§ Order for Second Reading read.
, in moving that the Bill be now read a second time, said, he would endeavour to make a clear statement of its objects; and he would endeavour to distinguish between the objects that were vital to the Bill and those that were improvements of the law and useful for the development of our Savings' Bank system. The Bill had four distinct objects, the first of which was the most important. It was to provide for the extinction of the large deficiency upon the funds available for meeting the demands of the Trustee Savings' Banks. This deficiency, in truth, was a concealed portion of the National Debt of which the House took no cognizance in the course of its ordinary proceedings, and it was never brought before it as a portion of the national obligation. A very important and wise step was taken by the late Chancellor of the Exchequer for providing that the house should be called upon from year to year to vote a sum of money represented by the interest upon this deficiency. The measure was not only sound in principle, but it had the effect of calling the attention of the House to the existence of the deficiency itself. Acting in the spirit of that proceeding, he now proposed to make provision for the extinction of the deficiency itself. That deficiency amounted, as he reckoned it, to the sum of £3,565,000. That, however, was a larger amount than the sum which stood as exhibiting the deficiency in the account taken last November, when a statement of the assets and liabilities. 326 of the National Debt Commissioners in account with the Savings Banks Trustees was presented to Parliament. The reason was that the annual account was naturally and reasonably based upon the price of the public securities on the day when the account was taken. His object now was to present the matter to the House from a different point of view, and to provide a common measure for the values of different years, in order that the House might be inclined to trace and to follow the growth or diminution of this deficiency. For this reason it was necessary to fix upon a valuation of the funds. He had taken as the valuation that which represented the interest at 3¼ per cent as the well-understood average at which the public could borrow, taking one year with another, which mode of computation, 92 and some shillings, was the mode of computation for the value of the Consols laid down by the Commissioners, the other stocks and securities following Consols. It was upon that basis, which enabled them to compare one year with another, that the deficiency stood at something over £3,500,000. The mode in which he proposed to provide for it was by constituting Annuities which would pay it off in the course of about 25 years. He was sanguine enough to anticipate little or no difference of opinion on the propriety of getting rid of this deficiency. The wound had been stanched to a certain degree already, and now it ought to be completely healed. The next proposal, which was also a vital portion of the Bill, was the proposal to reduce the rate of interest now payable to the Trustees of the Savings Banks from £3 5s. to £3 per cent. The principal ground on which he made this proposal was that they could not afford to pay £3 5s. He believed his right hon. Friend the late Chancellor of the Exchequer was of a different opinion on this point; but he (Mr. Gladstone) thought he should be able to demonstrate that he was correct. There was no doubt that at times, and in certain forms, they could borrow at less than 3; or even at less than 3; but, on the other hand, at times the public had to borrow at a higher rate. In 1855 money was borrowed at £3 12s. 6d., or 3⅝ The loan was made up partly of £100 Consols and partly of Annuities, and the 3 per cent was represented by the annual interest of the Consols. It 327 was quite true that on a certain occasion they could not borrow under 3¾ per cent; but he thought the late Chancellor of the Exchequer a good deal relied upon that rate of interest as the rate they found it expedient to give on the part of the State to the National Debt Commissioners. Was it not a fair inference to draw, that if, for the interests of the State, and to purchase Annuities, they borrowed of the National Debt Commissioners at the rate of £3 15s. per cent, it would be reasonable that £3 should be paid to the Trustees of the Savings Banks? As he was responsible for these £3 15s. Annuities, he wished to explain the thoroughly exceptional character of the transaction, which unfortunately had been lost sight of. These Annuities were first created in the year 1860, which was a period when the financial position of the Chancellor of the Exchequer was totally different from what it was now. He had then to deal only with the old Trustee Savings Banks. They found him money to invest in prosperous years, when he did not want it, and they drew largely upon him in years that were not prosperous when he did want it. Money was required for fortifications, and it was provided by Parliament by Annuities; but now it would only be necessary to go to the National Debt Commissioners and obtain Annuities at a rate nearly corresponding with the rate shown by the price of the public Stocks. In this case they were bound to have some regard to the terms on which they could have sold these Annuities in the open market. They could not have sold them except upon unfavourable terms, and they were bound to proceed in the manner he had described. The National Debt Commissioners were obliged to sell Stock to meet the funds to be borrowed on the Annuities. It would not be a fair arrangement, in that state of things, when they were bound to sell Stock at the time, if they did not give a rate of interest as liberal as that they accepted. That rate of interest was wholly out of the question in the present state of things, when the National Debt Commissioners were not dependent upon any risk in the sale of Stock. He had asked himself a question still more radically illustrative and decisive of the whole matter—namely, whether the public could show themselves, from the accounts of the National 328 Debt Commissioners, able to afford to pay a rate of interest amounting to £3 5s. He would demonstrate to the House that they could not afford to do it. An opinion had somewhat widely prevailed that the existing deficiency in the assets of the National Debt Commissioners as compared with their liabilities to the Trustees of the old Savings Banks was a deficiency created before 1844. But be thought it was demonstrated by figures that this was not the case, a considerable deficiency having been created since the date mentioned. The deficiency in November, 1844, was £1,633,000; and in order to bring the question to the test of figures he should wipe out the deficiency then existing. The mode in which he did this was by setting aside in the account that sum of £1,633,000 and allowing it to accumulate at a uniform rate of interest—namely, 3¼ per cent-—till next November. That sum credited with compound interest would have risen to a sum of £5,004,000. For the purpose of his computation that was the amount which he had to put down to the credit of the fund. To the debit he had to put down all that they had given to the fund since 1844 and the present deficiency. A comparison of those two sums showed what had been the loss since 1844. The actual deficit on November 28th, 1879, was £3,565,000; but in 1863 he proposed to Parliament as Chancellor of the Exchequer, and Parliament agreed with him, to make a, present to the Savings Bank Funds off £1,644,000, which, of course, went to diminish the then existing deficiency, and must now be reckoned in determining the question under consideration. The mode in which that was done was this— £25,000,000 of Stock standing in the name of the Commissioners were cancelled, and a book debt was created against the country of £25,000,000 simple, which, as compared with the value of Stocks at the time, represented a gift to the assets of the National Debt Commissioners of £ 1,864,000. But there was a further process. In 1867 the Government reconverted this sum into Annuities, and the effect of that and of giving the interest upon the £24,000,000 as of cash instead of Stock was to add a further value of £974,000 to the gift conferred upon the Commissioners. There was another small item of £236,000 to be taken into consideration; and, add- 329 ing those sums together, he found that there stood at the debit of the account £6,621,000. The debit of the account, therefore, stood charged with this sum. The value of the 1844 deficiency accumulated at compound interest would have been £5,004,000, and it followed that there had been a deficit accruing since 1844 of £1,617,000. That was a strict and rigid demonstration, based on the principle of uniform valuation, of the fact that by paying £3 5*. per cent through the National Debt Commissioners in respect of the funds of the Trustees of the Savings Banks, a loss had been entailed of £1,617,000. The House was now in possession of the imperative reasons why the rate of interest should be reduced. Though no man liked to see the rate of interest paid to him reduced, he had not found that there was any Reueral disposition to complain of his asure. He had heard it argued that the public should pay more than the market rate in Savings Banks, and many people said that the public ought to pay as much as they could afford to pay. But he had shown what the public could not afford to pay; and even if that were otherwise he would still be of opinion that that was not the right principle to proceed upon. The right principle was that a rate of interest should be paid sufficient to attract a depositor. The old Savings Banks had done a great deal of good in their time, and were entitled to their respect and gratitude; yet now the State had hit upon and largely developed another system, greatly preferred by the public, and which was, certainly, far preferable, there was no reason why two classes should not receive considerable equality of treatment. The main objection to the old system as compared with the new was summed up in this: Under that system the State gave to the depositor an imperfect security, and yet failed to convey to his mind the knowledge that that was the case. He believed that not 1 in 10 of the depositors in the old Savings Banks knew that his security was imperfect. Since 1844 this singular state of things had existed—that while there had been an absolute security for what was due from the State to the Trustees, the obligations of the Trustees to the depositors had only been secured by their personal honour. He could not help thinking that this was a serious disadvantage to 330 the system. There was another consideration which he wished to bring before the House—namely, that these Trustee Savings Banks were not purely public establishments. Besides holding as assets the sums to which they were entitled from time to time at the hands of the National Debt Commissioners, and besides holding real property which had gradually come into their hands, they had a most important function—one that might at any time greatly change their position relatively to the State. They were permitted by law to make investments in other than the public securities on behalf of depositors who desired them to do so. They were entitled, by obtaining the assent of their depositors, to call upon the State for the liquidation of any amount of claims, and to invest in other securities in a manner virtually independent of State control. He could not but feel that these circumstances gave great additional force to the other and broader considerations which he had alleged— namely, that the sum of 3¼ per cent was greater than in a long series of years the State could afford to pay. As to the old Savings Banks, it was quite fair to say that their management was quite as good as that of the Post Office Savings Banks. But the state of things as between the Post Office Savings Banks and the old Savings Banks was this:— In the case of the old Savings Banks the State paid £3 5s., and the trustees paid, according to the latest computation, to their depositors £2 18s. 4d., showing a difference of 6s. 8d. In the Post Office Savings Banks the State gave to the depositors £2 10s., the expenses were reckoned at 11s. 1d. per £100, making a total of £3 1s. 1d It would be observed that the difference in the cost of management was considerable; but he was bound to say that the case might be stated in a manner somewhat more favourable to Post Office Banks. There were other considerations of great interest in the comparison of these banks. The old banks held £44,192,000; but the Post Office Savings Banks had, during the 17 or 18 years of their existence, accumulated no less than £32,012,000—a very satisfactory result. Nor had there ever been any serious loss or difficulty of any kind experienced in carrying the system out. The old banks, on the whole, exhibited a small increase 331 in the amount of their deposits with the National Debt Commissioners. From 1861, when the Post Office Banks were founded, the average annual increment in the old banks had been £133,000,and in the Post Office Banks £1,769,000. In fact, fourteen-fifteenths of the new investments made by the public had been in the Post Office Banks. The greatest disadvantage which the State had to encounter in connection with the old banks was the largeness of the variation of the annual movement; and there was a great contrast, in that respect, between them and the Post Office Banks. In the year 1866, the old Savings Banks withdrew from State control, over and above what they deposited, no less than £2,369,000. On the other hand, in 1874, they deposited, over and above what they withdrew, a sum of £991,000, making a maximum range of variation of no less than £3,370,000. But the income of the Post Office Savings Banks had been perfectly regular, though not, of course, uniform. The maximum amount of Post Office deposits was £2,293,000 in 1872, and the minimum £1,533,000 in 1865. There was a perfect liberty of transfer given to the public between the two classes of Savings Banks, and consequently by comparing the sums transferred means existed of testing the public favour for the two systems. The sums transferred from Post Office Banks to Trustee Banks since the foundation of the former amounted to £120,000; but the sums transferred to the former from the latter reached a total of £3,560,000. He was anxious that it should be understood that he would never think of the old banks otherwise than as very valuable institutions, and that he would regret extremely anything which would give a shock to their system. He did not think that his proposals would produce any such shock. The change which he proposed was required by the equity of the case, the figures which he had quoted with regard to the course of events since 1844 demonstrating that 3¼ per cent was too large a rate of interest. It might be retorted that the Government lent money to local bodies at a higher rate than this. Well, he was bound to say that he was unwilling to recognize that method of lending to local bodies which had crept in of late years as a permanent portion of our system. 332 He objected to the mixing of perfect security with imperfect security, and could only look upon the system of lending to which he was referring as temporary. It was, therefore, with great satisfaction that he had found on the part of some large and public-spirited municipalities a disposition no longer to go, cap in hand, to the State for the purpose of borrowing money, but to go into the market on their own security, and there raise what they might want for their local purposes. He had now enumerated the main and vital objects of the Bill; but in addition to these there were two others which he would mention. He proposed to enlarge the sum which might be deposited in Savings Banks, without any distinction between the older Trustee Banks and the Post Office Savings Banks. He hoped to raise the limit of total deposits from £200 to £300, and the limit of the sum which might be deposited in one year from £30 to £100. There was an objection to this on the ground that it was competition with private banking enter-prize. He admitted that banking enter-prize was of value to the country, and ought not to be subjected to undue competition; but he would not enter upon this subject in detail at the present time. The boast of the postal system was that it carried to every man's door the accommodation which it offered. If we had in this country a banking system so largely developed that it went into every considerable parish, he should be very doubtful indeed about raising the limit from £200 to £300. The parish in which he lived had a population of more than 8,000 persons; but they had no bank there. The parishes in this country were about 10,000 in number. The Post Office Banks in the three countries were already about 6,000 in number, and were rising at the rate of 300 banks a year. But the other banks, including branches, hardly reached 2,000, and were accumulated in a comparatively limited number of parishes. This, however, was a question to be considered in Committee, and he should freely leave it to the unbiased judgment of the House. There was a fourth object of the Bill which he must briefly mention; but he did not think it was likely to raise any great difference of opinion. Power was given under the Bill to trustees to invest on behalf of 333 depositors in Government securities. That was a purpose which, so far as he could learn, was approved on all hands. Nobody objected to the Savings Banks being made the medium of communication between depositors and public securities, there being at the present moment hardly any means of convenient investment for the public in the country at large. He anticipated that the public economy which would be effected by the measure would be very considerable, not less, he thought, than £100,000 a-year, and perhaps somewhat more, contingent, however, to some extent, upon the issue of a question which had been raised that interest ought to be allowed by the State upon the separate surplus fund. He did not wish to preclude an unbiased consideration of that question; but, on the other hand, it was quite clear that they ought to introduce into the minute system of banking represented by these Savings Banks the principles represented by their legislation with regard to the public funds, under which from time to time unclaimed sums were written off, without prejudice, of course, to the absolute validity of any claim which might be revived. With these observations he begged to move the second reading of the Bill.
§ Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Gladstone.)
§ MR. W. FOWLER
, in rising to move the following Amendment:—That the extension of the limits of deposits in Savings Banks proposed in this Bill would result in so serious a discouragement of private enterprise that, in the opinion of this House, so such step should be taken without careful inquiry,said, he was sorry to be obliged to oppose that measure, much of which had his entire approval; but if Clause 3 was retained he should feel it his duty to divide the House. The Prime Minister suggested that that point might be discussed in Committee; but such a clause formed an important part of the Bill, and ought, therefore, in his(Mr. W. Fowler's) opinion, to be discussed on the second reading. He considered that the proposed extension of the limits of deposits in Savings Banks involved a new competition by the Government with banking enterprise. The Bill practically established a new form of trading by the 334 Government. The Post Office Savings Banks were to receive the savings of persons of small means, as artizans and others, and were, to a great extent, an eleemosynary institution, established by the Government in order to encourage thrift among the poorer classes of the community. They were not banks in the proper sense of the word. They were not conducted, as an ordinary business would be, for the sake of profit, but for the good of the people. They had been very successful; but they had entailed very great expense on the country, and they were now practically asked by that very Bill to pay a large sum of money for what they had lost in conferring this boon on the people. They were practically asked to start a Government Bank under the form of a Savings Bank. To prove how important the proposed competition with other banks might be, he would draw attention to a few figures from the Report of the Committee on Banks of Issue that was appointed in 1875. It appeared that in the National and Provincial Bank of England there were, in the year 1874, 122,760 depositors. Of these, 83,723 were depositors of sums under £100; 16,780 of sums ranging between £100 and £200; and 7,430 of sums between £200 and £300. The total sums of the deposits of these three classes respectively were£3, 603,289, £2,518,310, and £1,865,844. Thus 87 per cent of the whole number of depositors had deposits under £300, the new limit proposed by the Bill; and nearly 35 per cent of the total amount of the whole of the deposits were under the same figure. In the Scotch banks, 88 per cent of the depositors, numbering in all 417,657, were under £300, and 35 per cent of the total amount deposited— £76,243,000—were under £300. Again, in the Munster Bank, out of 22, 116 depositors, 15,761 were under £100, and 5,043 between £100 and £300. These figures proved absolutely the serious character of the measure before the House. He objected to it entirely, and for several reasons. In the first place, he objected to the trading by Government as a whole. He did not see why the Government should oppose private traders, and bring the capital of the whole nation in competition with the comparatively small means of private people. He said, in all seriousness, he saw no difference between this proposal 335 and that of starting a Co-operative Store in Bethnal Green by a Government staff. It was just as important that the people should have their food cheap and good as that they should have their savings taken care of. Again, he said that the proposed competition was an unfair one. Other banks were compelled to keep reserves of various kinds; but there was no suggestion here for the maintenance of any proper banking reserve. All the deposits must be at once invested in Stock, and that was really the reserve proposed. But it was not a proper reserve for a bank, if it was the sole reserve. He had known the time in his own knowledge when they could not sell £100,000 Consols for money; and they had heard from the Prime Minister that there had been times when he had had to find a large sum in cash on balance for the Trustees Savings Bank. He had told them that as to the Post Office Banks, so far, they had always received more than they had paid; but that would not be always so. He maintained that the proposal, as a banking proposal, was thoroughly unsound. Moreover, the Government keeping no reserve would thus compete with banks, and involve them in a new danger. They had enough to do to provide for the natural risks of business; but now they were asked to provide for a new risk, created by Act of Parliament, and which no foresight could have led them to anticipate. Another objection he made was that the rate of interest allowed was too high as a matter of business. Of course, if it was an act of charity, it was another matter. At the present moment the Bank rate of discount was 2½, the very rate now allowed at the Post Office Banks; and, so far as one could see, it seemed likely that they might have a long period of low interest. The Bill was in another way very dangerous. It was well known that banks collected money in one part of a district and lent it in another, or collected it in one part of the country and lent it elsewhere; but if this Bill should pass, many large sums would be diverted from commerce and agriculture, and would be sent up to a Government office, where they would be used in raising the price of Consols, which was already high enough. He thought, again, that there was a great danger to Government in holding large sums on 336 demand, and all the more if they consisted of the deposits, not of artizans, but of small traders, eager to make the most of their money. They would have money on deposit in prosperous times, when Consols were high; they would draw out in order to buy Stock when the funds were low in price. So the Government must buy high and sell low, and thus must lose heavily, and all the more the more the proposed scheme succeeded. He wished also to remark that the change was not necessary, for in the Bill itself was another proposal which met the need of any who might want to put by any larger sum in safety. It was proposed, and wisely as he thought, that facilities should be given for putting small sums of money into Consols. In that way the Government would not hold great sums on demand; but Stock would be held by investors at their own risk, and without danger to the Government. In Prance they had a limit of deposit, and all sums beyond the limit pass automatically into Government rentes. He did not know that they should like that here; but it would, he thought, be better than this proposal. He had only to say, further, as to the investment clauses of the Bill, that he should go further, and he should allow a man to buy even £l in Consols. And he wished to draw the attention of the Prime Minister to Sub-section 6 of Clause 4, by which, as he (Mr. W. Fowler) understood it, a man might sell £500 Stock, which he had previously invested, and put it into the Savings Bank, in addition to £300 already there; so that he might have £800 on deposit. [Mr. GLADSTONE dissented.] He believed he was right in his reading of the clause, and he asked attention to it. On the whole, he objected so entirely to the 3rd clause of the Bill that he should take the sense of the House on the second reading of the Bill.
To leave out from the word "That" to the end of the Question, in order to add the words "the extension of the limits of deposits in Savings Banks proposed in this Bill would re-suit in so serious a discouragement of private enterprise that, in the opinion of this House, no such step should be taken without careful inquiry,"—(Mr. William Fowler,)
§ Question proposed, "That the words proposed to be left out stand part of the Question."337
§ SIR JOHN LUBBOCK
said, the Bill, in his opinion, contained several valuable provisions. Some portions, however, were open to great objection. There was, however, much force in the arguments of his hon. Friend who had just spoken; and he was glad to understand that the Government did not regard the 3rd clause as a vital part of the Bill. No less than from 30 to 40 per cent of the deposits in the Scotch and country banks consisted of sums below the limit allowed by the Bill; and it was difficult to anticipate what effect on the public would follow the withdrawal from those banks of so great an amount of business. He did not think it clear that Clause 3 would benefit the Government, while it would, of course, certainly interfere with private enterprize. The tendency would be that money would be paid in when the rates were low and Consols were high; and would be drawn out again when money was high and Consols low. At present, with the existing limits, the temptation to do this was much less. One important portion of the advantage which banks afforded to a country was by advances of money, thus assisting trade and manufactures. But the tendency of this Bill would be to withdraw money from local banks, and thus compel them in turn to call in loans, and to restrict the facilities they offered to their customers. In Scotland and Ireland this would be felt with especial severity, and surely so important a step ought not to be taken without careful inquiry. The proposed change was not to encourage thrift, but to enable Government to do banking business for the sake of profit. That would quite alter the character of the Savings Banks. Moreover, the large amount of money that this proposal would place at the command of the Government would constitute a danger, unless larger cash reserves were held than was now customary. It was the custom now to speak of the Floating Debt of the country at £26,000,000; but in addition to this sum, for which the country was liable at short notice, there was the sum of nearly £100,000,000 sterling on account of the Savings Banks and Post Office Savings Banks deposits. No great difficulty had occurred hitherto; but it seemed to him that the danger would be greatly increased by the Bill, and that was a point which deserved serious consideration. Again, he regretted 338 the proposal to lower the rate of interest in Savings Banks. The time might come when this would have to be done; but he thought the time had not yet arrived. A great deal had been said about the loss of £4,000,000. But he would point out that in spite of this deficiency it did not follow that the Government had made a loss. The deficiency was not due to the present moderate rate of interest, but to exceptionally high rates paid in old days, and to financial operations made for State purposes, quite irrespective of the interests or requirements of Savings Banks. The right hon. Gentleman at the head of the Government (Mr. Gladstone) said, in 1861, that—The money deposited with. Government by Savings Banks has enabled successive Administrations to effect an economy in the management of public money transcending ten times over the charge the State has been put to.He did not see that a clear case had been made out for a reduction of interest. The Government proposed to make good the deficiency of £4,000,000. On this the interest would be £120,000 a-year. But the deficiency was now only £72,600. The Government could therefore continue the present interest, and yet have a surplus of £50,000 a-year. If they diminished the interest their profit would be £150,000 at least. The object of the proposal was not to avoid a loss, but to make a profit. It was often said—"Why should the Government allow 3¼ per cent to the old Savings Banks, and only 2½ per cent to the Post Office Banks?" But it must be remembered that in the one case the 3¼ per cent was allowed to the bank, in the other to the depositors. The old Savings Banks had to pay the expense of working the business. Three-quarters per cent was a moderate estimate, and this would make the two rates exactly equal. In fact, it appeared from the Parliamentary Paper No. 179, just issued, that, in addition to the £743,000 allowed for interest, the Post Office Banks cost the Government £198,000 for expenses, which were between ½ and ¾per cent more; so that, in fact, the Post Office Banks cost the Government as near as possible Z¼ per cent, just as did the old Savings Banks. In these circumstances, he trusted that the Government would not use their great majority to force a measure which was regarded by many as unwise and 339 even unjust, at any rate without full and careful inquiry.
§ Motion made, and Question proposed, "That the Debate be now adjourned."—(Mr. Harcourt.)
hoped that the hon. and gallant Gentleman would not persevere in his Motion, as the discussion had turned upon matters relating to details of the Bill. If the House chose to discuss these details on an adjournment, well and good; but he did not think there had been any intimation of such a desire. A most reasonable request had been made to him to have the figures brought out upon which he computed the loss since 1844. That probably would take some days, but he would see that the Papers upon the subject were laid upon the Table. If the Bill were read a second time he would not fix the Committee until a fortnight hence, which would give an opportunity for the production of the figures required.
§ SIR R. ASSHETON CROSS
said, he approved of a great part of the Bill, though he disputed the Prime Minister's estimate of the loss on the old Savings Banks, and thought it rather hard that persons who had invested in them should have this fine inflicted upon them when it was not necessary for the purposes of the State. Had it not been for the statement of the right hon. Gentleman that he did not consider the 3rd clause as the vital part of the Bill, he should have joined the hon. Member for Cambridge (Mr. W. Fowler) in opposing it. To that clause he was wholly opposed. On the assumption that the point could be argued in Committee, he would support the second reading of the Bill.
§ MR. MAGNIAC
asserted that there were principles involved in the details of the Bill which demanded attention, and which could not be discussed in Committee. He hoped it would not be attempted to carry the clauses of the Bill in a hurry.
said, he was willing to consent to the second reading on the understanding that it was not to be understood as implying his agreement with two of the vital principles of the Bill.
§ It being ten minutes before Seven of the clock, the Debate stood adjourned till this day.
§ The House suspended its Sitting at Seven of the Clock.
§ The House resumed its Sitting at Nine of the clock.