§ 4.22 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth) rose to move, That the draft order laid before the House on 18th November be approved. [2nd Report from the Joint Committee.]
§ The noble Lord said: My Lords, this order withdraws the exemption from the Restrictive Trade Practices Act of certain agreements to which the parties are building societies or building societies together with the Treasury. The agreements concerned are those relating to the raising of funds or the making of loans or to the rates of interest charged to borrowers or to be paid to shareholders or depositors.
§ The main practical effect of the order will be to require that existing and future restrictive agreements between building societies about the rates of interest charged or to be paid to borrowers or investors must be furnished to the Office of Fair Trading and entered upon a register. The Director General of Fair Trading will then consider whether the restrictions in those agreements are of such significance as to call for investigation by the Restrictive Practices Court. If there are no significant restrictions, the Secretary of State, acting on a representation from the Director General, can give a direction that the agreement need not be referred to the court. Otherwise, unless the agreement is terminated or the restriction in it is abandoned, it must be referred to the court for judgment as to whether or not the restrictions are contrary to the public interest.1095
§ The Restrictive Trade Practices Act has applied in this way to interest rate agreements between banks in Great Britain since services generally were brought within the scope of the Act in 1976. The Act was extended to Northern Ireland banks at the end of 1985. The decision not to apply similar rules to interest rate agreements between building societies was taken in 1976 when building society lending was subject to a system of guidelines. These guidelines were agreed between the Government and the Building Societies Association and they were implemented through agreements between the societies.
§ With the discontinuation of the guidelines system in 1980, the original justification for the building societies exemption ceased to apply. The Government therefore indicated in 1984 in their Green Paper on the building societies that they proposed to withdraw the exemption when their new general legislation for building societies took effect. This in practice was the Building Societies Act 1986, which comes into force in January 1987. As the parallel exemption for agreements between the societies and the Treasury also has its origins in the discontinued guidelines system, it too has ceased to serve a useful purpose and can he withdrawn.
§ The Government believe that it is wholly appropriate that these exemptions from the Restrictive Trade Practices Act should be withdrawn at this time. The building societies in recent years have faced widespread competition from banks in the mortgage market, and the 1986 Building Societies Act, to which I have referred, will ensure that within certain constraints and subject to careful prudential supervision, the societies can return this competitive challenge in the field of unsecured lending.
§ It is appropriate therefore that the banks and the building societies in future should be subject to the same competition disciplines. Indeed, faced with an increasingly competitive environment, the building societies have already moved gradually from their traditional method of establishing interest rates. In 1983 the societies' association abandoned its longstanding practice of recommending interest rates in favour of a system of advisory rates. By 1985, the association had also ceased to publish advisory rates, and more recently it has agreed that the practice of collective discussion on interest rates followed by an agreed statement of intent should also be discontinued.
§ I might add that this order is not likely to result in any substantial change in the way that the building societies currently determine interest rates. It is a modest measure which will do no more than add the weight of restrictive trade practices legislation to the moves away from collective decision-making on interest rates which, I should add, the building societies have already made.
§ It will also help to ensure that building societies continue to set interest rates competitively to the advantage of consumers and it will place the building societies and the banks on an equal footing under existing legislation. As I say, it is a modest piece of legislation which undoubtedly will be of benefit to consumers. I beg to move.1096
§ Moved, That the draft order laid before the House on 18th November be approved. [2nd Report from the Joint Committee.]—(Lord Lucas of Chilworth.)
§ 4.30 p.m.
§ Lord McIntosh of Haringey
My Lords, I must confess that my deepest suspicions are aroused when a Government Minister says that something is a modest measure. So often have we found in the past that modest measures carry within them unexpressed or unexplained disadvantages. It is therefore necessary to go behind the very lucid explanation (for which we are most grateful) given by the noble Lord.
I had some difficulty in doing this because the Fifth Standing Committee on Statutory Instruments which considered the order reported to another place on 4th December but the minutes of the proceedings of the committee have not yet been printed. It may be my inexperience in these matters, but I should have thought that it would be desirable for the minutes of the Standing Committee to be available to Members of your Lordships' House if we are going to consider these matters with the seriousness that they deserve.
However, in the absence of that it has been necessary for me to go back to the 1976 order, to look back then at the Restrictive Trade Practices Act 1976 and to look at the Fair Trading Act 1973. I confess that I did not go back so far as the Restrictive Trade Practices Act 1956. I take from all these the lesson that our economy is moving from a manufacturing economy of goods, which is what was provided for in the 1973 Act, to very substantially a service economy, which is what was provided for in the 1976 order.
I take the point the noble Lord makes about the specific reasons which no longer apply for the exemption of building societies. I also accept his assurances that this is now necessary and desirable in order to put the building societies on the same footing as the banks, with whom, since the enactment of the Building Societies Act 1986, they are now competing. In other words, the order proposed appears to be in line with the views of those of us on this side of the House who take an interest in these matters, and we welcome it wholeheartedly.
§ Lord Lucas of Chilworth
My Lords, I am most grateful to the noble Lord, Lord McIntosh of Haringey. He will appreciate of course that minutes of Standing Committee proceedings are completely outside any area of influence that I might have, and I resist the temptation to enter into the wider debate that he just momentarily invited me to enter. I very much welcome the noble Lord's acceptance of the order as being helpful and beneficial to consumers.
§ On Question, Motion agreed to.