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Resolved,
That this House supports the Government's strategy for a viable Post Office network; welcomes the delivery by Royal Mail of 93 per cent. of first class letters the next day in the first half of 2003–04; shares the Government's disappointment over the drop in performance since then, which rightly falls short of customers' expectations; calls on Royal Mail and the unions to work together to improve the quality of service; notes that the closure of any post office is regrettable but supports the Government's view that, without rationalisation, unplanned closures would continue, leaving damaging gaps in the network; supports the Government's commitment to ensure that at least 95 per cent. of the urban population will live within one mile of their nearest post office; supports the Government's commitment to ensure funding of rural post offices until at least 2006; welcomes the changes to the urban reinvention consultation process and the extension of the consultation process from four to six weeks; supports the Government's move to Direct Payment and welcomes the fact that already more than half of customers are getting their benefits, pensions and tax credits paid straight into accounts, of which 3.2 million are Post Office card accounts; notes that the Opposition wasted millions of pounds of taxpayers' money on the Benefit Payment Card scheme; supports the facility for those who cannot be paid through an account, particularly the most vulnerable older people, to receive a cheque payment; and recognises that change was needed and congratulates the Government for its strong, decisive action.
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Personal Indebtedness and Savings
Mr. Deputy Speaker (Sir Alan Haselhurst): We now come to the second debate on Opposition motions. I must announce that Mr. Speaker has chosen the amendment in the name of the Prime Minister.
7.14 pm
Mr. Oliver Letwin (West Dorset) (Con): I beg to move,
That this House notes that household indebtedness has now reached £1 trillion; is concerned that the household savings rate has halved since 1997; and believes that the Government, through the extension of dependency on means-tested benefits in retirement, its attack on the tax advantages of savings vehicles, and its £5 billion a year raid on pension funds, has diminished incentives to save.
Two issues arise from the motion. One is short term and the other is long term. The short-term issue is indebtedness or household debt and the long-term issue is savings or their lack. I begin with household indebtedness. We have almost certainly reached the £1 trillion level of household indebtedness, which is broadly equivalent to our gross domestic product. That fact has become increasingly interesting to the media. A set of changes underlies that state of affairs.
Household indebtedness has recently increased annually by approximately 12 per cent., despite having slowed a little from an even higher figure. Much of that has been in the form of mortgage indebtedness or secured lending. According to the latest reckoning, some £818 billion of mortgage debt forms part of the £1 trillion total. Mortgage debt, at around 13 per cent. a year, has been growing even faster than overall household indebtedness, although it, too, has slowed slightly.
Mr. Kelvin Hopkins (Luton, North) (Lab): Surely that is not a problem, provided that people can finance their debt. Were we not simply rising out of a low level of debt after the collapse of the exchange rate mechanism and emerging from the recession that the right hon. Gentleman's party created?
Mr. Letwin: I agree that a given amount of debt is not a problem for those who can easily manage it. I shall shortly refer to those for whom there is a problem, but I also want to tackle the question of whether the current indebtedness causes a general problem for the economy as a whole. I hope that the hon. Gentleman will intervene again when we reach that part of my remarks, because I believe that ample evidence shows that there are problems on both those fronts. I want first to present the facts.
Mr. Lindsay Hoyle (Chorley) (Lab): Does the right hon. Gentleman want to return to the days of high interest rates for mortgages? Does he want them to double and treble? What are his views?
Mr. Letwin:
Clearly, none of us wants mortgage rates to increase, and it is therefore regrettable that they had to rise recently and that they are likely—it is not certain—to increase in the near future. I would have thought that the hon. Gentleman and I agreed on that. I shall describe why the recent increase in mortgage
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payments is by no means purely an accident and how the actions of members of the Treasury Bench have partly created it. I hope that he will join me in regretting those actions.
Vera Baird (Redcar) (Lab): The four increases in interest rates have had an impact on mortgage lending. Secured lending increased by its lowest amount for nine months in May—significantly less than in April. It appears that people are capable of dealing with such debt and spreading it out.
Mr. Letwin: The hon. and learned Lady is right that, as I said, the rate of increase has slowed slightly. That is welcome. Unfortunately, as I also said, it is currently approximately a little more than 13 per cent. on an annualised basis and that figure is high. I fear that I do not follow the hon. and learned Lady's logic and that is unusual. Even when I do not agree with her, I can normally follow her logic and have done so in many debates. However, I cannot understand the argument that the fact that we have annual increases of "only" 13 per cent. in mortgage lending means that people will always be capable of fulfilling their obligations. I shall shortly outline why I believe that there is an increasing problem.
Lending is not the only problem. A considerable amount of mortgage equity withdrawal is also happening. That was negative in the mid and late 1990s, but it is now running at about £60 billion a year. Our fellow citizens are drawing down on or adding to their mortgages by about £60 billion a year at present. Some of that is going on consumption, and some is undoubtedly being spent on the expansion of assets, as people add to their housing stock by enlarging and improving their houses.
Mr. Desmond Swayne (New Forest, West) (Con): Would my right hon. Friend like to comment on the fact that a significant proportion of that equity release is going to people who have retired and who require it for consumption? They are certainly not using it to acquire additional assets.
Mr. Letwin: My hon. Friend is undoubtedly right: a substantial proportion is almost undoubtedly going for consumption. I say "almost undoubtedly" because there are no reliable figures available. Perhaps Ministers will tell us to the contrary tonight, but I know of no reliable survey that has been carried out into how much of that mortgage equity withdrawal is going on consumption and how much is going into assets. I fear that my hon. Friend is probably right to say that a substantial proportion is going into consumption.
Labour Members are clearly gagging to hear what the problems are in this regard. We have set out the facts, and everyone knows the figures. Ministers undoubtedly have even more up-to-date figures. They probably receive updates every 24 hours; I do not know. In any event, we can all agree on the broad facts, but the question is: what do they mean? We do not have to take a flier on this, and we do not have to trust the views of
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politicians. Indeed, I do not suppose that many of our fellow citizens trust the views of politicians of any colour on these matters, alas.
Mr. Letwin: Shocking it may be, but it is nevertheless the case that politicians are not much trusted in Britain today. However, some people are trusted, and one such person is the Governor of the Bank of England. One reason he is trusted is that he is the Governor of the Bank of England. Another is that he is the man he is. That powerful combination means that he is highly trusted, and he has said some remarkable things recently.
The Governor of the Bank of England is a very subtle individual—more subtle, I suspect, than any of us in the Chamber tonight or, indeed, than any politician in Britain. Of course, it is in the nature of governors of central banks that they should be exquisitely subtle. I believe that it was Lord Cecil, under Elizabeth I, who was described as being so subtle as to be invisible. The Governor of the Bank of England, though exquisitely subtle, is not invisible, however. Indeed, he has recently become quite surprisingly visible. Governors of the Bank of England have frequently sought to be invisible, but he is not such a Governor. He has made himself visible by making remarks—admittedly, exquisitely subtle remarks—which, in their pointedness, have been perfectly well understood in the City of London by the economic fraternity, by journalists and, I suspect, by the Government, although they would certainly not admit it.
What has the Governor said? In effect, he has said that the very large rise in household indebtedness, and the very large rise in house prices that is intimately linked with that, have not come about by accident. They are associated with the activities of the Chancellor of the Exchequer in enlarging Government. We have a bigger Government, more spending and more borrowing. The Governor of the Bank of England has said that he is not persuaded that there is a sustainable path in place—or at any rate, that is what he has, in his exquisite subtlety, suggested.
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