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Catalogue Reference:CAB/129/76
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NO. 19th July, 1955 CABINET HIRE-PURCI-IA.SE M e m o r a n d u m by the President of the B o a r d of T r a d e O h 12th Jttly, the Cabinet invited the Chancellor of the E x c h e q u e r to report further on the e c o n o m i c situation in the light of consultations with m e and with, the other Ministers concerned (C,M.(55) 22nd Conclusions^ Minute 3 ) . 2.
T h e Chancellor and I have b e e n considering w h a t further restrictions could be i m p o s e d on hire-purchase as part of the m e a s u r e s to restrict credit and restrain inflationary pressure. 3.
W e have not thought it wise to tighten the restrictions over the whole field, since this would seriously aggravate the difficulties of those industries which have already b e e n hit (e, g, furniture).
W e suggest instead m o r e severe t e r m s for a wide range of goods which the restrictions have not, so far as w e can judge, greatly affected.
In doing this, w e are not singling out these particular goods to assist exports, to save scarce materials or because they m a y be thought less essential than the others, W e have chosen t h e m because they s e e m to offer the best chance of squeezing out s o m e further c o n s u m e r credit.
T h e a i m of the control r e m a i n s , broadly, to reduce the quantity of purchases m a d e f r o m b o r r o w e d m o n e y , not to hit at particular industries. 4.
W e propose to raise the m i n i m u m deposit f r o m 15 per cent to 3 3 V 3 per cent for the following goods :-
Radio and television sets, and g r a m o p h o n e s . D o m e s t i c appliances - gas and electric fires (but not cookers), electric washing m a c h i n e s , v a c u u m cleaners, refrigerators, sewing m a c h i n e s , wringers, irons, etc. C a m e r a s and binoculars. C a r s , motor-cycles and power-assisted cycles. W e d o not propose to shorten the pex*iod for p a y m e n t below two y e a r s
0 5.
A n y such selective list m u s t be rough and ready, and w e would not defend in detail the inclusion of these items or the exclusion of others
T h e inclusion of domestic appliances (except cookers) m a y well c o m e in ; for special attack, probably on the grounds that it will lessen incentive and, retard the i m p r o v e m e n t in the standard of living of the better paid w o s k e ^ s ^ D o m e s t i c appliances, h o w e v e r , account for a substantial and rising v o l u m e of c o n s u m e r expenditure and, as this is a field w h e r e hire-purchase flourishes, it is right to m a k e borrowing there m o r e difficult. c
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W e have considered the possibility of raising the m i n i m u m deposit for cars still further., T h e Chancellor would on balance favour increasing the initial deposit to 4 0 per cent. This, h o w e v e r , would almost certainly involve issuing a great m a n y individual licences for exceptions, e. g, to doctors, and m i d w i v e s , s m a l l professional m e n working on their o w n account, car hire firms catering for the tourist trade, which I a m anxious to avoid.
It would also have the disadvantage of adding a third tier of deposits and so detracting further f r o m the simplicity which has so far been a n asset of the control. This is b y no m e a n s an easy m e a s u r e to defend on any basis a.nd the m o r e c o m p l e x the control the m o r e difficult it is to defend. 3
7.
T h e higher w e drive the deposit, the greater the incentive to evasion, e. g. through hiring. A deposit of 33^/3 per cent is probably the limit, and even at this level there will certainly be an increase in evasions.
It is important that the nationalised industries should not set a b a d e x a m p l e by switching to large-scale hiring, and it might be desirable for the Minister of Fuel and P o w e r to use his influence to prevent this. 8.
I m u s t w a r n m y colleagues that the restrictions which w e are
proposing m a y cattse u n e m p l o y m e n t in certain f i r m s , particularly those
which specialise in the mtanufacture of domestic appliances. W e m u s t
be prepared to face m o r e instances of the sort of trouble that w e h a v e
b e e n having with the furniture industry.
This m u s t all be seen, h o w e v e r ,
against the background of very high e m p l o y m e n t in industry generally
and indeed a recovery in the furniture industry.
9.
If m y colleagues agree that these further restrictions should
be i m p o s e d , the Chancellor will announce t h e m in the comprehensive
statement on the e c o n o m i c situation which h e proposes to m a k e before
the H o u s e rises. I will then m a k e the necessary O r d e r to c o m e into
force immediately.
This procedure will explain the restrictions in their
proper context and avoid any forestalling b y traders.
P.T.. B o a r d of T r a d e , S.W.1, 19th July, 1955. ii