NATIONAL LOANS BILL. (Hansard, 17 May 1945)

§ THE LORD CHANCELLOR

My Lords, I beg to move that this Bill be read a second time. The Bill consists of only two operative clauses, the first of which is strictly on the lines of others with which we have been engaged for several years past. The object of Clause I is to renew for the financial year 1945–46 the borrowing powers originally conferred on the Treasury by the National Loans Act, 1939, and since renewed annually by successive National Loans Acts. It is, of course, inconceivable that we should require to borrow to the full extent of these powers, since a large part of our supply expenditure is covered by revenue; but there must be some statutory limit to the Treasury powers and there is no logical limit short of the total amount of supply and the margin of £250,000,000 which is provided, because actual supply and expenditure in any year must take place in that year. Therefore it is necessary to have a margin as we pass over from one year to another.

230 Clause 2 is a clause of a novel character. This clause extends the powers of trustee savings banks to invest in national loans, and I think even in the circumstances of to-day I should very briefly state what this involves. A trustee savings bank normally has two departments. There is first the "ordinary department," where the deposits received must be handed over to the National Debt Commissioners for investment through the Savings Bank Fund and where the depositors receive a fixed rate of interest of 2½ per cent. Secondly, there is the "special investments department," where the deposits received are invested by the bank itself in a variety of ways and the rate of interest depends, from time to time, on what the bank can afford to pay. The rate is generally rather higher than 2½ per cent. A common rate at present is 2¾ per cent. But in making the investments for its "special investments department" a bank is subject to the control of the National Debt Commissioners and to various statutory provisions.

The effect of this legislation is that a bank may invest its special investment moneys (a) up to any amount in Government securities maturing not more than three years, or in other securities maturing not more than one year, from the date of investment, or in securities repayable on notice of not more than six months; (b) in local authority or Northern Ireland Government securities maturing for payment within fifteen years; and (c) in Government securities maturing for payment within thirty years. But the existing Statute Law contains a limit within which these operations are authorized, and without going into detail I may say that the amount under (b) and (c) together, excluding those falling under (a), shall not exceed 4o per cent. of the bank's special investment receipts.

What has happened during the war is that trustee savings banks have invested with the Treasury all the increase in their special investment deposits, and as a result some banks have reached the 40 per cent. limit to which I have just referred. We have also prolonged the period of what are called the tap issues beyond the thirty-year limit. It is desired by everybody that all trustee savings banks shall—no doubt, within limits—be able to continue to support the war loans which the Treasury issues under 231 the National Loans Act. There is another influence at work in the same direction. I may remind your Lordships that a few weeks ago, I think on my proposal, we adopted an important Bill which centralized borrowing by local authorities in the Local Loans Fund, more profitably, and regulated the way by which local authorities can help themselves, on cheap terms, to the money they want. That means that there will be very little scope for trustee savings banks to take up new securities issued by local authorities.

If your Lordships will look at subsection (1) of Clause 2, you will see that it extends the maturity limit from thirty to forty years. Subsection (2) extends the 232 limit of 40 per cent. so as to meet this new situation. The matter is of very great importance, and I need hardly say that the trustee savings banks and all the authorities of all kinds who are concerned have been consulted. This Bill comes from the House of Commons, where it has been accepted without alteration, and it is of course commended to the House with the authority of the Treasury. I beg to move that the Bill be now given a Second Reading.