§ Mr. Healey (by Private Notice)
asked the Chancellor of the Exchequer if he will make a statement on the letter sent yesterday by the Bank of England to the joint stock banks regarding their lending policy.
§ The Chief Secretary to the Treasury (Mr. Patrick Jenkin)
The Governor of the Bank of England has written to the banks drawing their attention to the need to meet the expanding demand for credit by industry and asking that they should as necessary make credit less readily available to property companies and for financial transactions.
§ Mr. Healey
The House will note that the Government are celebrating the collapse of another piece of Tory dogma with a familiar somersault, but is this not 1729 bolting the stable door after the horse has gone over the horizon? Is it not the case that over the last 10 months advances to property companies and other speculators have risen by over 70 per cent. whereas advances to manufacturing industry for investment have risen by only 2 per cent. so that it is impossible for the vast majority of young families to get a mortgage for the purchase of a house? In view of the fact that the Government are doing far too little far too late, will they now tell the House when they propose to introduce quantitative controls over bank lending? Secondly, will they, as repeatedly requested by the Opposition, repeal that Clause in the Finance Bill which allows tax-free interest to loans for speculative purposes?
§ Mr. Jenkin
I, too, have read The Guardian's leading article this morning and I am sorry that the right hon. Gentleman could not do better than that. The change which has taken place is most emphatically not a change in the Government's new approach to lending which was introduced last year. [Laughter.] Hon. Gentlemen opposite may laugh, but the Bank of England consultative document entitled "Competition and Credit Control" specifically provided for the issue of guidance of this sort, and this is exactly what the Bank has done.
As for the question of property speculation and so forth, my right hon. Friend the Chancellor of the Exchequer has made it clear that he regarded some of the activities in this field as distasteful, which was the word he used, and if the new policy has some effect in curbing the activities of property speculators I shall be surprised if right hon. and hon. Gentlemen opposite do not cheer as loudly as some of my hon. Friends.
As for the question of tax relief, on that I think the right hon. Gentleman was on a very bad point because the law on borrowing for investment in property today is exactly as it was when the right hon. Gentleman's right hon. Friend was Chancellor of the Exchequer. Indeed, the argument was deployed by the Minister of State in debates on the Finance Bill that the reallowance of interest has removed the discrimination which probably acted in favour of borrowing by property speculators.
§ Mr. Healey
Is it not the case, first of all, that advances to companies other than property companies for speculative purposes have risen by 78 per cent. over the last 10 months and that advances to such companies would be restricted if the Government would repeal that Clause of the Finance Bill to which I referred? In view of the hon. Gentleman's astonishing complacency about the situation, and his belief that there is no change in Government policy so far carried out, will he now answer the question I asked him—when will the Government introduce some quantitative control over bank lending?
§ Mr. Jenkin
The reallowance of interest was very fully debated during the passage of the Finance Bill and I have nothing new to add to what we said then and to the arguments which the House accepted. On the right hon. Gentleman's point arguing that we should return to some sort of physical controls and his support for a loans ceiling, I would say that the letter issued yesterday is in no sense a move back to the policy which we departed from in the new arrangements introduced last year. This is a letter of guidance from the authorities reinforcing action which the banks themselves have already taken to slow down the growth of their lending. One of the main objects of the reforms introduced last year was to institute greater competition in banking, and I can assure the right hon. Gentleman that any return to physical controls would be completely opposite to that policy.
§ Sir D. Renton
Is my hon. Friend aware that interest rates charged to farmers and others carrying out small and medium-sized productive enterprises are now rather more than prohibitively high, and would he apply his mind to this during the coming recess?
§ Mr. Jenkin
There is certainly no doubt that interest rates could be advantageously affected if we were to get a slowing down in the rate of wage cost inflation, which is one of the major elements which has required interest rates to be raised over the last few months.
§ Mr. English
Does the hon. Gentleman recall that the Chancellor of the Exchequer a few weeks ago answered my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) by 1731 saying that the money supply was increasing at the rate of 23 per cent.? Hon. Members opposite seem to be slightly surprised that there is inflation in such a situation. The Chancellor of the Exchequer said he was proposing marginally to reduce the rate of interest. Can the hon. Gentleman tell us how that relates to the present situation?
§ Mr. Jenkin
The hon. Member's memory is quie right. My right hon. Friend, in the debate on 29th June, made it clear. He was referring to recently published figures and said:The most recent published figures for money supply and credit showed that they had been growing faster than appropriate to support the growing economic activity."—[OFFICIAL REPORT, 29th June, 1972: Vol. 839, c. 1709.]Since then, under the new arrangements, interest rates have risen, and this will undoubtedly affect the rate of growth of money supply. Rapid growth in bank lending has been a factor in the recent growth of the money supply, and a substantial part of it has gone to property companies and financial transactions. Here the new guidance should certainly help.
§ Sir H. d'Avigdor-Goldsmid
There are two questions I should like to ask my hon. Friend arising out of the questions posed by the right hon. Member for Leeds, East (Mr. Healey). First of all, is this a directive to the clearing banks or to the banking system as a whole? My understanding is that it would be the latter, but the right hon. Member for Leeds, East referred specifically to clearing banks. Secondly, could my hon. Friend say what evidence there is, or whether there is, in fact, any evidence, that lending to industry for productive purposes has been curtailed in any way because of rising borrowings?
§ Mr. Jenkin
On the first question asked by my hon. Friend, the guidance was to the banking system. There are, of course, many other lenders—insurance companies, pension funds and so on—and I have no doubt that these other lending institutions will take note of the guidance issued yesterday by the Bank. On the 1732 second question asked by my hon. Friend, no, there has been no evidence yet of any restriction whatever on lending to industry for investment purposes. Indeed, as I said in an earlier answer, the banks themselves have already been moving in the direction implied by the guidance given by the Bank. We want to make absolutely certain that as the demands for lending from the banking system grow there is no risk whatever of there being any restriction on credit availability to industry.
§ Mr. Frank Allaun
I am not criticising the restriction of credit for speculative office property companies, but will the Minister give an assurance that there will be no restriction in either the building or the buying of houses and flats? Secondly, since it is expected that the building societies will today raise their mortgage interest rates, will the hon. Gentleman consider extending the option mortgage scheme by raising the margin to help those who will suffer? Does he agree that it would be unfair to restrict building society loans because it would hurt those on lower income levels?
§ Mr. Jenkin
The second question is not only hypothetical but goes way beyond the scope of the Question asked by the right hon. Gentleman. It is not the Government's intention that there should be any restriction whatever on the development of the housing market to meet the rapidly expanding need. I think the whole House has welcomed the major rise—between 40 and 50 per cent.—in the number of new mortgages granted in the last few months compared with the number granted during the last period of the Labour Government's Administration.
§ Mr. Rees-Davies
From what my hon. Friend has said, I take it that there is no policy change by the Government on home loans, that neither the banks nor the other institutions will be in any way affected by what has been said this morning, and that the policy which my right hon. Friend the Minister for Housing and Construction has adumbrated will be followed both in the letter and in the spirit?