§ I now come to the Post Office and trustee savings. These are integral parts of the Savings movement. Money saved in these institutions is effectively lent to the Exchequer. The rate of interest, fixed by Statute since the last century, is 2½ per cent. I do not propose to change that; for I believe that the Savings movement is better off with a savings bank rate that does not fluctuate with the market but stays fixed whether money in the market is cheap or dear. But I do propose to accept another suggestion which the Savings movement has often put forward. I am not sure that it has ever been very sanguine that any Chancellor would agree to it, but I propose to agree to it now. I propose to exempt from Income Tax the first £15 of income accruing to an individual from deposits in the Post Office Savings Bank or the ordinary department of a trustee savings bank.
§ Naturally, no more than £15 will be exempted in the hands of one individual, however many deposits are held. Moreover, this interest, grossed up by reference to Income Tax at the standard rate, will be chargeable to Surtax. The cost to the Revenue, as regards existing deposits, will be about £8 million in 1956–57 and about £10 million in a full year.
§ The exemption from Income Tax does not apply to interest earned by deposits in the special investment department of the trustee savings banks. This is the 878 field in which the banks can use their own initiative to earn good rates of interest for their depositors, by investment on terms which take full advantage of present market yields. I want to be sure that the banks have full scope for this activity. The law at present sets a limit of £1,000 on the amount that a depositor may hold in the special investment department. I am laying an Order before Parliament which will take effect early in June, and will raise the limit to £2,000.