HC Deb 11 July 1974 vol 876 cc1526-7
3. Mr. Dixon

asked the Chancellor of the Exchequer how much money has been borrowed from the present Government by the building societies at 10½ per cent. interest; what information he has had from the societies about how much of this has been re-lent to the money market for periods of three months or more and six months or more; and what have been the average rates of interest received.

The Financial Secretary to the Treasury (Dr. John Gilbert)

The Building Societies Association accepted the offer of £100 million from the Bank of England in April and further tranches of £100 million from public funds in May and June. The whole of the loans for April and May have been issued and the indications are that the whole of the third tranche will also be taken up. The building societies are not required to consult the Government about their investment policies, but their liquidity ratios, which fell in the early part of this year, are now generally back to the levels obtaining at the end of 1973.

Mr. Dixon

Is the hon. Gentleman aware that I do not think that he has answered the second part of my Question? Is he aware that there is every indication that the building societies have been re-lending the taxpayer's money in the money markets, and that that money is being used for purposes for which, presumably, his Government did not wish it to be used? Does he agree that that is a highly inflationary policy?

Dr. Gilbert

Building societies are non-profit-making institutions. Any return they receive on temporary investments of this sort—and they must have a liquidity ratio—will ultimately be available for further mortgage lending.

Mr. George Cunningham

Is it not rather odd that one can borrow money from a building society and lend the same money back to the same building society at a higher rate of interest? Would it not help if building societies were encouraged to recover outstanding loans to borrowers, which, after a period of 10 years or so, because of inflation, could be repaid by those borrowers?

Dr. Gilbert

Certainly, many odd things happen in the short-term money markets. There are often reverse yield gaps occurring. I do not think that it would be for me to interfere with the building societies' policies on recovering the loans they have extended to mortgagors.

Mr. William Clark

Does the hon. Gentleman agree that one of the difficulties with the building societies is that they borrow short and lend long? Consequently, is it not high time our tax laws were altered so that there would be an encouragement for pension funds to lend money to building societies? Does the Financial Secretary not agree that pension funds are the only long-term investors, as such, in this country, and that it is ludicrous that this money is available but, because of our tax laws and the tax exemption of pension funds, the repayment of building society tax is not allowed?

Dr. Gilbert

The hon. Gentleman raised this point at rather greater length in Committee on the Finance Bill, and I undertook to examine it. I have done so, and shall give the hon. Gentleman a detailed answer on Report, but at present I am not inclined to go any further than I did in Committee.