§ 10.13 p.m.
§ The Minister of Housing and Local Government (Mr. Anthony Greenwood)
I beg to move,That the Assistance for House Purchase and Improvement (Increase of Subsidy) Order 1969, a draft of which was laid before this House on 16th October, in the last Session of Parliament, be approved.This draft Order gives effect to the Government's promise, which I made during the passage of the Housing Act, 1969, to make an Order adjusting the option mortgage subsidy. The Order is needed to restore —[Interruption.]
§ Mr. Greenwood
The Order is needed to restore the relative value of the subsidy, relative, that is, to the tax relief on mortage interest, to which the subsidy is meant as an alternative.
The Option mortage scheme was devised to help people of modest means to buy their homes by giving them benefits roughly equal to those available to people with higher incomes. With an ordinary mortage, a person is excused paying income tax on that part of his income that he used to pay mortage interest. With an option mortage, he renonces the right to tax relief on this interest, getting instead, part of the interest on his loan paid by a Government subsidy.
When the scheme was introduced, the subsidy was expressed for the ordinary kind of building society mortage as a flat 2 per cent. reduction of the interest charged to the mortagagor. But the interest charged by building societies has since rise, while the subsidy has remained at a flat rate, though the tax relief has automatically adjusted itself because interest on a mortage is deducted from a person's income before his income tax is calculated.
To be precise, when the 2 per cent. subsidy was calculated, the rate of mortagage interest recommended by the Building Societies Association was 6¾ per cent. Since then it has risen by steps to 8½ per cent. When the scheme was introduced a family man with moderate earnings, by 964 opting into the scheme, could put himself in a position reasonably comparable with that of the man who could get tax relief at the standard rate of 8s. 3d. in the £. This no longer holds.
The draft Order has accordingly been devised to secure that the value of the option mortgage subsidy is broadly related to normal tax relief, by ensuring, on the one hand, that the value of the subsidy is greater than tax relief to a taxpayer who pays his mortgage interest wholly out of earned income taxed at the reduced rate of 6s. in the £, and, on the other hand, that the value of the subsidy is not more than the value of tax relief to a taxpayer who pays his mortgage interest wholly out of earned income taxed at the standard rate. In fact, it has to be fixed at a shade less, because the scheme was never meant to make the option mortgage subsidy more favourable than tax relief at the standard rate.
I am sure that the Order will be welcomed by hon. Members on both sides. I welcome back to the Opposition Front Bench the hon. Member for Chichester (Mr. Chataway), and we look forward to his taking a consistent interest in these matters.
When the matter was before the House —in the debates on the housing Measure in May—the order-making power was welcomed. Indeed, there was an enthusiastic Amendment designed to pin down the Government to make an order before 31st December this year. That Amendment was resisted because it would have been rash to fix a date at a time when the Measure was not yet through and when consultations had still to be held with the representatives of the lending agencies; namely, the Building Societies Association, the insurance associations and the local authority associations.
A promise was, however, given that the Government would lay an order before the House as soon as the Bill had been passed and the necessary consultations, in which the lending agencies proved very helpful, were carried through. This promise is now being implemented.
It will be noticed that the new scales of subsidy are to come into effect on 1st January. There is a special significance in this date; namely, that for the vast 965 majority of building societies it is the beginning of their financial year. Accordingly, the lending agencies were agreeable to the new scale taking effect from then.
If the new scales come into effect on 1st January, it will be possible to arrange for many borrowers to feel the effect straight away from that date. In other cases, though the benefit will at once be credited to the borrower, it will not at once involve a reduction in his payments, but it will in the length of the loan.
As I suggested when explaining the order-making power in May, the Order has taken the form of a scale of subsidy; or, rather, one scale for the ordinary annuity mortage, where the periodic payments generally remain at the same amount and consist partly of repayment of capital and partly of interest on the capital outstanding, and another scale for the endowment mortage, where the whole of the capital is outstanding till the end of the period, when it is repaid in a lump sum by the proceeds of an endowment assurance.
The advantage of a scale is not only that it suits various existing cases, but that it avoids the need to be framing a new Order from time to time on account of changes in the rate of mortage interest
The Order does not, of course, give a higher rate of subsidy in those cases of mortage interest where the present subsidy is adequate; namely, in the cases where the mortage interest is not above 7 per cent. There are some such cases, where the loan has been made at a fixed rate or where the lender has found it possible to refrain from increasing a variable rate, to increase the subsidy for such borrows would give more benefit than tax relief at the standard rate. Above the level of 7 per cent. mortage interest, the scale provides for an increasing rate of subsidy to match different rates of mortage interest. It will work whether the mortagage rates go up or down.
§ 10.21 p.m.
§ Mr. Christopher Chataway (Chichester)
I am extremely grateful to the right hon. Gentleman the Minister for his courteous remarks. I am glad on a first occasion, after a while, at the 966 Dispatch Box to be able to give a welcome, even though I am afraid that it is a pretty small welcome, to the Order. I hope that there may be future occasions when one will be able to welcome legislation more wholeheartedly.
The Order is designed, as the right hon. Gentleman has made clear, to help house purchasers of modest means who are required to pay high interest rates, and it is confession of failure. It results from rates of mortgage interest which four or five years ago would have been considered absolutely unthinkable. If anyone from this side of the House had suggested four or five years ago that we should now be debating an Order designed exclusively to help people when mortgage rates of interest were over 7 per cent.—because the Order, as paragraph 3 makes clear, is designed only for such a situation—no one would have believed him.
We have throughout the day had a certain amount of debate about these interest rates, and we have understood from right hon. and hon. Gentlemen opposite that they feel themselves absolved from guilt because of the high international rates of interest—
§ Mr. Speaker
Order. The hon. Gentleman must not widen the debate. We are discussing a specific Order, and not the last debate.
§ Mr. Chataway
I accept your Ruling, of course, Mr. Speaker. It is my contention, however, that paragraph 3 amounts to a confession of failure on the part of the Government, since it amounts to an admission that the Government have not succeeded in meeting their promise about lowering interest rates, and assumes, moreover, that the Government are unlikely to meet this promise in the foreseeable future. Otherwise, I assume, the Order would not have been laid.
Both the mortgage option scheme and this scheme have a fairly unhappy parentage. The mortgage option scheme is born of the Government's failure to meet the quite categorical promises that were made at the 1964 and 1966 elections to reduce mortgage interest rates—
§ Mr. Speaker
Order. We are not discussing the mortgage option scheme. We 967 are discussing a Statutory Instrument which varies certain rates of subsidy. The hon. Gentleman will not be out of order if he talks about the Statutory Instrument we are discussing.
§ Mr. Chataway
The variation which this Statutory Instrument makes is a result of interest rates which have risen since the mortgage option scheme was started from 64 per cent. to 81 per cent. It will give some help to house purchasers, but I think we may ask "how much?".
As has been made clear on one or two occasions, in October, 1964, the cost of the average new house was £3,470: today it is £4,782. Five years ago a man with an 80 per cent. mortgage repayable over 25 years had to put down a deposit of £700 and paid back each month £18 6s. 4d.
As a result of this Order and this slight improvement on the mortgage option scheme, the house purchaser who today faces an average cost for a new house of £4,782 will have to pay a deposit of £960, which compares with £700 before the mortgage option scheme, and will face monthly repayments of £25 2s. 9d., compared with £18 6s. 4d. before the mortgage option scheme. I hope the House will be under no illusion. Although this Order brings some small additional help, it by no means restores the house purchaser's position to what it was before the mortgage option scheme was introduced.
It should be remembered that this scheme is of value only to some 10 per cent. of potential house purchasers; 90 per cent. do not avail themselves of the mortgage option scheme at all because it would not pay them to do so. We can give this Order a welcome, but we have to recognise that it is a small thing.
§ 10.26 p.m.
§ Mr. A. H. Macdonald (Chislehurst)
I do not want to detain the House for long, but I should like to have my sixpenn'orth in offering a welcome to this Order. I recognise that this is a narrow debate. Otherwise I might have taken the opportunity to say something in rebuttal of the remarks made by the hon. Member for Chichester (Mr. Chataway) about allegedly categorical promises. I think his remarks ill-founded.
§ Mr. Macdonald
In my constituency this Order will be especially welcomed. I always listen with interest when other hon. Members describe their constituencies. Mine is filled with owner-occupiers who have properties of varying size and worth. When the mortgage option scheme came in it was welcomed, but only today a constituent came to see me and said he had been in difficulties since taking up a mortgage option scheme. This Order will give him relief. When he took out the original scheme it was suited to his requirements but since then there has been a rise in interest rates, for which I do not lay blame on the Government. There has also been an increase in his salary, which is not due to the Government, but there has been an increase in taxation, for which the Government bear responsibility.
§ Mr. Macdonald
I apologise, Mr. Speaker. I was trying to explain that the taxation adjustments and alterations to which my right hon. Friend has referred show the necessity for bringing forward an Order of this kind to restore the status quo when the mortgage option scheme was brought in. This Order does precisely that; therefore I welcome it. I know from personal experience, having served on the housing advances panel of a local authority, how well the original scheme went and therefore how well it will go now that this amending Order is to come into force. It will help a large number of my constituents in their financial affairs, and, therefore, I am pleased to give it a welcome.
§ 10.30 p.m.
§ Mr. Wallace Lawler (Birmingham, Ladywood)
Any Measure that helps members of the low income group or the moderate income group to engage in home ownership is to be welcomed. Thus I welcome the Order, even if in somewhat cautious terms.
If the option mortgage scheme is viewed with caution by many families with moderate or low incomes, as I think it is, those who decide to take advantage of the scheme are those who for the most part expect to remain in the lower 969 income or moderate income class. It is probably true that only a small percentage of house purchasers take advantage of the option mortgage scheme, because most young people seeking a mortgage expect their income to rise. They see danger in engaging in the option mortgage scheme when their incomes might increase later. Although I welcome the Order, I ask the Minister to consider whether it is not worth while considering whether those who have entered the option mortgage scheme and who will now receive the additional benefit and those who enter it in future—
§ Mr. Deputy Speaker (Mr. Sydney Irving)
Order. The hon. Gentleman cannot discuss the merits of the option mortgage scheme, only the change in the subsidy effected by the Order.
§ Mr. Lawler
I accept your Ruling, Mr. Deputy Speaker. I content myself with saying that I hope that the Order will be the forerunner of further advantages which may equate with the 4 per cent. ceiling level that we give to the public sector.
§ 10.32 p.m.
§ Mr. Sydney Bidwell (Southall)
It is difficult to grasp the whole meaning of the Order without a considerable amount of study. I would like my right hon. Friend to clarify the present position. Has a borrower who has not taken advantage of the present facilities of the scheme any option of applying later on? As building societies issue brochures, based on the present 8½ per cent. rate, setting out details of the facilities available under the present option mortgage interest rates, and as the Order will have a material bearing on the question whether a borrower should opt for this scheme, will my right hon. Friend ask building societies quickly to adjust their explanatory booklets to make that facility known to those who are currently inquiring?
§ Question put and agreed to.
§ That the Assistance for House Purchase and Improvement (Increase of Subsidy) Order 1969, a draft of which was laid before this House on 16th October, in the last Session of Parliament. be approved.