BUILDING SOCIETIES (ADVANCES) (Hansard, 4 December 1967)

§ Mr. Graham Page (Crosby)
I was hoping that we might have had the Government's explanation of this Order which is laid in draft before the House, but, if the Minister is not willing to explain it, I shall have to do it for him, because there are a number of points on which I wish to raise questions.
This Order deals with special advances by building societies. Special advances are those advances made by building societies to corporations or advances exceeding a certain prescribed limit. The conception of special advances originated in the Building Societies Act, 1960, which came into operation in October, 1960, and was repeated in the consolidation Act of 1962, under which the present draft Order is sought to be made.
Of all the money advanced by any individual building society in a year, not more than 10 per cent. may be advanced as special advances. This Order seeks to prescribe the amount above which an advance is a special advance. Under a previous Order made in 1963, but taking effect for the year 1964, the limit of advances, after which they become special advances, was prescribed at £7,000. This Order now seeks to prescribe the limit at £10,000.
I understand that the principle behind this limitation on the powers of a building society is that the funds of a building society, which, after all, are contributed by the general public, should be spread over advances to the ordinary owner-occupier of a reasonably priced home.
I understand that the principle is that advances to developers—advances upon what one might call luxury dwellings—should be restricted and that building societies should be guided at least, by legislation, to advance on the normal family residence. In 1964, when the previous Order was made, sums under £7,000 would buy the normal family residence. It is a shocking indictment of the present Government's policy, and 1088 their failure to carry out their election promises, that they have to admit in this Order that a dwelling-house which cost £7,000 in 1964 costs nearly half as much again in 1967, after this Government has had three years of office. They are obliged to increase this special advance figure from £7,000 to £10,000. I think that in view of the present price of houses it is right to do so, but it is an indictment of the Government's policy over the past three years.
I may be exaggerating when I say that a £7,000 house in 1964 now costs £10,000. Taking the Ministry of Housing and Local Government's figures, I notice that the index figure in 1964 was 142, and that the latest index figure for the price of houses in the second quarter of 1967 was 177. If my mathematics are right, a modestly-priced house in 1964, of, say, £3,000, would now cost £3,700, an increase of £700 over this short period. Taking the type of house which we are considering, a £7,000 house in 1964 would now cost £8,800, an increase of £1,800 over the period 1964–67 while the Government have been in office. I wonder whether, in the face of devaluation, this increase to £10,000 in the limit of special advances will be enough.
During Question Time a short while ago the House was told by the Minister of Public Building and Works that devaluation would result in an increase of only about £30 to £40 in the cost of a house. I have never heard any greater nonsense spoken in this House. It is obvious that devaluation will increase the cost of a modest house by about 4 per cent. to 5 per cent. This is why I question whether the increased figure of £10,000 in this Order will be sufficient to cope with the increase in price due to devaluation.
There will be an increase in the cost of imported timber, in the cost of metals used in the construction of houses, and in the cost of paint and other materials. In addition, there will be an increase in the cost of financing the building of houses, by reason of the increase in Bank Rate. When a builder has to pay 10 per cent. to his bank on money which he may hope to use in the construction of a house, or when a purchaser or a vendor has to bridge the gap between a sale and a purchase by paying his bank 10 per cent. on the money that he 1089 borrows, it is a grave addition to the price of houses.
This is the situation, despite the promise which we had from the party opposite before it came into office, and from the Government since they have been in office, that they would reduce the price of houses. In fact, the figure has increased substantially over these three years, and it is this which has made this draft Order necessary. My information is that as a result of devaluation the price of houses will increase by 4 per cent. to 5 per cent. over the next six months, which means an increase of as much as £200 in the price of a £4,000 house and one cannot get a new house built for much less than £4,000 in these days. This will have a serious effect on the private house building market.
It is necessary that this Order should be accepted by the House because of this increase in the cost of housing. It is right for the Government to bring it forward now, but with the very serious increase in the cost of houses that one can see in the future, as a result of devaluation, I wonder whether the Order will be sufficient.

§ The Financial Secretary to the Treasury (Mr. Harold Lever)
First, I apologise to the House for being momentarily late, in the assumption that the Commonwealth would be intervening in the House's affairs for a few minutes. Apparently, owing to a technical hitch, that was not so. I am obliged to the hon. Member for Crosby (Mr. Graham Page), in his criticism of the Government in finding it necessary to bring in the Order, for outlining with his usual erudition the history of this matter. I shall want to supplement what he said with one or two brief comments.
First, any lending by a building society to a limited company is outside the definition of a loan to an owner-occupier—whatever the size of that loan—the idea being that loans to individuals who own their own houses is the primary purpose of building societies. And for the purpose of assessing those loans the 1960 Act—later consolidated in the 1962 Act—defined a loan to an owner-occupier as excluding any loan for more than £5,000. By 1963 the price of houses had risen by over 30 1090 per cent. and the then Conservative Government—if my recollection is correct found it necessary, because of that sharp increase in prices in three years—to "up" the limit from £5,000 to £7,000.
By 1967, to the astonishment of the hon. Member for Crosby, prices had risen again by over 30 per cent. I am not clear why the hon. Member is more shocked by the 30 per cent.-plus increase in prices in the years during which the Labour Government have been in office than he appears to be at the fairly similar rate of rise that occurred under the Conservative Government. I can attribute it only to the fact that he has a higher opinion of the abilities of a Labour Government than he had expectations of his own Government.
The hon. Member has repeated the complaint that this was a shocking indictment of the Government. I am not sure whether he thinks it was a shocking indictment because prices rose by over 30 per cent. since the Labour Government came in but not a shocking indictment of their predecessor Government, who had a similar record, but if I take his point it is that the Conservatives promised nothing and nobody expected much from them and that, therefore, nobody has any complaints about, still less any indictment of, the Conservative Government.

§ Mr. Speaker
Order. We are debating this Order, not one in the last Parliament, or the one before that.

§ Mr. Lever
I am coming to this Order now, Mr. Speaker. The hon. Member says that it is necessary because of a breach of promise by this Government to reduce house prices. He did not condescend to particularise these promises or to read any of them out, although we know that the reading out of pledges and promises made by Government speakers at different times is a favourite occupation of the party opposite. I can only ask the hon. Member to be more precise in his indication of promises which have been broken and which make the Order necessary.
He more or less castigated us for our past success; he has taken occasion also to appear in the future to castigate us for those which he sees upon the horizon. I can only take it that if the sins occur he 1091 will not attempt to beat us again with the same criticism, having already performed his duty of chastisement well in advance. In fact, the £10,000 limit now proposed takes into account some possible further increase in prices. It does not represent the increase which has already occurred but takes into account the fact that, despite the admonitions of successive Governments and the best quality oratory by Government spokesmen of both parties, prices tend to rise. Therefore, as a precautionary measure, in case this obduracy of prices continues, we have given a small margin to discount the future. Price rises are generally larger in the London area, but it is not practicable neither Government found it so to regionalise the limits, so there is a flat limit for the whole country.
The Order is brought in at the request of the building societies movement because it is clear that, if they are to go on working on the same basis as 1092 before, a higher price limit is required. No one need be afraid that the small man will be short of funds for his house because this limit has been extended. The building societies tell us that they have ample funds to service the small borrower as well as to take care of the reasonable increase in the limit which we propose for the lending to owner-occupiers. In these circumstances, I must ask the House to approve the Order, and I gather that the hon. Member for Crosby recognises the need for it.

§ Sir John Foster (Northwich)
Just one sentence, Mr. Speaker. This Order is a confession of failure, just like devaluation.