HC Deb 07 June 1967 vol 747 cc1079-84
The President of the Board of Trade (Mr. Douglas Jay)

With permission, I should like to make a statement on hire-purchase restrictions on motor cars.

The Government have kept the state of the motor car industry under review during the past few months, and have decided that the time is now right to relax the control of hire-purchase and credit sale agreements for motor cars. This will not only help the industry, particularly its ability to export at a period when the seasonal decline in home sales usually begins, but, in accordance with the Government's economic policy, will apply a modest stimulus to the economy generally.

I have therefore made an Order which reduces the deposit required before entering into such agreements from 40 per cent. to 30 per cent., and increases the maximum period allowed for repayment from 24 months to 30 months. There will be a comparable amendment of the Control of Hiring Order, to reduce the rental payable before entering into a motor car hiring agreement from 42 weeks to 32 weeks. These changes will come into operation as from midnight tonight.

I appreciate that there has been a decline in demand in other industries affected by hire-purchase controls, but any relaxation going beyond that now proposed would not be justified at present. We have decided to concentrate what we can do on the motor industry because its vital export performance would otherwise be threatened by the usual seasonal fall in home sales.

Mr. Maudling

We welcome this relaxation, but is the right hon. Gentleman aware that we find something a little absurd in his repeated references to the threat to exports arising from the usual seasonal decline in home sales? As everyone knows, the unusual and unseasonal decline arising from Government policy is doing the damage.

Have the Government made an estimate of the effect of this relaxation and, if so, would the right hon. Gentleman enlighten us about that estimate? As he talked about "a modest stimulus to the economy generally," was this modest stimulus taken into account by his right hon. Friend the Chancellor in arriving at his estimates of the likely expansion of demand and production this year? If so, what is the right hon. Gentleman's estimate of the extent?

Mr. Jay

The right hon. Gentleman knows only too well that there tends to be a seasonal decline in home sales in the second half of the year and that if that is allowed to proceed too far it could be damaging to exports. We have made a careful estimate of the result of these measures, in consultation with the motor industry and the main firms. We have no doubt that, as a result of this action, the total production of the industry in the latter part of this year will be higher than it otherwise would have been; and its capacity to export will, therefore, be very much larger.

To answer the right hon. Gentleman's question about the estimates made by my right hon. Friend, the Chancellor has taken this into account. It was never contemplated that the restrictions introduced in July of last year would last for ever. The only question was when they should be relaxed, and we think that this is the proper time.

Mr. Maudling

The right hon. Gentleman said that the Government had made a careful estimate in conjunction with the industry. Will he enlighten the House by giving that estimate?

Mr. Jay

I have already answered that question. We think that there would have been an injurious fall in production had this change not been made. We now think that home sales will be maintained at a level which will enable exports to be considerably higher than they would otherwise have been.

Mr. Luard

I warmly welcome my right hon. Friend's announcement. As there is a very serious situation in the motor industry today, and as there is, even now, a strong possibility that there may be an acute crisis in the autumn and winter of this year, will my right hon. Friend give an assurance that, in addition to this relaxation, he will not close his mind to a possible relaxation of Purchase Tax on motor cars?

Mr. Jay

No, Sir. We do not think so. We have now made a very major relaxation in the hire-purchase restrictions, and in our opinion this is perfectly adequate to meet the situation.

Mr. Bessell

Why has the period of 30 months been chosen for repayment instead of the normal 36 months, which would seem easier to operate? Is the right hon. Gentleman aware that the Liberal Party welcomes his statement, which will provide an excellent impetus to the export trade?

Mr. Jay

The period of 30 months has been chosen because, in the light of the information we have about prospective home and export demand, 36 months would, in our opinion, have been going too far. The right figure at the moment, also in relation to the percentage of down payment, is 30 months.

Mr. Roy Hughes

I congratulate my right hon. Friend on having made this important statement, which will be warmly welcomed by many thousands of workers in the motor trade, who have been concerned recently about their future in this major industry.

Mr. Gresham Cooke

While this relaxation is, of course, to be welcomed, is the right hon. Gentleman aware that, generally speaking, it is very tardy and that the motor companies have not only made a loss in the first quarter, but that a fall in production has occurred which will undoubtedly affect exports? Is he aware that other industries, such as radio and television, are suffering likewise and that there may be unemployment in those industries in the autumn unless something is done?

Mr. Jay

The hon. Gentleman describes this action as "tardy". He will be aware that there has been a considerable improvement in the balance of payments over the last 12 months. If this recovery had not occurred it would not have been possible to have made even this relaxation.

To answer the hon. Gentleman's question about how other industries are affected, he will realise that they do not suffer so severe a cyclical problem as the motor industry and that, in any case—as he knows only too well—during the last 11 months the down payment for the motor industry has been higher than the down payment for those other industries.

Mr. Mendelson

I assure my right hon. Friend that his statement will be welcomed generally, not only in the motor car trade, but in the ancillary industries, such as steel. Has he seen the estimates of the National Institute for Social and Economic Research, to the effect that investment is still seriously lagging behind and that there will be a continuing underlying tendency towards higher unemployment unless the Government take further measures forthwith to encourage consumer demand?

Mr. Jay

Yes, Sir. I have studied those estimates. I think that one of the advantages of this action is that it will have a modestly stimulating effect on the economy as a whole, as well as directly on the motor industry.

Mr. Iain Macleod

Leaving the wider questions for discussion at some future time, am I right in assuming that the right hon. Gentleman's statement refers equally to new and to second-hand cars?

Mr. Jay

Yes, Sir.

Mr. Macdonald

Will my right hon. Friend bear in mind for the future that these changes either up or down in hire-purchase controls make it very difficult for the industry to plan ahead, particularly in capital investment? Further, would he seek, if it is at all possible, to avoid trying to control the economy by these kinds of changes in the future?

Mr. Jay

I am sure that my hon. Friend realises that there is a school of thought in the industry itself which thinks that the Government, in their planning, should take into account the seasonal pattern in the industry. That is one of the important factors we have to consider.

Mr. Biffen

While accepting that there may be some kind of case for a modest relaxation in hire-purchase controls, may I ask whether the right hon. Gentleman will take this occasion to assure us that the Government are fully conscious of the dangers of premature reflation, and endorse the view on the subject expressed by the Governor of the Bank of England at the British Export Houses dinner on Monday?

Mr. Jay

Yes, Sir. We are very fully conscious of that, but I do not think that the hon. Gentleman would think that there are enough, if any, alterations in the balance of economic policy at any one time. We are aware of that, but think that we have achieved the right balance.

Sir M. Galpern

While the President of the Board of Trade has given, briefly, the general reasons for not extending the reduction in hire-purchase payments to other commodities, is he aware of the unusually high incidence of short-time working in the furniture industry? Can he hold out any comfort to that industry by way of announcement of an early reduction in hire-purchase deposits on furniture?

Mr. Jay

I could not add anything about the furniture industry at the present time. I would remind my hon. Friend that at the moment the down payment on furniture is only 20 per cent., whereas, even after this change, it will be as high as 30 per cent. in the motor car industry.

Sir A. V. Harvey

Will the President of the Board of Trade confirm that what he said applies to motor cycles and other light vehicles? Further, bearing in mind other industries, some of which have been having a very rough time indeed, if the situation does not improve in the next month or two, will he make a statement to the House before the Summer Recess?

Mr. Jay

I am sure that the hon. Gentleman realises that motor cycles and three-wheelers were covered by my right hon. Friend's Budget statement, by which the arrangements then in force were changed to a 25 per cent. down payment and a repayment period of 27 months. Therefore, the down payment on motor cycles is already lower.

Mr. Rowland

My right hon. Friend will be aware that today's announcement will be welcomed in the Midlands, but can he say how far today's changes are in accordance with representations made to him by the motor industry? And can he give some estimate of the number of jobs which will be either saved or created by these changes?

Mr. Jay

I think that it is for the motor industries to speak for themselves on their own recommendations, but we have gone as far to meet their request as we thought to be in the national interest at the present time. I should not like to give any exact statistical estimate of the effects on employment, but the changes will clearly have a favourable effect on both the vehicle and the components industries.

Mr. Alison

The President of the Board of Trade spoke of this being a contra-cyclical move to even out seasonal fluctuations; but it looks to us like a once-for-all measure. Does he intend to make further moves next year when the cycle changes? If not, will he consult his right hon. Friend the Chancellor of the Exchequer about the possibility of a differential rate of Purchase Tax for cars, to take account of the cycle?

Mr. Jay

As to the future, we shall take the right decision at the right time.