BANK OVERDRAFTS (Hansard, 10 August 1966)

§ The Chancellor of the Exchequer (Mr. James Callaghan)
Yes, Sir. Discussions 1709 have taken place with the London clearing banks on how to ensure that the requirements of priority borrowers are met within the existing overall limit of advances.

§ Mr. Grimond
Does the Chancellor mean by his Answer that directions have now been given to the banks contrary to those given in February this year and inviting: hem to go back upon agreements which have been entered into? If so, is not this a totally new step in our practice? Does it not mean a further breach of faith with existing agreements? Will it not make it extremely difficult for business to plan any consecutive policies of investment or, indeed, trade?

§ Mr. Callaghan
The answer to all three parts of that question is "No, Sir".

§ Mr. Iain Macleod
Does not the Chancellor recognise, as has been suggested by the Leader of the Liberal Party, the anxiety caused by the last paragraph of the Bank's statement which implies that agreements entered into in good faith and not yet due for reconsideration should be reconsidered? As all banking is based upon faith—and good faith—does not the Chancellor regard this as a very disturbing pronouncement?

§ Mr. Callaghan
As I understand, it is for the banks to decide how they will remain within the limit of 105 per cent. I assume that we have the support of right hon. Gentlemen opposite in achieving that, and if this is so it follows that the banks will have to overhaul their present arrangements in respect of limits on borrowing. That does not mean that it is for them to decide that they have to call in overdrafts which have already been drawn upon.
Where, however, to give a simple example, somebody has an overdraft limit of £5,000, and has already drawn only £2,500 of it and has shown no sign of using more, that would be a clear case for reducing the limit. It is upon that basis that the banks will proceed. Of course——

§ Mr. Speaker
Order. It is not in order for hon. Members to be standing while the right hon. Gentleman is speaking.

§ Mr. Callaghan
Of course, it is important that priority should be given to 1710 those organisations which are concerned with exporting and manufacturing. That is the purpose of the policy.

§ Mr. Barber
In view of what the Chancellor has just said, may I ask how he expects industry to plan ahead with investment when, at the behest of the Government, the banks are now apparently able to go back upon arrangements which were freely entered into? To quote the specific example given by the right hon. Gentleman of a company which intends to draw the remainder of its overdraft later in the year for the purchase of capital equipment, what will that company do if the arrangement is now broken?

§ Mr. Callaghan
There is nothing new in this announcement. Companies have been proceeding of this basis ever since the limit of 105 per cent. was announced a long time ago. This does not apply to priority borrowers, of whom manufacturing companies form a very large proportion. They are especially the borrowers referred to in the last sentence of the statement to whom priority should be given.

§ Mr. Mendelson
While there will be general understanding of my right hon. Friend's desire to concentrate credit where it is most vitally needed, may I ask whether, in the discussions to which he has referred, special consideration was given to the smaller firm which has decided on an investment which may not be very large compared with certain other investments but which is of vital importance to certain areas, and whether such smaller firms will be given special consideration?

§ Mr. Callaghan
I am sure that the banks will take all these matters in consideration when they are continuing the existing policy, which they have followed so successfully up to the present time, of containing advances within the limit of 105 per cent. What the Press notice is concerned to do is to draw to the attention of the public the continuation of the present limits and to indicate that the banks will once more be overhauling their priority arrangements in this connection.

§ Sir G. Nabarro
Will the Chancellor give the House an assurance that the same stringent rules which he is applying to private enterprise industry will be made applicable by the Treasury to the massive 1711 borrowings of nationalised industries, which are largely the cause of the present inflationary situation?

§ Mr. Callaghan
Since the last Administration left office I have considerably tightened this matter in relation to the nationalised industries, which now finance themselves much more than they used to do.

§ Mr. Maxwell-Hyslop
Since it is the Government's policy to encourage mobility of labour, will the Chancellor ask the banks to include bridging operations for people moving house from one area to another within the priority classification?

§ Mr. Callaghan
I am not responsible for the way in which the banks administer this. I should not be drawn into particular questions about bridging loans or details of that sort.

§ Mr. Godber
Will the Chancellor give an assurance that when he talks about priority classes he will include agriculture completely within that? Anything else would be deplorable at a time when the harvest is just coming on and when it would have a bad effect upon the whole level of prices and deficiency payments, which the Government themselves provide.

§ Mr. Callaghan
Priority classes were laid down in the original directive in the order of 1964 and I do not think that they are being departed from.

§ Mr. Elystan Morgan
Will my right hon. Friend consider relaxing this exhortation for the development areas?

§ Mr. Callaghan
Borrowing for the development areas has always been among the priority classes. It does not stand as high as exports, which come right at the top.

§ Mr. Boyd-Carpenter
Where a bank has agreed a specific overdraft limit for a specific period with a borrower, is the Chancellor trying to induce the bank to go back upon its obligation? Is the bank still free to honour the undertaking which it has given?

§ Mr. Callaghan
I am not trying to induce the banks to do anything except 1712 keep within the limit of 105 per cent. and meet the priority requirements of exporters and manufacturing industry. How they administer it is, in my view, a matter which should properly be left to them—unless right hon. and hon. Members opposite want me to control the whole process of borrowing.

§ Sir C. Osborne
Does the right hon. Gentleman's latest statement mean that our economic situation has become a lot worse during the last few days?

§ Mr. Callaghan
The hon. Member's Cassandra-like reputation constantly increases. No new steps are involved here. This is a publication of discussions that have taken place about a limit which has existed for over a year.

§ Mr. Emrys Hughes
In view of the fact that the Chancellor thinks it necessary to take these steps in the national interest, and that the banks have virtually become a highly lucrative monopoly, may I ask whether he is aware that there is growing public opinion in favour of nationalising the banks?

§ Mr. Callaghan
No, I was not aware of that; but as my hon. Friend will recall the charges of the banks have been referred to the Prices and Incomes Board, so that if there is anything in my hon. Friend's allegation—and for the moment I am not saying that there is—it will at least become public knowledge.

§ Mr. Barber
Can the right hon. Gentleman say whether he does or does not take responsibility for determining the priority classes? Is the whole of industry included as one of them?

§ Mr. Callaghan
Yes, I certainly take responsibility for determining the priority classes. They have been public knowledge now for about nearly two years, and they are still as they were originally laid down. They have never been challenged by the Opposition.

§ Mr. Barber
And my second question?

§ Mr. Callaghan
The right hon. Gentleman should know that the whole of manufacturing has been included in this class ever since it was originally defined.