§ 11.54 a.m.
§ Sir Frederic Bennett (Torquay)
I beg to move,That this House endorses the need for a high and rising level of new investment in National Savings, and deplores the discouraging effect upon such investment of the policies of Her Majesty's Government.When a short time ago I had the very unexpected surprise of being fortunate in the Ballot for the first time in 13 years, I never expected to have the additional shock of addressing the House on this Motion shortly after the House had spent a substantial period on the very important issue that we have just discussed. I make no complaints. The matter that we have been discussing is of overwhelming national and international importance.
Equally, I have no regrets about raising this subject at this time. As Members of Parliament, we are all receiving large numbers of letters on the subject that we have just been discussing, but there is a common form of post bag which we all experience, and have experienced over the years, and that is an absolutely steady and unremitting series of unhappy, bewildered complaints from people who have invested their money in one form of Government security or another and found that their nest eggs, far from increasing over the years, have declined.
I shall have to say some very hard things about certain aspects of the savings movement during my speech. I feel bound to do so. I hope that I shall carry a certain amount of support on both sides, because it is common knowledge that very great hardship has been caused to many people of all political shades of opinion by the erosion in value of money and, therefore, gilt-edged securities over the last 20 years under all Governments, but worse under Labour Governments than under the Conservative Governments.
I hope that there will be no accusation afterwards that in criticising National Savings in their present form one is unpatriotic. One has got tired of the fact that in this Parliament when criticising governmental policies, whether it be on Rhodesia or with regard to the value of sterling, one tends to be criticised for being unpatriotic in not supporting the 791 Government of the day. It is legitimate for us to criticise this policy without criticising the underlying purpose which we all have in mind, which is support for the maximum amount of savings coupled with a greater degree of integrity to those who invest, than has existed so far.
I had planned to say, first, something very general about the feelings which many of us share very deeply, and which are shared outside. I was thinking of my opening sentences on the general point when I happened to read an article in the Financial Times of 31st July, which referred to earlier Questions by one of my hon. Friends. The article was headed "Savings Certificates—Story of the Great Illusion". I cannot do better than read a couple of paragraphs from the article, which seems to sum up the moral position over the savings situation:… it is an affair involving sums far exceeding the £2½ million or so concerned in the Great Train Robbery and affecting not just a few banks and their insurance companies but the many millions of those who have entrusted their savings to the care of the Government under the illusion that they could have no better home. … What makes this all the more shameful is that the worst hit are those who can least afford to see their savings eroded in such fashion—the less wealthy elements of the population who, being also financially less sophisticated, are not fully aware of the treatment they are getting or of the opportunities for avoiding it by investing money in other ways.I do not think that in two short paragraphs one could better sum up the position during the last 20 years. Let us be frank. People have been misled as to what, in effect, would be the value of their savings when they came ultimately to encash them. In a speech such as this it is impossible to avoid giving the House some figures in substantiation of what I have to say, and I hope that both sides will bear with me. Some of the figures ought to make the House feel ashamed, as I did when I studied some of them.
I shall quote only a few items from the enormous wealth of material supplied to me from all sources. In the case of National Savings Certificates, for every £100 invested in 1945, although on the face of it they had, in theory, risen in value by October, 1951, when the Conservative Government first came into office, to £120 12s., but in real 792 purchasing power they had fallen to £88. Therefore, after holding the securities for six years those concerned had lost £12 out of their £100 investment. By October, 1964–13 years later—they had lost another £7. Although in theory the value ought to have been £169, it was then £81. After one more year of the Socialist Government, the value has now fallen to £79. I emphasise that the small people who invested £100 in National Savings Certificates in 1945, after lending the Government their money for 20 years, now find that it has a purchasing power of only £79. Far from getting anything over the years, taking into account capital appreciation and tax savings, they find themselves with £79.
I will quote another example, that of the 3 per cent. Funding Loan. The purchasing power of £100 invested in 1945 is now £41. Is that something of which we should be proud or satisfied? The people who put their money in this loan also thought that at least they would have as much money in the end, if not more. But there are perhaps two worse examples yet to come. The first is the 2½ per cent. Treasury stock generally known as "Daltons". I wonder whether any hon. Member, save possibly the experts, could give me the answer as to how much £100 invested in this stock in 1945 is worth today. The answer is shocking. It is now worth £18. These were people who 20 years ago entrusted their savings to the Government but they find that £100 is only £39 at market price while the actual purchasing power is £18.
Then there are the Government securities in War Loan. We receive probably more letters about this one than about the others. There was a more patriotic association with War Loan than with almost any other investment. Nevertheless, £100 invested in 1945 in War Loan now has a purchasing power of £24. Thus, so many of our constituents who patriotically loaned money to the country find that 75 per cent. and more of the total value has been eroded. Since the market value is only £53, they have lost even half of the market value. In real terms, we have even worse cheated the investors.
For comparison, I have also examined blue chip equity stocks which bank advisers and trustees may have advised their 793 clients to buy 20 years ago instead of gilt-edged. The figures are enlightening and all of us who have the responsibility of advising people where to put their money are in a great quandary because, although one wants to help the Government with savings, one also has a moral duty to those one is advising.
I may point out that I have no interest to declare in the two companies I shall mention other than the fact that I own a few shares in each. I have no great responsibility, however, and, indeed, when I mention that they are I.C.I. and B.F., the House can well imagine that my influence in their affairs can be regarded as negligible. But what a different story we find with their investments.
In the case of I.C.I., £100 invested in 1945, taking account of the fall in the value of money, is still worth £239 now. It has substantially more than doubled. Indeed, in market terms it has trebled in relation to purchasing power compared with those awful figures I have just given. The investor who put £100 into I.C.I. in 1945 now has, apart from the dividends, £239.
In the case of B.P., £100 invested in 1945 is today worth £373. In terms of the market price it is much more. Can there be any one of us here who does not feel ashamed in reminiscing on advice that may have been given to small investors 20 years ago and realising that £100 then invested in gilt-edged is now worth £18, or £20 or £30, whereas £100 invested in either of these two great private enterprise concerns—which are just as safe for investors and are certainly not speculative—is now worth £239 in one case and £373 in the other?
This, of course, all derives from the fall in the value of the £ This is the rub. It is sometimes worth putting all these facts together. We get various pieces of information through Questions in the House, but it is only when we put them together and look at the situation as a whole that one realises just how much creeping or sometimes galloping inflation is with us. The £ note in 1945 was worth 14s. 6d. by the time the postwar Labour Government went out of office in 1951. It had thus lost value at the rate of Is. a year.
In the period of Conservative Government from 1951 to 1964, the £ note lost 794 in value another 6s. 11d.—an average of 6d. a year. I take no particular pride in that, but at least it is twice as good as Labour's record. However, an unrepentant Labour Party, in one short year, has already returned to the deterioration of the 1945–51 period and another ls. has been lost from the £. The nub of the problem is the creeping inflation which is in fact disregarded in many circles. Those who are powerless to do anything about it, as the small investor is, are the chief sufferers while those with big unions and concerns behind them manage to beat inflation and get away with it. The non-vocal elements are largely left far behind.
In discussing the need for more savings, I want to rebut in advance what I am sure will be part of the reply of the Financial Secretary to the Treasury. I expect he will claim that the position is not so gloomy because savings in the wider sense are not too bad. He will say that, by one interpretation, they have actually increased. But that is not the case at all. Of course, as total national income increases there is bound to be a bigger absolute amount of money to put into savings in one form or another. But I hope that the hon. and learned Gentleman will not use such an argument against figures I have obtained were not from party political sources but from the Library here and other impartial sources.
The percentage increase is the one that matters in considering new national savings and we find that during this last year the smallest increase of the last five years has taken place. The percentage of the national income going into National Savings is the important one. In the financial years 1960–61 and 1961–62 there was an increase of 2.9 per cent.; in the following year there was an increase of 2.8 per cent.; then there was an increase of 4.2 per cent. and in the last financial year of Conservative Government the rise was 4.5 per cent. The figure today of new investment in National Savings is 1.1 per cent.—the smallest over the whole period of five years.
§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
To what period does that last figure refer?
§ Sir F. Bennett
That is the rise in the absolute figure of National Savings from £8,304 million for 1964–65 to £8,395 million in 1965–66. If the hon. and 795 learned Gentleman's mathematics are as good as mine and the Library's, he will agree that that is a 1.1 per cent. increase, which compares unfavourably with the other figures which I have just given.
A more layman-like way of looking at these figures and the more understandable way is to consider the balance of receipts and repayments up to the 35th week of each year—at the moment I can only give the 35th week for this year and so I have taken the 35 weeks of each period. This is a balance of receipts and repayments before the payment of accrued interest. I know that hon. Members will forgive me if I give the round figures. In 1960–61, the credit balance of receipts was £166 million; in 1961–62, it was a credit balance of £47 million; in 1962–63, a credit balance of £88 million; in 1963–64, a credit balance of £98 million and in 1964–65, a bumper year, it was a credit balance of £139 million. In 1965–66, however, for the first time in six years there was a minus figure of £36 million. In other words, not taking interest into account, repayments exceeded receipts by £36 million.
This shows that for various reasons the British public is becoming increasingly aware of what the Financial Times described as the great illusion. Whatever we may say in the House, whether people read the figures I have given today or not, more and more people will come to the same conclusion.
I said that I appreciated that one answer which might be made to my case was that overall saving might be said to be up in this year. I hope that I have managed to deal with that. I have shown that new national savings in the strict sense have risen by only 1.1 per cent. Investment in unit trusts, one of the alternatives, is down to one-fifth of what it was last year. Investments in building societies, another alternative for savings, over the period as a whole have been either static or slightly down. I know that at times this investment has risen but I have given overall figures and I have quoted exact parallels throughout my speech.
One form of saving has increased. That is lending to local authorities and other short-term gilt-edged securities. 796 However, I suggest that far from rebutting my argument, this fact supports it, because the only reason why money which should be going into new National Savings has been going to these forms of security—and here I speak with a little professional knowledge of the City—is that the rates of interest for these securities have been so high that they have defeated the built-in inflationary disadvantage of saving.
Allowing for inflation of about 3½ per cent. per annum under the present Government—and it is difficult to say how much in fact it is until we have had a complete financial year, but I think that by April it is much more likely to be a full 5 per cent., although I am being generous to the Government today—with a short-term security paying 6 per cent. or 7 per cent., there is a return on the investor's money which will beat the built-in inflation disadvantage. So it is not a ground for satisfaction that savings which should be going to new National Savings are going into these high interest short-term securities. This should be very much a warning note to all of us.
I do not want to keep the House indefinitely and this is a subject on which it is difficult to make an emotional oration, although, strangely enough, probably more people are desperately worried about it than are concerned about the more vivid political matters which we have been discussing in the last few days. They are much quieter about this matter, although over the time that I have been a Member of Parliament I repeat I have received more letters about this than almost all the others put together, apart from personal constituency issues.
It is therefore up to me to consider why there is this growing reluctance to invest in National Savings. Although the record of the Labour Party in this respect is worse than that of the Conservative Party, I do not aim this specifically at hon. Gentlemen opposite, but there is a growing realisation by the public that they are being had as suckers. It would be absolutely wrong for us to try to conceal from them that they are being had for suckers. It would be better for the House to appreciate that we have all been guilty of helping to perpetrate a 797 great illusion since the last war by inducing people to put their money into investments with the almost certain knowledge in our minds, although not in theirs, that when they eventually drew out their money, they would be worse off than when they put it in.
This is a responsibility which we cannot continue to tolerate with any degree of integrity. If from the figures I have given the public think that they are being had as suckers, we cannot blame them for that emotion. It is no good saying that we ought not to say these things because that might deter National Savings. I am sure that that is one of the criticisms which will be made of what I have said. I shall be asked what I am doing to help. My answer is that I shall not help the National Savings movement to help to perpetrate a fraud. I shall not help cheating. I believe that it is our duty to ensure more National Savings, but to overcome the present element of illusion. In that case we would then have the right and the duty to get all the extra new National Savings we could.
There is another reason for the decline in savings and that is that the value of money is now falling faster than at any period since 1945–51. Already the fall has been 1s. in the £ in a year and the public is also beginning to become conscious of that fact. It is becoming increasingly cautious about the sort of investments it favours and sometimes thinks that it is better to buy something concrete while the £ is worth what it is today than to invest the money only to find, one, two, or three years later, that they are not able to buy with that money what they could have bought when they first invested it.
Then there is something for which the Government are directly responsible—and hence the critical second half of my Motion. This is excessively high taxation. In these matters Government spokesmen are always creating a vicious circle. First Ministers tell us that if savings do not increase, taxes will have to increase. But if taxes rise beyond a certain point, savings fall. What the Government preach is thus not accomplished.
I have used some fairly harsh terms about the great illusion, but there is one other matter which should shame every 798 one of us in view of the figures which I have given. The Government have introduced the Capital Gains Tax which applies to gilt-edged securities. This tax is nothing more or less—and they know it—than a Capital Gains Tax on losses, on top of the fraud now being perpetrated, by which people are taxed on the loss in the value of the money which they have invested over the years.
I am not in favour of a Capital Gains Tax, but whereas at least there is an argument in principle which can be put forward by those who support it, in equity investments that I have mentioned, where there is an element of genuine gain, there is no moral or political argument at all in favour of putting a Capital Gains Tax on a market value which has no relation to the purchasing power of the individual who has invested his money in the securities of the type I have mentioned, such as National Savings Certificates, with their appalling record.
The people who invested £100 of their money in that way in 1945 find that it has fallen to about £40 now, but because, theoretically, when they cash their savings today they receive £160, they are charged Capital Gains Tax—not over the whole period from 1945 but on any increase that has taken place since April this year, although their actual encashment value has fallen below what it was in April of this year. Can any hon. Member, or any person anywhere, support a Capital Gains Tax levied on losses? That is what it is so long as it applies to gilt-edged securities.
If we are going to go on squaring our consciences by demanding that people should continue to support the National Savings movement—as most of us have done in our time—we must seriously think of what we can do to prevent the continuation of this great illusion. If we cannot prevent inflation we must accept the consequences, as other forms of investment do, and in the terms we offer to the public in respect of the ultimate encashment value we must take into account the inflationary factor. If we do not do that we are cheating, and there is no argument that we can use in our support.
Each successive Government must make up its mind either to end inflation—which is increasingly difficult in the 799 twentieth century—or to make allowances for inflation in the terms which they offer to poorer people who wish to invest in National Savings. They are the people on whose behalf I am principally speaking. The Government must produce terms which take account of the harsh inflation which we have learnt to expect and which, apparently, we shall have to go on expecting.
If we can do that we shall be able to square our consciences with a continuation of support for the National Savings movement, but we must look again at the overwhelmingly important factor, which is that until we make some reform of this sort we ought not to go on inflicting a Capital Gains Tax on losses which are being incurred by those on whose behalf I have been speaking.
I began by quoting from the article in the Financial Times—"Saving Certificate—Story of the Great Illusion" and I cannot do better than end by reading the last paragraph, which bears out what I have been trying to say. It says:Since we have long passed the point at which it could be seriously maintained that inflation was on the point of being cured for good and all, it is high time that this scandalous situation was now dealt with in realistic fashion. It is high time, in short, that the Government equipped its saving issues with purchasing power guaranteed so that it can go to the people and honestly claim that, if they lend the State their money, they will be fairly rewarded—not surreptitiously deprived of part of their hard-won savings by economic processes that the Government should be stamping out but which it lacks the courage or the will to tackle.I hope that the Financial Secretary will be able to indicate that the Government will have the courage to tackle the scandal that I have outlined today.
§ 12.24 p.m.
§ Sir Stephen McAdden (Southend, East)
I rise to speak only for a short time to support my hon. Friend the Member for Torquay (Sir F. Bennett) and to congratulate him on his good fortune in the Ballot which has enabled him to bring this important subject to the notice of the House. I also echo the views with which he began his speech, when he said that it might be represented as unpatriotic if he offered any criticism of the National Savings movement. I would point out that we have already lost a certain amount of private Members' time because 800 of a discussion in which there was some use of emotive phrases. I do not propose to use emotive phrases, except to say that we should not regard a different point of view as necessarily indicating a lack of patriotism, when we are all concerned with doing the best that we can for the country in which we live. We differ as to how it should be done, but I am sure that our intentions are the same.
I did not find it easy to follow the argument of my hon. Friend when he was attempting to draw a distinction between National Savings, with their deterioration in terms of purchasing power, and what happened if investment had been made in blue chips. There is no relation between an investment of that character and an investment in what is called National Savings—which should not be called National Savings. They should be called either private savings or national spendings. We should not call them National Savings, because if any business were to attempt to operate on the lines of the Government in this respect it would find itself at the Old Bailey for long-term fraud. The Government of the day invite people to lend them their money, which they promptly proceed to spend, in the optimistic hope that when the people want to take it back there will be sufficient taxpayers left alive for the Government to tax and so get the money with which to pay their earlier purchasers of National Saving Certificates in depreciated currency.
§ Sir F. Bennett
I only want to try to make clear to my hon. Friend what I was saying. I realise that there is no relationship between the two forms of investment to which he has referred. Perhaps I did not make it clear, because I spoke too briefly, but HANSARD will show what I meant to say. I was trying to explain the sort of difficulty which my hon. Friend and I had to face when, in 1945, we were advising people how they should invest their money. I then went on to illustrate what had happened in respect of National Savings and how this compared with other forms of investment.
§ Sir S. McAdden
I appreciate my hon. Friend's point. I am only surprised that he should be surprised that investment in private enterprise should result in an 801 improvement of the value of the investment whereas investment in National Savings leads to a deterioration.
In recent years we have had some experiments in different forms of National Savings—especially when a former Leader of the Conservative Party, Mr. Macmillan, was Chancellor of the Exchequer and introduced Premium Bonds. There was then an awful outcry about the immorality of encouraging people to put their money into this form of savings in the hope of getting a greater financial reward. But British people, whether they be working-class, middle-class, or rich, are all interested in making a little money. I am glad to see that even those who attacked the idea of Premium Bonds as a novel way of stimulating savings have, in a period of 12 months, recognised that they were quite a good idea after all and have raised the value of the prizes which can be won through this form of saving.
I am also glad that my hon. Friend the Member for Torquay drew attention to the fact that some of those most hard-hit by the deterioration in the purchasing power of their savings are moving towards the evening of their lives, living upon restricted incomes and not, in the nature of things, able to contract out of the increases in the cost of living in the way which is available to those who are engaged in industry.
Inflation worries the ordinary workman much less than it worries the retired person. The workers know that London fares are going to rise shortly, but we know that this will be followed by demands for increased wages to combat the increased cost of living. The poor person on a retirement income is not able to contract out of these constant rises in this way. Therefore, the value of his savings is seriously diminished.
I was interested to hear my hon. Friend quote from the article in the Financial Times, referring to the great illusion, because the whole thinking behind it is that of a book called "The Great Illusion" which Norman Angell wrote many years ago. This book illustrated the point which I wish to make, that money entrusted to Governments is dealt with in an entirely different way from money entrusted to people running businesses. Those people use it 802 to stimulate production to increase wealth. From that increased wealth they can set aside something to pay back what they borrowed.
When Governments borrow money, they use it not for productive purposes but for such purposes as increasing the national security—on armaments, for instance—but none of this adds to our store of wealth production. Therefore, when increased wealth has not been produced, it is impossible to set something by to repay the money which was borrowed. This is true, as my hon. Friend tried to bring out—
§ Mr. Hugh Jenkins (Putney)
Would the hon. Gentleman not agree that his description of what Governments do with the money is extremely limited, and that, by restraining current purchasing, a Government increase the wealth of the country and use it in many necessary capital expenditure ways?
§ Sir S. McAdden
I appreciate that a Government do these things. I did not intend to limit the objects of Government expenditure just to the provision of armaments: I mentioned only one example so as not to take up too much of the House's time. I know that Government expenditure covers a wide field, but I suffer from the conviction—I may be wrong—that people investing their money and using it in a way which they think right and productive are more likely to use it wisely than are Governments. I am not making a political point: I think that no Government—not even a Conservative Government—are any good at producing wealth. It is much better done by private individuals, which is why I want to see a stimulation of the enormous amounts of savings going into unit trusts and the like.
I wanted to make the point that, in regard to National Savings, it is of the utmost importance that Governments should so conduct their business so as to reduce the general burden of taxation. If they use National Savings deposited with them in an intolerant manner, the result can be only a rise in total national expenditure, which will have to be financed out of the taxation which they will levy not only on new savers but on the people who lent their money in the 803 first place, and who will have to be taxed so as to get back what they lent to the Government.
§ 12.32 p.m.
§ Dr. David Kerr (Wandsworth, Central)
It is extraordinary that the hon. Member for Torquay (Sir F. Bennett) should claim that most of the letters he has received from his constituents since he has been in the House have related to savings. I wonder if this sets the whole debate in context. Can it be that there are no housing problems in Torquay—or Southend? Can it be that the greatest interest in National Savings centres in those parts of the country where retired people constitute a disproportionately large and particularly vocal part of the electorate and who are literate enough to make approaches to their Members of Parliament?
§ Sir F. Bennett
I should like just to make a correction of fact. I think that HANSARD will show that I used a phrase like "apart from personal constituency problems", which would include housing and similar matters. I was talking specifically about political issues.
§ Dr. Kerr
I am grateful to the hon. Member, and I apologise for misrepresenting him. I had not understood that he had emphasised that point.
Nonetheless, that brings me to the first and, I think, the most important consideration which any hon. Member promoting a Motion of this sort might have been expected to dwell upon before asking the House to consider National Savings in a vacuum. This is as if we were asked to consider, for instance, railways divorced from the whole of inland transport, or were asked to consider the whole of our overseas expenditure without taking into account particular parts of it.
The essence of National Savings is twofold. First, it is a method of capital formation of a very special and particular kind, impossible to judge except against the background of other capital formation in other ways. Second, and of equal importance, National Savings—in all its manifestations, but particularly Post Office Savings and National Savings Certificates of low purchasing cost—represent the instrument of savings, not 804 spendings as the hon. Member for Southend, East (Sir S. McAdden) would have us accept. They represent to the person who takes the initial step of buying them and investing his money a certain form of saving.
It is quite improper to consider the formation of National Savings except against the broad background of public investment, not merely in terms of capital formation as we understand it to apply to industry—whether nationalised or private—but in terms of the way in which people invest their earnings. It is abundantly evident to all of us that the race between earnings and expenditure, or between earnings and spending power, is still unresolved—not because of the policies of the Labour Government but in spite of those policies. The efforts which are being made to resolve this continual outrunning of one financial sector by the other cannot be discounted or thrown on one side when discussing National Savings.
A consideration of the matter under the microscope instead of against this broad backcloth would give the hon. Member for Torquay a greater understanding of what is involved for the private citizen at all levels. When he is asked to make this choice, he says, "Should I put my money into the Post Office, should I buy National Savings Certificates or bonds, or should I invest my money in some other way?" In that context, it is impossible to discount—I do not use the word in its financial sense—the effect of the hire purchase market, of rates and rents and all the other major calls upon the earnings of the ordinary man or woman in the street, which have necessarily demanded from them a rather different pattern of expenditure, which is predictably less likely to encourage them to place their money in a low-yielding investment.
Hire purchase is one example. Broadly speaking, as consumers' associations have been at great pains to show, the cost of hire purchase in terms of interest amounts to about 10 or 12 per cent. per annum. This point is not easily grasped in mathematical terms by someone who needs to buy a car or some furniture, but it is certainly grasped in the purely practical terms of how he or she should make use of the housekeeping 805 money or the contents of the wage packet at the end of the week.
If there is a delusion and a public deceit, it is to suggest to the House that people are able to choose on a rational basis between the 10 or 12 per cent. which they are paying on their hire purchase investment and the 2½ or 3 per cent. which they get through their National Savings investment. The important part of this consideration is precisely that hire purchase interest is determined not by Government policies, which are under attack, but by the policies of the finance houses which supply the money. There is no need to be smooth-tongued about this—the finance houses are "doing very well indeed, thank you".
The hon. Member for Torquay was at some pains to suggest that people should be protected against the inflationary effect of investment. It is as though the hon. Gentleman were implying—which I am sure he would not wish to do—that every investment in blue chips on the Stock Exchange was quite free of risk.
If it is proper for a Government to build into their savings system a guarantee against inflation and loss of purchasing power, why is it not proper for private industry, when inviting investments from small savers, to build into its Stock Exchange equities a similar guarantee against loss? Is it not a fact that every investment in a commercial market is a risk, a gamble? How is it possible to protect the small or large investor against this sort of loss in purchasing power which arises not from inflation but from other circumstances, which it would not be proper for me to discuss at length today?
§ Sir F. Bennett
There is an easy answer to the question about why there is a difference in the case of blue chip securities. I do not accept that it is so much of a gamble. I deliberately chose them. I accept that there is some gamble involved in that the value might go up or down. However, with National Savings one is absolutely certain that there is no gamble involved because they will not go down. For that reason they require exceptional treatment.
§ Dr. Kerr
That is the nub of the difference. People who invest in equities 806 —if all our experience over the last 30 or 40 years is any guide—have a reasonable expectation of capital growth, whereas people who invest in Government funds, no matter what the complexion of the Government in power, have a reasonable fear that the effect of inflation will destroy the bulk of their investment proper.
This brings me back to the difference between investments in the capital growth type of investment and money put into the type of investments open to the small investor. From time to time we hear a great deal, particularly from hon. Gentlemen opposite and their friends, about the value of unit trusts as a means of investing; about shareholding clubs and so on. These are all methods of competing for the surplus money available for savings purposes. However, these are not the only things. In addition, there is, of course, the question of house purchase.
For the person whose money might be expected to go into small savings there has been, in the last few years, an increasing pressure to devote that surplus, when available, to the heavy burden of house purchase. House purchase is something which, throughout certainly the last 10 years, has inevitably commanded a high interest rate, and a rate which is continuing to be high.
The last thing I want to do is to go back to what I find is a very tedious sort of yah-boo argument about whether the state of the economy was our fault or the fault of hon. Gentlemen opposite or whether what we are doing to put things right is right or wrong. For this debate we merely need to recall the facts. One of the most important is that house purchase costs during the last 10 years have soared. The prediction during the year of Labour Government has been that this rise in house purchase costs is beginning to level off. However, interest rates remain high. It is this pattern of increasing house ownership, rising capital costs of housing and increasing interest rates which, even if they existed alone, would constitute one of the great competitors for the surplus funds which we all want to see channelled into National Savings.
If we consider the hire purchase figures in the monthly statistics we see that the 807 total outstanding instalment debt increased between July and August of this year by £4 million, while the outstanding amount is £1,358 million. Compared with a year ago, it is £270 million up. This indicates two things; first, that the the brakes on public expenditure which the Labour Government have seen fit to apply during their term of office have not suppressed the public choice of investment in its own type of capital goods to the point—
§ Mr. John Biffen (Oswestry)
Before the hon. Gentleman proceeds, I think that he will find, if he consults the latest figures, that the outstanding hire purchase debt has, in fact, fallen. I appreciate that he is quoting from the latest Monthly Digest, but figures have been published since the publication of that digest.
§ Dr. Kerr
I am grateful to the hon. Gentleman for that advice. I was about to come to the latest figures but was first giving the pattern for the whole year because attention is drawn in the Motion to the fall in National Savings. The emphasis I wish to stress is that this fall could reasonably have been predicted at the very start of the Labour Government's term of office. To be bigheaded, I predicted that this must happen. I also predicted, although I was wrong, that public expenditure of all sorts could be expected at least to he restricted more than it had been.
The fact that the latest figures show a fall in the outstanding hire purchase debt—and thereby a drop in hire purchase investment—must make hon. Members, at any rate on this side of the House, reasonably satisfied that the thing is beginning to pinch. The ugly fact in such an economic situation is that unless a brake of this type is placed on expenditure, we cannot foresee an end to to this growth of inflation and we cannot expect a return to a reasonable level of National Savings, and thereby of Government investment.
I wish to emphasise the other aspects of private spending which must play an important part in determining the pattern of investment in National Savings. In answer to a Question tabled by me last week, I learned that the level of ex- 808 penditure among the general public on gambling now represents something approaching 1 per cent. of family incomes, which is a very large amount indeed. Figures supplied by the Church's Council on Gambling indicate that the turnover in gambling this year will exceed the national expenditure on armaments. In other words, the figures suggest a turnover on gambling alone of about £2,000 million, an extraordinarily large amount.
It does not seem reasonable to look at the falling pattern of National Savings unless, at the same time, we look at the other calls on people's money. So what I have described represents rather a new one—and one which I absolutely deny is in any way the responsibility of the present Government. Indeed, I hope very much that in the course of time the social impact of gambling and its effect on personal expenditure will be recognised as of such importance as to demand a revision of the Betting, Gaming and Lotteries Act, 1963.
The upsurge of bingo halls and the scatter of betting shops—remembering that they are increasingly carefully placed on housing estates rather than in shopping centres—is daily providing for the housewife a new call on her housekeeping money, money which we might otherwise reasonably hope and expect would be directed into National Savings.
I have spoken with a great many people who are interested in saving a certain amount of their surplus money, both extremely small savers and large public investors. For example, the Prudential Assurance Company exercises power over £1,800 million worth of investment, a very large sum of money for one private company to determine the fate of. About 95 per cent. of our population do not exercise power over money of such dimensions. It is a question perhaps of 5s. a week. The proposed instalment plan for National Savings is a recognition of the fact that people have small amounts only to dispose of when it comes to investing money in the welfare of the Government and, thereby, the nation.
The pattern of saving—although over the years it has seen a steady increase, the increase is a dynamic one—is of a very large input and an almost equally 809 large output. The margin is astonishingly narrow. I do not know whether the B.B.C. still on Sunday nights announces the weekly level of National Savings, but we heard it every week during the war and for a long time after. The astonishing thing was that the increase week by week was a very small, almost marginal, percentage of the total amounts of input and output. Such a small margin requires very small provocations to swing it the other way.
It seem to me from this fact and from my contacts that the reason why people save is that they are putting the money in order to be able to draw it out. They do not put it in, first and foremost, as might be interpreted from the contention which has been put to the House, because it is interest earning. They do not say "If I put £1 in the Post Office I shall get 6d. on it at the end of the year." That is not the major consideration for the mass of wage earners, whose money is concerned here. To them the post office is a safe place for their money. Many of them do not have access to a bank, and even if they did the bank charges on their account would cut any hopes of investment, and putting it on deposit would deprive them of the ready access which the Post Office Savings Bank offers them.
It has never appeared that the small investor is greatly influenced by interest rates on National Savings Certificates or bonds. The latest interest rates for National Savings are higher than they were ten years ago, and yet the National Savings rate has fallen. I do not have a breakdown of the figures in this respect for the Post Office Savings Bank, but it must be predictable at least that the same pattern will be followed.
I emphasise that the small investor does not have great regard to interest rates. It is a question of bestowal of money and ready access to it at holiday time, when Christmas approaches, when illness strikes and, in some cases, when retirement arrives, when the feeling that there are a few savings in the background is a considerable source of security and relief from anxiety.
§ Mr. Stratton Mills (Belfast, North)
The hon. Gentleman may be right about the Post Office Savings Bank, which may represent 15 per cent. of National 810 Savings, but surely he must be wrong in what he says in relation to National Development Bonds, Premium Bonds, Defence Bonds and Savings Certificates, which are much more in the nature of long-term investments.
§ Dr. Kerr
I do not see that that is contrary to what I have said. The hon. Gentleman has quoted a most important fact which rather supports my attitude, namely the steady growth in Premium Bonds, which are only notionally interest-bearing but which have the attraction of a football pool. That is an endorsement that the attitude that it does not really matter about the interest characterises the type of investment which the ordinary man in the street is able from time to time to make.
I have referred to gambling. I did not want to dwell on it. I have more than a sneaking suspicion that Mr. Speaker might not regard it as within the terms of the discussion. But, as the hon. Member has brought the attention of the House to the existence of Premium Bonds, I wonder whether the continuing growth of investment in this type of savings is to be regarded as a satisfactory one not only from the point of view of the Government, who wish to spend the invested money, but from the point of view of the people who are encouraged to make this kind of investment.
I have referred to the calls on personal expenditure which the growth of gambling is making. It would not be proper in this context to make any reference to the moral aspects of gambling, but the fact that this is, so to speak, made respectable by Premium Bond investment is part of a pattern of social change which has come about as a result of the policies not of the present Government but of the last Conservative Government, policies which are slowly but certainly changing our whole pattern of personal expenditure. We cannot talk about National Savings as though they were something done in a laboratory divorced from all that is going on outside.
The hon. Member for Torquay suggested that the public were being had for suckers, being under the illusion since the last war—I am glad to endorse that; it has been an illusion throughout the 811 years—that they were investing their money safely. He suggested that some of this was the result of the present Government's policy and that it was likely to be perpetuated. The inflation of 1s. in the £ during the last year to which he referred is something which, again, one cannot view in a vacuum. If the purchasing power of the £ has dropped by 1s. in 12 months, what are we to say about the £250 million or £260 million increase during that year in hire purchase? What are we to say about the increased disbursement of funds by building societies?
How are we to relate the increased investment in building societies, which is a form of savings for many people in lower income groups? What are we to say about that and its influence on National Savings? If it were possible for any Government to say to a small saver, "From tomorrow we will pay 6½ per cent. on your Post Office savings account", I wonder whether it would make all that difference to the small saver. Would it make available more of their already short spending power? Would they be influenced by this high rate of interest to sheer away from bingo, betting shops, football pools, and the buying of furniture, and would they put more money into the Post Office Savings Bank and get their 6½ per cent.? Manifestly, this is not so. This is not the pattern of savings. These are not the stimuli which provide increased savings from the mass of people who have a small amount of money to dispose of for a short time only.
I should have thought that, from this point of view, the possibilities that sound so attractive of asking people to invest in share-holding clubs are severely limited, just because savings do not represent investment to the small saver in the same terms as investments are represented to the finance houses and the insurance companies. It is, therefore, idle to try to equate the two, or relate the two, or to talk about the two kinds of savings in precisely the same terms.
§ Mr. Anthony Grant (Harrow, Central)
On the point about shareholdings, it will not have escaped the hon. Member's notice that over the last few years there has been a most dramatic growth in in- 812 vestment clubs, and that this is an indication of the desire of small savers and wage-earners to invest in shareholding.
§ Dr. Kerr
I am not unaware of that movement. All I suggest is that this need to withdraw represents a restriction on potential saving. There has, of course, been a considerable increase in shareholding clubs and unit trusts—a very satisfactory form of investment in a broad range for the smaller saver—but, after all, there is again more of a gap than is perhaps recognised by hon. Members opposite between the person who has £100 to dispose of at one time and can put it in investment trusts and the person who goes to the Post Office and buys 5s. worth of National Savings stamps. The two types of investment are not on the same basis, and they are not on the same basis because of the resources available and the call which will subsequently be made on those types of saving.
I have tried to deal with the question of capital tax on what the hon. Member for Torquay called "losses". I think that this is a very unfortunate word to use. It rather reminds me of a comment I heard at a council meeting when someone complained of the housing problem, and the chairman of the housing committee said, "It seems to me that all the houses in this area are owned by poor widows." In the same way the thought of all these poor shareholders in the investment companies who will get a bit of capital gains leaves me rather unmoved.
The whole tenor of this debate seems to be founded upon a newly-discovered gap through which to pour an attack on the Government's fiscal policies. I find myself in rather strange shoes. I do not regard myself at all as an expert on the Government's fiscal policies—and it is, perhaps, presumptuous for me to address the House in this context—but I do regard myself as someone who enjoys very close personal relationships with the types of men or women who will be expected to invest their money in this type of investment.
If we are to encourage savings of this sort we have to relieve people of some of the calls currently made on their spending power. That means reducing interest rates so that houses become 813 cheaper, and continuing the attack on the rate burden, which the Government have already started. It means, I am confident, changing the climate in which people operate, so that gambling—whether on the Stock Exchange, the football pools or at the local betting shops—becomes a matter, not for congratulation but for commiseration. It means seeing that these other calls are diminished in order to allow people to store their money, either temporarily or long-term, in a way that will benefit them at the time when they need it; and the country as a whole.
§ 1.5 p.m.
§ Mr. C. B. Drayson (Skipton)
My hon. Friend 1.he Member for Torquay (Sir F. Bennett) is to be congratulated on introducing this subject, and on a most excellent speech. It is very good that from time to time we should devote our thoughts to this important problem of National Savings, and it is quite right that we should see how those savers have fared over the years in the way their investment or deposit has increased.
We must all be mindful of the erosion of savings and investment by inflation, and my hon. Friend was quite justified in pointing out that, as we all, unfortunately, know, over the last 20 years there has been a considerable drop in the value of the £. It is quite fair to say that the average rate of fall during the term of a Socialist Government has appeared to be 1s. in the £. The value of the £ fell from 20s. in 1945 to 14s. in 1951, when that Socialist Government went out of office. I regret to say that each year of the following 13 years of Conservative Government the purchasing power of the £ fell by 6d. That, at least, was slightly better than what happened under the Socialist Government.
We have now apparently again returned to an annual rate of depreciation of 1s. in the purchasing power of the £, because only yesterday the Financial Secretary to the Treasury told us that between October of last year and October of this year the value of the £ had been reduced by 11d. Taking the two further months of November and December, 1965, we can confidently say, unfortunately, that by Christmas the £ will be worth only 19s. compared with its value last year.
814 It is right to take these matters into account and to draw the investor's attention to what is happening to his money so that he can at least look at the various alternatives made available to him and decide exactly where he wishes to place his money. It has been pointed out in this debate that whereas a number of savings items have decreased, where money is being deposited with local authorities, at rates of interest now between 6 per cent. and 7 per cent., there has been an increase. It is quite wrong to say, as the hon. Member for Wandsworth, Central (Dr. David Kerr) said, that savers are not interested in the amount of return they get on their money——
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present——
§ 1.9 p.m.
§ Mr. Drayson
I can quite understand why the hon. Member for Woolwich, West (Mr. Hamling) drew attention to the fact that there was no quorum. It was because he did not like some of the things I was saying about the inflationary effects of the Socialist Government policy. I had pointed out that, unfortunately, it is the fact that the £ sterling has depreciated on an average of 1s. per year whenever a Socialist Government has been in office. I said that because of this it was necessary that savers should have regard to the rate of interest which they received on their money, because if they are suitably advised or understand these matters they can take the precaution of ensuring that, even if they do not make a profit on their savings, the value of them remains reasonably intact.
I have with me a pamphlet dealing with the current issue of savings certificates. This is the 11th issue. A holder who invested £1 twelve months ago would now have a Savings Certificate worth £1 0s. 5d. As we established from the Financial Secretary's Answer only yesterday that the £ has fallen by nearly 1s., in one year the saver would have made up only half, by way of interest, of the loss which he had sustained in the purchasing power of that £ during the previous year.
815 I do not think that we shall get a reply from the Financial Secretary this afternoon to the effect that very much will be done about dealing with this situation, but we all await with interest to hear what he has to say. I hope that he will say that the Government wish to encourage the maximum amount of savings among the people; I am sure that we all want that. I hope he will say that perhaps in the forthcoming Budget the Chancellor of the Exchequer will have some further proposals to make to encourage people to save money by giving the tax free concession which is already given to those who deposit in the Post Office Savings Bank.
A tax-free concession to those who deposit money at 2½ per cent. is worth not very much more than to tax those people who have lent their money to the Government at 5 per cent. I am glad that there is a new issue of National Development Bonds which gives the saver in National Savings a rate of interest of 5 per cent., which is rather better than he has been able to receive hitherto. With the 5 per cent. National Development Bonds, there is no Income Tax concession on interest on the first £15. That is a suggestion which I would commend to the Financial Secretary.
The hon. Member for Wandsworth, Central suggested a number of reasons why people save. I do not think that he gave them sufficient credit for the useful function which they perform. When people save and lend their money to the Government or other institutions, they deny themselves the immediate possibility of making a purchase or even of enjoying the purchase of their own home. But they make it possible for other people to make purchases because the money is then lent to or used by the Government for others. People who have denied themselves the opportunity to make a purchase are entitled to receive a reward for their abstinence.
Equally, they like to know, when they are in a position or have saved sufficient to buy whatever they have in mind, that the value of their money has remained intact and that they will have obtained some reward for the virtue of saving in which they have indulged. It is because, throughout the period of office of successive Governments, the value of saving 816 has been eroded that this subject is raised today in the hope that while the Government may not put forward proposals to deal with the situation, at least the individuals concerned can be made aware of what happens to their savings and can look round to see which is the most favourable investment that they can make.
I think we would all agree, in view of the incidence of inflation, that any rate of interest which is less than 6 per cent. per annum is not a fair return to savers. My appeal is that there should be a square deal for savers, that account should be taken of the inflationary effect of Government policies and that everything possible should be done to protect small savers.
§ 1.16 p.m.
§ Mr. Ernest G. Perry (Battersea, South)
I wish to thank the hon. Member for Torquay (Sir F. Bennett) for introducing this subject. It is a topic which deserves very careful investigation.
My first duty is to thank those workers in the National Savings movement who, for nearly 40 years, have given voluntary service in trying to keep the movement going. These people are to be found in factories, shops, businesses and even homes. They collect small sums week by week in order to increase the amount of National Savings. I would not want them to feel dejected because their efforts did not meet with the success which they could expect. These people, all the year round, perform a valuable service for the National Savings movement, and to them the gratitude and debt of this country is due.
My first connection with the National Savings movement goes back to the First World War. I can remember children bringing 6d. a week to school for 31 weeks to buy a National Savings Certificate which would eventually be worth £1. This policy was carried on year after year during and after the war. This, together with many other Government stocks, was the method of investment adopted by many people of ordinary means in this country.
Unfortunately, since 1922, there has been a considerable erosion of the value of money which people have put into National Savings. I do not wish to 817 make party political capital out of this, but this process has been going on since 1922, and, except for the war years of 1939–45, the Conservative Party was in power for over three-quarters of the time. It is unfair that speaker after speaker on the benches opposite should point their finger at this side of the House and say that the Labour Party is responsible for this. This erosion has been going on for over 40 years, and it is a point in which ordinary people are keenly interested. The value of their investment of £50, £100 or £200 in National Savings Certificates has been decreasing year after year.
Since 1945, there has been a reluctance among people to invest in National Savings. The reason is that, with a certain amount of affluence, with more knowledge, and with better opportunities to invest today, they have a great choice in what they should do with their savings. They are not satisfied to put them in the Post Office, War Bonds or Development Bonds and to receive a very small amount of interest and, at the same time, to see their capital value decrease year after year. Therefore, people investigate the position. At present National Savings come out a very poor second. The enormous competition which there is in the National Savings movement should be appreciated. There is intense competition from local government and from insurance companies.
§ Mr. Biffen
I am interested in this line of argument. Are we to understand that the hon. Gentleman vigorously disputes the contention of his hon. Friend the Member for Wandsworth, Central (Dr. David Kerr) that interest rates are not particularly germane to the level of National Savings?
§ Mr. Perry
Today people are more discerning. They want a return upon their investment. They want value for money. What my hon. Friend the Member for Wandsworth, Central said is not what I am saying. I say from my personal experience over 30 years that today people are more discerning. National Savings are declining, not only because of the rate of interest but because of the intense competition of other forms of saving. Local authorities want to borrow money for 818 housing development and other projects. Building societies seek hundreds of millions of pounds to lend to people who wish to purchase houses. There are stocks and shares. The ordinary people are not unaware that if money is put into stocks and shares there is sometimes a handsome bonus issue. This is another factor which makes people seriously consider where to invest their money.
The hon. Member for Torquay spoke of the capital appreciation in I.C.I. and B.P. This is a fact with which ordinary investors have to contend. I was an insurance salesman—or agent—for 30 years. I know the pressure there is to make people save. People such as insurance agents have a considerable influence in getting people to save. They can show a saver where he will benefit. National Savings cannot show the same result.
I have collected some interesting figures from the statistical department concerning savings in the Post Office and savings with life assurance companies. In 1954 the amount invested in the Post Office Savings Bank was £1,756 million. In 1964—I make no claim that this was due to 10 years of Conservative Administration—the figure was £1,824 million, which took into account any accrued interest. An analysis of the figures shows that the £ of 1954 was worth only 15s. in 1964; so that amount must be reduced by 25 per cent., namely, to £1,360 million. This is a considerable drop in the amount of savings in the Post Office Savings Bank.
In 1954 the assets of life insurance companies were £2,273 million. In 1963, the last year for which I can obtain figures, the amount was £5,408 million, an increase in nine years of well over 100 per cent. These figures speak eloquently of the competition facing National Savings. I ask the Minister and the organisers of the National Savings movement to take note of what they are competing with.
I suppose the strongest propaganda today is the propaganda to spend, not to save. Every newspaper, every hoarding, portrays an incentive imploring people to spend their money. All forms of saving should be encouraged. Insurance companies through their agents or salesmen render very useful service 819 in building up the level of saving for investment. I do not say that there should not be some control as to where the money of insurance companies should be invested. At present, some of it has to go into Government stocks, but in this case it can be clearly shown that investing in an insurance company is a far better proposition than putting money in National Savings. This is the lesson Governments must learn, whether they are Conservative or Socialist.
What are the advantages or otherwise of investing £1,000 in National Savings as compared with taking out an ordinary branch policy for £1,000 for 20 years?
§ Dr. David Kerr
Would not my hon. Friend agree that the difficulty about insurance investment is its restriction, first on grounds of age, and secondly on grounds of health? Does not this mean that many people who might have funds available to invest, either in savings or in some other way, might be denied the opportunity?
§ Mr. Perry
I do not want to be facetious, but restrictions on grounds of health should be ignored when it comes to selling insurance policies. Having sold a few insurance policies myself, all I hope is that my chickens do not come home to roost. I would not say that this has an effect upon it. There are many people between the ages of 20 and 50 who seek a very good investment, and get one, by means of an insurance policy. I am pointing out what the National Savings movement is up against. Unless the movement realises what it is up against, no progress will be made. People are becoming more discerning.
At present the average rate of bonus on a £1,000 endowment policy maturing in 20 years time beings it up to £1,600. What are the advantages of this? I do not want to talk about the life cover. The assured is granted Income Tax relief upon the premiums, which is a considerable factor. There is no Income Tax relief on the amount put into National Savings. When the capital sum—£1,600—becomes payable, it is not liable to tax. Insurance policies are exempt.
§ Dr. David Kerr
I am sorry, but this is a wonderful bleep for the insurance companies. I do not want to suggest 820 that there is any split in the Labour Party about this, but perhaps I am not quite seeing eye to eye with my hon. Friend. Would he say whether he regards the disposal of funds by insurance companies as entirely in accordance with what many of us on this side think is a proper use of publicly-invested money? Does not he regard the capital growth, which provides funds for the benefit of the assured at the end of the insurance policy, as in fact precisely the same sort of capital growth as that of equity, to which I referred earlier?
§ Mr. Perry
I think it would be unwise of me to be diverted from the point I am trying to make. I am trying to point out what the National Savings movement is up against. One must know, not necessarily what one's enemies can offer, but what one's friends can offer, so that one can offer something, not of a similar nature, but which can produce a similar yield.
Most insurance companies employ their assets in attempting to develop the economy, through business and industry. I do not want to enter into an argument on where they place their money. The ordinary person, with an income, say, of £750 to £2,000 or £3,000 a year, is very discerning as to where he places his money. When he makes an investigation, the National Savings movement comes out a very poor second. In my opinion, this is not a bleep for insurance companies. If people, because of what I have said, want to take out insurance policies with some of my friends, good luck to them. Every penny spent on an insurance policy is a penny not spent on gambling, on drink, on h.p. It is a penny spent to further the country's development. We should encourage this trend as much as we can.
I ask hon. Members to reflect on the enormous change of attitude there has been since before the war. Superannuation is another thing which competes with National Savings. Today people pay a considerable amount of money into superannuation funds, thus providing themselves with a certain amount of security for when they reach 60 or 65. Before the war they were concerned with having a considerable amount of money, or some money, for when they retired. Today in many cases this need 821 is obviated by the growth of superannuation, so people seek a good return upon any surplus money they have.
Tax relief is a very important factor. Tax relief is granted on life assurance premiums, but it does not apply with National Savings.
§ Dr. David Kerr
I am sorry if I am disrupting my hon. Friend's trend of thought. It is fair to acknowledge that the first £15 of Post Office Savings Bank interest is not taxed. Any interest on National Savings Certificates certainly is not taxed. Certain grants on the maturity of bonds are also not subject to tax. I should hate my hon. Friend or anybody else to think that I am knocking insurance investment. I am not. However, I hope that my hon. Friend will recognise that, in addition to the restrictions to which I have referred, an insurance policy has the further drawback in the view of many people that the invested money it put beyond their immediate reach. It is not easy for them to make use of their savings. I wonder whether my hon. Friend would not suggest, if his line of argument is followed, that the appropriate thing for us to do, on this side of the House at any rate, is to advocate the establishment of a Government insurance scheme?
§ Mr. Perry
In my opinion, that is another aside to the problem which now faces us. I do not want to be drawn into contentious asides. Another thing which the National Savings movement is up against is the matter of salesmanship. Salesmen are able to sell insurance to people so that they save. A trained insurance man, with 10, 20, 30 years behind him, commands people's respect. People like him. He can go into their houses and sell them a £1,000 policy. He can explain it in terms which he understands and which enable them to understand the benefits. This does not apply to National Savings. A person going into a Post Office to buy National Savings sees a lot of posters telling him to do this or that, but not giving him much real information.
The sort of saving undertaken through insurance companies and building societies is handed by specialists who understand what they are doing. In my opinion, these people, whether hon. Members agree 822 or not, are to be commended on the way they go about their business. The whole attitude of the House and of the country in general must undergo a fundamental change, because in these days of propaganda we must be able to adapt ourselves. The insurance man and the building society man have a hard enough job as it is trying to get people to save because all the propaganda is on the side of spending all the time. That is why I say that insurance men and the like are to be encouraged.
I was very glad when the Postmaster-General introduced a scheme to give 5 per cent. on a certain type of investment in the Post Office. We require investment along this line with changes and some form of guarantee that the people who put their money in National Savings will not see their capital values being eroded. This is one of the most important things that we can do, because the money put into National Savings is usually used for Government projects to improve highways and things of that nature which are used by the community and from which every section of the community obtains benefit.
It is wrong that people who invest in National Savings see an erosion whereas if they put the money in trustee savings banks or the building societies or insurance policies and things of that kind the capital value would not have been eroded to anything like that extent. I believe that discussion of this topic is of great value. The people who do the donkey work, the collectors in National Savings, are people to be admired, and anybody who puts himself out to save and not spend money is a credit to the country.
§ 1.35 p.m.
§ Mr. Stratton Mills (Belfast, North)
I am glad to be able to follow in the debate the hon. Member for Battersea, South (Mr. Perry) who made such an excellent speech. It was particularly refreshing because he clearly knew what he was talking about—we learnt why when he revealed he has been an insurance agent for over 30 years. This added additional weight to his words.
The hon. Member was perfectly right in making the point that the National Savings movement must understand what it is up against. This is a most important point for hon. Members here today, and I 823 hope that the Government Front Bench have listened to what he said. It is absolutely true, and I agree with every word of it. It was interesting to compare the hon. Member's speech with that of the hon. Member for Wandsworth, Central (Dr. David Kerr) whose speech had the slightly unrealistic air of a Fabian tea party. His approach to savings was that the small man who saved had a squirrel mentality and liked to see his money in £ notes easily available and largely ignored the rate of interest. The relative fall in the place of National Savings as a savings medium and the growth of other types of savings is the best answer to the hon. Member's point.
I want to speak on a very narrow point. The debate has rightly ranged very wide but, without apology, I should like to concentrate on a particular aspect of National Savings, namely, Savings Certificates. These are of great importance to many of our constituents and the subject is well worth examining in depth. The background of Savings Certificates is that approximately one-third of the total amount invested in National Savings as a whole is in Savings Certificates. Over the last 10 years National Savings have risen and all other media of savings have risen a great deal, but despite the rise in National Savings generally the proportion in Savings Certificates has remained virtually static.
When I was at school I was encouraged, as I imagine most of us were, to buy Savings Certificates, but there is clear proof that Savings Certificates are now losing their appeal. In 1963–64 net withdrawals from Savings Certificates amounted to £23.6 million and in 1964–65 the net withdrawals were £33.8 million. But in the first 35 weeks of 1965–66 this trend has become a flood and has risen to £93.6 million. I think that these figures clearly show that the approach to certificates is changing. The small investor is becoming disenchanted and the trend is fast becoming a torrent. In the next couple of years or so, we shall have to deal with a situation in which net withdrawals of Savings Certificates will increase in volume, and this is a situation which will present a serious problem to the National Savings movement. It is this which I should now like to consider.
824 What has gone wrong with National Savings Certificates? Why has their relative attractiveness altered? I make no attack on the National Savings Movement, in which there is a tremendous variety of people who give up their time and who, generally speaking, have done an extremely good job, but I feel that the story of Savings Certificates is a story of a delusion, and it is one of which the Movement cannot be proud.
The basic facts were well presented in a Written Answer by the Financial Secretary to a Question of mine on 20th July last. I asked: If £100 had been invested at the commencement of each issue of National Savings Certificates, and the interest had been accumulated till July of this year, what would the purchasing power of that £100 be in July? The Answer was most revealing. Statistics were not available regarding one issue, but of the remaining 12 issues of National Savings Certificates since 1916, in respect of seven the saver would get back less in purchasing power than his original £100 and in five he would get back a sum ranging between £105 and £130, despite the accumulation of interest and having been deprived of his capital over that period. These figures are quite frightening in showing what inflation can do to the small saver—he has been given virtually no protection whatever by Savings Certificates.
But it is more than a problem of inflation as regards National Savings. One must look also at the primitive investment policy which has been followed. I have done a little research, and I find that money collected in Savings Certificates—I am now isolating Savings Certificates—is not actually invested in Government stocks, nationalised industry stocks or local authority stocks. It is not invested but goes in and forms part of the National Debt. In simple terms, this means it goes into the Chancellor's bank account—not his personal one, of course, but the Treasury's bank account.
This is quite wrong, and I accuse those responsible for this investment policy of paying more attention to the capital needs of the State than to the interests of the small investor who puts his faith and trust in Savings Certificates. This has been the essential dilemma, that more attention has been paid to the interests of capital 825 development than to the balancing of that side with the interests of the small saver. The warning is abundantly clear from the figures I have given. People are becoming more sophisticated financially and will not put up with this kind of treatment any longer—this is why we have seen a flood of money out of Savings Certificates.
To some extent, it is fair to say that in this debate so far we have, perhaps, been somewhat negative. I wish now to put forward one method—I am sure that there are many—for putting things right and giving a new boost to Savings Certificates. I believe the funds paid over from Savings Certificates should be paid over to an independent body and not straight into the National Debt. In the investment of these funds, this independent body should attempt fairly to balance the interests of the saver with the interests of the capital development programme of the State. While accepting that this fund must be invested predominantly in Government securities, and also a help in the capital needs of the nationalised industries and of local authorities, I consider that the time has come when a proportion of this money, perhaps up to 25 per cent., should be invested in equities to boost the fund. This is. I believe, a much more realistic way of giving the small saver an interest in equities than the setting up of a purely State-run unit trust.
Under my proposal, Savings Certificates would continue in roughly the present form with a guaranteed minimum for a set five, seven or ten-year period, as at present, but there ought to be a bonus at the end depending on the growth of the equities in the Savings Certificate investment fund. The National Savings Movement must either face this or some other reform or see dwindle away the position of Savings Certificates.
In my Question of 20th July last, I asked also how much still remained invested in each of the 13 Savings Certificate issues since 1916. To my amazement, the Financial Secretary replied that this was not known. I may have misunderstood—if so, no doubt, he will correct me and put the record right—but, if I am right, this is a quite fantastic state of affairs.
In trying to give advice to people about these things, I am constantly horri- 826 fied to find that they are still invested in old "dud" Savings Certificate issues which, after maturity, pay only a minute rate of interest. The facts are as follows. Out of the 13 issues since 1916, three are paying less than 2 per cent. on the original investment, not the investment at maturity, six are paying between 2 and 3 per cent. and four are paying between 3 and 3.6 per cent. It is quite alarming that these rates are being paid today, and what makes me particularly angry about it is that the people who are receiving such low rates of interest are not wealthy people. Wealthy people can take the best advice and have their portfolios watched with care, but the people who are receiving these low rates of interest after maturity are those who could very well do with a few extra pounds by transferring their investments into some other form or, perhaps, another type of Savings Certificate.
The Treasury and the National Savings movement should look into this to see whether the holders of old issues can be traced. Some form of advice ought to be given to them by the National Savings movement, which originally solicited their investment. Good faith is involved in this, and there is also the good faith of the National Savings movement involved. Unit trusts and investment trusts find that it pays to play fair with their small investors, and the National Savings movement must learn this as well.
The story of Savings Certificates over the past 30–40 years is a scandal. Many prominent and honourable people are associated with the National Savings movement, as can be seen from its Annual Report—but these people are associated with a disastrous investment policy in Savings Certificates. I feel that their honour is involved as well, that they are lending their names to this type of investment and to the wide-scale swindle of many small investors. These people must rise up and tell the Movement and the Treasury that the holders of those savings certificates must in future be given a fair deal, and if this is not done, they should resign from the Movement.
§ 1.52 p.m.
§ Mr. Hugh Jenkins (Putney)
I think that the hon. Member for Belfast, North (Mr. Stratton Mills) made a mistake in 827 picking out the National Savings movement and suggesting that this form of investment alone has been the victim of the policy of controlled inflation pursued by the last Government, a situation which the present Government may not yet be able to alter.
The National Savings situation is only one aspect of a problem affecting every saver who is not prepared to undertake speculation or does not have the good fortune to be a large-scale saver and has not put the money into his own house. These are among the ones who have been protected from controlled inflation, but other savers, including National Savings savers, have not been so protected. However, the hon. Gentleman has been right to point this out. I doubt whether his figures can be disputed.
The hon. Gentleman suggested that the people who have sold the National Savings are in some way specially accountable to the community because of the consequences of the policy of controlled inflation. There have been stages when it has been a little uncontrolled, but, broadly speaking, since Keynes the form of inflation that we have had has been a reasonably controlled one. There is a great deal to be said for the proposition that of the various forms of economic circumstance which Western society is capable of enduring, controlled inflation is perhaps the least harmful.
I point out to my hon. Friend the Member for Battersea, South (Mr. Perry) that an endowment insurance policy taken out in 1951, when the Conservative Administration came into office, for a 15-year period—thus expiring next year—may well show—exactly as National Savings have done—a return in real terms of a smaller sum than the sum paid for the policy itself, even after the Income Tax allowance. The responsibility for this cannot be placed upon the present Administration because they will have been in charge only during the last part of the 15-year term of the policy.
The problem is deeper than has been suggested by the hon. Member for Belfast, North. The problem is how savers are to be protected in a situation in which money depreciates slightly in value year after year. Some rather 828 original thinking needs to be done. I wonder whether the Government have thought of tying National Savings to the cost of living. It may be said that when the policies of the present Government begin to bite the cost of living will level out and that over the next 15 years controlled inflation will not take place. However, I believe that even those on the Front Bench will be ready to say that this is not a certainty, though they hope to achieve it. I hope that they do. I also believe that the measures which they are taking to achieve it are the right ones. At the same time, however, it would be a very great assurance to the small saver to know that the value of his savings was in some way associated with the cost of living. I am sure that that is not impossible.
Incidentally, the last three speakers from this side of the House have been representative of parts of Wandsworth. I hope that the view will not be taken that the only hon. Members on this side of the House who are concerned with National Savings come from Wandsworth. A better explanation would probably be that we are particularly diligent in our attendance here.
I support my hon. Friend the Member for Wandsworth, Central (Dr. David Kerr) rather than my hon. Friend the Member for Battersea, South, whose presentation of insurance as a method of saving needs a little qualification. I have illustrated that by pointing out that a 15-year insurance policy would not be excluded from the general effects of controlled inflation over the period and that the money at the end of the period would be in toto less in real terms than when one started.
§ Mr. Peter Walker (Worcester)
I think it is true to say that the majority of endowment policies are "with profit" policies, and that these have gone up with inflation. The normal profits are 2½–3 per cent., which is much more than the rate of inflation during the past 30 years.
§ Mr. Jenkins
The hon. Member is wrong. He has overlooked the fact that with an insurance policy over 15 years one often pays in more than the face value. On a £100 policy a normal payment over 15 years is £105. There is also the industrial insurance policy, the 829 policy paid on a monthly basis. Collectively, that is as important as, or more important than, ordinary life insurance. It does not give as good a return, and frequently the saver has no Income Tax saving. Therefore, I suggest that a 15-year insurance policy is not a particularly good form of saving. But it has life cover. I do not say that life insurance is not a good thing. What I am concerned to say—this is indisputable—is that one cannot exclude life assurance from the general effects of the economic life of the community and say that it does not suffer from the ills which befall other forms of saving. It is not excluded from the effects of inflation.
Why cannot the Government think in terms of associating National Savings with the cost of living and with Government support of the insurance companies? The answer is simple. The insurance companies are already too powerful. It is not true that the entire proceeds of insurance companies are reinvested to the national advantage. It would be wrong for the directors to do that. Their duty is to invest the funds to the advantage of their company, and the advantage of the company and the advantage of the State are sometimes two different things. One can think of cases. For example, the Prudential invested somewhat unfortunately in Warsaw just before the war and had a regrettable experience.
In order to maximise their return over a period, insurance companies invest part of their total holdings at risk. Sometimes the risks are good and sometimes not so good, but, by and large, they are clever investors. But the fact is that the power and influence of insurance companies on the finances of the country are at a point at which the State must think twice before taking a course which may not meet with the support and approval of the insurance companies. We are reaching the rather alarming situation in which the Treasury, before pursuing a certain line, must take account of the vast power residing in the insurance companies and ask, "Would this be all right by them?" Thus the power of insurance companies is brought up against the power of the State.
I would view with alarm any suggestion for a complete concentration on life assurance as a form of saving unless that form were publicly owned or controlled. 830 If the Government include in their programme for their next period of office proposals to take into public ownership major life assurance companies, this would remove my objections and I would also support the proposition to link such savings to the cost of living. I commend this idea to the Front Bench—not for the moment, because I know that the legislative programme is a full one but for consideration when the Government are returned to office.
The objective of the Government in National Savings is different from that of the individual saver. The Government objective is to defer spending on consumption now and thereby contribute to two other worthy objectives—to allow the Government to use the money in national capital investment and to restrain consumer spending so that inflation can be controlled. As my hon. Friend the Member for Wandsworth, Central said, these objectives are secondary to the saver. The Government's objectives are not primarily also his. Quite often they are different. The saver does not invest primarily because he wants to do the Government a good turn but because he wants to do himself a good turn. As has been pointed out by the hon. Member for Belfast, North, over the period the National Savings investor has not succeeded in doing himself as good a turn as one would have wished.
The individual saver is concerned partly with accumulation for later personal spending and partly with putting aside money for rainy days, or other eventualities, or for retirement, marriage, house purchase, education and so on. But we live in a society in which consumer goods are becoming more and more available. For more and more people encouragement to consumer spending is becoming a raison d'être. Commercial television concentrates on it. This is also a society in which the State is more and more called upon to assume basic responsibility for the economic survival of the individual. In such a society the incentives to ordinary savings, if not less, are at least different.
The decline in National Savings is in part due to the realisation that they are not as good a proposition as one would wish. I shall be interested to hear from my hon. and learned Friend whether the Government have any proposal to 831 make National Savings a better proposition either on the lines I have suggested or some others. National Savings are not being given the same priority as they were by the individual. There is an argument for increasing the interest on National Savings so that they can compete more fairly with other forms of savings.
It is simple to say that National Savings have declined below their previous level but that other forms of saving have increased. As I say, some of these other forms have considerable disadvantages—some of them similar to those of National Savings. Whether it is right and proper for the small investor to take the risks of investment in equities is a problem that I find basic. During the last 13 years, by and large, with some exceptions, equities have maintained their value. The assumption therefore is that it is all right to continue to invest in equities because that will go on happening. Nevertheless, it is proving in a number of cases not to be so.
There have been circumstances in which severe losses have been suffered and one can foresee circumstances in which small savers investing in unit trusts might find the value of their money declining much more seriously than has been the case with National Savings. National Savings have at least preserved their capital intact. At the end of the period, although there may be a loss in terms of real value there is no loss in terms of nominal value. However, in unit trusts it is impossible to say to the small saver that he will definitely get back even the nominal value of the amount of money he invested.
I suggest that the decline in National Savings is due to other factors and not to the present Governments' policy. The Government have not been in office long enough to have such an effect upon National Savings. However, if I were to try to discuss what those policies are about and how they will succeed I should be stepping beyond the narrow bounds of this Motion. I have studied the Motion to see whether, under the heading of "The policies of Her Majesty's Government", it would be proper for me to embark on a full-scale examination of the financial and economic policies of Her Majesty's Government, but I have 832 reached the conclusion that you would probably pull me up, Mr. Deputy Speaker, before I have gone very far on that.
§ Mr. Jenkins
As my assumption is correct, I will draw my remarks to a close and simply say that the policies of the Government for dealing with the problem of inflation, upon which the hon. Member for Torquay (Sir F. Bennett) spent a great deal of time, do not rely primarily on restraining consumer expenditure, which was the policy of the previous Administration. The Government's policies for dealing with this problem are quite different. It is too early yet to see whether they will work, but we can safely say that the other policy has not worked, and the Government should therefore be given a chance to see what they can do.
§ 2.12 p.m.
§ Mr. John Biffen (Oswestry)
This has been a very interesting debate and for me it will be memorable for the excellent and forthright speech of the hon. Member for Battersea, South (Mr. Perry). I am sorry that he is not in his place, unless he would find it wholly embarrassing to be receiving congratulations from me. I felt that it was a robust and realistic contribution in sharp contradistinction to that of his hon. Friend the Member for Wandsworth, Central (Dr. David Kerr). I heard the hon. Member for Wandsworth, Central in a rather lugubrious way examining the bingo society into which he fears his constituents might be drifting. He was about as near to the realities of his constituents as Marie Antoinette to the gastronomic habits of the Parisian working class.
I am certain that the hon. Member for Battersea, South was absolutely right to say with what sense of pleasure we should congratulate all those who are associated with the National Savings movement and all who are engaged in the work of life assurance companies enabling people to save. The deferment of expenditure which is implicit in savings is one of the most essential characteristics which we must hope to develop if we are to have a successful and competitive economy.
833 There is a variety of reasons for this. One very obvious one is that the investments which we wish to see effected in the economy will come from savings. Secondly—and it is to this issue that I wish to direct my remarks—in many instances—and the hon. Member for Putney (Mr. Hugh Jenkins) dwelt on this—savings are deferred consumption and there comes a time when deferred consumption is absolutely vital to the success of any Governmental economic policy. That is why my hon. Friend the Member for Torquay (Sir F. Bennett) is to be congratulated on his good fortune in the Ballot and in choosing such a highly topical and relevant subject as the importance of savings. He should be further congratulated on specifying National Savings as one of the aspects of personal savings which should command our attention. I will come later to my reason for congratulating him for specifically mentioning National Savings.
Quite clearly, as has been said by many hon. Members from both sides of the House, one is much concerned with the overall level of personal savings, and in one sense it is unrealistic to identify and select tie National Savings movement as though it existed independent of other forms of personal savings. Quite clearly, the House has been very sensible to try to get some broader canvas of this problem.
My hon. Friend the Member for Torquay is to be congratulated because at this time the prices and incomes policy shows a very considerable need for a high degree of personal savings. I have no wish to stray outside the rules of order and I am confident that what I have to say will not do so, but I must demonstrate this argument to show why I believe that at this time more than any other a high degree of personal savings is necessary.
I do not wish yet again to go over all the arguments about the philosophy of a prices and incomes policy. That clearly would not be in order. But I am concerned to examine the evidence which we have as of now of the way in which the prices and incomes policy is working. I take the evidence from Government sources and Government authority and it is that incomes, in the form of wages and salaries, are rising probably at a rate of between 7 and 9 per cent. per annum. 834 There may be some slight measure of disagreement about the figure, but I do not think that the Financial Secretary would strongly disagree with it. On the other hand, the evidence from the Retail Prices Index is that prices have been relatively stable since somewhere around mid-April. Again, I do not think that the Financial Secretary would wish to dispute that.
§ Mr. Biffen
I am sure that the Financial Secretary will be very happy to answer all these points and the argument in its totality when he winds up.
§ Mr. MacDermot
I was simply suggesting to the hon. Gentleman that he might tell that last fact to his hon. Friends and explain that the prices index has been stable since last April.
§ Mr. Biffen
I do not want to digress, but I assure the hon. and learned Gentleman that if he carries on that kind of game I shall be very happy to play it. The point which my hon. Friends have made has been that the prices index has been going up by 5 per cent. a year, knocking off a shilling in the £, and that can be shown from the point at which the calculation is started. As the hon. and learned Gentleman knows, it was the Budget which more than anything else was responsible for pushing up the Retail Price Index. I happen to have taken my starting figure at a point subsequent to the Budget, so that it is perfectly legitimate to hold the view which I am holding and to support the arguments which have been deployed by my hon. Friend the Member for Torquay.
What has been the implication of this? If incomes have been rising and prices have been stable, there has been a boost to consumption, because the gap has not been filled by increased productivity. So far as one can gauge from the Economist, the productivity index, in as much as it is reliable, and I would not set great store by it—is not higher than it was a year ago. We know from Government published figures that the gap is being met by a fall in gross trading profits. This figure is obtained from the Monthly Digest whose latest edition shows that 835 gross trading profits for the second quarter of this year were no less than 8 or 9 per cent. below their figure for the first quarter. I must confess that I am not even sure that I have not woefully under-estimated. For the first quarter they were £1,201 million, seasonally adjusted, and for the second quarter they were £1,092 million, and I have the feeling that my figure of 8 or 9 per cent. is an under-estimate.
This has serious implications, because there is clearly a very buoyant level of consumer demand at the moment. It is not easy to get that from statistics, but it is easy to discern as one goes around one's constituency and makes pragmatic judgments on one's own. It was fairly well sustained by the annual report of Debenham's a couple of days ago which gave some idea that what one might call the more popular range of goods had a very buoyant level of consumer demand, although in fairness I must point out that that report said that the quality end of the trade had felt a certain amount of the effects of Government economic policy.
§ Mr. Hugh Jenkins
Was not the object of the Measures introduced by the late Government in abolishing resale price maintenance to reduce the excessive level of trading profits in certain areas?
§ Mr. Biffen
If the hon. Member for Putney, to whose commercial experience I defer, thinks that a drop from £1,201 million to £1,092 million was in any measurable sense affected by the abolition of resale price maintenance I am surprised.
§ Mr. Biffen
The hon. Member can debate R.P.M. with me on another occasion. I shall be delighted to take part in such a discussion. The case that I am putting is that if there is a rise in consumption at present it is important that it should now be deferred by a rapid and substantial increase in personal savings. The conclusions of this situation have been put more eloquently than I could attempt to put them by the Economist. On 4th December it said, first: 836If Mr. Brown's threats of bad publicity to those who raise prices have held down consumer prices by even 1 per cent. since April, they will have added an annual rate of more than £200 million to effective consumer purchasing power, which now totals well over £20,000 million a year. They will thus have temporarily wiped out the anti-spending impact of Mr. Callaghan's £165 million of new indirect taxes last April plus a good part of the consumer impact of his November increase in Income Tax as well.Secondly, it said:If we have really returned to a situation, so far as consumer demand is concerned, where the last budget might never have existed, it would obviously have been better that it never had existed; as it is, the monstrous burden of taxation has been pushed a little nearer to its maximum possible limit, and we have gained no advantage from it.I would not wish to have a more eloquent testimony to the so-called success of the Government's income policy than that.
In this tragically serious situation only a high level of personal savings can prevent a possible drift towards another period of speculation against sterling and all the horrors of a balance of payments crisis with which this country is all too familiar. I therefore ask whether we know how the level of personal savings is moving. Can the Financial Secretary tell us that all is well? He may say that I have quoted dreary and damning figures. But can the Minister say that all is well with the rate of savings, and that personal savings remain high, quoting "Economic Trends" and tables shown in the Blue Book on personal savings? Can he do that with any certainty? The answer is, "No." Of all the statistics published by the Government the phoniest are the statistics of personal savings. That is why we are all in a fog in this debate. It is not a very pleasant situation to be in if one believes that the boat is going near the rocks and one's navigational aids are primitive. It is indeed a position in which one is well excused for sweating a little.
§ Mr. Edmund Dell (Birkenhead) rose——
§ Mr. Biffen
Perhaps the hon. Member would allow me to underline my point about the unreliability of the estimates of personal savings. I want to refer only to one case, but there are many others, and any other case would merely sustain my argument. Personal savings for 1958 were estimated in the "National Incomes 837 Blue Book", 1959, at £1,341 million. They were revised in 1960, when they dropped to £1,115 million, and again in 1961, when they dropped to £831 million and so on, and so on and so on until by 1965 the figure for personal savings which had originally been estimated at £1,341 million had become £677 million. That is the measure of the very real difficulty that we meet when we try to examine this subject.
That is why I congratulate my hon. Friend the Member for Torquay who tried, legitimately, to narrow this debate down to some of the more measurable forms of personal savings, namely, the National Savings movement itself. I have therefore tried to gauge as best I could the trends in the movement, which constitutes a fraction, although an important fraction, of what we regard as our total personal savings. If we take the period from the beginning of the year to the issue of the latest available figures which were published in Monday's Financial Times we see that there has been an aggregate increase of £105 million. The comparable figure for last year was £471 million. This is a serious drop because it suggests, in an area where our knowledge is necessarily extremely limited, a very unhappy conclusion, namely, that the rate of personal savings may well be static or falling when at this point the economic situation demands that it should be rising very buoyantly.
I would be the last person to pin too much faith on that one figure. The burden of my argument concerns our ability to be sure where we are going in this situation, and to say that what evidence there is is hardly reassuring. As for building societies, I want to refer to the figures concerning the first three quarters of this year as given in the Government publication, "Financial Statistics". This shows an increase in deposits of £420 million as against the comparable figure for last year of £387 million. It is therefore true that there has been an increase in savings through building societies, which in part, but only in a very modest part, offsets the fall in national savings.
But the figure that we would all like to have is that concerning the amount of money saved through the life offices, because those offices themselves estimate 838 that savings through life assurance accounted for more than 40 per cent. of all personal savings last year. The figures are available in the publication, a few days ago, of the 1965 edition of "Life Assurance in Britain", published by the Life Offices' Association, the Associated Scottish Life Offices and the Industrial Life Offices Association. The tragedy is that no one knows what the figure is for this year, including the Life Offices' Association, because I telephoned it and said, "Can you tell me what has been happening this year, because we are discussing this matter in the House on Friday?" and I was told, "We cannot give a figure to which we would like to lend our name." Therefore, we are necessarily in a somewhat difficult position.
Yet all the evidence that I can glean suggests that we are not having anything like as high a level of personal savings as the present economic situation demands, and that the level of personal savings is probably no higher than it was last year. I believe that the hon. Member for Birkenhead (Mr. Dell) wished to intervene. Although I have drifted some way past the point in which he was interested, perhaps he would care to do so now.
§ Mr. Dell
The hon. Gentleman has gone a long way past the point which I wished to query. I accept his point that the estimates of personal savings are entirely bogus year by year, but I thought that he was saying that the level of National Savings might he a guide to the movement of personal savings. Does he have any evidence, because I do not, that National Savings are ever a constant proportion of personal savings, so far as these are made?
§ Mr. Biffen
No, that is perfectly true. That is why I have tried to bring in other evidence, like that represented by the building societies. The life offices accounted for 40 per cent., National Savings for about 20 per cent. and the building societies, I think, for about 20 per cent. of personal savings in 1964. This is my rough estimate from having had a quick glance at the figures produced by the Life Offices Association. All the available evidence points to the conclusion that the level of personal savings is probably no higher than it was last year and is measurably below what is required now that the incomes and prices policy has failed so catastrophically.
839 Therefore, the conclusion which the House can draw from this is that an incipient sterling crisis could develop within a matter of months and that consumption must be restrained, either by the voluntary act of increased personal savings or else by compulsory savings through Government taxation. The alternatives are as stark as that: I suspect that the Financial Secretary would agree with me. At least, I understood that that is what the Chancellor was trying to say when he ran into procedural difficulties a few days ago.
It seems, therefore, that the conclusion which we should draw is that the industrial vigour of Britain will be much better sustained by personal savings than by increased taxation. If that is so, each of us should weigh very carefully, and ponder, the evidence of to what extent our present difficulties arise from the calamitous consequences of the frenzied activities of the First Secretary of State. There is the guilty man. There is the man whose activities, more than those of any other member of the Government, have been responsible for putting upon the shoulders of the Financial Secretary and his right hon. Friend the Chancellor the unenviable decision of either having to take measures rapidly to increase the level of personal savings or else to have recourse to further taxation.
§ Mr. Tom Driberg (Barking)
On a point of order. The Chair has occasionally, in an emergency, allowed business to be interrupted for a brief Ministerial statement. I would venture, with great respect, to draw your attention, Mr. Deputy Speaker, and that of the House, to a serious possible threat to the structure of this building, or at least to the comfort and convenience of hon. Members. At this moment, down below, the River Thames has reached a level unprecedented in living memory and the water is within a few inches of pouring over the top of the Terrace wall. There is still nearly an hour to go before high tide, so it could rise further. The Minister of Public Building and Works has lately been down there inspecting the situation with the Chief Engineer. Would it be in order to ask that my right hon. Friend should be sent for or invited to attend in the House to make a brief statement on this situation?
§ Mr. Deputy Speaker
No doubt the House profoundly appreciates the solicitude of the hon. Member, but I am sure that the situation will be watched carefully.
§ 2.34 p.m.
§ Mr. David Ensor (Bury and Radcliffe)
I am glad that the attention of the House has been drawn to the terms of the Motion, and particularly to the last line, deploring:…the discouraging effect upon such investment of the policies of Her Majesty's Government.I did not go along entirely with my hon. Friend the Member for Wandsworth, Central (Dr. David Kerr) when he said that he did not propose to start laying blame on one side or the other for the situation, as, apparently, right hon. and hon. Gentlemen opposite wish to do. With respect, this is a matter of vast concern to the House in this debate, as was clearly shown by the speech of the hon. Member for Oswestry (Mr. Biffen). He went out of his way to lay great blame upon Her Majesty's Government with particular reference to the First Secretary of State. I shall deal with his remarks in some detail a little later.
But this is not the first time that we have had warnings of dark clouds upon the horizon. This is nothing new; we have had them ad nauseam for years. The House should be grateful to the hon. Member for Belfast, North (Mr. Stratton Mills) for reminding us that this situation over savings and National Savings has been going on for 30 or 40 years. I am sure that most right hon. and hon. Members realise that this situation has been occurring yearly since the end of the First World War. As evidence, one has only to look at the figures with regard to what we call Consols, which now stand at just over 40, as compared to their issue at 100 about 30 or 40 years ago. It has to be faced as a fact of life that these things have been going on for a long period.
I agree with my hon. Friend the Member for Wandsworth, Central, that the problem of savings cannot be entirely divorced from the economy, which one has to consider as a whole. One has to look at National Savings as a whole and at other savings generally, as hon. Members have today. My hon. Friend the 841 Member for Battersea, South (Mr. Perry) spoke about investment in insurance policies.
We have been talking and hearing about investment in unit trusts and I agree with my hon. Friend the Member for Wandsworth, Central that the small investor is not particularly interested in the rate of interest he will get from the Post Office Savings Bank. Even if we put it up to 10 per cent., he would still be uninterested. If one has only £5 or £10 to invest, the amount which one will get in interest at the end of the year is insignificant. I think that that is why there is such a vast flow of money at present into Premium Bonds—because people are prepared to gamble on receiving a considerable sum of money rather than be certain of a tiny amount of interest.
When I said that savings cannot be divorced from the economy, I meant that one must look at the economy as a whole. One has to consider where the responsibility for the present situation lies. After all, the present Government have been in office for only just over 12 months. We should remember that, over the past 13 or 14 years—indeed, over the last 30 or 40—there have been policies of stop-go: stop in 1951, go in 1955 and so forth. This policy has been adopted ad nauseum by Governments of both parties, but it is an inescapable fact that on 15th October last year we found ourselves in a position of extreme financial precariousness, which was entirely due to the policies of the present Opposition when in Government. What we did then was forced upon us by the financial situation of that time. That is why one should not look at the level of National Savings without looking at the economy as well.
It is alleged that the economy is being seriously affected by the policies of the Government. Is that so? Consider, for example, agriculture. Hon. Members on both sides of the House will remember the squeals and howls of rage that arose from the agricultural population in February about the Government's policies at the Price Review. The fact remains that in spite of that, agricultural production has continued to increase to an unprecedented level. Agricultural bank advances have continued to rise until, in August this year, they stood at £516 842 million. What is also interesting and should be noted is that bank advances in total have continued to rise throughout the year. In February they stood at £5,326 million, in May they were £5,473 million and in August, £5,497 million.
I suggest that these figures, both in total and in particular reference to agriculture, do not show any serious decline in the economy, because this increase in bank advances with particular reference to agriculture, together with the fact that at the same time there has been increasing production, is a sign that although that industry is not necessarily booming, it is doing very nicely. That is a fact.
We accept that the total of personal savings as represented by National Savings has fallen, but it has not fallen to any great extent. The National Savings figure in 1961 was £7,380 million. To take random figures during the subsequent period, in July, 1964, the total was £8,167 million. In October, 1964, it was £8,278 million, in January this year it was £8,330 million and in March, £8,385 million. In July, after rising in June, it went down for the first time, to £8,388 million, and in August it was £8,372 million. Although I do not have the figures for later months, I accept unreservedly that the figures have declined until the present time. It may well be that they will decline until the end of the year.
It is, however, significant that during this debate, which has been extremely instructive and most helpful, hon. Members on both sides have drawn attention to the fact that National Savings no longer have the same attraction. They no longer have the attraction which they had even 10 years ago. Certainly, they do not have their attraction of 25 years ago. The reason for this is that a large number of people have grown up financially. They find that there are more profitable ways of investing their savings. The fact that over the last few months we have lost a considerable sum from National Savings is not necessarily any true indication of the extent to which savings are being made by the individual members of society.
I am in entire agreement with my hon. Friend the Member for Wandsworth, Central that we must take into account the enormous number of people whose 843 only saving capacity is by means of a 5s. stamp. Whilst we must look after the people who have £50 or £100 to invest, we must also remember the very small saver who wants to put away a few shillings from time to time. That is why I said earlier that I do not believe that the interest rate which is paid on Post Office savings accounts has any real significance for people who put their money in the Post Office Savings Bank.
When the hon. Member for Oswestry laid the entire blame for what, he alleges, are the serious flaws in our economy upon the Government, and particularly my right hon. Friend the First Secretary, his estimation of the situation was far from accurate. This situation has been with us ever since the First World War. It is a situation which the hon. Member for Belfast, North said had been deteriorating for at least 30 or 40 years, but I suggest that it was a little longer even than that. How in the name of Heaven can anybody lay the blame for the present situation, if there is such a situation, upon the Government, who have been in office for only 12 months, when the situation has been going on for 40 years and was steadily deteriorating during the last 13 years when the Opposition were in Government? That is a situation which brooks no denial, because it is a fact—12 months as opposed to 40 years, and 13 years of government by the party opposite.
As I have said, this has been a most instructive day in discussing this subject. It is vital to the interests of the country as a whole that people should be encouraged to save. It is undoubtedly unfortunate that we are spending at a higher rate than ever on gambling, alcohol and tobacco. It is vital to the life of the country that savings should be encouraged in every way. There is something to be said—and I hope that the Government Front Bench will note this suggestion—for making National Savings more attractive to the people.
§ 2.48 p.m.
§ Mr. George Wallace (Norwich, North)
It is with particular pleasure that I have caught your eye, Mr. Deputy Speaker, because a considerable number of years ago you followed me when I had made my maiden speech and you made some flowery references to my oratory. What 844 you will say to yourself when I have finished this afternoon is something on which I dare not speculate.
I should like to pay my tribute to the workers in the National Savings movement. Many of them have been in the movement for many years and they are still doing their best. I have met many of them in the City of Norwich, which I represent. That city has had its associations with the late Lord Mackintosh, who did great work for the movement.
The Government have been attacked because National Savings have fallen and because their policy has not resulted in young people and others increasing their savings. If the policy of any Government is to be attacked, it is the policy of the previous Government and not the present one for introducing the Betting, Gaming and Lotteries Act, 1963, which has resulted in a great increase in gambling.
I am not a prude, but I do not go into betting shops. I occasionally indulge in a little speculation and am one of the many millions who play the pools and thereby subsidise the fortunes made by some people. One need only walk through the streets of London and other cities, particularly during the lunch hour, to see large numbers of people, particularly quite young people, visiting betting shops. In the area of Smithfield Market, where I used to work, there has been an increase in betting as a result of betting shops being established there, and even the Royal Bank of Scotland has closed its premises and a betting shop has taken its place. The 1963 Act did a great deal to increase betting.
I have no objection to people getting some relaxation and social comfort by visiting the small bingo sessions, though I am not so sure about the big ones. One need only visit the various social clubs, political and non-political, to see the great number of one-armed bandits. People seem to think that they can make a fortune by betting in this way, although many of them know in their hearts that they are just wasting their money.
This trend towards betting even extends to premium bonds. Whatever may be said about the success of these bonds, people buy them mainly in the hope of making a quick fortune rather than with the idea of saving. Without wishing to sound a prude, the extension of gambling 845 in Britain is becoming a very serious menace indeed because of the get-rich-quick mentality about which we used to complain in connection with big business.
This mentality creates a fool's paradise. If we are honest with ourselves, we admit that there is no real substitute for small savings, and it is in this connection that I wish to refer to a method of making small savings which has not been mentioned today, namely, the co-operative society, of which I am a member. My wife and daughter are also members. The co-operative movement is one of the best forms of saving for the small investor. The dividend it provides is often ridiculed by some people, but they should remember that the movement offers other forms of saving and investment to its members.
I can testify to the way in which the co-operative movement fosters the idea of family saving. I could quote many examples of families whose life savings have been founded on the forms of investment provided by the society, with the accruing interest and so on. My parents invested their money that way. This is an aspect of saving which has not been stressed today but which is of vital importance to many members of the community. The way in which the movement helps particularly the small investor to save has been the subject of attack on a number of occasions by vested interests, including the large stores. Nevertheless, the movement is a great social factor which has not received enough attention, even from the Labour Government.
Many young couples are today investing in life and endowment assurance and building societies. I do not have the figures, but I am certain that if they were available they would show a large increase in this sort of investment. It is increasingly popular to young married couples and frequently youngsters engaged to be married invest their money in building societies even before they are married.
I appreciate that I may be accused of being partisan, but, while the present Government have been attacked, I consider that their policies are on the right lines. My right hon. Friends needed to take unpopular decisions in the early days 846 of the Government but, in view of the difficult economic situation which even hon. Gentleman opposite admit existed at that time, those decisions were necessary. The Government have acted rather like the average small family which wishes to pay its way on the basis of good housekeeping. It will, of course, take time for the results of some of these policies to be known, but at least the Government are working on the basis of making the nation pay its way so that we may get back to steady economic progress.
The present fool's paradise in which so many people believe that they can get rich quickly by gambling is only an escape from the stresses and strains of life. Only by increasing savings will our national and personal lives improve. If anyone is to blame, it is the previous Government because they encouraged gambling by introducing the 1963 Act. That Measure did nothing but increase the get-rich-quick feeling which so many people have nowadays.
§ 2.56 p.m.
§ Mr. Peter Walker (Worcester)
Hon. Members on both sides of the House will agree that this has been a very useful debate. The hon. Member for Norwich, North (Mr. Wallace) said that he was not being partisan by saying that he thought the Government were working on the right lines. I hope that he will accept from me that I am not being partisan when I say that the are working on absolutely the wrong lines.
There has been a cleavage in the views expressed by hon. Members about the reasons for the decline in National Savings this year. I join with the many hon. Members who have paid tribute to the work, most of it voluntary, done by people interested in the National Savings movement. Their work is done in the national interest and it deserves the tribute of the House and the country. I wish to place on record our appreciation of the hours of work which they put in on behalf of the National Savings movement.
The real problem which we must consider, and to which I trust the Financial Secretary will refer, is the decline in National Savings. This is obviously a matter of great importance to the Government and probably the best text which 847 can be used in the debate is contained in the National Plan, which states on page 163:The projection of the level of savings as a whole for several years ahead is inevitably subject to a high degree of uncertainty, depending on the development of various components of money incomes and consequent price movements. An examination has nevertheless been made of the prospects for savings. The assumptions made include a significant allowance for the effect of the Government's prices and incomes policy, a continued steady rise in the proportion of disposable income which the personal sector devotes to saving, and the maintenance of the rates of central government direct and indirect taxation made effective in the 1965 Budget.This is the actual statement, seemingly, of the Government's attitude to the whole problem of savings, so that my hon. Friend the Member for Oswestry (Mr. Biffen) was perfectly correct in calling our attention to the relationship of the prices and incomes policy to the problem of savings.
It is an interesting fact that, according to the Government's announcement, incomes have risen during this year by between 7 per cent. and 8 per cent. On the basis of incomes increasing by that amount, one would have presumed that there would not have been a decline in National Savings or, if there had been such a decline, that there must be some explanation of it. What the House requires from the Financial Secretary today is an explanation of how incomes can increase by as much as between 7 per cent. and 8 per cent. while National Savings, as compared with previous years, show a general decline in their progress.
This could be due to one of several factors. It could be that National Savings are no longer as attractive as they used to be as compared with other forms of savings, yet it is difficult to trace a substantial switch in savings by the public. Building society statistics, the few life office statistics that are available, and the unit trust statistics that are available, do not show a particular swing to that form of savings as opposed to National Savings. Yet much of the Government's calculations for this year must have been put out by the failure of National Savings to expand at the rate of the previous year. During the period of the last Conservative Government, National Savings went up by £1,000 million. In the 35 weeks of this year, net savings 848 —the various forms of savings, and the trustee savings banks—have gone down by £31 million compared with a rise in the same 35 weeks of the previous year of £165 million.
Was this expected by the Government? Obviously not, because the Chancellor in his Budget speech last November stated that the Government expected savings to continue rising, and is on record as expressing his confidence and hope that part of the national problem would be solved by the continuing success of the National Savings movement. That has not happened, and the Financial Secretary must tell us why, in his view, it has not happened. Having told us that, he must then tell us what he intends to do to reverse the present trend.
The alarming fact is that, as I believe, there can be traced a relationship between savings and inflation. In times of fast inflation, we tend to get a slowing down in savings. A study of comparative figures over a 60-year period shows that the periods of fast inflation tend to be those of a falling-off in savings—presumably because of loss of confidence that the purchasing power of the savings so invested will remain. That must be one of the factors; when, during the past year, every person who had a £ in National Savings a year ago finds it now worth only 9s.
Even more, the indications show that inflation will go ahead even more quickly. That is the frightening thing about the future of savings. In the past few months the cost of living has not risen. But all the indications—and particularly the indications today, if I may say so—are that we are in for a steep rise. Only today we had an indication that London bus fares are to go up. That would have happened during the period in which there has been stability of prices but, instead, the Treasury decided to subsidise London bus fares until January, and provided a £5 million subsidy for that purpose. The Treasury thereby allowed, probably quite correctly, the wage increase for London Transport employees, but would not allow that cost to be passed on in increased fares.
We have therefore had the general increase in consumption referred to by my hon. Friend the Member for Oswestry. We have had a period in which there has been a suppression of the natural 849 rise in prices that would otherwise have taken place. That period is clearly coming to an end. As I say, we have the indication of London Transport fares going up in January, and only about an hour ago came the news on the tape that the Building Societies Association considered that there was strong pressure to put mortgage repayment rates to 7 per cent. in the New Year. These are indications that the Government's prices and incomes policy has failed because incomes have risen substantially and production has not risen by the same amount. All the indications are that a substantial inflationary pressure is building up. It is in circumstances of this sort that we can expect people to be reluctant to invest in National Savings.
There is the added feature that there is a great deal of unpopularity concerning National Savings as a form of investment because of the adverse criticism of them compared with other forms of saving. There were some remarkable arguments on this subject today. The hon. Members for Wandsworth, Central (Dr. David Kerr) and Norwich, North said that gambling was the real trouble, that a Conservative Government had passed a Bill which encouraged gambling, and that instead of saving people were gambling more. The Financial Secretary will agree that we must be careful in bandying about turnover figures for gambling. To talk about £2,000 million going into gambling may be correct, but the net amount devoted to it is a very much smaller figure.
The Government must decide what is their attitude to people's gambling instinct. Certainly when we tried to use that instinct for National Savings at the time of introducing Premium Bonds a large number of people of religious conviction genuinely thought it a bad principle on which to embark and rightly expressed their views on it. The official Labour Opposition expressed their disapproval of the Premium Bond system. It was described by the present Prime Minister as a "squalid raffle" and as an indication of the "candy floss society". It is interesting to note that rather than do away with the "squalid raffle", the Government have increased the prizes. The top prize is now £25,000. I do not know whether that makes it a more squalid raffle.
850 The Government cannot, in one breath, imply that, unfortunately, gambling habits have been encouraged by the Conservatives, and, in the next breath, say, "The one action which we have taken to stimulate savings is to increase the gambling factor in Premium Bonds." This is a contradiction, and I hope that the Financial Secretary will tell us whether he is convinced that we were right to introduce Premium Bonds and that the review which has taken place of the Government's committal concerning the gambling spirit of a number of people should be taken advantage of by the savings movement and that they will continue to consider ways of giving bingo-like prizes in various parts of the National Savings movement.
Last week, the House debated a Bill designed to provide a new form of savings in the Post Office Savings Bank. This followed on a pronouncement by the Chancellor of the Exchequer in the Budget. But it does not come into operation until at least next July. Matters are rather more urgent than that and the fact that the Government are so desperate to reduce consumption by encouraging personal savings that they announce that they will make available certain facilities next July shows a certain apathy towards the problem, and I hope that they will examine the possibility of hastening this operation. We on this side of the House made it clear last week that we would give every facility to ensure that the Bill quickly reached the Statute Book. I hope that the Government will carefully examine whether they can bring forward the administrative arrangements for that new form of saving.
We must also examine the whole method of selling National Savings and the attractiveness of them. As the House knows, I have been associated with the unit trust movement which has enjoyed an expansion of quite considerable proportions since 1957. But my knowledge of it clearly indicates to me that the great difficulty in encouraging people to save is to bring the facilities available to their attention. This can be a costly process. One of the reasons why probably various forms of small saving are not more succesful than they are in this country is purely the physical task of contacting people and bringing to their 851 attention the facilities which are available.
I therefore hope that, if the National Savings Movement develops attractive facilities for saving, it will use the fact that almost everybody has to use the Post Office rather more positively than has been done in the past in bringing to their attention the more attractive forms of saving that exist. For example, if a bank, a unit trust or a building society had the basic resources of all the branch offices of the Post Office in endeavouring to sell that form of saving, it would probably use them far more positively than they are being used at present. There is, alas, in the whole atmosphere of saving within the Post Office a slightly lethargic atmosphere.
I think that the suggestions made by my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) should be considered carefully. The whole basis of saving in the Post Office still tends to be that the saver must be expected to do it out of an element of patriotism to a much greater degree than wise saving on behalf of his family. I thought that the Postmaster-General gave a strange answer last week when it was queried whether it was necessary to have a month's notice of withdrawal for the new savings scheme. I could have understood it if the right hon. Gentleman had said that the one month's notice rule was being imposed as a general restraint on money being taken out; that this restriction was linked with the 5 per cent. rate of interest and that the Government, by imposing the one month's notice, hoped to keep people in the scheme because they would look elsewhere for money if they wanted it quickly. That would have been a perfectly logical reason. But it was nonsense to say that the reason was that the Government were giving a 5 per cent. rate of interest and if there was a great amount of withdrawals there would not be time to reconsider the interest policy, unless there was this restriction of one month's notice. As investments are to be limited to £5,000, there will be no great flow of withdrawals at any one time, certainly not such a flow that the Government could not decide what appropriate action to take in regard to the interest rate. The Government should 852 re-examine the whole complication of certain forms of National Savings with a view to there being even better and easier facilities than exist at present.
In fairness to my right hon. Friend, he did make the point which the hon. Gentleman is suggesting he should have made. These are the words he used:We cannot combine the advantages of a higher rate of return, which is what we want to attract new savers, with the withdrawal-on-demand facility, which is quite reasonable at the 2½ per cent. rate offered by the Post Office Savings Bank."—[OFFICIAL REPORT, 3rd December, 1965; Vol. 721, c. 1889.]
§ Mr. Walker
There are plenty of forms of saving based on a fixed rate of interest which give returns far above 2½ per cent. but which do not depend on a month's notice for withdrawal. A classic illustration is the local authorities, which operate an arrangement to withdraw in seven days or on 24 hours' notice at a rate much above 2½ per cent. If the hon. and learned Gentleman reads on or before that paragraph—I cannot remember which—he will find that the argument in giving a rate of 5 per cent. for demanding a one month's notice of withdrawal which was made by the Postmaster-General was that one could give the 5 per cent. only if one had control of the fluctuation of demands and withdrawals.
On the general question of National Savings, we must face the fact that basically there are two matters in the control of the Government which would affect the level of savings. One is the level of taxation and the other the rate of inflation. In the matter of level of taxation this Government have taken more than £600 million in compulsory savings in the form of extra taxation in the course of their first year. To some extent, this will have had an effect on the savings movement and I hope that Governments of any complexion will not underestimate the effect on consumer demand of giving out benefits and then obtaining the money in extra taxation.
The Government, for example, increased pensions last November. I dispute in no way the importance of increasing pensions, but the Chancellor of the Exchequer followed this by increasing taxation to a level not a great deal above the benefits which he gave out as pensions. This is foolish if one does not 853 want to increase demand. If one increases pensions by £300 million and one then has extra taxation of £300 million, it brings a considerable increase in consumer demand because we tend to give the money to those who tend to spend it and we increase taxation on those who tend to save money. It is interesting to note how the National Economic Review of a few months ago calculated that if we carry out that straight exercise of taking £300 million extra in taxation to give £300 million extra pension benefits, we increase consumer demand by £200 million or above in 12 months. This is a basic economic fact.
§ Mr. Walker
If the hon. Member had heard me he would have known that I was not arguing that at all. I was saying that it is wrong to say that we are not increasing consumer demand if we increase pensions and taxation by the same amount. If we do not want to increase consumer demand we have to increase taxation by a greater amount than the benefit given out. The increase in pensions was supported by this side of the House and we are pleased to see that the Labour Party did not keep to the old habits of the 1945–51 Government but increased pensions by more than the cost of living.
§ Mr. Walker
I could keep up for hours this sort of repartee with the hon. Member, but what I was saying was that the Government have had a series of measures, many of them contradictory, and this is why we have had stagnation in production and considerable inflation in the course of the year with a fall in savings. The policies of the Chancellor of the Exchequer and the very different ones of the First Secretary have resulted in this deplorable state.
§ Mr. Bernard Floud (Acton)
Talking of contradictory policies, am I not right in remembering that although the Opposition did not oppose the increase in pensions 854 they opposed the taxation which was imposed to help to pay for those increases? Is not that somewhat contradictory, or was it just lack of courage?
§ Mr. Walker
Certainly not. We opposed certain forms of taxation in that Budget because we thought that they were very much the wrong forms, but we are on record as a Government who, during 13 years of office, substantially increased pensions and took the appropiate amount in taxation. If production in this year had risen by as much as last year this would have produced the extra taxation required.
§ Several Hon. Members rose——
§ Mr. Speaker
Order. The hon. Member who has the Floor has to decide to whom to give way when three hon. Members seek to intervene.
§ Mr. Walter Monslow (Barrow-in-Furness)
Does the hon. Gentleman recall that in the Conservative manifesto at the last election the present Opposition were committed to the development and expansion of the social services at a cost of £654 million? How was it intended to pay for it—through taxation or what?
§ Mr. Walker
If the hon. Gentleman had listened to what I said just before he rose he would have heard me point out that if only production had gone up this year instead of going down 2 points since January we could, as a result of that alone, have financed a considerable expansion of the social services. But, alas, under this Government production has gone down.
I want the Financial Secretary to tell us what reasons the Government give for the decline which has occurred in National Savings as compared with the trend not only last year but in many years past, and also what action they now intend to take. Action is needed. We are saddened that, presumably, the fear of inflation and higher taxation together have resulted in this decline, and we want the Financial Secretary, in reply to the debate so ably commenced by my hon. Friend the Member for Torquay (Sir F. Bennett), to give the House and the country some information and to give those who work in the savings movement encouragement in the task which lies ahead.
§ 3.20 p.m.
§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
When I read the Motion, I feared that we might have to listen to a lot of party political cant, but I say at once that the speech of the hon. Member for Torquay (Sir F. Bennett) in moving it and the contributions of all hon. Members on both sides have shown a quite different approach. The hon. Member for Torquay introduced the subject in a fair and dispassionate way and, except for a few remarks at the end, hardly spoke in support of the terms of his Motion but reviewed very seriously and fairly the difficult problems which face the National Savings movement and, in particular, the effects, which we all deplore—but it is not enough just to deplore them—of continuing inflation upon the small saver.
The preamble to the Motion calls attention to the decline in National Savings. It is only right that we should be clear in our minds as to what we are talking about. The terms of the Motion and some phrases in the speeches of hon. Members would suggest that there has been an absolute decline of National Savings. This is not so. What we are talking about is a decline in the rate of increase in National Savings or, as the hon. Member for Worcester (Mr. Peter Walker) put it, a decline in the progress of National Savings. The rate of increase has declined compared with the previous year, although there has, in fact, been an increase.
Several hon. Members have asked me to give my explanation for the decline in the rate of increase. There is one clear and overriding reason, namely that, during the past year, we have been living in a period of high interest rates, a time when anyone who is choosing where to invest his money for a short-term purpose and who has regard to interest rates will, naturally, choose a form which offers a higher rate. There is nothing new in this situation. I hope that it will not be thought churlish or party-political on my part if I remind hon. Members that there was a decline in the rate of increase in National Savings on the last two occasions when we had a 7 per cent. Bank Rate.
In 1957, we had a 7 per cent. Bank Rate and the overall figure for the in- 856 crease in National Savings declined by about £14 million. In 1961—these things are progressive, of course—when we had a 7 per cent. Bank Rate again, on that occasion to deal with a serious balance of payments deficit, it lasted longer than in 1957, and the decline in the increase of National Savings then was about £127 million.
When we came into power—I know that hon. Members opposite do not like to be reminded of the fact—we were confronted with a balance of payments deficit far larger than that in 1961, and among the measures we had to take in facing that situation was the raising of the Bank Rate to 7 per cent., and, because of the cumulative effect, this 7 per cent. Bank Rate had to last longer than the previous one.
I should have thought it plain that this was by far the largest single cause of the problem which we are discussing now.
§ Sir F. Bennett
It is true that, with the previous 7 per cent. Bank Rates, there was a certain decline in National Savings, but I think that the Financial Secretary will, in the light of the figures which I gave, agree that although the level fell from a plus figure to a somewhat smaller plus figure, the point today is that, for the first time in six years, with a similar 7 per cent. Bank Rate, the decline has gone to a substantial minus figure.
§ Mr. MacDermot
I shall discuss particular figures a little later. Before doing that, I should like to say a word about the National Savings movement itself. It is due next year to celebrate its jubilee. It was born, in very different times, from the stimulus of poverty and a degree of insecurity which we do not, fortunately, have today. It was built up by the determination of men and women to help the ordinary working man to put money aside against a rainy day in order to provide for his family.
Many of those contingencies are now provided for under our Welfare State by welfare services, but in our relatively affluent society, although the reasons may have changed, the need for savings from both the national point of view and the individual and personal point of view remains. If people are now seeking to buy 857 more expensive consumer goods—whether television sets, motor cycles, cars or whatever they may be—and if they are to avoid the very high burden of the hire purchase rates, or even if it is merely a question of collecting money for the deposit which they need to embark on a hire purchase contract, they still need to save in order to be able to acquire things of that kind.
The National Savings movement itself has always had a strong educative and moral purpose, which has been one of its driving forces in encouraging the virtues of thrift. Being an Irish and not a Scottish Celt, I cannot claim to have been brought up with singular attention to the virtues of thrift, but I suppose that all of us as we get older and wiser learn the values of that quality and something of the sense of security and independence which comes as a result of the practice of the virtue.
What has been happening to this movement during "this year of decline", as the Motion would have us believe this has been? The work of the movement depends on the great army of voluntary workers to whom the hon. Member for Battersea, South (Mr. Perry) and others paid tribute during their speeches, and, in particular, to the savings groups—groups in industry, schools, streets, villages and various social organisations. For many years past, under the stimulus of a Conservative Government, the total membership of these groups has been falling, but this year, for the first time for eight years, the membership has increased. On 31st March last it stood at 6,441,000. The school groups, in particular, have increased by over 150,000 to a total of 1,773,000. The average weekly savings per member have also increased, to just under 10s. per worker. The total group savings rose by £12 million to £166 million. The Government will, of course, continue to promote and encourage the work of the movement, which we hope will be further stimulated by the movement's jubilee celebrations and publicity campaign in the coming year under the direction of its stimulating new Chairman for England and Wales. Sir Miles Thomas,and its new Chairman for Scotland, Lord Birsay.
What are the total figures for National Savings so far as one is able to assess 858 them? Complete figures are available only up to the end of August this year. The total outstanding then was £8,373 million. That is an increase of £179 million compared with the end of August last year. The calendar year 1964 represented an increase of £229 million over 1963. The provisional figure since the end of August shows an increase of only about £9 million and that allows for a net fall last week of £2 million. These are the most up-to-date figures. But one must allow for seasonal factors which influence particularly some forms of National Savings. The main periods for increases in National Savings are in the early months of the year and the most substantial withdrawals are during the holiday season and before Christmas.
Large net withdrawals can be expected during the next few weeks and I am sure that no one will interpret that as a sudden loss of confidence in National Savings. It is true that the figure of last August of £8,373 million is less than the record figure in May of £8,419 million but I have reminded the House of the tendency for summer withdrawals Then there are the Post Office Savings Bank and the ordinary departments of the trustee savings banks, which are forms of saving which also provide the enormous number of people who use them with a current banking account service.
Between April and August the balance outstanding in the Post Office Savings Bank fell by £16 million. This is precisely the same as the comparable figure for April to August 1964. Similarly the deposits in the ordinary departments of the trustee savings bank fell by £12 million in the summer holiday period this year compared with £11 million last year.
But I do not wish to avoid the fact that the figures for this Autumn are undoubtedly disappointing and it must be concluded that the high interest rates prevailing are the main factor making other forms of savings more attractive and I think that this view is supported by the increases especially for building societies and local authorities. I do not think that it would be right to attribute this to disillusionment with National Savings or fixed interest savings as compared with, for example, savings in the form of equity investment. That is illustrated by the movement which is, 859 quite rightly, seeking to interest small savers in the advantages of investment in equities, namely the unit trust movement. As has been pointed out, there has equally been a parallel decline in savings in unit trusts.
§ Mr. Stratton Mills
The figures show that the amount in National Savings Certificates has remained virtually static since 1956 despite the one-third increase in National Savings as a whole. Does not this indicate disillusionment with certificates?
§ Mr. MacDermot
I shall come to particular forms shortly and will deal with that interesting point. But first I want to deal with a general observation made by the hon. Member for Torquay and one or two other hon. Gentlemen opposite in saying that, while the Conservatives were at fault in allowing inflation to take place during their period of office, they were only half as sinful as the Labour Government. They said that there was a 1s. per year decline in the value of the £ during the period of office of the post-war Labour Government and that the same thing is happening again, whereas there was only a 6d. per year decline under the Conservatives. I am sure that hon. Members do not want me to go over all the old arguments again. It is sufficient to remind them that the first Labour Government was dealing with the immediate post-war situation and the carry-over of the impetus of war-time inflation and seeking, and seeking successfully, to make the transition to a peace-time economy without producing the deflation and unemployment which resulted after the First World War, and also that during the period of that Labour Government the terms of trade moved against this country in a way which in itself would have had a strong inflationary effect here.
The hon. Member for Oswestry (Mr. Biffen) drew attention to the true facts of what has been happening since the present Labour Government came to power, which are that there have been two quite sharply different periods, the first and the second six months. In the last six months, prices and the value of money have remained virtually constant. The hon. Gentleman went on to make 860 an interesting speech pointing to some of the risks and dangers to savings inherent in that situation, but that is another matter.
The increase which took place took place during the first six months and a large part, as the hon. Member rightly said, almost exactly half, was directly due to Budgetary measures. Those Budgetary measures were directly the consequence of our having to take action to reduce demand in order to deal with our balance of payments situation abroad. If hon. Members opposite are basing their whole case against the Government on the measures which they have taken which have led to the decline in the value of money since they came to power, they must also face the legacy which they left us and which occasioned those actions.
Having dealt, I hope with the brevity which they merited, with the party political arguments which were advanced, I now return to the main subject, which is what is happening to the different aspects of the National Savings Movement and what we should do about it. Let me deal first with some of the particular aspects and turn to the special investment departments of the trustees savings banks, which have been one of the most successful parts, if not the most successful part, of the whole National Savings Movement for some years. They continue to attract funds on a large scale. The balance outstanding increased by more than £115 million between the end of September, 1964, and the end of September, 1965, and new deposits continued at as high a level as last year, amounting to £18.6 million in September, this year, compared with £18.8 million last year.
This gives us reason to hope that our confidence in the new Post Office Savings Bank accounts which we hope to introduce this summer is well placed. I have taken note of what has been said about trying to speed this up and we will do all we can to introduce the new accounts as soon as we can. We believe that the success of the trustee savings banks augers well. There is friendly rivalry and competition between the two bodies. By and large they tend to serve different areas. At least, they are weighted more in different areas. The trustee banks are very much stronger in Scotland and the 861 north of England and the Post Office Savings Bank in the South. But there is nothing rigid about that and the Trustee Savings Banks are moving into the South and some are developing very well. There is no doubt that the very many outlets which the Post Office Savings Bank has are an opportunity for bringing the possibility of savings of that type to an enormous number of people who do not enjoy it at the moment.
The figures for Premium Savings Bonds are also encouraging. In the 12 months to the end of August, this year, the amount invested increased by £48 million, which is very little different from the £51 million increase in the previous 12 months. Since then we have introduced the new £25,000 prize, which has proved to be a further boost to sales. In the six weeks since its announcement net sales amounted to £7½ million, which is more than £1 million above the figure for the same six weeks last year.
I now turn to the Savings Certificate, about which the hon. Member for Belfast, North (Mr. Stratton Mills) spoke. We have heard criticisms about the current rate of interest and the fall in the value of previous issues because of inflation. That is not new. Between 1951 and 1964 the consumer price index rose by over 40 per cent. Nevertheless, I agree that the receipts from National Savings Certificates have been disappointing. This, also, is not new; it is a continuation of an existing trend, since repayments have consistently exceeded receipts since 1960. The rise in interest rates on alternative savings media have led to a disappointing performance recently in the Certificate and the National Development Bond.
The hon. Member for Belfast, North asked about the low interest rates on earlier issues. He is probably aware that Savings Certificates are issued with a given life—for example, six years—after which they are extended, but at a lower rate of interest. This is done because of the tax concession. For people who take advantage of their opportunities—many of these include Surtax payers—it is advantageous to have a maximum holding in this form of savings. Therefore every time there is a new issue the total maximum holding they can have is increased, despite the limit on the 862 holding of each issue which they can have.
The hon. Member expressed surprise at the fact that the Post Office is unable to give precise figures of the earlier holdings. This is because of the method of documentation employed in the past. The statistics just are not available in that form. The Post Office can and does make estimates as a result of sampling. I have no precise figures before me, but I can assure the hon. Member that holdings of the earlier issues to which he referred are very small.
In general terms many hon. Members have referred to the possibility of moving over from a basis of fixed rates of interest for National Savings to some other form, which my hon. Friend the Member for Battersea, South suggested would provide a guarantee against inflation. My hon. Friend the Member for Putney (Mr. Hugh Jenkins) suggested that they might be tied into or guaranteed against changes in the price index, and the hon. Member for Belfast, North made a very interesting suggestion, which we shall wish to consider, for something half-way towards a State unit trust—something that he called a Savings Certificate investment fund—which would be administered by an independent body and in which there would be a 25 per cent. element of investment in equities.
As my right hon. Friend the Chancellor has made clear on previous occasions, we are ready to examine the proposals which are being canvassed in some circles and to consider carefully anything which might safeguard the interests of the small saver while increasing overall savings. I do not want to comment on these proposals in detail, but it might be proper to remind hon. Members of some of the general considerations which any Government must take into account when examining proposals for new forms of savings.
§ Sir F. Bennett
On a point of order. I was reluctant to interrupt the hon. and learned Gentleman, particularly in view of his charming and no doubt undeserved tribute to the force with which I criticised certain aspects of Government policy. However, I am reluctant that the impression should be left that it is only through my lack of desire to do so that the Motion is not withdrawn, now 863 that the subject has been given a thorough airing. It is, I think, within the knowledge of the House that another important subject, of great interest to the Police Federation and to hon. Members on both sides, is due for discussion at the end of this debate, and I would want to be it known—even if you cannot accede to my request, Mr. Speaker—that there is no reluctance on my part to withdraw my Motion so that this other subject may be debated.
§ Mr. Speaker
The hon. Gentleman's point of order is very simply answered. His Motion is now in the possession of the House. He may ask leave to withdraw it, but he can be granted that leave only if it is given by unanimous consent of the House. It is unlikely that the Financial Secretary will interrupt his speech so that that permission may be given.
§ Mr. Speaker
I have indicated the position with regard to the rules of order. It is most unusual to interrupt a speech to ask leave to withdraw a Motion.
§ Mr. MacDermot
Other hon. Members having objected, I can only say that I take the hon. Member's point and will be brief in my remarks.
I was about to refer to some of the general considerations which must be in our minds when considering any proposal to extend the scope of National Savings. First of all, we must ask ourselves, will it attract substantial additional savings and not merely result in a switch from one existing form of savings to another? Second, will it result in a substantial addition to lending to the public sector as opposed to lending to the private sector? I do not want to imply by that that we are not interested in the level of savings retained in the private sector, because we certainly are.
A third consideration is, will it weaken confidence generally in investment in fixed interest securities? Will it merely duplicate existing savings facilities or will it introduce something new? Will the 864 administrative costs be such as to make the yield unattractive? This is something of particular importance when we are dealing with a form of savings which is designed to and which does attract very large numbers of very small amounts from an enormous number of people. Will the savings be in the easily accessible and highly liquid form which this section of the public—or many of them—undoubtedly prefer? In this connection, a number of hon. Members were a little slow perhaps to appreciate the force of the remarks of my hon. Friend the Member for Wandsworth, Central (Dr. David Kerr). I think that he had a good point: that many people who contribute in their savings to the National Savings movement undoubtedly want them to be in such a form that they can withdraw their money quickly and readily. Again, will the burden of administration fall substantially on the Post Office? This is another important consideration, because there is a limit to the amount of new forms of saving which they can take on and handle. They have, of course, recently taken on a very large new job here.
The Government welcome new ideas and will be very glad to study and consider them, as will the National Savings movement. We welcome competition between different forms of saving. What we are, of course, primarily concerned with is not only our own Exchequer interest in National Savings but also the general level of savings throughout the country, which a number of hon. Members have rightly stressed. In this connection, the hon. Member for Oswestry made, as always, a most thought-provoking and challenging speech. I followed his arguments with considerable agreement until his last few sentences.
He expected, of course, that my reply to the burden of his argument would be something which, evidently, he already knew, namely that the published figures show that the general level of personal savings is rising. The hon. Member challenged the validity of the figures by saying that they were the phoniest set of figures published by the Government—he was not saying the present Government, but any Government—on this subject and he had some support from my hon. Friend the Member for Birkenhead (Mr. Dell), who described the figures 865 as entirely bogus. I do not suggest that they are mathematically precise figures—they are not. They depend upon and they are calculated from estimates, and there may, of course, be a margin of error, which at times might be substantial. We can, however, have confidence that they correctly show trends. Certainly, I agree entirely—and I hope that the whole House will agree—with the hon. Member for Oswestry that what is happening shows that there is a greater need than ever for an increase in savings at this time.
The hon. Member chose to criticise my right hon. Friend the First Secretary for what I regard as being his success in the first stage of introducing a prices and incomes policy. My right hon. Friend said from the start that the great difficulty was where to cut in on the spiral of prices and incomes. He committed himself from the start, in the early days of the Government, in saying that he believed that it was necessary to cut in with prices, because he did not believe that it was possible to achieve wage and income stability until we had price stability.
The hon. Member is right to point out that if we succeed in doing that and incomes rise during a period when prices remain stable and productivity does not increase at the same rate as incomes, unless we get an increased level of savings we must have an increased level of taxation. All that is very simple, but it is absolutely to the point. I agree entirely with the hon. Member.
We are in no way satisfied or complacent about the situation, but the indications are that my right hon. Friend's aim is being achieved. It is certainly what must be achieved. We can all be grateful to the hon. Member for Torquay, who moved the Motion, if not for its terms, at least for the fact that he chose this subject so that we could consider it.
§ Sir F. Bennett
In taking your hint, Mr. Speaker, about the unusual nature of interrupting an hon. Member who is speaking, which, I know, the Financial Secretary did not take as discourtesy, may I now beg to ask leave to withdraw the Motion?
§ 3.53 p.m.
§ Mr. Robert Edwards rose—[HON. MEMBERS "Shame."]
§ Mr. Speaker
Order. The hon. Member for Torquay (Sir F. Bennett) asked leave to withdraw his Motion. An hon. Member sought to continue the debate. He has every right to do so. There is no need to call "Shame".
§ Mr. Edwards
Thank you, Mr. Speaker. I apologise for preventing the hon. Member for Torquay (Sir F. Bennett) withdrawing his Motion, which is critical of the Government. I thought that the principles involved in the Motion merited a full Friday's debate, and that is why I am continuing it. I consider that the Motion which would follow the present one is worthy of a longer debate than the dying five minutes of a Friday afternoon. I hope, therefore, that I will be forgiven for using this method of procedure to continue a debate which is of great importance.
Although I did not listen to the whole speech of the hon. Member for Torquay, I listened to its closing stages. The speech of the hon. Member and the speeches of many hon. Members opposite reminded me very much of the funeral speech of Mark Antony, when he came to bury Caesar and not to praise him, because few of the speeches which we have heard this afternoon from the benches opposite have been related to the Motion. They have not been as passionately critical of the economic policy of the Government as many of us had anticipated. They have, however, used the opportunity of a discussion of National Savings to criticise my right hon. Friend the First Secretary because he has not, in 12 months, been able to end the inflation spiral which has swept the world for the last 30 years.
An important factor which has not developed in the debate is the plain fact that millions of people who relied on the co-operative movement as their only means of saving and the millions of people who put their money into the Post Office Savings Bank and the trustee savings movement now have more security than they had between the wars. For example, my family for two generations was compelled to save via the cooperative movement to safeguard the family against unemployment, sickness 867 and death. With the invested money one could pay for members of one's family to be buried.
Over the years the great struggle for social security has resulted in people being given unemployment benefits, which give them just more than a physical hold on life, and retirement benefits, which enable them to live a reasonably decent physical life. The result is that millions of industrial workers who, of necessity, once had to save for difficult times through the Post Office and the co-operative movement, find that this is no longer necessary today.
If we are to deal with the vast problem of inflation there must be a new impetus for saving. There are only two ways to control inflation; to considerably increase productivity and to withdraw large sums of money each year from consumption. The only possible way to relieve the economy of the mounting consumer demand is for millions of people to be encouraged to put their surplus money into savings rather than into gambling and purchasing luxury consumer goods.
If we appeal not to people's materialistic interests but to their majestic ethical and moral inclinations we will help to solve this problem which is bedevilling the economies of most countries in the 868 Western world. I recall writing an article a few years ago in which I stressed the need to establish a co-operative investment trust to help the under-developed areas of the world. I was amazed at the response which I got from such a modest article. In it I suggested that industrial workers, technicians, civil servants and others be encouraged to agree to have deducted from their weekly incomes 6d. in the £ which would go into a great corporate development trust to be used exclusively for investment in the underdeveloped parts of the world and that——
§ Mr. Edwards
With respect, Mr. Speaker, I was dealing with the need to make new ethical appeals to people to invest their surplus money and I was giving an example of how people will react to certain suggestions. In the case I have in mind one union agreed to the principle I enunciated and carried a resolution indicating its willingness, if other trade unions accepted the principle, to have deducted through P.A.Y.E. 6d. in the £ from each member's wages, the money to be used solely for a development fund to help the poorest peoples of the world. If there is——
§ It being Four o'clock, the debate stood adjourned.