§ Again considered in Committee.
§ Question again proposed.
§ Mr. CarrAs I was saying, my hon. Friend the Member for Croydon, South has given a great deal of constructive thought to this subject and I hope that the Financial Secretary will be able to assure us that the ideas which are embodied in the new clauses will receive serious and positive consideration. I am sure that there can be no doubt about the great need for new sources of savings to be channelled into the building societies.
It seems that my hon. Friend's scheme has two major advantages. First, it involves no cost to the Revenue and, therefore, is unlike most bright and popular ideas. That is unusual, and I hope that my hon. Friend's scheme will be easier to accept on that account.
Although my hon. Friend would be the first to say that his scheme bears no guarantee of producing results in all conditions, it seems to offer some real hope through the method he is suggesting of making investment in the building societies attractive to a whole new range of investment funds, to which it has hitherto been decisively unattractive. There is no doubt that if, as my hon. Friend said, we could marry the long-term investment sources of the pension funds to the building societies, which have to lend long term, we should be achieving something most helpful and substantial.
I hope that the Financial Secretary will be able to tell us that he and the Government are prepared to take on board the 1959 spirit of these new clauses even if they may wish to make changes to them in detail. I think that the provisions within the clauses will be of considerable help in future. I ask the Financial Secretary to consider these matters seriously between now and Report. If he is not able to accept the clauses as they stand I hope that he will look at them in a constructive manner.
§ Mr. John Pardoe (Cornwall, North)I wish to support the clause. It seems to be doing something important for the long-term future of housing. In the present crisis it is clearly the aim, as the hon. Member for Croydon, South (Mr. Clark) has spelt out, to get new funds into the building societies.
I do not entirely share the hon. Gentleman's praises of the building society movement. To a certain extent I consider that it has been wasteful in its duplication and that its policies have been unimaginative, negative, methodical and, indeed, conservative. Having said that, there is clearly a desperate need to get more money to the potential owner-occupier as quickly as possible. The Government have made a move in that direction with their £500 million on an installment basis of £100 million a month.
As the hon. Gentleman has already said, building societies get their cash by borrowing short and lending long. It is now clear to all hon. Members that that is an inadequate base for the future financing of the kind of expansion of owner-occupation that we desperately need if we are to solve the housing problem. We need a new source of funds— preferably a new long-term source—for owner-occupation.
The clause would make it much more attractive to pension funds to put their money into building societies. There is a crisis in the building industry. The only solution, as the Government have partially recognised, is to get long-term effective demand—in other words, to provide the cash so that potential owner-occupiers can give confidence to the building industry to build houses for the future. That means having more funds available for house purchase. Short-term borrowing is not producing those funds, and is not likely to do so.
1960 The clause would not do the whole job. I am sure that the hon. Gentleman would be the first to recognise that. But in a very simple way it makes building societies a conceivable investment for the pension fund manager, which at present they are not.
I should like to go much further. I should like to see index-linked mortgages and to see the interest rates and the capital debt index-linked. That would bring an immense amount of new pension fund money into the housing market. The clause goes some way, in a simple fashion, towards providing that new money, I hope without any cost to the taxpayer, without any cost to the Treasury. Therefore, I hope that the Government will be prepared to consider this principle.
§ Mr. Michael Latham (Melton)In the interests of making progress, I restrained myself with great difficulty from speaking on Clause 19, but I cannot restrain myself from supporting the new clause.
Before entering the House I had the honour to be director of the house builders federation, although I no longer have any connection with that organisation.
It was suggested in our discussion earlier that the building society movement is not only very large, which we know to be true, but very important in the finances of this country. That is also true. The assets of one building society are bigger than the whole unit trust movement, I believe. Therefore, we know the size of the exercise with which we are dealing.
It may well be that the clause, so ably moved by my hon. Friend the Member for Croydon, South (Mr. Clark), is an interesting idea that should be pursued and examined further. But I sound a note of warning. In particular, the money should be in the societies for a long time. That is most important. The lending must be long term in any scheme which is to be devised by which institutional money is to be attracted to the building societies. It is most important that it should not become hot money.
By the nature of their activities, the building societies are on a rather peculiar gearing system. It would be disastrous if large sums of money flowed into them and were taken away quickly.
1961 The difficulty that must be examined—I am sure that the Financial Secretary will examine it when he considers the matter —is how, once the institutional money has got into the building societies, it stays there for a reasonable period so as to give stability to the housing programme, which we all want.
I should like to ask the Financial Secretary some questions, although I appreciate that he may not be able to answer them off the cuff. The Treasury, with the Department of the Environment, is responsible for the present joint forecasting committee with the Building Societies Association, which was set up by my right hon. and learned Friend the Member for Hexham (Mr. Rippon) when he was Secretary of State for the Environment. It has an important rôle to perform in regulating the size of the building programme, which is crucial to the expectations of builders.
There are two things I would ask of the hon. Gentleman. First, will he consider whether the builders should be included on that committee? I think that the rôle of the producers is very important, although I stress that I no longer have any interest in the matter.
The second thing that I wish to ask the Financial Secretary is this. Is this forecasting committee considering at present not only how the £100 million tranches shall be allocated, and the rates of interest there shall be on them, and so on, but the future level of demand, the amount of mortgage money available, and so on? When at Question Time yesterday I asked the Minister for Housing and Construction about this, he said that the committee was not doing this at present. I think that I have paraphrased what he said reasonably well.
It is most important that full, accurate forecasts should be made and that, having been made, they should be published. I hope that the Financial Secretary will comment upon that matter.
I wish the clause well. It deserves considerable examination. Certainly if we are to get a suitable level of private housing output in this country it is absolutely crucial that the amount of money flowing into the building societies should be high and, above all, consistent in amount.
§ Dr. GilbertI congratulate the hon. Member for Croydon, South (Mr. Clark) 1962 and echo what his right hon. Friend the Member for Carshalton (Mr. Carr) said about the interest that he has shown over a long period in subjects of this sort, which are of considerable complexity. I assure the hon. Gentleman that I would be the last person to rest any case that I might have against a case that he has advanced on technical defects in the wording of the new clause. I give that assurance without question.
It may be for the convenience of the Committee if I dealt in passing with some of the other contributions before coming to the hon. Gentleman's main contribution to the debate.
Concerning the questions posed by the hon. Member for Melton (Mr. Latham), I shall certainly be happy to pass on to the Department of the Environment his suggestion that builders be included on the joint forecasting committee. I am seized of his point about the committee considering the future level of demand. The hon. Gentleman would not expect me to go further than that at present.
Concerning the matters raised by the hon. Member for Cornwall, North (Mr. Pardoe), we have already had one debate in this Committee on index linking of various sorts and we are due for another such debate before the evening is out. I hope that the hon. Member will forgive me for not following him into a discussion about index-linked mortgages on the new clause.
I come to the points made by the right hon. Member for Carshalton and the hon. Member for Croydon, South. It is true that the proposals as put forward by the hon. Gentleman would not cost the taxpayer anything. Unfortunately, though, it would marginally cost various other people something—namely, the existing building societies' composite rate. To be fair, I think that it would be affected by only a very modest amount. I do not stress the case. But the technical point is that if one takes one body of potential or existing investors out, the composite rate could be marginally affected. But I do not wish to rest on that point.
§ Mr. William ClarkSurely the hon. Gentleman is not entirely right in that sense. The composite rate is based on the fact that 78 per cent. of average investors, I think, are liable to tax at the standard rate and the other 22 per cent. 1963 are not. Consequently it is the correlation of those two figures that gives one the 23½ per cent. composite rate. The idea behind the new clause was to leave that composite rate as it is, but that any new money coming in from approved superannuation schemes would be accounted for separately and then the repayment of tax would be made only on that. Consequently, there should be no side effect at all for the ordinary investor in a building society.
§ Dr. GilbertI undertake to look at that matter in greater detail later, but I am advised at present that there could be a modest effect on the composite rate. As I have said, however, I do not seek to rest on that point.
The hon. Gentleman's proposal, which was so eloquently laid before the Committee, would seek to take pension funds outside composite rate arrangements entirely and give them the right to claim tax that had been deducted. This is an extremely constructive proposal, but there are a couple of reservations about which I have to tell the hon. Gentleman.
10.15 p.m.
The first of my difficulties concerns the effectiveness of the amendment in terms of channeling more funds into the building societies. The hon. Gentleman was good enough to suggest that the effect of an alteration in the arrangements of the kind that he proposed would bring about a return to the pension funds in the range of 10 or 10¼ per cent. I had in mind a slightly higher figure. I was thinking of something a little over 11 per cent. But, as I am sure he will appreciate, in these days of extremely high interest rates the shrewd investment manager of a pension fund can very often get a return considerably in excess even of 10 or 11 per cent. if he is successful in his investments. So, to that extent, I am confident that the hon. Gentleman's proposals would not be as fruitful in channeling funds into the building societies as he hopes.
The second difficulty that I have at the moment with the hon. Gentleman's proposals is that they derogate from the principle, at any rate, of the composite rate. As he will know, the composite rate brings considerable benefits both to the Revenue and to the building societies. If, for any extraneous reason, we remove just one category of investors not liable to 1964 income tax, we tend to undermine the principle on which the composite rate is founded.
I take the hon. Gentleman's point that he is not asking for this concession for anything other than pension funds. I see the force of his argument. But he will be the first to recognise that, even though he might be prepared to stick at pension funds, if we were to make the concession for which he asked, there would be considerable pressure on the Treasury to advance the line of concessions still further to other bodies. Once we opened the door for pension funds, we would find it difficult to restrict this relatively favored treatment to them. There would be other tax-exempt bodies such as charities which would have a claim to such treatment. All sorts of non-liable investors would seek preferential treatment on the same lines as pension funds.
Having told the hon. Gentleman of the difficulties that I have about his proposals, I repeat that I regard them as very constructive, and I should like to look at them again in the spirit in which he advanced them. If he is prepared to withdraw his clause now, I undertake to look at it carefully between now and Report.
§ Mr. William ClarkI am grateful to the Financial Secretary. I do not suggest that he pays too much attention to creating a precedent in terms of pension funds, because that argument can be thrown back at him. Pension funds are exempt from lax, and the argument could be used that because pension funds are exempt from tax many other people should be.
I am not suggesting that the principle should be extended. The Financial Secretary said that charities might want to invest in this, that or the other. However, with charities we are in exactly the same position as with the general public. Charities do not normally lend long. They lend short. Only pension funds lend long.
I shall not pursue the argument at this hour. I am grateful for what the Financial Secretary said. In view of his categorical undertaking to do something between now and Report, I beg to ask leave to withdraw the clause.
§ Motion, and clause, by leave withdrawn.