§ 3.55 p.m.
§ THE EARL OF DUNDEEMy Lords, I apologise for intervening before the speech of the noble Lord, Lord Shackleton, which I am greatly looking forward to, but I think it might be convenient to your Lordships if I now read the statement which is being made at this moment in another place by my right honourable friend the Chancellor of the Exchequer. My right honourable friend's statement says this:
"In opening my Budget I said that the time might soon arrive when it would be right that we should take other steps to restrain further expansion of private credit.
"One of the possibilities I had in mind was that it might become necessary to exercise some restraint on bank advances. As the House will recall, when the restrictions on bank advances were lifted in July, 1958, I announced a new arrangement under which the Bank of England would, if need be, call for Special Deposits. The Radcliffe Committee showed a preference for an alternative method but, having re-examined the matter, I have decided that this is the most convenient one.
"In the light of the figures for bank advances in recent months, and particularly those for the month ended April 20 last, the Bank of England, with my approval, have made an initial call on the London Clearing Banks and the Scottish banks to make Special Deposits with them on or before June 15 next. In the case of the London Clearing Banks the initial special deposit is to be one per cent. of each bank's total deposits; in the case of the Scottish banks whose present circumstances are different, the figure is one-half per cent.
"At the same time the Government have decided that some restraint should be placed on the growth of credit extended under hire purchase. 200 For this purpose orders have been laid to-day by my right honourable friend the President of the Board of Trade. Their purpose is to restrict the terms on which cars, wireless and television sets, kitchen equipment, furniture and a wide range of other consumer goods may be bought on hire purchase. The initial deposit will be 20 per cent., except for furniture and some other items, for which it will be 10 per cent. The normal period of repayment will be two years, except for a small number of items for which the period will be four years. Capital goods are in general excluded from the order.
"These measures, together with the Budget, will act as a check on the tendencies making for overstrain on the economy, while not preventing the continuance of sound and steady expansion within our resources."
§ 3.58 p.m.
§ LORD PETHICK-LAWRENCEMy Lords, in common with your Lordships, I have heard the statement that has been made by the Chancellor of the Exchequer and which has been repeated to your Lordships this afternoon in this House. Those of your Lordships who were here on Tuesday last will remember that I reported that there was an opinion in the City and among bankers that this action might be taken, and last Tuesday I expressed my opinion that it was a better means of restricting credit than an increase of bank rate, and of course that is my opinion at the present time. Therefore, provisionally at any rate, I welcome this decision, if it was necessary in the interests of stopping inflation to make a monetary change. I regard what the Government are doing as very much better than raising the bank rate.
I also approve that, in addition to the Special Deposits scheme of the banks, it has been decided to make other limitations with regard to hire purchase. That, I think, was also the opinion of the Radcliffe Committee. But they, of course, went further than that and suggested that some action should at the same time be taken with regard to other forms of liquidity throughout the country. The Chancellor has not seen fit to go as far as that. Perhaps he will consider in the 201 course of time whether it would be desirable to do something of that sort. But, provisionally, I support what is being done. This matter has been discussed by members of my Party in another place, and, if my recollection is right, they have given their general support to the idea. Therefore, I think I can claim to be speaking not only for myself but for my Party in giving at any rate provisional support to this proposal.
LORD REAMy Lords, may I join with the noble Lord, Lord Pethick-Lawrence, in thanking the Government for this statement, and for the moderate and careful way in which they have approached this difficult problem? I would agree with the noble Lord that the step that they propose to take in the first place with regard to deposits is much better than an increase in the bank rate, which I think would have much more of a shock result overseas than a gentle measure of this sort.
If I might say a word on the question of hire purchase, first not exactly declaring an interest but explaining that I have had an interest in hire purchase, having been for a time the chairman of an organisation which comprised all the leading motor hire purchase companies, I should like to say that in my view—and I am not speaking for these people but for myself, and from my ten years' experience of motor hire purchase—it is desirable that there should not be hire purchase without deposit. The responsibility of making a deposit, as is suggested in this statement, is a good one, morally and financially, and most reputable hire purchase companies would, I am sure, back this view.
There is a mistaken view (and it has been a sort of traditional view for far too long) that hire purchase companies make their money by claiming back goods that have not been paid for. My Lords, I have had personal experience of this business over some time, and that has shown, without a doubt, that, over the whole picture, it entails a dead loss to have to repossess articles Which have been bought on hire purchase and where the payments have not been kept up. Of course, there is the occasional case where you get back a fine article that has had a great deal of money paid upon it, and then you may or may not make a profit on it; but to work on that 202 basis is against the principles of all the best hire purchase companies. It is not done, partly from ethical reasons, but also from very practical reasons. From that point of view, therefore, I welcome this imposition of a minimum deposit of 20 per cent., which I am quite sure is a good thing.
§ LORD GREENHILLMy Lords, may I ask two questions for the purpose of elucidation? I think the statement describes this Special Deposits call as being an initial call. Are we to understand this to mean that other calls may be expected? Secondly, as to the difference between the one per cent. of the London Clearing Banks and the one-half per cent. of Scottish banks, which we are told is due to some difference in the Scottish banking system—
§ VISCOUNT ALEXANDER OF HILLSBOROUGHA difference in the circumstances.
§ LORD GREENHILL—in the circumstances, would the noble Earl be good enough to indicate, as broadly as he can, what those differences are?
§ THE EARL OF DUNDEEMy Lords, with regard to the first supplementary of the noble Lord, Lord Greenhill, as to the word "initial", No, it does not mean that further deposits are going to be called for. But, of course, it does not preclude them if it should become necessary. We shall have to see how the the situation develops. With regard to the noble Lord's second supplementary, he will find a very full description of the difference between Scottish and English banks in the Radcliffe Report, paragraphs 149 to 165, beginning at page 52. If I might perhaps mention one difference, an overdraft is more expensive in Scotland.
LORD HAWKEMy Lords, I greatly welcome the statement of my noble friend, and I think the steps might well have been taken even a month ago, perhaps. But could I ask whether the Chancellor has received any assurance from the banks that they will finance these Special Deposits from a reduction in advances, and not from further sales of gilt-edged securities?
§ THE EARL OF DUNDEEMy Lords, we are not making any conditions, but, so far as we know, it should be possible 203 for the banks to make these Special Deposits by reducing advances entirely, and we think that giving them until June 15 should make it easier to do that. Of course, we cannot accurately predict the course of events, but we think that this will not result in the total present amount of advances being reduced: nor, indeed, need it prevent the total amount of advances from continuing to increase. All that it is expected to do is to slow down the rate at which they are now increasing.
§ LORD OGMOREMy Lords, may I ask the noble Earl whether, in view of the fact that the last time there was a credit "squeeze" great hardship was caused to many small business men and professional men, he is satisfied that the same thing is not going to happen this time, and that the impact of this measure is not going to fall on the unfortunate small business man and professional man?
§ THE EARL OF DUNDEEThere is no reason, we think, to fear that sound expansion will be discouraged. Of course, individual people are sometimes asked by their banks to reduce their overdrafts, even when there is no credit restriction.
LORD HAWKEMy Lords, may I ask the noble Earl a further question? Now that the Chancellor has shown the big stick which he holds in his hand, will he see whether it is possible to come to such arrangements with the clearing banks and other financial institutions as will enable them to arrange their ratios, and so on, in advance, so that there is never again any reason to use these Special Deposits?
§ THE EARL OF DUNDEEMy Lords, I rather deprecate the use of the phrase "big stick". This is not a big stick at all: it is a reasonable measure, not intended in any way to hurt anybody, but simply to prevent Mr. Rising Price from 204 coming back into our economy again. The banks are fully aware of our intentions; of the economic policy at which we are aiming; and we are confident that they will co-operate in our aims in every way.
§ VISCOUNT ALEXANDER OF HILLSBOROUGHMy Lords, I am much obliged to the noble Earl for the care and courtesy with which he has answered the questions on this statement. It is a very important statement. My noble friend is quite right when he says that we welcome the fact that these steps have been taken, although we agree with the noble Lord, Lord Hawke, that they might have been taken earlier. At any rate, it is bringing home to the public at large how careful they have to be, in spite of Government statements that they "have never had it so good". It is rather important to keep that in mind.
I should like to ask this further question. The penultimate paragraph in regard to hire purchase says:
Capital goods are in general excluded from the order".It is fairly well known that certain classes of machinery are regarded as capital goods—they are depreciated in a business up to as long as ten or fifteen years—and some of them are paid for by instalments. Is it intended to leave out expensive lathes and machinery of that kind from any kind of hire purchase or spread-over payments?
§ THE EARL OF DUNDEEMy Lords, the three Orders which I have here and which are being laid to-day—Nos. 762, 763 and 764—contain a full list of all the goods to which these hire purchase restrictions apply. There are a great many of them. In general, as I have mentioned in the statement, our intention is to exclude capital goods. Of course, people may not always find it easy to draw the line between what are and what are not capital goods, but the list of goods is given in these Orders.