HC Deb 25 March 1969 vol 780 cc1573-85

6.43 a.m.

Mr. A. H. Macdonald (Chislehurst)

Nearly five months ago my right hon. Friend the President of the Board of Trade introduced a hire-purchase control order and a control of hiring order. The effect was to increase the minimum down payment and reduce the maximum payment period allowed under this type of transaction. This was not by any means the first time such orders had been introduced. At the time, my right hon. Friend said: The Government have been reviewing the level of domestic demand. There are now signs of continuing buoyancy of consumer spending which, if it were to continue unchecked, would pose a threat to our balance of payments objectives."—[OFFICIAL REPORT, 1st November, 1968; Vol. 772, c. 345.] I accepted then, and accept now, that there can be occasions when there needs to be some measure of control exercised over consumer spending and when those circumstances arise I do not dissent at all from the proposition that hire-purchase, credit sales and rentals, and other forms of credit trading, must bear their due share of any controls exercised. I should like to offer some criticisms of the concept of this form of hire-purchase control. Since these orders were introduced the Chancellor has introduced other measures intended to exercise a measure of control over consumer spending. In so far as these are not devoted exclusively to hire purchase and credit sale or rental, they are good. They are generally broad and to some extent flexible. The measures imposed on hire purchase and other forms of credit trading are precise, rigid and inflexible.

I have four particular criticisms to make of this concept of hire-purchase control orders. I want to argue first, that they make forward planning difficult, if not impossible; second, that they permit members of the public to adopt what I call devices, some within the law and others not within it, to avoid the provisions of the orders. Also, there is a tendency for such orders to promote "dissaving" which is directly contrary to the Government's professed objectives. Fourthly, in so far as they are effective in reducing credit trading, that effect is simply to increase other forms of consumer spending.

I deal first with forward planning. It is regularly argued that our export trading, particularly in cars, one of the items most closely affected by this form of order, needs a large home market. I have never been satisfied that it needs a large home market, but I can understand that a successful export trade needs an assured home market so that the manufacturers can rely, with some confidence, on their home sales, and plan ahead for the amortisation of their property and the depreciation of their plant and so on. Since 1958 there have been quite a number of changes in hire-purchase regulations. It is rather a pity that I have no way of reading a graph into our records because it would make much clearer the point I am trying to make.

In the absence of that facility I will have to have recourse to words. I have a schedule setting out the effect of hire-purchase controls since 1958. First of all, to deal with cars. I begin in 1958, because at that time there were no restrictions. In 1960 the minimum down payment was increased to 20 per cent. In 1965 it went up to 25 per cent.; in 1966 it went up to 40 per cent. In June, 1967, it was reduced to 30 per cent. and in August, 1967, it was reduced to 25 per cent. In November, 1967, it went up to 33⅓ per cent. The order I mentioned at the beginning of my speech increased the down payment on cars to 40 per cent. At the same time the repayment period was subject to fluctuating regulations.

Starting in 1958 there were no restrictions. In 1960 a maximum repayment period of two years was imposed. In 1961 that went up to three years and then in 1965 it was cut to two and a half. In February, 1966, it was cut further, to two and a quarter years and in July, 1966, it was cut again to two years. In June, 1967, it went up to 2½; in August, 1967, it was extended to 3; but in November, 1967—this is three changes in one year—it was cut to 2¼ years. Finally, it was cut back to two years.

I could quote similar instances of fluctuations, but I will not weary the House with a detailed list of the goods subjected to orders. However, I should like to quote one other instance—television sets. In 1958, there was no minimum deposit. In 1960 the deposit was made 20 per cent. In 1962 it went down to 10 per cent.; 1965, up to 15; February, 1966, up to 25; July, 1966, up to 33⅓; 1967, down to 25; and 1968, up to 33⅓per cent. The repayment period varied from 2 years, up to 3, down to 2½, down to 2, up to 2½ and down to 2. With all these fluctuations, it must be very difficult for any manufacturer to plan his production ahead on a rational basis.

I should like to quote a few words from the Radcliffe Report of 1959, an admirable document in many ways. On this topic, paragraph 468 reads: … the exercise of these controls has fallen heavily on certain industries, among them new and progressive branches of light engineering. These industries complain that production schedules are expensively dislocated and that the forward planning so necessary to efficient production has been made almost intolerably difficult". Paragraph 472 returns to the point and reads: The light engineering industries have been frustrated in their planning, and the public corporations have had almost equally disheartening experience. … It is far removed from the smooth and widespread adjustment sometimes claimed as the virtue of monetary action; this is no gentle hand on the steering wheel that keeps a well-driven car in its right place on the road". My next criticism is that the imposition of these controls tempts the public to adopt devices. Before I was elected to the House, I worked in the hire-purchase business for 16 years. Therefore, what I say now is not taken at third or fourth hand. I quote the case of a motor car dealer who used to keep an old "banger" in his back yard. When high deposits were required and a customer could not find the money, he would trundle out this car and sell it to the customer for £5. Then he would increase by £50 or so the price of the car the customer wanted to buy and the customer would sell the "banger" back to him for £55 as part of the deposit. This is entirely illegal, but it is not easy to check.

The business of another motor dealer was divided into two parts, one normal retail motor business, and the other car-hiring business. The car-hiring business was unusual in that the rental transaction aimed to cover the whole cost of the car within two years. This is not the usual form which rental transactions for cars take, but this did. As the down payment was at this time appreciably less on rental transactions than on hire purchase, it could be said in a sense that offering rental of this kind presented an attractive feature to customers.

They had to hand the car back at the end of two years and they handed it back at one end of the building, the end occupied by the car-hiring business. The car-hiring section, having cleared their outlay on this vehicle, could sell the vehicle to the car sales part of the business at a fairly nominal sum. The car sales department would put the car in the showroom at a bargain price and who should walk in to snap up the bargain but—surprise, surprise—the man who had just handed the car in at the other end of the building. I am not sure whether this transaction was illegal or not, but if so, it would be hard to pin down.

These are all devices of doubtful legality but there are alternative methods of obtaining credit which are perfectly legal. We have seen a significant increase in provident check trading. This type of trading escapes all control orders, because it is not hire purchase. There is no deposit and this is attractive to the public but I sometimes suspect that the public who use these facilities are not aware of the rate of interest being charged.

This is what I have to say about the devices which may arise when hire purchase control orders are in force. My next criticism is of the possible effect of these orders in producing a dis-saving among the general public. What I have to say relates to these orders, and although I am not going to mention it in this debate, the argument would also apply to an increase in Purchase Tax.

I have here some statistics from the Building Societies Association, taken from last year when the various methods of consumer control were intended to be in force. They compare 1968 with 1967 savings. I have figures for the first three-quarters of each year only. I shall quote them. Savings withdrawn during the first three-quarters of 1967 were £270 million; £254 million were withdrawn during the second quarter and £257 million during the third quarter, an average of about £260 million a quarter. In 1968, savings withdrawn in the first three-quarters were £382 million. £349 million and £378 million. Here we have a distinct dissaving effect. I notice, in support of this, that certain suggestions have been made that some parts of the national savings scheme are not doing as well as they used to. Some are doing better, it is true, but Defence Bonds, Savings Certificates and the Post Office Savings Bank are not attracting savings to the extent that they did. I associate this with attempts to exert some control over consumer spending. I suspect that the public. if difficulties are placed in the way of their obtaining credit, are only in part deterred and, in part, dip into their savings. If that be so, the effect is entirely the opposite of what the Government intend.

When my right hon. Friend introduced these control orders, he argued—I am sorry that I have not been able to find the reference—that he did not expect anything more than a temporary effect and that in six months we should be back to the rate of business which had obtained before the orders were introduced. I agree that we see a certain law of diminishing returns in the effect of these hire-purchase control orders over the years, but I submit that there are other explanations for those diminishing returns.

I believe that we see the diminishing effect principally because people are now learning to find other methods of obtaining credit or are dipping into their savings. When the concept of the hire-purchase control order was first thought of 10 years ago, we heard nothing about a diminishing effect or a period of six months after which we should be back to square one. At that time, such orders were something of a novelty and people had not learned how to encompass and circumvent them. But now, perhaps, people have become more sophisticated or more experienced, and I doubt that such Measures have the same effect.

In part, the effect of these control orders may be to reduce expenditure on the form of goods covered by them, but consumer spending on other articles not so covered increases by a parallel amount. I have some rather interesting statistics here taken from an article in Credit, the Journal of the Finance Houses Association. In July, 1966, some control orders were imposed. One can see the effect on goods covered and goods not covered by comparing like periods of months in 1966 and 1965.

First, sales of new cars: in August, 1966, the month following imposition of the order, sales of new cars were 12 per cent. down on August, 1965; in September they were 23 per cent. down on the previous September; in October, 29 per cent. down; in November 25 per cent. down; and in December 24 per cent. down. Thus, it might be argued that the control order was having a beneficial effect. We see parallel figures for furniture, which in the five ensuing months compared with the five parallel months of the previous year were down by 1 per cent., 4 per cent., 6 per cent., 8 per cent., and 6 per cent. So far so good.

Now, what about sales by mail order during those same comparable periods: they went up by 14 per cent., 6 per cent., 8 per cent., 6 per cent., and 10 per cent. So there was an increase there counterbalancing the decrease in the sale of motor vehicles. Next, sales in public houses of beer and so on, taking the same two five-month periods: up by 4 per cent., 7 per cent., 3 per cent., 6 per cent. and 3 per cent.

Thus, when the totals are all taken into account, one sees that the net effect in those five months following the 1966 orders was no different from the aggregate level of consumer spending during the parallel five months of 1965. Mr. H. D. Oliver, who wrote the article and who is personally known to me, has this comment to make: It is a curious philosophy that considers it helpful to the national effort to cut back on cars and furniture and expand on mail order, drinking and fancy goods. I am bound to say that I think there is some force in that comment. During the past 10 years consumer expenditure has gone up. Again, it is a great pity that I cannot write a graph into the record to make my point. But although consumer spending has gone up the hire-purchase debt during the same period has remained practically level and, if anything, has slightly gone down.

I should like to quote again from another article in Credit. Since 1955 the hire-purchase debt outstanding to finance houses has actually fallen by 3 per cent., whereas the advances by American banks, to take one example, to United Kingdom residents and local authorities have gone up, since 1955, by 53 per cent.; advances by accepting houses by 29 per cent.; and other increases could be quoted.

So it appears that the effect of these hire-purchase orders, in so far as they do have any effect, and I have indicated my reasons for suggesting that the effect is not quite so great as the authorities would like to suppose, bears heavily on finance houses but gives an opportunity to institutions offering other forms of credit to advance at a much more rapid pace than otherwise they would do.

Ten years ago, when the Board of Trade dreamed up this system of hire-purchase orders, it was a big idea and very successful, but because it is easy to operate there has been no fresh thinking, and we are going on with diminishing returns on these lines. It seems to me that these orders are unsatisfactory, abrupt and jerky, and very partial in their application, and that a number of institutions are not affected by them. I urge upon the Government that it is time there was rethinking about this topic. We have regulations attempting to control the price of credit; we have regulations attempting to control the demand for credit. It seems to me most desirable and most urgent that the Government should give urgent consideration to measures to restrict the general supply of credit, because I feel sure that it is through that that the solution of control over consumer expenditure must lie.

7.7 a.m.

The Minister of State, Board of Trade (Mr. Edmund Dell)

First, may I congratulate my hon. Friend the Member for Chislehurst (Mr. Macdonald) on being here at this hour of the morning to raise this subject? When we first saw the draw it appeared that he might be unfortunate, but by sticking things out while others have been cancelling right and left he has had his well-deserved opportunity to raise this matter in the House this morning. Certainly it is a subject on which he is an acknowledged expert, and I entirely accept it when he says that on this subject he certainly does not speak without authority but from very considerable personal knowledge.

He makes four criticisms of the hire-purchase control system, with which I will try to deal in turn, as he did. His first criticism—and this is a criticism I can well understand—is that these controls, and in particular the continual changes in these controls, make forward planning impossible; they create uncertainty as to the likely level of home demand, and, therefore, make it difficult for manufacturers who are producing the products subject to the controls to plan forward expansion, to decide how investment should be planned, and so forth. As I say, I well understand this criticism, but I think we should start with the point which he made at the beginning of his speech—and it is an important point—that it is necessary to control credit in this country. I think he will agree that it is true that any controls of credit, whether they be hire-purchase controls or other forms of credit control, which one might work out and substitute for them, would have, and would be intended to have, an effect on home demand, and, therefore, would create this element of uncertainty.

My hon. Friend may say "Yes, of course, but the hire-purchase control has its particular impact on a fairly limited range of goods where it is frequent that purchases are made on the basis of payments over a longer period than nine months"—in other words, those types of credit purchase which are subject to control—and that it is on these particular industries that the impact mainly falls.

Of course one has to accept that there are other forms of credit sale which are not subject to hire-purchase control, but nevertheless it remains true that any form of credit control will have the same effect. And hire-purchase controls, while they may have defects, have certain very positive merits.

The first of these positive merits is their speed of effect which few, if any, other regulators can match. My hon. Friend has referred to what has been said in this House and elsewhere, that the impact of this type of measure may fade away gradually with time. Nevertheless, the hire-purchase control does have an immediate effect on consumption, and this is a positive merit which it possesses.

Another positive merit it possesses—and I suggest that this goes some way to meet my hon. Friend's point about inflexibility—is that it can be adjusted selectively as between different industries. One can imagine other forms of credit control which might be produced as a result of examination into this field which is currently going on, which might not have this merit and which might be less satisfactory than a system of hire-purchase control which can be adjusted selectively as between different industries.

These are certainly advantages which we at present cannot forgo. One of the reasons why there are frequent variations in the degree of restriction is because on the one hand it is not wished to maintain a very high level of restriction longer than is necessary, but on the other if the economic situation of the country, the balance of payments situation, makes it necessary, one has to introduce stiffer controls whenever necessary.

My hon. Friend discussed the interesting and important question of whether one need;; an assured, or, as some people argue, a large home market in order to promote exports. I think it is certainly useful to have an assured or a large home market in order to promote exports, but I think this is a complex question and one which is legitimately subjected to much study. I think the degree of the importance of the home market depends to a large extent on whether the industry is capital intensive, and whether high demand is necessary to get low unit costs.

Now we come to the basic question in our present situation—whether there is high demand from overseas markets as a result of the devaluation of sterling. If that is the case, one can get low unit costs out of one's export business. Therefore the fact of high export demand puts a very different complexion on this whole question. There is no basic limit to the percentage of one's turnover which can be exported.

Important as the home market may be, desirable as it is from the point of view of the manufacturer to have a large home market or what my hon. Friend referred to as an assured home market, one should not become too much a slave to this argument. We should investigate fully, as industry in this country increasingly is investigating, the opportunity to reduce one's unit costs by means of increasing exports.

My hon. Friend then came to his next criticism, which dealt with the evasion of controls which takes place—illegal, he says, and legal evasion. To use the technical jargon of the subject, I suppose that one should speak of evasion and avoidance.

I note what he said about the illegalities, and I hope that such examples are not too frequent. Despite the fact that there may be a few illegalities of the sort which he described, the system has a very considerable impact.

As to the systems of avoidance by methods such as check trading and personal loans, I would refer my hon. Friend to the appeal which my right hon. Friend the Chancellor of the Exchequer made on this topic, asking those who operated other systems of credit control to come, in spirit if not in form, within the system. We have not been able to devise any workable solution which does not raise more problems than it solves, whether or not that solution would involve legislation.

Personal loans for cars generally are granted on terms closely following those imposed by hire-purchase control, but, cars apart, there is evidence of some diversion of business to other forms of credit. Certainly that causes me concern. I have discussed the matter with representatives of a number of industries who have put this point to me. I am sorry that I have not been able to give them a better answer, but the picture is that we are not at the moment able to provide a better overall form of credit control and, therefore, we have to rely on the hire-purchase and hiring controls. After all, a considerable volume of business is is still done on this basis, and this control is effective and worth while as a regulatory instrument.

It was in part because of our concern about the inequitable impact of existing forms of credit control that we appointed the Crowther Committee on Consumer Credit. We think that its eventual proposals for reform will provide a foundation for a more comprehensive control of the volume of consumer credit by whatever means given.

My hon. Friend's third criticism was of what he described as the dis-saving effect. I was interested to note that my hon. Friend said that this criticism would apply equally to increases in Purchase Tax. But he said at the beginning of his speech that, though he found defects in the hire-purchase and hiring controls, he accepted the imposition of the regulator which followed, in November, the imposition of the hire-purchase and hiring controls.

Mr. Macdonald

The point that I was anxious to make in my very early remarks was that I accepted the principle of measures that have an effect over a broad range of activities. I do not know that I was anxious to imply unqualified approval to every one of these broad measures.

Mr. Dell

I am grateful to my hon. Friend for explaining exactly what he had in mind at that point in his speech. However, I think that we are both agreed on the importance of having some means of controlling domestic consumption.

It is true that if we attempt to limit domestic consumption in one way or another, this may have the effect of people realising their savings in order to maintain their standard of living. This is certainly a possible effect of any such attempt. It is uncertain to what extent this effect operates. I do not think that the statistics that my hon. Friend has given are conclusive on the point. However, I should like to look at them. It is rather difficult to absorb them in the course of a debate on the Floor of the House. I will certainly write to my hon. Friend after I have had an opportunity to consider the particular statistics that he mentioned.

My hon. Friend's fourth criticism was that one effect of these forms of control is to divert spending to non-durable goods. I think that we should first be clear here that at worst what we are speaking about is the down payment, not the total purchase price. It is merely the down payment which can be diverted to spending on non-durable goods. Nevertheless, I do not think that it can by any means be certain that it will have the effect that my hon. Friend suggests.

After all, there are a number of possible effects from the introduction of stiffer hire-purchase controls. For example, it could be, and indeed probably is, quite normal for a person who finds that the minimum deposit has been increased to go on to collect whatever is necessary for the additional down payment. I suppose the fact that many people suddenly find themselves faced with having to collect the additional down payment is part of the reason for the immediate impact of the hire-purchase control system. This is one possible effect, and the evidence of common sense suggests that this is what a large number of people will do.

Another possibility is that a person confronted with this situation will abandon the purchase and decide to save the money that he would otherwise use to make the purchase. I can imagine that hapenning in a number of cases. He may realise existing savings to make it possible to make the down payment or he may spend the money on non-durable goods.

All these are possible alternative situations. However, I do not think that the evidence is that the diversion effect to which my hon. Friend referred, is any more than marginal.

My hon. Friend referred to certain articles in the magazine Credit which, on the basis of Board of Trade statistics of sales, claim to demonstrate that an intervening tightening of the control had led to a decline in the sales of cars and durable goods while retail sales as a whole were rising. We have looked at this evidence and are far from convinced that this provides a real statistical basis for demonstrating any connection between changes in net borrowing and changes in consumer expenditure on non-durable goods. In other words, while there may be some diversion at the margin, it is scarcely significant.

My hon. Friend ended by making an appeal for fresh thinking on this subject. I certainly do not deny that fresh thinking on this subject is necessary. The need for fresh thinking was the reason why we appointed the Crowther Committee. I understand the type of anxiety to which my hon. Friend has referred and, as I have said, I have considerable sympathy with at least some of what he said. I hope that the fresh thinking that we will get from the Crowther Committee will help us, if not to solve, at any rate to mitigate the kind of problem to which my hon. Friend has referred.

Question put and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

Committee this day.