of comfort to local authorities, may I ask him if he is aware that a great many local authorities, including some in my constituency, are bitterly resentful of the way in which the promises of lower interest rates offered by some of his right hon. Friends before and during the election have been disregarded since the election?

Mr. Callaghan

The hon. Gentleman should not be premature about this. The Government still have four years and nine months to run. Despite the regrettable increase in the Bank Rate, within three weeks of our coming to office, there is plenty of time for us to overcome the deficiences of the last Administration.

Mr. Maudling

Will the right hon. Gentleman take this opportunity to make it clear which policy the Government are intending to pursue about this important question of interest rates for housing purposes?

Mr. Callaghan

Yes, Sir. That is the purpose of my answering this Question. We are hoping to help local authorities by the measures we are following.

Mr. Box

Will the Chancellor consider giving some assistance to council house tenants who must pay greatly increased rents as a result of the 7 per cent. Bank Rate? Is he aware, for example, that people in his own constituency are faced with a rise of 33⅓ per cent. in their council house rents from 1st April? When is the right hon. Gentleman going to implement some of the advantages to house owners and house occupiers indicated in his election address?

Mr. Callaghan

There is, of course, no link between the temporary increase to 7 per cent. in the Bank Rate and increases of the order referred to by the hon. Gentleman—[HON. MEMBERS: "Oh"]— absolutely none, and if he reads the report to which he is referring he will see that the increases in rents were attributed to far different causes.

Sir A. V. Harvey

Would the right hon. Gentleman say how he squares his remarks about the Bank Rate with what the Foreign Secretary said in Washington on 27th October about there being no question of the Bank Rate being increased?

Mr. Callaghan

At the time he said it, it was true.

Mr. Fisher

Can the Chancellor tell us whether he really seriously intends to help would-be home owners, because how can the present 6¾ per cent. mortgage interest rate, which is no fault of the building societies, be reconciled with the promises given by the First Secretary?

Mr. Callaghan

I differ from the hon Gentleman. I have made it clear to the Chairman of the Building Societies Association that, in my view, there was no case at this moment to increase the rates. I made this clear on three grounds. The first was that they said that this was to be a long-term increase, yet it is apparently based on a temporary increase in the Bank Rate.

Mr. Fisher

How temporary?

Mr. Callaghan

The second was that certainly most of the societies—I think all of the larger ones—are well above the reserve ratio necessary to qualify for trustee status. I believe that, in these circumstances, it was a most unfortunate step for them to increase building society rates. I think that the increase could well have been suspended for the time being, certainly until they had seen how the long-term interest rate turned out. There is a third consideration which I put to them. Under the corporation tax—

Hon. Members

Speech.

Mr. Callaghan

This may be a speech, but it is a matter of considerable importance to a lot of young people—building societies will benefit very substantially and will be able to add substantially to their working margins and reserves which they will be able to put away. I hope that now that they have put up mortgage rates when the Bank Rate is temporarily high, they will seriously consider their position when the Bank Rate is reduced again.

Mr. Maudling

Is not the Chancellor aware that the rate which building societies must charge is solely determined by the rate they must pay to get adequate resources to lend? Is he not aware that the rate they must pay to acquire these resources has been definitely affected by the actions of the Government?

Mr. Callaghan

I understand that the building societies said last August that they intended to consider putting up their rates, so this is not, as it were, particularly a matter which has arisen since the General Election. [HON. MEMBERS: "Oh."] I am stating the facts. I believe that many of the building societies are being unduly pessimistic about their capacity to raise money in present circumstances. In view of the efforts that are being made to secure an incomes policy, and since they would not be taking a risk in this matter and endangering their trustee status, I very much regret that they took the decision which they did.