§ Question proposed, That the Clause stand part of the Bill.
§ Mr. Harold Lever
I am in a rather ambiguous position, having promised to cover my hon. and learned Friend, as his Parliamentary Private Secretary. However, I find that I am the only voice to speak on the Clause.
I hope that my hon. and learned Friend will tell us why he thinks it necessary to exclude the investment deposits, as defined in Section 1 (2) of the Post Office Savings Bank Act, 1966. I have not looked at the point with the care which those of my absent hon. Friends who tabled the Amendment have. My recollection is that the Clause excludes the savings account deposits in a savings bank, and not the ordinary accounts. If that is so, I should like to know why that distinction has to be made.
I shall now sit down and await eagerly a word or two from my hon. and learned Friend.
§ Mrs. Thatcher
Before the Financial Secretary replies, perhaps I may be allowed to say a word about the Clause.
It is now ten years since the first £15 of interest on Post Office savings was exempted from Income Tax, and I believe that that exemption extends both to a husband's and a wife's account in the Post Office. Jointly, it is quite an advantageous exemption from tax. As I understand it, the exemption cannot extend to the new accounts which are due to start on 20th June because it would be difficult to do it in respect of that one kind of saving only and hot extend it to savings which are similar in nature and to such things as the trustee savings bank.
The same point applies about the ordinary Post Office savings exemption under this Clause as applied under the last Clause. It is ten years since the rate was fixed. Sooner or later, it will have to be raised. There will have to be a thorough review of all the effects of taxation measures on the level of savings in general and on specific savings.
It would have been nice if the Post Office exemption could have extended to the new accounts. That would have been a start in the right direction and would have convinced us that the Chancellor is really out for savings. At the moment, it looks as if he preaches more savings and less tax, but practises more tax and less savings.
I understand the reason for the Clause, but I hope that, sooner or later, the £15 limit will be raised and extended to other forms of savings.
§ 8.15 p.m.
§ Mr. MacDermot
May I say, first, that it was made clear during the debates on the Post Office Savings Bank Bill that the distinction which my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) complains of would be drawn and that the tax exemption would not apply to the new type of investment deposit.
The new type of investment deposit is, as it were, the equivalent of the special investment department of the trustee savings bank. The exemption of the first £15 of interest on deposits with the ordinary Post Office Savings Bank account is one which applies also to ordinary deposits in the trustee savings bank. But 139 it does not apply to the special investment department.
There is a reason for the £15 exemption. It is often quoted by people who seek exemption from some particular form of savings or another. But it is in a unique position. To start with, the ordinary account at the Post Office Savings Bank is a form of investment which provides, in effect, an elementary form of banking facilities without charge. The deposits can be withdrawn on demand at any time, and, in consequence, the rate of interest, naturally, is a very low one of 2½ per cent. As there is only that low rate of 2½ per cent., since 1956 there has been this relief from Income Tax, but not from Surtax, on the first £15 of interest on ordinary accounts in the Post Office Savings Bank and the trustee savings bank.
That is intended to encourage small savers to lend to those institutions, which lend the money deposited with them direct to the Government and pay only a low rate of interest. It would be quite illogical to extend that to these accounts which are offering a very much more attractive rate of interest. The rate of interest on investment accounts in the Post Office Savings Bank will be 5½ per cent.
If the proposal were accepted to make an equivalent exemption for these accounts, for a person who was paying Income Tax at the standard rate the effect would be to pay a gross rate of interest of 9⅓ per cent, on the first £250 of Post Office Savings Bank investment deposits. That is taking into account the minimum holding which he would be required to have in his ordinary account before he was entitled to have an investment deposit account. The 9⅓ per cent, would compare with and be considerably higher than the effective return of 7¾ per cent, on the latest issue of National Savings Certificates which, I am glad to say, is proving a very successful and attractive savings medium. I do not think that anyone would expect that we should try immediately to better that to the tune of a 9⅓ per cent, return on the special investment deposits. As I say, there is a more particular argument for the ordinary accounts.
The hon. Lady the Member for Finchley (Mrs. Thatcher) raised a 140 separate point, taking the occasion of the debate to invite the Government to look at the £15 figure as it applies to the ordinary accounts and see whether, with the passage of time—and, no doubt she would say, the decline in the value of money—that figure could not be raised. We have received representations to that effect. It is not something which my right hon. Friend is in a position to do at the moment, but we shall take those representations into account.
§ Mr. Harold Lever
I rise to record briefly my total dissatisfaction with the logic of the Treasury. I do not shrink in horror at the notion that someone who has £250 in a special account with the Post Office should have 5 per cent, tax free on his money, even after the computation made by my hon. and learned Friend that that would amount, at 5 per cent, net, to an approximate 9 per cent, gross.
I would point out to him that, to the more skilled and sophisticated investor, there is no difficulty in getting 5 per cent, free of Income Tax by way of income, very often on short-dated Government bonds. This raises a very important point, and I hope that my hon. and learned Friend will not brush this off, because it is of some importance.
The Government are wrong in thinking that the man who invests at 2½ per cent, gets a bad rate of interest and is entitled to some consideration. When the rate of 2½ per cent, was fixed it was a fair rate. Over the years it became a totally inadequate rate, which amounted to little more than taking advantage of ignorant people who did not know much about banking and bank accounts, and were only capable of using the Post Office Savings Account. It is much to the discredit of all Governments, Conservative and Labour, that they did not trouble to put this matter right, but were content to get large sums of money from the least sophisticated section, and very often that means the poorest section, of the community at a totally unwarrantable low rate of interest.
Now, when the Government, somewhat belatedly, are putting this right by offering, not a spectacular reward for the small saver, but a modest reward, still below the general rate of interest, at 5 per cent., still barely adequate, it seems that they 141 are showing a false meticulousness of logic to exclude them from this paltry concession on Income Tax, and I am not satisfied that the Government are wise in doing so.
I hope that none of my hon. Friends, nor hon. Gentlemen opposite will be misguided enough to read this as an attack on the Government. What I am attacking is the characteristic Revenue view that all these concessions have to be wrung from them by force majeure, and when they are wrung from them, and we finally get this pitifully small contribution to equity on the small saver's account with the Post Office, we get a ridiculous exercise in logical acrobatics to deprive the small taxpayer of this modest tax-free rebate.
I hope that my hon. and learned Friend will look at this again. Because there is no Amendment in my name, my hon. and learned Friend cannot quote what the total cost of the concession would be. I know that it would be trifling, but psychologically it would be reassuring to many of us if the Treasury were to overrule the pedantry which has led to this restriction.
§ Mr. Gower
I find myself in almost complete agreement with the hon. Member for Manchester, Cheetham (Mr. Harold Lever). I do not always agree with the hon. Gentleman, but on this occasion I feel that the Treasury is not fully aware, or does not seem to be aware, of the change which has taken place in the investment climate in recent years, and which I think will show itself increasingly in the future.
As the hon. Gentleman said, the Post Office has received investment not only from the less sophisticated of the investing public, but has received it because such investors in the past have had very little temptation or very little experience of looking elsewhere. If that day has not gone already, I think that it will soon depart, and unless the Treasury and the Post Office are more realistic in their assessment of what will be needed to sustain investment in the Post Office Savings Account, they will find that the traditional investing public will be a declining asset.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.