HL Deb 27 October 1983 vol 444 cc361-2

3.11 p.m.

Lord Diamond

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what discussions the Government have had with either the building societies or the Bank of England in the current financial year either with regard to the latter's new policy of assisting building societies to borrow funds in the City of London or with regard to building society mortgage rates generally.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, the Government have accepted the arguments put forward by the building societies that they should be able to supplement their traditional sources of finance by borrowing on a limited scale from the wholesale money markets. Legislation was accordingly introduced in the Finance Act 1983 to allow the payment of interest gross on certificates of deposit, and it is intended to make similar provision in respect of time deposits. These arrangements have featured in discussions between the Government, the Bank of England and the building societies. From time to time other matters of general interest, including mortgage rates, are also discussed, but this is on the basis that it is not the Government's policy to interfere in commercial decisions.

Lord Diamond

My Lords, I am grateful to the noble Lord for that very full and revealing Answer. May I welcome him back to the Treasury Bench, as it were, in dealing with Treasury Questions. In view of his last remarks, has his attention been drawn to a statement in The Times in July that the success of the building societies in raising new funds under powers to which the noble Lord has just referred owed much to the backing given by the Governor of the Bank of England on the assumption that he was doing so because of the interest of the Government in mortgage rates and mortgage queues? If that report is correct, does it not indicate that at all events the City takes it that, although the policy of the Government may be not to wish to interfere in market forces, indirectly they are doing so?

Lord Cockfield

My Lords, what in fact we are doing is not interfering with market forces but removing some of the obstacles to the free play of market forces. Because of certain tax limitations, the building societies were restricted in the sources of finance that they could have. The purpose of the amendment in the 1983 Finance Act was to enable them to tap a wider source of money and of savings. I would very much hope that this would be of benefit both to savers in the building societies and to house purchasers.

Lord Diamond

My Lords, may I pursue the matter with one further question? I understand that point, and I have no criticism whatever to offer of what the noble Lord has said, but may I ask him a direct question to clarify the matter? Did the Governor back the request for funds by the building societies at the behest of the Chancellor, the Treasury or the Government?

Lord Cockfield

My Lords, the noble Lord will realise that it would not be right for me to enter into the details of discussions that took place. I stated very clearly in the reply that I gave that the Government had accepted the argument put forward by the building societies. I have no reason to suppose that the move was not also welcomed by the Bank of England, which in fact acts for certain of the building societies in these matters.

Lord Hankey

My Lords, are the Government aware that the Governor of the Bank of England directly encouraged the building societies to raise funds in the market over 3½ years ago at a meeting in, I think, Eastbourne?

Lord Cockfield

My Lords, the noble Lord is perfectly correct; the Governor of the Bank of England did make a speech some years ago. I cannot from memory recall the exact date. In that speech he advocated that building societies should be given the facility to tap a wider source of savings, and this is what has now been done. I think, frankly, without going into details of what may have been said by participants to discussions, it is a move that has been generally welcomed as helpful.

Lord Bruce of Donington

My Lords, will the noble Lord in any event agree that one of the most constructive things that the Government can do at the present time, in consultation with the Bank of England, is to make a significant reduction in the present absurdly high rates of interest?

Lord Cockfield

My Lords, as the noble Lord will be aware, rates of interest have come down by seven percentage points since they reached their peak and now stand at their lowest level for five and a half years.