§ 3.18 p.m.
§ THE EARL OF KINNOULLMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government whether they would consider examining with the joint stock banks a two-tier rate of interest—domestic and international—to help reduce the present crippling interest rates on small businesses and house mortgages.
§ LORD JACQUESMy Lords, the Government do not consider that a two-tier system would be an appropriate solution to the present problem of high interest rates. Such a system would be difficult to administer and would not necessarily bring lower domestic interest rates. Any substantial reduction in domestic nominal interest rates must ultimately depend on moderation of the rate of inflation. But the Government have already had discussions with the building societies over the particular problems of mortgage finance.
§ THE EARL OF KINNOULLMy Lords, while thanking the noble Lord for that reply and recognising the difficulties of administration on a two-tier system, may I ask whether he is aware that the vast majority of the present bank borrowing is raised from the domestic investment market? Is he further aware that if this market could be curbed further, as it was about six months ago, it would bring 373 considerable relief to many small businesses experiencing financial strain and of course, directly to the home mortgage market rate?
§ LORD JACQUESMy Lords, the Government are aware that if this were a practical proposition it could bring that kind of relief. But there are real difficulties. A two-tier system could no doubt be introduced—it would not be impossible; but cumbersome new machinery would be required to distinguish the ownership of deposits, and without this there would be a considerable diversion of domestic deposits into instruments which were earning the international rate. I would add that the idea has been tried in some other countries but not with conspicuous success. I am not aware of any country which has tried this idea and which has the well-developed money markets that we have in this country. As for the small firms, I am advised that there is little evidence that companies, including small companies, have serious liquidity problems because of the effects of the recent restrictive working. So far, the banks have been able to meet their needs adequately, and the Government will ensure that they will continue to be able to do this.
§ THE EARL OF KINNOULLMy Lords, I am grateful to the noble Lord for that detailed reply.
§ VISCOUNT MASSEREENE AND FERRARDMy Lords, may I ask the noble Lord whether he is aware of the great hardship caused to farmers by the very high interest rates, because the majority of them have to borrow until their harvest conies in? Further, may I ask the noble Lord whether he is aware of the conditions regarding agriculture in France, where the Government give loans at very low interest to farmers? Might not Her Majesty's Government consider something similar?
§ LORD JACQUESMy Lords, the small firms have shown very great resilience in dealing with high interest rates and the present economic circumstances. From past experience I would say that farmers will prove to be even more resilient.