HC Deb 17 December 1973 vol 866 cc960-2

I return now to the action which is necessary to reduce home demand in order to leave sufficient of our reduced resources available for export and for productive investment in the private sector.

First, consumer credit. Despite the inherent disadvantages in normal circumstances, I am sure that it is right, in the present exceptional situation, to reduce demand arising from personal consumption by reimposing controls on hire-purchase, credit sale and hiring agreements. My right hon. Friend the Secretary of State for Trade and Industry has accordingly made the necessary orders. These controls will cover a wide range of consumer items and will take effect from midnight tonight. The details of the terms and coverage are being announced separately by the Department of Trade and Industry.

The banks and finance houses are being asked not to lend to persons or to offer check trading facilities on terms more favourable than those permitted under the hire-purchase controls. At my request, steps are also being taken to ensure that the provision of credit through credit cards is similarly restrained.

With my agreement, the Governor is also taking steps to strengthen the techniques for controlling the growth of money and credit. The clearing banks have been asked to make certain changes in their practices designed both to limit arbitrage transactions and to secure a better control over the growth of their lending. The Governor is also requesting all banks and deposit-taking finance houses to adhere to a new technique under which non-interest-bearing special deposits would be placed with the Bank of England if their interest-bearing liabilities grow at more than a specified rate.

With the introduction of this new device, and in view of the pressures on banks' liquidity which may arise in the period ahead, the call for the second 1 per cent. of special deposits announced on 13th November is no longer required. The intention of these monetary control changes is not to impose an additional squeeze outside the field of consumer credit: it is to ensure that we have effective control over money and credit during the difficult period which lies ahead. The new technique will enable the authorities to control the volume of money and credit with less reliance on general calls for special deposits: it can therefore be expected to reduce the pressure on bank interest rates.

Under the legislative provisions governing VAT, and by means of the more traditional regulator which covers the Revenue duties, the taxation of goods and services can be raised without the need for a Finance Bill. The effectiveness of action on indirect taxation is well established, by its frequent use in the past.

Its disadvantage is, of course, that any increase in the taxation of goods and services makes a direct contribution to raising prices, but that is a disadvantage which, depending on the circumstances, previous Governments have accepted. The conclusion which I have reached is that the necessary restraint on domestic demand should be achieved in other ways, and, therefore, there will be no increase in indirect taxation at this time.

There is one area of prices which I should particularly mention. At a time of the most acute energy shortage and in our present financial difficulties, it is anomalous—to say the least—that we are subsidising coal and electricity prices at a mounting rate. Unless action is taken on coal prices, the financial support required for coal, which exceeds £150 million this financial year, could easily be doubled next year. The subsidy for electricity is running at about £75 million a year, but that does not take account of the cost of the present emergency. Consultations with the industries on the price of coal and electricity will, therefore, be carried out as a matter of urgency. Arrangements will be made to safeguard the neediest households.