FINANCE (SAVINGS BANKS) (Hansard, 22 April 1947)

§ Mr. Howard (Westminster, St. George's)
I want to ask for some further information regarding the extremely unsatisfactory explanation which the Chancellor started to give on this matter on Thursday last. As I read this Resolution, it is a matter of the greatest importance. Unless I totally misunderstand it, the Chancellor's explanation seems to require to have a good deal added to it or withdrawn from it. I will remind the Committee of what the Chancellor actually said when dealing with the matter in his Budget speech. He said: I shall also propose—this is a small technical point—a Resolution to put the backing of the Consolidated Fund behind the deposits of the Savings Banks. That is a technical matter, which I shall explain in Committee. The effect will be to tidy up our accounts, and to give depositors even better security than they have at the present time."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, C. 57.] The Chancellor claimed that it was a technical point and that he would give an explanation in Committee. I do not know whether he had forgotten that undertaking, but he seemed rather surprised when asked in the most courteous way by my right hon. and 968 gallant Friend the Member for Gainsborough (Captain Crookshank) whether he would give some little explanation when he reached the Committee stage. I think the Committee possibly has not realised the grave implications of what the Chancellor said on that occasion. The Chancellor said: The rate of interest on the Savings Bank deposits stands at 2½ per cent. It has so stood for a very long time, and I have no intention of altering it. Here comes the important passage: The consequence, however, might be—although it is not yet the case—that a deficiency would arise on the Savings Bank accounts. As the rates of interest on Government securities in general have been brought down, it might be that when we take account also of expenses of management, in a year or two's time, if the cheap money policy progresses well, there would be a slight deficiency on these accounts.— a deficiency on the savings bank accounts— For these reasons we desire to institute a change of practice.… the purpose being to give an even greater security than at present exists for those deposits.''—[OFFICIAL REPORT, 17th April, 1947; Vol. 436, c. 467–8.] Is that the purpose? Is that the true explanation? I hesitate to use positive words in regard to what I understood the Chancellor to mean by this, but I ask the Financial Secretary whether it would be unreasonable to assume, from the Chancellor's words, that there is a danger in a foreseeable future time, which may not be far off, that the Post Office Savings Bank and the trustee savings banks will, on account of the cheap money policy, be unable to earn sufficient so that after the payment of their expenses they can meet what is due to their depositors in full. It certainly gives that impression. There is also the way in which this Resolution is divided into two parts. It refers first to any sums that may be paid into these banks as may be set forth in the Finance Act. The second part—I would particularly like to ask for an explanation of this because it seems to me an astonishing practice—refers to: … such expenses (including the remuneration of members and officers) of the Inspection Committee. … Would it be fair to say that these inspection committees are rather equivalent to the functions of the auditor in ordinary company work? It is perfectly normal in a company to pay the expense of having the company's accounts audited. 969 It was perfectly normal that the expenses of inspecting the accounts of these savings banks should be charged up to those banks, but now it is suggested that the special statutory provision which provides for that must be withdrawn. Does it really mean that the Post Office Savings Bank and the trustee savings banks are going to be unable to pay the expenses of having their accounts inspected? I repeat that I dare not assert that these interpretations are the correct ones. Unless I am hopelessly misguided by the wording, I beg the Chancellor's deputy to give a fuller explanation and, if necessary, to withdraw the explanation which the Chancellor gave on Thursday of last week.

§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
This Resolution, as the hon. Member for Westminster, St. George's (Mr. Howard) said, is to provide for meeting a possible deficit that might arise in the finances of the savings banks, that is, the Post Office Savings Bank and the trustee savings banks. The deficiency has not yet occurred, and we are not certain yet that it will, but if does appear to us likely that one will occur next year or the year after, in both of these great institutions. The reason why we expect a deficiency is that the rate of interest which is offered to depositors in both these organisations is 2½ per cent. There was a discussion some time ago as to whether the rate offered to depositors in the Post Office and Trustee Savings Banks should be reduced below 2½ per cent., and fairly recently the Chancellor of the Exchequer announced that there was no intention of doing that and that the rate of 2½ per cent. would be continued in order that small savers should be attracted to put their money into one or other of these institutions. If we give to depositors 2½ per cent. and if now, owing to the cheap money policy which is being pursued by the present Government, money can only earn 2½ per cent., it is quite obvious that presently there will be a difference between the 2½ per cent. which can be earned by investment and the 2½ per cent. which the banks themselves give to the depositor on the money which they in turn use and invest.
Actually on the Post Office Savings Bank it is necessary that 2¾ per cent. should be earned because 2½ per cent. is given to the depositor by way of interest, 970 and the overheads, expenses of management and so on amount to another ¼ per cent.—[An HON. MEMBER: "At least."] I think it can be assumed that that is pretty accurately the figure. When we come to the trustee savings banks I think it is three-eighths, making it 2⅞, which has to be earned. It is quite obvious that a deficiency might arise. We believe that it is desirable that 2½ per cent. should continue to be given to small savers who deposit their money in these institutions, and therefore it is essential that we should do something to put the credit of the State behind the Treasury in this matter, and that is what we propose in this Resolution. We believe this is the right thing to do. It will reassure the small saver that he can absolutely rely on the maintenance of his interest at 2½ per cent. and that there will be covering authority for investment of the funds in furtherance of the Government's policy, and not purely on income considerations. For these considerations we ask the Committee to give us the Resolution which we think right and proper in all the circumstances of the time.

§ Captain Crookshank (Gainsborough)
I think at this hour of the night the right hon. Gentleman can have his Resolution, as, after all, it is discussable again, but my hon. Friends may have points to raise on it at a later stage. It is quite true that this Resolution was introduced as a result of the House last Wednesday having given the Government authority to intro duce it, and that it was not discussed, because it came immediately before the resumption of the Budget Debate, which was not a convenient occasion for discussing it. The right hon. Gentleman, or the Chancellor, will have to explain on some future occasion why they have taken the course of introducing this Resolution leading up to Clauses in the Finance Bill. At first sight, it looks like the grossest tacking. It is extremely dubious if the matter is completely in Order, but the House having passed the Resolution, the Government are covered on the point as to whether it was constitutional procedure or not. On the proper occasion we shall expect the Chancellor to give an explanation why this procedure was adopted.