HC Deb 30 April 1969 vol 782 cc1577-88

To section 17 of the Post Office Savings Bank Act 1954 (Securities in which the Commissioners may invest) there shall be added the following sub-paragraph of subsection (1):— '(e) In equity shares'.—[Mr. Ridley.]

Brought up, and read the First time.

Mr. Ridley

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

This new Clause brings us to a part of the Bill which was not explored in Committee; the part dealing with National Savings and the Post Office Savings Bank. It is a natural corollary of making the Post Office into a corporation that its savings bank functions must be transferred elsewhere. It is proposed in the Bill to set up a Director of Savings, whose task will be to administer the Savings Bank, in the position of the Commissioners, who have hitherto performed that function.

Hon. Members will be aware of the circumstances of the Post Office Savings Bank by which people may deposit up to £5,000 per head in it and withdraw their money at quite short notice. This varies from between four and eight days depending on whether it is to be a cash or cheque transaction. The money deposited pays interest of 2½ per cent.

The terms of the Post Office Savings Bank have been enshrined in its constitution by law for many years, I know not how many, and the new Clause gives the House an opportunity to consider whether the time has come to look at its ancient, conservative type of structure to see if, in modern conditions, it is suitable for the circumstances which we are experiencing.

The question of the security of deposits is not in dispute, since the Treasury, by law, guarantees that depositors will be repaid as to the full amount of their deposits. Thus, whatever we say or do tonight, there is no threat to the deposits or guarantee of the Treasury.

The 1954 Act specifies two conditions; first, that 2½ per cent. is the rate of interest to be paid—that will be the subject of the next debate on which I will not trespass now—and, secondly, that the Post Office Savings Bank shall invest its funds only in Government stocks or quasi-Government stocks of all sorts. One can easily see a list of the large range of Government stocks in which the Post Office Savings Bank has invested its funds.

10.45 p.m.

The constitution of the National Savings Movement has an obligation, which I quote: The aim of the National Savings Committee is to educate and encourage the public to save for the benefit of the individual and the country. Although it may or may not be to the benefit of the country that these transactions should go on, I am beginning to question whether it is to the benefit of the individual that he should be persuaded to put his money in the Post Office Savings Bank and leave it there at a rate of 2½ per cent. for many years in the financial conditions we are experiencing. This is an extraordinarily low rate of interest and compares very unfavourably with rates of interest that depositors could get from almost any other source.

The disadvantage of this procedure is that as the value of money is whittled away by the inflationary policies of Governments, not only this but all Governments, the value of these deposits becomes less and less and there is no possibility of growth in view of the effects of 6 per cent. inflation of the last few years. Reduction of value in holding these securities is at the root of the trouble and the public are not prepared to buy Government securities, let alone undated securities and we have the well known collapse of the gilt-edged market.

Mr. Stonehouse

On a point of order. As this debate seems to be overlapping into a debate on new Clause 12, I wonder, Mr. Deputy Speaker, whether it would be to the general convenience if we debated new Clause 11 and new Clause 12 together so that there should be no restriction on observations made on this subject?

Mr. R. J. Maxwell-Hyslop (Tiverton)

No.

Mr. Deputy Speaker (Mr. Harry Gourlay)

If it is the wish of the House these two Clauses can be discussed together.

Mr. Maxwell-Hyslop

Further to that point of order. I understand that two Clauses cannot be taken together if objection is raised, and objection has been raised.

Mr. Ridley

I concur with the view of the right hon. Gentleman that it would be possible to do so, but since my hon. Friend objects, it would be better to keep the two debates separate. I shall endeavour to do that, but I hope that I shall be forgiven if occasionally I trespass into the realms of interest because it is difficult to separate capital considerations from interest considerations.

The concession in the Budget for Capital Gains Tax has made precious little difference, and gilt-edged stocks are unattractive to practically every class of investor. The market has not responded. Undated gilt-edged stocks are particularly unattractive in times of rapid inflation. The result has been, as it would not have been difficult to predict, that savers and depositors in the Post Office Savings Bank have seen fit to withdraw their money. In 1963–64 £11.4 million was withdrawn net. This is the difference between new money deposited and money taken out. In 1964–65 that amount went up to £29.7 million. In 1965–66 it rose to £41.8 million, in 1966–67 £153 million was taken out, and in 1967–68 £105.6 million was withdrawn. The poor British investor for whom these deposits are supposed to be of benefit has at least realised that he can do better with his money elsewhere and he is taking his money out. I do not blame him. If any word of this debate gets to the outside world, it should be that it is in his interests to take out his money, even at this late stage. After all, he can lend it to a local authority at 9 per cent., or put it into Government stock at interest rates approaching that. Why he should be required, out of patriotism, to go on leaving it in the Post Office Savings Bank at 2½ per cent. and with the capital value being eaten away, I find it hard to understand.

We have come to the point where these traditional savings media are highly suspect, not only because they are proving totally ineffectual, but because they represent a bargain which is so bad that we should be ashamed of ourselves in recommending people to accept them.

The economic effects should be mentioned in passing. If £105 million last year and £153 million the year before was pushed into the economy through net withdrawals, this is a highly inflationary factor affecting the money supply, and it is a consideration relevant to the Amendment that the money supply should not be increased in this way, if it is possible. I expect that the bulk of the money was switched out of this unfavourable form of deposit into some other form of holding which is more profitable. At the same time, I suspect that some of it has been used for consumption as well.

If we are to have official savings media of this sort, we have to come to terms with the financial times in which we live, when the only possible way of maintaining the capital value of savings is to put a large share of them into the equity of some company or other, perhaps even abroad. Investment is still quite free in the sterling area. If we are to encourage people officially to save and invest by setting up such bodies as the Post Office Savings Bank, we must give the Bank a little more freedom to make what it considers to be the right investments. I would not say that now was the right moment at which to invest in equities. I am not sufficiently skilled in investment decisions to say what is the right investment at present. But it is restricting to say that the Post Office Savings Bank can invest only in gilt-edged stocks. I may be wrong. Perhaps gilt-edged stocks are the right investment at the moment. But to look at this matter as if gilt-edged stocks were still the safest investment is an outdated and completely wrong attitude.

I will be accused by hon. Gentlemen opposite of suggesting that we gamble with depositors' money, but if anything has been a forlorn gamble it has been the investment of large sums in War Loan, which stands today at a little over 38. The Post Office Savings Bank has £108 million in War Loan, which has come down from 100 to 38. If that is not gambling and losing, I do not know what is. Perhaps the right hon. Gentleman can tell us at what price the War Loan was bought and how much in terms of millions of £s has been lost in this investment. There is a whole series of other long stocks and undated stocks on which enormous losses have been made by the persons managing the Post Office Savings Bank.

We have to leave the bankers free to make the investments that they think to be right. It may be that this is a moment to invest in "shorts". I would not quarrel with that. But we must give them the power for all time to take the decision on what is the best investment for savers' money. This type of investment has to be made considerably more attractive if it is thought worth while going on.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), has doubts whether it is right for Governments to promote savings. I do not want to enter into that argument now, because it would probably be out of order. But if we are to have State agencies persuading people to invest and to put money on deposit with them, we must first make sure that they are reasonably competitive with other forms of investment which they might make. Secondly, we must divorce the benefit of the saver from any possible advantage which the State might make by getting these investments to be made.

What is objectionable about this practice in the Post Office Savings Bank is that one man's gain is another man's loss. The loss of the depositor, the small saver who has put his money into the Post Office Savings Bank, has been the Government's gain because they are getting money at far below the market rate. What is more, they have subsidised gilt-edged stocks and held on to them at a time when a massive change out of gilt-edged stocks might have brought the Government to their senses over their policies in relation to inflation and their management of the money supply.

These considerations have enabled not only this Government but all Governments, to go on in their sloppy financial way, well knowing that they had a certain captive investor with his savings deposited in the likes of the Post Office Savings Bank.

Over the last year the value of gilt-edged stocks has dropped. The Financial Times Index has gone down from 76 to 67. This is a clear indication that in the last 12 months there has been a further massive loss in the Post Office Savings Bank.

I do not underestimate the difficulties which will be raised. There will be a need to think out a transitional phase from the old traditional pattern of the Post Office Savings Bank which will accept money on deposit and pay 2½ per cent. and which is always invested in gilt-edged stocks. If we are to go on we must be prepared to build in perhaps some growth in its stocks and matters of that sort. I do not want to go out of order, but if we are to go on with these inducements to save, we must make the Post Office Savings Bank competitive and attractive.

I agree that there will be transitional problems. One question will be whether we can offer existing depositors better terms and conditions. That can be got over, because I think that change is always possible.

The Postmaster-General, in Committee, showed himself to be remarkably resistant to change of any sort, as my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) said just now. He resisted all ideas of change in our nationalised industries just as much from behind him as from the Opposition. All ideas for modernising and improving the way that we try to run our public industries were turned down, often with the curt, though not discourteous, argument that what had always been was the best thing to go on with and there was no case for change.

Mr. Stonehouse

Does this line of argument and criticism of my conduct in Committee imply that the hon. Gentleman now applauds the action that we have taken in deleting Clause 13 and substituting a new Clause?

Mr. Ridley

The Postmaster-General seems to have fallen from grace in that instance.

Mr. Stonehouse

I changed.

Mr. Ridley

The right hon. Gentleman changed for the worse. Had I been in his position I would have kept quiet about that. I would not have wished to advertise, before a fairly full House, that I had been prepared to give way to my Left wing but not to hon. Gentlemen in Committee who were attempting to make something commercial, successful and forward-looking out of the Post Office in the way that we tried to do.

It may be alleged that what I am suggesting is too big a gamble. There is a strange feeling among some people that for any risk investment to be made is an intolerable, almost sinful risk to take, whereas to invest in Government stocks is a laudable, patriotic and worthy thing to do, involving no risk. This myth must have been exploded as we watch the value of Government stocks dwindle and the increasing reluctance of the public to hold them. The fact that this may not go on is abundantly clear to me, but there is no investment of any sort—in land, in shares, in factories, in stocks, or in anything else—which is safe. There is no such thing as a safe investment. Even currencies are apt to crumble, as we are beginning to see. There is no such thing as an investment which is free from risk and free from gamble.

11.0 p.m.

But if I were to make an investment in the next five years or so I should tend to think that it would be safer to put it into an equity share than in War Loan. I gather that my right hon. Friend the Member for Wolverhampton, South-West suggests gold. That is another opinion. It may be that if the new Clause were accepted we could invest in gold shares. The Post Office Savings Bank could then invest in gold shares—and what would be wrong about that?

I do not want to say in detail what should or should not be done with these investments, but I urge the Committee to break out of this mentality which suggests that a 2½ per cent. guaranteed gilt-edged investment is, as it were, a worthy investment. If the Government are to try to attract funds and to give the investor a good deal, they must do much better than that, and the underlying investments of the savings banks, in which the deposits are placed, may have to be improved, too. We cannot continue with the whole of the paraphernalia of the National Savings Movement, the Trustee Savings Banks and the Post Office Savings Bank all pretending that in some way they are serving the national interest and benefiting the individual.

We must introduce a streamlined, modern look such as that of the unit trusts or even the investment trusts in considering the question of attracting the savings of the ordinary people, whether they be rich or poor. Savings are vitally important, but we shall not achieve them by an approach such as that used at present. I hope that the House will seriously consider whether the time has come to move away from these old-fashioned and conservative deposit accounts into something slightly more modern.

Mr. Stonehouse

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) served with some distinction on the Standing Committee, and I am surprised that he did not seek to move this proposal in Committee. Hon. Members of that Committee will remember that he enlivened the proceedings frequently with some brilliant speeches which we much enjoyed.

But the hon. Member knows that the main purpose of the Bill is not to consider the detailed operations of the Post Office Savings Bank, as the new Clause implies. The purpose of the Bill is to transfer the major trading activities of the Post Office from a Department of State to a new Post Office Corporation and to transfer the Post Office Savings Bank from the responsibility of the Postmaster-General to a new National Savings Bank under a Director of Savings who from vesting day, under my right hon. Friend the Chancellor of the Exchequer, will be responsible for the Savings Bank thus transferred. That is the purpose of the Bill, and it should not be used as a vehicle for ventilating the far-ranging ideas which have been put forward tonight by the hon. Member for Cirencester and Tewkesbury.

As he has raised the subject, it is important that the House should spend some time on it, rather than dismiss it out of hand. As hon. Members know, the hon. Member for Cirencester and Tewkesbury is one of the leading Powellites in this House. In a recent debate on a new Clause, reference was made by hon. Members opposite to the "Tribune" group on this side, so it would be in order to make a reference to the group on that side known as Powellites. It is interesting that the hon. Member's leader is here tonight in the person of the right hon. Member for Wolverhampton, South-West (Mr. Powell). We are delighted to welcome him to the proceedings of the Post Office Bill.

Mr. J. Enoch Powell (Wolverhampton, South-West)

The right hon. Member is under a misapprehension. This is not a group. This is another name for common-sense.

Mr. Stonehouse

We are getting used to the right hon. Gentleman heaping glory on himself. He is adding to that aspect of his reputation tonight, but it would be interesting to know whether the student of Powellism in the person of the hon. Member for Cirencester and Tewkesbury has the wholehearted support of the leader in the proposal he has brought forward.

What he has suggested is, or could be interpreted as being, a far-reaching Socialist proposal. The funds of the Post Office Savings Bank, amounting to £1,500 million would, under his suggestion, be available for large-scale investment in equity shares. If this means anything, it means that the Government will be using the investments of millions of small savers to invest in small insurance companies and similar shares, thus obtaining a holding in industrial groups. Because the new Clause has no geographical limit on investment in equity shares, the Government would be able, if the Clause were accepted, to invest hundreds of millions of pounds in investments abroad in all sorts of odd directions. There would be no restriction and there would be implied authority that this would be allowed to the National Debt Commissioners who run the investments of the Bank.

Mr. Hay

Is not the Postmaster-General confusing the position of those who have the trust of all Post Office Savings Bank and Debt Commissioners funds with the position of the Government? Is not his argument based completely on fallacy, and is the proposal of my hon. Friend not that the Government should have the power to invest but only these people who hold a special place under Statute?

Mr. Stonehouse

Yes, but, as I was saying, responsibility is not in the hands of the Postmaster-General but in the hands of the National Debt Commissioners. This Clause specifically adds equity shares to the list of investments they can make and there is no point in moving it unless it is expected that the Commissioners will follow the instructions of the House and invest in these shares. It would follow that a substantial part of the £1,500 million investment of small savers in the Post Office Savings Bank would be invested in a large number of industrial companies, which would have the effect of giving the Government a far greater share in the operation of industry in Britain.

Mr. Hay

Is the right hon. Gentleman saying that the National Debt Commissioners do what Ministers tell them? That is what he is asking us to accept. If that is not so, his argument breaks down.

Mr. Stonehouse

I am not suggesting that. If the new Clause is accepted and equity shares are added to the list of investments which can be made, it would be an open invitation, if not instruction, to the Commissioners by Parliament to invest in these shares. If the House were mistakenly to follow the advice of the hon. Member for Cirencester and Tewkesbury, it would be surprising if the Commissioners did not act on it. They would obviously make a certain amount of investment in this direction.

Mr. Hugh Jenkins (Putney)

Does not my right hon. Friend think that this proposal is a disguised method of augmenting the funds of the Conservative Party? Would not the equity shares in which the trustees would invest for the most part be shares which would contribute to Conservative Party funds? Is not this the sinister process behind the thinking of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley)?

Mr. Stonehouse

I have been trying to calculate exactly what is in the hon. Gentleman's mind but I do not think that I would visit that motive on him. I doubt whether he had it in the back of his labyrinthine mind.

I was asked what was the holding of the 3½ per cent. war stock and the original price. I regret that I cannot, without lengthy and detailed inquiry, give the information about the original price. It is a question of some complexity. The value of the holding at the end of 1967 was £108 million.

Mr. Stratton Mills

Will the right hon. Gentleman confirm that, in 1965, when the Act was going through, it was apparent that the total market value of the securities held by the Post Office Savings Bank was £200 million less than the money owed to depositors, that probably the position has since deteriorated substantially and that it is only the Government's guarantee that keeps the Fund solvent?

Mr. Stonehouse

On the next new Clause I shall want to make some observations on the current income of the Post Office Savings Bank which exceeds the management expenses and the cost of paying interest to depositors. There is a surplus on that.

What the hon. Member for Cirencester and Tewkesbury has misunderstood is that the savers in the Post Office Savings Bank do not regard it as a means of maximising the return on their investment as they would do if they invested on other directions. They invest in the Post Office Savings Bank because it is a convenient way of saving, and it must be remembered that the cost of operating this small savings business is far greater than operating other types of investment. The lower rate of interest must be balanced against the convenience of the small savings system and, in particular, the convenience of withdrawal. It is important that the security of the Bank, backed as it is by Exchequer guarantee, should continue to be underwritten by investment in gilt-edged securities as has been the practice heretofore. For all these reasons, I hope that the House will see fit not to accept the new Clause.

Motion made, and Question proposed, That the debate be now adjourned.—[Mr. Harper.]

Mr. Stratton Mills

On a point of order. There has been only one speech moving the Clause—

Mr. Deputy Speaker (Mr. Harry Gourlay)

Order. There can be no points of order on this Motion.

Question put and agreed to.

Debate to be resumed Tomorrow.

Forward to