HC Deb 12 December 1966 vol 738 cc39-42
Mr. Raphael Tuck (by Private Notice)

asked the Chancellor of the Exchequer whether, in view of the decision last Friday by the building societies to raise their interest rates to 7⅛per cent. and the investors' dividend rate by a ¼ per cent., he will as a matter of urgency institute an immediate inquiry into the matter with the aim of arresting this trend in view of its effect on the prices and incomes policy.

The Chancellor of the Exchequer (Mr. James Callaghan)

Because of a falling off in the level of new deposits with the building societies, they have felt it necessary to increase the rate at which they borrow money to make it more competitive.

The National Board for Prices and Incomes concluded that in such circumstances an increase in the lending rate would be necessary to maintain their existing surpluses.

The Board made a further recommendation for an inquiry into reserves and liquidity. This is being put in hand at once.

Mr. Tuck

Will not this new departure intensify the upward spiral and make it much more difficult for intending house purchasers to buy their own homes? Would not my right hon. Friend agree that this grave situation presents the clearest case in the world for the taking into public ownership of the building societies at the earliest possible moment?

Mr. Callaghan

My hon. Friend will remember that the Government's action after the building societies' announcement last May had the effect of delaying any increase; therefore, it would not be fair to say that the building societies were inspiring an upward cycle. Interest rates really depend to a great extent on the level of world interest rates and if they are to lend money to enable people to buy their own homes the building societies must be competitive in this regard.

Therefore, I do not think that any change in their structure—at any rate as regards ownership, whatever may be the case for any internal reorganisation of the building societies' movement—would either help or hinder the attraction of more funds as such.

Mr. St. John-Stevas

Does not the ultimate responsibility for high mortgage interest rates rest with the Chancellor, who has followed a policy of raising interest rates in general?

Mr. Callaghan

Certainly not. The O.E.C.D. is quite clear, as is the I.M.F., that the level of interest rates is something from which no country can be insulated, certainly not a country like ours.

Mr. J. T. Price

While fully recognising the technical considerations that the Chancellor has put forward in his reply, may I ask whether he will also bear in mind that every Labour Member of the House, elected on the last election manifesto of the Labour Party, is committed to bringing about a reduction in mortgage rates? Is he aware that I am putting this forward in the interest of common honesty between Members of the House?

Does my right hon. Friend appreciate that I am far from happy about the present situation, that I will continue to stand by what pledges I have given, and that I will use what small influence I may have in this place towards seeing that my election pledges are realised?

Mr. Callaghan

I am glad to say that my hon. Friend is to have an opportunity on Thursday of helping to carry out his election pledges and mine, when there will be a debate on the mortgage option scheme, which will be a substantial fulfilment of those election pledges. Generally speaking, where my hon. Friend can help me, as can everyone else who is concerned in this matter, is by trying to persuade other Governments to have a proper balance between monetary policy and fiscal policy in their own countries. Then we shall find interest rates generally coming down.

Mr. Rippon

Is the Chancellor aware that the mortgage option scheme, with interest rates at their present level, will not be regarded as substantially carrying out the Chancellor's pre-election pledges? Will the Chancellor explain why, since he now says that all of this is due to the international operation of the money market, the Government ever gave the pledges in the first place?

Mr. Callaghan

I am sure that the right hon. and learned Gentleman will find that the million or so householders who will benefit under the mortgage option scheme will not agree with him and will find that it will help them and represent a very substantial reduction in their liabilities.

As regards the inter-action on domestic and international monetary rates, a country clearly has an influence on the level of its own domestic rates if its fiscal policy moves in a certain direction. In our case no one would press that our fiscal policy should move any further in the particular direction that we have gone. Therefore, to that extent there must be a general international downward movement of interest rates, which will influence our position.

Mr. Orme

Would my right hon. Friend not agree that in view of the reserves of the building societies, about which he has expressed concern, those societies should refrain from putting up their interest rates until the report of the inquiry, to which he has referred? Could he and the Government not take steps to see that this is done?

Mr. Callaghan

I was very glad that the Prices and Incomes Board supported the point that the Government put, that the level of reserves and liquidity of the building societies needed a careful reexamination. That re-examination, in the light of the report of the Board, will now go on, with the consent of the building societies.

As regards the second part of my hon. Friend's question, we have to move very carefully because, if other interest rates are more competitive, asking the building societies to keep their rates down may well mean that they would not get any extra inflow of funds and would not, therefore, be able to lend for house purchase.

Mr. Lubbock

Does the Chancellor not think it unfair that house owners who are not able to ask for increases in their wages and salaries are now to have to pay considerably more in mortgage interest charges? I am not blaming the building societies for this, but does he not think that now is the time for a general lowering of interest rates, led by a reduction in the Bank Rate, thus affecting the general tightness of credit restrictions?

Mr. Callaghan

As a matter of principle, I have every desire to agree with the hon. Gentleman that it is time that interest rates in the world came down. I think the sooner the better. Certainly, the Government are putting all of their efforts in that direction.

On the general question of whether borrowers have to pay more, this may not necessarily be the case. As the hon. Gentleman will know, the building societies are ready to make arrangements—and they have confirmed them again—so that those who wish to spread their payments over a longer period need not have the immediate payments increased.