HC Deb 03 June 1965 vol 713 cc1973-6
The Chancellor of the Exchequer (Mr. James Callaghan)

As the House knows, the Governor of the Bank of England wrote to the banks and other financial institutions last month, requesting them to limit the increase in credit granted by them during the 12 months ending in March, 1966, to an annual rate of 5 per cent. I have been assured that this request will be observed by those to whom it was addressed, but in order to ensure that the control is generally effective the Government have decided on some tightening of the statutory controls over the field of hire purchase and rental arrangements.

My right hon. Friend the President of the Board of Trade has, therefore, today made two Orders. In the case of hire-purchase and credit sale, where the minimum deposit has been 20 per cent., this is increased to 25 per cent., and where it has been 10 per cent. it is increased to 15 per cent., with certain exceptions. Similar provisions have been made for hiring agreements.

This will close a gap in the credit structure and so help to prevent consumption eating into the resources that are needed for exports and investment. The continuing control of the credit situation, and the recent substantial strengthening of our gold and dollar reserves, enable the nation to secure the advantages that accrue from a reduction in short-term interest rates.

The 7 per cent. Bank Rate involved a considerable cost to the balance of payments and to the Budget, and weighed heavily on industry as well as the individual citizen. Therefore, I have agreed with the Bank of England that Bank Rate should be reduced from 7 per cent. to 6 per cent.

Mr. Heath

Will the Chancellor accept that the House is grateful to him for coming here and making this statement this afternoon and appreciates the heavy responsibility which he bears when adjusting or agreeing to a change in Bank Rate, in weighing up the advantages to the balance of payments, to the Treasury and to industry in a reduction, compared with the necessary degree of support for sterling and attracting deposits to this country? Will the Chancellor accept that the whole House would want it to go out that any change in the Bank Rate here in no way diminishes its determination to do everything possible to support sterling?

So far as hire-purchase agreements are concerned, will he agree that this is the last, or the latest, of the further burdens on the people and that it is the latest of a series of measures of this kind, some of which might have been more effective if taken together rather than in a string? It is also the form of influence on the economy which is most distasteful to industry, which feels it distorts the pattern of demand. Will he agree that he is now pursuing a policy of tightening credit and, at the same time, cheapening it and that this involves particular complications for him to which he will no doubt require to give his utmost attention during the coming months?

Mr. Callaghan

I think that it is well that everyone in the world should know that the country is united to defend the position of sterling. I may add that we have the resources to do it. With the recent strengthening in the reserves there is no doubt that we can finance our deficit, which is being rapidly reduced during the course of the current year.

I am much obliged to the right hon. Gentleman for what he said about hire-purchase restrictions. It is true that this will mean that the minimum deposit that has to he put down will be rather more than it has been. There are offsetting factors in the sense that in the case of the motor car trade, where, I think, exports are particularly important, two-thirds of the old cars are traded in and, therefore, the minimum value is likely to be greater than that of the 25 per cent. required.

What I am doing here is not to ease credit. This is really closing a gap, which I will not go into now so far as the technical details are concerned, and which results from the position of some of the institutions. I think that they readily accept it on that basis.

I think the fact that we are trying this system of inviting the institutions to regulate the increase in their credit facilities to 5 per cent. means that we can plan to cheapen it. In other words, if the supply is restricted one does not have to depend so much on the price. That is the reason, including the strengthening of the reserves, why I felt able to agree to a reduction in Bank Rate.

Mr. Frank Allaun

Is the Chancellor aware that this 1 per cent. reduction will bring great relief, particularly to councils anxious to increase their housing programmes and will mean about a 10s. a week saving on the average rent? Whilst short-term interest rates will follow this reduction immediately, will the Chancellor now ask the P.W.L.B. to reduce its long-term interest rate, because it now stands at 7 per cent.?

Mr. Callaghan

While thanking my hon. Friend for what he has said, I must point out that the Public Works Loan Board's long-term rates did not rise with the 7 per cent. Bank Rate. They were pegged by me on 19th January last and, therefore, in so far as they did not rise, it will not be easy for me to ask that they should fall even further.

Mr. Grimond

Can the Chancellor say whether the exceptions to these increases which he has menioned cover such things as machine tools and other capital goods, as there would seem to be some case for distinguishing between hire-purchase and rental agreements in respect of these goods for essential equipment and consumer goods?

Mr. Callaghan

These restrictions concern consumer goods. They exclude machine tools. Obviously, they would exclude commercial vehicles. They would exclude small 30-cwt. vans, provided that they have a carrier's licence. We have also taken a further power, for a particular reason. I think that the House would agree that it is a comparatively small matter in some ways, but important to some people, especially newly weds, to exclude furniture and that kind of what is called "add to" arrangements. I think that this is a small concession that can be given without danger to the general credit restrictions.

Mr. Monslow

May I ask the Chancellor whether, in the light of the persistent rumours in the Press this week that building societies were to increase their rates to 7¼ per cent., there is any action which he can take now to effect a reduction from this suggested increase?

Mr. Callaghan

There is no doubt that this reduction in the Bank Rate should help the flow of funds to the building societies. That will stop any further increase that might be found to be necessary. In the long run, I trust that it will seep through—it may take some time—into the form of an even lower rate. But I think that we must wait for the natural flow of money to seep through into these institutions.

Several Hon. Members

rose—

Mr. Speaker

Order. The House will have an opportunity of discussing economic matters during the course of the next few weeks.