§ Together these measures will, I believe, restore to industry the confidence needed to sustain the output and investment on which full employment depends. They should provide companies with the will to maintain and expand their capacity. This is an essential condition if investment is to be encouraged and jobs protected.
§ But there is another essential condition—that companies should have adequate access to credit and capital funds.
§ The Price Code and tax proposals will themselves ease the financial position of companies in two ways. In addition to the direct effect on company liquidity of the measures which I outlined, there are also indirect effects in that the improvement in liquidity improves credit-worthiness, so that companies are more ready to borrow, and banks to lend, than they were before.
§ The banks will, in fact, have a crucial rôle to play in the coming months, and I know they fully appreciate their responsibilities. It is essential that they should continue to give highest priority to industry, and that lending for personal consumption, financial transactions and property companies should take second place. With my approval, the Governor of the Bank of England is writing to all banks and finance houses reminding them of these priorities.
§ The monetary authorities for their part will seek to ensure that the banks are in a position to meet these priorities. They will be closely monitoring the reserve asset position of the banks to ensure that, consistently with our other monetary objectives, the lending capacity of the banks is not unduly constrained.
§ The Governor is also today announcing the terms on which the scheme of supplementary special deposits will be rolled forward for a further period. Broadly, these will extend the guideline for interest-bearing liabilities for a further six months at the same rate of growth as in the past. These terms are designed to provide adequately for the needs of industry without allowing the money supply to grow at a rate which would add to inflationary pressures.
267§ I judge that with the help of this measure there will be sufficient direct bank finance for industry. But bank lending is primarily short term and there is also likely to be a need for medium-term finance, at least until the capital market has recovered.
§ I am glad to be able to tell the House that the Governor of the Bank of England has arranged that the Bank and the London and Scottish Clearing Banks should expand very substantially the resources of the Industrial and Commercial Finance Corporation and the Finance Corporation for Industry, now amalgamated under the name Finance for Industry, a body in which they are joint shareholders. The Governor has also obtained assurances from a wide range of financial institutions that they are prepared to support this initiative by taking up periodic issues of marketable stock of FFI. This should make available medium-term funds for productive investment at commercial rates by British industry up to an amount of £1,000 million over a period of two years or so.
§ This is essentially an extension of facilities already available under normal commercial arrangements through the private banking system. It does not, of course, in any way pre-empt decisions the Government may take to establish new facilities for financial companies on different terms in the context of its proposals for the regeneration of British industry. I am grateful to all concerned. The Bank of England will be putting out more details in a separate announcement.
§ To ensure that adequate funds are available for these purposes and that the banks are able to play their full role, it is desirable that the capital bases of the banks should expand along with the increase in their total liabilities. I am therefore proposing to release the banks from their voluntary undertaking to forgo interest on a proportion of their special deposits. This will assist them to increase their reserves and so add to the capital base on which the level of their lending depends.
§ I believe that the measures I have just announced to help company profitability, liquidity and finance will ensure that the private sector will be able to play its full rôle in our mixed economy.