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Personal Credit

Volume 981: debated on Wednesday 26 March 1980

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asked the Chancellor of the Exchequer if he has made any estimate of the extent to which restrictions upon credit cards and store accounts would lead to increases in other forms of lending such as loans, hire-purchase and overdrafts; and what advantages and disadvantages exist in the application of selective as opposed to overall means of influencing the volume of personal sector credit.

[pursuant to his reply 25 March 1980]; It is not possible to construct estimates of this sort. Even in the hypothetical case of controls being applied to credit card use without comparable measures being taken at the same time to restrain other forms of consumer borrowing, much would depend on the type of controls that were imposed, their duration, and the underlying economic and monetary conditions. There would, however, certainly be some diversion to alternative sources of credit which would grow with time: this would progressively diminish, although not necessarily eliminate, the net effect of such controls. The additional disadvantages of selective controls are that they produce distortions in the choices facing consumers and discriminate between different types of lender and different industries. Against this, controls can be used to give a relative advantage in credit markets to borrowers who are thought to deserve a higher priority and can produce a much quicker effect on monetary conditions and expectations than more generalised measures. Controls of this sort can never, however, be permanent substitutes for a monetary policy based on an appropriate fiscal stance and interest rates.