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Below is Mr Major's question regarding Mortgage Interest Rates - 26th November 1979
Mr. John Major (Huntingdonshire) I have listened to the debate with an element of growing astonishment, not only because of some of the arguments presented by the Opposition but also—if this is such a desperate and serious charge - the relative lack of fire in what they had to say. Notwithstanding the denials made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) at the outset of the debate that the present situation was partly the responsibility of the previous Government, the course of this debate is the clearest possible evidence that the Opposition are well aware that their public borrowing legacy was a significant contributor to the present high level of interest rates and the rates that mortgagors have to pay.
No one—from my right hon. Friend the Secretary of State who opened the debate to my hon. Friend who will close it, and every other Member who has spoken—denies that the present level of the minimum lending rate is a disaster for the country and something that we all wish to avoid and hope to see reduced at the earliest opportunity. That is not the matter in dispute.
I am sorry that the right hon. Member for Sparkbrook is not present. To treat the House, as he did, to a recitation of what the newspapers thought rather than indicate the Opposition's policy is not to give the debate the merit it deserves in the eyes of many whose mortgage and other borrowing interest rates are so high.
It is not a cause of dispute that mortgage interest rates are too high and that mortgagors will be hit. Although it has not been mentioned, the construction industry, which is so often the first casualty of high interest rates, may also be hit. That much is self-evident. We can all accept that that is so.
The hon. Member for Swansea, East (Mr. Anderson) mentioned high interest rates as an element of deliberate Government policy. That is, at best, a half truth. It is true that the Government are prepared to have high interest rates to contain the money supply, because we believe that that is an important component, though not the sum total, in the control of inflation, but it is untrue to say that for some masochistic, self-destructive reason the Government have artificially forced up the level of interest rates. That is absurdly untrue.
The hon. Member for Truro, (Mr. Penhaligon), whose party is so concerned about this matter that its members seem to have left the Chamber after making their contributions, listed the many sectors of the community that he claimed voted Conservative - I have no reason to disagree with him - that would be badly hit by a high level of interest rates. The hon. Gentleman is right. Many of the supporters of the Government who gave us such a clear majority at the last election will be affected by these rates. So it must surely be self-evident to everyone that the last thing that the Government would do as a deliberate act of policy would be to inflict a high interest rate unless it was for a purpose. That purpose, as we see it, is the control and reduction of future inflation. That is a policy that surely should be shared by all hon. Members.
We believe that we cannot achieve the containment of inflation, and with it the reduction of interest rates, without, first, a reduction of the public sector borrowing requirement and, secondly, control of the money supply. I believe that most Opposition Members will recognise that as being so, even if, at the moment, for understandable reasons, they are not inclined to admit it. The truth is that mortgage interest rates cannot be divorced either from other interest rates in our domestic economy or, as the hon. Member for Swansea, East stated, when he spoke rather well, from the general level of world interest rates.
Mr. Stuart Holland (Vauxhall) If the hon. Member for Huntingdonshire (Mr. Major) believes that we cannot insulate mortgage interest rates from interest rates in general, will he explain how in the United States, for example, over most of the post-war period, mortgage companies have effectively done that in relation to Federal Reserve finance and how, on the Continent, mortgage financing effectively operates insulated from the rest of the banking system?
Mr. Major That is a totally different system of finance, as the hon. Member for Vauxhall (Mr. Holland) is well aware. If he wishes to debate the American and British systems of financing housing, I should be delighted to do so, but not when there are five minutes or so left before the winding-up speeches begin.
A little earlier, Opposition Members charged that there was a measure of Government incompetence in relation to interest rates rising to their present level. There has been much rather sterile talk about "our interest rates never reached more than 15 per cent. and the Government have produced a minimum lending rate of 17 per cent." If one considers the position in relation to the rest of the world one cannot, as has been said, isolate oneself from that. I believe that Opposition Members will agree with that.
At the time when the previous Government imposed a minimum lending rate of 15 per cent., the interest rates in New York were about 5 per cent. At present, when we have a minimum lending rate of 17 per cent., interest rates in New York are 15 per cent. or thereabouts. If relative incompetence is to be a charge on the present Government, they escape from that charge relatively unscathed.
A moment ago I mentioned the PSBR. That is an element of considerable concern in connection with our domestic levels of inflation and interest rates. Even after what the Opposition have charged as excessive cuts in public expenditure, the PSBR anticipated in the Budget was £.8¼ billion, and it is likely to be a little greater at the outturn of the year. The sheer difficulty of funding that amount is a material factor in connection with the level of interest rates. Surely that is something that the Opposition must recognise as partly attributable to the legacy that we inherited and one that we, in the short term, have been unable to do anything about. If, as I am sure they do, Opposition Members accept that we must contain inflation, they must also accept that we must seek to reduce the PSBR and consequently reduce, over a period of time, the general level of interest rates, not least in the interests of mortgagors.
I cannot understand how Opposition Members are able, at an early stage of this Parliament, to mount an attack in the terms of the motion without recognising their past contribution to the present situation. Whether Opposition Members like it or not, many owner-occupiers, or would-be owner-occupiers, not least in the council house sector, will see in the attitude of the Opposition a large measure of hypocrisy. Despite many Opposition Members opposing mortgage interest relief and other elements of policy that would lead to greater owner-occupation, they now bring this sort of motion before the House. I hope that the motion will be decisively defeated.
Mr. Walter Johnson (Derby, South) I shall be very brief because I know that both Front Benches want adequate time to reply to the debate. One aspect of this problem that appears to have been overlooked is the role of the building societies. I am surprised that in the discussions that have taken place some pressure has not been brought to bear on the building societies and the role that they play. I understand that my right hon. Friend and other hon. Members on the Opposition Benches met the Building Societies Association recently, and the Secretary of State has made it perfectly clear that he intends to set up a working party to see how best these problems can be dealt with in future.
I suggest to the Secretary of State that the working party - I would call for something stronger, such as a committee of inquiry should consider the activities of the building societies. There are over 300 building societies, all supposedly in competition with each other yet all charging basically the same rate of interest. In every High Street one can find as many as eight, 10 or even a dozen building societies, all with swanky offices. If it is not a wasteful organisation, I should like to know what is.
What has anybody done about that? Over the last eight years I have tried to get successive Governments to institute an inquiry into the activities of building societies. They spend vast sums of money advertising in the media and no one seems to question that at all. I think that it is completely unnecessary. Building societies are supposed to be non-profit making, yet they make vast profits in excess of liquidity and these go into the reserves, which are never touched.
Mr. Heddle rose—
Mr. Johnson No, I will not give way. I do not have much time, and the Front Bench speakers want to start their winding-up speeches very soon.
Mr. Heddle On a point of order, Mr. Speaker. The hon. Member referred to profits being made by building societies. I do not think that they make profits. Perhaps the hon. Member will elaborate.
Mr. Speaker The hon. Member is scoring his point, not making a point of order.
Mr. Johnson I still say that the building societies make a profit at the end of each year. It then goes into reserves—
Mr. Heddle indicated dissent.
Mr. Johnson The hon. Member should look at the building societies' annual reports. He will then see what I am talking about. The building societies also employ part-time directors who attend meetings once every two months. Those same directors get an inflation-proof pension after 10 years' service. Is this right? I urge the Government to look seriously at some of these problems when they hold this committee of inquiry. If they are not prepared to do that, they should refer the activities of the building societies to the Monopolies Commission or some other committee of inquiry. They owe that to the country.
Mr. Gerald Kaufman (Manchester, Ardwick) The frivolous and complacent speech by the Secretary of State, who is not in his place this afternoon, failed to match the seriousness of the situation that we are debating. We are now facing Britain's gravest housing crisis in post-war times. For both tenants and purchasers, finding and paying for a home will be more difficult and expensive than ever before. Fewer houses will be built, rents and house prices will hit an all-time record height, and finance will be scarce and more costly than ever before.
All this has not come about by accident. It is the direct consequence of policies pursued deliberately by this Government. As my hon. Friend the Member for Swansea, East (Mr. Anderson) pointed out, the Government's spending cuts have reduced the council house building programme to its lowest for more than a generation. This year and next the Government are cutting housing investment funds by £598 million—a devastating 21 per cent.
Last year's programme was poor, and no one makes excuses for it, but it will appear as a triumphant success compared with 1979–80. Housing starts are likely to be down by 25 per cent., and in turn 1980–81 looks like being even worse. Last week the Minister did not deny that council house starts in 1980–81 would total a miserable 45,000. Those are the facts behind the Secretary of State's bogus claim today that the Government are doing all that they can to encourage house building.
Not only will there be fewer new houses; all council houses will cost their tenants more than ever before. In his announcement 10 days ago on the rate support grant settlement, the Secretary of State smuggled in the confession that his rent guideline assumed an average rent increase of £1.50 a week. Life under this Secretary of State will make council house tenants long for the idyllic days of the Housing Finance Act.
The outlook is even grimmer for those who are buying a home and for those with an increasingly forlorn hope of buying one. It is constructive after only six months to contrast the record of the Tory Government, and the prospects ahead for home buyers under that Government, with the record and achievements of recent Labour Governments. While the Tories mouth slogans about helping home buyers and then kick them in the teeth, Labour Governments act to help those buying their homes.
Every positive action of recent years to help home buyers has been taken by Labour Governments. Labour introduced the option mortgage scheme, which so far has benefited 1,250,000 house buyers. Last year Labour introduced the home purchase assistance scheme for first-time buyers, and 55,000 first-time buyers have already benefited from that. Labour acted in 1974 when the mortgage rates were about to go up to 13 per cent. We kept them down with our loan scheme to the building societies at minimal cost to taxpayers.
Labour introduced the stabilisation scheme. Under the last Labour Government, house prices rose at less than three-quarters of the rate that they rose under the Conservative Government who were in office until 1974. Under our last Government, mortgage interest rates rose three times and fell five times. Under this Tory Government and their predecessor, mortgage rates fell once and rose five times, until they reached the all-time crisis record of 15 per cent.
It is not surprising that the rate of increase in home ownership under the last Labour Government was almost twice as great as that under the previous Tory Government. When Labour left office just over six months ago, more people owned or were buying their own 948 homes than at any time in this country's history. A massive 55 per cent. of all households were home owners. That progress towards a property-owning democracy with a substantial and growing public rented sector was brought to a grinding halt on 4 May.
Two Tory Ministers share the responsibility for that - the Chancellor of the Exchequer and the Secretary of State for the Environment. They are men obsessed with a purblind pursuit of salvation through usury. That obsession has led directly to the disastrous 15 per cent. mortgage rate announced last week.
Remember what the Chancellor told the House in his Budget Statement five short months ago. I quote: The Budget is designed to give the British people a greater opportunity than they have had for years to win a higher standard of living. He also said: Every family in the land will have more money coming in."—[Official Report, 12 June 1979; Vol. 968, c. 262–3.] That was the promise made by the Chancellor in his Budget. Now we have the morning after.
My hon. Friend the Member for Swansea, East reminded the House today of how the Chancellor rhapsodised about the benefits that his Budget brought to a typical married couple with the husband earning £100 a week. The Chancellor told us that his income tax cuts would give this average man £4 a week in tax cuts. Of course, the Chancellor immediately swiped £2.75 of that back with his VAT and petrol duty increases. Even so, he told us, that would still leave Mr. Average with £1.30 a week more.
The Chancellor has soon settled Mr. Average's hash. If that man is repaying an average £12,000 mortgage over 25 years, he will now have to find another £6.78 a week in additional mortgage interest payments. That alone leaves him £5.48 worse off after this opportunity Budget—and that does not take account of the 25p a week extra in national insurance contributions imposed on Mr. Average last week by Newham's gift to Daventry. Newham's loss is Daventry's loss. Nor does it take account of his increased rate bill, his dearer television licence, prescription charges that have been increased twice over and all the other benefits bestowed upon him by this bounteous Government. Presumably that was what the Secretary of State meant to-day when he said that he was transferring wealth to working people.
Not only are most mortgage payers much worse off after the Budget; they are being made to contribute towards making even richer the affluent minority who will still be better off. The Chancellor's monetarist monomania, by forcing mortgage rates up from 11¾ per cent. to 15 per cent., has foisted on Britain's 5,250,000 mortgage payers an additional annual tax of £996 million a year, or £190 a head. That cool £1 billion is the contribution that mortgage payers will have to make towards the £1,400 million tax relief that the Chancellor gave in his Budget to the 6 per cent. richest tax payers. At least, the mortgage payer should be grateful for one thing—he has a mortgage to repay. Countless others cannot get a mortgage at all.
The other achievement of the Government's dear money policy is the creation of unprecedented mortgage famine. As the president of the House-Builders Federation said about two weeks' ago, The shortage of mortgages is almost unbelievable. The chairman of the Building Societies Association confirmed to me last week that the building societies now give only seven loans for the eight that they gave last year.
Those are the grim facts at national level. However, in branches around the country would-be borrowers are now learning the facts of Tory life. This weekend, I spoke on the telephone to managers of several building society branches. No one place is completely representative and it is impossible to pick out an average town or city that represents all mortgage payers. However, I chose two localities that I believed might offer an interesting point of view. One was Finchley, the Prime Minister's constituency.
All the branch managers whom I telephoned in Finchley told me the conditions that they are laying down to would-be borrowers. They are making loans only to applicants who can prove that they have invested in their society for a prescribed minimum period. At the Nationwide and the Woolwich Building Societies in Finchley the prescribed minimum 950 period is six months and at the Anglia Building Society it is a year. If investors want to get the Abbey habit in Finchley as borrowers, they must have saved with the society for a minimum of two years.
That is not all. In most cases, Finchley man or woman is required to have savings with the society of his or her choice amounting to 10 per cent. of the loan that is sought. There is more to come. Societies are now looking in what one representative called "greater detail" at criteria affecting multipliers of income. That is the language used in Finchley—in Manchester we call it a means test. If Finchley man can clear all those hurdles, how long will he have to wait for a mortgage? At the Nationwide Building Society he will will do quite well. The Nationwide is a good building society—I invest in it myself. Finchley man will have to wait only until January. At the Abbey National Building Society he will have to wait until late January, the Anglia Building Society cannot help until mid-February, and at the Woolwich Building Society he will have to wait until March.
However, all that information is more cheerful than some that I was given by the other centre that I telephoned—Henley, the constituency of the Secretary of State for the Environment. I discussed the matter with the manager of the Portman Building Society. He was good enough to tell me that he voted for the right hon. Gentleman the Secretary of State in the election. He told me that his society are having to say no to an awful lot of good investors". The Abbey National Building Society told me that it had heard in nearby centres of borrowers phoning on Friday after the announcement about the 15 per cent. rate to cancel their dealings. The South of England Building Society branch in Henley told me that would-be borrowers, even if they satisfy all the conditions, will still have to wait until April for a mortgage. That is the crisis that the Secretary of State has visited upon his unoffending constituents.
Since his appointment, the Secretary of State has spent his time careering around the country on publicity jaunts. We all remember his bloodcurdling massacre of the quangos. That dauntless exercise resulted in the elimination of 0.017 per cent. of the public sector borrowing requirement. No doubt that is what the Secretary of State meant today when he told us that he is making "massive savings" in the PSBR. Never mind—it won the Secretary of State a great deal of headlines. Of course, for our itinerant Secretary of State the shortest distance between two points is not a straight line but a headline.
Yet it was the Secretary of State who, when the mortgage rate rose to 9.75 per cent. under the Labour Government last year, declared from this Dispatch Box, with high indignation, that the problems of the building societies are symptomatic of the declining confidence in the Government's overall economic policies."—[Official Report, 14 June 1978; Vol. 951, c. 993.] Good words. They apply much more fittingly to the crisis created by the right hon. Gentleman's Government. Nevertheless, the Secretary of State is, after all, an amiable figure, who is always good for a laugh. The Daily Mail recently summed up his antics in a leading article headed, appropriately: Another hoax by Headline Heseltine". In this unprecedented mortgage crisis, there is someone much more significant whose personal credit is at stake—the Prime Minister. For years she has presented herself as the symbol of cheaper mortgages. We all remember that in September 1974, reported in The Times under that famous headline: Tories pledge 9½ per cent. mortgage rate by Christmas", she said: Our plans for a 9½ per cent. mortgage are absolutely unshakeable. It was the Prime Minister who wrote in an article in The Daily Telegraph: The building societies' … difficulties are not of their own making, so it is only right that the Government should consider new ways of helping them to keep down the mortgage rate". That article was headed: What platform for the Tories—the owner-occupiers' party? In February, when the minimum lending rate rose for three weeks to 14 per cent., the right hon. Lady said that an increase in interest rates to 14 per cent. is a potential disaster for home buyers … it is the home buyer and the small business who are having to pay the price for the Government's economic failure."—[Official Report, 8 February 1979; Vol. 962, c. 550.] It was the Prime Minister who signed last April's Tory election manifesto—on which all Conservative Members were elected six months ago—with that now notorious pledge which bears repetition: The prospect of very high mortgage rates deters some people from buying their homes and the reality can cause acute difficulties to those who have done so. Mortgage rates have risen steeply because of the Government's financial mismanagement. Our plans for cutting Government spending and borrowing will lower them. The Prime Minister is fond of justifying some of her more odious actions by claiming that she has a mandate for them. That is a mandate if ever there was one—a specific promise to lower mortgage rates. The Prime Minister has betrayed that promise and all those whom that promise deceived into voting for her.
However, she and the Secretary of State have found a new excuse for that betrayal. They blame the unprecedented mortgage rates on—wait for it—wage claims. The Prime Minister tried it on in the House last Thursday. The Secretary of State, with his penchant for lurid language, went one better in the statement that some of the press described as being made by a "rattled man". He blamed the increase to 15 per cent. on what he called Vicious strike-backed inflationary wage claims".
Mr. Heseltine That is right.
Mr. Kaufman The Government came to power not only on a solemn promise, a mandate, to bring down mortgage rates but also on a solemn promise, a mandate, to champion free collective wage bargaining. As their manifesto put it Pay bargaining in the private sector should be left to the companies and workers concerned". That scapegoat will not run. The real culprits are sitting on the Government Front Bench. The Tory remedy for a genuine economic problem has created an unnecessary economic crisis. Home owners are the latest casualties of that Tory crisis, and that is why we ask the House to support our motion.