§ 5. £48,941, Savings Banks and Friendly Societies Deficiencies.
§ *(10.52.) SIR ALBERT ROLLIT (Islington, S.)said he desired to say a few words on the Vote before the Committee, especially as it only appeared as a Supplementary Estimate, inasmuch as the deficiency was not realised until the end of each year. This was, therefore, the only opportunity of debating Savings Bank questions. The deficiency, which amounted to £38,000, arose as follows. The funds of the banks could only be invested in Government securities, and the interest received from them was less than the Government had to pay over to the banks, viz., £2 15s. per cent. per annum, in order to enable the latter to pay to their depositors the generally current rate of interest, namely, £2 10s. per cent. That deficiency had to be made up by the State, and although one regretted that it should exist, he was quite satisfied, from his knowledge of the banks, that it was one by the payment of which the State in the end gained. It put a great an incident which occurred at Man-premium on thrift, it had the advantage chester, which was one to be regretted, of enabling small investors to have their money taken care of; and it was a means of accumulating small capital, leading to the prosperity of individuals and the promotion of the trade of the country, and the interest even of the bankers. 116 The economic and social value of the Savings Banks (as of the Friendly Societies) was therefore very great. They were a source of saving to the State itself, both directly in reducing the rates, and indirectly in the formation of national character. Last year there was a slight increase in the number of banks, including the branches, and that might be said also of the last ten years. Any defaults on the part of the trustees and managers were carefully examined by the Inspection Committee, appointed by statute; and he was bound to state that wherever defects had been pointed out there was a general desire to remedy them. The audit, although the book-keeping was sometimes of an old system, might generally be spoken of as effective and satisfactory, and, what was of very great importance, the expenditure had decreased no less than ls. per transaction. He believed that the banks were economically managed under the influence of the Inspection Committee, and also that the trustees and managers generally took a course which insured, humanly speaking, the prosperity and safety of the banks. The total sum deposited in the banks amounted to £53,000,000, and in addition there were about £1,000,000 invested in the Stock Purchase Department, and £5,000,000 in the Special Investment Departments of certain banks. The depositors numbered over one and a half millions, and the surplus of assets over liabilities amounted to one and a quarter millions sterling. The system was a great testimony to the value of voluntary action on the part of those who took an interest in a class of people who were not always able to help themselves; and he thought the State owed a great obligation to the voluntary trustees and managers, who did so much in various localities to promote the prosperity of and confidence in the banks, and so gave the best service to the State. He wished to refer to an incident which occurred at Manchester, which was one to be regretted, although, in one sense, it was most encouraging; and it was the serious run on the bank in that city, which it was believed was caused in some measure by statements with reference to the fall in Consols, which led to the inference that 117 the solvency of the banks might be affected, although of course that could not occur, since they were under the guarantee of the State. When that run commenced the assistance of the Bank of England was at once obtained, depositors were reassured, and in the end, no evil result followed. He thought they ought to bear testimony to the management, which on that occasion was efficient, reliant and full of resource. It was sometimes said that the banks did not serve the class for which they were originally intended, but on that point it was the conviction of the Inspection Committee that, although there were no doubt some exceptions, yet as a general rule the intention of Parliament was being carried out; and that the wage earning classes were being helped by the banks. This he said both from information from banks as to the occupations of their depositors, and also from his own personal observation on many occasions of visits to the banks, which he had made officially. It was also said, in proof of the charge, that the deposits were largely increased, and that that was inconsistent with the statement that the intention of Parliament was being carried out. A conclusive proof to the contrary was that, while the deposits had largely increased, the number of depositors had also increased. If they went back 50 or 60 years they would find that the average deposit at that time, when undoubtedly the banks were serving the class for which they were intended, was about £34; now he believed it was about £32, which indicated that the same class was still being served. It was also said that large sums were occasionally deposited at once. That might be so, but he believed that those sums were generally taken out from time to time for current purposes and subsequently re-deposited in one sum. Another satisfactory indication of the use of the banks was that judges, especially in Scotland, frequently recommended persons who received compensation under the Workmen's Compensation Acts to put the money into one of the banks, and he believed that was largely done; and it ought to be enacted that every sum received 118 under those Acts might be at once deposited in one sum. He was hoping to induce the Chancellor of the Exchequer to enter upon legislation for some administrative reforms. The Act of 1891, under which the Inspection Committee was appointed, had done a great deal to check any maladministration that might have existed, and it had also arrested the decline of the banks; the number of banks and branches was greater now than when the Act was passed; the deposits had increased by £8,500,000; the cost per transaction had been reduced by ls.; and the surplus assets had been doubled in that period. That was a great testimony to the value of the Act, and to the administrative action of the Inspection Committee, speaking as he might for his able expert colleagues, if not for himself as Chairman. One point of vital moment to the banks now was that in 1903 the interest on Consols would be reduced from 2¾ to 2¼ per cent. That would mean a loss to the State upon the funds invested belonging to the banks of 4¼ per cent. That loss would somehow have to be met or counteracted, or the deficiency would be increased, and have to be met by a vote of the House. The practical problem of the moment was, therefore, how to meet the deficiency. He could, suggest only three ways. The first was, naturally, to say that the interest paid to the trustees and managers, and by them to the depositors, must be reduced by the equivalent of the ¼ per cent. He was satisfied, however, that that could not be done without materially checking the valuable influence of the banks, because, although the chief object of depositors was safe custody, yet they also had, and not unnaturally, a very great regard for the amount of interest allowed. He had received many letters expressing the hope that no reduction of that sort would be made, if it could possibly be avoided, and from his own knowledge of the banks he hoped that no such step would be taken. If there were such a check he believed it would cause a loss which would ultimately have to be borne by the State. For the banks were, both directly and indirectly, distinctly a source of saving to the State, as they created means which prevented obliga- 119 tions being imposed on the rates; they formed habits and character which, generally speaking, were at variance with pauperism and crime; and, though some little more interest might have to be borne by the State, he was satisfied that the ultimate result would be a saving rather than a loss. At any rate, let no such change be made unless and until a national system of pensions was established, for which Savings Banks and Friendly Societies would be some sort of substitute.
Secondly, It had been suggested that the interest should be made to fluctuate, but the feeling of the banks was strongly against the proposal. It had been said, and he believed it to be true, that, above all things, the depositors liked certainty, and had a strong objection to uncertainty. That view was certainly strengthened by the fact that investments in stock had never risen to the point it was expected they would reach, and he believed that that was, in a large measure, due to the fact that the purchasers did not know what might be the difference between the cost and the result when realised, and that depositors, in dealing with their small savings, desired certainty. It was true that the fluctuating system was the law in France, and had been since 1893, but. practical effect had never been given to the law, and so the experiment had not been really tried.
After a good deal of thought and observation, he submitted that the real remedy was to increase the powers of investment, on the part both of the Government and of the Bank trustees and managers. At present the Government were limited to Consols and other Government securities, but there were a large number of safe securities beyond Consols. It might be said that they were more fluctuating, but Consols themselves had had a very devious career within recent years, and people who invested in them a few years ago must have suffered considerable loss. There were steps in the direction he suggested. Scotland, always in advance when habits of providence were concerned, had already had an Act passed for her under which Trustees 120 generally, including Savings Bank Trustees, had a wider range of investment than was allowed in Engand. There the position had been, to some extent, remedied by an Amendment of the General Trustee Acts. It was remarkable, too, how many Colonies had fulfilled the conditions prescribed by the Colonial Stocks Investment Act, 1900, by which trustee investments were permitted in Colonial Stocks, and, when those conditions were complied with, he thought Colonial Stocks frequently presented a perfectly safe and remunerative form of investment. But the chief point he desired to urge in this connection was that the power of investing in local and other securities should be enlarged. At present, securities in the way of mortgage, such as local rates would be, were not permissible; but a good School Board or municipal or county rate, with local knowledge of the value of the stock brought to bear upon the subject, provided a perfectly safe, readily realizable, and non-fluctuating investment.
Lastly, there were one or two administrative reforms which he hoped care would be taken to carry out if legislation was proposed. There should be powers of superannuation. Because no power existed to superannuate an old and once an able actuary, banks were frequently closed, in order that a gift or allowance might be made to him in the liquidation of the bank. That was a most undesirable state of affairs, and the Inspection Committee suggested that such powers should be given to trustees and managers, subject to the confirmation either of the National Debt Commissioners or the Inspection Committee. Provisions were also required for the sale of old premises when a new bank was erected, for rendering it unnecessary for an auditor, appointed for one year without any custody of or responsibility for cash, to go through the form of giving security, for the amalgamation of Banks, and also with regard to the expenses of founding penny banks. Of all the valuable modern features of savings banks, that of penny banks in the public elementary schools and the like, which brought home to the very doors of the people, in their earliest and most impressionable years, the duty of some saving, was of the 121 very greatest advantage. These provisions had been embodied in Bills which he himself had brought in, but he attached far more importance to the fact that the Chancellor of the Exchequer had adopted most of them, and, if the right hon. Gentleman was going to legislate, as he probably must, he urged him to give the Inspection Committee and trustees and managers the advantage of these administrative reforms. Finally, some time back the right hon. Gentleman, when he introduced a Bill, which was not received with universal favour, with great readiness, expressed to himself his willingness to appoint a Committee to consider the whole subject. If that Committee were appointed, as lie hoped it would be before any legislation, he also hoped it would consider not only the fiscal difficulties of the Government and the banks, but also the question of better and more remunerative, but at the same time safe, investments for both, and also the administrative reforms to which he had referred—in short, the whole subject of the Banks. In any case, he desired to thank the right lion. Gentleman for his ready response to representations which he had often made to him, and the invariable desire he had shown to consult, as far as public policy would allow, the real interest of the banks, and to maintain them in prosperity, for the great advantage and benefit of the people.
§ (11.12.) MR. T. P. O'CONNOR (Liverpool, Scotland)called attention to the extraordinary state of things existing in regard to savings banks in Ireland. It would scarcely be believed, but it was true, that in order to withdraw half-a-crown in a remote district in Ireland it was necessary to communicate with the central office in London, with the result that occasionally much delay was caused. The point he desired to emphasise was the over-centralisation of the Savings Bank Department in London. He thought the present roundabout process was entirely unnecessary, and, to a certain extent, it was unjust to Ireland. It kept away from post office officals, and those who might become post office officials, a large amount of labour and 122 wages which should be spent in Ireland, and it entailed the employment at large expense in London of officials who might be employed in Ireland. The official excuse was that there was a large number of cross- accounts, and that, in consequence, this system of centralisation was necessary. As a matter of fact, the number of cross-accounts was much smaller than the number of accounts strictly confined to Ireland, and he believed they could be dealt with by a system of transfer.
§ MR. BANBURY (Camberwell, Peckham)thought the hon. Member for South Islington, in the arguments he had put forward, had forgotten that the Savings Bank kept no margin of cash in hand, that the whole of their funds were invested. Ordinary banks kept a large amount of ready money in hand for emergencies, and the Savings Bank, if they were to invest their money in the securities to which the hon. Gentleman had referred, would have to do the same, because such securities were quite unsaleable in case of emergency. Consols were the only security which could be readily sold when an emergency arose, and, therefore, he hoped the Chancellor of the Exchequer would continue to keep, at any rate, the bulk of the funds of the Savings Bank invested in these easily realisable securities.
§ (11.16.) MR. HALDANEsaid it was all very well for the hon. Member for Peckham to say it was desirable to provide against an emergency, but, after all, that emergency was not very likely to occur, and, if it did, it could be provided against in other ways. He desired to refer to the serious situation alluded to by the hon. Member for South Islington. It was true that this year there was a, decrease in the substantial annual deficiency on the savings banks and friendly societies, but that arose from the fact that in investing the funds of those institutions, the Chancellor of the Exchequer had been able to provide a national security which had considerably depreciated. For some time to come the price of 123 Consols was likely to be low, but there might come a time—possibly when a change of Ministry occurred—when the price of Consols would go up substantially. The position then would be a very difficult one, for two reasons. In the first place, Consols would have become dear again, and the deficiency would increase instead of decrease; and secondly, the interest on Consols would have gone down ¼per cent. With Consols yielding 2¾ per cent., there was a substantial deficiency on the working of the savings banks. Next year, with the immense amount invested in Consols, and with the rate of interest lower, the deficiency would be even greater, and some provision would have to be made to meet it. All were in favour of thrift, but he protested against working these institutions at the expense of the State to the enormous extent which seemed to be probable in the future. It was never contemplated, when the Savings Banks were founded, that they should be worked at a loss; the intention was that they should pay their way, and they did, because when the rate of interest was fixed at 2¾ per cent., the interest on national securities was much higher than at present. The matter was a serious one, and required attention at the hands of the Government. He had always thought that they must, at any rate in respect of the savings banks investments, resort to other securities than Consols. The right hon. Gentleman might even rival in popularity a distinguished colleague of his, if he would show more favour to Colonial securities. Not only in the case of India, but also in regard to some of the colonies, there were some very good classes of securities which were perfectly safe, and yielded a higher rate of interest than Consols. With the prospect of this large deficiency before them, he would like to know whether the Chancellor of the Exchequer had in contemplation any step of a far-reaching nature to provide against it. He quite appreciated the difficulties of the situation, but the right hon. Gentleman was not a man to let a loss occur which he could possibly avert, and therefore this matter was certain to engage his serious attention.
§ *(11.20.) THE CHANCELLOR OF THE EXCHEQUER (Sir M. HICKS BEACH, Bristol, W.)The hon. Member for South Islington has several times brought this matter under the notice of the House, and those Iyho are acquainted with the subject know how great is the public service my hon. friend has rendered' for many years past by his interest in the working of the Trustee Savings banks, as Chairman of the Inspection Committee. The hon. Member went into some questions with regard to which I think it is not necessary for me to trouble the Committee, but the particular question raised in the latter part of his speech, and which has been dwelt upon by the hon. Member opposite, is one, I agree, of great and pressing urgency. What are the circumstances? I am sure that Parliament has never grudged the annual Vote which it has granted to make up the deficiency in the income of the Trustee Savings Banks. For many years past there has been an annual Vote required for that purpose and with regard to the deposits we hold for friendly societies, and during the last four years the Post Office Savings Banks have required similar aid. That was due to the fact that Consols, in which, by law, the National Debt Commissioners have been compelled, practically, to invest the greater portion of the funds which they hold for these banks, were for sonic years at such a premium as is well known. This year we find again a small surplus income from the Post Office Savings Banks. That, of course, is due to the fact the hon. Member opposite has alluded to — that the present low price of Consols and other Government securities enabled investments to be made on far better terms than was possible three or four years ago. But we shall be face to face with a very difficult situation next year. Until the last few years, practically, the deposits in Savings Banks were almost entirely invested in Consols. In recent years we have been able to find, under the powers granted by law, other investments for that money, because it is legal, as hon. Members are aware, to invest those deposits in any stock or in terminable annuities guaranteed by the 125 Government, and they have been invested, to a very considerable extent in recent years, in the terminable annuities issued under the authority which Parliament has granted for raising money for military and naval works and matters of that kind, which yield a better rate of interest than Consols. But the amount invested in Consols in previous years is a very large sum indeed. The Consols actually held by the Commissioners for the National Debt, on behalf of the Post Office Savings Bank depositors, are no less than £65,385,000, and the Consols which will have to be replaced by terminable annuities, representing money also belonging to the depositors in the Post Office Savings Bank, are valued at £9,769,000; in all, more than £75,155,000. With regard to the Trustee Savings Banks, the Consols held are £19,688,000, and the Consols which have to be replaced by terminable annuities are valued at £8,540,000; £28,228,000 in all. Well, that is a very large sum, and the reduction of the rate of in terest on that by ¼ percent. in the year 1903 will entail a loss of income to both kinds of Savings Banks of no less than £258,000 a year. I do not think that Parliament ought to be asked to supplement the income of the Savings Banks by such a sum as that. How we are to deal with the matter is not an easy question. I proposed two years ago that the rate of interest given to the depositors in the Post Office Savings Banks and given to the Trustee Savings Banks should vary with the amount of income that could be earned by the deposits. That is the law now in France, although it is quite true, 126 as my hon. friend stated, that the rate of interest given there has not varied for some years. I am bound, however, to say that my proposal was not received with much favour by those who manage Trustee Savings Banks. Owing to want of time, I was quite unable to obtain a discussion upon it in the House of Commons, and it was withdrawn. But I think that what I have said will satisfy the Committee that the matter is not only of great importance, but of urgent importance. I think that probably the best way of dealing with it will be, if the House would allow, without any debate—I think debate on the subject really would be unnecessary—if the House would allow, without debate, a Committee to be appointed to investigate this question, and possibly some of the questions alluded to by the hon. Member for South Islington, and to advise what should be done in the matter. Of course, it is possible that we may have to reduce the interest. It is also possible, as the hon Member opposite has suggested, and as the hon. Member for South Islington suggested, that something may be done by extending the powers of investment, though I am bound to say for myself I think there is very great force in the objections raised by my hon. friend behind me to any great extension such as was suggested by the hon.Member for South Islington. It has always been held, by Mr. Gladstone, and by those who have been considered the greatest financial authorities in this country, for many years past, that it would be a mistake to invest, at any rate any large 127 portion of the Savings Banks deposits, in securities not guaranteed by the State and not easily realisable. Before we depart from that wholesome principle, I think we must consider very carefully what would be the result of any such change. I do not myself anticipate that there would ever be need for great realisation of securities to meet the demands of Savings Banks depositors. If you wanted to realise 25,000,000 of Consols you would find it a very difficult thing to do, and, after all, what we must trust to is the belief which the depositors entertain in the good faith and power of the State to pay their claims, because it cannot be too much remembered by every one in the country that the safety of deposits in our Post Office Savings Banks is not a matter which depends on the amount of the assets which is represented by those deposits, whether they be invested in Consols or in anything else, but that the safety of those deposits is guaranteed by the State itself, and therefore is as safe as anything in this world can be. The investment of deposits is not a matter between depositors and the State, but between the taxpayers and the depositors. That is to say, the taxpayers should guard themselves against having either to pay an unreasonable rate of interest to the depositors, or allowing the investment of the deposits in such securities as possiblythey might loseupon. I am sure that every one would be most anxious to avoid anything which would lessen that encouragement to thrift which the Savings Banks have held out for many years; but, on the other hand, we must deal with the matter as men of business; and if I were able to induce the House to appoint such a Committee as I have suggested, I should then be able to place my views before the Committee, who could hear 128 evidence, consider the matter fully, and, I hope, report even this session in time to initiate the legislation which ought to become law before 12 months expire, because the loss of interest on Consols will date from April 1903. The lion. Member for the Scotland Division complained that the depositors in Ireland had difficulty in getting payment of their deposits, because of the necessity of communicating with London. I am most anxious that every facility should be given to depositors in Ireland. I have often pointed out that the increased deposits in the Irish savings banks is a proof of the prosperity of Ireland. I will inquire into the matter and see if anything can be done in the direction the hon. Member desires. If the House entertains of my suggestion, I shall place on the Paper at once the terms of reference to the Committee which I shall propose, and I trust that the appointment of the Committee may be agreed to in the circumstances without debate.
§ (11.33.) MR. FIELD (Dublin, St. Patrick)hoped the right lion. Gentleman would take into consideration the observations made by the hon. Member for the Scotland Division. He could state from personal knowledge of what took place in a district that the savings bank became unpopular because of the delay arising from having to transmit money from the Central Office in London. It was with the view of popularising the savings banks that he called attention to this matter. The penny banks ought to be encouraged as much as possible in connection with the savings banks, because there was really more good done by these banks among the very poor who were inclined to become thrifty than 129 by the banks where the larger deposits were received.
§ MR. TOMLINSON (Preston)said the promised Committee would be hailed with great satisfaction, especially by the Trustee Savings Bank.
§ Vote agreed to.