CONSIDERED IN COMMITTEE. (Hansard, 13 February 1863)

§ THE CHANCELLOR OF THE EXCHEQUER
The object of my proposal that the House should go into Committee is to obtain a preliminary Resolution for the purpose of enabling me to bring in a Bill which relates to Post Office Savings Banks. It is a Bill which touches, it is true, in one or two particulars upon the powers of other savings banks, but simply in relation to the transactions between both classes of savings banks. Nothing whatever is done by it with respect to the management of the old savings banks, or the management of the funds held on behalf of the old savings banks. For that reason I propose that it should be called the Post Office Savings Banks Bill. The Resolution which I shall move shall be in conformity with the terms in which the Committee was appointed, and will be somewhat of a general character, and will not refer to some portions of the Bill. The Bill is a short and simple one, and I will state to the Committee in two or three minutes what will be the principal provisions of the Bill. At present there is no legal method of enabling old savings banks to wind up. A certain portion of them have expressed, and—so far as dependent upon the trustees and managers — have acted upon their desire to wind up. Now, I do not think that the provisions for enabling the old savings banks to be wound 321 up are likely to be very extensively acted upon. We have had now some experience on this point; and though a considerable number of the old savings banks have done what in them lay to wind up their transactions and hand over their deposits to the Post Office savings banks, yet when we look at the number and degree of development which those savings banks have reached, the number which has done so is comparatively trifling. There are about 600 savings banks in the country, and of these between thirty and forty had desired to wind up their affairs. But the Committee will be able to judge what is the comparatively small scale of the transactions of the great bulk of those savings banks when I state that the average amount of deposits in those savings banks which have been desirous of winding up is only about £7,000; whereas the average of deposits in the remaining savings banks, nearly 600 in number, is nearly £70,000. The Committee, therefore, will see that what we have to provide for is not the likelihood of any general, sweeping, or rapid change from one class of savings banks to the other, but the desire which has been, perhaps naturally and reasonably, expressed by the managers of a certain portion of savings banks where their sphere of action has not been an extended one, to divest themselves of their labours and responsibility, and to hand over the whole of their cash and assets to the Post Office savings banks and the Commissioners for the Reduction of the National Debt, subject to all claims of depositors upon that cash and those assets. That is the principal legislative object of the Bill which I shall seek to introduce, if this Resolution is accepted by the House.
There is in view also another legislative object—one which involves more details— but its general purpose is this:—The law has very justly imposed somewhat stringent restraints upon the withdrawal of deposits lodged in savings banks on behalf of minors, especially of minors under seven years of age; and in some cases where the Legislature has not by any direct enactment taken that course, the same result has been brought about by laws which have from time to time been framed by the managers of the different savings banks, which have received the assent and approval of the Commissioners for the Reduction of the National Debt, and have thereby acquired the force of law. These 322 restraints have placed the accounts of minors under seven years of age in such a position that a transfer of their accounts to the Post Office savings banks cannot upon any conditions be effected. Now, however desirable and wise it may be to impose stringent limitations upon the withdrawal of their deposits or upon dealing with their accounts while they are at that tender age, it is right that some means should be provided for allowing the transfer of their deposits by a transfer certificate to the Post Office savings banks. A great number of applications have been addressed to us by various parties — for instance, by trustees of existing savings banks and by the guardians of children—and representations have been made to us signifying the desire that those powers should be given, and the object is so obviously reasonable— though the mode of proceeding should be carefully considered—that I do not conceive there can be any difference of opinion on it. I have a number of letters containing such applications made to us. For example, in many cases the parents of children apply to have the accounts of their children transferred from the one savings bank to the other, but cannot effect it. I shall propose in the Bill that powers for this purpose shall be given, and that reciprocal powers shall also be given for transferring in like manner deposits from Post Office savings banks to the old savings banks whenever it may be desirable. The other important point contained in the Bill is one on which we propose the adoption of the following Resolution, namely: — That it is expedient to amend the law relating to Post Office Savings Banks, and to grant powers for the conversion of certain perpetual Government annuities, standing in the names f the Commissioners for the reduction of the National Debt, on account of Post Office Saving? Banks, into certain other stock and annuities, I will endeavour to explain briefly the object of this Resolution. It relates to a subject of great importance, though it deals within a very limited area. As far as my experience has gone, either in the office I have the honour to hold or elsewhere, there appears to me to be on the part of the Members of this House, and likewise on the part of the public, a very general desire to give further extension—indeed, a great further extension, if possible—to the principle which long has been introduced into our law, and the working of which, as far as it goes, is eminently salutary—I mean the principle and practice of convening the perpetual 323 annuities, of which the National Debt mainly consists, into terminable annuities either for lives or for terms of years. The extent to which we are at present able to operate on that principle is as follows:— There are certain annuities existing which terminate in 1867; there are large annuities payable at the Bank of England, and there are certain other annuities, principally such as were created by my right hon. Friend the Secretary of War during the course of the late war with Russia. To those annuities so created by him there have been added during the two or three last years the annuities created on account of the Fortifications, and likewise a small amount of public annuities now in the market on account of the Red Sea Telegraph, which is, however, a very small amount indeed. Besides these particular annuities—which are public annuities, expiring at certain fixed dates—there is in operation a system by which, partly and mainly through the National Debt Office, and partially and to a limited degree through a portion of the savings banks of the country, annuities may be purchased on good terms by individuals either for their own lives, or for the lives of certain other persons, or for terms of years. That is the extent to which that system is carried, quite apart from the other annuities of which I have spoken, terminating in a lump, so to speak, at certain dates. It may be said roughly to amount to the conversion of about £1,000,000 of stock per annum. That is not a very large amount, and it is constantly asked why we do not operate more largely for the reduction of the National Debt by the conversion of perpetual into terminable annuities. The answer is, that annuities are a commodity that can be sold favourably in the market under certain circumstances, and to a certain extent, but they are a commodity of which the general market entirely refuses to receive more than a very limited quantity, except on terms so disadvantageous to the public that the Government would not recommend the operation, nor would Parliament be disposed to authorize it. But it appears to us there is a mode perfectly safe and simple by which we can give expansion to this valuable principle of converting perpetual into terminable annuities by operating on the funds that come into our hands in respect to the Post Office savings banks. I will not ask the Committee for an opinion, nor give an opinion on the part of the Go- 324 vernment, respecting the application of the principle to the larger amount of public money which we hold on the part of the old savings banks. In dealing with the funds we must bear in mind—though it is a contingency unlikely to occur—that we might be compelled, in order to meet the claims of depositors, to go largely into the market as sellers of stock. It follows, therefore, that we must reserve in our own hands means ample enough to meet any such possible though not probable demand. Therefore I would not venture, small as comparatively are the funds held on account of Post Office savings banks—and it is almost certain from all indications that there will be an influx and not an efflux of money—to ask the House to take a general power for converting the whole of that property into annuities. What I propose to do is this—to convert the present annuities that are perpetual into new perpetual annuities of a lower denomination, and taking the difference between the value of the old denomination and the new one to convert that amount into terminable annuities. Suppose, for example, there is a sum of £100,000 3½ per cent stock; we propose to take powers to convert that £100,000 3½ per cent stock into £100,000 2½ per cent stock. The consequence will be that we shall always have a marketable commodity on hand; and 2½ per cent, in consequence of its very low denomination, is a stock that usually commands a very good price in the market. Then what becomes of the difference between the £2 10s, and the £3 10s. stock? That I propose to take powers to convert into terminable annuities. It seems that the sums held by the Post Office savings banks—though large considering the time the system has been in operation—are at present but very small. They amount to something between £1,500,000 and £2,000,000. Anything, therefore, that can be done at the present moment must be done on a small scale, but it is quite possible — at least I will not say it is unlikely — that as the deposits in those banks become larger, the scale on which the principle may be applied will become more extended. I hope the Committee will understand what the effect will be of the proposed operation. The principle of the Resolution I propose is that a limited power should be taken to convert perpetual annuities into terminable annuities. That may be done either by converting a portion entirely into 325 terminable annuities, by converting the whole, or by converting part into perpetual annuities of a lower denomination than they now hold, and at the same time converting the difference between the lower and the higher denomination into a terminable annuity. The effect of the latter course will be that, without encountering the inconvenience of having to sell those terminable annuities in the general market, which is not adapted to receive them, we shall be able to act more extensively, and by adding by very gentle degrees to the present annual charge, borne on account of the interest of the debt, to gradually reduce the debt itself at a future period. Those annuities would, in point of fact, be very convenient to hold on the part of the Post Office savings banks, and eminently desirable securities, though not desirable securities to carry into the general market. That is the only explanation that I can offer at present in proposing a Resolution of this general character. Probably it is the desire of the Committee to see the Bill in print, and I shall be able to lay it on the table on the day after this Committee shall have reported. The mode in which the provisions I have sketched will be carried into effect will be quite plain. The right hon. Gentleman concluded by moving a Resolution as follows: — That it is expedient to amend the Law relating to Post Office Savings Banks, and to grant powers for the conversion of certain perpetual Government Annuities standing in the names of the Commissioners for the Reduction of the National Debt, on account of Post Office Savings Banks, into certain other Stocks and Annuities.

§ SIR STAFFORD NORTHCOTE
said, he did not quite understand the right hon. Gentleman on one point. Was it intended by the Bill to give the option of converting a portion into terminable annuities in either one or of both the ways mentioned; or would the Bill prescribe which of the two ways were to be adopted?

§ THE CHANCELLOR OF THE EXCHEQUER
said, that what he meant to have done was to describe the scope of the Resolutions. He asked the Committee to assent to the principle of conversion in some form. The form he thought to be the safest was that of converting into terminable annuities only the difference between the lower and the higher denominations. That, therefore, was the form in which he should propose to place it in the Bill; but the other mode would be compatible with the principle of the Resolution.

§ SIR HENRY WILLOUGHBY
said, he had more than once called attention to the extreme inconvenience of the House being called upon suddenly to express opinions on subjects which were certainly more or less complicated, but with which the right hon. Gentleman might be familiar. They had had only ten days' notice, and the notice was for a Committee on Post Office-savings banks. True, the words "other savings banks" were introduced, and that was all there was to lead them to suppose that a measure might be introduced which would apply to the old savings banks. The scheme of the right hon. Gentleman might be good or bad, but it was one on which the Committee could give no opinion at that moment. Certainly no one would have guessed that the first measure relating to Post Office savings banks would be a provision to wind up the old savings banks. He was aware that there might be some small banks which might desire, to avail themselves of such an opportunity; but hon. Gentlemen would rather have liked to know that such a scheme was in the mind of the right hon. Gentleman. He should like to be informed whether the right hon. Gentleman proposed to give to the old savings banks whatever powers of transfer he meant to confer upon the Post Office savings banks. [The CHANCELLOR of the EXCHEQUER: Minus the accounts.] Of the proposition of the right hon. Gentleman in a financial point of view he should not say a word, although he thought it looked somewhat like a favorite scheme of his of trying to get 3½ per cent for 2½ per cent stock. Whatever, he might add, was the value of the terminable annuities, there was one difficulty connected with them, which was the operation of the income tax.

§ MR. AYRTON
said, that if he had understood the proposition of the right hon. Gentleman aright, it was this—that £100 of 3 per cent stock would be converted into £100 2½ per cent stock and a certain amount of terminable annuities, which would cease at a fixed date, when only the 2½ per cent stock would be left. When the terminable annuity ceased, would not the capital of the Post Office savings banks be diminished to that extent? How was the capital fund to be kept intact?

§ THE CHANCELLOR OF THE EXCHEQUER
said, he did not think the hon. Gentleman had correctly gathered what would be the effect of this measure. They had entirely cleared off, in the case 327 of the Post Office savings banks, those ambiguities which attached to the relations of the different parties concerned in the old savings banks. In the case of the Post Office savings banks there could be no doubt that both in law and in fact the State was simply a banker, stipulating to pay a certain fixed interest for the deposits of the public, and the public understood that the credit and the property of the country were their security for the due payment of that interest. That being the case, the public neither knew nor cared what was done with the money while it was in the hands of the Government; for if the system was an extravagant one, they did not suffer; and if, on the contrary, it was an economical and a wise one, they gained nothing. As to whether the Post Office savings bank system was a paying system, he should not enter into that question, as the materials for coming to a conclusion were not then before the House. But while not prepared to assert anything positively, he believed, and the very diligent and intelligent public officers who had been engaged in developing this system, fully believed, that those banks would not cost the country one shilling. Even supposing the case as put by the hon. Member, that there was a conversion into a perpetual stock of a lower denomination, which no doubt would be of less value in the market, the difference came to be this —that instead of receiving a fixed sum from year to year in perpetuity of a certain amount, they would receive two things: one, a fixed sum in perpetuity of a lower amount, and therefore representing a smaller capital; and the other, a circulating system which, from year to year, brought back portions of the capital, along with the annual interest. The portions of the capital so brought back, with other deposit monies, would be matter for annual re-investment; and that was the mode in which the system would work. It was highly important that the Post Office savings banks should be a self-supporting system; and he was very hopeful that it would be able to stand the test of the searching examination which the House would make in due time.

§ THE CHANCELLOR OF THE EXCHEQUER
said, that the process would be simply this—taking the smallest example of a particular annuity of £3 per cent, they would cancel that annuity and 328 create in lieu of it a perpetual annuity of 50s. per cent, converting the other 10s. per centum into an annuity terminable at a fixed period, say, for example, 1885. With respect to the rate of interest, that was a question which the Government were constantly called upon to consider with regard to fortification and other annuities. Their regular practice was to consult the financial officers attached to the Government, and also the Governor and Deputy Governor of the Bank of England; and there was never any difficulty as to the rate of interest, which was always made rather favourable to the purchaser than otherwise, and would therefore be favourable to the buyer of the annuity in the present case.

MR. HENLEY
said, that it was not his intention to express any opinion upon the scheme, beyond that he understood the right hon. Gentleman to propose that there should be a certain number of perpetual annuities in the hands of the Post Office savings banks, but the House should remember that the sum of which he spoke would be still due to the country in hard money, though it would bear less interest. For his own part, he must say the scheme certainly seemed to him like paying the interest in two different ways, which was an odd method of reducing a debt.