§ 2.50 p.m.
§ Lord Ezra asked Her Majesty's Government:
§ Whether they regard it as a cause for concern that, according to the recently published social trends survey, household savings as a percentage of disposable income was negative in 1986 and 1987.
§ The Secretary of State for Trade and Industry (Lord Young of Graffham)My Lords, the reference in social trends is to household savings, which excludes contributions to life assurance and pension schemes. These are a very important component of personal saving. The usual definition of the savings ratio is for the personal sector and includes pension contributions. Personal savings averaged 6 per cent. of personal disposable income in 1986 and 1987. Saving by the private sector as a whole, including companies, is about one-fifth of national income, and that proportion has remained almost constant throughout the 1980s.
§ Lord EzraMy Lords, I thank the noble Lord for his elucidation of the savings problem in the private sector, but does he nevertheless agree that we are lagging far behind other developed countries in that respect and that we are now standing at a level far lower than we have in the past? Further, will he indicate whether the Government have in mind any measures for further stimulating private saving as a way of limiting the amount of excess expenditure on consumer goods?
§ Lord Young of GraffhamMy Lords, perhaps we should examine the figures. The figure quoted in the social trends survey is one which has not been used before. If we look at the normal figure, which is for personal savings, we find that, while it has tended to decline as this decade has gone on, so almost equally the figure for company savings has increased. Indeed, today the total of private savings stands at 19.9 per cent.; in 1980 it stood at 19.2 per cent.; and throughout the whole of this decade it has varied between 18.6 per cent. and 20.4 per cent.
§ As regards credit controls, if that was the matter to which the noble Lord, Lord Ezra, referred, it is quite difficult to see how they can be operated. They are easily circumvented by financial markets and they would create inefficiencies and distortions. Indeed, they would bear on only a very narrow section of domestic demand, because what is often overlooked is that expenditure on durables is only about 10 per cent. of total consumer spending.
1553§ Lord Bruce-GardyneMy Lords, in the light of the figures that my noble friend has given, what is the problem with the savings ratio in the private sector to which the noble Lord referred? In any case, is not the purpose of high interest rates to encourage saving and to discourage spending? Is that not the appropriate answer?
§ Lord Young of GraffhamMy Lords, I am grateful to my noble friend Lord Bruce-Gardyne. Of course, my job is to answer the questions and not to ask them.
Lord Bruce of DoningtonMy Lords, is not the noble Lord a little concerned about the matter? The Question asked by the noble Lord, Lord Ezra, was about personal savings as distinct from the accumulation of corporate funds? Does not the considerable expansion of personal credit, in its accepted sense, accompanied by a decline in the public sector borrowing requirement, mean that all we are doing is encouraging consumption, especially of subsidised imports, and discouraging much needed public expenditure on the infrastructure?
§ Lord Young of GraffhamMy Lords, the noble Lord, Lord Bruce of Donington, is of course well aware that government expenditure rises from year to year, although as a percentage of GDP it is now happily falling. He does not take into account the fact that the vast bulk of personal borrowing, which is where the credit rise is, is in the form of mortgages. Mortgages represented over 80 per cent. of the household sector debt at the end of the second quarter of 1988. Mortgage lending represents about one half of all bank and building society lending. Consumer credit represents only some 15 per cent. and credit cards less than 5 per cent. I shall repeat the Answer that I gave to the noble Lord, Lord Ezra. Expenditure on imported durables is about one-tenth of consumer spending.
§ Lord Harmar-NichollsMy Lords, is my noble friend aware that while one would not wish to disagree with his answers, they do not seem to face up to the fact that people are spending instead of saving when the balance of trade figures show that they should be saving? is there no tangible way, in addition to interest rates, by which we can encourage people to become savers again rather than damaging spenders, as the figures seem to show?
§ Lord Young of GraffhamMy Lords, I am grateful to my noble friend for offering me help in answering the Question; but I fear that I cannot agree with him. The imbalance in the balance of payment figures shows that there is enormous expenditure on capital equipment, semi-manufactured goods and raw materials. Expenditure on capital equipment by industry has increased by some 18 per cent. If we analyse the spending, we find that although consumer spending has increased it forms only a small part of the increased indebtedness funded and fuelled by mortgages.
Lord Bruce of DoningtonMy Lords, is the Minister aware that only 17 per cent. of 1554 manufactured imports during 1987 were in respect of capital goods? His reply does not give that impression.
§ Lord Young of GraffhamMy Lords, that point is some way from the question. I shall write to the noble Lord to show how those figures are analysed and place a copy of the answer in the Library.
Lord WinstanleyMy Lords, does the Minister recollect that when he was a boy at school the government, of whatever political flavour they happened to be, actively encouraged saving schemes in every school in the country? Should not the savings habit start in schools? Are we right to assume that the Government seem to have lost interest in such campaigns and activities?
§ Lord Young of GraffhamMy Lords, I hate to date myself so precisely, but the time to which the noble Lord referred when I was at school was during the war. The circumstances were perhaps slightly different.
§ Lord MellishWhich war?
§ Lord Young of GraffhamMy Lords, I have to inform your Lordships that it was the Second World War. I shall certainly draw the attention of my right honourable friend the Secretary of State for Education and Science to this matter. It is a good idea and I shall discuss it with him.
Viscount St. DavidsMy Lords, will the noble Lord say anything about the large sums which are being spent on the purchase of private homes? Has he noted that the money thus invested tends in the end to be the seedcorn which provides the capital for the thousands of small businesses which are this country's ultimate future?
§ Lord Young of GraffhamMy Lords, yes. But, as I said, mortgages form 80 per cent. of personal indebtedness. It may well be that some of the proceeds of those mortgages could be used in new small firms and all manner of other things. In fact, it is mortgage borrowing which has gone up and fuelled the increase.
§ Lord MolloyMy Lords, in answer to my noble friend Lord Bruce of Donington, the Minister clearly said that it is much more expensive now for ordinary people to buy a home because of the rise in interest rates. When will he give people some encouragement that their endeavours in buying a home of their own will not be hampered or interfered with by the Government as they have been interfered with in recent months?
§ Lord Young of GraffhamMy Lords, I hope that the noble Lord will take an opportunity to look at Hansard tomorrow. I cannot recollect ever using those words or talking about that matter. The only reference I should perhaps have made is that the increase in interest rates is a positive encouragement we have given to savers. Many people often forget that an equal amount of money is saved in building 1555 societies as is loaned out in mortgages. Those who have deposits in building societies as savers are benefiting considerably from the high interest rates. No doubt that is a matter which my right honourable friend the Chancellor of the Exchequer is taking into account.
§ Lord Hatch of LusbyMy Lords, the noble Lord, Lord Ezra, stated that the ratio which the Minister gave is lower than that of all our major competitors on the Continent and elsewhere. Will the Minister confirm or deny that? In all his answers he has talked about this decade. How does the ratio of savings in this decade compare with the ratio of the 1970s?
§ Lord Young of GraffhamMy Lords, the Question referred to 1986 and 1987, therefore I have not armed myself with the figures for the 1970s, the 1960s, the 1950s, the 1940s or prior to then. However, since the noble Lord inquires, I shall look into the matter and write to him.