HC Deb 06 April 1976 vol 909 cc249-51

I now turn to the question of company finance. Although the financial position of companies has greatly improved in the last 12 months, I am concerned that, as world trade expands and new trading opportunities arise, none of those opportunities should be missed by creditworthy companies because of a shortage of available finance. In part, this is a question of avoiding what has become known as crowding out, and I have already mentioned my concern to avoid this. But in part it is also a question of ensuring that external finance is available for industry in the form which it wants.

The renewed confidence of investors, created in large part by this Government's economic policies, revived the equity market last year so that it was possible for companies to raise a record amount—some £1¼ billion—in equity capital. Over £700 million of this was for manufacturing industry.

The debenture market has not yet revived in the same way, but I hope that it, too, will once again become an important source of finance for investment, since medium-term interest rates should fall as the next round of our counter-inflation policy is seen to succeed. Discussions in the NEDC have suggested that the existence of transfer stamp duty might inhibit such a revival because the duty reduces the marketability of loan stocks and so their attraction to investing institutions. I therefore propose to abolish the stamp duty on transfers of fixed-interest stocks, excluding convertible stocks, at a cost of £10 million in a full year. This will take effect from 17th May in time for Stock Exchange settlements due on 25th May.

I also welcome the growth of medium-term finance for industry. In part this has come from Finance for Industry under the expansion of its resources arranged in November 1974. In part it has come from the banks, no doubt spurred on by the existence of FFI as a competitor. I understand that the facilities offered by the clearers in this way have almost doubled in the last two years.

I have, however, been concerned to ensure that ample finance of this kind continues to be available. Finance for Industry still has available for commitment a substantial part of the additional £1,000 million announced in November 1974. At my request, the Bank of England has discussed with the London and Scottish clearing banks their ability to provide this type of finance in future. The Bank has been assured that the clearing banks are still able to increase this type of lending. Nevertheless, in the longer term the availability of such finance longer term the availability of such finance might conceivably be limited by prudential liquidity considerations.

The Bank of England and the London and Scottish clearing banks have therefore agreed to explore the extent to which such constraints on bank credit might need to be alleviated and, if so, the means by which this could be achieved, such as the possibility of making medium-term loans by the clearers eligible for refinance at the Bank of England. These two developments will help to ensure that any creditworthy company should not be held back from worthwhile investment by the absence of finance in a suitable form.

Looking to the longer term, I want to examine the case for establishing some permanent arrangements for encouraging counter-cyclical investment. I therefore welcome the decision of the recently-established NEDC Committee on Finance for Investment to undertake an immediate study of the feasibility of countercyclical and other investment reserve schemes. I realise that there are plenty of difficulties about any such scheme—including the fact that we already have very generous tax incentives for investment.

I appreciate that the availability of finance is by no means the most important determinant of investment. The outlook for demand and the prospect of profits are both crucial to investment decisions. But, given the undoubted need for a higher level of investment to halt the process of industrial decline, and the need for greater stability in the pattern of investment to make the economy more manageable through the trade cycle, it is essential to study every possibility fully and carefully—particularly the concept of an Investment Fund such as already operates sucessfully in Sweden. If an effective counter-cyclical scheme can be devised, it could be an important element in our longer-term industrial strategy.