HC Deb 23 July 1969 vol 787 cc1935-64

2.36 a.m.

Mr. Peter Mills (Torrington)

I am grateful for the opportunity to raise the subject of the financial position of agriculture even at this hour. The position is so serious that, irrespective of the time, it is important that we discuss it.

I am concerned about the financial position of agriculture and the credit facilities available. The industry is not only very large but it is playing an important rôle in the affairs of the country. Given a chance and the wherewithal, it could play a much bigger part and could make an increasing contribution to our balance of payments. This is, therefore, not just a speech from an agriculturalist, although, of course, I declare an interest; I am concerned about the effect of the financial position of agriculture on the country.

The position is serious for agriculture and, therefore, it must also be serious for the country. Financial difficulties are being experienced by most people—we have heard about the problems of small businesses—and they are certainly being experienced in agriculture. These difficulties are the direct result of Government action and the Government must take the blame.

Farmers have had a serious blow from the weather over the past year. We had problems last autumn, in the winter and in the spring, and we have had to contend with considerable disease. All that has caused a serious deterioration in the financial position of many farmers and of agriculture in general. I speak from hard and bitter experience. I know what happened on my farm. We have lost about 40 gallons a day in milk produc- tion—about £140 a month. If hon. Members add the extra costs which we have suffered, again as a direct result of the Government, they will realise how serious is my position, let alone that of countless farmers in all parts of the country.

I want the Government to intervene to halt the deteriorating financial state of farming. Of course, farmers should have been able to set aside reserves to enable them to contend with unfavourable weather. No one likes "belly aching" about it. We ought to be able to stand on our own feet. But for the last three or four years we have not been allowed to do so. Hon. Members opposite talk about 13 wasted years in agriculture under Conservative Governments. We did not have all the fat that we should have liked on our backs, but we had much more than in the last three or four years. The combination of bad weather, increased costs and no reserves has meant that many farmers have found it very hard to continue. It is necessary only to look at the number of farms for sale.

The nation cannot afford this situation. Means must be found to arrest the fall in farm incomes before the next Price Review. It is particularly important to provide adequate credit facilities without further delay, if the Government really want agricultural production to increase, and one almost feels that they do not. I believe that the Treasury does not have this at heart, and is putting the brake on agriculture. The Treasury must answer for much of the position that agriculture is in. I have my doubts about whether the Treasury and the Board of Trade really want agriculture to play the part it should play in the interests of the nation as a whole. Something must be done quickly.

I understand that bank advances to farmers have risen considerably. In 1963, when the "wicked" Tories were in power, the total was £381.4 million. It was £507.1 million in 1968, and in February, 1969, the latest figure I have, it was £518.8 million. So, since the Conservatives left power there has been a tremendous increase of £125 million borrowed by farmers from the banks. It is easy for the Government to say that they are now providing the facilities required. But in a way we do not want those facilities. The Government have the late spring this year. So we are in a serious position.

The mid-June debate on agriculture did nothing to help. What a miserable show the Government put up! The advice and suggestions of the Ministers who spoke were pathetic, to say the least, in the present situation. In a sense, I have sympathy for the Minister of Agriculture and his Department. I do not believe that they are wholly to blame for what they said in that debate, for behind them again was the Treasury.

Monty Keen put it very well in an article in British Farmer headed, "No Real Help for the Cash-Hungry", in which he said: The Minister of Agriculture, caught, poor man, in a pincer grip between personal sympathy and the Treasury's restrictions, could do little more than assure the Opposition spokesman, Mr. Godber, that he would look carefully (before turning it down, of course) into the suggestion of interest-free Government loans to afflicted farmers with bare fallowed land. To give the appearance with the reality of a concession is a difficult feat of political conjuring. Both Mr. Cledwyn Hughes and his Parliamentary Secretary, Mr. John Mackie, managed it brilliantly. So they did, but it was a pathetic act, because behind them was the Treasury putting the clamp on. It must take most of the blame for the position we are in and the failure of anything constructive to come from that debate. There was not a single thing to give farmers encouragement or help. Even the remarks about tax relief were not new, so why did the Minister make out that this was a new proposal? His remarks about bank lending were not correct, because the banks cannot lend any more. The ceiling has already been reached, and it is pathetic to say that agriculture gets priority. It may well do, but if there is no money in the till, or they are not allowed to lend any more, that is useless.

Let us look at the short-term and medium-term credit or finance which is available or which should be available to agriculture, because this is simply the cash which is needed at the moment to help farmers in their present position. I keep on my desk an excellent book called "Finance for Farmers and Growers", from Martins Bank. It says: Banks are the primary source of short-term capital, and may agree to grant the farmer an overdraft to meet financial requirements of this nature. How right that is. How expensive it is under this Government. How impossible it is at this time to do it. We can write it off for medium- or short-term finance. Banks cannot help any more. The Treasury is to blame.

In the case of the Agricultural Credit Corporation, Limited, things are slightly easier, but the rate of interest is 10½ per cent. There is F.M.C. (Meat) Limited, which makes available unsecured advances to assist in agriculture. It will give £10 for a bacon pig or £5 for a pork pig; 75 per cent. of cost for store cattle and 60 per cent. for ewes and store lambs. But here is the rub—again, it is the fault of the Government—they are having to charge 14 per cent. for pigs and 13 per cent. for cattle. What a nonsense. Those who keep pigs and stock know that the margin is not there to be able to pay that amount, so one can write that off. Hire-purchase finance is well known"— say Martins Bank and goes on— and may cover various kinds of agricultural implements, vehicles, plant and livestock". It makes one laugh. What is the cost? The sum ranges from 18 per cent. to 26 per cent. for hire purchase. Fancy paying 26 per cent. on hire purchase. The farmer who does so wants his head seeing to. Whose fault is it? It is the Government, the Treasury, especially, who have allowed this position to develop. There is no margin in agriculture to pay that kind of interest rate.

The book continues: Merchants and tradesmen. A considerable amount of finance is granted to farmers and growers in the form of credit … through merchants and tradesmen. Thank God for them. We should be in a worse and shocking position if it were not for them. The reason they cannot help more is that they do not come in a priority scheme and have had their overdrafts cut. This is reflected in the position of farmers. The Government should allow priority to merchants seeking to help agriculture over this difficult period. Every single thing suggested, as a direct result of this Government, particularly of the Treasury, one has to rule out because it is too expensive or not available.

That is the sad position of agriculture at present. It is all very well to be critical, but what can one suggest that the brought this about. There is a general feeling that at present farmers are less credit-worthy than they were, largely because of the effects of the bad harvest and Government should do? I hope that we shall have no more of the pathetic nonsense we had last time, but a clear statement of what the Government will do to help agriculture.

Banks should be allowed to lend more where farmers are creditworthy. Ceilings on ovedrafts could and should rise, in the interests of agriculture, and far more important, in the interests of the nation as a whole and of the part which agriculture can play. This is not an unreasonable request in view of the importance of agriculture. Interest rates are crippling and need to come down now. Perhaps the Government would consider whether a special concession could not be made. Priority should be given to agricultural merchants who are playing such a big part in financing agriculture. If the banks are lending £518 million, the merchants are doing an equivalent amount. Because of the part they are playing, they should be allowed priority of help as well.

I hope, too, that the Treasury will think about spreading income tax demands over three years, which would help agriculture as a practical step. Serious consideration should be given to a special review. It is obvious that a better end price for our products would help. We do not really want to borrow money. We want to be able to finance these things out of the profits we make.

We come back to the problem we have mentioned many times, but which the Government fail to appreciate—the need to control imports. These huge imports sap the confidence of our industry. They lower the end prices for our farmers. The more we import—especially the heavily subsidised imports—the less is paid for the farmers' end products. I cannot understand why the Government cannot see this. Again I believe that it is the clammy hands of the Treasury and the Board of Trade which are stopping import substitution. A large proportion of last month's increased imports consisted of food.

The position is serious for the industry and the country. Credit is expensive and difficult to obtain. Agriculture lacks working capital, the wherewithal to tackle the job the Government have said it should do. No longer can we live on just hope and vague promises. What is needed is Government action. We cannot let this serious matter go on sliding.

I hope that the Minister of State, Treasury, will reverse the pathetic performance we had in last June's debate and give the industry more tangible evidence that the Government mean business. I hope that he will allay some of my fears.

What will happen otherwise? Farmers will become more and more cynical, will withdraw more and more into a sort of shell. The easiest way for me to reduce my overdraft is to get out of my pig enterprise and sell it off, just when we want more pig production. I should be able to sleep more quietly. Do the Government want agriculture to reduce production? I hope that we shall hear something concrete from the Government tonight in helping to solve this very difficult problem.

2.55 a.m.

Sir Harry Legge-Bourke (Isle of Ely)

I intend to make a largely constituency speech, but I am particularly glad that the Minister of State, Treasury, and the Parliamentary Secretary to the Ministry of Agriculture are present to hear the debate, because, although I shall relate most of my remarks to my constituency, they will apply to other areas, especially in North Lincolnshire and South Yorkshire.

I told the Minister of Agriculture in a letter which I wrote to him on 2nd June and of which I sent a copy to the Chancellor of the Exchequer that in May the rainfall in the northern part of the Isle of Ely was five times normal. One inch of rain is equivalent to 113 tons of water per acre. Normal rainfall in May in the Isle of Ely on the fens concerned is about 130, average over nine years. In 1967, it was 301 tons; in 1968, it was 320 tons and this year it has been 636 tons.

I am grateful to my hon. Friend the Member for Torrington (Mr. Peter Mills) for raising this subject. I fully appreciate that he was taking a more general line, but I have tried to explain to the Minister of Agriculture the need for more selective assistance for people who have been affected by the rains in May. My constituency has been hard enough hit. I understand that North Lincolnshire and South Yorkshire have been so badly hit that farmers have been literally in tears, with utter despair facing them and knowing perfectly well that the crops they drilled or the potatoes they set would not be gathered this year, or, if at all, in quantities so small as to make the harvest totally uneconomic. They have been more grievously hit than ever before in living memory.

I appreciate that the Treasury has a problem, having got our financial affairs into the mess they have. This parliamentary day, which has now spilled over from yesterday into the calendar today, is very glum for me, not least because of the astonishing announcement from the Foreign Office earlier this parliamentary day that we have had to borrow £50 million from the Germans. I suppose that at the next Labour Party conference, instead of singing "The Red Flag", the delegates will sing "Deutschland, Deutschland über alles". It is a humiliating position when our economy is in such a parlous condition that to keep going at all we have to borrow £50 million from the Germans over and above the £3,000 million which the Government have already had to borrow elsewhere. I therefore appreciate that the Treasury is in a jam when it comes to helping anybody specially.

At the same time, the Government are committed to a long-term agricultural expansion policy. The Parliamentary Secretary very properly said in an otherwise inadequate speech: I must generalise a little. One bad year does not drive a farmer off the land any more than one good year makes him a reckless spendthrift"—[OFFICIAL REPORT, 16th June, 1969; Vol. 785, c. 98.] I am acutely aware of that, but I hope that the Treasury will recognise that if it wants to support an agricultural expansion programme, it is no good thinking in terms of one year only and that if it wants to encourage expansion over the years ahead, it has to ensure that farmers do not go under in the meantime.

The Treasury is a Department of which I have long had the utmost suspicion and often a deep loathing, for many reasons. There is no Department which has more blood on its hands because of its attitude to defence between the wars. There is no Department which has exercised more nepotism throughout the Civil Service to have its way. There is no Department which makes it less possible for people to give of their best. Its attitude has always been one of maintaining its control of the whole Government machine regardless of the agony it causes anywhere. I am being very rude about the Treasury tonight, but I have the highest respect of the Minister of State and the deepest sympathy for any Minister who finds himself involved in the ghastly machinery which the Treasury represents. I therefore absolve him of any malevolence, but the system in which he finds himself is one which he should do something about changing.

The Treasury operates in a way which would not be tolerated in any commercial enterprise. Its real rôle should be that of a financial director. When the "board"—in this case, the Cabinet—decides on a policy in the interests of the country, it should be the job of the financial director, as much as any of the others, to further that objective. Contrary to industrial practice, the Treasury turns itself into a braking machine and does its best to ensure that every possible impediment is put in the way of those who are trying to pursue a policy. We are the most over-monitored nation on earth, and no Department is more responsible for this than the Treasury. If it adopts this attitude over agriculture, it will stultify any efforts by the Minister to get an expansion programme going.

The Financial Secretary, who is an agreeable fellow, and can keep us up later than most, wrote to the on 9th July, responding to my letter to the Minister of Agriculture, a copy of which I sent to the Chancellor. He referred to the debate on 16th June, and said: Since you wrote, the problems created for farmers in your constituency and other parts of the country by the exceptional weather conditions in the past year have been debated in the House on 16th June. There was a very full discussion, in which you took part, and I think the Government's position was set out fully by the Minister of Agriculture and the Joint Parliamentary Secretary. I would only add a word on the position as regards bank credit. In our present economic situation there can be no general relaxation of the ceiling restriction on bank lending. But, as you know, agriculture was specifically mentioned in the guidance provided to the banks by the Bank of England as a priority category of borrower, within the ceiling, because of is import saving role. That still remains the position. It is for banks to reach decisions on individual cases in the light of their general lending position and of their normal commercial criteria, as well as of the guidance issued by the authorities. I am sure bank managers will consider credit applications from farmers hit by the bad weather as sympathetically as they can This letter totally ignores one of my principal points to the Minister in my letter, of which the Minister of State has seen a copy—namely, that, because of the three bad years running which farmers have had in certain parts of my constituency and some others, many farmers are so totally "in the red" that they dare not borrow any more at the present rate of interest, even if the banks would lend it.

I am asking for special treatment for the individual farmers most severely hit. One might ask how they are to be identified. The Parliamentary Secretary to the Ministry of Agriculture will know, even if the Minister of State, Treasury, does not, that if a crop of potatoes is under water for more than 48 hours it is not likely to be harvested. In my constituency, quite a large acreage of potatoes was under water for three days. It is virtually a write-off.

On top of that, because of the bad conditions last autumn, nothing like the usual acreage of wheat was drilled. As a result, many farmers drilled barley in the spring. A couple of weeks ago, I went around my constituency to see the aftermath of the appalling weather in May. I have never seen barley looking worse in my life.

Another crop grown in the Fens which is a great help to many farmers is peas for vining and threshing. I have never seen them in a worse condition. It is not a guaranteed crop, but it brings in cash often when nothing else will. This year, all too often the crop is a write-off.

If the National Advisory Service, the agricultural executive committee system and the Potato Marketing Board cannot provide the Ministry with the identification necessary to single out the farmers who are severely hit, I wonder what they are there for. I am convinced that this can be done. It is no good the Treasury saying that the banks can give priority to agriculture and, at the same time say, that there can be no general relaxation on the ceiling restriction on bank lending when the banks often are having to bring down their individual ceilings. We are now in a straitjacket from the point of view of agricultural credit.

I submit that my constituency and others which were hit severely by the May rainfall should get selective direct grants. These men must be kept going. Some of them are on their beam ends. For the first time in their lives men have gone into the bank. Many of them went in last year for the first time. At the present rate of interest there is no likely return, certainly not this year. We must carry these men over into the 1970 cropping season. I suggested in my original letter to the Minister that one way of doing this would be either loans at a specially reduced rate or loans at a deferred rate of interest so that at least there could be some money coming in before the interest had to be paid.

I calculate that we shall have one of the worst harvests in the Fens this year that we have had for many years. The yields will be down. This calls for special treatment. It is no good the Parliamentary Secretary saying, as he did in the debate in June, that in farming one year must be taken with another. Farmers have had three bad years in a row. The one means that normally carries them through has now dried up on them. Even if it had not dried up, many of them could not afford to use it at the present rates of interest.

Therefore, if the Government mean what they say about a fairly quick expansion of agricultural production they must do something to carry these farmers over into the 1970 cropping season. If they do not, they will betray these farmers. It is no good waiting on the N.F.U., because the N.F.U. in my experience from an agricultural house point of view, can only put forward a case on behalf of the industry as a whole. I am asking for special treatment for selected people who can be identified by those capable of identifying them. I am asking for something to be done for these people over and above anything which has been said by the Minister. If we have to rely upon the Treasury carrying on in its old traditional way, we shall never see the agricultural expansion programme that we all desire.

I hope that we shall see the injection of new thinking into the Treasury so that whatever decisions are taken in the future the Treasury can be committed to them and have the obligation of furthering the projects which have been decided upon instead of acting as a stultifying, unimaginative monitor.

3.3 a.m.

Mr. R. J. Maxwell-Hyslop (Tiverton)

We have been told that the Government have an import substitution programme. I say "we have been told", because unless we had been told it we would not gather it from any external evidence. A Question of mine a few months ago elicited the Answer that imports of temperate foodstuffs had actually increased. Half of the increase was attributed by the Minister to devaluation. This is not surprising. The reason the import substitution programme has failed entirely and the recommendation of the National Economic Development Council abandoned in practice, though not verbally, is that the capital necessary to finance it has not been forthcoming. There is a reason for everything, and that is the reason for the failure of the import substitution programme.

What was needed was £230 million right away and £110 million a year injection of capital. What we have instead is a monumental increase in costs directly attributable to Government action, quite apart from the natural disasters for which nobody, neither the Government nor anybody else, is to blame. The Government are directly to blame for the high interest rates and for the increase in S.E.T. These are definite, measurable increases in cost for agriculture.

Agricultural Mortgage Corporation loans, where available, are priced at 10¼ per cent. What crop must a farmer grow to be able to sustain an interest rate of 10¼ per cent.? Nobody has told us and, of course, it is not happening.

Successive Ministers have mouthed meaningless words about credit priorities for agriculture. They remind me of a station-master who tells the passengers, anxiously waiting for the last train, that they will have priority on the next one, well knowing that the lines have been taken up and that a train will never come.

What is the good of writing to hon. Members, making statements in the House, answering Questions and each time saying that within the global limit on bank lending the banks have been asked to give priority to agriculture, when the Minister making such a statement well knows that the amount of money that the banks are allowed to lend is being reduced? It is just like the station-master on the platform where the rails have been taken up. The train will not come. The reason it is not coming is that the Treasury has issued instructions that the money must not be lent. It is as simple as that.

If the Government were serious about their import substitution programme, they would give it the same priority that they give to export industries. They do not do this. Export industries can still get bank loans at a special, artificial rate of 5½ per cent. What the farmers have to pay, if they are exceptionally lucky, is 1 per cent. above Bank Rate, or 9 per cent. In many cases they have to pay 1½ per cent. above Bank Rate.

That means that agriculture is having to pour out between £45 and £50 million a year in interest. At the same time, it has to find extra working capital to lend money to the Government in the form of increased S.E.T. The best estimate that I have been able to get from the clearing banks is that of the increase in bank credit to farmers in the last year, at least one-third—this is important, and I ask the Minister of State, Treasury, to take it in—was not new capital formation but was accumulated interest on existing loans which the farmers are unable to pay.

I hope, therefore, that nobody will get up at the end of this debate and tell us that as loans to farmers have risen by £37 million during the last year, this is to be taken as a measure of the capital injection into agriculture from the banks, because it is nothing of the kind.

Moreover, that is not the whole story, because the bank squeeze has also applied fairly viciously to the agricultural merchants who supply farmers on credit. The farmer has, therefore, been forced into the bank, and part of the increase of £37 million in so-called loans to agriculture is merely a transfer of credit from the agricultural merchants to the farmers. When the ultimate recipient of the credit is the same person—the farmer—it does not represent any net increase in lending. This is at a time when, to carry out the programme to which the Government have given public acceptance in this House, an injection initially of £230 million and then of £110 million a year is needed. This is the measure of the complete failure of the Government's policy.

Of course, it is worse than that, because it is not only agriculture which is suffering: it is the nation as a whole. Every part of our economy is suffering from the balance of payments crisis and the panic measures which the Government have adopted following it. The one and only course of action open to the Government to break the back of the balance of payments problem is import substitution, and the only way to achieve import substitution is by a massive increase in agricultural output, and, as "Neddy" has pointed out, the only way that will be achieved is by a massive injection of capital into the industry.

There are, after all, two forms of prudent farming—high farming and low farming. We can either reduce our costs to the minimum by a low-farming policy so output per acre is right down; or our flexible costs or variable costs are minimised. We have no alternative to doing that if we run out of working capital, because the option of a high-farming policy, which is what the nation needs, and which even the Government see the nation needs, is an impossible option if we have not working capital to finance it. It is well known that a large number of improvement grants are not being claimed because the finance is not available to supplement with £3 every £1 the Government put on the table. If the £3 are not there for the £1 from the Government, the £1 might be a £1 million for all the use it is to the industry.

I say again, it is not only the postion of the individual farmer which is at stake; it is the position of our entire economy, which is dependent on the import substitution programme, and the linchpin of this is availability of new capital.

In the Price Review debate I endeavoured to draw to the Minister's attention—such a task is beyond many people's ability, including my own—but I endeavoured to draw to his attention, the fact that new capital formation within the agricultural industry depends upon the difference between receipts and total costs—not just the costs of Price Review commodities but total costs. My hon. Friend has just referred to the pea crop, which has been ravaged by the weather. This is a source of income to the farmer; equally, the cost of planting it is a cost to the farmer. We need to look at the rising total costs, not just the costs of Price Review commodities, because it is the difference between the cash flow in and total costs which constitutes the ability of the industry to finance its own capital development, and here we have a sorry tale, too.

The fact that the bad weather is not the Government's fault is neither here nor there. The result of it on capital formation is exactly the same whether it is the Government's fault or not, but when a natural disaster of this kind comes upon us, then, if the Government want to see their own policy of import substitution carried out, they must make further adjustments of their own policy.

What, then, do we need? First, we need a special Price Review, because major items of costs, S.E.T. and the cost of bank credit, have skyrocketed. Secondly, loans to agriculture need to be placed on the same footing as loans to the export industries. Agriculture should have the same credit terms available to it.

It is no good Ministers talking about giving priority to agriculture if they do not mean what they say. One cannot give priority to everybody or one ends up in the situation so graphically described by W. S. Gilbert. Priority means putting a given category ahead of other categories.

If priority is to be given to agriculture so that the selective expansion and import substitution programmes can be met, it can only be done by giving the same priority to agriculture as is given to the export industries. Unless and until the Government are prepared to give this priority, all their words count for nothing. The industry does not need words. It needs more capital at a price which can be serviced by the productivity in the industry.

My hon. Friend the Member for Torrington (Mr. Peter Mills) quoted hire purchase rates as being more than half the amount allowed by law to moneylenders—4 per cent. per month, or 48 per cent. per year. And the rate quoted by my hon. Friend was more than half of that. That is the situation which has now been reached. If the agricultural industry succeeds in borrowing money at these prodigious rates of interest, it will result in a round of inflation that will torpedo the Government's prices and incomes policy. It is, therefore, not even prudent to make money available at that price.

The Government must treat the agricultural industry in the same way as they treat the export industries, since it is the only way in which their own policy and the national interest can effectively be served. It is already far too late to meet the "Neddy" target for 1972–73, but it is not too late to start to carry out a policy which could lift us out of our balance of payments crisis. I appeal to the two Ministers who are present to get down to it and give the House action, not words.

3.23 a.m.

Mr. J. E. B. Hill (Norfolk, South)

After three weeks of the superb weather which we have been enjoying, many people are apt to say, "I suppose agriculture has now caught up after the damage which was inflicted on it by the bad weather of last year." Like my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke), I have seen many areas which are empty of any agriculture at all. The fine weather is of no help to them.

I must declare an interest. We have a lot of land with no crops on it at all, and I am as short of credit as any of my farming neighbours. But nothing that will happen this year will restore the damage done to the last harvest. It is difficult to realise that we are two-thirds of the way through the first year of the Government's four-year import substitution programme.

Any expansion programme needs capital in order to cope with the increasing amount of fixed investment and the larger scale of business requires further working capital. The N.E.D.C. report to which my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) referred suggested a £220 million per annum extra import saving programme as being feasible. That programme would have needed £230 million fixed capital on a once-for-all basis and an annual increased working capital of £110 million a year. But the Govern- ment programme was for £160 million of import saving; and I suppose that that would need between one-half and two-thirds of the N.E.D.C. capital figures.

One could modestly put the need at an extra fixed capital of £120 million, with £60 million of working capital. But in answer to a Question in April last, the Parliamentary Secretary said: Total bank lending to agriculture increased by £36 milion in the year ending February, 1969, while other lending, through the Agricultural Mortgage Corporation, has gone up by £24 miliion, so it is obvious that farmers are getting the credit they require".—[OFFICIAL REPORT, 2nd April, 1969; Vol. 781, c.: 475.] That inference was as wrong as it was complacent, because the total of £60 million extra against an income shortfall of £40 million as between the year just ended and the preceding year does not begin to cover the needs of expansion. Indeed, much of the Agricultural Mortgage Corporation's extra £24 million lent out was for land purchase and not for expansion.

Similarly, when the rates were raised to 10¼ per cent. on 29th April of this year, the A.M.C. chairman said: It is difficult to see how owner-occupiers can produce enough to make enough out of farming to pay this sort of interest rate. It is clear, therefore, that farmers will not be willing to incur this rate of interest to finance possible expansion on a permanent basis.

With the very high prevailing rates of interest, it is time to again consider whether it is wise to keep the rate of interest on A.M.C. loans the same throughout the period of the loans and whether we should provide for a refinancing of such loans if and when interest rates generally come down.

As for the extra bank advances in February, for which the Parliamentary Secretary took such credit, they were about 9 per cent. of total bank advances by the joint clearing banks. In the late 'fifties, which was a reasonably prosperous time for agriculture, the proportion of advances to agriculture by the banks was about 12½ per cent., of their total If the proportion today were 12½ per cent., that would mean an extra £150 million being available to agriculture, which would be a welcome change and would perhaps be enough to initiate the Government's programme.

The penalty now is that if the banks sought to do this, they would have to refuse credit to their other customers. Banks are saying, "We cannot lend to agriculture, even if we want to, without calling in money lent to other customers, and we do not want to lose them because we know that they are up against it just as much as the farmers."

Broadly speaking, banks are only able to lend working capital to harvest. They have very little, or nothing, available for medium-term growth and still less for long-term growth. Even if the banks were allowed to make further loans, how are they to be serviced and amortised by the farmers incurring them? The main source of agricultural investment comes from extra net income, virtually from the Price Reviews. It was calculated that the "Neddy" programme, which had to do with fixed capital at £230 million, could be dealt with assuming that a 25 per cent. grant for most of the fixed capital improvements could be amortised over a 15 year period at a cost of about £19 million a year. Similarly, the figure of £110 million annual extra working capital required to be amortised over, say, five years, for about £27 million a year.

Those were the calculations of an agricultural economist of one of the leading joint stock banks in The Times of 22nd February of this year. Even if we scale those figures down to match the Government's programme of £160 million import saving, there is no sign of these lesser amounts being made available in the Price Review. The Parliamentary Secretary has always tended to claim that there is a great increase in new fixed equipment in agriculture. The figures he quoted are that in 1963 it was £167 million. Then there was a plateau of about £170 million a year over the three years 1964–66. In 1967, it went up to £183 million, and in 1968 it was £211 million.

The hon. Gentleman says that shows that everything is going well with the investment required for the expansion programme. However, he is giving current prices and in real terms the effect of inflation will have reduced the value of those figures. More significantly, these are figures for gross new investment, including a large element of replacement.

The Ministry's economist, giving evidence to the Select Committee on Agriculture on 10th April, 1968, dealt with this when answering Question 464. Dr. Dexter, when asked what proportion of the new gross investment in fixed equipment was attributable to depreciation and not to new machinery said: I think in agriculture for plant, machinery and equipment, it is much higher than 40 per cent.; the depreciation charges are almost as high as the gross capital formation. So that the net addition to agricultural capital in the form of plant, machinery and equipment is, in fact, very small; it is doing very little more than maintaining itself. For buildings, of course, it is rather different; a much larger element of the gross capital formation is for additions to the total stock. But we do not have any precise estimate of the depreciation element for buildings; we can make those much more easily for plant, machinery and vehicles. That puts in its true perspective the claim that these figures show that all is well with the expansion programme. But more is needed. I must ask the Parliamentary Secretary, or the Minister of State, Treasury, if he is to reply, whether he is asserting that the Government's target is still to save an extra £160 million of imports by agricultural expansion in the four years ending 1972. Farmers and, indeed, bankers in Norfolk, and no doubt in the rest of the country, frankly disbelieve it. They see the Minister of Agriculture, Fisheries and Food, however earnest his demeanour, continually being tripped up, as my hon. Friends have said, by the Chancellor of the Exchequer. So agricultural policy has become a sort of Ministerial knockabout.

For example, we have had the enforced ceiling on bank advances which was later reduced to 98 per cent. That has rendered the alleged priority for agricultural expansion nugatory. There was then the Bank of England's now notorious letter trumping the Ministry's June letter to the clearing banks. The interesting point is that the Bank of England asserted that it laid down the rules at the time of devaluation, and that was that. But the Government's policy on agricultural expansion came a year later in November, 1968, presumably in the light of what the then priorities were said to be.

Lastly, there is the petty but deliberate discrimination against the agricultural industry in the last Finance Bill. It is almost incredible that the Government should go out of their way, at a time like this, to penalise bank overdrafts arising from agricultural maintenance and improvement. In earlier days Ministerial conflicts on this scale would at least have resulted in a resignation. Now we are not going to bury a Minister, but what about the policy? If the Government no longer believe in agriculture's import saving rôle, they should "come clean" and say so. It is unforgivable for the Government to profess the end while continuing to deny the means.

I should prefer to see Treasury and Agriculture Ministers get together—I think that today is almost the first sign of any team work that I have detected during the last two or three years—and decide now that agricultural credit from the bank should be allowed to approach the old proportion of 12½ per cent. of total advances. That will get expansion moving again. They should also work out, between now and the next Price Review, what additional investment from income is needed to turn the Government's expansion programme into reality.

3.40 a.m.

Mr. J. B. Godber (Grantham)

It is an unusual pleasure that we have tonight in having a Treasury Minister to respond to the debate. We welcome the Minister of State, and we hope that we shall still welcome him when we have heard his reply, which may perhaps be overoptimism. In this short debate we have had some hard hitting speeches from my hon. Friends, but I hope that we shall have a full response from the Minister.

I do not propose to go into detail on the various issues. They have been forcefully put by my hon. Friends, and we had a debate on these subjects only last month. On that occasion we had a very unsatisfactory reply from the Government. They now have the opportunity to correct that lapse.

There is no doubt that had it not been for the late hour and the fact that there are many other subjects to debate many others of my hon. Friends would have wished to take part in this debate, because there is continuing concern, at a very high level, about this problem, and a feeling that the Government either do not realise, or do not intend to do anything about, the real problems which exist.

In the previous debate we made it quite clear that there were special problems relating to weather in certain parts of the country, and my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke) brought out clearly his own problems. I hope that the Minister will give a sympathetic reply to the problems that were raised. When I spoke on the previous occasion, I said that that area, plus North Lincolnshire,. North Nottinghamshire, and South Yorkshire were the areas worst affected, and I suggested how these could be dealt with. The Minister of Agriculture has since said that what I suggested is impossible, but I sometimes wonder whether it is impossible, or whether there is a lack of determination to solve the difficulties. I recognise that there are difficulties, but the fact remains that nothing has been done to help the farming community in this regard.

My hon. Friend the Member for Torrington (Mr. Peter Mills) spoke with great feeling and from personal knowledge of the present difficulties. He was loud in his condemnation both of the Ministry of Agriculture—I think that he used the word "pathetic" in relation to the speeches of the Minister and his Joint Parliamentary Secretary on the last occasion—and of the Treasury. The Minister of State now has an opportunity to restore Ministerial prestige after these attacks, and I hope that he will take advantage of this opportunity to do so.

In any debate on finance and credit for agriculture we have to remember two special features which distinguish this industry from any other. The first is that by reason of our system of agricultural support the Government are directly concerned with, and directly responsible for, the level of return to the farming community. The Government, by White Papers and Price Reviews, have brought down the return to the farming community.

If one takes constant prices—and the Government are very fond of doing that in relation to defence—and the returns to the farming community, one finds that the answers that they have given in the last few months show that compared with other sections of the community the farming community is worse off than at any time during the last 15 years. This is the truth of the situation. Against that there is the special factor of the expansion programme which the Minister of Agriculture announced on 12th November last year, when he said that adequate resources would be made available for that programme.

Those two factors distinguish agriculture absolutely and completely from any other industry, and it is against that background, and bearing in mind the special problems created by the weather, that we are having this debate today.

The main issues have been spelled out by my hon. Friends, and I do not propose to dwell on them. There is one special point to which I intend to refer because it is essential that the Government should clear up the confusion which exists—and this was referred to a moment ago by my hon. Friend the Member for Norfolk, South (Mr. J. E. B. Hill)—about the advice given to the banks in relation to loans for agriculture. We look to the Minister for a clear answer on this, and we hope that we shall get it, because we have had so many conflicting and evasive answers that it is time the matter was cleared up.

During the debate on 16th June the Minister of Agriculture said: I should like to turn to the credit position. The industry already receives top priority within the ceiling for bank lending. I have been in touch with the joint stock banks and they have assured me that—as on previous occasions—they will give whatever additional assistance they can to help farmers with special problems due to the bad weather."—[OFFICIAL REPORT, 16th June, 1969; Vol. 785, c. 69.] We therefore understood that a special directive had been given to the banks that they would provide additional credit. Yet there seemed to be stories circulating that this was not the case, so at Question Time on 2nd July the Parliamentary Secretary was questioned by my hon. Friend the Member for Westmorland (Mr. Jopling) and then by the hon. Member for Caithness and Sutherland (Mr. Maclennan) and his final response was: I will look into that point. I later asked if we were to have a statement to clear the matter up, but we have had no response. We would have had no response before we rose for the Summer Recess had not my hon. Friend the Member for Torrington succeeded in getting this opportunity to discuss the matter tonight.

The question asked by the hon. Member for Caithness and Sutherland was: whether it is true that the Bank of England has written the letter to which the hon. Gentleman referred, which would appear to run absolute counter to the Government's policy. My hon. Friend had previously asked whether the hon. Gentleman was aware that the Bank of England has written to the joint stock banks telling them that letters expressing pious hopes about priority agricultural borrowing should be virtually ignored. …"—[OFFICIAL REPORT, 2nd July, 1969; Vol. 786, c. 410.] This is the point on which we want clarification.

The Times, on Thursday, 3rd July, was quite specific about this. It said: A substantial confusion between the Ministry of Agriculture, Fisheries and Food and the Bank of England emerged yesterday during question time in the Commons. John Mackie, Parliamentary Secretary at the Ministry, said that he would look into reports that the Bank had written to the commercial banks about lending to the farming community. The Bank had considered it necessary"— This I take to be what the newspaper says; it is not a continuation of what the Parliamentary Secretary said: to write such a letter recently because of an earlier one direct from the Ministry to the London clearing banks in June. This letter requested the banks to take a lenient attitude on the question of farm overdrafts, because of the tight liquidity position and financial hardship of the farming sector. That, presumably, was what the Minister referred to when replying to the debate on 16th June.

The article in The Times went on: The Bank of England was concerned that such a letter from a Government department might confuse the clearing banks on the question of lending priorities and advance ceilings. … the Bank's chief cashier therefore wrote to the clearing banks reminding them that the Ministry letter in no way affected the priorities previously indicated to them for lending and that advances to farmers were still very much part of the total that had to be brought within the 98 per cent. Ceiling. The Bank of England's guide lines for lending priorities, originally set out at the time of devaluation and repeated several times since, spoke of the importance of financing for exports or for sectors such as agriculture with an import saving content. There was clear surprise at the Bank of England that any Government department, let alone a non-economic one, should have seen fit to write to the clearing banks on a matter of this sort without consulting them. There is, "clear surprise" in this House that such an extraordinary position should have arisen between Ministers and we look to the Minister of State to clear up the matter. Was such a letter sent by the Bank of England? Did it completely discount what the Minister of Agriculture had said? Does this mean that all banks are reminded specifically that they are not to provide additional credit to farmers? We should be told tonight. We should be told precisely what instruction has been given to the banks.

We are told repeatedly that agriculture comes within the top priority for lending, but on many occasions I have been told that within the top ranking of priority there is a degree of grading and that certain export industries are given a higher grading for credit than is agriculture. Will the Minister of State tell us whether that is true, because the wording of Ministerial letters on the subject is always slightly vague?

The last letter which I have seen on the subject, from the Parliamentary Secretary to one of my hon. Friends on 17th July, stated: The advice given to banks by the Bank of England is unchanged. Agriculture, in recognition of its import-saving rôle, receives priority along with lending for exports and invisible earnings within the credit ceiling. It is always put in that way—that agriculture receives priority along with exports. But it is not said that it receives comparable priority with all exports and that it is in the top rank of lending.

A number of my hon. Friends, and I, too, have been receiving in recent weeks letters from constituents stating their difficulties in getting credit. On previous occasions the Parliamentary Secretary said that he had received no such letters, but I trust that he has now received them—and it would be interesting to know how many. We have had letters of complaint from creditworthy farmers who are unable to get additional or sufficient credit for their business. There is no doubt that a number of such letters have been received since the Parliamentary Secretary made a statement on the subject.

Summarising, it seems to me that my hon. Friends have made a devastating case about the need for agricultural credit. The Government must have a responsibility in relation to it, both by reason of their control of the economy of the industry and by reason of their pledge to an expansion programme—a programme which cannot take place without adequate credit. The Government have shown a degree of confusion in their advice to the banks, if that article in The Times means anything—and if it is not true, perhaps the Minister of State will tell us so. We want to know whether such advice has been given, what is the position and what the Government intend to do both to help in the generality and to help in particular areas such as those which my hon. and gallant Friend the Member for Isle of Ely described so clearly. My hon. Friends the Members for Torrington and Tiverton indicated the problems of the West Country. Such problems can be found all over the country, although they ale worse in some areas than in others. They have been accentuated by the Government's general policy on credit. We have had neither sufficient guidance nor sufficient information from the Government to let us believe that they are not only aware of the problems, but are anxious to help. I hope that the Minister of State will take the opportunity to give us the information which we so badly need.

3.53 a.m.

The Minister of State, Treasury (Mr. Dick Taverne)

I intend to reply to the debate on the issue of agricultural credit, although during the course of addressing themselves to that issue some hon. Members have ranged rather wider and have dealt with agricultural policy in broader terms. I do not wish to go back to the matters which were fully dealt with by my right hon. and hon. Friends in the Adjournment debate on agriculture on 16th June. One hon. Member described their efforts as pathetic and another quoted a criticism to the effect that they were brilliant. Anyone who read the report of the debate and reflected upon it would feel that full answers were given to the points raised.

There are three points which I wish to mention in passing before I come to the specific issue of credit. First, I am not sure where the hon. and gallant Member for Isle of Ely (Sir H. Legge-Bourke) gets the figures showing three bad years. In 1967–68 there was a substantial increase in farming incomes. It is true that 1968–69 was a bad year. As for the present year, while recognising that there are severe problems in certain areas, I suggest that overall it is premature to judge until we know the result of the harvest.

The second point bears particularly on the Treasury. The hon. Member for the Isle of Ely—and he was not alone—expressed dislike for the Treasury. One sometimes gets the impression, not only in agriculture, that there is resentment of the role the Treasury plays in government. This is natural, because the Treasury is concerned with the control of public expenditure. It is painfully clear from debates in this House that while everyone pays lip service to the need for overall control of public expenditure, everyone is enthusiastic for a particular policy which will increase public expenditure.

The Treasury, unlike other Ministeries, finds itself in the position of saying "No" to, and limiting, other Departments. Just before this debate we had a debate on small companies. There were eloquent speeches by hon. Members opposite calling for an end to restriction on small companies. Calls have been made for increased investment grants. An extremely good case can be made out for increased Government spending. Agriculture is not alone in being able to put up a good case for increases, but that does not affect the need for the Government to contain public expenditure within certain limits.

Just before I come to the Budget strategy and credit restriction, I would say to the hon. Member for Norfolk, South (Mr. J. E. B. Hill), who mentioned the variable rates of the Agricultural Mortgage Corporation, that that is a matter for the corporation. I am sure that it will consider what he has said.

We cannot discuss credit restriction on agriculture without having regard to the need for credit restrictions overall. A tight control of credit is an essential part of Government economic strategy. If monetary policy did not play its part, fiscal measures would have had to be more severe than they were in the last Budget. The Government have had to reverse their borrowing requirement, which was £1,300 million in 1968 and for which the outlook this year is that it will be a surplus of over £800 million.

At the same time, to reinforce this effect, there is also a necessary policy of credit restriction in the private sector through restriction of bank lending. There can be no relaxation of this restriction on bank lending in present circumstances. This is not a painless process. Nobody pretends that it does not mean that some of the projects affected, whether in agriculture or outside, are not projects which are eminently worth while and that to some extent restriction on lending does not cause harm.

Of course it does, in agriculture, for small companies, and in other spheres, but overall, in the general interest of Budget strategy of diverting resources to exports, which produced moderate results last year, but not results as great as had been hoped, it has led to our being on current account at present in the black. Part of that policy requires the continuation of restriction on credit. Interest rates are high, partly because world rates are high; and our rates cannot be significantly out of line with those in other financial centres without loss to our reserves. They are also high partly because high interest rates are an essential element in a tight credit policy at home. We must remember that in the case of farmers, as of all businesses, the effective cost of borrowing is not the same as the nominal rate of interest.

At a time when credit is inevitably tight and expensive for all sections of the community, agriculture clearly cannot be completely exempt. It could be exempted from the ceiling on bank lending only at the cost of severe restriction on credit for other categories still within the ceiling. I was asked what the position of agriculture within the ceiling is, and I should like to state the general position before coming to the issue of the letter to the banks, which the right hon. Gentleman raised. Agriculture does not enjoy exemption from the ceilings on bank lending. The only lending that enjoys this exemption is special lending under the special fixed interest rates schemes for export and shipbuilding finance.

The hon. Member for Tiverton (Mr. Peter Mills) asked that agriculture be treated in the same way as exports. Not all export lending is at the specially favoured rate of 5½ per cent. It is only the export credit guaranteed lending that enjoys the 5½ per cent. rate—in those cases where there is direct competition abroad. Other export lending comes within the ceiling, and is on exactly the same basis as lending to agriculture.

The guidance issued to the banks by the Bank of England in May, 1968, is what prevails, and it is that within the ceiling, which is now 98 per cent. of what it was, and subject to normal banking criteria, banks are asked to give priority to lending for export transactions and 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. All of those have priority over other lending, and they are all on a level. It is a matter for the normal banking criteria in each case what loan can be given. These are all on a par, and one does not have priority over the others, but they have priority over lending for private purposes and purposes not connected with exports or import-saving.

What was the position about the Bank of England letter? There is no divergence of policy between the Treasury and the Ministry of Agriculture. The policy continues to be that which I have just stated, and which was first outlined in 1968. Agricultural lending is, therefore, a priority category within the ceiling, and the Ministry's letter to the banks and the statement my right hon. Friend made was always intended to he read and interpreted within the context of this guidance. It was not a modification of the guidance.

But to ensure that the reports of the letter which found their way into the Press did not lead to misunderstanding, particularly in the banks which did not receive the original letter, the Bank of England made it clear to the banks that the letter was not intended to alter the priority status of agricultural lending within the ceiling. There is no question of reducing the priority of lending to agriculture. Its position is exactly the same as it has been since the guidance issued in May, 1968.

Mr. Godber

This is very important. I am sure the hon. and learned Gentleman wishes to give all the information he can about it. It seems odd that there should have been one letter from the Minister of Agriculture followed by this other letter. He says this was due to Press reports. To enable the House to judge, would he be willing to place in the Library a copy of the Bank of England's letter, so that we can see precisely what was said?

Mr. Taverne

I will consider that, but we have to have regard to the customary position of Bank of England letters to the banks. I said that it was due to two factors: first, the Press reports; and, secondly, to make the position clear to those banks which did not receive the letter from the Minister of Agriculture. But the overall position is clear. There is no conflict of policy. There has been no change in policy. Agricultural lending has not been up graded or down graded, but is exactly the same as before. The position should be clear now to all concerned.

Mr. J. E. B. Hill

Surely there is the distinction that the Government had promulgated an agricultural expansion programme of £160 million in import savings within four years. What means was there for ensuring that agriculture would get the credit needed to sustain that programme?

Mr. Taverne

What was vital to the selective expansion programme was the Agricultural Price Review and it was with this in mind that special encouragement was given to beef and cereals. My right hon. and hon. Friends have expounded their case and it goes rather beyond a debate on credit. I was asked specifically what is the position of the priority of agricultural lending within the overall credit restrictions policy, and I hope that I have made it clear.

It has been suggested by several hon. Members opposite that the ceiling should not apply at all to agricultural lending.

Mr. Peter Mills

I did not say that. I said that it should be raised slightly.

Mr. Taverne

Perhaps I am misquoting the hon. Gentleman. He said that the ceiling of bank lending should be raised for agriculture. The hon. Member for Tiverton (Mr. Maxwell-Hyslop) suggested that it should be outside the ceiling. If the ceiling is raised for agriculture or agriculture is exempted from the ceiling, it is going to be impossible to maintain the ceiling, because, as I said earlier about the Treasury having to see the overall picture, it is not only agriculture which makes out a deserving case for credit being available.

Many other industries make out such a case. All the other priority categories which come within the ceiling at the moment and which are treated on a par have a deserving case for having the ceiling raised or for being exempted. It would be impossible to maintain the ceiling for other categories while either excluding agriculture or raising the ceiling for agriculture.

As I have said, credit restriction is not a painless restriction. At a time when the banks are under a severe degree of general restriction, it may be that they have to be somewhat more selective than usual, even in agricultural credit, if they are to avoid a disproportionate catastrophic effect on other credit users. This was illustrated in the June debate.

But there is no reason to suppose that the banks are unable to meet the farming community's requirements for working capital, even if they cannot meet all the demands made for medium and long term loans for expansion for the time being. A number of speeches have been made by hon. Members opposite explaining how credit worthy farmers have been refused loans and they have been met by my right hon. and hon. Friends, not only in the June debate but at Question Time, by requests that specific cases should be given. While it is not true that there is no evidence of credit-worthy farmers having been refused loans, there is little evidence of it.

I understand that the number of cases received totals about 30. As that is out of a total of 300,000 farmers, it cannot be said that there is overwhelming evidence that credit-worthy farmers are being refused loans. It should be remembered that there may well be cases when a bank refuses on the ground that a farmer is not credit worthy, but gives as its reason the general restriction. Per haps the President of the National Farmers' Union will produce some more examples, as he has promised, but so far there is no evidence that this tremendous restriction on credit means that creditworthy farmers are not getting loans.

In general, we believe that the banks are doing their best to meet the needs of the farming community within the ceiling in accordance with the guidance which is given to them. My hon. Friend and his Department will certainly consider any concrete evidence to the contrary, but it must be for the banks to decide whether credit should be given in any particular case.

Sir H. Legge-Bourke

rose—

Mr. Speaker

Order. I hesitate to interrupt, but interventions prolong speeches and this is the eighth of 40 debates.

Sir H. Legge-Bourke

I realise that, Mr. Speaker. I merely wanted to ask whether the Minister would do anything about those 30 cases.

Mr. Taverne

They are being looked at by the Ministry of Agriculture.

I was asked whether merchants and suppliers to farmers and growers could enjoy the same degree of priority as farmers. This is obviously an important question. When businesses which trade with the industry can be identified as supplying especially to farmers, I am sure that the banks will have regard to their importance to the farming community. The Government agree that they deserve the same degree of priority as farmers for bank credit. But it must be possible to identify the business, and it is not always possible.

I do not deny for a moment that the general policy of credit restriction has led to difficulties. The difficulties in some areas are greater than those in others. Nevertheless, one cannot have a general policy of credit restriction which exempts agriculture or allows it to have a more favourable position than exports or other import savers. The general policy of credit restriction is essential to the Government's economic strategy and it is intimately linked with the fiscal policy as well. It has won results and in the circumstances I cannot hold out any hope that the policy will be specially relaxed in favour of the farming community.