HL Deb 15 January 1976 vol 367 cc320-30

5.27 p.m.

Lord JACQUES

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Jacques.)

On Question, Motion agreed to.

House in Committee accordingly.

[The Lord NUGENT OF GUILDFORD in the Chair.]

Clauses 1 to 29 agreed to.

Clause 30 [Superannuation schemes]:

Earl FERRERS moved Amendment No. 1: Page 16, line 33, leave out ("pension ").

The noble Earl said: In moving this Amendment, I should explain that although I am a Trustee of the Trustee Savings Bank of Eastern England, this Amendment has been tabled entirely in my own name; it is not put down on behalf of the trustee savings banks at all and I can tell the noble Lord, Lord Jacques, that I shall withdraw the Amendment. I have tabled it because I feel that there is a very real point of concern here. It concerns the pensions commitment which the trustee savings banks are bound to take on after this Bill becomes law. One is always hesitant in involving oneself in anything to do with pensions because they are extremely complicated, but I do so on this occasion because an important point arises. This is a delicate area, and I know that the trustee savings banks have been in discussion with the Treasury over the Bill and, indeed, with the employees on the pension arrangements, and I do not want to interfere or disrupt anything that has been said between the various interested parties.

It is right that we should look at the system as it existed before the Bill came in and the effects that it will have on the trustee savings banks afterwards. Under the system which adhered up till now, each trustee savings bank paid salaries to its employees and at the same time paid a percentage of that salary into a superannuation reserve. That formed part of the Fund for the Banks for Savings and that money the Government took and used as they liked, as best they could, and paid back to the trustee savings banks a sum of money which was paid to the depositors plus a sum which included management expenses. For a long time they paid back £2 16s. per cent. —which was £2 10s. for the depositors and 6s. for management expenses—and the Government made what use they could of the remainder, which went into the Consolidated Fund.

When an employee retired, he received a pension based on the percentage of his retirement pay. The important point is that the paying of that pension came out of part of the management expenses—that is, part of the 6s. put down as management expenses. If pensions went up, so the banks paid more for the pensions, so the management expenses were increased and so the Government refunded to the trustee savings banks that increase of management expenses.

In 1971, the Pensions Increase Act came in. This tied the cost of pensions to the cost of living of civil servants and all others in like businesses, including the trustee savings banks. That was fine in theory, but, in my immodest judgment, it could prove disastrous in practice. Now, anyone who retires or who has retired has his pension automatically increased. When the trustee savings banks were part of the Government organisation, this payment meant an increase in the management expenses and the Government therefore recouped the banks for the extra expense which would be incurred. Now, however, the trustee savings banks are to be hived off. Clearly, those employed in the banks must expect pension arrangements under the new system similar to those which obtained under the old system. Clause 30(4) states this quite clearly as an obligation, which is quite right. There is of course an implied obligation for new employees taken on after the Bill to have not greatly dissimilar pension arrangements to those already employed in the trustee savings banks. That also seems to be right.

My question is: how is that to be paid for? When the trustee savings banks were part of the Government they had an obligation placed upon them to have index-linked pensions. Now that they are hived off that obligation—which is really an open-ended cheque—still attaches to them. I believe that these index-linked pensions can be an example of the road to hell being paved with good intentions. The trustee savings banks—which will now be commercial bodies—will have attached to them a liability to pay every employee, past and present, when he retires, sums of money which will be likely to increase every year and over which they have absolutely no control. Such sums bear no relation to whether the trustee savings banks can afford them or to whether the amounts are justified. The only criterion is what the Retail Price Index or the Cost of Living Index have done. The potential liability is simply colossal.

I wonder whether your Lordships realise quite what the liability is. Because of the Pensions Increase Act, a man who retired in 1972 aged 60 on a pension of £4,000 is now receiving £6,487, even though he has retired. If we areto assume the same rate of inflation as existed in the last 12 months, and if pensions increase at the same rate as they increased over those 12 months, by the age of 75 that man could be drawing a pension of £33,000. At the age of 80 his pension would be £105,000 and, believe it or not, at the age of 85 his pension would be £334,327. That is a staggering figure by any standard. I know that the first thing your Lordships will say is that everything depends on the rate of inflation staying as it is now and that it is coming down. That is perfectly true, but it does not mean to say that it will always come down. I can remember when we occupied the Benches opposite everyone becoming very anxious and my noble friend Lord Drumalbyn defending a rate of inflation of 10 per cent. Nobody in those days thought that the rate could possibly go up to 25 per cent., yet it has. In some South American States the rate has even gone to 200 per cent. I do not say that that will happen here, but who knows? The point is that the liability exists and that that liability is being put on to the trustee savings banks.

I am not here blaming the Government nor the trustee savings banks. Neither do I blame those who are carrying out the negotiations. I am merely using this opportunity to point out the liability which these banks will have to accept. What action is taken about that—and it may be none—is up to those who do the negotiating. But the fact is that any increase in these pensions must now come out of money which would have gone to the trustee savings banks' reserves. At the moment, the total funds of the banks are £4,000 million. It is anticipated that a reasonable reserve would be 10 per cent. of this figure—that is, £400 million. At the moment, the trustee savings banks have about £70 million in reserve, so that their reserves will have to be multiplied by about five times to reach the figure of £400 million by the time they are wholly commercial in 10 years' time. The reserves have therefore to be multiplied five-fold in the next ten years. That will not happen if vast sums have to be paid out of those reserves in order to pay for pensions.

I do not know whether the Government are quite aware that this is the situation. I only wish to draw this to your Lordships' attention. I should be glad to know what the noble Lord, Lord Jacques, thinks about this. It is, in my judgment, right to bring this to your Lordships' attention now because it could well be that in six, seven or eight years' time, the trustee savings banks could find themselves in a highly embarrassing position. I hope that that will not be the case, but it depends on one of two things: either the rate of inflation must come right down or the Pensions Increase Act must be amended. If neither of those things happen, I believe that there could be quite a problem.

5.38 p.m.

Lord HOY

We are grateful to the noble Earl, Lord Ferrers, for moving the Amendment, which he had every right to do, because when he said he did not blame the Government or the trustee savings banks for what has happened, he was quite right. He was a member of the Government which introduced the legislation which made this possible. It was neither the present Government nor the trustee savings banks but the Government of which he was a member which brought in the legislation which might allow what he has described to happen. I can understand that, having passed the legislation, he is a little afraid of what he did in the past.

I should like to turn to two other points, because I find it a little frightening that figures can be quoted and multiplication sums done to show that if somebody lives to 85 he will get a pension of £300,000 a year. If this were an attraction, we should all be rushing out of the doors during the next five minutes to get a job with the trustee savings banks because that would apparently be the way to get security and pensions which were never dreamed of when the Government were passing their legislation. What we must not do is to exaggerate what can take place. But I believe that the noble Earl is quite right to point out that there might be dangers with which we might be confronted. We must be aware of those dangers so that, if they looked liked arising, we could take steps to prevent that.

There are only two other points I wish to make. One of them is this. I do not like the expression that the trustee savings banks were "hived off". The trustee savings banks were not hived off. Whatever these banks might have been, they remain one of the greatest savings institutions, not only in Britain, but in the world. The change in the status of the trustee savings banks has come about because of the recommendations of the Page Committee. That committee recommended that the trustee savings banks could make an even greater contribution to savings in this country, provided that there were certain changes within the constitution. This is what the committee recommended and what the savings banks accepted. Indeed, it is also what not only your Lordships' House, but also another place, accepted. So the savings banks are not a hived off institution from something else; but rather an institution, and a greatly creditable one, in its own right.

We must remember, when talking about the savings banks in Great Britain, that one in every five people in this country has an account in the trustee savings banks—almost 11 million accounts. I should have thought that any institution in our country with that record had something to be really proud of. If any other country had such a record it would be saying so in a very loud and clear voice. I say to the noble Earl, Lord Ferrers, that he is right to point out the dangers that might arise. But I do not think that we should try so to distort those dangers as to create trouble in the minds of people in this country, or people anywhere else. We should also remember that this is not a hived off bank, but a bank in its own right, with a long record of service, unsurpassed in the savings movement of the world as a whole.

Lord JACQUES

The provisions of the Bill as regards superannuation do not impose upon the Central Board of the trustee savings banks any level of indexed pensions to be paid to the staff when they retire, except for those ex-staff receiving pensions when this clause of the Bill comes into force. All that Clause 30(4) does is to preserve the ability to reckon service. The clause, as amended, would be contrary to accepted superannuation policy by withdrawing this preservation. The trustee savings banks have freely entered into a commitment with the National Union of Bank Employees to continue indexation of pensions for staff, including existing pensioners, and have issued a letter of intent to their staff accordingly. This is wholly consistent with the superannuation provisions of the Bill, which seeks to free the trustee savings banks, except for existing pensioners, from Government control.

The cost of the commitment depends on a number of factors. First, it depends upon the effect of inflation not only upon costs, but the effect of inflation upon the inflow of deposits into the bank. Any effect which inflation may have upon the inflow of deposits into the bank will reduce the unit costs, whether it be the cost of the superannuation scheme or any other cost. That is certainly a factor to be taken into account, but which has been completely ignored by the noble Earl. Another factor is, of course, the future rate of inflation. Recent figures show that the Government's counter-inflation policy has not been altogether without success. But the cost of indexation to the trustee savings banks is the price that they are prepared to pay as a good employer.

The banks' policy for some years has been parity with the public sector, and the resultant cost has been met by the banks. There is no change in the funding arrangements. The recent decision was freely negotiated after the Bill was published. The figures quoted by the noble Earl were, in some way, misleading. He quoted the figure of £2 16s per cent. This was the rate of interest paid on the Fund for savings for a few years up to 1954. The figure is now 7¼ per cent. Therefore I suggest that the figures used by the noble Earl are out of date.

I should also point out that the cost of the pensions has come only partly out of this, and partly out of the income from the special investment department, which has been quite separate. As I said on Second Reading, there is no justification for the Government themselves to take on any part of the cost of this superannuation agreement. Indeed, it would be against the main purpose of the legislation, which is to enable trustee savings banks to develop into a third banking force, competing in the personal sector on fair terms. If we had done very much to help the banks we should have had complaints from the other side of the Committee that the terms were not fair to the other banks.

Earl FERRERS

I am grateful to the noble Lord for that reply. He said that I was slightly out of date in my figures. Of course I gave those figures only as an example. I knew perfectly well that they were figures for some years ago, but I thought it would be perfectly simple to take a clear example. If the noble Lord says that the figures are now different, and that what the trustee savings banks are getting is 7 per cent., then that is perfectly true. But had the trustee savings banks been able to run their own pension funds and invest the money themselves, they would be getting 14 per cent.; whereas at the moment only 7 per cent. is paid back to the trustee savings banks. I was giving those figures only as an example—

Lord JACQUES

May I point out that those figures arc 22 years old, and that indexation of pensions came in 20 years after that?

Earl FERRERS

I do not quite know what the noble Lord is getting so anxious about. All right—but the tact remains that the trustee savings banks are paid back at the moment a certain sum of money to pay their depositors, plus a certain amount for management expenses. I said in an example which I used that that was 6s. Now it is something in the nature of 3 per cent. I was using only an example and I do not want to become any further involved with that.

The noble Lord, Lord Hoy, said that I was right to raise this matter but that one should not distort it. I did not think that I was distorting it. I hope that the noble Lord will appreciate that my explaining what could happen—not what will happen—in relation to the obligation which is being put on the banks, was not in fact a distortion but rather a reality. The noble Lord said that of course I would not say that it was our fault or the bank's fault; but it was our Government which brought in the pensions Act. I quite agree with him and I will tell him this. I think that that Act was a mistake. I think it was a mistake because it put not only on the trustee savings banks but on the whole of the Civil Service that liability which was an open-ended commitment. If the noble Lord says that I would not be prepared to admit that, then I say here and now that I believe our Government made a mistake.

However, I am grateful to the noble Lord for his reply. He slightly missed the point, because he did not really answer it, and I did not expect him to answer it, other than to say that there is this commitment which could prove an embarrassment. I think that he probably takes the point there. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 30 agreed to.

Clauses 31 to 37 agreed to.

Clause 38 [Short title, citation, commencement and extent]:

On Question, Whether Clause 38 shall stand part of the Bill?

5.48 p.m.

Earl FERRERS

This has been, and is, an entirely non-Party Bill, but I wanted to give the Government one opportunity of replying to the following point. As the noble Lord, Lord Jacques, will know, there has been a certain amount of speculation recently—particularly in the New Year period—about the possibility of the nationalisation of banks. Any Government, or Party, are entitled to bring forward or consider schemes. But I saw an article which said: The Trustee Savings banks, now merging into 18 regional units, are the best nucleus for a peoples bank to channel workers' savings into investment to create new jobs, perhaps taking over the Giro's central accounting system in the process. I do not believe for one minute that the Government have any intention to do that, but as that is the type of thing which has been said I wanted to give the Government the opportunity to deny it totally, and I hope that they will do so.

Lord JACQUES

I am very pleased to hear that the noble Earl did not believe it although he read it, and that he regarded it as speculation. I can say quite emphatically that the nationalisation of the banks is no part of Government policy. The Government are taking action to stimulate competition in the banking sector by legislation on the expanded roles of the trustee savings banks and the Giro. They also intend to introduce a system of prior authorisation for banks and other deposit-taking institutions. Government policy does not go further than these developments. The noble Earl may therefore be assured that the Government are genuinely seeking the expansion of the trustee savings banks through this Bill.

Earl FERRERS

I am very grateful to the noble Lord for that statement. It will certainly give a lot of reassurance to anyone who might have been persuaded by such articles as those which have appeared, and I am very grateful to him for saying what he has.

Clause 38 agreed to.

Schedule 1 [Provisions as to the Trustee Savings Banks Central Board]:

Lord JACQUES

At this juncture, may I assure the Committee that all the Amendments remaining to be dealt with are Government Amendments and are either drafting or consequential Amendments. Amendment No. 2 corrects an error in the original draft. I beg to move.

Amendment moved— Page 23, line 11, leave out (" this paragraph ") and insert (" paragraph 12 of this Schedule ").—(Lord Jacques.)

Earl FERRERS

I am grateful to the noble Lord for explaining that these are all entirely drafting Amendments. My only comment would be that it is unfortunate that they did not appear slightly earlier than they in fact did, because I think we had the Second Reading debate well before Christmas and these Amendments appeared only on Monday of this week, which seems quite a short while before the Committee stage. But I am grateful to the noble Lord for saying that they are in fact entirely drafting Amendments.

On Question, Amendment agreed to.

Schedule 1, as amended, agreed to.

Schedules 2 to 4 agreed to.

Schedule 5 [Consequential and minor amendments]:

5.53 p.m.

Lord JACQUES

The reference at this point should have been to section 17(1) of the Pensions (Increase) Act 1971, and not to section 17(2). This Amendment corrects the error. I beg to move.

Amendment moved— Page 31, line 37, leave out (" (2) ") and insert (" (1)").—(Lord Jacques.)

On Question, Amendment agreed to.

Lord JACQUES

There is no Part IV of Schedule 2 to the Pensions (Increase) Act 1971. The reference should have been to Part III. This Amendment corrects that error. I beg to move.

Amendment moved— Page 31, line 39, leave out (" IV ") and insert ("III ").—(Lord Jacques.)

On Question, Amendment agreed to.

Lord JACQUES

This Amendment deletes the title and the whole of paragraph 21 of Schedule 5. The Pensions (Increase) Act 1974 affected a limited number of people for a limited period of time, and since it is now spent it does not require amendment. Therefore, this Amendment deletes that reference. I beg to move.

Amendment moved— Page 32, leave out paragraph 21.—(Lord Jacques.)

On Question, Amendment agreed to.

Schedule 5, as amended, agreed to.

Schedule 6 [Repeals]:

Lord JACQUES

Amendment No. 6 is consequential upon Amendment No. 4. I beg to move.

Amendment moved— Page 34, line 28, leave out (" IV ") and insert (" III ").—(Lord Jacques.)

On Question, Amendment agreed to.

Lord JACQUES

Amendment No. 7 is consequential upon Amendment No. 5. I beg to move.

Amendment moved— Page 35, leave out lines 6 to 9.—(Lord Jacques.

On Question, Amendment agreed to.

Schedule 6, as amended, agreed to.

House resumed: Bill reported with the Amendments.