SAVINGS BANKS INTEREST RATES (Hansard, 13 May 1970)

§ Mr. Higgins
We have already had a wide-ranging debate on savings, and I do not wish to go over the same ground in speaking on the Question, " That the Clause stand part of the Bill ". As the Chief Secretary has rightly pointed out, it is common ground that savings are vital to the good health of the economy. The difference between us is over the policies which are likely to encourage or discourage savings.
One has only to look at the figures for the period 1959– 64 showing the annual average change in constant prices per head per cent. to see that in that period the figure was plus 13.8 as compared with the figure for 1964– 69 of minus 0.1. That is a fitting commentary on the value of money under a Conservative Government as compared with the situation under a Labour Government.
Having said that, there are some more specific points we wish to raise on the Clause and two specific questions we wish to ask the right hon. Gentleman. We have recently debated Trustee Savings Banks on two occasions, the Trustee Savings Banks Bill in 1968 and the Trustee Savings Banks [Lords] Bill in 1969. This Clause alters the procedure which was set out in those Measures. In particular, they set out limits on the rates of interest which were to be paid, first, by the Trustee Savings Bank to its depositors— this is altered in paragraph (b) of Clause 35— and, secondly, the rate which the Government paid to the Trustee Savings Bank movement through the fund for the banks' savings.
That being so, on a former occasion we sought to raise the limits, because we felt that the rates of interest were unrealistic. We appreciate that the Chancellor of the Exchequer should feel that they need to be raised in order to continue to attract savings in the Trustee Savings Bank and the Savings Bank movement. Clearly when we have a rate of inflation of over 5 per cent. per annum it requires a rate of interest which is a 1390 good deal higher than that for any real return to be obtained by savers. Under this Government, the Exchequer has paid a rate of interest which in real terms is often negative.
We appreciate the Chancellor's point in his Budget Statement, though he phrased it in terms of the rate not being immutable. But we cannot understand why the limits are now being eliminated both on the rate which can be paid by depositors and the limit on the amount the Government pay to the Trustee Savings Bank movement through the fund for the banks' savings.
The second figure was intended to be a differential reflecting the cost of operation of the Trustee Savings Banks, and quite rightly a limit was imposed on it so that they should remain cost-effective. Apparently this is no longer to apply, and I hope that the Chief Secretary will tell us why that should be so and why the principle should be changed in that respect. We appreciate the point about the change in the limit on the deposit rate that the banks can pay to their depositors.
The second point that we want to raise concerns the timing. We are rather concerned at the Chancellor's statement that the change in the rate would be a major administrative exercise and that the earliest point at which it could now become operative would be in respect of interest credited for the year 1971. That expression, " credited for the year 1971 " is somewhat ambiguous, and we would be grateful if the Chief Secretary could say what it means.
As we understand it, there is a difference in the way in which interest is calculated on the one hand by the National Savings Bank and on the other hand by the Trustee Savings Banks. The National Savings Bank, whose year runs from 1st January to 31st December, calculates its interests in arrears. On 31st December, 1971, it would add interest at the new rate on accounts which were operated during the previous 12 months. The Trustee Savings Banks, whose year runs from 21st November to 20th November, calculate interest in advance. On 21st November, the interest for the ensuing year is calculated on the current balance, and an adjustment is made on 20th of 1391 each month to allow for a change in the balance.
Given the difference between the two systems, this may give rise to difficulties unless the Government make clear what they propose by at least November, 1970. If an announcement is not made until the end of 1971, which is what the Chancellor's statement suggests, the Trustee Savings Banks will lose a whole year's interest at the new rate unless a complicated readjustment on their procedure takes place, and then they will have to brief staff, draw up new interest tables, and so on.
While we appreciate that it will not be the present Government who will need to make the decision, it is important that the Government now should give an undertaking to inform the Trustee Savings Banks of what is intended in adequate time for them to carry out their procedures and ensure that both the Trustee Savings Banks and the National Savings Bank can make the necessary adjustments to the interest payable.
We believe that we are entitled to an explanation from the Chief Secretary on those two points.

§ Mr. Diamond
I am only too happy to give the hon. Gentleman the explanation for which he asks, and I thank him for accepting the general purpose of the Clause.
I will deal, first, with the second point which relates to dates. What my right hon. Friend the Chancellor of the Exchequer said was right, but perhaps in shorthand form, because 1971 is precisely accurate in relation to the National Savings Bank, but not precisely accurate in relation to the Trustee Savings Bank. The Trustee Savings Bank starts its year, as the hon. Gentleman correctly said, on 21st November, 1970, so there will be a lag of five weeks, which is not an important matter.
We are now in touch with both organisations and arrangements will be made in adequate time for any necessary increase to be made. If the new rate is approved by the House—it is subject to negative Resolution—it will apply for the year 1971 in the case of the National Savings Bank and the year commencing 21st November, 1970, in the case of the 1392 Trustee Savings Bank. The fact that one bank chooses to do it at the start of the year and another chooses to do it at the end of the year—let us assume that the two years are coterminous and there is no five weeks difference—does not alter the fact that the rate applicable for that particular year in both cases will be the rate which is agreed by the House. Whether the bookkeeping is done at the start, during, or at the end of the year, does not affect that fact. I hope that I have answered that question to the hon. Gentleman's satisfaction.
I gather that the hon. Gentleman recognises that there may be a need to raise the rate paid by the Savings Bank on deposits in ordinary accounts, but he has difficulty in recognising the need for the rate paid by the National Debt Commissioners to the Trustee Savings Bank to be altered. But that is merely the costs, the overheads, plus the basic rate. Therefore, if the basic rate at the moment of 2½ per cent. goes up, the £3 13s. per cent. per annum may need to go up. It may not need to go up by the same proportion or by the same absolute difference, but there will be a need for it to go up if the major element within it goes up. All that we are saying is that the Order that we put before the House will cover both rates.

§ Mr. Higgins
We debated this point at considerable length in Committee in 1968. The argument put forward was that the £3 13s. limit, which was then established, was essential to ensure that the costs were only just covered. I concede that it could have been argued at that time that there was no need for the limit, but that was not what the Government argued. The right hon. Gentleman now, under Clause 35(2), is arguing that there should be no limit whatsover. I appreciate that he can argue this, but it is a change of policy.

§ Mr. Diamond
It is just to give the same flexibility in the second rate that is required in the first rate. I do not think it right at this stage to say that it will necessarily be the same figure or the same proportion. It will be for the House to decide at the right time. This is only an empowering Clause. I am glad to note that it meets the general view of both sides of the Committee that the 1393 time may have come when 2½ per cent. is no longer a sensible rate.