Banks should increase returns on savings as interest rates rise, a senior Tory has told the Commons.

Harriett Baldwin, the Conservative chairwoman of the Treasury Select Committee, suggested banks should take the step if they are also raising mortgage rates in line with the Bank of England’s rate rises.

She was speaking in the Commons as Labour asked an urgent question on the mortgage market, with lenders pulling mortgage deals and hiking interest rates in recent days.

Labour MPs called for the Government to apologise, and linked the challenging market conditions to former prime minister Liz Truss’s brief premiership last year which saw the cost of borrowing spike.

Ms Baldwin said: “Does the economic secretary to the Treasury support the Treasury Committee’s campaign to ask the banks, instead of just raising mortgage rates on the day the Bank of England raises rates, why shouldn’t they also increase the savings rates that are paid to our constituents?”

Treasury minister Andrew Griffith replied: “It is important to me and this Government that savers get a fair deal. It is also one of the reasons why National Savings and Investments continues to offer savers an attractive range of products in the market.”

Tory MP Miriam Cates (Penistone and Stocksbridge) raised the problems faced by young people unable to buy a home “because of inflated house prices”.

She told MPs: “While recent interest rate rises have of course compounded the problem, isn’t the real problem actually that interest rates were far too low for far too long, turning savers away from saving and into property investment instead, pushing up prices of property as an asset?”

Conservative MP Nick Fletcher said: “Although the opposition like to blame the Government for this, I believe that the real problem (lies) with Covid and with the Bank of England.”

He added: “Does he not believe that we should see what the interest rate increases have done so far with the economy before the Bank of England keep on putting them up?”

Labour MP Fleur Anderson (Putney) said: “The minister has been blaming global factors again and again, but the cost of borrowing is higher here in the UK than in other developed economies.

“This is a Tory mortgage penalty. It’s a Truss tax”.

Shadow Treasury minister Pat McFadden warned the UK’s homeowners “are under increasing financial stress”.

He said: “All of this pressure was multiplied by the irresponsible decision of the Conservative Government to last year use the country for a giant economic experiment which put booster rockets under mortgage rates while they enacted their teenage right-wing pamphlet fantasies, using the country like lab rats.”

He added: “So will the minister now apologise for the Conservative mini-budget last September and the lasting effect it has had on homeowners around the country?

“And will the Government take responsibility for the decisions that it made and the consequences that followed? Or is it as they always claim, someone else’s fault?”

The Conservatives, he argued, are “fighting like rats in a sack over an honours list and a disgraced prime minister, and it is clear they can’t focus on the problems of the country”.

Responding, Mr Griffith referred to the US, adding: “What he didn’t address was what his plan would be and what he also didn’t acknowledge is that this is an international factor.”

The minister had earlier told the Commons: “We are not an outlier in this, as Opposition members will know.

“Central banks around the world are raising interest rates to combat high inflation driven by the pandemic and Putin’s war.

“Given inflation is the number one enemy, we’re focused on delivering the Prime Minister’s pledge to halve it this year. Nevertheless I know mortgage rates and the availability of mortgages are a concern right now.

“Mortgage arrears and repossessions remain below pre-pandemic levels and if a borrower falls into financial difficulty guidance from the FCA (Financial Conduct Authority) requires firms to offer tailored support and to deal with customers fairly.

The minister added: “As long as economic challenges exist, we will continue to stand by families, with total Government support to date to help households with rising bills in 22/23 and 23/24 totalling £94 billion, that’s equivalent to an average of £3,300 per household, as well as a record 9.7% in the National Living Wage.”