HC Deb 24 May 1968 vol 765 cc1083-92
Mr. Dickens

(by Private Notice) asked the Chancellor of the Exchequer if he will make a statement on the new credit restrictions announced by the Bank of England last night.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

The new restrictions, which are described in an announcement by the Bank of England, which I will, with permission, circulate in the OFFICIAL REPORT, should ensure that the switch of resources into the balance of payments which devaluation and the Budget are designed to achieve is not frustrated by excessive expansion of credit for domestic spending.

Mr. Dickens

Will my right hon. Friend tell the House frankly what truth there is in the allegation in The Times this morning that this decision by the Bank has been influenced by the I.M.F. Mission currently working in the Treasury? Moreover, since many of us are deeply concerned about the steady rise in the seasonal trend in unemployment, what estimates have the Treasury made of the effect on the level of unemployment this year of this new restriction?

Mr. Jenkins

There is no truth whatever in the statement that I did this in response to the Mission from the Fund. I have not yet had the pleasure of seeing the Mission myself, although I shall do so in a short time. It is the case that I envisaged some weeks ago that I would have to consider this position as soon as the May figures were available. On the latter part of my hon. Friend's question, I do not think that the new restrictions, which are not intended to have a net deflationary effect but to make possible a switch of resources, should affect the trend in the level of unemployment and, provided, as I believe is the case, that exports pick up rapidly, I am not pessimistic about this trend.

Mr. Iain Macleod

May I put three questions to the Chancellor? First, does he realise that this action goes straight against the forecast which he has made of unemployment and that the last three months' severe worsening trend comes on top of the worst consecutive period of heavy unemployment which we have known since the 1930s and is, therefore, bound to cause anxiety? Second, is he aware that, in relation to the effect which this will have on the so-called "spending spree", he was urged to act months ago and that what he is doing now is locking the stable door after nearly all the horses have bolted? Third, does he really not recognise that it passes belief that this restriction is not linked with some of the visits of our invigilators? Would he please resist the current heresy that the British economy is susceptible to the same sort of measures as the Americans?

Mr. Jenkins

On the first question, of course I follow the unemployment trend with close interest and great concern, as the right hon. Gentleman does, but I do not take the view that this is any argument at all for departing from the Budget strategy. Nor do I regard this announcement as a departure from such a strategy. I regard it very much as the leader in The Times Business News this morning made clear, as a natural action within the scope of that strategy.

On the right hon. Gentleman's question about the visit of the International Monetary Fund, I have already dealt with that. I propose to take such measures as I believe are necessary for the British economy when they are necessary and I do not regard this tightening of credit as being a locking of the stable door. It was necessary to see how the banks responded to the credit restrictions imposed in November by my predecessor, and it is not desirable to make these changes too frequently.

I do not entirely follow the thought behind the last part of his question. I intend to take what measures are necessary, and I have taken them, for the economy of this country, and they are certainly not necessarily the same as for the economy of any other country.

Mr. Macleod

Perhaps I might put one further question to the right hon. Gentleman. It will be brief, because other hon. Members wish to raise points with him. On the unemployment position, the Chancellor now has three months' figures available since his Budget which were not available to him then. They show a worsening trend in unemployment on top of an already serious situation. Is he seriously telling us that they have no effect at all on his Budget judgment?

Mr. Jenkins

No. I am seriously saying that I believe that the way to deal with this trend is to see exports build up, as I believe they can and will. If the right hon. Member for Enfield, West (Mr. Iain Macleod) has another proposition that he wants to put forward, I would like to hear it.

Mr. Barnett

Can my right hon. Friend say why bank lending has drifted upwards in the way that it has, bearing in mind that on Budget day he told us that the current level in November, 1967, was the level of bank lending at that time? Is. he satisfied that he has adequate control to ensure that it will be kept at the level he now proposes, and what is that level?

Mr. Jenkins

The clearing banks are at about 104 per cent. of the position that they were at in November, 1967. Other banks which are also affected are at about the same level or possibly a little below that at which they were in November, 1967. All banks are now asked to restrict their lending limits to 104 per cent. of the base period in November, 1967, and asked to accommodate within this, without restriction, the priority categories, principally for lending for exports, the scope of which can be seen now more clearly and brought within the whole. This is not merely restriction but dealing with the ceiling in a new manner and not leaving matters like lending for export outside the ceiling.

Mr. Thorpe

What effect will these new restrictions have on expansion in the development areas?

Mr. Jenkins

I would not expect an adverse effect. The banks are aware of Government policy here.

Mr. Sheldon

Since one of the main reasons for the present restriction is to cut back the high level of imports, especially of manufacturing imports, will my right hon. Friend not agree that these sorts of restrictions have had little effect in the past on the high and rising level of imports? Will he take the advice of the National Institute this morning and consider contingency plans for making sure that if the high level of imports continues he is ready to meet the situation with direct action?

Mr. Jenkins

No, Sir. This restriction will have a beneficial effect on the level of imports. To the extent that it does that it will have a stimulating effect on the economy and not a depressing one in that it produces import savings. The Government have no proposals for the imposition of direct import restrictions.

Mr. Bruce-Gardyne

Is there not something familiarly ominious about this pattern of events? Is it not obvious that the whole burden of this restriction cannot be placed on the private sector, and is it not ludicrous that local authorities are still entitled effectively to borrow at 4½ per cent.?

Mr. Jenkins

No. I have made it clear that local authority lending should be brought back to normal by the banks and done so quickly. Lending to nationalised industries has been falling slightly recently. The hon. Gentleman should not exaggerate.

Mr. James Griffiths

While appreciating that my right hon. Friend must give priority to exports in the directives that he gives to banks, will he give the same priority to the development areas where unemployment is still double the national average?

Mr. Jenkins

The banks are aware of the Government's policy in this respect, which is fortified by other aspects of Government policy to give all possible help to the development areas.

Mr. Boyd-Carpenter

In answer to an earlier supplementary question, the right hon. Gentleman referred to having awaited the May figures. To which figures was he referring, and were they worse than he anticipated they would be at the time of the Budget?

Mr. Jenkins

No. I was referring to the May figures for bank lending. I do not think that that is the case. The management of the economy requires one to look at indices of this sort as they develop, and this seems to be a sensible time to take measures relating to bank credit to see that they fulfil the objectives of our policy.

Mr. Paget

Is it not a fact that none of the actions which my right hon. Friend has taken since devaluation has had the effect that economists expected them to have? Is not that because we have a new factor coming in, which is loss of confidence in the value of money by the ordinary man? Will he be able to avoid that without some really effective currency controls?

Mr. Jenkins

I do not accept that, nor do I think it is the case that there are many issues on which all economists agree. As for the response since devaluation, certainly it is the case that exports are running above the figure forecast and, I believe, will continue to do so.

Mr. Turton

Will the Chancellor bear in mind that this is a time of the year when agricultural overdrafts necessarily have to increase and make it clear to the banks that nothing should be done in pursuit of this policy to prevent the agricultural expansion which is so necessary for the balance of payments?

Mr. Jenkins

Certainly I take into account what the right hon. Gentleman says.

Mr. Winnick

Will my right hon. Friend not close his mind completely to the need for import controls, bearing in mind our present difficulties, and not agree that the latest run on the £, news of which we have just seen on the tape, shows that there is a need for further measures by the Government to protect and strengthen our £ against further speculation?

Mr. Jenkins

On the first part of my hon. Friend's question, I have nothing to add to what I said. On his second point, by far the best measure to strengthen the position of the £ would be an improvement in the balance of payments, which I expect to see in the forthcoming months.

Mr. Doughty

Why was not the Chancellor's statement made yesterday at 3.30, when the House was full? Why do hon. Members have to read about it in the papers this morning and be told about it by the Chancellor in answer to a Private Notice Question on Friday morning? Does he realise that many small firms who cannot borrow in the market because rates of interest are so high as a result of the Government's policy of excessive taxation upon dividends will find themselves in great difficulty and that the result will be increased unemployment?

Mr. William Hamilton

The hon. and learned Gentleman is only here on Friday mornings.

Mr. Jenkins

In answer to the hon. and learned Gentleman's first question, I followed the precedent set by my predecessor in 1966, to which no objection was taken by right hon. and hon. Gentlemen opposite, of issuing the statement through the Bank of England, and then, if the matter were raised in the House, dealing with it by a Private Notice Question. As for the hon. and learned Gentleman's second question, I do not believe that the dire consequences which he predicts will follow from this adjustment.

Mr. Orme

May I press my right hon. Friend further on the subject of import controls, since the banks' decisions will have the effect of holding unemployment to its present level, whereas selective import controls, following the recommendations made to the Government by the T.U.C. in its "Economic Review", would have the effect of stemming purchasing power in respect of goods brought into the country that we do not want? Surely the Government should reconsider this matter?

Mr. Jenkins

As I have said on many occasions, this country has a vital interest in preventing the growth of a wave of protectionism throughout the world. We now have the best export opportunities that we have had since the war. We are determined to exploit them. To block them by our own action would be extremely foolish.

Mr. Webster

In view of the need to maintain the balance between the public and private sectors, will the Government move an Amendment to the Gas and Electricity Bill to reduce borrowing powers which at the moment it is proposed to increase to £1,200 million?

Mr. Jenkins

No, this is a different form of borrowing.

Mr. Spriggs

Does my right hon. Friend agree that the greatest damage to the British economy is done by those people who sell Britain short?

Mr. Jenkins

There is a great deal in what my hon. Friend says.

Mr. Chichester-Clark

In view of what has been said about the importance of agriculture and the development areas, will the right hon. Gentleman confirm that the house building industry remains in a neutral class for loans?

Mr. Jenkins

The position is not changed by this announcement.

Mr. Lipton

Does my right hon. Friend expect these bank restrictions to have an effect on restricting hire-purchase expenditure and, if so, to what extent?

Mr. Jenkins

They will have some effect on the general level of consumer credit, though I have not introduced direct hire-purchase restrictions for the reasons that I gave in my Budget speech.

Captain W. Elliot

Can the Chancellor say what change has taken place in the general situation since the Budget to make these new measures necessary?

Mr. Jenkins

There has been no marked change in the general situation. It is merely that this is an appropriate time, six months after the last ceiling was imposed, to look at how it is working, both from the point of view of its level and the way in which the ceiling is made up, with exemptions, as was hitherto the case, for priority categories, and I have moved on to what I believe will be a new and more effective system.

Mr. E. L. Mallalieu

Did not my right hon. Friend at the time of his Budget forecast that he would, in certain circumstances, have to take just such measures as these? Is he aware that the great majority of hon. Members, on this side at any rate, are behind him in his efforts to redress the balance of payments?

Mr. Jenkins

I am very grateful to my hon. and learned Friend. I certainly always envisaged that the Budget strategy in no way meant that it was unnecessary to make a continuing review whether or not the level of bank credit was such as to fit in with that strategy.

Mr. Dodds-Parker

The Chancellor of the Exchequer typically attacked one of my hon. Friends by asking what he would do. Having spent the last couple of days at a Parliamentary conference in Europe, may I ask the right hon. Gentleman whether he is aware that the only way to restore the confidence which is needed is a change of Government?

Mr. Jenkins

I hope that the hon. Gentleman was in a rather more constructive mood when he met colleagues at his Parliamentary conference.

Sir Knox Cunningham

The Chancellor of the Exchequer has said that he has not met the delegates of the International Monetary Fund, but does he say that he had no communication with the authorities of that Fund before making his decision on these restrictions?

Mr. Jenkins

I have had no direct communication with them. This decision is based on my judgment and not on theirs.

Mr. Emery

I should like to return to the matter of borrowing for nationalised industries. Is the Chancellor of the Exchequer saying that he wants the nationalised industries to be as careful about their borrowing as the private sector is about its borrowing? If that is the case, how can the Government possibly press forward with a Bill enabling £1,200 million to be borrowed by the gas industry?

Mr. Jenkins

I most certainly want the nationalised industries to be every bit as careful as the private sector. They are subject to very severe controls, but it does not follow that important nationalised industries should not be able to carry out vital investment programmes.

Mr. Monro

Will the Chancellor of the Exchequer reduce the special deposits that have to be provided by the Scottish banks so that they may maintain lending in areas of high unemployment?

Mr. Jenkins

No, Sir. I have no such proposals.

Following is the announcement:


In November 1967 banks were asked to hold down most of their lending in sterling to the private sector and to borrowers abroad to the level then current. At that time it was not possible to foresee with any reliability the rate of growth in lending directly related to exports which would be needed over the immediately ensuing months; and such lending was therefore not brought within the quantitative limit then requested: Because the prospective growth of exports is now clearer, it has become possible to make an adequately reliable estimate, for the months ahead, of the growth in bank lending directly related to exports. Accordingly, the authorities have concluded that the administration of credit restrictions can both be simplified and made more effective by accommodating all lending directly related to exports, and to the financing of shipbuilding (under the special scheme relating thereto), within a new overall ceiling on bank lending to the private sector and overseas.

The authorities have also decided that the restrictions requested last November should be modified so as to achieve a greater reduction in lending to non-priority borrowers than has so far taken place and at the same time to leave sufficient room for lending for exports and for activities directly related to improving the balance of payments.

The clearing bank figures for May published this morning show, after seasonal adjustment, that the total of their lending in sterling to the private sector and to borrowers abroad, including export finance and other hitherto exempted categories, now stands at about 104 per cent. of the level reached in November 1967. These banks are asked not to allow this lending to exceed this percentage figure until further notice. All other banks should restrict their lending to the same percentage increase over November 1967.

Within this new ceiling and subject to normal banking criteria, banks are asked to give priority to lending for export transactions, to finance for production and investment necessary to sustain increased exports, for the promotion of invisible earnings or, as in the case of agriculture, for securing a saving in imports. The banks will need to make room for such lending within the new ceiling by curtailing lending to persons and for other non-priority purposes. They are asked especially to intensify restrictions on the granting of credit associated with imports of manufactured goods for home consumption or imports for stock accumulation.

Banks are asked to apply the restrictions set out above both to credit given through loans and overdrafts and also to credit given through commercial bills and leasing facilities.

Personal loans where related to the purchase of goods subject to hire purchase terms control should be on terms no easier than those permitted by the Board of Trade for hire purchase contracts.

The authorities have noted that lending to local authorities by the London clearing and Scottish banks, through advances, has risen appreciably since last November, largely because of switching from other forms of short-term finance. The banks are asked to ensure that such lending returns to normal levels.

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