§ Order for Second Reading read.
§ 11.12 a.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
On a point of order, Mr. Speaker. I submit to you that this Bill is in need of a Money Resolution. Standing Order No. 90 says thatAny charge upon the public revenue whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament including any provision for realising or compounding any sum of money going to the Crown shall be authorised by resolution of the House.There is no such resolution before the House to allow the money to be advanced from the Consolidated Fund or the National Loans Fund. The Bill contains in Clause 6 an italicised clause dealing with loans by the Secretary of State to the Corporation. In Clause 21 there is another italicised clause allowing the Secretary of State to incur expenses in connection with the administration of the Bill.
It is pretty clear that this Bill could never become law without a Money Resolution. I recognise that it is possible for the Government to table a Money Resolution at any stage until the italicised clauses are reached in any Standing Committee to which the Bill may be referred. Clearly it would be wasting the time of the House to proceed with the Bill if the Financial Secretary to the Treasury is not prepared to move a Money Resolution. As the Minister of State, Treasury is in his place, may I ask him, through you, Mr. Speaker, whether it is the intention of the Government—
§ Mr. Ridley
I withdraw that question, although I hope that the hon. Gentleman heard it.
I also draw your attention, Mr. Speaker, to another point concerning the Bill. It has become customary to append to Bills a note on the financial implications of the measures proposed together 787 with a note on the public service manpower implications of the measures. This is not mandatory; it is a courtesy to the House, to inform it in advance what expense and manpower considerations would be involved were it to approve the Bill. There is no such memorandum attached to this Bill and as such there must be a lack of the proper courtesies that are observed when presenting a Bill to the House. I ask you, Mr. Speaker, to be kind enough to rule on those two points.
§ Mr. Speaker
The truth of the matter is that although this Bill will obviously need a Money Resolution if it is to make progress it is not customary for it to be tabled on a Private Member's Bill before Second Reading. There is certainly no requirement for the Money Resolution to be printed before the House agrees to a Second Reading. It may be that the Bill will not need a Money Resolution. It depends upon the will of the House. As for the second point raised by the hon. Member, it is not customary in Private Members' Bills to outline the manpower considerations to which the hon. Gentleman has referred.
§ Mr. Tim Sainsbury (Hove)
Further to that point of order, Mr. Speaker. While in no way wishing to question your ruling may I ask whether, if a Money Resolution were to become necessary, it would be debated on the Floor of the House before the Bill was referred to a Committee—
§ Mr. Speaker
Order. I can save everyone's time, including my own. The hon. Gentleman may raise all of these points if the Bill gets a Second Reading. It is at that stage that these other anxieties will arise.
§ 11.16 a.m.
§ Mr. John Ryman (Blyth)
I beg to move, That the Bill be now read a Second time.
Before I deal with the provisions of this Bill I should like to say a word or two about the background leading up to its presentation today. am delighted to see so many Members on both sides of the House here to support this urgent measure. I place on record my appreciation of the assistance rendered me by a large number of people by way of the 788 research work which has led up to this Bill. I include here the staff in the Public Bill Office, Mr. Richard Balfe, the Chairman of the GLC Housing Committee, and many others who have done a great deal of work.
I have received a tremendous amount of correspondence on this Bill, some of it in favour, some against. Yesterday I received an extraordinary document from an organisation called the Building Societies Association, which asked me to attend the debate today to oppose the Bill. This organisation, which wrote to me on beautifully embossed writing paper, has an office in Park Street, Mayfair, which I believe is at the back of the Dorchester and Grosvenor House Hotels. It wrote in these terms:Dear Mr. Ryman, As you probably know, this Bill—that is the Building Societies (Reorganisation and Nationalisation) Bill—comes up for Second Reading on Friday 4th March. As the previous Bill on that day has been withdrawn, the sponsors will have a great deal of time to put their case".Unhappily, I gather that that is not the case and that I do not have more than 4½ hours available today to develop the argument in support of this Bill. The gentleman who wrote this letter went on, very courteously, to say that he appreciated that Friday was a bad day to expect Members to stay in Westminster. He addedThe Council of this Association very much hopes that you can participate in the debate and, if possible, prevent the Bill from going through to Committee stage. Attached—said the author of this document—are some notes setting out arguments against nationalisation of this movement.Very helpfully, the gentleman in question had attached two documents, one headed:Arguments against the Building Societies (Reorganisation and Nationalisation) Billand the other headedFacts about building societieswhich contained 11 factual mistakes and one split infinitive.
I very much deplore the fact that a Bill of this importance has to be introduced on a Friday by an obscure private Member who is inexperienced in the ways of this House. This important piece of legislation, which affects thousands of 789 people who invest their savings and who wish to purchase their home by way of a mortgage, should have been introduced by the Government. The Labour Government, whom I support except on those occasions when I do not support them, were elected to office in October 1974 with an express mandate to remove the grotesque and unequal housing discrepancies that exist through the country.
One of the most crying needs of the people of this country today is for housing. Hon. Members on both sides of the House are agreed about that. The question is how one deals with that problem. This is a serious measure, designed to assist in that problem.
Let me say straight away that this is in no way a measure calculated to disparage the very good work done by the many building societies throughout the country. It is in no way a measure calculated to belittle the achievements of many men and women who work in those societies who render signal service to the public and to their societies. One fully appreciates the hard work that they put into these matters and their bonafides and good intentions in wanting to acheive the objects of their societies, namely, to produce money for the mortgage market and to provide investors with a fair return for thier capital, which they can withdraw at short notice as and when required.
§ Mr. Ryman
I shall not give way now. I shall give way later.
I now deal with another aspect of the Bill, which has led, I think, to some misunderstandings. While everyone is, I hope, agreed about the necessity for releasing sufficient funds for the mortgage market in order to enable people to purchase their homes by way of mortgage, for various reasons—some of them the fault of the building societies, some of them the fault of the present Administration and the previous Administration, and some of them capable of being ascribed to economic causes beyond the control of any Government or any organisation—the plain fact of the matter is that at present that aspect of the system does not work. It does not work because insufficient money is being released on to 790 the market to enable people to buy homes on mortgage, and thousands of young couples and others are disappointed each month by their failure to obtain advances from building societies.
I respectfully suggest that the crux of the value of the Bill—if one looks at it fairly, as I am sure the House will—is whether the enactment of the law proposed by the Bill will in any way alleviate that position. [interruption.]Opposition Members shout "Not at all", but they have not even heard the arguments yet. They are jumping to a premature conclusion without having heard a word of the evidence in support of the Bill. I respectfully suggest that if some of them will listen and apply what, for the purpose of this debate, I shall call their intelligences to the points raised in the debate, we shall begin to see what the value of the Bill is.
Let me now give the House what I understand are the undisputed facts of the rôle of building societies in the economy of the country. The position is this: it is in the interests of the public generally that home ownership should be encouraged, that thrift should be encouraged, and that any savings movements should be encouraged. One starts from that premise.
At the outbreak of the First World War only about 10 per cent of housing in Great Britain was owner-occupied. Today, the figure is about 53 per cent. It is as plain as a pikestaff that the stout efforts of building societies during the period since then has been one of the major contributory causes of the expansion of home ownership in the inter-war years and since the war. [Interruption.]Opposition Members shout "Good show", with their usual complacency, but the real point is that the movement has now failed after the very good start that it made originally.
We shall see in due course, when we analyse the figures—and the quality of the evidence is there—that the position today is that with all the good intentions in the world and with the initially successful start, building societies are failing in their prime objective—the provision of funds for the mortgage market. [Interruption.]Opposition Members cry "Rubbish", but they do not represent and are not themselves lower middle-class 791 people on low fixed incomes who have to struggle very hard indeed to repay mortgages, if and when they can get them. I should like to pursue the point.
§ Mr. Ryman
I shall give way later. I shall not be floored at the first fence.
Last year it was estimated that building societies provided approximately 95 per cent. of the loans by major institutions to house purchasers and that the amount lent in 1976 was something in excess of £6,000 million, which was a record for the building societies movement. That was in 1976. We should remember the period a few years earlier, 1973 and 1974, when, as the House will recollect, there had been an explosion of house prices after 1973 following a record series of advances by building societies, and interest rates jumped in 1973 and the building societies were then faced with a substantial problem. That problem was that insufficient money was coming into the societies. This made it necessary to raise rates, both for borrowers and lenders. Between March and December 1973, share rates rose from 5.6 per cent. to 7.5 per cent., and the mortgage rate was altered from 8.5 per cent. to 11 per cent. That was in the spring of 1974.
It was at that stage that the recently elected Labour Government intervened and created a massive loan in favour of the building societies—£500 million—in May 1974 in order to persuade the building societies to stabilise their interest rates, because there was a. very real fear then that interest rates might have to be increased.
§ Sir Nigel Fisher (Surbiton)
Would the hon. Gentleman care to inform the House what the general level of interest rates was during the period that he is mentioning? He must acknowledge that building societies' rates cannot be insulated from the general level of rates prevailing at the time.
§ Mr. Ryman
Of course. It is so obvious that it need hardly be stated. Of course building societies' interest rates cannot be insulated from general rates. I shall deal with that matter in due course, when I describe what the present Government should do in altering their fundamental economic strategy to the benefit of building societies and of many other sections of the community.
Let me say straight away—it may help hon. Members in anticipating the arguments—that the current economic strategy of the Government, in my respectful judgment, is fundamentally wrong. Therefore, I recognise that the building societies now have to operate at a grave disadvantage in an economic climate created by a fallacious economic strategy. It would be a thousand times worse if the Conservative Party were in power.
§ Mr. Ryman
After interrupting myself, I shall return to the serious point that I was seeking to make, which is that in May 1974 the Government had to rescue the building societies. The Government had to inject a loan of £500 million, which the building societies took up gratefully and which they had repaid by the end of the following year. The reason was that the machinery of the building societies just did not work in the prevailing economic climate that existed. Nor does it work today.
The building societies could not have survived and maintained their existing interest rates in May 1974 had it not been for Government intervention. But why should a Labour Government, a Tory Government, or any kind of Government —one hopes that some day we shall have a Socialist Government running this country—pump £500 million into wealthy financial institutions and not have a say in the administration of those institutions and accountability for that public money?
A lot of criticism is directed against the concept of nationalisation. It has become a highly emotive word. I shall state the position as it applies to the Bill. In my judgment there is an important principle at stake. That principle is that financial, 793 industrial and economic power includes inherent duties and responsibilities. Large financial institutions such as the banks, the insurance companies and building societies, more than others, have an inherent moral obligation to exercise their power in the public interest. Yet when we look at the behaviour of the building societies, particularly with regard to inner cities, immigrant groups, and discrimination against women and other minority groups, we see that their standards fall short of the behaviour that one would expect.
I have already paid tribute to the great work done by the building societies and to the work done by the people working in them, but I suggest that the principle of financial power brings with it inherent obligations in the interests of the public. For example, I depart from the Bill for a moment and refer to another situation that recently occupied the time of this House. Every hon. Member knows about the case of the thalidomide children and the pharmaceutical industry involved. All hon. Members, even on the Opposition Benches, recognised straight away that that big public company, which exercises vast financial control, had an inherent moral obligation with regard to matters that had caused those terrible injuries to those children.
The principle, therefore, is that the building societies, which are now more powerful than the banks themselves, have an inherent moral duty in the interests of the public. They are not simply cold-blooded financial institutions that can do what they like. They are accountable to the public and "public" in this context means two categories of persons.
It means people who want to invest and get a fair return for their capital and it means people who want to purchase their homes on mortgage. It has been agreed by all sections of the House, one hopes, that both categories of persons pursue perfectly laudable aims which should be encouraged in the public interest. The concept of nationalisation, which is frequently sneered at by Opposition Members and even by members of the Labour Party, is no more than that. It means preserving the public interest by public accountability for public money spent, and having regard to the criterion that I have just suggested.
794 Against that background what has happened? 1974 is the relevant period against which the criterion must be judged. What happened was that building society loans fell disastrously in that period because the incoming income was insufficient to provide for house purchasers on the market. Even the Government loan, established for the stabilisation of interest rates, was insufficient to deal with that situation.
Purchasers turned to the local authorities because in 1974 local authorities were able to facilitate the purchase of homes by way of mortgage in a way that they had not been able to do previously. In London, for example, about 35 per cent. of mortgages on loans for owner occupation were supplied by the local authorities in 1974, as distinct from the areas outside London, where about 13 per cent. were supplied.
The point is that there is obviously a relationship between the work done by building societies and the work done by local authorities in this regard. But because of the asinine policy of the present Government in cuting back public expenditure, the local authorities now find themselves in a very real difficulty. They do so because they are being starved of essential funds for doing just what they are supposed to do.
§ Mr. Sainsbury
Does the hon. Gentleman accept that the error of the asinine policies of the present Government lies not so much in cutting back expenditure but in the way that it has been done? While local authorities can carry on building council houses, which we are reminded are not what people want, and can carry on programmes of municipalisation, which add nothing to the housing stock, they are restricted in the amount that they can lend for mortgage.
§ Mr. Ryman
The hon. Gentleman has got it half right and half wrong. The real point is that this is a combination of circumstances. I fundamentally disagree with the present policy of the Government. I was one of those hon. Members who did not support the Chancellor's statement with regard to the cut in public expenditure in the Division Lobby. But the hon. Gentleman is undoubtedly right when he says that there is a dichotomy between the position of the Government starving local authorities of essential funds for 795 house building programmes. such as I described, and other measures in which an enlightened local authority must engage, in social welfare, education, and so on.
The plain fact is that there is a relationship between building societies and local authorities—but perhaps I may return to my fundamental theme, which is that in 1974, where the building, societies had failed the local authorities stepped in. The position is now somewhat reversed. The building societies have recently, within certain limitations, assisted local authorities in creating mortgage facilities where those authorities have not been able to do so by reason of the Government's policy which I so deplore.
Looking at the matter fairly and squarely, the corrollary is that there is a crying need for a firm independent Government organisation, to some extent immune from local political pressures and the purely economic arid commercial judgments of building societies, to provide an essential service in this regard.
§ Mr. Hugh Rossi (Hornsey) rose—
§ Mr. Rossirose—
§ Mr. Ryman
The hon. Gentleman is not nearly as frightening as he seems to think. I shall give way in due course but I shall not be browbeaten or knocked by an irresponsible Opposition.
I return to the theme that I was endeavouring to describe with regard to the relationship between local authorities and building societies in this very important area. It is the nub of the matter. The purely commercial judgments that building societies exercise in deciding where to allocate funds for mortgage purposes are based on the wrong criterion. There should be a criterion in addition to pure commercial considerations. There should be a criterion in relation to housing needs and social needs in given neighbourhoods
796 This is the fundamental weakness of the present system, and the weakness has been documented and factually compiled by a number of very honourable organisations that have done a great deal of research into it. The net results on the evidence available is that, up and down the country, there are more than 300 building societies, the top few of which control the majority of the assets. There emerges a picture not only of red-lining, not only of refusal to grant mortgages in certain inner city areas to certin groups of people and on certain properties, but a picture that shows that the building societies are not doing their job properly. That is one of the reasons behind this Bill. I shall deal with it in due course, and I shall also give the factual evidence in support of the general proposition that I have just stated.
What sort of sums of money are we dealing with? They are enormous. The estimated assets of the building societies last year were £28,000 million. They are bigger than the banks. They are one of the most important homes for people's savings. They have outstripped banks, insurance companies and the like in being able to attract money, although they dissipate their assets woefully.
§ Mr. Ryman
I shall prove it. One has only to look at any high street in the country. There is a multitude of building society offices, inefficiently organised, on prime office sites, running up enormous overheads, one imagines, quite unnecessarily. I do not suggest for a moment that nationalised industries do not waste money, and I have criticised nationalised industries from time to time as much as any Opposition Member. The criterion is the same for both private and public industry. The criterion is, or should be, the public interest. But if the Opposition do not appreciate that the building societies, despite their funds, waste money on expensive office sites in places where there are many other building societies, they cannot appreciate the inefficiency which undoubtedly goes on in the building societies.
Anyone organising a business or looking at an existing business nationally and sensibly could not fail to notice the duplication of work, staff and overheads that 797 exists throughout the country, and that is a good point which should be answered by some Opposition Members today.
What is the evidence that building societies are not using their funds in the public interest in the way that they should? I suggest that there are two broad bodies of evidence which prove this. The first is the fact that would-be home buyers, whether they are buying their first homes or subsequent homes, which usually are more expensive on the resale of their first homes, simply cannot get the necessary funds. That is the position today. People simply cannot get the funds. I recognise that the building societies are doing their best to get funds. But they are in the difficulty that they cannot lend money which they have not got. They are required by law to have a high degree of liquidity, having trustee status. They have been unsuccessful, despite a concentrated and systematic advertising campaign, in obtaining sufficient funds.
One can recognise the difficulty. Building societies cannot lend money which they have not got. They have not been able to get the money. But what comfort is that to people who want to borrow money? What comfort is it to a young couple wanting to buy their first house? This is a heart-breaking disappointment for people wanting to buy houses. They go to building societies and they are told by sympathetic managers "I am sorry. I have used up my allocation for this month. Come back next month, and I will see what can be done." This is a serious matter for the ordinary people of this country. It is of no comfort to a disappointed couple who wish to obtain a mortgage to buy a house to be told by a sympathetic building society manager in some cosy office in the high street of a place such as Guildford "I am sorry. We have not got the money to lend you."
§ Several hon. Members rose—798
§ Mr. Blenkinsop
Is my hon. Friend aware that, at a stage before he pleased us by joining us in the House, many of us were complaining because building societies were lending too much, thereby helping to stoke up the inflation position, and that the Government whom he opposes so vigorously have been trying recently to prevent that happening again?
§ Mr. Ryman
I am grateful to my hon. Friend for that intervention. I was aware of the state of affairs to which he referred. But my answer to him is that the Government must attempt to strike a happy medium between the public interest of making sufficient money available to the borrowing public and of that having the repercussions of which he complained.
That is only one aspect of the problem The other aspect is that not only do building societies not lend sufficient money, with the result that many people are disappointed, but their criterion for lending money is often wrong.
The principle upon which building societies lend money is an incorrect one. Broadly speaking, the principle is purely a commercial consideration and a commercial judgment of the value of a property as security for a loan. There are additional factors which should be taken into consideration when a building society makes a loan.
§ Mr. Ridleyrose—
§ Mr. Ryman
No. I shall not give way again.
I shall give the House an example of the way in which building societies operate their funds unfairly, causing immense hardship to certain sections of the population. Broadly speaking, there are three categories of people against whom the building societies seem to discriminate as a matter of policy—or, if it is accidental, it is an extraordinary coincidence. One category consists of people living in the inner city areas of certain big towns, such as Birmingham, Leeds or Newcastle, which is near my constituency.
§ Mr. Ryman
And London, no doubt, and many other towns. The second category comprises certain groups of people, for example immigrants.
The third category consists of women left on their own after their husbands have deserted them, or have left them in other circumstances or have died. The woman, perhaps with young children, is left in a house on which her husband has been paying the mortgage. She may then be pressurised by building societies in circumstances that can only be described as utterly inhumane. In the public interest, occurrences of this sort should not be allowed. [AN HON. MEMBER: "That is not true."] The hon. Gentleman says that this is not true. I have the evidence, if he will listen to it, and I shall demonstrate that these practices go on up and down the country. The question is whether the. Bill will help to cure any of these undoubted abuses.
§ Mr. Rossi
On the case which the hon. Gentleman has just mentioned, would he not agree that the building societies also have a responsibility to their investors not to lend on risky property in inner city areas or to people whose status is such that they may find the repayments difficult, thereby giving rise to foreclosure problems? Would not this problem, which the hon. Gentleman has quite rightly drawn to our attention, be best dealt with by the public sector? If it is socially desirable that these people should be given access to home ownership, that is the responsibility of local authorities and not of the trustees of people's savings.
§ Mr. Ryman
The hon. Gentleman has missed the point. It is a matter for the public authority which will be set up by the Bill, because local authorities have shown that they cannot cope with the problem adequately.
Governments have a shocking record in this matter. Labour is as much to blame as the Tories. The Tories are badly to blame they have a shocking record. It certainly is a matter of public concern, and the question is what should be the nature of the public help which should be given to these people, to whom I think 800 all hon. Members would agree that help should be given.
It is absolutely scandalous that building societies, which have a financial duty to safeguard the funds of their investors, should not lend money to women, to coloured persons, to people living with—
§ Mr. Erie Ogden (Liverpool, West Derby) rose—
§ Mr. William Clark rose—
§ Mr. Ogdenrose—
§ Mr. Ryman
I shall not give way. I want to finish this point first.
In order to investigate the situation, I had inquiries made about the behaviour of building societies in various big cities, including the biggest city near my constituency, Birmingham—I am sorry, Newcastle. Newcastle and Birmingham are, unfortunately, in similar situations. The considered opinion of responsible local authority officials there is that the building societies have been deliberately not co-operating with the local authority in dealing with prime housing needs within the jurisdiction of the local authorities. It is an absolute tragedy that in places such as Newcastle, Birmingham, Leeds and London building societies, for, from their point of view, bona fide reasons, have not been co-operating with local authorities in dealing with the areas' housing needs.
§ Mr. William Clark rose—
§ Mr. Ryman
I want to deal with this in detail before I am interrupted again. No doubt hon. Members will be able to deal with these matters.
What is the best machinery to deal with these problems? The Bill envisages the establishment of a corporation which would have the power to act simultaneously with the existing organisations, to step in where they do not succeed in making money available for the mortgage market. That is the fundamental principle behind the Bill, and it is a perfectly sensible purpose for a Bill of this kind.
§ Mr. Reginald Eyre (Birmingham, Hall Green)
It is true that there are difficulties in the inner areas, and, as the hon. Gentleman fairly said, building societies are trying to help the local authorities to extend mortgages in those areas because there has been a severe falling away in local authority mortgages which the Government used to finance. How can the hon. Gentleman say that there is any advantage in the Bill by local authorities getting more money from the Secretary of State and having a policy of extended local authority mortgages? What possible advantage is there in having the paraphernalia in the Bill rather than allowing the Secretary of State to deal with the problems through local authority mortgages?
§ Mr. Ryman
That is an important point. In effect, the hon. Gentleman asked what was the distinction or advantage between giving local authorities money and asking them to lend that money on mortgages, and disbursing the money through a central authority. If we have a central authority, we can have uniformity of a kind that we cannot have if it is given to local authorities with different considerations in mind.
This, I think, is the nub of the matter. I agree that the present system, for a variety of reasons, has broken down because it is not producing the goods. What system can be devised instead to produce the answer? As the Government are unwilling or unable to provide local authorities with sufficient funds to provide mortgages for people living in certain areas, the scheme in the Bill will be an answer. I am not saying that it will be a perfect answer or that it will make mortgages cheaper. It will be a piece of machinery whereby funds can be raised on the open market, either from direct investment or from a loan—as the GLC does at present—to provide money for the mortgage markets. That is the fundamental difference.
This is a serious problem and I acknowledge that there is no easy answer to it. It is an extreme state of affairs. Judging from the noises made by some Opposition Members, I do not think that everyone appreciates the anguish, heartbreak and anxiety caused to many people who cannot find funds to purchase homes, which we all agree is a sensible and laud- 802 able objective. The hardship which that imposes on people throughout the country is enormous.
In view of the vast resources available to building societies, which, as I have already acknowledged, do a good job in certain respects, one must ask what can be suggested to replace the present system if it does not work. What improvement can be suggested to make more money available for house purchase? I shall be interested to hear from my hon. Friend the Minister of State what the Treasury is doing about it. The Treasury has not come off at all well in the discussions which have been taking place.
The Treasury has a grave responsibility in this matter. On the one hand, it has given building societies a substantial tax concession—which investors have by investing with building societies—and, on the other hand, as the Department responsible for interest rates which affect building society interest rates, it has put the building societies in a very difficult position because they cannot offer interest rates which compete with, for example, local authorities, which in certain circumstances represent a far more attractive form of investment for private small investors.
It is plain that the small investor gets a good service from the building societies. He can invest a modest sum and withdraw it at short notice. If he invests with a local authority, he cannot withdraw at such short notice and he has to invest a much larger sum.
The Government bear a heavy responsibility in this matter. There is innate unfairness in the system. If a person buys a house on mortgage by way of a life policy, he is in a much more advantageous position than a person who buys a house on mortgage through a building society, for this reason. The Government, through the Treasury, give substantial and expensive tax relief on life policy premiums, and the interest rate is fixed for the term of the mortgage.
§ Mr. Ryman
I shall not give way to anybody. This is an important point which hon. Members do not understand. If a person buying a house can negotiate a with-profits life policy with an insurance company and the interest rate is fixed, he can afford to pay a much higher premium on the life policy and he has a tremendous advantage over a person buying a house on mortgage through a building society.
§ Mr. Ernest G. Perry
My hon. Friend has been dealing with the question of endowment life insurance policies connected with the purchase of houses. In most cases the interest varies in exactly the same way as it does with an ordinary mortgage. As someone who sold many such policies before my hon. Friend became a Member of the House, I can guarantee that.
On 9th February I asked the Chancellor of the Exchequer
what was the total cost during the last three years, respectively, of the concession whereby a proportion of the premium for life policies can be set off against taxable income by a taxpayer?
§ The 1974–75 estimate is as shown by the Survey of Personal Incomes for that year; the estimates for 1975–76 and 1976–77 are derived from projections based on the 1974–75 data." —[Official Report. 16th February 1977: Vol. 926, c. 266.]
§ What it comes to in plain English is that in the last financial year it cost the taxpayer £200 million a year to subsidise people wishing to purchase houses by way of life policies. That is an enormous sum. Already large sums of Government money are being used to assist people in purchasing homes. I do not complain about that; it is perfectly proper. The question is whether the present system is fair or unfair.
§ The system is unfair because it discriminates against the poor, lower-paid workers, widows, minority groups and people living in properties which are considered to be less desirable from the security point of view by the building societies on which to lend money. That has resulted in discrimination, and the only way to deal with it is by establishing a body which has the public interest primarily at heart but which is guided by sensible, realistic financial considerations.
§ I have already made certain disparaging remarks about nationalised industries. However, I do not accept the sweeping generalisation in the memorandum from the Building Societies Association which suggests that the only motive—
§ Mr. Ogden
On a point of order, Mr. Deputy Speaker. Only last week you frequently asked hon. Members to make short speeches because many of us wished to speak. My hon. Friend the Member for Blyth (Mr. Ryman) has particular responsibilities because he is introducing the Bill and he should take longer than others of us. He says that he has four hours left. Surely it is reasonable that other Members should be allowed to put forward an argument.
§ Mr. Deputy Speaker
I feel sure that the hon. Member for Blyth (Mr. Ryman) has heard what the hon. Gentleman has said.
§ Mr. Ryman
My hon. Friend is quite right. He must appreciate, however, that my remark about my having four hours left in which to speak was made in a sense of jest and was not to be taken too literally. He, with other hon. Members, must be given the opportunity to speak on this important matter. But it is a very big subject—
§ Mr. Neubertrose—
§ Mr. Ryman
I shall not give way again; I have just done so. It is a very important subject. That is why I said earlier that it is deplorable that the Government have not seen fit to introduce the Bill them selves. In due course, if the Bill does riot get on to the statute book as a Private Member's Bill, the Government may adopt it.
§ Mr. Neubertrose—
§ Mr. Ryman
Yes, but I am not giving way now because it is most important that I deal with these matters.
I have been asked whether the creation of a new organisation will help people who require assistance because the present system does not work. I was reading this Bill in bed last night—I must admit that it does not make the most exhilarating bedtime reading—and its central theme is to establish a British Building Societies Corporation with wide enough powers to deal with the situation that has arisen. There are powers to borrow money, powers to keep under review the needs of house buyers, and substantial powers to have regard to housing and social criteria in lending money, quite apart from the narrow commercial criteria.
The Bill is not being introduced in a reckless or frivolous way. Also, I am not in any sense simply having a dig at perfectly good institutions that are doing their best—although I would suggest that it is a very incompetent best. The Bill is being introduced because of a growing 806 need for housing which building societies, local authorities and successive Governments have to far failed to meet. Both Tory and Labour Governments have failed to do anything about this, and the net result is that in 1977 the housing situation is deplorable in many areas up and down the country.
Everyone—Governments, organisations, local authorities and building societies—must acknowledge a responsibility for the failure. It is no use their washing their hands and saying "It has nothing to do with us" and blaming it on the Chancellor. Everyone must bear part of the blame and realise that many people have suffered needlessly because of the situation.
The proposed corporation, by having regard to the public interest, will encourage further substantial investment and will enable people to borrow money as and when it is required, adding a small administration fee which is obviously necessary to make it efficient. As a result, there will be sufficient money in the housing market for people to borrow it as and when they require it.
I commend the Bill to the House. Unless the Government or the Opposition can come forward with some sensible proposals indicating how the building societies will alter their behaviour in relation to this problem, until the Government or the Opposition come forward with constructive suggestions to ameliorate the deplorable conditions that exist in cities, I respectfully suggest that the concept provided by the Bill, while not perfect or foolproof by any means, at least offers a sensible structure that will serve the purpose.
It is scandalous that this important issue has been so utterly neglected by this Administration. Since the present Government were returned to power in 1974, they have pursued an economic strategy which has led to 1½ million people being unemployed and endless hardship being caused in local authority areas by the cut-back in public funds and by the abolition of the regional employment premium with no notice at all, thus increasing unemployment in my constituency and reducing industrial training. This Government have nothing to be proud of. However, I am a Labour Member and I do not want to be partisan. 807 I support the Labour Government, except on those occasions when I do not do so, and in looking at the merits of the situation I derive no comfort at all from the policies of the Opposition, because when they were in power they were infinitely worse. That is why I support the present Government, albeit reluctantly on certain occasions, because I hope that they will do something to remedy the deplorable problems that we face.
If there is no action forthcoming from the Government on housing, as there has been no action in so many other fields —education, health, employment, industry and so on—it is incumbent upon private Members to attempt the difficult task of piloting a Private Member's Bill through the House. What other possibility is left to us? The Government will not deal with the problem, and neither will the Opposition. People in my constituency are homeless because there has been no action by the Government. The Government are utterly complacent, feeble and utterly wet. It is absolutely disgraceful. Thousands of people are suffering because the building societies are discriminating and the Government are too weak to do anything about it. I therefore commend the Bill to the House.
§ 12.18 p.m.
§ Mr. William Clark (Croydon, South)
I listened with great interest to the speech of the hon. Member for Blyth (Mr. Ryman). He spoke for a reasonable length of time, and I am sorry that he did not continue. But certainly he helped to empty the Public Gallery.
I pay tribute to the hon. Member's ingenuity. He knows full well that his Bill has no hope of getting through. Therefore, what is his objective? My guess is that he was flying a kite so that some time in the future the National Executive of the Labour Party will adopt the Bill in its manifesto. That is a stroke of genius. We have seen these tactics many times before. Private Members' Bills that have no hope of being passed are eventually adopted by the National Executive. As somebody once said, "What the Left Wing thinks today is in the Labour manifesto in five years' time." Therefore, I congratulate the hon. Member on his ingenuity.
808 Also, I congratulate the hon. Member on his pragmatic approach to the performance of his own Government. He has been very frank with the House and extremely open, and I like that. I think that he was sincere in his criticism and was not simply carping. I believe that he genuinely thinks that the Government's economic policy is disastrous, and I go along with him on that. He said that this country has had Conservative and Labour Governments, and he hopes that at some time it will get a Socialist Government. The general public should take note of that. Here we have a supporter of the present Labour Government who stands up and says quite frankly that he hopes that at some time the country will get a Socialist Government. Any hon. Member who expresses those sentiments should not get into this House on a Labour Party ticket.
§ Mr. Ridley
I do not think that my hon. Friend is doing the hon. Gentleman justice, because he told us that he had been pressurised by the Building Societies Association to take part in the debate and to do everything he could to defeat the Bill. I thought he was doing just that.
§ Mr. Clark
As usual, my hon. Friend has put his finger on the nail with great accuracy.
The building society movement as a whole is the basis of owner-occupation. I shall come back to the hon. Gentleman's smooth talk about people having the right to own their own houses when I get to the question of the sale of council houses. The building society movement has been the basis for the build-up of owner-occupation in this country. We should remember that the house that a person owns is probably the only asset that he or she has to leave to his or her children. That is very important.
Owner-occupation also helps with the mobility of labour. It is impossible for a man living in rented accommodation in, say, Preston to take up the offer of a job in Birmingham, because he will probably not be able to get rented accommodation in Birmingham.
§ Mr. Clark
However, if he is an owner-occupier in Preston, albeit with a mortgage to be repaid, he is in the market for 809 buying a house in Birmingham. Therefore, owner-occupation must lead to the greater mobility of labour.
The hon. Member for Blyth paid a tribute to the building societies when he spoke about owner-occupation. I remind the House that in 1944 owner-occupation was 25 per cent. It increased to 53 per cent. in 1977. Therefore, it has more than doubled in 30 years, mainly due to the building societies.
The hon. Gentleman spent a lot of time saying where the building societies had failed. It would have been more honest if he had given the list of achievements of the building societies. I should like to put those achievements on the record. First, we should remember that building societies are non-profit-making organisations. There is no profit in them at all. However, if they were nationalised, I am sure that there would be a loss position. Secondly, the Chief Registrar of Friendly Societies has rigorous control over the regulation and running of building societies. One has only to look at the Acts governing building societies in past years to appreciate that. Therefore, the building societies cannot be faulted on grounds of public accountability and non-profit-making.
The building societies have been operating for 200 years. One advantage which makes them very good instruments for saving is that many of them are localised. For example, there is the Bradford and Bingley Building Society. Bingley people will probably invest their money in that local society, and the society will no doubt lend money to people who want to buy houses in and around Bingley. There is that localised advantage which helps the owner-occupier and the saver. The people running that building society will invariably be well known locally. That, again, gives a feeling of belonging to an enterprise. I think that we have for too long tried to dismantle the sentiments attaching to such organisations.
The hon. Gentleman said that the building societies do not help or that they are failing. I remind him that at the moment there are over 4½ million home buyers on their books. That is not a bad story. I think that it is a success story.
§ Mr. Clark
No, I shall not give way. I shall give way later, but it will be much later.
The hon. Gentleman did not repeat how building societies help people to save. There are 18 million investment accounts in building societies throughout the country. That is not a bad record. I wonder what those investors would do if they thought that the dead hand of Socialism was going to get its fingers on their cash. I do not think that we would have 18 million investors.
Under the regulations, an individual can invest only so much with a building society. Therefore, in no circumstances could a building society be taken over or cornered by a group of individuals. The building societies represent one of the most democratic institutions in this country.
In 1976 over £6,000 million was lent by the building societies, which have total assets of £28,000 million. We have heard criticisms about the people to whom the building societies lend money. I should point out that 48 per cent. of the money they lend goes to first-time home buyers. The hon. Gentleman may think that 48 per cent. is a small proportion. However, I do not think that the building societies should take only one section of the community and say, "We will help only those people". All categories must be helped. Consequently, 48 per cent. for first-time buyers is very good. About 19 per cent. of advances are made to young people under 25 years of age. Indeed, 28 per cent. of home buyers—I hope that the hon. Gentleman read the paper which came from the Building Societies Association—earn less than £3,500 a year.
The hon. Gentleman paid tribute to the building societies for helping local authorities. That in itself is an advantage. I am sure that when the Minister intervenes in the debate he will pay tribute to the building societies for having taken on part of the role of local authority lending in 1976. For example, the building societies lent £132 million in place of the local authorities. This year they reckon to lend about £176 million. I am sure the Minister will pay tribute to the fact that that injection of cash by the building societies has reduced the borrowing requirement.
811 The hon. Member for Blyth did not say very much about the running expenses of the building societies. In fact, for every £100 only 95p goes in managerial and running costs. As I said earlier, these matters are rigorously controlled by the Chief Registrar of Friendly Societies. I repeat, building societies are non-profit-making. The running costs of the Trustee Savings Bank are much higher than those of the building societies. The TSB is a publicly-owned corporation and its management costs are very high. My guess is that if the Bill goes through and the building societies are nationalised, the 95p out of every £100 gross would escalate rapidly.
§ Mr. George Rodgers (Chorley)
Does the hon. Gentleman think it fair or reasonable not to compare like with like? Would he care to compare the running costs of some private enterprise organisations, particularly the private banks?
§ Mr. Clark
No. With respect, the hon. Gentleman has got it wrong. The banks are in business for profit. I am talking about non-profit-making organisations—the building societies. The Trustee Savings Bank is in much the same category. I am trying to compare like with like. The 95p out of every £100 for the building societies for managerial and running costs compares very favourably with the Trustee Savings Bank.
I turn now to the criticisms which might be levelled at the building societies. One criticism of them concerns the number of branches that they have. There are about 3,370 branches throughout the country and there are 367 building societies. That is roughly an average of nine or nine and a half branches per building society. The criticism is that there are too many branches and that we do not need two or three offices in every High Street.
The hon. Member for Blyth was quite illogical, because he started by paying tribute to the efficiency of the staff but then went on to say that the branches were run so inefficiently. He cannot have it both ways.
§ Mr. Clark
I shall give way to the hon. Gentleman later. If he is criticising the number of branches in the High Street, I suggest that there is no difference between the number of building society branches and the number of different bank branches in each High Street. Some people like to bank with Lloyds, some with National Westminster, and so on. Insurance companies also have different branches in our High Streets.
§ Mr. Clark
I am delighted that the hon. Member for Blyth has anticipated what I was about to say. Different banks have branches in our High Streets, so do insurance companies, and so do building societies. Is it not extraordinary that all three are on the nationalisation list? The hon. Gentleman's criticism of the number of branches is quite nonsensical. Why is it that we have different supermarkets in the High Street? The reason is to get competition.
We also have nationalised gas and electricity industries. We can walk down practically any High Street and find a gas showroom and then, a couple of doors along the street, an electricity showroom. If it is right that building societies should not have different branches, I would have thought that the same should apply to gas and electricity showrooms.
The advantages of building societies certainly outweigh the criticisms. They have many liquid resources and they lend money very fairly. If they have any surplus funds, the Chief Registrar of Friendly Societies insists by law that they invest only in Government securities or local authority securities. They cannot invest in equities.
The Bill is really a nationalisation measure. The House should be grateful to the hon. Member for Blyth for saying that he would like to see a Socialist Government in this country. I think that this would scare the living daylights out of 99 per cent. of the population, including Labour supporters. The Socialists want more and more nationalisation. I do not think that anyone in this House believes that nationalised industries have a very good record. The history of nationalisation could not be called the success story of the twentieth century. 813 It has been completely and utterly disastrous. The profit motive, which is always denigrated by Labour Members, has disappeared. Every now and again we see that a loan is cancelled or a grant is written off. There is no incentive. Even many members of the Labour Party realise this.
I do not think that the hon. Member for Blyth has the support of the Labour Party in this measure, although he may get a few people to pay lip service to it. There is no incentive in nationalised industries. Nationalisation is merely the inflexible hand of Socialism creating bureaucracy. People in this country have suffered for too long with bureaucracy. It is essential that there should be a profit motive.
The hon. Gentleman said that some money had been advanced to the building societies—I think the figure was £500 million—but it was repaid within a year or two years. That is not a bad performance. The hon. Gentleman should think for a moment about the amount of money lent to nationalised industries which we have no hope of ever getting back. Yet the money advanced to the building societies has been repaid.
The hon. Gentleman spoke about the public having a say in the running of building societies. It always makes my blood boil to hear Labour Members say that nationalisation means that the nationalised industries belong to the State and to the people. When I go into a post office, I do not feel like a shareholder. I do not think that I have any rights at all. In fact, I feel the very reverse. I am treated as a servant. The people running the post office are in many cases not interested—there is no profit motive.
§ Mr. Sainsbury
Perhaps my hon. Friend is aware that what has been called a profit represents a very inadequate return on the massive sums of taxpayers' 814 money that have been invested in that Corporation.
§ Mr. Clark
My hon. Friend is absolutely right. I am grateful for his intervention. It is a fallacy to think that the public have any rights or say in the nationalised industries, whether gas, electricity or the Post Office. But the building societies are democratically controlled. Investors in building societies have the opportunity to go to the annual general meeting of each building society, and if they do not like the way in which the directors have been handling the affairs of the society they can vote the directors off. I should like someone to invite me to the annual general meeting of the gas and electricity boards and give me the right to vote. There would certainly be some changes.
Let me now deal with this miserable Bill. The hon. Member for Blyth hopes that it will raise money from the public. I admire his confidence if he thinks that the Bill will attract money from the public. My guess is that people will be scared of putting their money into this sort of enterprise if it is nationalised. He is deluding himself if he thinks that the public would continue to invest.
The Bill provides that the Government should be a second source of revenue. But why do we need all this paraphernalia? If the Government want to do something, let them do it through the local authorities. Why set up this paraphernalia to upset the building societies and the existing structure, imposing the dead hand of bureaucracy? A nationalised set-up would not prosper.
I do not like the powers of manipulation contained in the Bill. It allows no competition. At the moment, if I want a mortgage I go to a building society, which may turn me down if it does not like the sort of security I offer or if it does not consider my income high enough. I can go to another building society and apply there for a mortgage. If, however, all the building societies were nationalised, there would be no one left to turn to. That is the nub of the problem. It is all part of the strangulation of the individual under Socialism, where the individual counts for nothing. If a bureaucrat says that one cannot have a mortgage, there is no one else to turn to. But at the moment one can go to 815 any of the other 366 building societies in the hope of obtaining a mortgage.
Another matter to which I wish to refer is probably a difference of outlook between the two main parties. If we believe the leaked report that the Daily Mail was clever enough to disclose, and to which my hon. Friend the Member for Hornsey (Mr. Rossi) has referred, there is a difference in attitudes to the sale of council houses. If we had a nationalised building society covering the whole nation, I wonder whether that building society would lend to council house tenants who wanted to buy their own houses in view of the fact that Socialists do not want council houses to be sold. Socialism always leads to dictatorship—
§ Mr. Clark
That is an argument which dies not need to be pursued here today. I should be happy to pursue it with the hon. Gentleman at another time.
One thing that I do not like about the Bill is the additional patronage that it would place in the hands of the Secretary of State. The country suffers from too much patronage in a few areas, particularly in political terms. This is a danger we must watch with great care.
The Bill would give the Secretary of State so many powers that he would become a little dictator, saying and doing what he liked with the building scocieties and with one to say "Nay". That is wrong. I do not agree that any Secretary of State, whatever his political persuasion, should have that right.
The question of red-lining has been referred to. This whole matter stems from the decay of the inner cities, and that is a social problem. Why should the 18 million small investors with the building societies have put on their shoulders the burden of solving the inner city problems? If the problem is to be tackled, the burden must fall upon taxpayers as a whole.
816 The hon. Member for Blyth must accept as a rule of economics that one cannot borrow money and then lend it if in lending one encounters the risk of bad debt. If the building societies were to take responsibility for the social implications of red-lining, they would be advancing £5,000, for example, on a £4,000 property. That is not on.
If there is a £1,000 shortfall in the valuation, the local authority or the taxpayer should provide it. That is not the task of the building societies and the small savers who invest in them and who eventually would have to foot the bill. On the inner city problem, the Minister would be better advised to press, to use the hon. Member's words, this disastrous Government to do something about the Dockland area which lies not far from here.
The Bill is a Left-wing measure which is designed to ensure that eventually owner-occupation will disappear. There will be no competition and there will be no confidence in the small saver to invest. If by any mischance the Bill is passed and gets on to the statute book, I prophesy that it will mean the demise of the owner-occupier.
§ 12.44 p.m.
§ Mr. George Rodgers (Chorley)
I wish to give my support to the broad terms of the Bill so ably and fascinatingly presented by my hon. Friend the Member for Blyth (Mr. Ryman). I do not intend to pursue the path taken by the hon. Member for Croydon, South (Mr. Clark). He put the case against the Bill as well as it could be put. I must comment, however, on his suggestion that if the Bill is carried people's savings will be put at risk since there is an element of public ownership about the enterprise.
§ Mr. William Clark
I do not want the hon. Member to be under any misapprehension. I did not say that savings would be at risk. I said that if the organisation was State controlled I did not think that the public would continue to save their money through it.
§ Mr. Rodgers
It would be as well for the hon. Gentleman to check precisely what he said when it appears in Hansard. It is, however, a very serious suggestion to say that people would not be persuaded to support an enterprise 817 because it was publicly owned. There is no evidence that money invested in the Post Office, the Trustee Savings Bank or Giro is at risk or that there is a reluctance among people to use the services provided.
The Building Societies Association is bitterly opposed to the proposed legislation. It appears to recoil from the very suggestion of Government intervention. Equally, however, it fails to understand the dependence of the building societies on Government good will. It is apparent that the success of the societies is very much a consequence of Government support.
The substantial tax concessions which are available to those purchasing their own homes are clearly a stimulant to the activities of the building societies. Many of us believe that the system of subsidy provided through income tax relief to people purchasing their homes on mortgage repayments desperately needs reform. The formula is clearly most beneficial to those who receive the highest income and are buying the most expensive property. This is plainly unfair. I have yet to hear representatives of the building societies complain about these subsidies to the prosperous.
There are other features of building society activity that create resentment. Why do the societies occupy the plushiest premises in the High Street? Why do they recruit a host of directors, many of whom have little understanding or association with the business of house purchase and loans? Why do they pay these directors such lavish fees for such trivial services? Is there any necessity for the existing multitude of building society branches? The truth is that there is no genuine competition. With few exceptions, what is available from one is available from another and on precisely the same terms. It is well known that the societies are always sluggish in conforming to a fall in interest rates but remarkably alert in responding when they rise.
It is frequently claimed that building societies are efficient. They operate, however, in a very easy business. It requires no great astuteness. The simple principle is to borrow at a low rate of interest and to lend at a much higher 818 rate. One hardly needs to be a financial genius to succeed in that sort of enterprise. If things go awry, an understanding and benevolent Labour Government are there to come across with another £500 million loan to tide them over, as happened in 1974. The building society publications show no appreciation of that gesture.
I believe that the solicitors and surveyors employed in town halls could provide to the potential home owner the services that are required by the building societies before they advance the money, and that this could be done more cheaply than at present. Once the legislation is on the statute book, I expect that the town halls and council offices will take over many of the functions at present undertaken by the building societies.
Although there is no great call for the building societies to be efficient, I agree with my hon. Friend that one expects a degree of common sense. Yesterday I received a letter from the Secretary-General of the Building Societies Association urging me to participate in the debate and, if possible, prevent the Bill going through to Committee stage. He pointed out that the sponsors would have a great deal of time in which to present their case. Had the Secretary-General examined the Bill a little more closely, he would have noted that I am one of its sponsors. No doubt others who have put their names to the Bill have also been urged to frustrate its intentions. That is hardly a demonstration of efficiency by the organisation.
Probably the most serious charge to be laid against the building societies is with regard to their policy of mortgage red-lining. There is overwhelming evidence of this practice, which is designed to discriminate against those seeking to purchase older or inner city properties.
The policy should be clearly understood. It seals off inner city or inner town areas by drawing a line around a central location, and the societies then refuse to grant mortgages within that area. It is an appalling procedure. It discriminates against those wishing to buy older properties. It conflicts with the desire of all parties for urban renewal and it obstructs the extension of owner-occupation, which again is supposed to be the philosophy of all parties.
819 Obviously, I am not advocating that building societies should lend to applicants who are in no position to meet the cost of repayment. Nor am I suggesting that money should be advanced on properties that are structurally unsound or due for demolition. What I am saying is that to refuse mortgage facilities merely on a geographical basis is bad for the future of our towns and cities. It is damaging to the image of the building societies, and it is dreadfully unfair to applicants who seek to live in the proscribed areas. If the societies continue to abuse their status as free agents by behaving in this totally unreasonable fashion, it is they who are most eloquently advocating that they should be taken into public ownership.
My final complaint about the conduct of the societies is that they have proved extremely cautious in making funds available to applicants nominated by local authorities. The local authority mortgage replacement scheme is not working well because the societies are responding in a ridiculously fastidious fashion. In some areas, fewer than 35 per cent. of local authority nominees are approved by the societies. I believe that the scheme has great merit and should be made to work. If building societies are reluctant to co-operate on the scale that is necessary to make the project successful, the Government must respond to the needs of those who require a home rather than to the whims of the building societies. If that means public ownership, so be it.
I recognise that there are hon. Members on the Opposition Benches who are so bitterly opposed to public ownership that they would embrace the return of private armies, but the reality of the situation is that national control, a central investment and lending policy, and accountability through an elected administration is a sound recipe for an organisation that has widespread responsibilities to the community.
I welcome the Bill.
§ 12.54 p.m.
§ Mr. Emlyn Hooson (Montgomery)
The hon. Member for Chorley (Mr. Rodgers) referred to himself as one of the sponsors of the Bill. On looking at the Bill I see that there are 11 sponsors, 820 in addition to the promoter of the measure, the hon. Member for Blyth (Mr. Ryman). Only two of the hon. Members sponsoring the Bill are present, and I think that that is about the measure of the support for it.
The fact is that 23 per cent. of the population of the United Kingdom have building society accounts, and there would be a panic amongst them if they thought for a moment that there was any danger of the Bill's becoming law.
The only reason why the House can be grateful to the hon. Member for Blyth is that he eventually sat down. Never in my 15 years' experience in the House have I heard an hon. Member take so long to say so little.His reasons",as Shakespeare put it when talking about a character in the Merchant of Venice,are two grains of wheat hid in two bushels of chaff; you shall seek all day ere you find them; and when you have them they are not worth the search.Would our housing problems be reduced by the nationalisation of the building society movement? That is the sole question with which the House is concerned when considering this Bill, and the answer must be an emphatic "No".
It is significant that most Labour Members do not support the Bill. Nor would the Government support it, because of the recognition of the dangers of this kind of interference with something that is working reasonably well. It is significant that in the two speeches made so far in support of the Bill the speakers have concentrated on the problems of building societies and some of their disadvantages, rather than on the advantages of the Bill. The truth is that the remedy they propose is 1,000 times worse than the disadvantages, as it were, of the existing system.
In reply to an intervention, the hon. Member for Blyth said that hon. Members who intervened had got it half right and half wrong. I wish that the hon. Member for Blyth had got the Bill half right and half wrong, instead of wholly wrong, as it appears to be.
The House should take advantage of this opportunity to address its mind to the question: are any major changes required in the building society movement, and does the movement require help in 821 facing the challenge of the late 1970s and early 1980s? There are problems facing us, and the hon. Gentleman was right to refer to the anguish and anxieties of those who are hoping to have a home of their own but have no apparent means of obtaining one, but I do not think that we should raise their hopes by false remedies such as those proposed in the Bill.
When one deals with major changes required in the movement, I hope that the building society movement as a whole will be given the opportunity to sort out its own problems, rather than that the House should try to sort them out. I hope very much that the younger senior executives in the building society movement, in particular, are prepared to meet the challenges facing them in the late 1970s and those that they will meet in the early 1980s.
It is right that a movement that controls £28,000 million worth of assets, and is therefore an important part of the economy, should be under constant scrutiny by both the public and this House, and should be criticised from outside as well as from inside the movement. I think that there is a need for a certain degree of rationalisation within the building societies. There is a lack of overall strategy, and I think that a good deal could be done to redress that.
I should like to see building society law amended to allow for holding companies and subsidiaries. The point has been made that many building societies are local, and have close local connections. That is as it should be, but they suffer from the fact that many of them are small and do not have the advantages of association with other building societies which could be of considerable help to them. The situation could be dealt with if the law were amended, and if the Bill had proposed something like that it would have far greater merit than it has in the out-and-out nationalisation that is proposed by the hon. Member for Blyth.
§ Mr. Hooson
I shall give way presently.
If there were holding companies and some subsidiaries, that would allow the retention of the local connection and competition but would reduce the number of companies.
822 Reference has been made to the opening of branch offices in the High Street. In 1965, 11 per cent. of the population had accounts with building societies. It is in the period since 1965 that there has been an enormous increase in the number of branches. That is brought out in the enormous additional number of subscribers. The percentage of the population with accounts in building societies rose from 11 per cent. in 1965 to 23 per cent. in 1975. This shows the advantage of having offices in the High Street. Of course, one can criticise that policy, but it is exactly the same in the case of the nationalised industries. The gas boards are right to have offices and showrooms in the High Street, and so is the electricity industry, because that encourages people to go into them. If the offices should not be in the High Streets where should they be?
There is great scope for rationalisation. I shall quote one statistic. A total of 169 building societies have less than £2 million in capital. If they were associated with other societies, yet preserved their local connections, that would be of great benefit to the movement.
§ Mr. Ernest G. Perry
Does the hon. and learned Member in referring to £2 million in capital mean deposits?
§ Mr. Hooson
Yes, I am grateful for that correction.
One could envisage, that eventually, there would be about 10 national societies with subsidiaries, and perhaps 10 additional regional societies, as well as the regional organisation of the national societies. Eventually there would be what I describe as federated societies. There should also be a national housing review in which the building societies should play an important part. The two main arms of housing—the private ownership sector and the local authority sector—should surely work much more closely together.
A great deal has been said today about the problems of inner cities. There is an enormous problem, and it is for the Government to take the initiative in dealing with economic and social decay in our inner city areas. The building societies should be brought into this to play a much more active part.
823 I entirely agree with the view that has already been expressed today that much greater efforts must be made to raise the level of public ownership in this country. Less than 53 per cent. of houses are owner-occupied and we ought to raise that figure to a target of about 70 per cent. during the next decade or so. It is therefore desirable that the building societies themselves should play a fuller and much more important role in housing generally and should not act as just housing finance intermediaries. I am sure that many of the younger senior executives in building societies feel that strongly.
I want to deal with the possibility of capital restructuring within the building societies. Traditionally, savings rather than investments have been the source of money for building societies. One could say that building societies work by continuing a system of mutual self-help. Over the years the building societies have capitalised short-term personal savings to facilitate long-term housing finance, and they have done so without making profits for themselves and at a minimum rate of interest. They have been acting, as I have described them, as housing finance intermediaries. Nevertheless, as the public become more financially sophisticated, there has been an increased attraction into the building societies of what might be called marginal funds—that is, volatile investment that goes in and out just as funds go in and out of the country. It is "hot" money that is dependent on the rate of interest.
In the same way, domestically, such marginal funds have in recent years gone into building society investment and come out again fairly quickly. Therefore, this marginal finance has become much more important to the building societies. It is a factor that has, to a degree, caused an element of instability to be present where it did not exist before. Consequently, the building societies must consider the restructuring of capital within the movement and must seek longer-term finance from pension funds. I imagine that that would marginally increase the mortgage rate, but it would introduce an element of stability that is necessary if the building societies are to deal with these marginal funds.
824 Building societies have to raise money in open market conditions and they have to try to relend at a socially acceptable rate of interest. I have no doubt that the Government, instead of taking the doctrinaire Socialist viewpoint as has been advocated by the hon. Member for Blyth will ask how they can assist in such a situation. I hope that all Governments will do that. Building societies are dealing with people's personal savings, and the last thing that people who have invested in building societies want is the hand of the Government going into the till. Everybody knows what happened to the road licence fund. It was not kept to finance roads—as was originally intended. It was raided by successive Chancellors. Everybody knows that local government finance for mortgages has dried up as the Government's financial situation has worsened and that if any Government, whatever their complexion had access to building society funds they would be tempted to intervene at times of financial difficulty and hardship.
Therefore, I hope and believe that the House will emphatically reject the Bill, which seems to be based entirely on theoretical doctrinaire ideas. I did not hear the hon. Member for Blyth advance one solid reason why building societies should be taken into public ownership. When he referred, at the outset of his speech—and that seems to be hours ago —to having received a letter from The Building Societies Association asking him to oppose the Bill, he did not say how he replied to it. But as he did not advance a single logical or other argument in favour of the remedy that he was proposing, I imagine that the letter must have had great affect on him.
I apologise for the fact that I must leave for a meeting in my constituency, which is a long way away, and so I shall not be able to listen to the other speeches, particularly those from the Front Benches, but I hope that the Minister will deal constructively with the problem of building societies. It is an important matter for the whole country. Nothing so affects people as the matter of housing and the financing of their housing needs. I hope that the Government, while rejecting the Bill, will put forward their own ideas about how they will be able to help the building society movement and 825 say what progress and steps they expect the building societies themselves to make during the next few years. I hope that the Minister will say how the Government and Parliament can facilitate those changes.
§ 1.9 p.m.
§ Mr. Marcus Fox (Shipley)
I follow the speech of the hon. and learned Member for Montgomery (Mr. Hooson) with pleasure, because I find myself in agreement with many of the things that he said. Unlike my hon. Friend the Member for Croydon, South (Mr. Clark), 1 cannot congratulate the proposer of the Bill on his ingenuity. In bringing it forward, he shows himself to be more naive than he looks, because we are here dealing with a matter that affects many of our constituents. In looking at the Bill, I find it difficult to believe that he is serious at all. It is a crackpot idea, and that is the only description that I can give to it.
I have a vested interest and I declare it. The hon. Member for Blyth (Mr. Ryman) could have told us earlier whether he has a mortgage himself and, if so. with which building society.
§ Mr. Fox
I have a mortgage with a building society. Perhaps it would come better from me to propose a Bill of this nature if I were disatisfied with the treatment I had received from that society.
My society received a plug from my hon. Friend the Member for Croydon, South. He called it the Bingley Building Society. It is the Bradford and Bingley Society. Its head office is in Bingley, in my constituency and the area where I live. I have a mortgage with that society, and the rest of my family all have deposit accounts there. They are investors. Living as I do on a Member of Parliament's salary, it is difficult for me to become an investor. In all ways my family are totally satisfied with the services provided by that building society. I have many friends who serve on other societies and who feel just as strongly as those hundreds of my constituents who work with the building society to which I have referred. Therefore, to protect their jobs, I thought I must intervene in this debate.
I wish to make a few comments on building societies and their success.
826 No Yorkshireman or Yorkshirewoman would invest in these financial institutions unless the security was there and unless there was a fair return on their investment. When we examine the number of societies based in the old West Riding —in Bradford, Leeds and Huddersfield—we appreciate that thousands of our fellow countrymen and women use these societies with great effect.
We often hear criticisms from the Labour Benches of the charges levied on people who borrow at extortionate rates of interest. Anybody who supports this Government would have difficulty in holding that opinion in debate, because the Labour Government have brought us to a situation in which interest rates are now at an unacceptable level. To finance borrowings in the gilt-edged market the Government have put generations in pawn. This has forced the building societies to pay their investors more so that the societies may hold on to the funds they already possess, quite apart from the question of attracting more.
I agree with my hon. Friend the Member for Croydon, South about the need to raise money in this context. As a result of Clause 6, the public sector requirement obviously would have to rise. We have been given to understand that the Labour Government are seeking to reduce the PSBR. In 1976 they persuaded the building societies to agree to lend £132 million to home buyers, who would have turned to local authorities to borrow that money but who could not obtain it in that way. A further figure of £176 million is proposed to be allocated for that purpose in 1977–78. That is the measure of help given by the building societies movement to assist the Government and those unfortunate people who are in need of homes—a body of people for whom, quite erroneously, Labour Members alone claim to speak.
At their interview sessions all hon. Members feel deep sympathy with constituents when they hear of the many problems of those who cannot find the means to purchase or rent a home by means of a local authority loan. This legislation will do nothing whatever to help the situation. For that reason alone it should be rejected.
The building societies have a proud record. I wish to refer to the report issued by the NEDC's housing strategy 827 committee. It is a pity that my hon. Friend the Member for Hornsey (Mr. Rossi) is not present, because he has done a great deal to draw attention to the reasons why publication of that report was delayed. We understand from that report that 69 per cent. of the nation would prefer to buy their own home. The view of that report was that there should be less emphasis on council tenants and more on private housing. Yet, if this Bill goes through, 4½ million people with mortgages will, at a stroke, become council tenants, because their mortgages will be transferred to the State. I see no difference in paying rent for a council house to a State concern and the repaying of a mortgage to the State. We know what happens when the Government begin to intervene in these areas. People will not be home buyers for long. It would not be long before the Government took all houses into public ownership.
The history of the building societies should be put on record. They evolved at a time, towards the end of the eighteenth century, when many people could not make provision in many areas where they wished to do so. I know that there will be no disagreement from the Labour Benches when I say that the Co-operative movement and the friendly societies evolved at the same time. Ordinary people banded together to provide a service that had not existed in earlier years.
The biggest success story of all was that of the building societies movement. The hon. and learned Member for Montgomery said that in 1914 the number of people who possessed mortgages was 10 per cent. That figure is now in the region of 53 per cent. I hope to see the day when it rises to 80 per cent.—and I believe that that is an attainable figure for us in the 1980s.
§ The Under-Secretary of State fur the Environment (Mr. Guy Barnett)
The hon. Gentleman quoted a figure of 69 per cent. of people who want to own their own homes, and then suggested a figure of 80 per cent. I am slightly surprised by that figure. Will the hon. Gentleman explain it?
§ Mr. Fox
The figure of 69 per cent. was the figure found by the committee in 828 its investigations. I do not necessarily suggest that that figure would apply across the whole country. I believe that, with education, the figure of 69 per cent. could eventually become 80 per cent. as an objective.
The record of building societies encompassing services to 41 million home buyers is one of which they can be proud, but it is the 18 million investors of whom we should be thinking when considering this Bill. What would they do if this legislation came into force?
In 1976 more than £6,000 million went to 715,000 people who received mortgages from building societies. I do not see that as a record of which to be ashamed. By all means let us improve upon it, but we shall not do so by abolishing these institutions and by putting in their place something that could not possibly emulate that success.
It is argued by Labour Members that the building societies are not doing the social job required of them, but when we bear in mind that 48 per cent. of loans from building societies go to first-time buyers, that surely is a fallacious argument. Furthermore, we discover that 19 per cent. of the total goes to people under 25—the group most hit by inflation. We, as Members of Parliament, face great difficulties in satisfying those people, yet the building societies are helping to some extent in that direction.
My hon. Friend the Member for Croydon, South said that 28 per cent. of building society funds went to those who earn less than £3,500. Even more interesting is the fact that more than 52 per cent. of all mortgagors earn £4,000 or less. Therefore, the organisation does not exist merely to provide for those who require extremely high mortgages. In that respect, 48 per cent. of all loans go to buy houses priced at under £11,000, and 23 per cent. to buy dwellings built before 1919.
Let me deal with the claim made that building societies are not providing funds in inner city areas to which, it is suggested, societies should be directing attention. The record speaks for itself. The volume of building society lending on pre–1919 property has always been greater than the total volume of lending by local authorities on all kinds of houses. 829 It is unfair to put that point forward in favour of nationalising building societies. Consequently, one can assume that the building societies are the mainstay of those who seek finance for older properties.
§ Mr. Ryman
While the hon. Member is giving those statistics, will he give statistics showing the percentage of refusals by building societies to those applying for mortgages on properties in inner city areas and similar categories? He has given the figures showing what the building societies have done by way of mortgage advances. Will he now give us the figures showing what the building societies have refused to do by declining to give mortgages to certain categories of persons?
§ Mr. Fox
I am sorry to disappoint the hon. Gentleman, but my brilliance does not extend to providing the answer to that question. I shall deal with the reason for refusing mortgages on the type of houses that the hon. Member has mentioned.
At present, over 80 per cent. of building society loans are in respect of second. hand houses, while nearly a quarter of the loans goes to dwellings built more than 50 years ago. The hon. Member for Blyth made great play about the deprivation in Birmingham and Newcastle. He got the two cities mixed up, but he mentioned other areas, too. It is not simply a question of building societies not wanting to lend. The environment in inner city areas has to be taken into account. Often, if building societies were prepared to lend, those in such areas who received the mortgage would find that they had a wasting asset. Although, structurally, their house might be worth a certain amount, in a number of years, because of the decay taking place in the areas, these people would find that they had a depreciating asset and that the house would not fetch the amount of the mortgage. These are commercial factors, which it is right that the building societies should take into account.
There are other ways of tackling these problems—through the local authorities, the designation of general improvement areas, and so on. I do not agree that building societies have failed in their 830 duties. When we look at them in terms of management costs we see that their costs are lower than comparable financial institutions. Certainly the building societies' costs are lower than the management costs of the Trustee Savings Bank, which is a Government-sponsored body.
In 1975 the entire building society movement cost £196 million to run and had assets of £24,000 million. On that basis the administrative costs are somewhat lower than those given earlier. I make them 82p for every £100 invested. We have debated British Leyland this week. What Government establishment can run as cheaply as the building societies? I do not know of one.
We have heard the argument that there are too many branches. Each of the four joint stock banks, the four major banks in the United Kingdom, has more branches than all of the building societies put together. Yet they do not attract as much money as the building societies.
§ Mr. John Page (Harrow, West)
I am listening to my hon. Friend's fascinating speech with great care. Would he like to deal with the point about inner cities? How does he think this proposed corporation would finance the purchase of houses in inner cities in any better way than local authorities or building societies if, under Clause 5, the corporation has a financial duty towards its funds?
§ Mr. Fox
I shall resist the temptation to dwell for too long on that point. My hon. Friend is quite right—there is nothing in the Bill that would provide a better vehicle for raising the sort of money needed than the building societies or local government. I cannot see any investor having the faith to put his money into something just because the State says "We are taking this over and we shall do the job rather than the building societies".
The total investment of all building societies on office premises amounts to £299 million–1.24 per cent. of total assets. How many other businesses run on such a low proportion of capital investment? I do not know of one, and I would be interested to hear an example.
The hon. Member for Blyth and the hon. and learned Member for Montgomery seemed to suggest that the number of branches should be reduced. These 831 3,700 branches, increasing by approximately 300 a year, attract more investment than ever. At the end of 1976 there was an average of 4,300 investors per branch. That was far higher than in the period when building societies had only 1,500 branches. Then, the figure was 3,700 investors per branch. It is true to say that the more branches there are the greater is the investment that takes place and therefore more money is available to those who seek mortgages. If we compare the 3,700 branches of building societies with the 11,000 branches of the major banks—and they do not draw in as much money as the building societies—the comparison certainly favours the societies.
The main problem for the building societies in attracting investment is the high and fluctuating interest rates that have applied for too long. If we had a period without such high rates the building societies could perform many of the jobs that the hon. Member for Blyth wants them to perform. The proposed nationalisation would not improve the fund-raising capacity of the societies.
Savers and investors already have a wide choice. They can put their money into National Savings, the Post Office and Premium Bonds. The societies already compete against these forms of saving. It is ridiculous that we should be considering a Bill that will make no extra money available at a time when so much needs to be done to assist housing need. I hope that hon. Members will treat this Bill as it deserves and refuse to give it a Second Reading. In over 200 years the building societies have given a splendid service, not only to home buyers but to savers.
§ 1.29 p.m.
§ Mr. Arthur Blenkinsop (South Shields)
I start by declaring an interest as a vice-president of the Building Societies Association. I am delighted that the association sent a copy of its informative bulletin to my hon. Friend the Member for Blyth (Mr. Ryman). He should read it. It is a valuable start for the debate. Indeed, I regard the debate as a very useful discussion. I congratulate my hon. Friend on his luck in the draw and on getting the opportunity to bring in the Bill, at any rate for the oppor- 832 tunity of opening up the discussion, which is important and necessary.
Although we need not worry ourselves too much about the terms of the Bill—as my hon. Friend did not bother too much about its terms—the issues that are raised concerning the contribution of building societies and their future rôle are of very great importance. I do not take this matter lightly. It is of concern to all of us. We should not be in any way smug about the achievements of the building societies. There are problems.
I particularly welcome some of the comments of the hon. and learned Member for Montgomery (Mr. Hooson), which were pertinent and proper. I welcome the comments made by my hon. Friend the Member for Chorley (Mr. Rodgers) who put some important questions that need answers.
The Bill itself is a block-busting affair that does not really meet the problems. My hon. Friend the Member for Chorley rightly raised the question of the rôle of building societies and seemed to imagine that under the terms of the Bill local authorities would suddenly spring to new life in this sector and be able to undertake work that many of them would like to do in this sphere, as I know. However, I doubt it. I do not think that the Bill would be a suitable channel for that purpose. Although I share some of the views of my hon. Friend the Member for Chorley, a different Bill would be needed for that purpose. I do not stress that matter too much because, as I have said, the Bill is not of that much importance. It is the debate that is important.
I am rather surprised that one matter has not been raised. That is that the building societies operate under the 1962 Act, which lays down very clear rules for their work. They work under the surveillance—very properly, too of the Chief Registrar of Friendly Societies. His annual reports give a great deal of information about the working of building societies, and some very important criticism. They are by no means a formality. For example, I note that among the matters raised by the Chief Registrar is his comment on the management expenses question.
Unlike some Opposition Members who have spoken in the debate, I think that 833 there is here a matter for some concern. The percentage figure for management expenses has risen over the last few years. I do not think that one can take that fact calmly as a matter of no importance. It is a matter of some concern that there has been as rapid an increase in management expenses, as a percentage, as is disclosed in the examination of accounts and the report of the Chief Registrar.
There are other matters that we must examine carefully to try to work out the best approach. Opposition Members have broadly rejected the idea that building societies should be brought into what one might call the social work field. They say very strongly that this is not for the societies, and after all, it is their duty—I quite accept this—always to be concerned for the position of those who invest in them. As a small investor, like many thousands in my constituency and many millions in the country, I understand that position.
However, I do not rule out, as Opposition Members seem to do, a rôle for the building societies in helping to tackle the problems in our inner cities and certain other areas. It is important that the building societies, together with local authorities—and, indeed, together with the Government—should play a joint role. There is a very important rôle for building societies together with local authorities and the Government. I am hopeful that we are moving in that direction.
§ Mr. William Clark
I should not like the hon. Gentleman to be under any misapprehension. He has said that Opposition Members have ruled out any sort of co-operation. We have not ruled that out at all. Many of my hon. Friends have tried to point out—and I certainly tried to do so—where building societies have in the past worked with local authorities. I am sure that the hon. Gentleman, with his great experience of building societies, will realise that if in an inner city area someone wanted to borrow £4,000 on a house and the building society said that it could lend only £3,000, the local authority could come in for the shortfall.
§ Mr. Blenkinsop
The hon. Gentleman has just made another speech, in effect. I am not challenging the fact that there may be an interest in joint co-operation. I only thought it slightly unfortunate that 834 some of those who have spoken in the debate—the hon. Gentleman particularly—have appeared, at any rate, to give the impression that one could draw hard and fast lines between the duty of a building society towards its investors and the wider social functions in which I believe that a building society can play a part.
Unlike my hon. Friend the Member for Blyth, I am a vigorous supporter of the present Government's lines of action and policy. Instead of being a sort of marginal supporter, as I understand my hon. Friend to be, I declare myself as a very much more full-blooded supporter. The present Government have introduced a very valuable joint advisory committee, which is proving very useful, through which is proving very useful, through which there is a regular, continuous exchange of ideas between the building societies and the Government on lines of policy. I am sure that the local authorities play a part in that.
It is a fair criticism to say that some building societies—by no means all, but some—have not played as active a part in co-operation with local authorities as they very well might have played. This applies in the question of red-lining, as we call it nowadays in shorthand, in some of our inner cities. It is not true that all building societies automatically rule out certain inner city areas, but some do. This is more likely to be found in some of the larger building societies. To my mind, some of them adopt far too crude a method of operation in this respect. One is likely to find that the more locally-based society—this is so in the North-East—is more willing to look at individual properties on their merits and not automatically to declare an area to be in some way sterilised.
§ Mr. Sainsbury
Would the hon. Gentleman agree, therefore, that for that very reason there is a very strong argument against creating a monolithic corporation into which all building societies are joined, thereby destroying the very important local contact to which he has referred?
§ Mr. Blenkinsop
That was an unnecessary intervention. I have already made clear that I do not regard the Bill as of any importance or value and, therefore, I am not for one moment suggesting that it should be supported. I have congratulated my hon. Friend the Member for 835 Blyth on introducing an important debate that ought to be held.
More generally, I am somewhat unhappy that building societies have not done more about securing co-operation with local authorities on action in inner city areas and elsewhere, because such co-operation would be very valuable. I know that in my constituency my local authority has had some difficulty, particularly last year, in trying to obtain the level of co-operation for which we had hoped, although I am advised that it feels that this year things are going a good deal better and that an understanding is being established in a very much better way. I hope that that is so.
That emphasises the point that it is the locally-based society that shows the most interest in co-operation. Some of the largest nationally-based societies, perhaps in London or elsewhere, are showing very much less interest. That is something that should be looked at to see how far we can make progress.
My hon. Friend the Member for Blyth made some derogatory comments about building societies and felt that at present they were not able to offer loans as freely as they should to many categories of people. I interrupted my hon. Friend to make the point that some time ago some of us were properly criticising the building societies for the opposite fault of lending too much. Indeed, one of the most severe critics from the Labour Benches at that time was our very dear friend the late Tony Crosland. On many occasions he vigorously developed this argument and took occasion, as soon as he had the opportunity to do so, to help to establish, in co-operation with the building societies, a clearer understanding as to how we could get co-operation between the Government and the building societies with regard to this ticklish matter.
If we simply pour money out in the hope of getting more houses built, and in the hope of making more accommodation available, unless there are adequate controls all we shall do is push up the price even higher. That was one of my criticism of Opposition Members when they were in Government. They did precisely that. House prices went absolutely sky high. Heaven knows, they are high enough now, but we have at least man- 836 aged to control the rate of increase over recent years.
Some hon. Members who now occupy seats on the Opposition Benches were not here at the time their party was in power, and I immediately absolve them from any responsibility. These, however, are very important matters indeed. We must consider how we can ensure an understanding about regulating the supply of finance into the whole building market in order to avoid its simply being misused or lost as a result of inflationary pressures. That can so easily happen for the best of motives. I believe that my hon. Friends in the Government have done well in securing a better understanding about this than was evident in the past.
§ Mr. Ryman
While my hon. Friend is on to the problem that arises from making money too readily available for mortgage requirements, may I ask him to deal with the point that I have made? That is the very important point, which I know concerns my hon. Friend since he represents a constituency in the North-East, relating to the disastrous effects on the construction and building industries, which now have unemployment running at between 200,000 and 300,000 as a direct result of the starvation of the market of mortgage funds.
§ Mr. Blenkinsop
That is only one factor. Of course, one has to try to help to hold a balance. We have seen the damage that was done when funds were too freely available. All I am saying is that it is not an easy job to hold a sane balance in this matter.
I must make the same apology as other hon. Members have made, because I also have a speaking engagement later this afternoon. I therefore apologise to my hon. Friend and to other hon. Members for being so impolite as to disappear before the end of the debate.
I wish only to make a final comment about rates of interest. I was fortunate enough to buy a house through a building society at a time when "Daltons" had the field. I regarded any increase in interest above 3½ per cent. as plain usury, which the Church in the old days used to condemn as improper. Now we have rates of interest which I find incredible and terrifying. It shows how old-fashioned and out of date I am.
837 But I accept that building societies, like everyone else, have to take account of current rates. So have the Government. The Government are not a free agent either. The question in their mind must be whether there should be not just a sudden panic meeting between the Government and the building societies to discuss an immediate panic stations action but a regular, coherent and sensible exchange of views about the situation. That is broadly what my right hon. and hon. Friends are securing at present.
I believe that building societies have unquestionably done an immense job in encouraging house ownership. There has been a dramatic increase in the amount of home ownership. I am glad that there are now far fewer cases of bad debt than there used to be in the inter-war years. That is welcome. But I certainly hope that no one, either in the building society movement or on the Government Front Bench, will feel that we can afford to be complacent about the situation. There is a very much bigger rôle for the building societies to play in close cooperation both with the local authorities and with the Government.
§ 1.47 p.m.
§ Sir Nigel Fisher (Surbiton)
I must first declare an interest, indeed four interests, because I am an investor in a building society, I hold a mortgage in a building society, I am a former director of a building society and I have also been a vice-president of the Building Societies Association for many years, so I received the same letter from the association as did the hon. Member for Blyth (Mr. Ryman). It had the advantage of being accurate, which the hon. Gentleman's speech was not.
I must say I was astonished when 1 heard that the hon. Gentleman was bringing forward this Bill. It somehow seemed so old-fashioned and out of date.
I remember that when I first came to this House many Labour Members of Parliament were genuinely critical of building societies. But that was over a quarter of a century ago. I thought that by now they had learned something about the movement and no longer held those archaic views. A great many Labour Members have, and I am only sorry that the hon. Member for Blyth has not.
838 It is always said that a gentleman should never be discourteous except when he intends to be. I intend to be. The hon. Member for Blyth said that he had done some research. I can only comment that his speech did not reveal it. It was a very boring and a very self-contradictory speech, in which the hon. Gentleman made many assertions but supported none of them with any facts at all. His speech went on for over an hour. By contrast, and as is my usual custom, I shall be very brief.
It is a disappointment to me that the hon. Gentleman still needs so much instruction from hon. Members on both sides of the House who know more about this subject than he does. He is getting quite a lot of instruction today.
It is also a disappointment to me because I had hoped that this great movement, which has done so much for the social benefit of our people and which has given so many people a stake in their country and a solid asset in bricks and mortar to leave to their children, was by now above party politics and certainly above this silly, misconceived threat of nationalisation.
The hon. Member for Blyth cannot be allowed to get away with the suggestion that building societies are inefficient. Anyone who has seen at first hand how a society operates will disprove that. Indeed, the very facts disprove it, and many of them were given by my hon. Friend the Member for Croydon, South (Mr. Clark).
Since the last war, home ownership has risen from 25 per cent. to 53 per cent., almost entirely due to the facilities provided by the building societies, whose combined assets, as the hon. Member for Blyth himself told us, now exceed £28,000 million. The hon. Gentleman seemed to think that that was some criticism. I think it is an enormous credit to the societies that their assets have increased by so much and so fast. They are by far the largest source of funds for home ownership and, except for life insurance, the biggest savings institutions in the country. As one hon. Member said, they have 4.5 million home buyers on their books and in 1976 alone they lent more than £6,000 million to more than 700,000 people.
839 No inefficient organisation can command as many satisfied customers as that. Nearly a quarter of building society advances are on houses built more than 60 years ago, and a further 19 per cent. are made on houses built between the wars. Almost half the loans are made on houses valued, even in these days, at less than £11,000. If that is not a service to the public, I do not know what is—and a very wide diversity of the public, because nearly half the advances are to first-time buyers, almost one-fifth are to people under 25 years of age, and more than a quarter are to people earning less than £3,500 a year, which is not very much nowadays.
How else could ordinary people who have no capital ever hope to own their own homes? It must be remembered that 70 per cent. of the people either are or want to be home owners. That should be our aim. We are wasting the time of the House of Commons in talking about this nonsense. Our aim should be seven home owners out of every 10 families.
I do not know why the hon. Member for Blyth thinks that a nationalised building society industry would be more efficient in achieving that sort of objective. I thought that even most Socialists nowadays acknowledge that nationalised industries are less efficient than private enterprise industries. Certainly that is the view of the majority of people in Britain, whatever their politics. I have heard it on many doorsteps at successive elections from ardent supporters of the Labour Party who would never vote for me, but who always say "I am not interested in all this nationalisation claptrap". They are interested in the social policies put forward by the Labour Party. They are no longer interested in the ideological considerations advanced by some Members who sit below the Gangway on the Government Benches.
If the hon. Member for Blyth wants fewer societies, as I believe he does, that has been and is already happening. In 1960, there were more than 700 societies lending to 2.3 million borrowers. Now there are half that number of societies lending to nearly twice as many people, although I must say that, having at one time directed one, I know from my own experience that many of the smaller local 840 societies provide a useful service, because they are very sensitive to local need and flexible in meeting it. That might fairly be said in justification for the number of local as opposed to national societies which still exist.
If a would-be borrower is lucky, of course, he can go elsewhere. He can get a local authority mortgage, but usually he will pay more for it. What is the point of that? I believe that the present GLC rate is 13¼per cent, but most building societies are charging 12¼per cent. What is more, the Government are cutting back on local authority spending, including mortgages, so the would-be borrower would not get a mortgage from a local authority, anyway.
In any event, as I ventured to suggest in an interruption, building society rates of interest cannot be insulated from the general level of interest rates prevailing at any given time. Building societies can lend only if they can borrow from the public. I see no reason to suppose that the public will be more likely to lend money to a statutory corporation than to a local or national building society in which they have confidence.
Societies are non-profit making and they distribute no dividends. Their surpluses go back into their reserves for the protection of their investors. Their management costs are low. What more does the hon. Member for Blyth want? They make no profits, they have low management expenses, and they have the lowest rates of interest available at any given time. They have a wide spread of borrowers, by age and income. They have the trust and confidence of the public and a record of more than 200 years of service to the community.
If the hon. Member for Blyth thinks that a public corporation could do better than that, he is over-optimistic, and I hope that he will find very few supporters, even in his own party, for so bizarre a belief.
Like the hon. and learned Member for Montgomery (Mr. Hooson), I end by making a plea to the Minister to reject the Bill with all the force of his authority. He knows that it is a piece of Left-wing nonsense, unworthy of any serious consideration, and I hope very much that in suitably tactful terms he will say so.
§ 1.57 p.m.
§ Mr. Eric Ogden (Liverpool, West Derby)
The present situation of my hon. Friend the Member for Blyth (Mr. Ryman), who battled so gallantly to introduce his Bill, is becoming rather like that of a certain boy on a certain boat—The boy stood on the burning deck Whence all but he had fled.One or two of my hon. Friends have offered words of support, but I think that my hon. Friend the Member for Blyth is being left to battle his Bill through alone. The future progress of any Bill on a Friday is uncertain. The future progress of this Bill is extremely uncertain.
The House is hardly overcrowded, although this is an important Bill. My hon. Friend the Member for South Shields (Mr. Blenkinsop) recognised this, as did the hon. Member for Croydon, South (Mr. Clark). By both it was seen as pathfinder Bill, and its importance lies therein rather than in any progress that the Bill makes today.
There is no doubt that my hon. Friend the Minister of State, Treasury, recognises this importance. He came to the Chamber supported by a Treasury Minister and by no fewer than eight advisers —who really are not here, but whom we know to he here—so he recognises the importance of the Bill, judged in terms of the amount of support and advice that he has brought with him.
I suspect that my hon. Friend the Member for Blyth will not be too greatly disappointed if his Bill makes no further progress today. His luck in the Ballot was such that his Bill appeared in second place on today's Order Paper. By chance, the Bill which was in first position was taken over by the Government. As a result, my hon. Friend's Bill became the first one for consideration today. I suspect, too, that if by change the Bill is given a Second Reading and my hon. Friend then has to pilot it through its Committee stage, he will be in great difficulty. I do not think that that was his aim when he introduced it.
My hon. Friend took 62 minutes to introduce his Bill. Only in the 43rd minute did he use the word "home" for the first time in his harangue
842 The Bill is not just to set up a corporation, because that is only a means. The importance is to provide homes for people.
I declare my direct interest in the Bill. I have a mortgage larger than I would have hoped, and a modest shareholding in a North-West building society. The building society is modest, active, efficient and admirable in every way. It is called the Middleton Building Society, known colloquially in the area as the "Land and Bricks". It is not a northwestern version of "London Bricks" but "Land and Bricks". The society has been established for more than 105 years.
My message to my hon. Friend and his supporters is to ask him to keep his hands and his hon. Friend's hands off the "Land and Bricks". The society celebrated its 100th birthday in 1972. On 4th June 1872 a meeting took place in the then newly built Co-operative Hall. A resolution was agreed that "The Middleton and Tongue Co-operative Land and Building Society" be formed. Amongst those who proposed and supported that resolution was a local citizen of some standing and renown but of no great affluence, called Samuel Ogden.
My family have had an interest in the society for a long time. Twenty-three local people became subscribers, and deposited a total sum of £6.10s in old money. The assets of the society are now £29,261,232. The balance sheet is available to my hon. Friend to see if he can persuade himself that this society is not properly and efficiently managed serving a real need in the community and responsible to that need.
The great virtue and advantage of this society, like many other local societies, is that those people who make the decisions are accessible to the people because they are local. Vital decisions about the society, not just about mortgages but about investment, are made by people who are known and readily available in all walks of life.
The society operates in a limited area. The officers know the area, and one can get easy direct access to them. My father did this in 1920, when he took out a mortgage for a three-bedroomed terrace house costing £280. Twenty years later 843 I was doing the same thing for £3,800. The price of the house that I eventually acquired in the London area is correspondingly greater. Large sums of money are involved.
My attitude about building societies does not come from those unknown quantities among building societies, but from the one that I know. We all speak from our own experience in this place. The building societies were as helpful to my father, as a pentegrapher, and to me, as a coal miner, as they have been since I became a Member of Parliament. I think that the security of their money was rather better when I was a coal miner than now, when I am an MP.
Other good local societies had their origin at that time, when groups of people were gathering together in the Industrial Revolution to form burial societies, cooperative societies, friendly societies and self-help practical co-operatives. Liverpool, Bradford, Burnley, Accrington and Keighley—mention any area, and one of the societies came along at that time.
The Bill should not be about the sole purpose of establishing a corporation; the question is whether it will provide more homes and make others available. My hon. Friend the Member for Blyth criticised the building societies for not having a greater interest in the problems of the inner city areas. I suggest that he is asking the societies to undertake a responsibility that is not theirs. I do not go to a dentist and expect him to provide my spectacles. Societies have a useful but limited function, and the responsibility for city areas lies not solely with them but mainly with other organisations, whether it be local or national government. They are not in the business to solve all the problems of inner city areas and they are not to be landed with all the responsibility for the failure in those areas.
The terms of the Bill are wide. My hon. Friend claimed that it was absolutely disgraceful that the Bill was not being introduced by a Socialist Government, by the Labour Government. I remind him that many in the Labour Party believe that it ought to be part of the policy of the Labour Party, and they are pressing very hard that it should. It is absolutely right that in any party any hon. Member may be asked to do things that he does 844 not want. We are being asked to do something with which I do not agree, but there is no harm in being asked to do so. However, at present it is not Labour Party policy, or Government policy, to nationalise banks, insurance companies, or any other such groups. It was not part of the 1974 Labour Party manifesto, about which we hear so much. I have my responsibility for this, and I have no complaint that so far my Government have not brought forward such proposals.
My version of Socialism is that we should not do for others what they are perfectly capable of doing for themselves —and doing better. That is not a criterion that decides whether one is a good or bad Socialist; it happens to be my version, and I have no apologies to make.
If my hon. Friend says that the building societies are failing to do what he wants them to do let him do what Samuel Ogden helped to do all those years ago—start a building society of his own. If he believes that funds should be made available, he should try to attract those funds and not appropriate them from those which other people have put into other organisations for other purposes. If he wants to compete in the market and to show how this can be done, he has every opportunity of doing what other people have done before.
I call this an omnibus Bill. We could easily replace every mention of "building societies" with the word "bank", "insurance" or "chip shop". It is a classic, tailor-made omnibus takeover. It is perhaps even more efficient than the one that Opposition Members introduced for the takeover of Rolls-Royce. This is an omnibus Bill, carefully drafted, very wide, and enabling the Secretary of State to do almost everything.
One of my complaints is about the powers of the Secretary of State. But let us look at the Long Title. There are 10 lines, all about the corporation and not a word about a home. Clause 1 refers toA body corporate to be called the British Building Societies Corporation … a chairman appointed by the Secretary of State".I think that my right hon. Friend the Secretary of State appoints some very good chairmen, but the chairman of my building society is responsible to me and to those whom he meets every day in the 845 area. The situation might be less advantageous with the Halifax Building Society or any of the other large ones but in the one I know my chairman is directly elected by the local people who want to take part. Not everyone does, but all have a right to do so.
Clause 1(2)(b) provides thatnot less than 5 nor more than 15 membersshall beappointed by the Secretary of State …".Patronage may be a good or a bad thing, depending on whether or not one is in receipt of it. Someone said that there is nothing wrong with corruption, provided it is spread widely enough I did not say that. At the moment I have a say in deciding which committee members will run my building society. I would have little say about the constitution of a committee appointed by the Secretary of State.
Clause 2(1) provides that—It shall be the function of the Corporation in respect of building societies in the United Kingdom to establish an economical and efficient system of providing money for the purpose of home ownership by individual members of the public.That would not increase the amount of money available for the societies by one old penny or one new penny. It is optimistic in the extreme.
Clause 3(3) provides thatThe corporation shall have power to do anything and to enter into any transaction (whether or not involving the expenditure of money, the borrowing or lending of money".The Bill is not simply a matter of creating an alternative building society. It provides that there shall be a supreme building society, which can intervene directly in the relationships and control of all other building societies. That is why the Bill goes much further than any normal means of creating a competitive alternative building society from the ones in existence.
If my hon. Friend's proposal had been in the Labour Party's manifesto of Octber 1974, I would have been here, but speaking from the Opposition Benches. My hon. Friend the Member for Blyth would certainly not be here. His predecessor, Mr. Eddie Milne, who was vice-chairman of the Parliamentary Labour Party—a friend and colleague—would be here as the Member for Blyth.
846 The Bill is political dynamite, and politically disastrous for the Labour Party. If the Bill were to get even a Second Reading, there would be, outside the building society offices on Monday morning, long queues of people wishing to draw out their money—and I would be heading the queue at my building society's office. The Bill is unnecessary and undesirable. I do not know whether we shall have a vote today. If we do, just as I would be first in the queue of people at my building society office wishing to draw out their money, I shall be the first in the queue to vote against the Bill.
§ 2.13 p.m.
§ Mr. Tim Sainsbury (Hove)
The longer this debate continues, the more it reminds me of the television advertisement in which everyone who features in it, apart from one character, announces that he or she is with a certain well-known building society. In this debate, all those who have spoken, with the solitary exception of the hon. Member for Blyth (Mr. Ryman), have been with the building societies.
The Bill has been treated, rightly, with such scorn that hon. Members have given it very little attention but have devoted the greater part of their speeches to a general discussion of building societies. The hon. Member for South Shields (Mr. Blenkinsop) dismissed the Bill by saying that it did not meet the problems. We can certainly say that if it were to be enacted it would add considerably to the nation's problems.
I join my hon. Friend the Member for Croydon, South (Mr. Clark) in congratulating the hon. Member for Blyth on his ingenuity, because my hon. Friend saw the Bill as a pathfinder—this was echoed by the hon. Member for Liverpool, West Derby (Mr. Ogden)—for getting legislation of this sort included in the Labour Party's manifesto at the next General Election. I should like to think that if such a proposal as this were to be included we would consider it on its merits.
I disagree with the hon. Member for West Derby, who said that the Bill should be dismissed because it would be political dynamite for the Labour Party. This seems to be typical of the Government's approach. Their choice of 847 whether to do things accords entirely to their evaluation of the political advantage that will accrue to their party. We should consider the proposal on its merits to see whether it would contribute towards helping people to obtain homes—because that is what matters—without raising more substantial problems elsewhere.
To produce a Bill which at one and the same time would massively increase the public sector borrowing requirement, damage still further the wreck that is the Government's housing policy and increase unemployment in the construction industry is quite an achievement. This is what the hon. Member for Blyth would achieve if the Bill were carried. We have heard perfect evidence from the hon. Member for West Derby about what would happen in respect of the public sector borrowing requirement if the Bill were to progress: he said that he would be the first in the queue to get his money out of his building society. He would have to get up very early in the morning to make sure he was first, because there would be competition among people to get there. It reminds me of what was said about the economic policy of Labour Members who sit below the Gangway—that if it were to be followed we would all be on social security, but we would have to get to the offices very early while there was still social security there to be paid.
There can be no doubt that if the proposals in the Bill were to be carried there would be a massive loss of confidence among the investing public, and it is their confidence in the building societies in which they put their money that their saving requirements can be met with total integrity and safety by the building societies that enables people seeking mortgages to achieve their objective. If we destroy that confidence, not only shall we have damaged the cause of people seeking to obtain homes but we shall have thrown on to the Government the requirement to produce the lost money—and I do not think that the Minister of State would welcome the request for even £14,000 million to fill the gap if only 50 per cent. of people were to withdraw their money. I believe that the percentage would be likely to be more.
I have said that the Bill would damage even further the Government's housing 848 policy. We all agree that the key to private sector house building is the availability of funds from the building societies. It therefore follows that if the building societies have smaller funds because they have been nationalised there will be even less home construction and fewer new homes available. We could not support that. It would follow that the massive and regrettable unemployment in the construction industry to which reference has been made would be further increased.
One of the most unfortunate features of the Government's economic policy is that, when they propose cuts, those cuts fall on the investment programmes and what is left is the subsidies. The present unemployment in the construction industry is a direct consequence of that approach. Fewer homes are being built because more subsidies are being paid at the expense of making the funds available for new construction and nevi investment.
One is led to ask why a Bill so lacking in merit and so prone to raise major problems in the economy, the construction industry and the management of the public sector borrowing requirement is brought forward at all. I suggest that it reflects the widespread belief on the Labour Benches that Government control and Government intervention are panaceas to solve every problem that arises. Many hon. Members opposite take the view that if something goes wrong the Government should step in, take over and direct and control the whole organisation. There is one exception to this, of course, and that is the conduct of the trade unions and of labour relations, in which there must be no Government interference or control. The unions must be allowed to be totally unfettered and have untrammelled freedom to do what they want to do, while other less reputable organisations, such as the building societies, must be brought into the sphere of Government control.
The Bill proposes yet another corporation. The British Building Societies Corporation—it sounds like a nasty amalgam of the BBC and the British Steel Corporation. The Bill would give it very extensive powers, and the Secretary of State would also be given further massive powers. In Clause 10 we find thatA vesting order shall specify the date (in this Act referred to as the `transfer date') on 849 which a building society is to vest in the Corporation and shall make all such provision as appears to the Secretary of State to be necessary or expedient for or in connection with the vesting of the building society in the Corporation and matters arising thereout.That means that the Secretary of State is totally in control. He can do almost anything on a vesting order, including the declaration of capital punishment for the managing director and the depositors. Inevitably this must mean more bureaucracy.
It is astonishing that we should have a Bill with proposals like this and that we should be asked to believe that it would result in greater efficiency of operation of the building societies or other organisations so controlled by the Government. Taking account of the evidence we see when we travel on the trains, when we pay our electricity and gas bills, when we use the telephones or when we wait in vain for the delivery of our British Leyland car, it is very hard to believe that nationalisation is likely to contribute to efficiency, either in building societies or in any other sphere of activity.
The one criticism of the building societies which seems to have gone unopposed relates to their properties. It has been suggested that they have too many properties and those that they do have are too expensive. But they have far fewer branches than the big four banks, and they manage to get more deposits. The main purpose of the building societies' offices is to attract funds and services from many depositors. That is why branches are to be found in the High Streets, because that is where the depositors are most likely to be found and that is most convenient for them. It makes absolute sense.
I remind the hon. Member for Blyth, if he is suggesting that the building societies should be nationalised in order to improve their management of property assets, that the performance of the Government in that area does not stand up to close scrutiny. Neither does the performance of any of the nationalised industries or the local authorities. They are the biggest holders of unused land. A very large proportion of vacant land in the inner city area in Liverpool is owned by the Government, the local authorities or the nationalised industries. If one sees a bit of land which has not 850 been used for 20 years or more, one can almost guarantee that it is owned by the Government or a local authority. In fact, one does not have to go far from here to see vacant sites that are not very well used.
I do not think that nationalisation either improves property management or contributes to improving efficiency in any other aspect of business. Inevitably there would be the overlapping bureaucracy—committees supervising other committees and so on.
The ratio of management expenses to assets in the building society movement is very low indeed. It is 95p per £100 of assets. That is a very good figure. I am not saying that it could not be improved by even 1p or 2p, but it is, all the same, very good. When one looks at comparable figures overseas one sees that the American savings and loans associations—the nearest one can get to building societies in this country—had an average ratio of management expenses to assets in 1975, the last year for which I have figures, of 1.3 per cent. That is not nearly as good as the 0.95 per cent. of the building societies. The nearest comparable organisation in this country is the Trustee Savings Bank, which is not doing the same job as building societies but its work is not dissimilar, and its ratio of management expenses to assets is 1.4 per cent.—more than 50 per cent. worse than the building societies.
That pretty successful record has been achieved by the skill of staff and management in the building societies, by the trust established in the communities in which the societies operate, and above all by the rôle of competition. This is one aspect of the matter that we should not overlook. Very often building societies compete in neighbouring positions in the High Streets, and this enables the depositors and the borrowers to be given a wide range of choice. Of course there are those who find it difficult or almost impossible to get a mortgage—I shall return to that later. Usually, however, if a person wishes to lend or borrow he can go to a number of alternative societies, some large, some medium-size and some small, offering a variety of different schemes and types of service. Because they are in competition and alert to the need to attract business at both ends of their operation, they will be 851 more responsive to the changing needs of the customer. Because they are in competition, their efficiency is tested and they can see how they are doing in attracting depositors and in meeting borrowing requirements of mortgagors. They can look at their performance against national standards. That is the great strength of the movement.
In my constituency I have the headquarters of two building societies. We have already had a very good trailer for the Middleton Building Society from the hon. Member for West Derby and it is clearly an excellent society. It is similar to one in my constituency.
Perhaps I should first refer to a celebrated building society which has its headquarters in my constituency. The Alliance Building Society, founded in 1863, is now one of our fastest-growing societies and is the sixth largest in the country. It has assets of over £1,000 million, nearly half a million investing members and over 140,000 borrowers. It is a large concern with 700 employees. It arrived at that position of importance by exercising its skill and by having the advantage of good leadership.
I should point out that the society's period of rapid growth can be dated back to the post-war period when it was under the leadership of the late Lord Cohen of Brighton, who, if he had been in this House, would have been sitting with Labour Members. The society achieved great success in the post-war era.
One reason for its success is the variety of schemes which it offers to the lender. In addition to the ordinary share account, it has what is called a money ready account, a prompt withdrawal service and no charges for investing or withdrawing. It is the familiar service provided by virtually every building society. However, there is a variety of options open to the saver: high-income term share accounts, money monthly accounts, money builder accounts and an invest-and insure bonus plan.
I mention these matters not because I am trying to attract the savings of hon. Members into the Alliance Building Society as opposed to any other building society, but to show that competition between societies and imaginative leadership enable them to develop a variety of 852 schemes to attract savings and, therefore, to meet the needs of those who wish to buy their own homes. The societies are to be congratulated on the skill with which they have done that. Over the years we have seen a continuing change in the schemes made available by societies to depositors.
The other society which has its headquarters in Hove and is similar to the Middleton, of which we have heard, is the Sussex Mutual Building Society. It is of similar age to the Middleton. It was founded in 1872. In 1945 it employed six people and had a capital of £45,000. Since then it has grown and it now has capital of £52 million, which just beats the Middleton, and employs 68 people. It has 6,000 mortgagors and has £48 million out on loan.
The significant feature of the Sussex Mutual Building Society is that it has only one office. Therefore, if a depositor or borrower goes to the office—its mortgagors are nearly all local people—he can see everybody who has any responsibility. The managing director is there on the premises. That kind of society can be responsive and alert to local needs and problems and will always be found working closely with the local authority. Indeed, almost inevitably the directors have links with the local authority and other local organisations and may be active in local charity organisations. Therefore, such societies play a valuable rôle.
The building society movement is efficient and responsive to the consumer's requirements, whether the consumer be the saver or the borrower. I firmly believe that if the Bill were enacted it would damage the efficiency and responsiveness of the building societies.
I do not pretend that there are no problems. Of course there are problems. Indeed the hon. Member for Blyth, in a somewhat intermittent way, referred to some of them. There is the problem of the availability and cost of mortgages. Some people find it difficult to get a mortgage. Even more find it difficult to find the deposit or to maintain the mortgage repayments.
There is a great deal of inadequate housing and of homelessness. Hence, I suppose, the talk of social accountability for the building society movement which 853 we heard from the hon. Member for Blyth. The social accountability to which he referred was confused with the accountability of the building society movement to those who deposit their savings with it and to those who borrow money from it to buy their homes.
The hon. Gentleman referred to accountability to lenders and borrowers To my mind, social accountability is a different matter. The hon. Gentleman suggested that there are problem areas in housing which need attention. If the building society movement is to be accountable to its depositors, it must be responsible in its use of money.
Looking at the nature of the problem to which the hon. Gentleman made most reference—the so-called red-lining—I think that we can learn something about the real basis of social accountability. The hon. Gentleman made a number of assertions and maintained that he had the facts, having done the research. I admit that when he sat down I was relieved in one sense, because he had been on his feet a very long time, but I was disappointed that I had not heard the evidence on which those assertions about the red-lining were based.
To the best of my knowledge, there is no such thing as the red-lining of inner areas. It does not exist. What does exist is an understandable and correct reluctance by building societies to lend where the lending would not be justified by the valuation of the property concerned. I remind the hon. Member for Blyth that the Building Societies Act requires building societies to lend only when there has been an independent assessment of the value of the properties on which the societies propose to lend.
The imagined problem of the redlining arises because in inner city areas, characteristically, there are properties which, because of their condition, the condition of the surrounding area or possibly planning proposals, have a doubtful value. Therefore, it is difficult, if not impossible, for a responsible valuer looking at such a property to say that it will continue to maintain sufficient value to cover the amount of the borrowing requested throughout the period of the mortgage.
If a building society were to lend money on such a property and, through what- 854 ever combination of unhappy circumstances, the mortgagor were to default and the property were to revert to the society, the security would not be sufficient to enable the society to recover its loan. The penalty would then fall on all the other borrowers.
I do not think that the hon. Gentleman wishes to put up the costs of borrowing to the great mass of people in order to provide a subsidy for unwise lending on property of insufficient value. It cannot be regarded as responsible or socially accountable for a building society to lend to somebody more than he can afford to repay. Nor would it be socially accountable or responsible to lend more on a property than its value.
The building societies' record on lending speaks for itself. In the third quarter of 1976, 65 per cent. of their lending went to borrowers under the age of 35, 23 per cent. went on pre–1919 housing and 48 per cent. went on property with a price or less than £11,000—that is to say, nearly half the total borrowings were on properties with a price of less than £11,000. In many parts of London and the South-East it is very difficult to find more than a handful of properties that would fall into that category. In the third quarter of 1976, 28.4 per cent. of lendings went to borrowers whose income was less than £3,500 a year—that is less than average industrial earnings. When one looks at these figures one cannot sustain the argument that building societies have failed to be socially responsible and have failed to meet all that they could reasonably and responsibly do to help first-time buyers, lower-income buyers and buyers of older property.
I turn now to some of the facts and figures in the quarterly bulletin of the Building Societies Association. There is an interesting article at the back of the bulletin—I hope that the hon. Member for Blyth has it—about the rôle of mortgage institutions in the housing market. The article refers to the rôle of the mortgage institutions in filling the gap left by the Government's slashing attack on the ability of local authorities to give mortgages. The figures speak for themselves.
The conclusion, entirely supported by the figures, states:It will be seen that the total number of first-time buyers is now only a little below the levels obtaining in 1975 when local authority 855 lending was at its peak. Similarly, the total volume of loans on pre–1919 houses in 1976 will be little different from that in 1975 despite a 75 per cent. cut-back in local authority lending. If the 4.4 per cent. increase in the percentage of building society loans going to first-time buyers is attributed to the local authority cut-back then this implies 8,000 replacement' loans a quarter—in money terms about f60 million. Similarly, the 3 per cent. increase in the percentage of loans going on older houses reflects some 5,000 replacement loans a quarter and this is compatible with the 8,000 figure.There is every evidence that the building societies have done perhaps more than could be expected of them in filling the gap that was unhappily left by the reduction in local authority mortgages. I do not suggest that there is no problem here. Of course there is a problem.
One area that particularly concerns me is where there has been conversion of older properties into flats. These properties present particular difficulties to building societies, because there is always an inherent risk that the purchasers will find themselves liable for very extensive repairs. For example, it is extremely difficult to determine whether a roof is really sound and whether it will last for perhaps 20 or 30 years. If the roof needed major repairs, the occupants of the flats would have considerable liabilities and they would clearly have a problem in meeting their building society obligations on the mortgage. Even in this case, the building societies are doing their best to fill the gap as far as it is responsible for them to do so in relation to their obligations to depositors. I hope that it will be possible for the local authorities working with the building societies, and with some little encouragement from the Government, to overcome the balance of the problem.
But the real problem to which we ought to be devoting our time when considering therôle of building societies and mortgages is the problem of accumulating a deposit. People often come to see me and say that of course they would like their own home, but first they have to accumulate the deposit. They then point their finger at the Treasury, which came in for some criticism earlier from the hon. Member for Blyth. I join him in criticising the level of taxation, which we debated yesterday. The present high level of tax makes it difficult for people, particularly young couples, to save up a deposit. The excessive interest rates, 856 which are a direct consequence of the Government's extravagance and their excessive public spending, make it difficult for those who want their own homes to take out a mortgage.
If we want to make real progress in helping people with housing problems—I join the hon. Member for Blyth in that objective—I suggest that we should reduce taxation so that people would find it easier to save up for the deposit. We want to manage the economy so that we do not have such a burden of public spending. We want to stop the doctrinaire attacks on the private landlord which are keeping so much accommodation vacant. We would then be making a start in solving housing problems, even in the inner city areas—and I do not underestimate the problems. If we want to solve these problems, the first thing that we should do is to reject the Bill.
§ 2.46 p.m.
§ Mr. Ernest G. Perry (Battersea, South)
I must first declare an interest, in that I am both a borrower from a building society and a depositor with a building society, so I am perhaps influenced to some extent by a pecuniary interest.
My hon. Friend the Member for Blyth (Mr. Ryman) was lucky enough to be drawn No. 9 in the Ballot, a considerable achievement since he has been here for only three years. I have been here for 13 years and have always put my name down for the Ballot but have never been successful. My hon. Friend has been lucky, on his second attempt, to draw ninth place in the Ballot for Private Member's Bills, but what has he done with his opportunity?
I regard the opportunity of presenting a Bill to Parliament, after an hon. Member has won a place in the Ballot, as something very valuable. I appreciate the integrity and ability of my hon. Friend the Member for Blyth but I must say, with all due respect to him, that to waste that opportunity on a Bill like this is a waste of parliamentary time. I say that because building societies are among the biggest commercial undertakings in the country. Next to the insurance industry, the building society movement has more assets than anything else. To take over the assets of nearly 20[...] million depositors by way of a Private 857 Member's Bill requires more than Private Members' time—
§ Mr. Perry
Whether or not the Government should do it, the point is that my hon. Friend has introduced his Bill this afternoon. It would have been much better to use the time at his disposal by going to a Government Department, which no doubt has a Bill aready prepared—it is very likely that there is one in the Department of Energy—and he could then have put through a Bill overnight.
§ Mr. Perry
My hon. Friend knows very well that that is a hypothetical question. As a lawyer, he must know that it would be stupid for me to answer, so I shall not. Private Members' time in Parliament should be used to some extent for the benefit Departments that have Bills that they want to put through quickly. We have seen many examples of that since I have been a Member.
We have heard much today about the building society movement. The building society movement, the Labour movement, the Co-operative movement and friendly societies all evolved at the same time. This movement has reached the stage at which it embraces the whole of the population. It has enabled millions of people to own their own homes—people who in the normal course of things would not have been able to do so. Its assets total nearly £30,000 million, and there are 18 million depositors. These are the people who hope one day to buy their own homes and to live in them. It is too difficult to try to tackle a problem such as this with a Private Member's Bill on a Friday afternoon.
I do not say that there is no room for alteration and examination of the building society movement. It has been argued that this source of investment should be thrown open to all investors, but there is a limit to the amount of money that a person can invest in a building society, and that limit is imposed because, under the 1962 Act, the 858 societies want to have as wide a cross-section of investors as possible. For this reason solid conglomerations of capital in excess of £10,000 are not allowed to accumulate.
My hon. Friend the Member for Blyth criticised the multiplicity of offices, and to some extent what he says may be true. In my area of London, in St. John's Road, Battersea, the Nationwide Building Society opened a large office six years ago. It was a most successful office, and investment came in from all and sundry. In the last 12 years two other building societies have opened in the same main road. My hon. Friend should understand the reasons for this. It is that these branch offices are supplanting the banks on a Saturday morning. The banks do not open on Saturday, so the building societies are stepping in to fill the gap, enabling people to deposit and withdraw funds. That is why the building societies are opening branch offices, and who can say that that is a bad tendency? It is good, because it encourages people to use the societies, and that benefits everyone.
It seemed to me at first that too many branch offices were being opened and that the system was getting top-heavy, but on closer examination I realised that an enormous amount of business is done on a Saturday morning and that this must mean that the branch offices are serving a very useful purpose.
After the Second World War it was very difficult for people to borrow money from an insurance company or from the local authority, particularly for the purchase of leasehold property in inner London. I know from experience that often a mortgage was arranged by a combination of an insurance company and a building society in order to overcome this problem. A building society would lend the money and the mortgagor would pay it back through an insurance policy, and thereby get the best of both worlds. In this way the building societies played a valuable rôle in enabling a large number of sitting tenants to become owner-occupiers. Millions of pounds went to sitting tenants in this situation.
There has been much reference to the question of red-lining and to the fact that building societies will not advance funds. The picture, however, is not so rosy as some Conservatives seem to think. I live in an inner city area, in Battersea, but 859 anyone wanting to purchase a house there finds extreme difficulty in getting a mortgage from a building society.
For example, a house may be for sale at £15,000. The building society may value it at only £12,000, and then give only a 75 per cent. mortgage. That leaves the purchaser to find £6,000, and very few people in my constituency can put their hands on that sort of money. The building societies may argue that this is just about the only way of keeping down the price of property in inner London. Between 1971 and 1974 that price doubled. I bought my house in South Battersea for £2,000 leasehold in 1957. I paid £525 for the freehold. That property today would sell for between £25,000 and £30,000.
§ Mr. Perry
The hon. Member for Croydon, South (Mr. Clark) must realise that if I want to buy a similar house elsewhere I shall have to pay out the same amount of money. Therefore, although the price of the property has gone up it has not, strictly speaking, been a capital appreciation for me.
A case can therefore be made out for an agreement between the building societies, the local authorities and the insurance companies to try to help young people in London to buy their own homes on a mortgage.
Another problem for the building societies—a problem that it prevalent in my constituency—is that of blighting through the development of a school or some other such project. In my constituency the Inner London Education Authority has been purchasing houses near a school over the last 20 years. No one would buy the houses there because of the blight of the development, which means that the purchaser was unable to get an advance. In this instance the properties have deteriorated. The GLC has put tenants into them. Tenants have left, and I regret that in many cases squatters have moved in, with the result that the area is not only blighted but is undesirable, and owner-occupiers and tenants are thoroughly fed up.
Blight ruins the whole neighbourhood. It is one of the problems that we must 860 tackle. I do not want to attack any Government, but more co-operation is needed between building societies, local authorities, insurance companies who lend money for house purchase, and the Government.
My hon. Friend spoke about the insurance companies, and about how someone is able to take out an insurance policy. He spoke of a life policy. If someone takes out such a policy he gets the best of both worlds. Someone buying a house normally takes out an endowment policy with life cover. I explained the position on, I think, 5th March two years ago, when we discussed insurance, and I told the House how this benefit had been introduced by Gladstone. He introduced a measure to encourage people to take out insurance policies. He provided tax relief, and that form of relief is still in operation.
Taking out an endowment policy is most advantageous from the point of view of savings and enabling the insurance industry to provide the seed corn for British industry. It is also advantageous for the person who takes out, say, a £5,000 policy, because he makes a profit on that. He receives insurance cover in case anything happens to him. His wife and family are protected, and, at the end of the period, after the mortgage has been paid he is left with a handsome surplus. Anybody who can afford to take out such a policy should do so. I am sure that hon. Members will not mind my making that plug.
My hon. Friend spoke in a somewhat derogatory way about the insurance industry. I assure him that it performs a most useful service. It makes millions of pounds available for house purchase, and I should like to see the system extended.
This has been a useful debate, but that is all that it will be, because I cannot possibly support the Second Reading of the Bill. I agree that there is something wrong with some of the building societies. I agree, too, that we should change our ways in some respects, but I do not want to see the building societies nationalised. I could not accept that under any circum stances.
I hope that the airing that has been given to the building society movement this afternoon will serve a useful purpose and make people realise that the movement belongs to them, and that it is for 861 them and not my hon. Friend the Member for Blyth to decide what they want to do with it.
§ 3.2 p.m.
§ Mr. Hugh Rossi (Hornsey)
It is my custom when responding to a Private Member's Bill to congratulate the hon. Member who has introduced it. I always congratulate the hon. Member concerned on his good fortune in the draw. I invariably congratulate him on the manner in which the Bill has been presented, and very frequently I congratulate him on the nature of the Bill. I am afraid that on this occasion I cannot bring myself to offer any congratulations of any kind to the hon. Member for Blyth (Mr. Ryman).
One cannot but deplore the hon. Gentleman's treatment of the House today, his discourtesy to hon. Members, the way in which he addressed the House, the way in which he refused to accept interventions, and his facile approach to an important and serious subject. One can only describe the hon. Gentleman's performance today as a slapstick, knockabout pantomime act. Indeed, so much was it a pantomime act that at one stage he entered into a dialogue with one of his hon. Friends on the basis of what one hears at a pantomime "Oh yes, they can; oh no, they can't". That is what went on, and that is no way in which to treat such an important subject as this.
I agree with the hon. Member for Battersea, South (Mr. Perry) that it is regrettable that the time of the House should have been wasted on a Friday afternoon on a subject that was treated in the way that it was by the hon. Member for Blyth.
As my hon. Friend the Member for Surbiton (Sir N. Fisher) said, the hon. Member for Blyth made a number of assertions and allegations about the building society movement without adducing any evidence in support. Subsequently in an intervention he was asked to support his allegations, and he said "I shall give the evidence. I shall come to it later.", but he never did. All that we had was a series of unsupported allegations for which there is no basis whatsoever.
The hon. Gentleman has done himself little credit. He has done his party little credit. All I can say to the Minister is that if the Labour Party has 862 friends like this, it has no need of opponents.
The hon. Member who introduced the Bill made three main assertions concerning the building societies, and I shall refer to each of them in turn. He said, first, that they have failed as a movement engaged in encouraging thrift because they are not raising enough money, secondly, that they are inefficient and extravagant in their mode of operation, and, thirdly, that they had failed in their objective of helping people to buy homes because they do not make adequate provision for certain sections of the community. That was the basis of the argument, that it took the hon. Member 63 minutes to put to the House.
On the first assertion that the hon. Member made—the failure of building societies to attract funds, for which he adduced not one scintilla of evidence—I refer him to evidence that he could have easily and readily extracted for himself, if he had taken the trouble to do a modicum of homework on the subject. They are found in the Financial Statistics, the Housing Statistics, the Building Societies Association figures and the report of the Chief Registrar of Friendly Societies.
I shall tell the hon. Member about the record of the building societies as a savings medium. After a progressive growth from 1943, when they had 5 million savers, the building societies accommodated over 18 million savers by the end of 1975. In the period from 1963 to 1975, the amount of money deposited in building society shares and deposit accounts rose from £4,000 million to £22,500 million. The hon. Gentleman did not say where else there was a record of aid to savings that was comparable with the record that I have just given to the House. Those figures are published in official statistics. Can the hon. Member tell me what is poor about a growth from £4,000 million to £22,500 million in a period of 12 years? Why does he say that the building society movement is failing to act as a medium of savings to encourage thrift?
I invite the hon. Member to intervene—although he would not allow me to intervene when I wished to put this point to him during his speech. Will he tell me whether he considers that record 863 to be poor, and will he compare it with other comparable means of saving in this country? He could find details of those other means quite readily in the statistics that I have given.
Has the hon. Member looked at the figures for national savings in 1975 and compared it with the £22,500 million that I have just mentioned? If he did so he would find that national savings attracted £11,000 million by 1975—half the sum that the building societies were able to attract. That is in spite of the fact that there are post offices in every High Street where people can readily pay in money. Yet national savings, with all the weight of the State behind it and with all the advertising that is carried out by the State, has been able to attract only half the amount that has been attracted by the building societies. When we compare these matters, we see the true position. I shall be interested to know where the hon. Gentleman stands in comparing those records.
If the hon. Gentleman examines the records of the trustee savings banks, he will find that in 1975 £3,800 million was the amount in those banks, against a figure of £22,000 million in the building societies. In the unit trusts there is a total of £2,500 million against £22,000 million in the building societies. Only the private banks are comparable, because they attracted £19,000 million. By any yardstick of savings that is used, the last charge that the hon. Gentleman can put against the building societies—if he takes the trouble to examine the situation and to adduce evidence, instead of making wild allegations—is that they are not a means of encouraging thrift and savings.
Let me put a second proposition to the hon. Gentleman, who seeks to suggest that building societies are extravagant and inefficient in operation. Only 95p in every £100 of assets goes to meet the overhead costs of the building societies. It has already been said that comparable organisations in the United States of America have overhead ratios almost double that figure, as has the trustee savings bank movement.
The hon. Member for Blyth was supported by his hon. Friend the Member for Chorley (Mr. Rodgers) in his view that directors of building societies were being 864 paid large fees. Do they not know that of the 95p out of every £100 in building societies only 1p goes in directors' fees. That is the ratio. It is rarely that a building society director gets more than £1,000 a year for his efforts. They regard it as what it is—largely a voluntary movement of men, expert in housing matters and in the professions, devoting part of their time to the friendly society movement. They take a token payment as remuneration for their expertise, knowledge and time. It is complete nonsense for Labour Members, who are besotted with the concept of nationalisation, to come forward with the claptrap that somebody is making a bomb out of the public, as against the alleged social theories that Labour Members advance. I invite them to examine the evidence—and it is that evidence that I am now producing to the House.
§ Sir Nigel Fisher
I do not wish to enter on too personal a note, but the House might like to know that when I was a director of a small local society for many years, my fee amounted to £300 a year, and we met once a fortnight.
§ Mr. Rossi
I am grateful to my hon. Friend for pointing to the pattern of fees paid. Naturally, in the larger building societies, where more time is required of a director, the fees necessarily will be higher. That is the true pattern, and it does not embrace anybody making a great deal of money out of the investing public.
We are told about expensive shop sites in the High Street. I took the trouble to examine the situation some years ago, when I thought that there might be some possibility of extravagance. I was given a simple and, I believe adequate explanation, namely, the savings habits of the British public.
Of course a building society would prefer it if people sent in a cheque to head office or made out a bank standing order payable to the building society and the building society simply sent out a monthly or quarterly account by second-class mail. The building society would prefer to operate in that way rather than open a shop in the High Street. But the majority of small savers whom building societies seek to help do not operate in that way. They carry their wage packet with them on a Friday evening or a 865 Saturday morning. They want a place that is convenient, where they can pay money across the counter. They want to be able to withdraw money easily. There is a sense of confidence, knowing that there is a well set up shop where the saver can place his money and draw it out without any trouble.
It is because of this psychological factor that the building societies have found it necessary to open these shops in the High Street and attract the money that puts them in the position of being able to help home buyers. It is not what they want to do; it is the way the public behaves. They are forced to act in that way. I wish that Labour Members would stop creating this mythology, as they are inclined to do, saying "Horror, horror. Look at this great expense "without making the slightest effort to find out what is going on. There is no effort to discover whether there is any justification, and Labour Members never admit "I could not do it better myself ".
The hon. Member for Blyth could not do better than the building society movement. The hon. Member for Chorley suggested that local authorities might do the job better than building societies. He proposed that this new nationalised body could operate through the town halls. He said that there would be solicitors and clerks in the town hall who could do the job much more cheaply. The town halls attract £225 million by way of savings, as against the building societies' £22,000 million. The town halls borrow money at higher rates of interest from the public, on yearly or two-yearly bonds, yet the public is not attracted by the idea of lending to local authorities.
If the building societies were nationalised, can anyone see the local authorities, as agents, being any more successful than they are at the moment in encouraging savings? Hon. Members on both sides of the House have said that the instant there was the suggestion that building societies were to be nationalised there would be a stampede to withdraw money. I think that is right. That would be hard on those seeking to borrow money to buy a house.
The hon. Member for Blyth spoke about the failure of the building societies to make proper provision for those requiring homes. He was kind enough to ack- 866 nowledge that building societies have been a tremendous help to home owners. He could not do other than that, in view of the figures that we have heard today. We have heard that most of the 53 per cent. of people who are owner-occupiers buy their homes through building societies. The hon. Gentleman directed his criticism to the fact that building societies were not prepared readily to lend money on properties in inner city areas and to people with low incomes or with a poor financial status, such as widows.
The hon. Member mentioned widows specifically. In an intervention, I tried to indicate the answer to him. The building societies have a responsibility to their depositors to make sure that the money is not invested in property which, if it has to be sold, will produce a sale price less than the money that has been lent, because if that happened there would be a loss, and that loss would be to the risk of the depositors.
Also, the building societies have a very responsible attitude concerning status. They feel that it is wrong to help or encourage someone to enter into a financial commitment that he cannot meet, because that would result in trouble, hardship and the loss of a home. Therefore, the societies say "If you do not earn so much, we cannot lend you more than so much." Inevitably it follows that where that policy of protecting the borrower against himself is adopted, there will be many people within our society who cannot become home owners because they have not the financial ability to undertake the debt and the repayments. That is the serious problem to which the House should address itself.
I certainly believe that it is right that home ownership should be made accessible on as wide a basis as possible to the community as a whole. However, what one has to do is to say that where the building society, for the very good reasons that I have mentioned, is unable to make the provision—because it is not right that a building society should provide a subsidy to home buyers out of other people's savings—there is justification for social intervention, for aid by the community as a whole—and that is the rôle of local authorities, through their home loan schemes.
This is where the Government should step in now on a major scale, to say 867 "Where people cannot buy because they do not fit the requirements of the building societies, we as a community must make a home ownership possible for them by lending them money on reasonable terms that they can afford." That is a subsidy that my right hon. and hon. Friends would be prepared to support, in replacement of other extravagant forms of housing provision in this country.
§ Mr. Donald Anderson (Swansea, East)
The hon. Gentleman is a very eloquent apologist for the building society movement as a whole. Does he see no blemish whatsoever in the societies, in, for example, excessive caution in their lending policies?
§ Mr. Rossi
Perhaps 1 may take this matter in my own way. I was trying to meet the arguments put forward by the hon. Member for Blyth. When I have done that, I hope to come to one or two matters on which I feel that improvements could be made. Perhaps the hon. Gentleman will let me make my speech in my own way.
I was about to say that the signal failure of the present Government is the manner in which they have prevented local authorities from fulfilling the need at the lower end of the house market. If hon. Members will look at Cmnd. No. 6721 they will find that in the year 197475 local authorities lent £737 million to the categories of people that we are concerned about at present. As a result of the economy cuts in 1977–78, the proposed lending through local authorities is £116 million. That is a drop from over £700 million to just above £100 million in a matter of three years.
That is an absolutely disgraceful record. It is wrong for Labour Members to say that building societies should fill the gap left by local authorities, because they are standing the thing on its head. Local authorities should fill the gap which building societies cannot fill because of their duties and responsibilities to their depositors and borrowers. That is the logical and correct way to look at this.
Instead of making it possible for people to buy their own homes the policy of the Government, by extravagancies such as municipalisation and that sort of non- 868 sense, makes it more and more difficult by cutting back the money available. Opposition Members are not advocating that the building societies should have no social purpose at all. Of course they have a social purpose, and they are performing it all the time. In order to help bail out the Government the building societies have made £100 million available to loan to people who go to local authorities and find that the local authorities cannot lend them any money for houses. The building societies are doing more than is really required of them.
I agree with the hon. Member for Swansea, East (Mr. Anderson) that certain matters relating to building societies need consideration. We ought to apply our minds to how we can intervene in a way that makes it easier for people to buy houses.
In recent months, my right hon. and hon. Friends have come forward with a number of proposals. I repeat them for the benefit of hon. Members opposite. We wish to see a maximum limit on mortgage interest rates. That can be done by operating upon the composite rate of tax payable by building societies. There is no problem there at all, and the cost is peanuts compared with public sector house building, as we saw from the NEDC report published yesterday.
We can help young people by giving them a grant towards a deposit. The first obstacle to the first-time home buyer is saving enough money to put down a deposit on a house. We propose to help these people by giving them a grant on a "Save-as-you-earn" basis. For every £2 they save we shall give them a grant of £1, up to a limit.
There are a whole range of possibilities with regard to low start mortgages. There is the fifty-fifty scheme and the American 235 scheme. All these things are matters for inquiry and investigation, which we. as a party, are doing. We intend to bring forward our proposals along the lines that I have indicated to encourage and expand home ownership.
We want to see the building societies movement continuing to make the valuable provision that it has been making over the last 200 years rather than to throttle it in the way the hon. Member for Blyth would, by putting the garrotte of nationalisation around its neck.
869 These are the constructive ways in which this matter can be dealt with. We entirely reject the suggestions that have been made by Opposition Members that we should tinker with the tax relief on mortgage interest. Nothing would be more of a disincentive to home ownership than to start tinkering with that, I believe out of pure envy. There is no other reason. It is either pure envy or a preconceived idea of the kind of society in which hon. Members opposite think that the people of this country ought to live—not a country in which the people want to live, but one which Government supporters wish to impose upon them by having them live in a society where everything is owned and controlled by the State. That this measure is directed towards that goal is only too evident.
It is also wrong to talk of lowering the relief from the £25,000 level. If anything, the £25,000 should be raised. It should be raised, because when it was first fixed average house prices were at a certain level, inflation has now overtaken that level and they cost a lot more. If we do not allow trading up, accessibility at the lower end of the market becomes more and more difficult. I hope that the Minister will once and for all reject on behalf of the Government any idea that the tax relief on mortgage interest rates will be interfered with by this Government.
I have doubts about the high level of the liquidity ratio which is at present operated by building societies. It is about 20 per cent. of total assets, whereas I understand that the legal requirement is only 7 per cent. Why is there this great need? Obviously there must be a liquidity ratio. Everything cannot be tied up in mortgages. If depositors want to withdraw money, the cash has to be there. But 7 per cent. on £22 million surely is sufficient.
The Government have insisted that the liquidity ratio should be kept at its present very high level so that the building societies keep £5,000 million in Government stock to help to bail out the Government. It is part of the support of the financial structure at the moment because of the mess into which the Government have got the country. Through the joint liaison committee that is operated between the Department of the Environment and the building society movement, there is pressure on building societies not 870 to release money, partly because there is a fear that it may increase the demand for houses and put up prices, and therefore, there must be a steady flow of money going out, and partly because it helps the Government to have so much money sloshing around in their own securities.
I do not find this acceptable. If the hon. Member for Blyth asks me for a criticism of the movement, it is that it has been too craven to the wishes of the Government in this respect.
I think that I have covered most of the matters put to the House by the hon. Member for Blyth, and that I have answered them in a manner to show that such evidence as is available destroys his case completely. Indeed, he has not begun to substantiate his case. All the evidence is directly to the contrary.
I conclude my remarks by referring to the NEDC report on housing, which was published yesterday. Paragraphs 16.14 in page 108 of that report is headedThe role of building societies".It reads:The building societies have historically provided most of the funds for house purchase. They have successfully met their traditional objectives of lending as much mortgage money as possible as cheaply and as prudently as possible and of providing an easy and secure means of saving".That is not a statement by the Conservative Party. It is not a statement by me or by any of my right hon. and hon. Friends. It is a statement by an independent body that has spent 18 months investigating all the problems attached to housing in this country. That is its considered opinion and conclusion. I submit that it is the complete answer to this Bill, which I trust will not proceed any further today.
§ 3.34 p.m.
§ The Minister of State, Treasury (Mr. Denzil Davies)
The hon. Member for Hornsey (Mr. Rossi) ranged rather widely in his speech, and I am sorry that he introduced a very partisan note into much of it.
With the exception of my hon. Friends the Members for Blyth (Mr. Ryman) and Chorley (Mr. Rodgers), I thought that there was common agreement that the Bill would not solve any of the problems —and there are some—which are inherent 871 in the present system and that, indeed, the Bill might do more harm than good.
Unfortunately the hon. Member for Hornsey introduced a partisan note, and I do not propose to follow that or to range as widely as he did because many of the matters he raised had nothing to do with the Bill. It comes rather oddly after last night's debate about the burdens of direct taxation—
§ Mr. Davies
—yes, and the vote—to have the Opposition Front Bench again promising handouts, grants, the freezing of mortgage interest rates, the spending of money and increasing the public sector borrowing requirement, which is, no doubt, what would happen if some of those plans were put into operation. We have learned to expect this from the Opposition. On the one hand they want to reduce direct taxation, but on the other hand in some areas they want to increase public expenditure.
§ Mr. Rossi
I know that the hon. Gentleman wants to be fair, but if he took the argument as a whole, compared with what was said yesterday, he would realise that our proposals would result in providing three homes for every one that the Government have provided at the same expense. Therefore, there would be considerable savings in our method.
§ Mr. Davies
I do not want to pursue that. I do not see that the freezing of mortgage interest rates would solve any of our housing problems.
My hon. Friend's Bill provides for the establishment of a public corporation which will have a general duty to ensure that adequate financial resources are available for mortgage finance and to keep under review the efficiency, economy and soundness of the operation of building societies. If the corporation thinks that a society is doing an inadequate job, or if it thinks that it is necessary for the effective discharge of its own duty, it will be able to propose a scheme to the Secretary of State for vesting that society in the new corporation.
Although the Bill, on the face of it, does not proposed, therefore, the immediate nationalisation of building societies, 872 it would mean that any individual society could then be nationalised without further legislation. The impending threat would be likely to impair, not to enhance, the cooperation which this Government have built up with the building society movement, co-operation which has been very valuable during the period of this Government, as I shall try to make clear later in my speech, and which has been gained without the transitional costs which might be involved in any scheme of nationalisation.
Quite apart from that, I think I should make it clear that widespread nationalisation of the building societies has never been part of this Government's policy or of that of the Labour Party, and nothing that I have heard today makes me think that it should become so. That does not mean that I believe that the present situation cannot be improved.
So far as societies' lending policies are concerned, I accept that useful changes might be made, but again I cannot see that nationalisation, or the establishment of a British Building Societies Corporation, is a necessary condition of change. The building societies have recently cooperated with the Government in a number of new initiatives on lending, and I trust that they will continue—and, indeed, increase their sensitivity to their social responsibilities. I believe that there is further scope for them to do so.
That said, however, it should not be forgotten that building societies must operate in a way that enables them to provide an adequate return to depositors —that is, they have to charge a commercial rate to borrowers if they are to be able to continue to attract investors, and for the same reasons they cannot take a lot of risks, which would lead to a high proportion of bad debts or greatly increased administration costs. The position would not be changed by the Bill. The question still remains as to how far any institution lending money can be made aware of its social responsibilities in very difficult areas.
There is also the problem of money. Since the corporation would raise money at commercial rates, presumably it would have to lend at commercial rates. There does not seem to me to be any advantage with regard to interest rates. The corporation would no doubt act as a financial intermediary for channelling funds to 873 building societies, but those funds would have to be found and would have to be paid for.
As the House knows, the Government have already gone a long way towards helping to stabilise mortgage finance. In the immediate needs of 1974, when we came to power, we created the £500 million loan scheme to building societies. Since then, through the joint advisory committee, the Government have established arrangements with the building societies to stabilise their lending. These arrangements have enjoyed some success.
Where could the corporation attract additional funds for mortgage finance if the societies' traditional source—the personal saver—proved inadequate? It seems to me that if the corporation wanted additional funds there are only two areas in which they could be obtained —first, directly from the Government, which would mean increasing the borrowing requirement, which the Government are not intending to do; or, secondly, from the market. The effect of taking the funds from the market would be that the corporation would be in competition in the market not only with the Government but with manufacturing industry, private and public.
That is one dilemma with which my hon. Friend the Member for Blyth is faced, and it would not be solved by the Bill. Any additional money would have to be obtained at the expense of money for other needs. The Government's priority is to try to get as much money as they can into manufacturing industry and to back up our industrial strategy and improve the competititiveness of our manufacturing industry.
My hon. Friend the Member for Blyth made a number of criticisms. He dealt with the lending policies of the societies. He mentioned the high mortgage rates and the availability of mortgage finance. He mentioned the management costs of societies and dealt with the relationship between the societies and their consumers. Before I deal with his criticisms, I must say something about the achievements of the building societies in the past two decades or so. A number of figures have been given; I shall merely add a few more.
In 1951, only 29 per cent. of our housing stock was owner-occupied. Today, 874 52 per cent. of a larger stock is owner-occupied. The building societies have played a considerable part in the growth of owner-occupation and have granted the vast majority of loans during the intervening years. I should expect this trend to continue. If in the years from now until the end of the century owner-occupation were to increase at only two-thirds of the rate since 1951, we should have getting on for 70 per cent. owner-occupation. Building societies can be expected to provide loan finance in the great majority of purchases in succeeding years. Since 1970 they have on average financed about 85 per cent. of all purchases.
This speech is not meant to be a paean of praise for the building society movement, but in the provision of finance for housing and in the provision of housing for its people this country compares extremely well with countries on the continent such as France and Germany and with the United States. This is one area in which we can stand up to our competitors or in which we have perhaps beaten them. Perhaps this is to some extent at the expense of manufacturing industry.
However, France and Germany in particular have mechanisms better than ours for collecting money from the public, and quite as good mechanisms as the building societies, but the money is channelled more into industry, whereas our building societies have been very successful in collecting personal savings and the money, because of the efficiency of the building society movement, has been channelled into house purchase. That has been a good thing from the purely housing point of view, but whether those funds have been used to the best advantage and whether they should have been used for manufacturing industry is a matter which we can debate later. There is no doubt that, as gatherers of money and as channellers of that money into housing, the building societies have been extremely successful and compare very well with any system in the Western world.
§ Mr. John Lee (Birmingham, Handsworth)
My hon. Friend may be right in his assessment of the overall performance of the building societies, but—and this is what the debate should be about—is there not an aching void which has been caused 875 by the fact that there are many substandard but remediable properties in inner city areas on which the building societies, for understandable commercial reasons, are loth to loan money but which has been filled by secondary banks, often on extortionate mortgage terms, with default and foreclosure in circumstances which we would all deplore? I am sure that the hon. Member for Hornsey (Mr. Rossi) agrees with that.
§ Mr. Davies
My hon. Friend makes a valid point that has been made already in this debate. However, I would not say that there is an aching void. There is a problem, allied to the decline of inner cities and caused by numerous factors. We cannot put the finger on any one factor, and we find that it is extremely difficult to arrest that decline. Because of it, organisations like the building societies have been reluctant to lend money in these areas.
We accept that there is a problem, hut the best way to deal with it is to see that the building societies become aware of the difficulty and to urge them to co-operate more with the local authorities. If the building societies could work together with the local authorities, building society money could be married to local authority plans for areas. If no money is being lent for properties in inner cities the problem will get worse. I do not want to see secondary banks moving in. I want to see co-operation between local authorities and building societies to try to do something about it.
I should say something about the inflows of money into building societies. Although the societies have had great success in attracting savings, there have been immense fluctuations. In the last four years, building societies' net receipts were as follows: £1,512 million in 1973, £1,165 million in 1974, a vast jump to £3,191 million in 1975 and then a drop back to £2,449 million in 1976. Those figures illustrate how dependent building societies' inflows are on the level of market interest rates. They are particularly vulnerable to sharp rises in general rates, as happened in the last quarter of 1976, when societies' net receipts totalled only £192 million.
Societies have reacted to the greater volatility of short-term interest rates in 876 two ways. They have been prepared to move their own rates more frequently and to bring them into line with general interest rates, although this is quite expensive for them, and there is always a time lag because notice must be given to borrowers. Secondly, they have developed term shares whereby investors' money is locked in for a term of two years or so. This carries a cost too—the extra interest that has to be paid to induce the investor to deposit his money for a term. But a certain amount of stability of funds comes from creating term shares.
I think it is fair to point out that although societies have obligations to both investors and borrowers they are not wholly commercial institutions. They have to be conscious, and are increasingly becoming so, of their social obligations. This is clear in many aspects of their lending policies. Building societies do not simply advance mortgages to the more affluent people seeking to buy detached or semi-detached homes in middle-class suburbs. A total of 4½ million people now have mortgages, and in 1976 societies made a record 715,000 loans. The average income of former owner-occupiers in the fourth quarter of 1976 was £5,166 a year, and the average income of first-time purchasers, who receive nearly half of all mortgage advances, was £4,466 a year. About 20 per cent. of borrowers were under 25. About 26 per cent. of all mortgages went to borrowers earning less than the average manual worker's earnings.
As regards properties, about 23 per cent. of all societies' advances in 1976 were on pre–1919 properties. This compares with about 19 per cent. in 1975. The percentage of first-time purchasers obtaining loans on pre–1919 property rise from 23.5 per cent. in the third quarter of 1975 to 28 per cent. in the fourth quarter of 1975. Since then there has been a further rise to 30.1 per cent. and 29.9 per cent. respectively in the third and fourth quarters of 1976. This increase, which we very much welcome, has been a great help in offsetting the reduced number of local authority loans on such dwellings as a result of recent cuts in public expenditure. At the same time—this illustrates the conflicting pressures on societies—about 18 per cent. of all societies' advances are on new houses, to which societies give some preference, 877 since they are very conscious of the needs-of the building industry.
In their lending policies, societies have also shown themselves ready to cooperate with Government policies. Opposition Members have complained that they are co-operating too much with the Government. That is the wrong way to look at the problem. We want a partnership between the building society movement and the Government that recognises the strength of the movement in its sector and the fact that the Government and local authorities can do certain things that the building societies cannot.
The building societies have played their full part in the option mortgage scheme, which was introduced in 1968, and more recently have taken on replacement of local authority lending. The original scheme, known as the "hundred million scheme", admittedly got off to rather a slow start in some areas. However, we must not forget how new an undertaking this was for the building society movement, which is not a single entity but an amalgam of many societies of very different sizes. This was the first time that the movement as a whole had to co-ordinate action for such a purpose. Since then liaison between societies and local authorities has gradually improved, with each side becoming mote aware of the other's problems.
Over £120 million has now been lent under that original scheme. For 1977–78 my right hon. Friend the Secretary of State for the Environment has recently announced that he has agreed arrangements with the building societies aimed at maintaining lending through local authorities at the level originally envisaged before the December cuts. Under these arrangements English local authorities will receive mortgage allocations totalling £273 million for 1977–78. Of this sum the building societies expect to be able to provide £157 million. Separate arrangements are being made for Scotland and Wales.
The new arrangements will cover both direct lending by local authorities and lending by building societies to applicants referred to them by authorities. There will be particular emphasis on lending on older properties. Loans will be restricted to applicants who come from within the 878 existing defined priority categories and who are unable to obtain building society mortgages by normal means. My right hon. Friend the Secretary of State for the Environment welcomes, as I do, the cooperation of the building societies and the local authorities which has made these arrangements possible. We look forward to the development of close working relationships between them at local level.
The commercial indemnity scheme that the building societies have developed should be of special help to those who cannot afford to put down large deposits. It will enable societies to grant loans of up to 100 per cent. of valuation on properties up to £14,000 and will provide a valuable tool for the support scheme.
I think that we are detecting a greater awareness on the part of the building societies in understanding the problems especially of inner city areas and in realising that they can be solved only by cooperation between the societies, the Government and local authorities in particularly difficult areas.
My hon. Friend the Member for Blyth mentioned a number of different areas—not individual cases—of discrimination. Low income is unfortunately still a discrimination, by its very nature. But my hon. Friend also referred to discrimination on grounds of colour and sex. If he thinks that those allegations can be substantiated, I should point out that building societies, like everyone else, are subject to the law of the land on race relations and sex discrimination. I know not whether there is any discrimination. If there is, the law of the land applies equally to building societies, and that is where the remedy lies.
I understand that the societies are also playing an active part in other new developments such as, for instance, the half-and-half schemes.
§ Mr. Ryman
Does my hon. Friend agree that the crux of the problem is obtaining the mortgage? In practice, a disappointed applicant for a mortgage does not have time to pursue any remedy in law. It is perfectly true that the general law of the land applies, but a house purchase may be lost if a person first has to pursue his remedy in law. While the Minister's assurance is therefore technically correct, it is of no practical help at all.
§ Mr. Davies
I dispute my hon. Friend's suggestion that it is of no practical help. The law can go only a certain way, as he knows well. The law cannot solve all these problems or provide an instant remedy, but the law is there not only to provide assistance to someone who has been discriminated against but as a deterrent to anyone who seeks to discriminate. The law is not perfect but it is there and the societies are aware of their obligations under the law, quite apart from their normal obligations.
One of the criticisms made during the debate was against the practice—I do not know whether it exists or not—known as redlining. If it exists, this practice is related to inner city problems. I do not think that any solution to the matter will be found by making accusations from one side of the Chamber to the other about bad faith or a general desire to discriminate. The problems are genuine and deep. The best way of dealing with them is to look at the inner city problems and try to deal with them by cooperation between the Government, local authorities and the building societies.
Another criticism which we have heard constantly is that the rates of interest that building societies charge are too high. Obviously anybody wanting to buy a house feels that he is having to pay too much in interest. No one likes to pay too much interest, or, for that matter, any interest at all. But I suggest to my hon. Friend that if one compares the rates of interest that a person has to pay when buying a house and the rates of interest that industry has to pay for its money, one sees that the person buying a house gets a pretty good deal, especially when tax relief is taken into account.
If we had more time we could compare our system with the Continental system. It is a feature of the British system that practically the cheapest money that one can borrow is that needed to buy a house. When we look at some Continental countries, where the equivalent organisations of building societies are often owned by banks, we see that interest rates there are higher because the banks have to take their own cut.
It is a feature of the British system that we charge industry comparatively more for investment and working capital than we charge for house purchase. 880 Whether that is good for the economy, and whether we should be doing this at a time of decline in manufacturing industry, is something that we should look at more carefully, but it is a fact that the very cheapest interest rates are those for house buying.
The building societies on the whole, subject to the problems that have been raised this afternoon, have done a reasonably good job. The Government have also set up with the building societies a joint advisory committee which meets monthly to monitor the housing market, with particular reference to changes in general interest rates, inflation, building society funds, advances, housing starts, completions and house prices. In 1975 the committee devised arrangements for lending which were aimed at continuing the support of the growth in owner-occupation and a stable level of house building without risking undue increases in house prices.
This is one of the dilemmas of the societies. If they lend too much money, as we have seen in the past, that puts up the price of houses and does not benefit the societies, industry or the consumer. During 1975 and the first half of 1976 when inflows were high, the building societies held their lending at a lower level than that which could have been financed given the rate of inflation. During this period they were able to build up their reserves of liquidity, and the average liquidity ratio has risen from about 19 per cent. at the beginning of 1975—
§ It being Four o'clock, the debate stood adjourned.
§ Debate to be resumed upon Friday 15th July.