HC Deb 25 March 1974 vol 871 cc239-48

1.43 a.m.

Mr. Evelyn King (Dorset, South)

This is a late hour at which to initiate any debate but the subject is such as to justify it. I want to talk briefly about the plight of the elderly. One may think first of the pensioner who has no savings and who may even be on supplementary benefit, but his plight has been debated many times and tonight it is not that subject that I have primarily in mind.

I want to speak of the retired person, pensioner or elderly person who has savings. His plight should have an especial claim upon our attention because every Government in turn have urged saving and therefore every Government must have some responsibility for what has happened to his savings. This is not primarily a party attack. I accept that all Governments have responsibility. I make a slight difference between the two parties. In so far as the Conservatives have hurt savings we have done so accidentally and apologetically, whereas I detect on the Labour side an attack upon the existence of a shareholder mainly because of misunderstanding.

I want to talk about the poor, the proud and the provident. I make no apology for saying that I have a particular interest in them. I represent Swanage, Weymouth and the Isle of Purbeck, which are full of such people. They are all along the coast. Let me describe the sort of couple I have in mind. They retired at about 60 after a lifetime's work in a big city and moved to the South Coast, buying a little semi-detached bungalow, and they have savings—let us say £12,000. Then years ago that sum would have brought in £600 a year. They had reason to believe, being provident, that theirs was the sort of style of life they could sustain for the rest of their days. They could run their little car, visit their children in it, have their round of golf and live happily ever after. That was what they were entitled to think.

Now let us see what has happened. The car was the first thing to go. To buy a new one now would probably cost one-fourth of what remains of their fortune. Even if they could buy a new one, with petrol at 50p a gallon they would have chance to use it.

The second item is the house. Even before last week their rates had doubled. In the last week in the Isle of Purbeck there is an increase in rates of 60 per cent. I resent that. I have reason to do so. I resent it not because I would not like to see all possible aid given to the centres of towns or cities, but because I cannot see why that aid should be paid for by retired people like those I have described. I cannot see why money should be taken out of that kind of area in order to be put into an area where men are often earning £30 to £40 a week. I see no logic in that.

Then there are people's savings. I postulated a couple who, after a lifetime of labour, might be rather proud of having saved perhaps £12,000. What would the Government have wished them, in the national interest, to do with it? To put it perhaps into Government stock? Which Government stock? If they had put it into War Loan—which is going back a long way—each £100 they put in would now be worth only £26. More probably the couple would have put their money into medium-dated Treasury stock—but every £100 put into that would be worth now only £60.

More likely still, they would have invested in some kind of equity shares—for example, the National Westminster Bank. If a year ago they had invested £12,000 in National Westminster Bank shares, their shareholding would now be worth £5,700. They would have lost more than half. I mention this because we get so much publicity about the huge bank profits. They may have made huge profits, but those profits have not reached their shareholders. Why? The reason is not far to seek.

We have heard all too often about statutory wage limitation but little has been said about statutory dividend limitation. I ask the House to understand that the statutory dividend limitation has limited dividends to an increase of just over 5 per cent. That means that the value of shares has been hugely reduced. That humble retired couple who had £12,000 now find themselves with £5,700, largely due to Government action.

One compares the plight of such people with that of the wage earner, who sometimes suffers hardship because of statutory wage restraint. But the wage earner is earning probably £30 or £40 a week and the hardship for him is minimal compared with what happens to a retired person living on savings that have gone down more than £5,000 in the example I have cited. This is appalling discrimination against the retired, against the elderly and against those who have no power to protect themselves when compared with the young and the fit. That is the major theme of what I have to say.

The Labour Party now has responsibility and authority. What are the Labour Government to do? We are told that statutory wage limitation is soon to cease. May we hope that the limitation on dividends of the kind I have described will also cease? If the Minister says that he does not want to help the rich, I shall understand that, but it may be that he does want to discriminate in favour of the sort of person whom I have been describing. Will he do so?

I understand the Treasury's difficulty having regard to the economy as a whole, but I understood both major parties to say that, whatever sacrifices they made of the British people, they would at least try to be fair. It is impossible to describe what has happened as fair. Many years ago the psalmist said: Put not your trust in princes. Any elderly person who has taken the advice of the Government—any Government—and placed the trust of his old age in savings recommended by the Government might well cry "Put not your trust in Governments".

There is much that the Government can do to help in this matter. They could help practically. They could probably help later today—Budget Day —although this debate is too late to influence that. More than that, however, they could help by being a little more careful with their words. There is a great tendency, not confined to the Labour Party, to talk about shareholders as though they were disreputable. For example, I was appalled to read of a child at Aberfan—more than £1 million was collected to aid the victims of that tragedy—who had been told with other victims what sort of amount would be placed to her credit. She now found that, owing to the limitation on dividends, she had been robbed of about one-third of the amount to which she was entitled. People who talk lightly of dividend limitation and who laugh at shareholders often do not understand the sort of person whom they hit.

Naturally my mind turns to personal reminiscences, and especially to widows. Only a week ago I was speaking to a widow in Swanage. She had a large house, far larger than she could afford to maintain. Ten or 12 years ago she and her husband had come to settle in the area. She explained how horrified her husband would have been, had he lived, to see to what she had been reduced. He had died happy in the belief that he had left a widow without worry or anxiety, he having had, in his context, a successful life.

Owing to the operation of events, the £13,000 or £14,000 that he had saved was worth half, and that only nominally, because, with the fall in the value of the pound it was worth much less. We are getting near 'to the point at which the people I have been describing will be in want unless they get national assistance. As I have said, they are the poor, the proud, the provident, and they will not easily ask for national assistance, because that is not their style of living.

These people—I can be safe in saying this without causing controversy—are the backbone of the country. They are the people who have had that degree of common sense and prudence which enabled them to look after themselves, or so they had reason to think. They deserve encouragement. I know that this Government—I am sure that this applies to all others—wish to encourage savings, but I find it hard, within my conscience, to make any speech asking people to save if this is the way the Government will treat them.

I ask the Minister to bear in mind the sort of couple, living often along the South Coast but no doubt everywhere, of whom, I hope, I have drawn a picture. I am sure that the hon. Gentleman will wish to treat them with that degree of sympathy which I suggest they deserve.

1.56 a.m.

The Financial Secretary to the Treasury (Dr. John Gilbert)

It is only right that I should congratulate the hon. Member for Direst, South (Mr. King) on his very moving speech and also on his good fortune in being successful in the ballot for Adjournment debates so early in the Parliament. I also congratulate him on his wisdom in raising so important a matter for the subject of his debate.

Having immediately congratulated the hon. Member on his good fortune, however, it is my unfortunate duty to commiserate with him on his ill fortune. It is not often that Treasury Ministers have the pleasure of replying to Adjournment debates, but, even given that, I should point out that there could hardly be a worse time to have a Treasury Minister at the Dispatch Box than about 12 hours before the Chancellor of the Exchequer is about to introduce his Budget Statement. I am sure that the hon. Member, who is well versed in these matters, appreciates that there is little that I can say by way of reply to him, except in generalities, which, while sympathetic, will, I am afraid, not give him very much of substance into which to get his teeth.

Having said that, I should say that I was in communication with the hon. Member before this evening's debate and he was good enough to outline to me some of the general lines along which he wanted to discuss this problem. I have had a little research done into some of the matters he raised.

The hon. Member talked at some length about the problems of the modest savers in retirement who had invested savings in equity shares and who found after a few years that unfortunately, quite apart from the question of inflation, their savings, far from rising to compensate for increases in prices, were falling because of fluctuations in share prices. I am deeply sympathetic to anybody who finds a fate of that sort overtaking him but, as the hon. Member recognises, it has never been part of the responsibility of any Government—I do not think that the hon. Member would wish it to be part of the responsibility of any Government—to guarantee anybody against fluctuations in the prices of ordinary shares of stocks in any company, let alone in a particular type of company.

I shall come to the question of bank shares in a moment, because the hon. Member spent some time talking about them. He will recognise that the essence of putting money into empty shares is that one is in a risk-taking position. The risk can go both ways. It is unfortunate that some of the hon. Member's constituents have had their fingers burnt by investing when the market was high and currently find themselves in a difficult position when the market is somewhat depressed.

Mr. Evelyn King

I am not for one moment complaining about anyone who makes an investment and the value of the security falls, if he is guilty of bad judgment. My complaint is when the value falls—I have bank shares particularly in mind—and no question of bad judgment arises. The banks were making huge profits, and the value of the investments fell because the Government said "You must not and will not pay more than a certain amount." It was the Government's responsibility.

Dr. Gilbert

I shall come to the question of dividend restraint presently. If I may take a closer scrutiny of the fluctuations of prices of some of these shares, I think I can demonstrate that the fluctuations have been in more than one direction.

When one looks at the fluctuations in the prices of ordinary shares, of bank stock over the last six years, one sees that some quite interesting and startling fluctuations show themselves. Taking the current price of the shares of each of the four major banks—the figures which I have are up to date to 21st March, at the close of business on Friday last—the National Westminster closed at 230, the Midland at 260, Barclays 250 and Lloyds 220. Those figures, with the exception of Lloyds, are above the low prices over the last six years and in two of those cases by considerable amounts.

In the case of the National Westminster, if one were fortunate enough to buy at a very low point in the market in the last six years, one would be holding a profit of nearly 50 per cent. In 1971 they stood at 160. With Barclays one would show a profit of nearly 50 per cent. They stood at 161 and are now 250. With the Midland, which were 235 in 1970, one would show a modest profit—

Mr. King

Of course shares have fluctuated. The point is that the National Westminster shares have fallen from 470 to 228 since the Government interfered by dividend limitation. What happened five years ago is irrelevant. There was no dividend limitation then.

Dr. Gilbert

I promise that I shall not evade the question of dividend limitation but I want to look at the question of movements in bank share prices. Banks have been liable, like all companies, to general Government intervention in economic affairs, and the Government manipulation in the general level of interest rates has affected bank profits.

I should say that if one bought one's bank shares at the top of the market, in the case of the four major banks, one would show a considerable loss. Probably the most serious loss would he if one bought Lloyds shares at 847 two years ago. They are now standing at 220. If one bought Lloyds shares in 1969 one could pick them up for 220 and sell them out at 847. I recognise that the sort of people of whom the hon. Gentleman was talking are not people who would trade in and out of the market. They would hold their investments for some time. Therefore, to that extent I should emphasise that fluctuations in the share prices are not relevant. It is the difference in yield which is important. Whether that is the most sophisticated analysis by which to approach the purchase of shares is another question, but I realise that that is the consideration by which many people whom the hon. Gentleman has in mind will be influenced.

Having said that, I want to come on to the question of dividend restraint and the effect that it may have had on share prices. It is arguable whether dividend restraint as such does not help to sustain share prices by forcing companies to reinvest the earnings instead of distributing them. Therefore, in generality—I emphasise, in generality—the effect will be to force prices higher, and shareholders can very often get their return out by selling off a small tranche of their shareholding, getting preferential treatment under the capital gains roof. I suspect that the reasons for the fluctuations in the price of bank shares have a great deal more to do with other circumstances than the question of dividend control.

The hon. Gentleman is right in saying that dividend restraint is a Government matter. The present policy was introduced by the previous Government. My colleagues and I will always be happy to listen to any representations on the subject, but here again I come up against the problem to which I referred at the beginning. We are already in Budget Day, and there is nothing more I can say about that general proposition. However, I should like to point out to the hon. Gentleman that the tax position of individuals holding shares which have been subject to dividend restraint, when one takes into consideration also the tax changes that have affected them, is not as bad as he suggested.

Let us consider an individual holding a certain portfolio in shares bearing dividends of £100 gross in 1972 and holding the same shares in 1973. If his unearned income was less than £2,000 a year—which is probably the sort of individual to whom the hon. Gentleman is referring —with savings of about £12,000, the following pattern would have emerged. In 1972 he would have had gross dividends of £100. Income tax of £38.75 would have been taken off, and he would have been left with £61.25. In 1973, in addition to the original £100, he would have had the £5 increase permitted under dividend restraint, which means that he would have had £105 gross. His income tax at 30 per cent. under the new unified tax system on £105 would have been £31.50. If that had been deducted from £105, he would have been left with £73.50. The comparison with what he had net in his pocket after tax would have been £61.25 in 1972 and £73.50 in 1973.

Mr. Evelyn King

Less inflation.

Dr. Gilbert

By all means, but that leaves a gain of about £12.25 on the 1972 figure, from £61 to £73. That is a net increase after tax of about 20 per cent.

Mr. Evelyn King

Less inflation.

Dr. Gilbert

I agree, but it covers the increase in the retail price index in the last 12 months. Generally speaking, even the small saver in retirement in that position would have been better off in real terms over the last 12 months and would not have suffered to the extent that certain other members of the community might have dole as a result of inflation. He would, of course, have been better off still if there had not been inflation— who would not?—but if the hon. Gentleman studies the effect of those two considerations he will see that the problem is not quite as serious as he might have thought.

The hon. Gentleman referred briefly to the pensioner with no savings and was good enough to recognise that he was even worse off. The Government's plans already announced, and shortly to be put into effect, for increasing the basic rate of pension will benefit the people whom the hon. Gentleman has in mind, whether or not they have savings. But even more so the plans which the Government have announced—I concede that at present they are only in outline—and to which they have committed themselves for future increases in pensions will take care of the general proposition which worries the hon. Gentleman.

The hon. Gentleman referred to the position of pensioners who had much smaller earnings than some industrial workers in his constituency or nearby. It is the Government's intention for the first time to introduce into pension law the proposition not simply that pensions shall be protected against increases in the cost of living, but also that they shall share automatically—not as a result of Government benevolence—in increases in the average national wage. Many of the hon. Gentleman's constituents, in time, will benefit from this.

No Government have been able to commit themselves to repay War Loan. The amounts involved are enormous. This is one of the risks that, regrettably, somewhat less sophisticated investors took when interest rates were much lower. One wishes that one could announce a redemp- tion date, but that is not likely to be my lot or anyone else's for the foreseeable future. It has been suggested that War Loan held for more than a certain period should be redeemed, but this would lead to injustice among those who bought at different prices, those who would make uncovenanted profits, those who had taken their losses and those who were still carrying them. It is virtually impossible to achieve equity between present and past holders of the stock.

This is a sad matter, as the hon. Gentleman movingly pointed out. My party does not attack savings. We take a jaundiced view of inherited wealth, but we draw a distinction between those who have earned a quiet and modest retirement and those who spend their days clipping coupons on the backs of the rest of the community. No doubt the hon. Member appreciates the distinction.

The hon. Gentleman could not have raised this subject more appositely to catch the Chancellor's ear. Whether echoes of our debate will reach him before he rises tomorrow is not for me to say. I gather that the hon. Gentleman has already appeared on television on the subject, when he had a larger audience than tonight, but not a more attentive one. I wish him success in his campaign, which I am sure—

The Question having been proposed after Ten o'clock on Monday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned accordingly at thirteen minutes past Two o'clock.