Orders of the Day — Building Societies (Interest Rates)

Part of the debate – in the House of Commons at 12:00 am on 9 April 1973.

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Photo of Mr Robert McCrindle Mr Robert McCrindle , Billericay 12:00, 9 April 1973

I am never sure whether it is a virtue in politics to be consistent. If it is I would lay claim to having been one of the very few hon. Members on the Government side of the House who, since the Budget proposals, has drawn attention to the fact that there was bound to be a considerable effect on owner-occupiers. Having been one such hon. Member who drew the Government's attention to that situation, I must welcome the assistance that is forthcoming from the Government as a result of their announcement last week. I am bound to tell my hon. and right hon. Friends that I do so with substantial reservations.

Having pressed the Government in this way it is incumbent upon me to say why I feel that some aid should have been forthcoming to owner-occupiers at all. I begin from the premise that nothing is more important than that phase 2 of the Government's counter-inflation policy should succeed. Secondly, there can be no denying that the increase in the building society rates which we have experienced in the last few weeks spring directly from the Chancellor's action in the Budget to stimulate National Savings.

I have no doubt that it was right, in the interests of a counter-inflation policy, so to stimulate national savings. If that is the case I must point out that it is also right for the Government to take all reasonable steps to contain essential family costs thereby making the phase 2 wage increases more acceptable than would otherwise be the case. If it is right to give this assistance I can think of several ways in which I would have preferred it to have been given.

When I raised this matter in the House on 8th and 22nd March I asked whether the Government would consider reducing the rate of tax paid by building societies. Here I must make a sharp criticism of the Treasury. I was surprised to find that the answer given by the Chief Secretary was to the effect that mortgage rates were of no particular concern to the Treasury Department. Events in the last few days have seemed to take rather a different line.

I suggested that the rate of tax paid by the building societies should be reduced during 1973–74. I did so because I feel, rightly or wrongly, that there will be a tendency for interest rates to begin to fall in the next year or so. If that is so it would be much better to give this assistance on what might be called a year-to-year basis. This would also have the advantage that it would not be a grant or subsidy. It would be a method of leaving in the building societies' funds additional resources which they could then take care of in a suitable way. That may mean that they would not extend equal assistance to everyone. They might chose to give particular assistance to those borrowers in greatest need.

As a second alternative I suggested— and I devoutly hope that this is something to which my hon. and right hon. Friends will give consideration-—that the first £40 of interest on a building society investment account should be income tax free in the same way as the first £40 of interest on a Trustees Savings Bank account is income tax free. If that were done the vast new inflow of funds, perhaps from a section of society that at the moment does not even think of investing in a building society, could be so considerable that a large measure of the difficulties could be ironed out. I hope that this is still something to which my hon. and right hon. Friends will turn their attention in terms of preventing similar crises in future.

Thirdly, if we are looking for rather better ways of assisting owner-occupiers by a distribution of £15 million, much more help and of a much more less temporary nature might well have been extended to the option mortgage borrowers. The option mortgage system, having brought owner-occupation within the reach of a great many people who would otherwise have found house purchase too expensive, is something that should now be examined in the light of some years of operation.

I hope that the Government will take the opportunity, in consultation with the building societies over the next three months, of seeing how we can so improve the scheme that in future it not only helps young purchasers through a reduced rate of interest but also provides assistance with the deposit. Hon. Members on both sides seem to overlook the fact that while interest rates are important, if we were to ask a young couple about to purchase their first home which was more important, assistance with repayments or assistance with the deposit, I have no doubt at all that they would reply that assistance with the deposit was the more important.