New Clause.—(TERMINATION OF POWERS UNDER GOVERNMENT ANNUITIES ACT, 1929.) (Hansard, 2 July 1962)

§ Mr. Barber

I beg to move, That the Clause be read a Second time.

The Clause provides for the suspension of the sale of Government annuities. Sales of these annuities have declined fairly steadily over the last two decades. In the seven years 1954–60, an average of only 400 annuities per year were granted. En 1961, the figure had declined to 252 annuities. Just over a quarter of these annuities were issued through the 222 National Debt Office and the remainder through the savings banks, almost entirely the Post Office. There are now about 12,000 Government annuities in force, compared with over 1 million annuities issued by insurance companies. Government annuities, therefore, represent a negligible proportion of annuities now sold to the public.

The sale of annuities is a specialised task and the Government annuity service has suffered from the important drawback that all the specialised knowledge of these matters is concentrated in two offices, the National Debt Office and the Post Office Annuity Branch. It also has suffered in coin-petition with the insurance companies from the narrow range of types of Government annuity permitted by Statute compared with the wide range of annuities which are offered by the insurance companies.

We did not take this decision lightly, but the figures showed that there is no longer any significant public need for this service. Moreover, the alteration in the form of debt resulting from the sale of Government annuities is no longer of any significance in relation to the management of the National Debt. It seemed, therefore, to my right hon. and learned Friend that the logical course was to end this function. The Clause accordingly provides for the suspension of the power to issue new Government annuities and life insurances.

A saving is made in respect of the issue of an annuity in certain circumstances in relation to a savings bank insurance because the possibility of such an annuity was part of the terms of the contract for the insurance. Existing annuity and insurance contracts are in no way affected by this change. The Clause also makes consequential provisions for the annuity tables and references to those tables in other Acts and instruments. I commend the Clause to the House.

§ Mr. Mitchison

We require rather more explanation, even at this hour of the night, than the Economic Secretary 223 has given us. It is, no doubt, true that only a small and diminishing number of these annuities are being sold. The seller is the Government, wedded to private enterprise and hostile to any insurance by the State. These Government annuities have been going on for a considerable time and the 1929 Act, to which reference is made in the Clause, iteslf followed on legislation dating from many years before that.

The idea behind these annuities was not that every prospective annuitant should buy a Government annuity, but that in the annuity field they should fill the sort of rôle which has been filled by, say, the savings banks in the banking field. I see no inherent reason why that should not have been done. I notice that the Government profusely and extensively advertise Premium Bonds. Do they make any similar advertisements about Government annuities? I certainly have never seen anything calling the attention of the public at large to what can be expected by way of a Government annuity.

Next, we are told that the funds of these annuities are held, as indeed they are, by the National Debt Commissioners and the savings banks authorities. The Economic Secretary will remember very well that in the course of discussing the Trustee Investment Act a year or two ago, a question was raised about the powers of investment that these bodies have. If a life insurance company, with free and practically unrestricted powers of investment, as is the case in this country, is able to earn a rate of 6 per cent, or something of that sort on its life funds, it is no doubt able to make a better bargain, whether by way of annuity or by way of life insurance, with the individual applicant. The strength of its competition depends on its powers of investment and on the use that it makes of them. One of the most valuable employees of those companies is whoever attends to their investments, not to mention the directors who do the like.

12.45 a.m.

What is the position about the public authorities who have to deal with the funds out of which these annuities should be paid? They are allowed to invest only in Government securities. 224 The net result, to take another instance, is that the National Debt Commissioners have succeeded in losing about £300 million out of the reserve funds of national insurance, and they have lost that because they have had to lose it. They have had a short-term fund which has not lost so much and a long-term fund which has lost a very large amount by buying long-dated Government securities and seeing those securities suffer a fall. In that instance, what they have been doing it with has been the pounds of the employer and the pence of the employee.

It is a very great pity that an attempt to broaden those investment powers was resisted on that occasion. But those are the very investment powers that we are dealing with here. It is not surprising that the Government annuities and attempts at Government insurance and the like have been so severely handicapped.

So we have on the one hand, so far as I can see, a Government which, owing to the philosophy, or lack of philosophy, of the Tory Party, are opposed to any Government dealings of this kind and do nothing whatever to forward or advertise them, and on the other hand a system of public investment which dates back to the time when safety was to be found, or was thought to be found, only in Consols and which, consequently, handicaps hopelessly those who deal with insurance and annuities paid out of funds held by the National Debt Commissioners or the Post Office Savings Bank. I think that the National Debt Commissioners are by far the better instance because the Post Office Savings Bank seems to me to be purely a paper transaction. But I stand to be corrected on that. However, let us keep to the National Debt Commissioners for the moment.

What the Government should say is, "We have been thinking this over. We think there is a case for improving Government annuities. We think there is a case for popularising them. We think they meet a real need. We think that all the legislation dating back many decades cannot have been passed out of entire idiocy or lack of understanding of the needs of the people. We are prepared, therefore, to 225 consider what use can properly be made of the annuities and what we can do towards fulfilling the needs that these annuities were intended to meet."

There are many simple people in the country who find it difficult to choose between the sometimes bewildering claims of one life insurance and another and still have the old-fashioned belief that it is better to have Government security behind one. I am not saying for a moment that there is anything wrong with the security of the large life insurance companies. Obviously there is not. But there is a belief that there is some additional safety in the Post Office Savings Bank, Government annuities and that kind of thing. I should have thought that there was a real case for keeping these annuities and for taking steps to show a degree of enterprise about managing them.

The Treasury is not very good at being enterprising, but it has done a bit about Premium Bonds. If it can encourage Premium Bonds, a little spot of gambling in that way, it could do the like for the rather different need that the annuities are intended to meet—provision for people in later life, provision for people who are badly off in some way, provision for dependants and so on.

I should have thought that there was room for at any rate more than a mere explanation that we have been able to sell so few of the annuities that it is time we abandoned power to do so except where we have already promised to do it—for that is what the Government are saying. It is only when one comes to consider the character of the Conservative Party and the Government themselves that one sees the real reason for the Clause. After all, if one offered them the powers and invited them to exercise them, if one suggested that there was a public need to be met, is it really to be hoped or expected that a Government of the character of the present one would be fit or willing to compete with the private enterprise which they regard as their sacred cow in these matters?