§ 1.56 p.m.
§ Mr. Martin McLaren (Bristol, North-West)
I have asked for some time to discuss the subject of national savings so that we can have an opportunity before we rise to look at the recommendations of the Page Committee and give the Minister an opportunity to tell us the Government's views.
I wish to thank Sir Harry Page and the members of his committee for their interesting and valuable report. It may be controversial in some respects, but is none the worse for that. It is a rather long document and in the short time available it will only be possible for me to touch on some of the main points. I will be brief because I hope that there will be time for my hon. Friends to join in the debate.
The Government have a dual role, perhaps a conflicting role—and there is always trouble where there is a conflict of interests. On the one hand, the Government have long thought it to 1657 be their social responsibility in a paternal role to provide facilities for savings and to encourage thrift. In their other role they want to obtain finance and borrow money in the cheapest way possible.
Savings can be regarded as an alternative to taxation in affecting the level of demand, and can help improve the rate at which investment and growth can develop. Therefore, the Government appear to be in a Doctor Jekyll and Mr. Hyde situation, encouraging savings through the national savings movement, yet wanting to get savings as cheaply as they can.
The Government ought to offer a fair deal to the small and unsophisticated saver, yet a survey of the history shows that there is little doubt that this has not been done in the past. Like other fixed interest securities, national savings have had no protection against inflation.
Although £4,000 million was added during the last 20 years, the present stock of £10,000 million is worth in real terms only two-thirds of what savers owned at the start of the period. Savers have had a bad deal compared with, for example, owners of land or of French impressionist pictures. For those with national savings, inflation has operated like a tax from which the Government as a debtor have derived great advantage.
People investing in national savings have begun to get wise to this. For instance, the recently published June figures were poor, showing that in the first three months of the financial year only £53 million was invested as compared with £199 million for the some period of last year.
The Government for some time has been on the defensive, trying to maintain the existing stock rather than to expand it. There has been growing and gathering criticism of the way they treat the national saver. An article in the Financial Times recently appeared under the headline:The grimy capitalist face Page uncovered.One reason for the poor figures is undoubtedly that savers have been switching over to other forms of saving such as life insurance or unit trusts which they reckon will give them more protection against inflation.
The Government try to hang on to national savings for as long as they can. Let me give two examples of this, the 1658 first relating to national savings certificates. These have a lower nominal rate of return in the early years than in the later years and this is presumably to encourage savers to retain their certificates and suffer their losses through inflation for a long time. The second example is that when the earlier issues, particularly the first to the sixth, reach maturity they are not automatically paid off but can continue to be held at a low rate of interest. Unsophisticated savers often keep these for years, not realising that it would be better to convert them into the current issue or to take out the cash for investment elsewhere.
The least that ought to be done is that on maturity all investors should be approached and offered repayment or conversion as in the case of dated stocks. I ask my hon. Friend for an assurance that this will be done. At paragraph 451 Page said:We think that the Department for National Savings might have shown a greater desire to remedy this defect.I think so too. One of the difficulties has been the hotch-potch of different schemes, many of low face value. The 10p saving stamp is a recent example. That has been a reason for the high administrative cost of the present arrangements, running at over £7 million a year.
There is a need to review the schemes, to simplify them, bring them up to date and in line with the high prevailing interest rates. I agree that the British savings bond 8½ per cent. introduced recently is a step in the right direction. Page recommends that there should be a new single security to clear the jungle, bearing in mind the negative real return on some current issues. That calls into question whether there should be an issue which is inflation-proof, an index-linked scheme to protect capital and interest in real terms. Page recommended this. Some years ago the Radcliffe Committee remarked sardonically:A Treasury driven into a tight corner might do worse.That gave some encouragement to this idea.
The Government always like to pretend that inflation does not exist, just as the courtiers pretended that the emperor was wearing fine clothes and that his nakedness did not exist. It will be interesting 1659 to hear what the Government have to say about an index-linked scheme.
Questions are also raised about the trustee savings banks but I would like to leave that subject to my hon. Friend the Member for Hampstead (Mr. Geoffrey Finsberg), who has an expert view on such banks. There is also the controversial question whether the voluntary movement should be closed down. Page thought that it was wasting its time. The Government refused to accept that recommendation. With some hesitation I support the Government on this. The movement has a fine record of voluntary work and encouraging thrift. If it is to continue in business let us provide it with something worth selling to small savers.
The Page Committee will not have laboured in vain if its report induces the Government to have to have a new look at national savings, to simplify and modernise them and to give the small saver a better deal than he has had for many years. The only party point which I will introduce briefly is that the other day I heard the hon. Member for Fife, West (Mr. William Hamilton) making a considerable fuss about how he had no opportunity before the recess to discuss national savings and the Page Report. I have given him this opportunity.
§ 2.5 p.m.
§ Mr. Geoffrey Finsberg (Hampstead)
I welcome the opportunity of participating in this debate which my hon. Friend the Member for Bristol, North-West (Mr. McLaren) has been fortunate enough to start. I declare my interest in that I have been for many years an unpaid trustee first of the London and subsequently of the London and South-Eastern Trustee Savings Bank, which is the largest trustee savings bank in this country. I am also a member of the parliamentary committee of the trustee savings banks of which my hon. Friend the Member for Sevenoaks (Sir J. Rodgers) is the distinguished chairman.
The House ought to be aware of the astonishing development of trustee savings banks over a comparatively short period. Sir Harry Page's report shows this quite clearly. I join in the tribute to Sir Harry, whom I knew as one 1660 of the distinguished financial advisers to the Association of Municipal Corporations when I was deputy chairman of that body. If, using the figures from the Page Report, I compare the total amount saved over five years by the Post Office Savings Bank and the trustee savings banks, it will show the enormous difference which has taken place in under 30 years.
In 1935 the total deposits of the Post Office Savings Bank were £390 million while for the trustee savings banks the figure was £233 million. In 1945 the Post Office figure had shot up to £1,540 million, with the trustee savings banks figure at £675 million. In 1955 the Post Office figure was £1,700 million and the trustee savings banks figure £1,178 million. In 1965 the figures were £1,823 million and £2,235 million respectively. In 1971 the Post Office figure had risen to £1,831 million while the trustee savings banks figure had gone to £3,006 million, almost double the figures of the Post Office Savings Bank, which by then had taken refuge under the name of the National Savings Bank.
An even more significant figure is that of the percentage share of national savings. In 1951 the Post Office Savings Bank had 32 per cent. and the trustee savings banks 15 per cent. By 1972 the Post Office share had dropped to 20 per cent. and the trustee savings banks share had risen to 30 per cent. I said that it was an astonishing development, and so it is when we consider the restrictions that have been placed on the trustee savings banks over the years. The Treasury has never been swift in giving permission to the trustee savings banks to advance.
There was a lengthy delay when the London and South-Eastern Banks wished to merge. There was a battle with the Treasury when the cheque scheme was first contemplated, and when eventually the Treasury gave approval there was a battle with the joint stock banks. The cheque scheme is now highly successful. There was less difficulty in getting the unit trust movement off the ground. I want to give two quotations from the Page report. The first is at paragraph 188 when it says:We experienced some difficulty in getting a full picture of the trustee savings banks' situation because the evidence submitted by the Association appeared to be directed specifically 1661 to a modest set of requirements which they considered to be capable of early achievement, rather than a blue-print for the long-term future of the trustee savings bank system.The proposals put forward were "modest" because the trustee savings banks had learned by bitter experience that if they made any large claims they would be likely to be sat upon heavily by the Treasury, by the National Debt Commission or some other body. Therefore, it is slightly unfair that there should be criticism of that kind.
Paragraph 192 of the report says:The National Debt Office representatives believed that the trustees savings banks were less confident in their own ability than they were entitled to be, and consequently tended to be over-conservative in their plans.Again this is in light of bitter experience over a number of years since the war. The trustee savings banks movement in this country has less freedom of manoeuvre than is enjoyed by any other savings bank in the western world. When one considers that we were virtually the pioneers of the savings bank movement, it is a sad commentary on successive Treasury Departments that ours is the most hamstrung savings movement in the Western world. Trustee savings banks wanted some while ago to make loans to their depositors. They had a tough battle with the Treasury which lasted almost two years. Then, just when it seemed that they were on the point of success, the Page Committee was announced and the Government said "Sorry, you cannot proceed." There has been a further two-year delay in allowing trustee savings banks to make loans to their depositors.
The trustee savings banks wish to consider the possibility of giving mortgages to their depositors. I quote from paragraph 203(v):The United Kingdom was almost the only country whose savings banks did not offer a loans service.The report goes on in paragraph 205 to say that the Trustee Savings Banks Association's proposalswere vigorously supported by the National Union of Bank Employees. We received no evidence which objected to the proposals on grounds of principle.There are two major issues on which I hope the Government will take speedy action. The first is Page's proposal to give complete freedom to the trustee 1662 savings banks movement to move away from the national savings bank movement. At this stage I express no views because the parliamentary committee of the association has not come to any firm or final conclusions, but it will be interesting to have the Government's preliminary reactions. The other issue on which there is need for a swift statement from the Government is whether they are prepared to allow the trustee savings banks to lend money to their own depositors.
There is one other minor matter which is mentioned in the Page report and which relates to a change in status of the people who make up the controlling bodies of trustee savings banks. Up to the present they have been known as honorary managers and trustees, and Page recommends that the status needs to be changed and that there is no further use in some categories for trustees to have a part in the management of trustee savings banks. I hope the Government will not agree to this, because trustees have an important part to play, particularly in central development and policy. If one is able to bring about a closer amalgamation of trustee savings banks so that there are fewer and more powerful banks, I believe that they can play a major part in helping their depositors. Therefore. I hope that the Trustee Savings Banks Association and the Treasury will meet soon to work out the policy, and I hope that my hon. Friend in his reply will be able to say that there will be legislation in the next Session to deal with this subject.
§ 2.15 p.m.
§ Mr. R. A. McCrindle (Billericay)
In the short time I have at my disposal I want to make two points. Before I do so I should like to declare an interest in that I am a director of a life assurance company which deals extensively in unittrust-linked policies. It is to that point I wish to draw attention in regard to the implications which flow from the Page report.
One of the major recommendations of the Page report is that there should be an index-linked investment launched by the national savings movement. At the risk of giving some assistance ostensibly to competitors, I wish strongly to support that recommendation. Although national savings could be seen as a fair investment in terms of return on money, just as 1663 building societies can be seen to be a good investment, the national savings movement has found it more and more difficult to attract new savings. I am persuaded that the only way in which it is likely to obtain a breakthrough is by the launching of a completely new dimension in national savings.
I very much welcome the idea of an index-linked national savings bond. There can be no doubt that commercially the most dramatic development in national savings has been the launching of the managed bond. This bond has attracted money because it spreads investment among property, fixed interest and equities, and also because past performance has shown that this method of investment keeps pace with inflation. Something of a similar nature is necessary in terms of the national savings movement. I look forward to the launching of a similar bond in sufficiently small denominations to persuade the unsophisticated saver to get in on the act.
I strongly oppose the suggestion that the national savings stamp should be abolished and that consequently the voluntary savings movement should be wound up. With regard to the national savings stamp, I cannot over emphasise the need to encourage at an early age the idea of thrift. The opportunity given to young people to save at an early age, particularly in small amounts initially, is something that may well stay with them in their later years. I disagree with the suggestion that the 10p savings stamp should be abolished. I believe that there should be a wider range of savings stamps, including those of very much larger denominations but retaining the 10p stamp to encourage the idea of thrift at an early age.
I cannot pay too high a tribute to the work done by dedicated men and women in the voluntary savings movement, and I believe that it would be a retrograde step to abolish a structure which has been so carefully built up.
I hope that my hon. Friend will take account of the social aspect. Recognising that we are dealing with a national savings movement which should not be run at a loss, there is nevertheless an element of social contact between the national savings movement and the people they call upon which cannot be 1664 evaluated in terms of money. I want to see the national savings stamp remain, albeit in different denominations, and I also wish to see the voluntary savings movement preserved because of its social function. I ask the Government carefully to consider the situation before agreeing to accept all the recommendations of the valuable Page report.
§ 2.20 p.m.
§ The Minister of State, Treasury (Mr. John Nott)
I am sure that we all thank my hon. Friend the Member for Bristol, North-West (Mr. McLaren) for raising this subject. I very much welcome the opportunity that this debate gives me to reply to a number of matters arising out of the report of the Page Committee.
At the outset I ought to say that we are looking at the whole subject against the background of what we consider to be an immensely valuable and comprehensive report on national savings. It was an awareness of some of the problems which have been outlined in the debate which led the Government to set up the Page Committee in the first place. We have already given preliminary consideration to the committee's recommendations. But we do not wish to reach final conclusions on the recommendations until a number of organisations, including the national savings movement and the Trustee Savings Banks Association, have been properly consulted and given an opportunity to present their views. Those consultations are now in progress. As my hon. Friend the Member for Hampstead (Mr. Geoffrey Finsberg) is aware, the Trustee Savings Banks Association is meeting today to consider the recommendations of the Page Committee's report.
The performance of national savings in the past year or two has been very encouraging and very much better than the years of the late 1960s. The net addition to the balances held by the public in all forms of national savings increased in 1971 by £632 million, which at the time was the highest increase ever achieved in a single year. The following year, 1972, saw this record handsomely beaten with a net increase of £855 million.
The reason for the improved inflow of funds into national savings is not hard to find. The Government have very substantially improved the terms of national 1665 savings, and this has been successful in attracting a substantial volume of funds. Although there has been a falling off in recent weeks, the net inflow in the first half of 1973 has been £358 million, which is no mean amount. The outstanding feature of recent weeks has been the great success of the new British savings bond announced by my right hon. Friend the Chancellor of the Exchequer in his Budget speech. In the first eight weeks of sale the public have invested £96 million in the bond, which pays 8½ per cent. in the form of a half-yearly dividend with a tax-free bonus of 3 per cent. on maturity after five years. These sales are nearly treble those of the previous issue of bonds over a comparable period.
It has been alleged that the terms of national savings are unfair to small savers. That is an allegation which I do not accept. It is true that all fixed interest saving—not just national savings—is threatened by inflation. Inflation exercises its pernicious effect on all features of our national life. That is why it is so important to bring inflation under control. But national savings offer a wide range of securities and facilities whose terms are kept competitive with other comparable forms of savings. In addition to the British savings bonds, there is the 8 per cent. available on the investment accounts of the National Savings Bank and trustee savings banks and a wide variety of other securities offering competitive terms.
When my right hon. Friend increased substantially and made more attractive the terms for national savings in the Budget, there was some criticism. The right hon. Member for Grimsby (Mr. Crosland) complained on 9th April:The Chancellor, by beefing up the attractions of national savings in the Budget—these are the building societies' most direct competitor—has worsened the position still further … In the Budget, he improves the attractiveness of national savings. When this has the predictable and, presumably, desired effect that other savings become less attractive, he reverses himself and pumps money into other forms of savings."—[OFFICIAL REPORT, 9th April 1973; Vol. 854, c. 953.]There was criticism from other quarters of the Government's action in increasing and improving the terms in this year's Budget.
My hon. Friend the Member for Bristol, North-West asked a number of questions 1666 which I shall now try to answer. He referred especially to savings certificates. It is quite true that holders of certificates of the early issues are receiving interest at far below the current market rates. That is not of this Government's seeking, and it has been drawn repeatedly to the notice of holders that they should encash those early issues of national savings certificates. The capital amount now outstanding of these early issues has halved from £16 million to £8 million in the past two years. The total amount outstanding of these early issues of national savings certificates is now only about £8 million out of a total held in national savings of £10,000 million. Although I accept the importance of what my hon. Friend says, the amount is relatively small. The Government would be delighted if holders of these early issues would redeem their certificates and invest them in higher yielding British savings bonds and other securities.
The problem is that the manner in which the national savings certificate was set up when first issued in 1916 has remained constant ever since under every Government. Many of the holders of early certificates are untraceable. We simply do not know where they are. But we shall make further efforts to advertise the fact that the Government wish these early holders to encash their certificates and invest the proceeds in higher yielding securities.
My hon. Friend also referred to the new security recommended in the Page report—a kind of amalgam between the national savings certificate and the British savings bond. This is a matter which we are looking at with great care as part of our consideration of all the recommendations in that report. In due course when we have consulted various bodies obviously we shall say more on the subject.
My hon. Friend the Member for Hampstead raised a number of matters about the trustee savings banks. I can confirm that all his figures were correct. There is no doubt about the splendid progress of the banks, and the dedication of their trustees and staff, and the support of the national savings movement has been outstanding, and it was recognised in the Page report.
1667 The recommendations in the report involve a substantial reorganisation of the entire basis and structure of the banks. We are now in consultation with the Trustee Savings Banks Association, which, as I said, is meeting today to discuss the Page Report, to try to elucidate the full wishes of the members of that association and to discover what they feel should be done about the Page recommendations. Those consultations are in hand, and in due course we shall be delighted to receive the representations which they will make to us.
Even if there were time it would be inappropriate to answer the specific questions which my hon. Friend asked. But I can say that my right hon. Friend the Chancellor of the Exchequer sent a message of good will today to this meeting and expressed the hope that the Trustee Savings Banks Association would reach conclusions likely to help in formulating decisions about the future of the banks.
§ Mr. McLaren
Before my hon. Friend leaves my points, will he try to deal with the Page Committee's recommendation about index-linked bonds?
§ Mr. Nott
I shall be coming to that in just a moment.
I now wish to comment on the voluntary movement and the stamp. As my hon. Friend the Member for Billericay (Mr. McCrindle) knows, the voluntary savings movement is made up of more than 150,000 active voluntary workers in England, Scotland and Wales from all walks of life—industry, teaching, local government, banking, etc. The total membership of savings groups amounts to more than 5 million, making it the largest voluntary movement in the country. My right hon. Friend felt that consideration should be given to how its work should proceed in the future. He felt it right that it should continue in view of its very valuable work in the past.
The Page Report recommends that the stamp should be withdrawn from sale. This will need careful consideration in the light of the views of the voluntary movement, which we must consult. Although the stamp is widely used among certain sections of the public, with the more widespread development 1668 of banking schemes it is now playing a smaller part in the national savings groups system than it was.
Finally, I come to the whole question of index-linking which was raised by my hon. Friends the Members for Bristol, North-West and Billericay. Page recommended a modest experiment and recognised that the question raised issues well beyond his committee's remit. My hon. Friends will not expect me to advance all the arguments against index-linking, but it might be helpful if I indicate briefly why successive Governments have so far been reluctant to adopt index-linking.
The idea has obvious attractions, although the experiences of countries where it has been tried have not been very encouraging. I think my hon. Friends would agree with that. The objections are formidable. The implications of such a scheme are far-reaching and difficult to assess. We could not estimate in advance what the effect would be on future sales and existing holdings of conventional national savings, nor the extent to which institutions, both in the private and public sector, would follow the Government's example. Index-linking could become widespread and have implications, for instance, for the market for existing fixed interest Government debt. Before embarking on this road, we should want to feel sure that this would help curb inflation and not act as a further stimulus to it.
Nevertheless, there are recommendations in the Page Report for an experimental issue of an index-linked bond, and naturally we will consider them when we are looking into the whole of the report.
I am delighted that this opportunity has arisen to discuss a few aspects of the Page Report. The Government are conscious of the criticisms outlined by my hon. Friend the Member for Bristol, North-West. We set up the Page Committee with a view to looking into these matters in depth. We are now in the midst of our considerations of these detailed recommendations, some of which are very complicated. For example, the one about the trustee savings bank is extremely far-reaching. In due course, when we have consulted all the relevant interests, I hope that we shall be able to say something more.