Hire Purchase

y PETER L. MONEY

ATIIOUGII hire purchase has been in use for over a century as a means of obtaining goods on credit, never before has public interest in it been so great. The range of goods which are chiefly concerned in hire-purchase agreements is

today wider than it has ever been; and the pos- session of many of them is today widely regarded as necessary: refrigerators, radio and television sets, washing machines, cars, for example—all these things are part of the furniture of our life. The individual who wishes to enjoy an im- proved standard of living by possessing any of the immense range of goods and services available, but lacks the ready cash, is faced with the alterna- tives of going without; of saving until he has enough put by: or by securing whatever it is he wants by putting down a deposit and paying for the balance out of income over a period : in other words—hire purchase. Hire purchase to any- one in a position to save is merely saving, forced if you like but voluntarily undertaken. And he has the use of the goods or services whilst he saves.

Instalment credit is today provided by retail stores and shops and by specialised concerns known as finance houses or industrial banks. The stores and shops are concerned for the most part with household goods and the finance houses with motor vehicles, plant, machinery and equipment Of all kinds for agriculture, commerce and in- dustry. The larger part of the total hire-purchase debt, now standing at over £800 million, is owed to finance houses. Most of those whose names are today familiar were formed after the First World War, largely to handle the business result- ing from the growing use of motor-cars.

Before this, in the middle of the nineteenth century, the wagon companies had come into being to finance the purchase of coal wagons for the railways, and since Tudor times retailers, in one way or another, have supplied instalment credit. The wagon companies widened the scope of their activities to include general hire-purchase financing, but it was not until after the First World War that most of the specialist companies were established to finance the wide range of goods with which they are now concerned. They have grown up with, indeed they have greatly stimulated, the growth and diversification of in- dustrial production, for by making instalment credit widely available they have encouraged the demand for durable consumer goods and thus, in turn, methods of mass production.

In the United Kingdom the words 'hire pur- chase' are generally used to denote all classes of instalment credit. In fact, there are two main classes of transaction—the hire-purchase contract and the credit sale or sale by deferred payment.

A hire-purchase agreement is a document pecu- liar to this country and to other countries which have followed its legal system. It is a contract whereby it is agreed that the hirer (that is, the customer) shall hire goods for a stated period at a specified rental payable by periodi6l instal- ments, usually monthly, and that when he has paid all the instalments, he may purchase the goods, usually for a nominal sum. The hirer is also given the option to terminate the hiring and return the goods at any time, if he so desires. In this event, he is normally required to pay an agreed sum by way of depreciation unless he has paid a specified (and usually substantial) part of the hiring cost.

In short, it is a contract of hire with the option to purchase which the hirer may, if he so desires, exercise. In fact, the hirer does exercise this option in almost every case.

During the currency of a hire-purchase trans action the owner—either the trader or finance house—has the legal title to the goods and can retake possession of them (with the aid of the court in transactions falling within the scope of the Hire Purchase Acts) in the event of default by the customer.

A credit sale, on the other hand, is an outright sale of goods. The customer agrees to buy the goods and to pay for them by credit instalments. Ownership passes to him immediately and he is an ordinary unsecured debtor to the trader or finance house, as the case may be.

The object of a hire-purchase contract is to give a trader or finance house security in the goods and thus enable him to give the required credit to his

customer without undue risk. It follows, therefore, that the goods must have some security value.

The ideal goods for hire purchase are those which are of standard design, are readily movable and have a good secondhand market. This descrip- tion applies to a vast range of products, including motor vehicles, caravans, domestic equipment of all types and many classes of plant and machinery.

It is interesting to note, where motor-cars are

The amount involved is but a small proportion of the assets of the bank, and while. we may..1 think, con- fidently look-for an ,increasingly useful returni frOm this source, one must be careful. not to exaggerate the potentiality of our investment in hire purchase finance in the Perspective., of the. profitability of the operations of the bank as a whole. Sir Oliver then reviewed changes and movements in

By :NICHOLAS

As t.eittlers .of this column know, I expected Bank rate to rise a month ago. If London is to operate as a world financial centre it will have to keep its money rates in line with those in other financial centres. When the American Treasury bill rate had advanced to 1 per cent. above our b■in. jt was obvious that "sOrnething had to be done, not only to stop. the flow of money frOm London' to New 'York, but to restrain 'cheap' borrowing by foieigners in London. Leav- ing aside the special dollar repayments, our re- serves had been losing 'gold at the rate of fl 8•million a month. ThiS need not have worried anyone but,. as '1, have• said; the 'gold reserve is treated as a sacred cow by the TreaSury, just, as common ownership} is'hy the Labour: Party,. But ;if short-term interest rates have to be moved up for external, reasons, 1. was careful to point .out that this should not be allowed to affect the long- term rate for internal reasons. We must still encourage industrial investment as much as pos- sible and as the recent' Board of Trade returns have revealed that private industry at long last IS planning to spend 16 per cent. more this year on eanital outlay; we mast take care that'we do.ncit MP this flower 'of: our expansion in'the bud.

FIVI PER CENT.

DAVENPORT 'moderation and good sense.' Has he got it at the Treasury?

If all the industries in the country were boom- ing at the same title I could understand the Treasury's anxiety, but this is not the case today. Paper-and machine tools are only just picking up; heavy electrical engineering, coal, oil, railways are all far, from booMing, and shipbuilding is facing a decline., If there are dangerous symptoms of inflationary pressures it, is extraordinary that none of the bank chairmen, who are supposed to have their fingers on the pulse of the economy, should have called attention to them in their recent state- ments. One of them, Sir Thomas Barlow, of the District Bank, even said that 'our economy re- quires more toning up.' And he did not mean toning up Bank rate. the international economic situation and in conclusion said: Now that our economy has been rebuilt and is reasonably. strong we can give attention to the prob- lems which face up in 1960. lt.is important that we do so. For one thing it is expected of us by our friends both across the Atlantic and in Western Europe. For another we owe it to ourselves, since only in this way can we make time out ally, for bank loans, and (h) by higher taxation; direct and indirect. Some people arc already advocating (b), but it seems hard to strike so soon at the con- sumer when he is merely making good his under- consumption of 1957 and 1958.

What makes this Treasury inflation scare so depressing is that it pays so little regard to the lessons of the Radcliffe Report. The main con- clusion of these nine wise men, which no Minister or official has yet questioned, was that monetary measures—Bank rate in particnlar—cannot alone be relied upon to keep the economy in balance. 'We find it difficult,' they said, lo.believe that such veneration for Bank rate can persist if there develops a general scepticism of the power of interest rates over the internal economic situation' (p. 441). In answer to their plea for more public enlightenment on the Government's monetary intentions and policy, all the Treasury dogs, is to put out a background story to. spread • public mystification.

If it was part of the Chancellor's 5 per cent. design to kill the Stock Exchange' bdoin,. I am afraid he will have as little success as he is likely to have in restraining consumer spending.. The selling in the market which followed the. Bank rate announcement was smaller in volume- than that inspired by a BBC Panortitlia programme.

Clearly, Mr. Dimbleby stole " Amory's thunder.