SAVINGS BANKS AND FRIENDLY SOCIETIES. (Hansard, 15 May 1900)

§ * THE CHANCELLOR OF THE EXCHEQUER (Sir M. HICKS BEACH,) Bristol, W.
Last year the attention of the House was on several occasions directed from various points of view to the position of savings banks funds in this country. These funds now amount to an enormous sum—no less than £183,000,000—and are held on behalf of the Government by the National Debt Commissioners. As hon. Gentlemen are aware, interest is paid on deposits in the Post Office Savings Bank at the rate of 2½ per cent., and by the National Debt Commissioners to the trustee savings banks at the rate of 2¾ per cent. The law provides that those deposits can only be invested by the National Debt Commissioners in Government funds. That works very well so long as Government funds can be bought to bear the same rate of interest as by law is paid to depositors, plus the expenses of management; but since the beginning of 1894 am sorry to say the system has not worked by any means satisfactorily. No less than £61,000,000 of deposits have been placed in the Post Office Savings Bank and in the trustee savings banks beyond the amount that existed in those banks at the commencement of 1894, and over since that date and up to within the last few months it has been necessary for that vast sum to be invested in Government securities paying a less rate of interest than by law is paid to the depositors for whom the money is in- 251 vested. The result has been that in the course of the present year it has been my duty to obtain from Parliament a Vote for £38,000 to make up the deficiency in the income of the trustee savings bank fund, and £11,000 to make up the deficiency in the Post Office Savings Bank fund. Further, the capital account of both funds taken together shows at present, if the securities are valued at par, but a very small, and, I fear, a decreasing, surplus as compared with the liabilities. It has been practically universally accepted that this state of things is unsatisfactory. For the moment the financial situation has been relieved by the great fall in Government securities since the middle of last year; but I do not expect, and I do not think any of us can expect, that that will be permanent; and, further, in 1903 there must be a considerable loss of income to the savings banks funds owing to the fact that of the £183,000,000 standing to their credit, no less than £86,000,000 are invested in Consols, and in that year the rate of interest in Consols will be reduced automatically by a quarter per cent., while, in addition to the sum of £86,000,000, a further sum of £20,000,000 Consols has been cancelled for terminable annuities, the interest on which will also be reduced, so that the savings banks funds will lose as a whole, at that date, an income of £270,000 a year. Some have suggested—and I think I was among the number—that the proper way to meet this difficulty was by reducing the legal rate of interest payable to depositors in the savings banks; others have suggested that it might be met by extending the area of investment, so as to enable the National Debt Commissioners to invest these funds in less safe securities than those in which they are at present invested on behalf of the State. I have considered this question carefully, and in my opinion the existing system does not rest on a sound basis, because the legal rate of interest paid to depositors does not bear any necessary relation to the rate of interest which these deposits can earn. I do not think this is fair to the depositor or to the State, because, if, as has happened in the past, Government securities fall so low as to be purchasable to pay three per cent. or four per cent. or more, the depositor does not under the present system get more than 2½ per cent. for his money; while, on the other hand, if only 1½ per 252 cent. can be obtained we still have to pay 2½ per cent. Therefore, what I propose is that the rate of interest paid to depositors should vary within reasonable limits, according to the rate which their money can earn. The Bill I now ask leave to introduce provides that towards the close of each year an estimate shall be made of the probable earnings of the capital of each of the two savings banks' funds respectively in the ensuing year and of the probable rate of interest which those earnings would pay to depositors. On these estimates the Treasury will determine the rate of interest to be paid, to the nearest multiple of one-eighth in the pound; and notices will be published of any change in the rate of interest at least a month before it is made. As the rate of interest to be paid ought always to be so calculated as to leave a slight margin of surplus income, a reserve fund would be gradually built up to provide against depreciation of the securities, and this might with care be utilised to some extent to make up any deficiency of income arising from a mistaken estimate. I propose that this new system should not begin until 1903, so as to give ample notice to existing depositors of the change. As the income of the trustee savings banks fund is in a less favourable position than that of the Post Office funds, I propose to credit the trustee savings banks with the income of certain securities purchased by an annuity which was set up in 1880 to replace their lost capital, and to extend that annuity from 1908 to 1914, so as to secure, as was originally intended, the solvency of their capital account. The Bill, like previous legislation on the subject, applies to deposits of friendly societies also, but those societies which are entitled to a privileged rate of interest on assurances made before 1888 will retain that privilege fully. I also propose some minor amendments in the law relating to trustee savings banks, which have been recommended by the inspection committee. I need only say, in conclusion, that I recognise fully the extreme difficulty of this subject. I have no desire whatever to press my proposals by any party majority. What is principally necessary is that the House should realise the necessity of some change in the present position, and while I submit these proposals to the House I shall be most ready to consider any suggestions that might be made of another 253 kind, which, in the opinion of hon. Members, may be more satisfactory to the public. I propose to introduce the Bill now and to give ample time before the Second Reading, when I hope there may be a useful discussion on its provisions. I can assure the House that it is my desire, on the one hand, to do nothing that may discourage providence and thrift, and, on the other hand, to secure the taxpayer against being placed in a position of subsidizing the savings banks as if they were charitable institutions rather than the independent institution which they ought to be. I beg to move.

§ MR. BROADHURST (Leicester)
I hope the Chancellor of the Exchequer will give a very considerable time between now and the Second Reading of the measure he has just asked leave to introduce. I can scarcely conceive anything more disastrous to thrift and providence on the part of the people than the scheme , outlined by the right hon. Gentleman. The only comforting words in his statement were that he recognised that it will disturb, if not to a large extent destroy, the providence of the present day, and cause great consternation amongst depositors.

§ SIR M. HICKS BEACH
I did not say so.

§ MR. BROADHURST
Well, I think so, and that is sufficient for me. I am certain that the class of people who deposit portions of their wages with the Post Office will be considerably alarmed by the proposal, and I cannot conceive anything more likely to alarm them than this sliding-scale scheme under which the interest is to be reckoned a month before the end of the year. I do hope that the burden of any readjustment of finance which the Chancellor of the Exchequer may find necessary in consequence of the large expenditure of the Government will not be visited upon the heads of the 254 working people. The State is the only bank in which many of the people will deposit their savings, and if their confidence in the State is disturbed the thrift which has been growing up among the workers for the last thirty years will be shaken to its foundations.