HC Deb 07 December 1951 vol 494 cc326-8W
Mr. Maude

asked the Chancellor of the Exchequer what fresh instructions he has issued to the Capital Issues Committee.

Mr. R. A. Butler

I have addressed a letter to Lord Kennet, Chairman of the Capital Issues Committee, the text of which is given below. At the same time, as on previous occasions, the banks are being asked to ensure that the credit policy of the banking system should operate in conformity with the same general principles as those set out in my letter to the Chairman of the Capital Issues Committee. I am confident that, in their operations, the banks will have full regard as heretofore to the Government's economic policy. I regard it as most important that the banks and accepting houses should continue to intensify their efforts to restrict credit to essential purposes and, in particular, to ensure the highest priority for our defence programme and for our exports. I am also asking that banking facilities should not be given for the speculative buying or holding of securities, real property or stocks of commodities; that finance for hire purchase should be limited; and that notwithstanding the statutory exemptions of borrowings made in the ordinary course of business, bank advances should not in general be made for capital expenditure.

Text of the letter to the Chairman of the Capital Issues Committee

4th December, 1951.

DEAR KENNET,

I have been considering how far the principles on which the Capital Issues Committee operate may need fresh emphasis in the light of the new economic policy which is being developed by the Government.

It is clear that the Committee must scrutinise all applications by reference primarily to the contribution which they can make to the surmounting of our present difficulties. I would ask the Committee to accept this test as their basic criterion, and to apply it in a vigorously critical spirit. Clear priority should be given to projects which are essentially and positively related to the rearmament programme, to the stimulation of exports to desirable markets, to the saving of imports, particularly from dollar sources, and to the relief of basic deficiencies, especially of raw materials. Other projects which, in the Committee's view, can contribute definitely to the general health of the economy by the technical development of industrial productions, and the more efficient and economical use of resources, should also receive favourable consideration.

But for the rest, the Committee should submit all applications to a very strict and searching scrutiny, with a view to eliminating any project which is not likely to produce positive results commensurate with the demands which it will make on the limited available resources. In particular, they should discourage all applications in respect of projects for the production of inessential goods, especially where these are intended mainly for the home market and consist largely of metal using projects.

I must ask also that the same strict tests should be applied in the case of applications relating to those borrowings from banks, which in accordance with existing practice under the Control of Borrowing Order, are referred to the Committee. In particular, the Committee will wish, in appropriate cases, to consider what stipulations they should make about the period of such borrowing and ultimate arrangements for repayment or for the provision of permanent finance, in conformity with the general credit policy which I have announced to Parliament. Moreover, where applications are made for consent to long-term borrowings to refund bank advances already taken up, the fact that the money has already been borrowed should not weigh with the Committee, who should concern themselves mainly with the eligibility of the purposes which have been financed by the advances or will in due course be made possible through the refunding operation.

It is important that the Committee should be able to reply on clear and realistic advice from Departments. I am therefore, taking steps to ensure that the Departments concerned will consider in a critical spirit all applications which are referred to them, and will have full regard to the same criteria as those which the Committee themselves are asked to observe.

I hope that you will tell your Committee that I am very conscious of the valuable work which they do. They have an essential function to fulfil. I am greatly reassured to know that so competent and informed a judgment as yours will be brought to bear on the question of the direction of capital finance, which is an itegral part in the new attempt by the present Government to grapple with the very serious economic problems which confront our country.

Yours sincerely,

(Sgd.) R. A. BUTLER.

The Rt. Hon. LORD KENNET, P.C.. G.B.E., D.S.O., D.S.C.