HC Deb 05 April 1973 vol 854 cc620-31
Mr. Speaker

Mr. Rippon.

Mr. Ashton

On a point of order. In view of the nature of the statement that the Secretary of State is about to make, should it not be made instead by the Chancellar of the Exchequer? In future, are questions on mortgage interest rates to be put down to the Department of the Environment?

Mr. Speaker

Neither of those questions is a matter for me.

The Secretary of State for the Environment (Mr. Geoffrey Rippon)

I will, with permission, Mr. Speaker, make a statement about building society mortgage lending.

The House will know that, on 16th March, the Building Societies Association recommended to its members an increase in the rate of interest offered to investors to 6.3 per cent., but deferred a decision on the recommended mortgage lending rate. Since then, the building societies have not attracted a sufficient inflow of funds and the Association has indicated to the Government that it would have to raise the recommended investment rate to 6.75 per cent. It also indicated that this higher investment rate implied an increase in the recommended mortgage rate to 10 per cent.

The Government regard it as a high priority that building societies should continue to attract sufficient funds to support a high and stable level of house building. They accept that, to achieve this result, an investment rate of as high as 6.75 per cent. may well be necessary at the present time because of the operation of certain special factors, such as the recent marked increase in consumer spending which has affected the current pattern of savings. The Government think that it would not be right to increase the mortgage rate fully to correspond with an investment rate of 6.75 per cent. in these special circumstances.

The Government have therefore offered a temporary bridging grant to those societies who find it necessary to have an investment rate of 6.75 per cent. but who nevertheless do not increase their annuity mortgage rate above 9.5 per cent. This grant will be available for a period of three months, beginning with the date at which, for each class of mortgagors, a society's mortgage rate is increased to 9.5 per cent. or today, whichever is the later. The grant will be equivalent to the difference in receipts of interest for the three-months' period between a 9.5 per cent. and 10 per cent. mortgage rate on all new and existing loans to individuals for home ownership.

The cost of the bridging grant is estimated at £15 million and supplementary provision will be sought from Parliament at the earliest opportunity. In the meantime, recourse will, if necessary, be had to the Contingencies Fund.

In order to ensure that the funds attracted by building societies are used to the best advantage, the Building Societies Association has agreed to recommend to its members that the amounts used for special advances of over £13,000 to individual purchasers should be limited as far as possible and that special consideration should be given to first-time purchasers.

In order to avoid an increase in the total of public expenditure, I will make offsetting savings from other expenditures for which my Department is responsible.

As the House knows, the Government attach overriding importance to the success of their counter-inflation policy. They have already demonstrated by their decisions on rates and on the needs allowance for council and private tenants that, at this crucial time, they are willing, in appropriate cases, to take direct measures to keep increases in household costs within reasonable bounds. The present decision on mortgages forms part of the same pattern.

Mr. Crosland

The Government have got themselves into an appalling mess due to a reckless monetary policy and to their complacent inactivity in face of endless warnings last year of the situation that was likely to arise. This is not a permanent solution. It is a panic expedient to cover them over the period of the GLC and county elections.

I want to put three questions to the Secretary of State. First, is he aware that this situation would not have arisen if instead of endlessly parrotting about how everything in the garden was lovely he had taken heed of the warnings of myself and many other hon. Members last year on the need for a building society stabilisation fund? Is he aware that he will now have to grapple with the problem of insulating building society lending from the crazy vagaries of monetary policy that go on under this Government?

Secondly, is he aware that while certainly an all-time high mortgage interest rate of 9½ per cent. will cause acute hardship to owner-occupiers, and especially to young married couples who have recently bought a house, the Government themselves have caused even greater hardship to millions of private and council tenants, and that, while it is right to give help to the hard-pressed home buyer, it would be equally wrong to refuse equivalent help to the council and private tenant who is equally hard pressed?

Finally, is he aware that this announcement today is the final evidence, if further evidence were needed, that the Government's housing policy, on every front, is in total and chaotic ruin?

Mr. Rippon

I accept that the right hon. Gentleman is right when he says that this is not a long-term or permanent solution. We had some discussion about this in debates in the House on 6th February and 14th March when I accepted his general proposition about the need for a stable flow of mortgage funds. This will require further discussions which will take place urgently with the Building Societies Association. This is an immediate action to deal with an abnormal situation.

I was glad the right hon. Gentleman agreed that this action was necessary to help the home owner. In fact, I believe the right hon. Gentleman criticised us yesterday, according to Press reports, for having made an inadequate token arrangement with the building societies. But we feel that we have done what is right and reasonable in present circumstances.

Mr. John Hall

Does my right hon. and learned Friend agree that his announcement will give only marginal relief to those whom it is intended to benefit? Will he tell the House what are the savings in his Department that he intends to make to compensate for the £15 million-plus that it is to cost?

Mr. Rippon

I do not accept that it is marginal. I believe that it will be a real help to those who are buying their own homes, just as we have given help in the special contributions we have made in regard to rates and the very substantial increase we made in the needs allowance, which helps both council and private tenants. This is entirely in line with action we have been taking in particular cases to deal with abnormal situations and to ensure the success of our counter-inflation policy.

As far as savings are concerned, I simply say what I have said several times in the House recently, that I believe that housing is at the moment the top priority. Therefore, in so far as help needs to be given right across the board —and we have not given it just to home owners—this must have the priority it warrants.

Mr. Roy Jenkins

Does the right hon. and learned Gentleman, the Prime Minister and the Government realise what nonsense this makes of the monetary policy announced as recently as the Budget speech? Unless this is an even more cynical short-term election manoeuvre than appears at first sight— and indeed it might seem more appropriate temporarily to charge it to Conservative election funds—does the Chancellor of the Exchequer, a former chairman of the Conservative Party, realise that he is now committed, whatever the effect upon monetary policy, to be a partisan of downward-turning interest rates within the next three months, or is he to make nonsense of his whole position? Can the right hon. and learned Gentleman tell us what remnant of principle or direction there is now in either the Government's monetary policy or its housing finance policy? What sense of fairness, what purpose does it serve, in the very month when the second stage of the Housing Finance Act is being operated on council rents, to give this subsidy?

Mr. Rippon

I assure the right hon. Gentleman that this action implies no change in monetary policy. It makes no further demand on the borrowing requirement. It is, as I have told the House, a temporary measure designed to help the building societies in abnormal conditions and in such a way as to give some relief to home owners in those conditions.

Mr. Powell

Could my right hon. and learned Friend say whether there is any longer anything which this Government are not prepared to subsidise?

Mr. Rippon

As my right hon. Friend knows perfectly well, in the conditions of stage 2 of the Government's counter-inflationary policy, we have thought it right in particular circumstances, over a temporary period, to give assistance not only here but in respect of rates and needs allowances. Right hon. and hon. Gentlemen opposite may laugh but I should like to hear them get up and say that it should not have been done.

Mr. Charles R. Morris

Is the right hon. and learned Gentleman aware of the consternation that exists among young owner-occupiers at the prospect of a mortgage interest rate of 9½ per cent. Is the Secretary of State aware of the very real demand that the issue of mortgage interests rates should be the first reference to the Prices and Pay Board, and do the Government intend to take action in this direction?

Mr. Rippon

I have already told the House that we intend to discuss further with the building societies the prospects of a stabilisation scheme. That is a long-term solution that has to be considered. For the rest, I must tell the hon. Gentleman and his right hon. Friends that they cannot have it both ways. They cannot criticise what is happening and at the same time criticise the action the Government are taking to deal with the situation.

Mr. Gurden

Could my right hon. and learned Friend explain to me how it comes about that there is such a wide difference between the borrowing and lending rates of building societies since, with the increased throughput over recent years, one would have thought that they had enough money to cover their expenses?

Mr. Rippon

I said in the House on 14th March that the building societies have to attract and retain the savings of their investors and, as I then said, this raises difficult and conflicting considerations. The difficulty is that the Building Societies Association has said that it now believes that it requires a rate to lenders of 6.75 per cent. instead of one of 6.3 per cent. Thereafter, it is a mathematical proposition whether one moves to 9½ per cent. or 10 per cent.

We have said to the Building Societies' Association that it has not taken sufficient account of the pre-VAT spending, which has had an effect over a wide field. There are other aspects of the matter, insofar as the Association appears to be affected by internal competition for deposits. But bearing all those factors in mind, I believe that we have to accept that if there is a lending rate at a certain level, then, of course, the borrower will have to pay a mathematically appropriate payment.

Mr. Ashton

Since under the counter-inflation policy wage increases are limited to £1 plus 4 per cent. can the right hon. and learned Gentleman tell the House why he could not adopt a policy in line with that in regard to mortgage interest rates, limiting increases there to £1 plus 4 per cent?

Mr. Rippon

We have discussed this matter in the House on other occasions and there are these difficult and conflicting considerations. We must see that people who lend money to the building societies have a fair return in competitive conditions. That is one aspect of the problem. It is important to ensure that there are adequate funds to sustain the house-building programme. That is why we have taken this measure, which is very much in line with what we have done in this abnormal situation in regard to rate relief and needs allowances for council tenants and private tenants— which, incidentally, have cost more than this measure will cost.

Mr. Hugh Fraser

Since my right hon. and learned Friend has become the Government spokesman on the question of credit control, will he give two messages? Will he convey the first message to my right hon. Friend the Chancellor of the Exchequer—then to be passed to the Bank of England—suggesting that the Green Paper issued in 1971 should now be withdrawn since it has helped to push up rates of interest? Secondly, will he convey the other message to my right hon. Friend the Prime Minister, namely, that the Government's net borrowing requirement must be reduced or interest rates will continue to rise?

Mr. Rippon

I will convey those messages so far as that may be necessary but, as I have explained to the House, this announcement will have no effect on the net borrowing requirement.

Mr. Walter Johnson

Is the Secretary of State aware that some of us in the past year have been asking the Government to refer this matter to the Monopolies Commission? Since this loan will be made from public funds do not the Government owe the taxpayer and those affected by mortgages the courtesy of referring this subject to an independent inquiry so that the whole matter can be thrashed out and properly examined?

Mr. Rippon

We are not dealing with a monopoly position. We are dealing with a situation in which the Building Societies Association can only recommend rates and there is some evidence of internal competition of one sort or another. I believe that the discussions which we shall be having with the building societies about the long-term need for mortgage fund stabilisation will throw up many of the matters which may be of concern to right hon. and hon. Members.

Mr. Allason

Does my right hon. and learned Friend realise that there is a vast volume of opinion which warmly supports what he is doing, and that it is particularly important for the Government to support the construction industry in its determination to continue to build houses and not to adopt the policy pursued by the Labour Government which, when faced with a little local difficulty on finance, ratted on the building industry?

Mr. Rippon

I am grateful for that intervention. My hon. Friend is right. I believe that the Government's measures will be warmly welcomed by home owners, and right hon. and hon. Gentlemen opposite will have to make up their minds on whose side they are.

Mr. Sheldon

Is it not clear that the present difficulties of the building societies arise directly from the Government's own borrowing requirement? Is it not absolute nonsense that, because the Government are borrowing so much money from the country as a whole, they are themselves directly responsible for putting up interest rates—and then proceeding to subsidise one of their competitors?

Mr. Rippon

As I have already told the House, since I became the Secretary of State for the Environment I have been very much concerned with the housebuilding and housing programmes, which I regard as having high priority. This is one of the reasons why we have made these arrangements.

Mr. Warren

Is it intended that the £15 million will be repayable?

Mr. Rippon

No, Sir. It is a grant. It is exactly in parallel with the arrangements which we have made this year in terms of rates and the substantial help that we have given—help which is cost- ing double this figure—to council house tenants and private tenants.

Mr. Julius Silverman

Although hard-pressed mortgagors may welcome this modest relief to their circumstances, will this public money be spent right across the board, and will it benefit the borrower whatever the extent of his mortgage? Will all borrowers be given a similar benefit or will means tests be confined only to council and other tenants?

Mr. Rippon

The help will be given on the terms I have indicated. I welcome at least one Opposition voice which has praised help to home owners.

Mr. Ridley

In view of the cardinal importance to the Government's counter-inflation policy of borrowing the greatest possible amount of the £4,500 million deficit for which they have budgeted, will not this action have the effect of inducing some funds and savings not to come to the Government but to go to the building societies? Therefore, is it not a direct invitation to further inflation?

Mr. Rippon

No, Sir. Certainly not. This is not a general borrowing grant. We have been concerned about what the building societies have said their rate to lenders must be to attract their share of the available funds.

Mr. Orme

Is it not a fact that the Government are subsidising housing shortage, and that what is needed is a massive expansion in the number of rented houses? Is this not where the Government should be making a start, rather than subsidising a shortage which may well continue? On the subject of council house tenants, will the Secretary of State say categorically whether the Housing Finance Act will be repealed?

Mr. Rippon

I give the assurance that the Housing Finance Act will not be repealed. However, on the general question, the Government in the debates on 6th February and 16th March indicated their concern about the problem of housing. The home owners are one part of the subject and we have already indicated our desire to help people in rented accommodation—whether it be council accommodation or otherwise. We also accept an over-riding requirement in terms of the house-building and housing programmes generally which will relieve the housing shortage and provide more people with decent homes—by the provision of new building or by giving the improvement grants which have been such a success in providing better accommodation.

Mr. Tapsell

While welcoming this further wise modification of the Green Paper on Competition and Credit Control, may we take it that in pursuit of the general policy of combating inflation, funding the Budget deficit and encouraging industrial investment, the authorities will now use their best endeavours to reduce the general rate of interest, and particularly by a more selective policy of bank lending?

Mr. Rippon

My hon. Friend raises wider issues. All I am saying is that the present announcement is only a temporary measure to deal with an abnormal situation. It is not presented as a permanent solution. There are wider questions which will have to be debated more thoroughly at the appropriate time.

Mr. Harold Wilson

Is the Secretary of State aware that he was wrong to say to his hon. Friend the Member for Horncastle (Mr. Tapsell) that this raises wider issues? It is the very centre of the problem. Is he not aware that I have tried to tell the Prime Minister five times in recent weeks that this was what would happen unless the Government changed their September 1971 interest rates policy? Will he now do what I asked the Prime Minister to do and what the Prime Minister refused to do— namely, to present to the House his own calculation in terms of a typical young family with an average household income, whether earned by wage or salary, which is seeking to buy a house at an average price, based on the figures given by his own Department to the House last week? Will he say, based on a mortgage interest rate of either 9½ or 10 per cent., how much would be left to that family for food, and what effect that would have on the family budget and the way in which it is made up? The whole responsibility of a Government is to see that these figures add up. Will he make that calculation and present it to the House?

Mr. Rippon

A new 25-year annuity mortgage of £6,000—a fairly typical national figure—[Interruption.] It was a reasonable question and I do not see why the House should not listen to the answer. This is a fairly typical national figure. Let us remember that we are talking about a great many existing mortgages as well as those being taken out for the first time. The figure will be £49 gross per month, £36 net after tax relief, at 8.5 per cent. If we take a figure of 9.5 per cent. the calculation will be £53 gross, £39 net—an increase of £4 gross and £3 net. If we take a 10 per cent. figure it will be £55 gross and £40 net—an increase of £6 gross and £4 net. Similar calculations can be made on a mortgage of £10,000 or whatever the figure may be.

I hope that the right hon. Gentleman the Leader of the Opposition is saying that he thinks it right that this relief should be given. We must bear in mind that last year there was a considerable increase in the number of mortgages given to people with average industrial earnings. The figure rose from 158,000 to 192,000 mortgages given last year to persons below the average industrial earnings level. Therefore, we are talking about a great many people who have bought their houses, perhaps not recently but several years ago. Whichever of these examples one takes, the measure which the Government have announced represents relief to home owners just as we have given it to council house tenants and others.

Mr. Harold Wilson

The right hon. and learned Gentleman asks whether we think that it is right. Of course if the Government kick someone in the jaw it is right to provide bandages, but that is no excuse for kicking someone in the jaw. Does the Secretary of State agree with the figure which was given last week as the average house price for the country of £8,700? That was the average in relation to building society mortgage advances for houses. Therefore, will he stop talking about £6,000, because if he does that he is talking about an ability to save for the deposit of about 25 per cent., or more. Will he do what I asked—get out a calculation of a household budget for young people showing what is involved for food, for rent and so on and say whether he could live on that budget and on that income?

Mr. Rippon

I am glad that the right hon. Gentleman has reiterated that he thinks that what the Government are doing is right. As to the average price, I took £6,000 as a fairly average figure for the mortgage when it was taken out. I think the right hon. Gentleman is talking about an average price at present over the country as a whole. The figure is rather higher in the South-East of England, and it would probably be fairer to talk about £10,000 there. We are talking about four million people who have acquired houses at differing times and differing prices. The present figures vary very much. I could give figures relating to a £10,000 house. Lots of figures are given in the Press, but I can deal only with those within my responsibility. We say that by taking this temporary measure we shall give this particular form of relief to the house owner. The right hon. Gentleman agrees that it is right and I am sure it is right.

Several Hon. Members rose—

Mr. Speaker

Order. We shall debate this matter on Monday.

Mr. Roy Jenkins

On a point of order. May I have an assurance from the Leader of the House, or from the Prime Minister or whoever is in charge of these matters, that when next the Chancellor of the Exchequer has a brainwave he will come to the House and explain it himself instead of sheltering behind another Minister?

Mr. Speaker

That is not a matter of order.