HC Deb 08 March 1984 vol 55 cc971-2
1. Mr. Ottaway

asked the Chancellor of the Exchequer if he will estimate the annual saving to the Treasury if the building societies lending rate is dropped by 1 per cent. per annum.

The Economic Secretary to the Treasury (Mr. Ian Stewart)

A reduction in the building societies mortgage interest rate would reduce the cost of tax relief for mortgage interest by approximately £180 million, but this would be largely offset by the reduced tax yield from interest paid to investors if deposit rates were also lowered.

Mr. Ottaway

I am obliged to my hon. Friend for that answer. Does he agree that building societies interest rates are too high? Does he further agree that the arbitrary way in which building societies impose their policy, which is dictated by the number of people who walk through the doors of building society offices, affords little protection to borrowers and is dictated by the building societies cartel?

Mr. Stewart

It is for the building societies to decide how they determine their lending rates, but there are hopeful signs that there may be a reduction. I understand that they will meet on 16 March after the Budget to consider a decision. I am sure that if the societies decide to reduce interest rates, that will be widely welcomed by all those with mortgages.

Mr. Weetch

Does the hon. Gentleman agree that if the lending rate falls by 1 per cent. there will be an immediate effect on the investment rate? Does he agree also that the Government's arrangement with the building societes whereby they pay a composite rate of tax is inequitable for people on low incomes, who pay no tax? If he were to extend this composite system to the banks, would that not compound the inequity? Does he finally agree that if the only alternative to the payment of gross interest that he leaves open is national savings, this is political sharp practice?

Mr. Stewart

The building societies composite rate has been in place for many years, and a large number of tax payers and non-tax payers have deposited money with building societies during that period. If there were a reduction in the lending rates of societies, it is expected that there would be a reduction in deposit rates also, but that is the normal pattern of building societies business.

Mr. McCrindle

As my hon. Friend's reply underlines the importance of tax relief to those who are purchasing their properties through building societies, will he urge upon his right hon. Friend the Chancellor of the Exchequer the great importance, in the development of thrift through house purchase, of retaining the present structure of tax relief to borrowers, and hasten very slowly in any movement which might have been implied in the press over the last few days towards its termination?

Mr. Stewart

I am sure that my right hon. Friend heard the comments of my hon. Friend as well as I did.

Mr. Wrigglesworth

Does the Minister accept that the changes which the Government have recently announced in the tax treatment of the gilt-edged stock of the building societies are likely to have delayed a decrease in the lending rate to mortgage holders? Why did the Government not come to the House before making that statement—and, indeed, the statement on changes in taxes on banks—and inform the House of what was to be done, or, indeed, leave it to the Budget? Does this not show a degree of high-handedness that is rather like the actions of an elective dictatorship?

Mr. Stewart

No, the hon. Gentleman is mistaken. It is not a budgetary matter to apply a tax that already exists. The question is only whether a tax should or should not be applied, and the legal advice received, which was unequivocal, was that such a tax should have been applied. It is also proper that once such a decision is made it should be implemented without delay.