§ I shall need to be careful lest the method of financing the Exchequer this year should lead to an unduly large increase in monetary liquidity. There are a number of implications for policy.
§ (a) Sales of Government Stock
§ It means that we shall have to make every effort to raise as much as possible of the funds that I need to borrow from outside the banking system. Fortunately, the growing confidence in sterling creates a very favourable market for Government securities. Sales have also been helped by the downward trend in world interest rates. The amount sold has been very substantial—£410 million in the fourth quarter of 1966, and sales continued at a high level into the early months of this year. I look forward to continuing strength in the gilt-edged market and a good demand for Government securities during the next twelve months.
§ (b) Tax Reserve Certificate
§ With a view to attracting more funds from the corporate sector, I intend to remove some of the present rigidity in the terms of the company tax reserve certificate. Companies will be encouraged to buy such certificates up to the hilt of any likely future tax liabilities. A new company tax reserve certificate will be on sale from this Friday offering two new attractions. First, it will have an interest-earning life of three years instead of two; second, some interest will be paid even if a certificate has to be encashed rather than used to meet a tax liability. The new certificate will carry an interest rate of 4 per cent. tax free if used to meet a tax liability or 2½ per cent. tax free if encashed for some other purpose.1000
§ (c) Personal Savings
§ This year also I propose further encouragements to personal savings. Personal saving continues at a high level, and the past year again reflects great credit on the National Savings movement. Under the energetic leadership of Sir Miles Thomas and Lord Birsay, voluntary workers throughout the country have continued to produce results which deserve the nation's vote of thanks. The Trustee Savings Banks and the Post Office Savings Bank have also played a substantial part.
§ (i) NATIONAL SAVINGS CERTIFICATES
§ The launching of the new 12th issue National Savings Certificates a year ago was a great success. I therefore propose to increase the limit that can be held by an individual saver from £500 to £750 from this coming Friday. This investment is worth £4 11s. 3d. a year tax free on each £100 held for five years. I recognise that many people holding earlier issues would like a better return on their investment while still keeping their money in National Savings. There is no way of changing directly the arrangements under which these old certificates are held, but I hone that the increase of £250 in the maximum holding of the 12th issue will help people holding very old certificates by giving them a further opportunity to shift their investment.
§ (ii) PREMIUM BONDS
§ Secondly, the present limit of an individual holding of Premium Bonds has been the same for three years, and the time has come to increase the limit. From this coming Friday the maximum individual holding will be increased from £1,000 to £1,250.
§ (iii) TRUSTEE SAVINGS BANK UNIT TRUST
§ I am also glad to be able to announce an entirely new savings venture on the part of the Trustee Savings Bank movement, which is anxious to provide a wider range of investment services. In particular, it is eager to set up a unit trust. It is anxious to do this entirely on its own responsibility and I am glad to give it permission to do so.
§ (d) Credit Policy
§ I come now to the important subject of credit policy. As the Committee knows, 1001 the banks and a number of other financial institutions are working under guidance as to which classes of borrower should receive priority in the national interest. They have also been required to keep their lending to the private sector within a ceiling of 105 per cent. of the amount outstanding at the end of March, 1965. It is still necessary to keep the growth of credit within modest bounds and I see no reason to vary the present guidance on the direction of lending. But I want to move as rapidly as possible to a less rigid form of overall control.
§ The advances of the London clearing and Scottish banks now stand well below the 105 per cent. ceiling, so that to continue it for them would not be effective. Moreover, an alternative means of restraint exists in the special deposits system. As far as these banks are concerned, therefore, the 105 per cent. ceiling can be removed forthwith. But the special deposits system will be used in future in a new and more flexible manner, so that a call for special deposits should no longer be regarded as a crisis measure, but as a routine adjustment to conditions as they develop. The object will be to maintain a continuous control over bank lending.
§ For other banking institutions it will be necessary to work out suitable new arrangements in order to secure from them an appropriate degree of restraint in their lending. Until this has been done they will continue to be subject to the 105 per cent. ceiling. Control of finance' houses, which are also at present subject to the 105 per cent. limit, presents special problems and a ceiling may be required there for a longer period while these are fully examined.
§ (e) Hire-Purchase Restrictions
§ It will be clear from what I have said about credit policy that I do not think that there is room for general relaxation of hire-purchase controls. But there is one area where I think a relaxation would, on balance, be beneficial—a small area. The tightening of the restrictions has hit the market for motor cycles, which are largely bought today by people who want a cheap means of travel to work. The President of the Board of Trade has made an Order, coming into operation at midnight tonight, which relaxes the restrictions on motor cycles by reducing the deposit from 40 per cent. to 25 per cent., 1002 and by lengthening the maximum period of repayment from 24 months to 27 months. As far as three-wheeled cars and bicycles are concerned, the same arrangements will apply. Corresponding changes have been made in the Control of Hiring Order.