§ 8.53 p.m.
§ The Earl of Kinnoull
rose to ask Her Majesty's Government whether they intend to review their policy towards the increasing competition on the personal savings market and the housing market and their own requirements to raise funds on the open market.
The noble Earl said: My Lords, after the stimulating debate we have heard this afternoon, I venture briefly to bring before the House a subject, I would submit, of equal importance to the community, that of the national savings market and its direct link to housing finance. I apologise to the House immediately for persisting with this subject at such a late hour, particularly on a rail strike day, but it is my third attempt to hold this debate, and if I withdraw now I feel that other noble Lords who have kindly indicated that they wish to take part may wonder at my credibility or staying power. I should like to thank those noble Lords who indicated that they would be here, and I see are here, and particularly my noble friend, who I hope will give us a stimulating answer. I should briefly declare an interest, in that I am associated with a building society. I will not mention its name in case I am accused of advertising. I am speaking in a personal capacity and in no way is that society, or indeed the Building Societies Association, to blame for any of my remarks.
My Lords, the purpose of the Question is not just to make an idle moan to my noble friend on behalf of the building societies, who some may mistakenly believe are still the fuddy-duddy of our financial institutions. Nor is it to claim that catastrophe is just around the corner, because the January figures do not support that, as my noble friend would be quick to point out. The purpose has a serious note. It is a warning that if Government policies towards who gets what share of the national savings cake go unchecked, the result could lead to an effective destruction, I suggest, of a vehicle that has performed a magnificent service to the community over the past two centuries, has been primarily responsible for raising home ownership to 55 per cent. now in this country, and I hope higher in the future, and has been a great stabilising influence on the home mortgage market in an often highly unstable and volatile money market.
There were two clearly identifiable policy changes that the Government made in 1980 which led to the building societies being squeezed for funds. The first was the lifting of what is delicately termed the "corset" on the banks which had previously restricted their ability to attract interest bearing deposits. This led to fierce competition for deposit and savings markets, while the banks kept a canny eye on their vast pool of current account holdings, which of course was costing them nothing.
The second policy change was the Government's decision to raise part of their borrowing requirements from the national savings market—15 per cent. in 1980, rising to over 30 per cent. in 1981. Critics may ask: What was wrong with these two policy changes, which surely stimulated competition, which provided Government borrowing more cheaply, while from the January figures the building societies appear to be doing well? In my book there is indeed nothing wrong with healthy competition; it is good for the industry and usually beneficial to the consumer. For investors indeed it was 541 a boom time, if anyone had any money. The market saw a proliferation of goodies being offered. Banks offered interest on current accounts. The Government offered a series of index-linked high yield certificates, and building societies started to compete fiercely with everyone, including themselves, with a wide variety of term shares.
But to take a view on the fairness of competition between the three main parties seeking the major slice of the personal savings market, the picture, I suggest to your Lordships, is much more unbalanced. In the first place, the Government by definition are out on their own. I do not belittle their achievement in raising their huge targets, except to say that it was not cheap money. To a higher bracket taxpayer their 23rd issue certificate offered a gross return of no less than 25 per cent., a little above, I would suggest to my noble friend, market rates. How this equates in cost to a gilt placing by Government is something I hope my noble friend will indicate later on, because of course it is very relevant to Government policy on borrowing.
As to the banks versus building societies, they are of course old well-respected protagonists. The battle has indeed hotted up of late, not only for investing funds but also for the mortgage market, where the banks have made sizeable inroads. No one could argue that the mortgage market has suffered. Indeed, the borrower has gained, and this should last while funds exceed mortgage demand. On the investment side competition is more hampered, not because the building societies are afraid to compete, but because they have severe restraints within which they can operate in a now highly sophisticated market. My noble friend's department is, of course, well aware of this, and indeed new major building society legislation has been brewing for some years. It would be helpful tonight if my noble friend could tell us when this legislation is likely to emerge, and if, indeed, it is some way off, whether the Government would consider certain amendments now in order to assist the building societies.
On the figures published for the last year it may seem that building societies are holding their own on investments. In practice they were down last year on the net new money invested with them. I hope that that is not an indicator of the future, for it is vitally important that this movement is not strangled for funds in the future. In an expanding house market the requirement for funds will increase substantially as the average mortgage case increases. If at the same time industry seeks more investment funds from the banks then the pressure for mortgage business on building societies, and, indeed, the responsibility on building societies, will be that greater.
I do not cry "wolf" tonight to my noble friend, but I do seek an assurance that Her Majesty's Government are keenly aware of keeping a balance of not personally plundering the honeypot of savings market, of creating an atmosphere of fair competition, of maintaining an environment within which the building societies can continue to play a role they know best, of encouraging the further growth of home ownership.
§ 9.1 p.m.
§ Lord Cledwyn of Penrhos
My Lords, the House will 542 be grateful to the noble Earl, Lord Kinnoull, for bringing this important subject before us and for the thoughtful speech which he has just made. Indeed, his Unstarred Question opens the door to a wide-ranging debate and I wish that it had been possible for him to have made his speech rather earlier in the day so that other noble Lords could have heard his contribution and, indeed, taken part in the debate.
I have given some thought to the wording of his Unstarred Question and it seems to me that it raises three issues and I should like to deal with them as briefly as I can. The first issue is competition in the personal savings market, housing and Government borrowing. Dominating all this are the grave consequences of the Government's economic policy. While these have had effects far beyond the issues raised here, they have also been the major element in these matters, with which we are more closely concerned in the noble Earl's Unstarred Question.
Personal savings are a vital national resource which should be devoted towards the building of the nation's future. Most people save for their retirement and old age. The money they save should be used to ensure that the country can, in fact, sustain them when they reach retirement. This, in my submission, is not an unreasonable expectation. That means that personal savings should be channelled through the financial markets to some organisation which will use the funds to build our future—building societies, as the noble Earl has just said, to build houses; companies to install new machinery or buildings or the Government to provide the infrastructure to build roads, houses or provide education and training.
However, what have the Government in fact done? I do not want to introduce an unnecessarily controversial note at this time of night because it may upset noble Lords, but I am bound to make this point because it relates directly to the Unstarred Question. The first thing that the Government did was to relax exchange controls with the result that a vast amount of money flows out of the country—not even to set up new plant abroad but just to buy foreign stocks and shares. I took the view that it is extremely difficult to find justification for such a step at such a time. I am no great expert in this field, but is it not the case that the Government have further distorted the savings market by their selection of their money supply target? I think that that is a point to which the noble Lord the Minister might direct himself when he replies.
The Government's means of money supply—sterling M3—happens to cover in its counterparts some kinds of personal savings like bank deposits and exludes others like building society deposits. The result is that the Government have tried, albeit unsuccessfully, to restrain the growth of the items that lay within their own totally arbitrary definition of money. They have chosen three instruments for achieving their money supply targets—deflating the economy through reducing expenditure and raising taxes, deflating the economy by raising interest rates, and issuing new forms of national savings. They have also had a major impact on savings generally. Because personal income has been depressed through falling employment, personal savings have been themselves depressed. High and volatile interest rates have caused great instabilities in the flow of money to 543 different financial institutions, especially building societies. It is the building societies, in fact, which have suffered most.
Let us consider briefly the grim effect of this on the housing market in which the noble Lord is, I know, extremely interested. In November of last year even before the bad weather started, the number of housing completions fell to less than 13,000—the lowest number since the early fifties. In the whole of last year 199,000 homes were completed. The number of houses started—153,000—was also a record low. Then there was the appalling effect on council house building. In making their obeisance to their public sector borrowing requirement the Government have decimated the council building programme. I am bound to say that this is a matter of deep regret and sorrow to me personally. I always took the view when I was a Minister—and I had responsibility for housing in Wales for quite a time—that it was right to keep a balance as between the public contribution to the housing market and the private contribution. I took the view that 50-50 was about right. But now we have gone into some vacuum where there is great uncertainty about the future and, of course, the waiting lists are accordingly very long indeed.
The Government's policies of high interest rates have undermined the private housing market as well. Indeed, 350,000—that is, one quarter of all building workers—are now unemployed while the housing situation deteriorates. Meanwhile, we have the irony that building societies are finding it more difficult to raise money while the banks are moving more and more into the housing market. I think that that is the fact which the noble Earl recognised in his speech. Perhaps the Minister will tell how this effects that Government's monetary targets. I think that it must take them severely off course. Again, I am not an expert, and if the noble Lord, with his authority, can correct me, I shall certainly withdraw, but that is the impression I have.
The third instrument that the Government have tried to use to further their policy is the greater use of new national savings of various kinds. This is wholly to be applauded. National savings is a reliable way of securing people's savings and normally a way of ensuring that they are used for some constructive purpose which will lead to the development of the economy and the standards of our society. To what extent, however, are the present Government trying to secure national savings in the apparent belief that by funding the national debt in this way they will reduce the growth in their money supply? Yet, in spite of the considerable success of their sales of national savings, it does not seem to have helped them a great deal in their aims. The money that they are able to borrow in this way is not, tragically, going to any useful national purpose; it is going to finance unemployment. So while we can commend what the Government have done in the savings market, we can only regret their apparent reasons for doing it.
In conclusion, let me turn to another aspect. The extension of indexed "granny" bonds to a wider set of borrowers is also welcome. This comes within the noble Earl's Unstarred Question. The provision of a way of guaranteeing people's savings against the effects 544 of inflation is to be commended. Surely the aim should be to achieve a position where everyone's pension is index-linked. As the Scott Report so widely concluded, the only thing wrong with index-linked public service pensions is that they do not apply to everyone.
To see the issue as one of competition in the savings market seems to me to be misconceived. The main issue is how to encourage saving and ensure that it is put to good use. The notion of competition is somewhat misleading. The vast bulk of people's savings goes into pension funds and life assurance. I cannot see that as competition; the money is committed to those institutions. People are offered no choice. Of the rest, which goes to banks, building societies and so on, the issue of competition is again confusing. Flows to and from one kind of savings institution seem to be highly responsive to interest rate charges or the development of new instruments. But these fluctuations are not the new savings of the mass of the population; they are to an enormous extent the wealth of the men who manage their portfolios so that they can extract the last ounce of interest out of financial markets.
If I had confidence that these financial markets would serve the whole nation selflessly, I might take a modified view. But over the years they have served one section of the community very well indeed. They have done well out of the policies of the present Government with their high interest rates and abandonment of control on both domestic and overseas lending. I am not sure that this has been beneficial to the nation as a whole—to everyone. I respect the noble Earl's sincerity and the skill with which he has made his case. I think that he has made an important contribution. His knowledge, especially of the workings of the building societies, was I think very helpful to the debate. But I do not think that the Government need a new policy on competition in financial markets. What they need is an entirely new approach to saving and wealth. I do not know whether they have the vision to do what is necessary; namely, to channel the wealth of this country, including the savings of its people, into rebuilding the country, in putting its people back to work, and not to look constantly for the best return irrespective of the social values.
The people of this country have suffered a good deal in recent years and they will respond to policies which they believe to be right and, even more readily, to policies which they feel to be fair—fair to every section of the community. Until that kind of leadership is provided, I do not think that this country will make a significant advance. The manipulation of money in the markets is not something which gives them hope or confidence. I can only hope that the Government will, as the menacing clouds of a general election loom in the sky, change their course and seek to manage our affairs rather more prudently. In saying that, may I once again thank the noble Earl for giving us the opportunity to say these things.
§ 9.17 p.m.
§ Lord Hill of Luton
My Lords, without difficulty, I shall resist the temptation to follow many trails laid by the noble Lord, Lord Cledwyn, and confine myself to the subject raised by the noble Earl. Indeed, there is only one aspect of it on which I feel strongly. I do not 545 complain that competition from the banks and from national savings has come to building societies. I think that in the long-term it will have a bracing and energising effect on building societies. They cannot expect to continue without competition, and I do not in any way object to that competition.
I want to look at the particular line followed by the Treasury since it decided to finance the PSBR by national savings. Think of the number of certificate offers that are out today. I do not pretend to be comprehensive, but I know that certificate numbers 14, 16, 18, 19, 23, retirement certificates, second index-linked certificates are on offer today. I may have left some out. I admit, privately, that I have named those in which I have got a very modest portion. I know that they are still alive and receiving.
National Savings is a very strong competitor from time to time. My complaint about them by the way is that they do not tell you when in fact your particular certificate has reached the end of its earning life. I do not regard their public presentation of what they offer and the aid that they offer to those who have subscribed as particularly helpful or particularly satisfactory. But such are the tax-free interest rates offered that one has to overlook that relative inefficiency in presentation because of that tax free offer.
Bearing in mind the appeal that these certificates must make to the high taxpayer, I wonder how much tax is lost to the Exchequer by the selection of this method of attracting investment. It must be pretty big. It must be taken into account in looking at the national balance sheet that emerges from a consideration of the inflow and the outflow from such certificates. What I want particularly to do is to illustrate the way that this form of investment—of which there can be no criticism of any size—proceeds to attract money.
I have been looking at what happened in the later months last year; September, October and November. What happened as a result of the offers that were made? I will give you the offers that were put. On 7th September age restriction on purchases of second issue index-linked abolished. Previously confined to the over-50s. On 19th October maximum holding of index-linked certificates increased from £3,000 to £5,000. On 1st November National Savings Bank investment account rate increased from 13 per cent. to 14.5 per cent. That is not tax free except for the first portion of it. On 9th November new 23rd issue of conventional certificates offering 10.51 per cent. free of tax.
What happened in that corresponding period of three or four months to the net receipts of the building societies? July, £290 million; August, £244 million, not a high level but that was the kind of level before September; September, £334 million; then October, that is when the attractive pennies dropped to the investors in building societies, £154 million; in November, £65 million. In other words, the timing of these public offers seems from time to time so designed to secure a substantial fall, mostly due to withdrawals, from building societies.
It is not much to ask, but when the Treasury is considering the issue of certificates would they bear in mind that there is another form of saving which is deeply in the public interest; that of saving in building societies to make possible home ownership and, what is 546 more, for this is a newer activity, of linking with public authorities for providing the resources for public housing. This seems to me to be either thoughtless or inconsiderate.
I do not criticise their seeking this money in this way. I should be a hypocrite if I criticised the rate of interest they offered. I do not object to the competition with the banks, but I think that the Treasury should have an eye on the importance of a steady level of net inflow to building societies. So often it comes at a time when, as a result, they have substantially to reduce their commitments for some months ahead for they cannot guarantee, they cannot be sure, that after the main impact of these new issues the net income will rise. It usually rises after a while, but none can be confident it will. So the one criticism I would offer is the lack of consideration of the Treasury in the timing of its issues, bearing in mind the importance of the building society movement in the social life of this country.
§ 9.20 p.m.
§ Lord Hill of Luton
I am, too, my Lords, but I forgot to mention it; perhaps my noble friend world put in a word for me.
§ Lord Houghton of Sowerby
—as is my noble friend Lord Hill of Luton. The noble Earl, Lord Kinnoull, is chairman of a building society in which I am an investor and have been a borrower. I have an interest in other building societies, mostly on principle, not necessarily because they offer me the best opportunity of a return on my money. I have been in building societies all my life, and my father before me. When people ask me as an investor to support my society, I yield something of myself, my history and my emotions to that society, yet it is really a meaningless entity; I do not feel I belong to anything, nor do they think I belong to them.
I fear that the building societies could easily lose their way, or go the wrong way, and, when I meet my building society friends in private, they hear my point of view in shocked silence, but I will not repeat my criticisms of the building societies here tonight: as my noble friend Lord Hill once said, "not in front of the children", and I reserve my candour for more private occasions.
Homeownership is the most favourable and privileged investment today, and I need not go over the several headings of advantage in buying a house on mortgage through a building society; so many millions of people have done it and know the value of it, and I doubt whether anybody has ever regretted it. I am, however, concerned with the investor. He has not had all the consideration he should have had from the building societies and from society in general. It is the building society investor who provides the money for the favourable investment of the house-purchaser. He lends his money at the present value, it is repaid over a long period in a depreciating currency, he derives no benefit from rising property values and therefore has no hedge against inflation. The return he will get on his investment will mostly be lower than the going rate of inflation, so that he finishes up with his investment and all his 547 accumulations from it being of less value than when he started. And, if he happens to be exempt from income tax, he will suffer a discount of 26 per cent., the composite rate, from the interest earned on his investment and will be denied by law any opportunity of getting the money back from the Inland Revenue. I remember when a Labour Chancellor of the Exchequer amended the Finance Bill to stop the building society investor who was tax-exempt succeeding in court in a claim for the return of his income tax deduction. It would have ruined the whole structure of the building society arrangements with the Inland Revenue had he succeeded.
The truth of the matter is that the interests of the borrower are politics, the interests of the investor are not. An increase in the mortgage lending rate is politics, a lowering of the return on the investment is not. It takes six investors to finance one borrower, and yet the investors are regarded as incidental to the major political concern of all the parties, especially the Labour Party. The borrower must come first.
Indeed, on one occasion when the market rate of money rose, a Labour Government were so anxious on political grounds to avoid an increase in the mortgage lending rate that they came to an arrangement with the building societies that they should not put up the lending rate, and, in order that they should not feel the disadvantage of an unfavourable position in the investment market, the Government pumped money into the building societies to fill the gap. But all the investors in the building societies at that time were cheated of the market rate on their investment in order that the borrower could get lower than the going rate. That is how the borrower is treated in a political crisis, to the disadvantage of the investor. I regarded that as a quite lamentable episode.
As I have been saying for years, the unsophisticated investor in this country has been cheated ever since the war. He has been cheated by the Post Office, the Co-ops and the building societies. The poor investor has paid dearly and disproportionately high for what he values most and understands best: security and easy withdrawal. That is the clue to the investments in building societies on the part of very many people. For good measure it relieves them of being troubled by the pettifogging attentions of the income tax man. Many a time I have tried to persuade tax-exempt investors to get out of a building society and go into local authority loans at a substantially higher rate of interest, but the moment they know that the interest will be tax deducted and that they will have to get the money back from the Inland Revenue, they shy from it. However, something could be done to avoid the tax-exempt investor going to a building society rather than securing benefit elsewhere.
So I say to the building societies look after your investors; they are the grass roots and the great standby of the building society movement. And it is a movement, or it ought to be. When I hear the building Societies Association talking about "our industry", I know that they have it wrong. They are not in business, and they are not an industry. They are a financial service, and they are built upon concessions, granted to encourage thrift societies, seeking support from the working-classes in the last century. That was their foundation, and to a very large extent it is still their 548 support. They began as mutual thrift clubs, with members qualifying for loans as the common fund mounted up; and no one got a loan who was not an investor. I am glad to see that some of the building societies are returning to that first principle, as the banks are in fact doing, too, in saying, "Save first, borrow later". That is a pretty good principle, I think, on which to work.
I do not approve of building societies going from rags to riches, from the thrift club to the financial institution, without a thorough review of their role, control and management. They have ceased to be under the shareholders' control. Their boards are virtually self-appointing, self-perpetuating oligarchies. You try to get on the board of a building society and see what happens! You cannot even get hold of the names and addresses of the constituents. No, they are not banks, thay are not joint-stock companies with equity shareholders, they are not investment trusts: they are building societies, and they claim that noble and honoured name by reason of their origins and the principles upon which they first worked. Let them remember that.
Three institutions are competing for people's savings—building societies, banks and the state. Each have their claim, each their purpose. The question is: What is their purpose, their aim, and what is the relevant importance of the precedence to be given to it? Here I think my noble friend Lord Cledwyn of Penrhos dealt skilfully, with knowledge, with the question of the use of the nation's resources. After all, there is a sort of pool of disposable incomes, of money yielded up for use elsewhere. How is it to be used? We cannot afford to put everything into housing, however desirable that might be.
The reason why there is a lot of money "sloshing about" at the present time is that the banks are under-spent on their allocation for industrial investment. They are looking around for a home for it. But if the Government were in a position to stimulate industrial investment or felt the moment was right to do it by matching grants to industry alongside their own investment, the tap would be turned off by the banks overnight, because bank money would go where it is more suitable for it to be, and that is into industrial investment, where the return is over a much shorter period, generally, than investment in mortgages for housing on a 25-year term.
But it is Governments who are supposed to be in control of the national economy, not the building societies and not the banks. I know we are told, "The financial institutions rule—OK?", but they should not be doing it and most Governments make sure that they do not. There has to be some priority for the mobilisation of the nation's resources and some influence used upon the flow of funds for purposes which will suit the national interest at that particular time.
I do not think building societies have any serious immediate anxieties. I do not think that they should become rivals of the state. The size of the housing programme, the growth of the housing stock and the amount of the nation's fixed investment is to a large extent part of the wider economic management, which is what my noble friend said. I think that the building societies have been too ready to assume a sense of grievance at what the Government have been doing 549 to attract the people's savings. They may feel disappointed, but I am not sure that they have a grievance. Although they have restraints and restrictions on their ability to appeal for funds and in the use of funds, they have all the privileges that those restrictions confer on them.
If there is to be a wide expansion of the Government housing programme the building societies will come in and probably Government money as well. I think that expansion of the building societies for, as it were, self-gratification is not economically justified. I think that if the Government had deliberately minimised the capacity of the local authorities to finance house purchase, then the building societies should not feel that they are entitled to an expansion of their services in consequence. The building societies would always have considerable sums at their disposal on the maturity of mortgages and repayment of capital sums.
I, myself, think that there is no need for the building societies to get running scared of the banks. The building societies will be all right—they have been there too long—if they stick to their role. There is nothing to replace them. No Left-wing Labour Government dare talk about nationalising the building societies—not if they read the history of 1931 when Philip Snowden lost the Labour Party the election by his Post Office savings scare. That is something that no Government will put their hands on. On the contrary, they are likely to be cosseted and taken care of.
No, I hope that the ambitions of the building society directors, unrestrained by their shareholders, will not make them too big for their boots or spread their desires for financial influence and power beyond the range of their original concept and the conditions upon which they are allowed to function in a relatively privileged position in the money markets today.
§ 9.37 p.m.
§ Lord Cullen of Ashbourne
My Lords, we have had an interesting short debate on this subject which has ranged widely. I do not promise to go into all the alleys which have been opened up. My noble friend's Unstarred Question raises a number of related issues. He speaks of the Government's policy in the personal savings market on the one hand, which, of course, principally concerns the approach to national savings. He talks also of finance in the housing market—and ties this in with the whole question of the Government's funding policy.
These are large topics for a short debate. But my noble friend is, if I may say so, quite right to raise them together. It is vital to see the relationship between national savings and funding policy in general so as to understand the impact of the use of different mixes of funding instruments. But there is another aspect of this. It is important that we should encourage the habit of saving. It is not only of real value to the economy as a whole but of real value to the individual. It enables him to build up a modest amount of capital for himself and it gives him a measure of security in times of difficulty. National savings, therefore, not only help the Government: they provide a valuable service to the individual.
It may be useful if I briefly recall the principal facts about the Government's activity in the national 550 savings area over the last couple of years. In 1980–81, the Government announced a target of new inflows of £2 billion into the whole range of national savings instruments. That target was achieved—indeed, exceeded. For 1981–82 a target of £3 billion was announced in November 1980. It was later revised upwards to £3½ billion. With only a few weeks of the year remaining, it seems likely that once again the target will be reached. I understand that we are almost there at this moment.
These are large sums, and to attract them the Government have offered a wide variety of instruments to the personal saver. I do not propose to detail all the changes of the last couple of years, but the existing range of conventional and index-linked certificates, premium bonds, save-as-you-earn contracts and national savings bank accounts undoubtedly provides a number of attractive homes for personal savings, as the noble Lord, Lord Hill, made very clear to us.
For many years the market share, as it were, of national savings in the personal savings market had declined. In 1970–71, for example, 6.9 per cent. of personal sector assets were held with the Department for National Savings. The building societies accounted for 10.5 per cent. By 1979–80 these percentages had become 4.7 for the Department of National Savings and 18.2 for the building societies. And in spite of the £2 billion target the national savings share fell further in 1980–81. Figures for this year are not yet available, but even if they show a rise for national savings we shall still be a long way from the proportion DNS held until the 1970s.
What the Government have done, therefore, is not new. But what was the reason for these developments, and what effect have they had on housing finance? The principle advantage of funding the public sector borrowing requirement in this way is that it reduces the extent of the Government's reliance on the gilt-edged market, and hence eases the pressure on long-term interest rates. The reduction of interest rates is of course a major objective of policy. The high level of long-term interest rates we have seen in recent years has created a major problem for companies and has also incidentally kept companies out of the long-term debenture market.
The main reason rates have been as high as they have is that successive Governments have sold gilt-edged stock in the quantities needed to meet heavy borrowing requirements. It is important to try to reduce the pressure this puts on the long-term capital markets. The best way to do this of course is to reduce the borrowing requirement so far as is practicable, and I need not expand here on the measures the Government have taken to do so.
But another useful method is to fund the deficit, at least in part, in other markets. National savings is the most important alternative. Every pound attracted into national savings is a pound less to be borrowed in the gilt-edged market. A measure of the success of the national savings initiative is that sales of national savings have increased as a percentage of total net debt sales to the non-bank private sector from 12 per cent. in 1979–80 to a planned 35 per cent. this year.
But the Government fully recognise that they cannot allow themselves a completely free hand. The Government clearly enjoy a number of special advantages. 551 Governments must, therefore, act in this area with proper regard to the effect on their competitors. If the Government were to compete over-aggressively for funds in the personal savings market, this could have adverse consequences for building societies who are heavily dependent on this market, and through them on housing finances in general.
The Government have kept these considerations very much in mind and I do not believe that in the event higher national savings inflows have, through their impact on other savings media, damaged the housing market. An important point to note here is that 1980–81 saw a substantial improvement in the financial position of the personal sector, in contrast to the corporate sector, and particularly a sharp increase in the level of discretionary personal saving. It therefore made sense to direct the funding effort to where money was accumulating. The financial surplus of the personal sector remained at a historically high level in 1981–82. Hence the Government have been able to attract inflows into national savings on an unprecedented scale without imposing an unacceptable squeeze on the building societies. The national savings instruments have completed vigorously but not unfairly, and the building societies have remained able to attract large inflows.
The Government propose to maintain this renewed emphasis on the role of national savings. It is a natural and proper development. For some years the national savings presence in the savings market had been allowed steadily to decline: indeed it was coming to be looked on almost as a relic of the past. The Government have now, in relative terms, restored the national savings' share of the savings market to its former levels before the decline occurred.
I should like to say a few words also about the other development in the housing market in recent months —the rapid growth of lending for house purchase by the banks, and particularly by the major clearing banks. The speed at which their lending for house purchase —which has been to some extent, as my noble friend remarked, facilitated by the removal of the "corset"—has grown in the last year has been quite striking, though it is worth remembering that the level of banks' participation in the housing market is not unprecedented: their present share of mortgages outstanding is not much above the level at the end of 1973.
This development brings additional competition to the housing finance market. Greater competition means more choice for customers, but of course it does represent a challenge to the building societies. It has been encouraging to see their response. A number of leaders of the building society movement have recognised the effect of this competition in ensuring the maintenance of a keen competitive edge.
It is too early to say how the building societies will respond to the challenge, or what the shape of the housing finance market will be in the future. It may be that the trend towards mergers will continue. Perhaps there will be a degree of rationalisation. But the Government are confident that the societies will respond in the most appropriate way. It is worth noting, in fact, that the outstanding stock of building society mortgages is up 15 per cent. on a year ago. They have an impressive record of assistance to the United Kingdom 552 housing market and are certain to continue to make a major contribution to that market.
My noble friend asked me whether there was going to be legislation on the subject of building societies. As the previous Financial Secretary to the Treasury said in another place, the Government have no immediate plans to introduce legislation governing building societies. I understand that various bodies such as the Bow Group and the National Consumer Council have suggested that major legislation should be introduced governing societies to deal with such issues as their future role, their constitution, including the powers of the members, and the framework of prudential supervision. Societies are, however, facing changing times, and there is no consensus in the building society movement about the legislative changes they would like. Before seriously considering future legislation, the Government wish the public debate to continue from within, and also outside, the building society movement.
What does all this mean to the consumer? There is no doubt that the personal saver has benefited from the competition. The range of choice has clearly widened appreciably. The Department for National Savings now provides a large variety of instruments expressly designed with the interests of personal savers in mind. House purchasers, too, have benefited from the increased competition. They may pick and choose from a range of institutions offering different financing packages. There is also, in the Government's view, an overall benefit to the economy.
One of the major problems that we face is the overwhelming dominance of Government issues in the longterm capital market. Over the five years 1977 to 1981, the Government raised 90 per cent. of the long-term debt provided by the United Kingdom capital market. If the national savings initiative can help the Government reduce their dependence on that market so that there is more room for companies, it will be of general benefit.
The noble Lord, Lord Hill of Luton, chided the Treasury for their timing in their national savings instruments. I have to say to thim that these instruments have to remain competitive. The timing of changes is determined by movements in general interest rates and the savings markets. The changes in national savings instruments are not made without regard to the consequences.
The noble Lord, Lord Cledwyn, asked one or two rather difficult and technical questions, which I shall attempt to answer. The noble Lord referred to the ending of exchange controls. I suggest that that goes rather wide of the Question on the Order Paper. I would refer the noble Lord to the most recent edition of the Treasury's economic progress report, which analysed the issues in considerable detail. The noble Lord also asked about the number of houses being built. Like much of the rest of industry, house building has suffered from the recession, but there are encouraging signs for the future. The number of new buildings started increased steadily during 1981. Over the year as a whole, starts were 20 per cent. higher than in 1980 and over 120,000 new buildings were started in the year. The public expenditure plans for 1982–83 will allow local authorities to start and improve significantly more dwellings than in the current year.
I hope that I have answered all the questions I have 553 been asked, but if I have not I shall, if I may, write to noble Lords. I should like to finish by saying to my noble friend that his Question concerns whether Her Majesty's Government will review their policy in this area. I think it is clear from what I have said that, in formulating their national savings objective, the Government keep very much in mind the condition of the housing market and the other factors to which my noble friend drew attention.