Building Societies

HC Deb 07 July 1982 vol 27 cc414-31 12.46 am

The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne)

I beg to move, That the draft Building Societies (Special Advances) Order 1982, which was laid before this House on 22 June, be approved. This order increases from £37,500 to £60,000 the limit above which a sum lent to a person by a building society is treated as a special advance.

Under the Building Societies Act 1962, special advances, which also include all loans to companies, are limited to a certain proportion of all loans made in a year. This proportion is normally 10 per cent. but is reduced in certain circumstances.

The special advances limit had its origins in the abuses which developed in some societies in the 1950s with speculative loans usually linked in some way to the interests of directors, and which led to the collapse of the State Building Society. The object of the special advance provisions in the Building Societies Act 1960 was to limit the amounts which could be advanced, other than for financing owner-occupation, Because of the problems of providing a legal definition of owner-occupation, special advances were defined as being all advances to companies and large advances to individuals. The intention in setting the cut-off, originally at £5,000, was to pitch it at a level which would catch few, if any, advances to owner-occupiers. Since 1960 the limit has been increased six times. The present limit of £37,500 was set on 1 January 1981.

It is necessary to have a special advances limit that is set at a level such that any significant loans other than for owner-occupation will be classified as special advances. However, for prudential purposes the limit does not need to be lower than the level at which one can say that the presumption must be that the majority of loans above it will not be for owner-occupation.

I must stress that the essential reason for the regulation of special advances is prudential. Moreover, setting the limit too low imposes a burden on societies' administration and can constrain societies in their competition with the banks, as banks are not subject to similar restrictions in this respect.

The limitation on the ability of societies to compete is greater than might be suggested by the fact that they are allowed to make 10 per cent. of their advances as special advances. Because of the statutory requirements, they must have centralised systems within the society for controlling the amount of special advances, and they have to build into that system allowance for the fact that commitments for special advances may turn into loans at a different rate from commitments for ordinary advances.

When the 1979 limit was set it was perhaps pitched on the low side and not in line with the rise in the average level of mortgages, because there was then a shortage of mortgages and the circumstances were different from those that prevail today. Today we have the entry of the banks into the mortgage market, and that, as I am sure that the hon. Member for Blackburn (Mr. Straw) will agree, creates a considerable transformation in the nature of the market.

There is no longer a mortgage famine, and I think that it would be conceded by hon. Members on both sides of the House that any credit-worthy borrower today who wants a mortgage can get one. This fact was recognised by my right hon. Friend the former Financial Secretary, when he explained the basis for the previous increase to the Sixth Standing Committee on Statutory Instruments, &c. in December 1980. In the light of these conditions we have felt it right to make the figure up to what is in our judgment an appropriate prudential level.

The Chief Registrar of Friendly Societies is satisfied that setting the figure at anything below L60,000—which is broadly equivalent to about two and a half times the average house sale price—is unnecessary on prudential grounds. Furthermore, I should draw the attention of the House to the assurance the Building Societies Association gave to the Chief Registrar when it wrote to him in February to request the increase in the limit on special advances which we are discussing tonight.

The secretary-general, Mr. Richard Weir, said: Certainly, there is no intention on the part of any society to reduce its lending at the lower end of the market. Indeed, the new conditions in the mortgage market mean that societies are anxiously looking for new business across the whole spectrum of the housing market". The average building society advance in the United Kingdom in 1981 was less than £15,000 and it is reasonable to expect that the vast majority of advances will continue to be at that sort of level. The societies make considerable efforts to ensure that first-time buyers and those at the rower end of the market are helped to the greatest possible extent.

Although the effective date of the draft order is to be 1 September 1982, a building society will not be able to work to the new limit until its next following financial year. For most societies this will mean that they will be able to work to the new limit as from 1 January 1983. However, about one-third of societies, including two of the top five, have accounting years which end before 31 December and the order will, therefore, take effect for those societies for the year 1982–83.

Although this is an increase of 60 per cent. on the previous figure—I remind the House that it is a similar percentage increase to that made by the Labour Government in 1975—

Mr. Jack Straw (Blackburn)

Will the Financial Secretary say when the limit had been raised before 1975? It was certainly much longer than the 18 months on this occasion.

Mr. Bruce-Gardyne

That is neither here nor there. I am merely pointing to the fact that the increase that we propose is by no means unprecedented. That is a point that the hon. Gentleman will have to concede.

Mr. Jim Craigen (Glasgow, Maryhill)

Do I take it that the Government follow precedents set by Labour Governments on other matters, too?

Mr. Bruce-Gardyne

There are few precedents set by a Labour Government that I imagine this Government would wish to follow, and very few that I would follow the Government in following.

I assure the House that our purpose in proposing this increase is that it should contain an element for forward provision to avoid the need for several years to come back to the House for a further increase in the limit, and also to reduce the demands on parliamentary time. The proposal will assist building societies to compete fairly with the clearing banks, and in particular it will assist some of the smaller societies, which need to make high-value loans because of higher house prices in their areas.

In view of the assurances which the buildng societies have given, and which I have quoted, about their intentions on future lending, as the limit is essentially a prudential measure, and as the Chief Registrar of Friendly Societies is satisfied that the demands of prudentiality are met by this proposal in what is a highly competitve market with another institution—the banks—which is not subject to this restriction, I hope that the House will give the order a fair wind.

12.57 am

Mr. Jack Straw (Blackburn)

As the Economic Secretary said, this special advances limit was originally set in the Building Societies Act 1960 in the wake of, among other things, the scandal of the collapse of the State Building Society. Before that, there were no restrictions in law on the size of a loan which building societies could provide, as long as the loan was secured on freehold or leasehold property.

We should remember that the limit on special advances does not prohibit building societies from offering loans above that figure. It simply ensures that those loans are subject to certain conditions, and that they are rationed to 10 per cent. of the total lending of the society.

The Financial Secretary made much of what he described as the prudential reasons for agreeing this scheme of special advances in the 1960 Act. If one reads the Second Reading debate which took place in June 1960, it is clear that the House, at that stage, saw the concept of prudentiality in its widest sense. It was aimed not only at limiting the damage that could be done by any knaves or fools running the building societies but at ensuring that the building societies kept their side of the compact that they and the House had entered into, and that in return for substantial tax concessions and, yes, a benign acceptance of the cartelised market in which the building societies work they would meet the social objective set by their members and by Parliament of providing access to owner-occupied housing and the cheapest possible price.

In moving the Second Reading of the 1960 Bill, the then Chancellor of the Exchequer, Mr. Heathcoat Amory, said: The first two Clauses … come straight to the crux of the matter by seeking to ensure that building societies concentrate their main efforts on their traditional and proper business, which is advancing money on the security of owner-occupied property."—[Official Report, 20 June 1960; Vol. 625, c. 35.] It was in that context that the Chancellor of the Exchequer commended the clauses dealing with special advances. Parliament's idea of prudentiality was certainly wider than merely ensuring that people such as those who had been running the State Building Society were not advantaged, as they had been, by making fraudulent or crooked gains. It is against the yardstick of the social purpose that the societies are supposed to be fulfilling that the order, which has the active support of the societies, must be judged.

The Economic Secretary's case in support of the order was inadequate. I know that the hon. Gentleman is not as attached as the previous Financial Secretary to the Treasury was to indexing everything that moves, but he justified the limit increase by reference to previous increases, such as that in 1975, which had been justified by reference to rises in retail prices or house prices.

A major part of the discussions on the increase orders in 1979 and 1980 related to the need to index the limit in line with retail prices or house prices. The previous Financial Secretary sought to justify the substantial increase in 1980 and referred to the revalorisation of the then £20,000. He said: the right hon. Gentleman offered me two methods, and I shall give both—on the change in prices, the £20,000 that his Government set would now be £38,000, and if we indexed the figure by house prices it would be even higher."—[Official Report, Sixth Standing Committee on Statutory Instruments, &c., 16, December 1980; c. 12] The Financial Secretary was not putting the full case. The limit was introduced in 1962 and since then the RPI has gone up by 420 per cent. and the index of house prices has risen by about 650 per cent. If we revalorised the original £5,000 it would be £26,000 on the basis of the RPI increases and £38,000 on the basis of the rise in house prices—and £37,500 is the present limit. On the basis of the rise in those two indexes there is no justification for increasing the order by 50 per cent. to £60,000.

Mr. Bruce-Gardyne

rose—

Mr. Straw

This is not the first time in a Parliament that the Government have come to the House to seek approval for an increase, but in less than three years the Government have sought three successive increases and have sought to build one on top of another. The first two increases were justified to Parliament on the basis of the need to valorise them. The Economic Secretary made plain the fact that the last Labour Government had increased the rate substantially and that that was somehow a justification for what he is seeking to do.

The Economic Secretary's second argument was based on the relationship between the size of average mortgage advances and the size of this special advance limit. He said that it was important that the majority of loans above the limit should not be for owner-occupation. On the figures that he gave to the House, the truth is that the £37,500 limit was more than adequate. He admitted that the average advance in the United Kingdom in 1980 was less than £15,000 and even in the South-East the average advance was only £16,214. For first-time buyers, about whom we are all concerned, the average advance in the South-East was £15,362. The existing limit is two and a half times more than the average advance and, on that basis, there is no case for increasing the limit by a further £22,500 to £60,000. In any event, the limit on special advances does not prohibit advances over £37,500 or £60,000. It simply rations them and ensures that certain conditions are imposed on their use and quantity.

The Financial Secretary—

Mr. Bruce-Gardyne

The Economic Secretary.

Mr. Straw

I apologise to the hon. Gentleman. He will know from his experience on the Finance Bill that there were occasions late at night when I mistook him for his hon. Friend the Financial Secretary.

The Economic Secretary's third argument was that there would be no effect on lending at the lower end of the market if lending at the upper end of the market was facilitated and was likely to increase. I find that an odd argument coming from the arch-priest of the crowding-out theory of the operation of monetary markets. If an increase is needed at the upper end, its introduction is bound to have an effect, other things being equal, on the ability and facility of building societies to lend at the bottom end of the market. If it is not needed and it will not have any effect, the Government should not be bringing forward the order. Of course, it will have an effect. It is bound to do so and that point was well made not only by hon. Members on the Opposition benches but also by the hon. Member for Liverpool, Wavertree (Mr. Steen) in Committee in December 1980. The hon. Gentleman spoke eloquently of the way in which the increase in the limit on special advances would have an adverse effect on building society loans to first-tin e buyers in inner city areas. He complained about the societies' red-lining habits.

The Economic Secretary spoke of the way in which the societies have made efforts to lend to first-time buyers and to those in the lower end of the market and their commitment to continue to do so. I acknowledge that they have done that, but I recognise from my experience when I worked at the Department of the Environment, as well as my experience as a councillor and a Member, that the societies have made these changes in their approach and attitudes towards red-lining, inner city areas, first-time buyers and lending on older property only as a result of pressure that has been applied from outside. They are deeply cautious and conservative institutions. It has required a great deal of pressure and effort from outside the so-called building society movement to get them to meet their social objectives.

Mr. Bruce-Gardyne

I am bemused by the hon. Gentleman's argument. Will he spell out the precise connection between what he calls red-lining by the societies and special advances? The connection is not immediately apparent to me.

Mr. Straw

I did not suggest that there was one. I merely drew attention to the argument of the hon. Member for Wavertree in December 1980 against the increase from £25,000 to £37,500. He complained about the way in which increasing the upper limit would have an effect on lending in inner city areas and on cheap property and en passant he protested about the societies' red-lining activities.

Mr. Eric Cockeram (Ludlow)

The alleged red-lining to which the hon. Gentleman refers is one of the myths that is perpetuated, but it is not borne out by the facts, as was amply demonstrated in the riots of last year in both Toxteth and Brixton when societies were shown to be lending on many properties in those areas. It is a practice that does not exist, but we are constantly hearing references to it. The local authorities on Merseyside accept that it does not apply in their areas.

Mr. Straw

The hon. Gentleman represents a constituency in the Merseyside area that is Conservative and he had better take up the argument with his hon. Friend the Member for Wavertree, who represents a Conservative constituency on Merseyside, who says that the order provides further evidence that red-lining exists. I know that the societies have changed their attitudes, but my experience in the DoE and as the candidate and Member for Blackburn is that societies red-line. I was able to produce to them chapter and verse the practices that were being implemented in the Blackburn area three and four years ago. We know that the societies red-lined in the old days. They have changed their approach only because of the pressure that has been exerted from outside.

Mr. Bruce-Gardyne

The hon. Gentleman has twice reiterated his allegation that the societies are indulging in what he describes as red-lining. My hon. Friend the Member for Ludlow (Mr. Cockerham), who has considerable experience in these matters, put the kybosh on that. I still do not understand the connection between what the hon. Gentleman describes as red-lining and the special advances that we are discussing.

Mr. Straw

I repeat for the hon. Gentleman's benefit that I have never suggested that there is a direct connection between these two factors. I was repeating what the hon. Member for Wavertree had said about red-lining in condemning the Government's proposal to increase the limit from £25,000 to £37,500. However, I assert that increasing the limit in this way is bound to have an effect on the societies' ability to lend at the lower end of the market. There can be no doubt about that.

We have heard no justification for this massive increase in the upper limit of special advances. Building societies have extensive tax concessions from the House in order to serve the social purpose of ensuring that the overwhelming bulk of their funds goes towards owner-occupation. They are not there to enter into loans on office property or other speculative ventures. The duty of the House is to ensure that they meet their social obligations, and that is why Labour Members oppose the measure.

1.15 am

Mr. Eric Cockeram (Ludlow)

I support the proposal in the order for the reasons that were fully explained by my right hon. and learned Friend the Chancellor of the Exchequer in a paper that he delivered to the Building Societies Conference last May. The need for a revision of the figure in the light of the competition that the building societies are facing from the banks was fully covered on that occasion.

Before I go any further, I should declare an interest. I apologise for the fact that I did not do so at the outset. I am a director of the Midshires Building Society.

There is a basic defect in the administration of special advances. As has been explained by the Economic Secretary, they are limited to 10 per cent. of the advances of any one society in any one financial year. Very rarely does any society get anywhere near that figure. Last year the total was only 1.5 per cent. overall.

While most building societies run their financial year on a calendar basis from 1 January, they obviously do not know in the early part of the year how much money they will be able to lend during the course of it. Economic conditions can change. Financial crises more often than not take place in the autumn. There have been big jumps in the minimum lending rate in the past in the autumn. That all has its effect on building society mortgages.

The conclusion to be drawn from that is that building societies do not know until about October/November what their total mortgage advances might be in any one year. Consequently, they must be exceedingly cautious in the early part of the year in granting any special advances in case they lend their estimated total mortgage advances in the year and then find, because of changed economic circumstances in the latter part of the year, that they are nowhere near that estimate.

Total building society advances in any one year can vary greatly. In one year a building society can lend three times what was lent in the preceding year or will be lent in the succeeding year. Therefore, it is not until the autumn that a building society whose financial year ends on 31 December, as the majority do, has any idea of its total advances in a year.

This cumbersome procedure, laying down a maximum of 10 per cent. in any one year, introduces considerable administrative problems for building societies. It also introduces anomalies in that it is easier to get a special advance in November or December than it is in January or February.

That administrative difficulty does not arise with other financial institutions lending on mortgage, such as clearing banks or insurance companies.

I hope that the Economic Secretary will take the problem on board and soon introduce a revised formula which is based not on a percentage of the annual mortgages in any one year, but on a percentage of a building society's total mortgages outstanding. I do not suggest that the figures should be 10 per cent., 7.5 per cent. or even 5 per cent. Whatever the percentage, there would be some certainly to enable a building society to know what it could lend in a year. That would allow it to spread lending throughout the year rather than to have a famine at the beginning of the financial year and a feast at the end. That is in nobody's interest.

As the Economic Secretary explained, a number of orders have varied the ceiling. One of the objects of the large jump—the Government do not deny that it is a large jump—is to ensure that the House does not have to consider the matter again in the next year or two, perhaps not for five or more years. That makes sense. An 80 per cent. mortgage of £40,000, on a £50,000 house, for example, is not extraordinary these days. The average price of a house is about £25,000. A £50,000 house is worth twice the average. A person earning twice or two-and-a-half times the average wage seeking an 80 per cent. mortgage is not extraordinary. Today such a person would be forced to go to a bank rather than a building society because of the £37,500 ceiling. That is wrong.

Labour Members should be reminded that the tax concession limit of £25,000 remains. It has nothing to do with the new figure. Allegations that this is a trough into which tax avoiders are pushing their snouts are unjustified. The mortgage interest allowable for tax is not affected.

The order should be approved, but I hope that the Government will accept that this antique form of controlling the limit, based on an annual figure which is not known until the eleventh or twelth month of the financial year, is an inefficient way to control the ceiling. I hope that it will be adjusted to a lower figure, fixed at a known percentage of the total advances outstanding.

1.27 am

Mr. Ken Weetch (Ipswich)

The Government's intention has been evident for some time. It was first signalled in the Chancellor of the Exchequer's remarkable speech to the Building Societies Association on 8 May. The House should not approve the order, because there is no good reason for an increase of the magnitude proposed.

There is no economic justification for the order. The Economic Secretary's case was the worst building society argument that I have heard in the House. A rise from £37,500 to £60,000 is proposed. That is a 60 per cent. rise. In November 1979 the limit went from £20,000 to £25,000. That was a 25 per cent. increase. In December 1980 the limit went from £25,000 to £37,500—a 50 per cent increase. We now have a 60 per cent. increase. The property market has not moved in the same way. In 1981 there was no increase in house prices to speak of. We shall be lucky, or unlucky, as the case may be, if there is an increase of 10 per cent. in 1982. There is no case for the increase, even on the Building Societies Association's figures.

In 1960 the special advance limit was £5,000 and the average price of a house was £2,530. The ratio of the special advance limit to the average house prices was 1:1.98. In 1982, with a special advance limit, if the order is passed, of £60,000, and the average house costing £25,000, the ratio will go to 1:2.40. If the ratio had gone in the other direction there might have been a case for the order, but on the present figures there is none.

Mr. Bruce-Gardyne

To reinforce his argument, will the hon. Gentleman draw attention to the part of the 1960 Act which explains that the basis of the special advance limit is related to a ratio between house purchases and the point at which the limit is set?

Mr. Weetch

As far as I am aware, there is no connection between the two in the Building Societies Act 1962. My point is that there is no economic argument for the increase. That is my minor argument.

I come now to my major argument. The second reason for the order is to give the building societies more competitive flexibility with the banks, which operate within no special limits. That is the unvarnished argument that has been advanced. It is a dangerous half truth. A half truth is worse than no truth at all.

The banks are not affected by the special financial constraint of the Building Societies Act 1962, but they are affected by others that are not imposed on the building societies. The Consumer Credit Act 1974 is one. It requires the banks to quote the true rate of interest on a mortgage. They must abide by a calculation that is known as the APR. They must conform to the truth in lending, as provided for in the Act. Building societies do not. They can and do quote rates which, in many respects, are misleading. That is so because when building societies quote rates of interest on a mortgage they are not required to reflect the capital repayment that must be made during the year. The banks must do so, and when they advertise the rate of interst on mortgages they do so in a way that gives them a competitive disadvantage.

At present, some banks have a published interest rate of 13¾ per cent. The building society rate is 13½ per cent. But, on the terms of the Consumer Credit Act, the true rates of interest, according to the APR, are exactly the same. The banks, which now take 25 per cent. of the mortgage market are labouring under a substantial disadvantage.

When one discusses the constraints on building societies, one must examine the overall competitive circumstances, which are much more complicated. The building societies pay 40 per cent. corporation tax. The banks pay 52 per cent. Building societies can raise money more cheaply because of their composite tax arrangements. The banks cannot do that. The competitive position is multi-sided and highly complex. Therefore, to justify the order by asserting an elimination of the competitive disadvantage of building societies is, I suggest, a flagrant abuse of argument.

Mr. Peter Fry (Wellingborough)

I have been following the horn. Gentleman's argument with great interest. He is saying, in effect, that there are constraints upon the banks that do not apply to building societies and that the banks are in fact suffering a disadvantage. Yet he has given figures showing that the banks have greatly increased their share of the mortgage market. That seems to argue against his own line of thought. Is he suggesting that there should be more constraints on building societies? If so, presumably they would then lend less, so what would they do with the money from their investors?

Mr. Weetch

I can answer that point directly. I am arguing that we must look at the competitive position as a whole. It is true that the banks have made great strides forward and have taken 25 per cent. of the mortgage market, but that is because they have approached that market in an extremely efficient way and have provided much-needed competition in this area. Moreover, if the banks laboured under fewer constraints they would take an even bigger percentage of the mortgage market, and I look forward to their doing so.

The third reason why I oppose the order is my most serious objection. Special advances, which are the subject of the order, are inadequately monitored by the Treasury to prevent inaccuracies, misinformation and opportunities for abuse. The £60,000 limit is very high. It has been explained away by the argument that instead of the building societies having to come to the House for increases in dribs and drabs we should agree a limit of £60,000 now so that they will not have to come back to us for a few years.

I take the opposite view. Until monitoring procedures are tightened up, the more often the building societies have to come to Parliament for scrutiny of these special advances, the better, because there is no adequate scrutiny in any other quarter. I shall explain in detail what I mean by that.

Special advances are of two kinds. The first is to individuals. This is where the figure of £60,000 conies in. The second is to corporate bodies, a corporate body being an artificial person defined legally. The advances are different in nature—first, according to the amount, and, secondly, according to the character of the recipient Both special advances must be declared on form AR11, which is the main financial statement of a building society in the course of the year.

What is not known is that most building societies do riot present that main financial document in any shape or form for scrutiny at their annual general meetings. Thus, if I went to my building society's AGM wishing to ask the most important questions about the accounts, the document would not be there. Moreover, as the financial year of a building society is the calendar year and the annual general meeting is held in, say, the following April, members cannot ask questions at the meeting because the AR11 for the year in question is not available. The questions have to wait until the following annual general meeting, when the main financial document will be two years out of date.

That is no accident. It is deliberate manipulation so that the information is kept from the body of the membership to prevent them from asking questions at the appropriate time. I have long been convinced of that. By the time the member asks questions, even if he knows that the AR11 is available—though no one tells him that it is—he is labouring under a great disadvantage.

It is also the case, as I have found from specific instances that I have researched, that corporate special advances stated in the AR11 go through the Treasury's monitoring procedures on the nod. I am convinced of that. The public have no safety net in the Treasury. I give a recent example by referring to that bastion of English democracy, the Anglia Building Society. Purely by chance my research assistant recently discovered that the Anglia Building Society advances return was inaccurate. We have looked at only one building society, because I do not have the resources at my disposal to do otherwise, and there are about 250 building societies.

In 1981 there were 15 corporate special advances amounting to £749,664. Most of that money went to property developers or insurance brokers, but there were other weird and wonderful things listed on the AR11, including a private nursing home. I do not know how these advances are made, but I strongly suspect that they are made on an old boy network. In any case, we have a building society pattern of corporate lending under the specialised advance procedure which, by and large, comes within a framework of an incestuous old boy property network.

I guarantee that an examination of any AR11 of a building society that deals substantially in corporate advances will show that much of the money is channelled very conveniently to property developers or people in the property market who are making money out of it in some way or another.

I return to the Anglia Building Society. The information is obscure, because when the specialised advances are listed the company is not named, but the number is. That is deliberate, too, to make it more difficult for members to find out where the money is going. My research assistant looked up the numbers returned to the Treasury in 1981. One of the loans went to a numbered company that had gone bankrupt in 1968. On the surface, at least, that was odd. On further investigation the Anglia Building Society said that it had sent in the wrong number to the Treasury. The financial document was, therefore, inaccurate. I discovered what the right number was. Surprise, surprise, the advance had gone to another property company.

Two other special advances could not be found from the 1981 AR11 for the Anglia Building Society. They could not be traced in the information given by Companies House in return for the numbers. It transpired that the corporate advances related to Scottish registered companies. I do not know how the ordinary building society member fares in all this, but my research assistant was ploughing through the records for hours and found no sign that the money had gone to Scottish companies. It is not that I object to money going to Scottish companies, but there should be something in the record. I doubt whether the ordinary building society member would be successful in such researches.

Nor did the special advances section of the Anglia return reveal the fact that the chairman of the Anglia Building Society was a member of Thornton Baker nominees, to whom the Anglia board advanced £105,000 in 1979 and £100,000 in 1980. With facts such as those, I do not wonder that in recent elections to the Anglia Building Society the chairman manipulated the proxy vote so that the challenger lost the election. I do not wonder that building societies do their best to ensure that a democratic challenge from the body of the membership never succeeds. It is a pretty disgraceful and disreputable business, and the special advances section shows it up in all its murkiness.

Until a better method is found of scrutinising these special advances, the House should pass no more increase orders, because the situation is ripe for abuse, especially on the corporate side. There is a lack of proper and appropriate prudential supervision, which is highly unsatisfactory and should be remedied.

1.41 am

Mr. Peter Bottomley (Woolwich, West)

I do not intend to follow all the assertions of the hon. Member for Ipswich (Mr. Weetch). I draw his attention to the problems of lending money, which probably apply equally well to banks as to building societies.

I hope that the Building Societies Association will pay attention to the hon. Gentleman's assertions and allegations of incorrect and unhelpful completion of accounts. I would prefer the association to deal with those, rather than load too much more on the Treasury.

Mr. Cockeram

Does my hon. Friend accept, contrary to what the hon. Member for Ipswich (Mr. Weech) said, that the AR1 Is are returnable to the Chief Registrar of Friendly Societies, who monitors, checks and supervises those forms? It is not the responsibility of the Building Societies Association; it is the responsibility of a civil servant. If allegations are made that such forms are incorrectly filled in, is that not a criticism of the Civil Service for not monitoring them?

Mr. Bottomley

I am not sure whether I follow the grammar of my hon. Friend's intervention. As well as the registrar carrying out his function, I am sure that the Building Societies Association would want to satisfy itself, if no one else that the best codes of practice are being followed.

I was about to make a favourable reference to the Treasury with regard to the inquiry into Civil Service pay. According to the performance review, between 40 per cent. and 70 per cent. of staff—presumably in the Treasury, though possibly spread around the rest of the Civil Service—perform their job outstandingly or very well. I hope that the Treasury will perform in a useful way in regard to housing finance.

The fact that no good argument for raising the limit has been put forward does not mean that the limit should not be raised. One should advance a good economic argument for not raising it, and that was not done by the hon. Member for Blackburn (Mr. Straw).

We should encourage the Economic Secretary to say what he intends to do about housing finance as a whole. It is clear that raising the special advances limit to £60,000 does not affect public expenditure. What affect public expenditure is general mortgage interest relief and the way that it is distributed over the family life cycle.

If we could gear more of our housing help—the tax expenditure on mortgage interest—to the time of family formation and cut people off when they are promoted or receive pay increases, presumably through merit, and if we follow my right hon. and learned Friend the Chancellor's suggestion that there should be no pay increases—which I fully support—we could ask, "What are the economic bases for mortgage interest relief at twice the rate, if not more, that we allow for life insurance?" Is there economic value in having a larger mortgage, at least up to the £25,000 limit, instead of insuring one's life? Is it more valuable to increase one's mortgage from the average first figure of £12,000 to £25,000 if one's salary doubles? There is no economic advantage in that and I am sure that my hon. Friend would agree that people should put their money into business and start to create jobs, make profits and pay tax.

Perhaps we could open up this matter and examine housing financial help over the family life cycle, concentrate on family formation, reduce the demand for new council homes for young families and help to get the economy on the move. I hope that my hon. Friend will accept my gentle support for his order, but he must put on his thinking cap, come out into the open and say the sort of things that are politically unacceptable.

Sir John Hoskyns asked whether we should do something about mortgage interest relief. The economic answer is that we should. My hon. Friend probably agrees with that, but he is not allowed to say so. As a PPS, perhaps I am not allowed to say so either, but, as I support the Government on the matter, I wish to raise it before they propose to raise the £25,000 limit. It would be totally wrong to do that and it might even tempt me to vote against them, which I have promised not to do, at least in the foreseeable future.

I hope that the Government will take what I say seriously. I know that the best way to keep a secret is to say something on the Floor of the House at 1.47 am, but, if the Government examine the economic impact of tax expenditure and address it to the family life cycle, I should be happy. They could go a stage further and take up the suggestion of Family Forum—an organisation that brings together many national voluntary organisations concerned with family policy—consider taxes and benefits over the family life cycle, publish a Green Paper that examines the issues and put them on the political agenda.

Not only the directors of building societies and those who are not keen on the way that they are run, but most of the people in the country could be involved. We would achieve greater economic success, be able to give more help to those in housing need and stop giving help to those who do not have housing needs but who may wish to obtain mortgage interest relief on a special advance of up to £60,000.

1.48 am

Mr. Jim Craigen (Glasgow, Maryhill)

The hon. Member for Woolwich, West (Mr. Bottomley) ended on an interesting point. I also believe that there are better times than 2 am to be discussing such an order. That is what I believed until I heard the Economic Secretary to the Treasury, when I realised that my hon. Friend the Member for Bakckburn (Mr. Straw) had done us a favour.

I served on the Statutory Instruments Committee on the two previous occasions when the amount was uprated. The first time I was staggered that it was being increased by 25 per cent., but last year we increased it by 50 per cent. Now the Economic Secretary tells us that he will increase it by 60 per cent. With great subtlety, he told us that it is a new method of public expenditure cuts and a means of saving parliamentary time. Presumably it will also save five Treasury people from having to sit in the box at 2 am.

However, as my hon. Friend the Member for Ipswich (Mr. Weetch) said, there is a need for constant scrutiny of and vigilance over the activities of the building societies. It is important that we should have these annual reviews.

The way the Government bring out figures of 60 per cent. when it suits them, and the fact that they are not in favour of the indexation of unemployment benefit or decent pay increases for health workers is inconsistent. However, we live in inconsistent times with this Government.

Mr. Peter Bottomley

The hon. Gentleman makes a useful point. His strictures about the Government may or may not be correct. They certainly apply to the National Union of Mineworkers which argues that health workers should get a 12 per cent. pay increase and then immediately puts in a pay claim that is three times larger.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I hope that the hon. Gentleman will not follow that point. It is well wide of the order.

Mr. Craigen

It is too early in the morning for me. I ask the Economic Secretary what I asked the Financial Secretary the last time we uprated the order. How many building societies are crashing against the £37,500 ceiling to keep within the 10 per cent. limit? On the last occasion we uprated the order, few building societies had a problem. If I remember correctly, there were only about half a dozen building societies in the South-East of England. The figure in all the major building societies was between 4 per cent. and 6 or 7 per cent. We are talking about a few building societies and they hardly represent the building society movement.

My hon. Friend the Member for Ipswich referred to competition with the banks. The way that the Government appear to be moving distorts the purpose of the building societies, in the longer term. I understood that the primary object of the building societies was to fulfil a social need. They are now turning increasingly to commercial purposes. That will hardly help home ownership throughout the country. I assure the Economic Secretary that the majority of constituents that we represent are not looking for—much less receiving—mortgages of £60,000.

How many building societies are up against the current limit? My hon. Friend the Member for Ipswich is a scourge of the secret world of the building societies. He spoke about the way these matters are monitored. I do not intend to follow him into the intricacies of the Anglia Building Society. I am glad that he did not take exception to money moving north of the border to help in Scotland.

I hope that the chief registrar will also look at indexation in respect of industrial and provident societies. There is sometimes an inconsistency in their upratings.

If the object of the original legislation was to contain the risks and to avoid what happened in the early sixties, the Government's proposed substantial uprating is nonsense. I refer the Economic Secretary to the question that I raised with him in April about the national scope and character of building societies. I suggested that he ask the registrar to establish a working party to make recommendations about appropriate methods of control by shareholders in such societies to ensure more effective control by investors.

The Minister was good enough to say that these points would be borne in mind. When do the Government intend to bring forward substantial legislation covering the operation of building societies? This will be increasingly important. The more that it appears that building societies are to be in competition, if not at loggerheads, with the banks, the more necessary it is that we should reassess the social purpose that now seems to be diminishing in the building society movement.

1.56 am

Mr. Peter Fry (Wellingborough)

I had no intention of taking part in the debate until I listened with incredulity to the speech by my hon. Friend the Member for Woolwich, West (Mr. Bottomley) and to the speeches of some Labour Members.

My hon. Friend has asked the Economic Secretary to listen to a certain type of argument. I beseech him not to listen to it. I do not know what section of the Conservative Party my hon. Friend represents, but it is not the same section that I have represented for 12 years, nor that which the bulk of my colleagues represent. To suggest that middle-aged, or slightly older men do not need mortgage relief—that was the tenor of what my hon. Friend was saying—would be not only unfair on middle-aged people, but political suicide. Even the Labour Party would not go as far as my hon. Friend.

Mr. Deputy Speaker

Order. The hon. Member must confine himself to the merits of the proposed changes contained in the order and he is moving very wide of that.

Mr. Fry

I was merely attempting to answer the arguments of my hon. Friend, but I think that I have made my point.

I sympathised with the hon. Member for Ipswich (Mr. Weetch) and his criticisms of many boards of directors of building societies. He was commending the banks for their competition over loans for house purchase. However, his hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) seemed to argue that competition was a bad thing. He argued that building societies were there for a social purpose and should not be going into commercial lending, and expanding their activities.

However, have not the consumers benefited from the extra competition between the banks and the building societies? Does the competition not help the potential house purchaser in the long run? Surely one of the merits of the order—I do not have particularly strong views about it—is that it attempts to free the building societies from a restriction. We shall all benefit from greater competition because that will release more of the energies, and encourage more of the investment, that we want on both sides of the House.

Mr. Craigen

I should like to help the consumer, but I feel that the conditions under which the building societies are operating might not do that.

Mr. Fry

I accept that.

1.58 am

Mr. Bruce-Gardyne

We have had an interesting, wide-ranging and valuable debate on the order. I am reluctant to comment on the suggestions made by my hon. Friend the Member for Woolwich, West (Mr. Bottomley) if only because I should not wish to be lynched by my hon. Friend the Member for Wellingborough (Mr. Fry) for so doing. All that I can say to my hon. Friend the Member for Woolwich, West is that our party has always believed, and will continue to believe, in the virtues of a property-owning democracy. That is a principle to which I am sure both my hon. Friends would subscribe strongly.

Mr. Peter Bottomley

I agree with that, and I only wish that my hon. Friend the Member for Wellingborough (Mr. Fry) had paid as much attention on the point on which he agreed with me as he did to the point on which he disagreed. I am merely asking the Government to look into the stage in life at which that help should be concentrated and into whether it is right to give twice as much help to mortgages as we do to life insurance, which is just as important.

Mr. Bruce-Gardyne

I should be ill-advised to proceed further down that line. I take note of what my hon. Friend says. These are interesting suggestions, which we shall need to consider with care. To go further than that might land me in trouble, and I always want to avoid trouble at this hour of the morning.

I thank the hon. Member for Glasgow, Maryhill (Mr. Craigen) for drawing attention to a justification for the order which I confess that I had not thought of—that we should be saving public expenditure. As he knows, that matter is always close to my thoughts. I am very grateful to him for reminding the House of that valuable consequence of the proposition before the House, which is that we should pass an order to exonerate the House from the need to consider these matters for several years. I shall come back later to what the hon. Member said about building societies' legislation. It was the marginally more substantial part of his argument.

First, however, I want to comment on what was said by the hon. Member for Ipswich (Mr. Weetch). He takes a close interest in these matters and has followed with particular care the affairs of the Anglia Building Society. He has built some wide propositions on the rather narrow base of particular errors which have been established in the returns of that building society. He advanced the proposition that building societies in general were engaged in highly speculative investment in propery companies, and so on, and were using the special advances for that purpose. Perhaps he could give us chapter and verse to sustain that proposition. I have a feeling that he is generalising from a very narrow base.

I want to put the hon. Member for Ipswich right on one matter. My hon. Friend the Member for Ludlow (Mr. Cockeram) rightly intervened to point out that he was wrong when he talked about scrutiny by the Treasury. There is no question of scrutiny by the Treasury. That is not the statutory responsibility of the Treasury. It is the statutory responsibility of the Chief Registrar of Friendly Societies, and he has the authority to scrutinise the affairs of building societies.

Mr. Weetch

I understand that it is the responsibility of the registrar to scrutinise the financial documents sent to him by building societies. However, is it not true that the Treasury bears the political responsibility at the end of the day? When I or anyone else asks questions in the House about building societies, the Treasury answers. Therefore, the ultimate political responsibility lies with the hon. Gentleman's Department.

Mr. Bruce-Gardyne

It is, of course, true that my right hon. and learned Friend the Chancellor of the Exchequer and I are answerable for the affairs of the building societies in so far as they properly come under the scrutiny of this House, and of course it is true that legislation is the responsibility of the Treasury.

That brings me to the question put to me by the hon. Member for Maryhill about legislation. We accept that some time has elapsed since the last building societies legislation. We accept that there have been substantial changes in the environment in which the building societies have to operate and that there are anxieties about some aspects of the functioning of the building societies. They are not always those that attract headlines in the press. We also have to consider the wider implications of the evolution of the building societies in competition with the banks and their corporate structure.

It may be that in the foreseeable future those will be appropriate subjects for legislation, but I have to tell the hon. Gentleman that I can see no prospect of a slot for such legislation during the lifetime of the present Parliament. There is however, a real prospect that the next Conservative Government after the general election will look seriously at the possibility of legislation. We shall also consider the case for legislation to deal with some of the matters that the hon. Member for Ipswich has raised on this and other occasions.

Mr. Craigen

Is it really because of the strictures of the Leader of the House rather than the desire of the Treasury that there will be no time during the current Parliament for such legislation?

Mr. Bruce-Gardyne

The hon. Gentleman probably knows the answer to that question as well as I do. We have a full legislative programme before us in the next year of Parliament and quite enough to occupy us until the next election in 18 months time or whenever it may come. It would be wrong to encourage the House to expect that there will be a slot for legislation in the present Parliament, but these are matters that we shall carefully consider early in the life of the Conservative Administration after the next general election.

I turn now to one or two of the specific points that were raised by the hon. Member for Ipswich. Some of his more generalised strictures could benefit from some substantiating evidence, but he had a fair argument when he referred to the impact on the banks of the truth of lending provisions of the Consumer Credit Act. It is a fair point that, as the building societies and the banks move more and more into competition, we shall have to consider whether it is not appropriate that similar rules should apply to the building societies. However, I do not believe that that can in any way be regarded as on all fours with the restriction which is the subject of the order before the House today and which does not apply to the banks and has a narrow but dramatic impact on the lending activities of the building societies. I shall come to that point in a moment.

The hon. Gentleman asked about the availablility of the form AR11. As a student of these matters, he knows that under section 88(4) of the Building Societies Act 1962 a society is not obliged to furnish the return to a member until the date of the annual general meeting. Under section 88(1) the AR11 must be returned to the registrar within the first three months of each financial year. It is then available for public inspection at the registry on payment of the appropriate fee. We shall have to look at those markets if there is a slot for legislation in the next Parliament My hon. Friend the Member for Ludlow made an interesting point about the impact of the 10 per cent. annual limit on advances on the structure of advances throughout the year, but his suggestion, too, could be put into effect only in future legislation. It may raise complications, but I agree that we should look at it when we consider legislation in the next Parliament. I cannot promise my hon. Friend action before then.

The crux of the matter is the suggestion that by approving the order we shall be pushing the building societies away from the lower end of the market and towards the luxury bracket. There were occasions when the hon. Member for Blackburn (Mr. Straw) sounded like the sort of critic who writes a review of a play without seeing it. A number of the arguments that the hon. Gentleman attributed to me were not those that I had advanced, but I leave that aside. The picture that the hon. Gentleman painted of building societies being pushed up market by the increase in the special advances Emit is a travesty of the facts. Special advances accounted for only 1.5 per cent. of all advances last year.

In addition, building societies are not short of liquidity. Their liquidity ratios are high. They are not suffering from an acute need to ration their mortgage activities. The increase in the order, which reflects no more than the sensible limit for prudential considerations, cannot have any impact on borrowing at the lower end of the market.

Mr. Straw

There is a low demand for advances, but when demand firms up the availability of funds at the upper end of the market will surely have an effect on the lower end. The hon. Gentleman believes in the crowding-out theory.

Secondly, if the increase will have no effect, why are the Government wasting the House's time by proposing that the limit be increased from £37,500 to £60,000? Why do it if it is not to have an effect?

Mr. Bruce-Gardyne

There is a simple answer to the hon. Gentleman. It is not true that there is a shortage of demand. The liquidity ratios of building societies are high. That is largely because we have entered into an era of much fiercer competition between the banks and the building societies. Building societies are battling for a market share. The beneficiaries are the mortgagors. It is right that they should be.

There is no threat to the availability of mortgages at the lower end of the market. Special advances have little bearing upon total building society advances. The argument of crowding-out could not and does not arise. There is nothing remotely inconsistent between that and the proposition that I am submitting to the House that we should increase the limit to £60,000.

I am not suggesting for one moment that the present limit involves a substantial diversion of building society resources. It plainly does not. I am suggesting that by increasing the limit to £60,000 we will eliminate a narrow area of difficulty for one or two societies and ensure that we do not have to return to the House in 18 months' time to repeat the exercise. That would be pointless.

Mr. Craigen

We are spending all this time and public expenditure debating what the Economic Secretary tells us is negligible and helps only one or two societies.

Mr. Bruce-Gardyne

I am grateful to the hon. Gentleman for making precisely my point. By accepting the order we shall be able to ensure that the House will not be submitted to this experience and that public expenditure will be saved in future years. On prudential grounds there is every reason to increase the limit. In circumstances where building societies are required to compete with banks which do not face such a restriction, there is every reason to commend the order to the House, and I do so.

Question put and agreed to.

Resolved, That the draft Building Societies (Special Advances) Order 1982, which was laid before this House on 22 June, be approved.

Mr. Peter Bottomley

On a point of order, Mr. Deputy Speaker. A few minutes ago the hon. Member for Blackburn (Mr. Straw) made a remark that might have been taken as referring to one of my hon. Friends. I am sure that he would wish to withdraw any personal imputation against any hon. Member.

Mr. Straw

Indeed, I would withdraw any personal imputation that may have been read into what I said.