§ 4.4 p.m.
§ Mr. Norman Lamont (Kingston-upon-Thames)
I beg to move,That this House regrets the catastrophic effects of inflation upon savers and those on fixed incomes; and calls upon the Government to take positive measures to give both adequate protection and incentive to savers.My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), when talking recently about the plight of the middle income groups, coined the somewhat chilling phrase "the twilight of the middle classes." If he had been talking about the savings classes—a group which extends rather wider—perhaps he would not have use such romantic phraseology; there has been nothing as enchanting as dusk, twilight passed very quickly and night has descended because the effects of inflation have been very serious for people on small savings incomes and fixed incomes.
Bernard Shaw once remarked that the worst sin which could be done to our fellow creatures was not to hate them but to be indifferent to them. That perhaps has been the attitude of successive Governments towards national savings. Perhaps, judging by the exodus of hon. Members opposite from the Chamber, it is the attitude of Government back-bench Members towards people who attempt to save and put something by for the future.
I am a little apprehensive about the Government's attitude towards savers and people on fixed incomes. The Chancellor of the Exchequer was quoted in the Sunday Telegraph not long ago as saying:Oh, I never save. When I get any money I go out and buy something for the house.It is therefore not surprising that he and the Government have been so unsympathetic and indifferent to the plight of small savers and small investors.
Small savers and investors fulfil an important role in our society. Savings are at the heart of a free society. Whether one talks about financing Governments or financing private industry, it is the dispersion of economic power throughout our society which is achieved through the person of the small saver and small investor. Were they to be eclipsed by the 43 sort of inflation which we are now experiencing, they would have to be replaced increasingly by the large anonymous and impersonal institutions. The small saver perhaps would not put it like that, but he senses it and attaches much more importance to his savings and nest egg than he does to his notional ownership of a minute proportion of British Railways or some other nationalised industry.
However, the small saver is important not just for the economic role which he fulfils but for the qualities embodied in the savings class—the desire to maintain one's independence; the desire to forgo consumption for better things later on; the desire to put something by for, retirement. That is a habit which is ingrained in many people but it is seriously threatened by inflation, as the Chief Secretary remarked the other night.
The sadness is that perhaps savers are not always aware of their own plight. They are not always aware when they are not getting a very good bargain. People do not know the effects which a given rate of inflation can have on their savings over a number of years. They do not perhaps realise that if inflation continued at its present rate of 131/2 per cent. £100 would be worth £1 in just over 30 years. If it came down to 10 per cent. £100 would be worth £1 in something over 40 years.
Some people might draw a distinction between savings and investment. I wish to concentrate on the situation of those who regularly put small amounts of capital by for the future, whether into national savings or perhaps equities by some medium such as an investment trust. The mere fact that someone invests not in Government securities but in unit or investment trusts or in equity stocks and perhaps leaves the investment untouched for the future does not take him out of the category of the small saver or small investor. Of course, those people have been badly hit in the last year and a half, especially by the collapse of the stock market and by some of the measures that the Government have taken since they came to office.
Last week we discussed the investment surcharge and how it affected those over 65. I regret that that issue was not discussed at greater length, because 44 although only a small number of people are involved, I regard it as important.
The Chancellor, in his Budget Statement, took great pride in the fact that people with below average earnings were to be exempted from increased taxation. I cannot understand, if that is his desire in taxation policy, why he should have chosen to impose this surcharge on a group of elderly people whose income is only three-quarters of national average earnings. Many people in this group have not had the chance to join occupational pension schemes. They belong to a particular age group that may have been denied that opportunity.
I wrote a letter to The Times on this matter and received a number of replies from readers. Some pointed out that they had received lump-sum benefits in lieu of pension. Yet they now find that the money that was specifically given to them instead of a pension is to be taxed as unearned income, whereas if they had contributed to a pension scheme it would have been treated as earned income. That is an anomaly that is indeed difficult to justify.
I should now like to refer to one of several letters that I have. This one, which was passed to me by another hon. Member, comes from someone in London who states:My mother has her over-80 pension, a small annuity and some investments, all of which bring in just over £2,000 a year. The increase in income tax and lowering of the surtax starting point, the increase in rates, electricity and telephone, as well as everything else, will make life even more worrying just at a time of life when one is least able to cope or do anything about it. There must be many in a similar situation. I can think of four in my immediate circle... I cannot believe that Mr. Healey meant to 'soak us'. He surely is not an ogre.I am sure that that last sentiment is right, but one wonders why the Chancellor cannot appreciate that these people could not, by any meaningful use of the term, be described as "well off"
The Financial Secretary, replying to the debate on this matter in Committee on the Finance Bill, said that many people in his constituency were not as well off as this. One might say "So what!" They cannot be described as wealthy. What, then, did the hon. Gentleman mean when he said that many people in his constituency were not as 45 wealthy as that? Did he simply mean they were small in number and were therefore unimportant? Is it meant to imply that an injustice is any less because it involves a small number of people? Most of us would believe that an injustice is greater when it involves a small number of people.
These same people have already been hit by dividend restraint. The rate to which dividends have been pegged under he counter-inflation policy is half the ate allowed for wages and only just above one-third of the rate of increase allowed for inflation. I hope that when the Government review the counter-inflation policy they will pay attention to the argument for relaxing the control on dividends more in line with the increases in prices and with the increases allowed for wages.
If it is thought that as part of some social compact we must deal with the large private investor and must in some sense tax him, by all means put on a surcharge that will hit at the genuinely wealthy, but let us not have this blanket dividend control that taxes both rich and poor alike.
Another reason for arguing that consideration of dividend control is now overdue is the effect that it is beginning to have on many pension funds. Recently a conference of the National Association of Pension Funds reported that many pension funds are now moving into actuarial deficit in a year when pensions ought to be being increased to take account of inflation and ought increasingly to be moving towards inflation-proofing.
The same is true of some of the life assurance companies. They have been badly hit not just by the decline in share values, but by the control on dividends. The fact that the Scottish Widows' Fund and Life Assurance Society announced that it is to cut its terminal bonus is a clear indication of the seriousness of the situation. Life assurance does not belong to another world of rich people. It is one of the chief ways by which small savers put by money. It is an attractive method because of the tax relief concession and the discipline of the regular payments that are required.
It is important that the Government, in taking specific measures on dividend control, the freezing of office rents or the 46 development gains tax, should carefully balance their effect on the life and other institutions which look after the savings of millions of people.
We are long past the stage when these measures deal only with a far-away world —a world of people dealing in paper transactions which have nothing to do with the man in the street. The effects of some of the measures taken in recent months have been to hit the savings of the man in the street.
I do not wish to exaggerate the effects of the shake-out in the property world that has occurred in the last few months. However, it is worth mentioning that about £2,000 million of property investments are owned by State and private pensions. Obvously a group like the Lyon Group, which has been receiving a lot of coverage in the last few days because of its problems and which is not connected with any assurance company or pension fund, is by definition more likely to get into financial trouble. But there are others directly connected with pension funds and the insurance world. I hope that the Government will recall that the Chairman of Commercial Union recently said:The Government should take the greatest care when legislating against the so-called property speculators to avoid damaging and perhaps destroying the fruits of genuine property development. These substantially belong to a multitude of small savers who are fully justified in expecting that when they retire the fruits of their thrift will be there for them to enjoy.I hope that the Government will heed the warning.
So far in dealing with small savers 1 have dealt with modes of investment that apply mainly to the more middle-class, articulate and informed type of saver. I turn now to those at the other end of scale. I want to refer to the treatment of savings on our social security system and particularly the effect of supplementary benefits disregards.
The House will be aware that our supplementary benefits scheme operates on the basis that a claimant to benefit is entitled to have a certain amount of capital which is disregarded or not taken into account until it reaches a certain level. Those disregards or amounts of savings that a person may have before his entitlement to benefit is affected have not been increased for many years.
47 The Secretary of State for Social Services, when in opposition, used to press the Conservative Government very strongly on this matter, and quite rightly. I hope that she will bear in mind that, I too, from the benches opposite joined her in pressing the last Government on this issue. I hope that our coalition will not break down merely because she has transferred from this side of the House to the other.
One is allowed £325 without one's entitlement to benefit being affected. That sum has not been adjusted since 1966; to adjust it to compensate for inflation would mean raising it to more than £500. Surely it is time also to look at the notional rate of interest, the theoretical yield that these savings are meant to produce in order to deprive someone of supplementary benefit. For those with less than £325 in savings, the yield is meant to be 10.4 per cent. For those with more than £800 the yield is supposed to be about 26 per cent. Surely that is far too high a level in an inflationary age like this.
I can see the dilemma of any Government. If one is financing benefits which are not insurance benefits out of general taxation, obviously a person with a certain limited amount of capital should to some extent be expected to fall back on that as well as on the State, but I also see clearly that the rates and the limits of the disregards have not been increased for many years. That is surely long overdue.
Someone who has been thrifty is now told that he has to burn up his life savings in weekly expenditure. If he does not take that advice, and if by any chance a bit more income accrues to him and to his savings, the tariff, the notional rate of interest, begins to bite more deeply. Many elderly people also fail to report increases or decreases in their savings and, therefore, have to struggle with the Supplementary Benefits Commission or have to assert their rights; sometimes they have to struggle with repayments of over-benefit. The final irony is that many of these people who are confronted with reclaims of overpayment of benefit may have invested their money in Government securities and deprived themselves further of their savings.
48 There are several disregards that one could talk about, like, for instance, those affecting legal aid, and the particularly scandalous one affecting the invalidity pensioner, who is allowed only £4.50 a week before losing all entitlement to a pension.
Another group of savers who have received inadequate attention in the past are those who have put their money in building societies. All political parties are aware of the political articulateness and the demands of those who wish to buy, and own their own houses. What has perhaps been lost sight of in this argument is the conflict between the need of prospective home owners and the needs of investors in building societies
When I put it recently to the Secretary of State for the Environment that it was wrong that the investment rate for building societies should be pegged in order to peg the mortgage rate, he said that this building society rate was indeed competitive and that this was shown by the fact that a large amount of savings has recently gone into the societies. But', do not believe that the rates offered by building societies are competitive or fair considering the rates of interest available for other savers.
It is true that if one compares this building society rate with the 91/2 per cent in interest that is the limit imposed by Governments on deposits of less that £10,000, it does not compare unfavourable ably. But surely it is wrong to twist the whole system in this way, to impose this very limitation on deposit interest, when one knows that in the wholesale banking markets the interest which can be avail able for much larger amounts of money is 12 to 14 per cent. Successive Governments have brought about a system in which small savers have been expected to subsidise large savers. I find it difficult to justify.
National savings have been perhaps the biggest swindle of all; successive Governments, aided by inflation, have robbed people of their life savings. One is always suspicious about people who try to turn economic issues into moral issues. When they say that, they usually mean that they are about to take up a moralistic attitude. But I believe that this is an important moral question. It is a scandal to successive Governments that national savings should have offered rates of 49 interest which have eroded people's savings and reduced them almost to nothing.
If one had purchased national savings certificates in any year from 1951 to 1970 and cashed them in 1972, the yield in real terms would have been negative. One of the most chilling statistics revealed in the Page Report was that in 1970 total national savings—Treasury security certificates, bonds, Premium bonds, etc.—came to nearly £5,000 million, but in terms of 1950 prices, that was only £2,000 million. One hundred pounds invested in the old Post Office Savings Bank 50 years ago would be worth £310 in money terms today but in real terms it would be worth only £75.
Things move very slowly on the national savings front. It took 100 years for the national savings interest rate to rise from 2½ per cent. to 3½ per cent. One hopes that things are now beginning to move. I welcome the Chancellor's announcement in the Budget about improvements in national savings certificates and the Save-As-You-Earn scheme. But I hope that this does not mean that the Government will forget about the other recommendations in the Page Report, especially the suggestion that one should experiment with a small index-linked bond to see whether this could protect people's savings.
Despite the new issues of national savings, there are many outstanding issues. In December there were about £1,000 million-worth of outstanding issues which had passed their maturity date and were yielding only 5.5 per cent. net. I hope that we will also see the Government depart from the type of fraudulent advertising that we have seen in the past, with talk of a 25 per cent. profit on savings certificates, claims which, it could be argued, were in contravention of the Trade Descriptions Act.
I wonder whether the State has any business to be in the savings world at all. There is a conflict between the Government's role in financing the State's borrowing at the lowest cost and their rôle in trying to provide a means for people to save. I see no reason for continued State involvement. This is one area in which I would disagree with the Page recommendations regarding the trustee savings banks.
50 I also hope that the Government will consider the proposals about indexation. The views of the Treasury as put forward to the Page Committee were:Their current view was that the matter should be kept under constant review in the light of changing circumstances.Hardly an enlightening account of the Treasury's views on this issue.
Of course one sees the problems for any Government. Indexation of savings might lead to a flight from one type of savings into another. But one surely has to pay more and more attention to the increasing awareness of the public that over years and years successive generations investing in national savings have been swindled by the great tax collector of inflation.
I hope that this debate will do something to draw attention to the plight of savers of all kinds. Although inflation is still accelerating, savings have remained at a high level and Governments have continued to do well out of them. However, our savings ratio does not compare all that well with that of other European countries. Perhaps that is just the other side of the coin of our low rate of investment. I hope that the Government will remember that to weaken savers is to weaken society as a whole and that thrift is not a form of gullibility to be exploited by the Government. It is a personal and social virtue to be encouraged. That is why I tabled the motion.
§ 4.30 p.m.
§ Mr. Michael Grylls: (Surrey, North-West)
It is often thought that when we consider the plight of the older generation we are thinking of one section only of the population. My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has done a great service by drawing attention to the wide range of people involved. Relatively few retirement pensioners live on the pension alone. The reality is that a large proportion have supplementary pensions. There are about 1.7 million on supplementary pensions. The total number of pensions is about 7.9 million, so 6.2 million probably have other income.
The former Conservative Government and the Labour Government in the last few months have made enormous strides in improving the lot of the retirement pensioner in general and in improving 51 supplementary pensions. Government policies should and must encompass the plight of all pensioners, from whatever section of the community they come. By "all pensioners" I mean those with savings and those without savings. Those without savings have had their lot greatly improved in recent months.
Pensioners with savings income have been badly neglected and were struck a severe blow by the Chancellor in his Budget. It is not putting it too strongly to say that these pensioners have been positively discriminated against in the way the Chancellor dealt with them by taxation. My hon. Friend mentioned the recent debate on the surtax surcharge for those on £1,500 to £2,000. A person with an income of £1,500 a year from savings is not by any means one of the rich about whom the Chancellor talked before the election of taxing until they squealed. It is these very people that have been severely hit by inflation. People on such an income would consider it ridiculous and almost an insult to be told "You are amongst the rich because you happen to have been thrifty and put some savings in the bank."
§ Mr. George Cunningham (Islington, South and Finsbury)
So that the House can get a better picture, will the hon. Gentleman be good enough to tell us what percentage of people over retirement age have an investment income of £1,500 or more?
§ Mr. Grylls
This was dealt with by my hon. Friend the Member for Kingston-upon-Thames. The figure of those on savings income, which is a better phrase than "investment income", can be obtained from the Treasury. Hon. Members are entitled to stand up for minorities and say that they deserve to be looked after as well as the vast majority. Of course I am not pretending that there are millions with investment incomes or savings incomes of £1,500 a year. I do not believe that even the hon. Member for Islington, South and Fins-bury (Mr. Cunningham) would argue that these people should be considered rich. It is not right in times of severe inflation that these people should be attacked as badly as they have been attacked.
52 If efforts are to be made to help those who are retired—I repeat that the Government have rightly made such efforts— it should be made equally right up the income scales. Budgets should be for all the people and not just for the vast majority. This is not perhaps an exactanology, but it is as if the large pay increase which was rightly awarded to the Armed Forces last week had been given only to privates and their equivalents with no increase going to corporals, sergeants, captains, majors and other such ranks.
The Government should make up their minds whether they want to encourage savings. The Chancellor has rightly increased the first prize for Premium bonds to £75,000. It can be said that in taking that action the Chancellor has done the right thing and is encouraging savings at the right time. However, in the very next breath he attacks those who have saved in the past. This makes no sense, because the danger is that people will ask "Why should we save today when there is a faint possibility that in 20 years' time there will be another Labour Chancellor to make an attack upon savings?"
It is paradoxical that it is regarded as acceptable for someone to make a windfall by winning a Premium bond prize of £75,000 or a football pool prize or a large sum of money on horse race betting, whereas somebody who by blood, sweat and tears over the years has made savings month after month out of taxed income is penalised by the Chancellor.
§ Mr. George Cunningham
If a person wishes to make savings month after month on a regular basis during his working life, and if he is not in an occupational pension scheme, he can make use of the provisions of the Finance Act 1956 and obtain full tax relief on those contributions and then have the pension which accrues on retirement treated as earned income. The regular saver is perfectly well dealt with by present legislation.
§ Mr. Grylls
Such a person gets tax relief at the time of the savings. I am talking about what happens when he gets the income from the savings.
§ Mr. Grylls
I will not give way to the hon. Gentleman any more, because several of my hon. Friends want to speak.
I hope that the Government will come clean and say what their attitude is. Do they wish to attack the person who by hard work over the years has put by a little capital? People in this category are often small businessmen—shopkeepers, for example, who work very hard and take risk. I can quote the extreme case of Mr. Lyon, in the news at present, who was reputed to have assets of £40 million at one time, and saw his assets crumble to virtually nothing. However, we are not concerned with the Mr. Lyons of the world because, as no doubt the hon. Member for Fife, Central (Mr. Hamilton) would say, Mr. Lyon can well look after himself. We are concerned about those with a small amount of capital who have seen the Stock Exchange fall and dividends decrease, and are in a bad position. I do not know the exact figures but I suspect that there must be, if not millions, hundreds of thousands of these people with capital in the bank producing £1,000, £1,500 or £2,000 when they retire.
Even if the present Government are not particularly sympathetic to those who have retired with savings—if not from the Government's hearts, perhaps they should use their heads—the effect on investment will be very serious. During the period of the previous Government I had doubts about dividend restraint because that was the one way of discouraging investment. In the months ahead this year we shall see the resulting fall in investment.
Finally, I ask the Minister a direct question about a particular point that has been raised recently. There has been a report that the Government intend to introduce legislation to stop tax relief on mortgages on houses that have already been owned completely. This matter has been raised by the group called Age Concern. It concerns people who have taken out an annuity on a house that they already own to enable them to have a bigger income when they retire to supplement their pension. This is perfectly legal. It has been taking place for years. But I gather that there is a possibility of the Government stopping this practice. Perhaps the Minister will say whether this is a false rumour. I hope that he will be able to do that. It is important that 54 this matter should be clarified very quickly.
The Government would be wise to remember that they represent all the people. I believe that the hon. Member for Islington, South and Finsbury and I are on fairly common ground about the problems of the vast majority of pensioners. My hon. Friends and I today are seeking to draw attention to a very small but important section of the population, who are asking not for privileges but for fair treatment. We are asking that the Government should look after not just the very poor—which the Government have done, as the previous Government did—important as they are, and not just the powerful who are represented by powerful trade unions. They are important and they will be looked after. Today we are asking the Government to look after the elderly and their traditional savings, made throughout the years, because in the present situation they have been given very unfair treatment.
§ 4.42 p.m.
§ Mr. William Hamilton (Fife, Central)
I am glad that the hon. Members of the Opposition who have spoken so far have not been making too much party political capital out of this issue. All Governments since the war have been very vulnerable to the kind of charge and criticism made by hon. Members in this debate. The whole problem revolves around the continuous inflation that we have had, particularly since the end of the war.
The hon. Member for Kingston-upon-Thames (Mr. Lamont) will remember that in the last few months of the previous Parliament I raised repeatedly the question of the recommendations of the Page Report. I think that it is common ground among us all that the small, unsophisticated saver does not understand that his money is being eroded in real terms the longer he keeps it unspent. It is important for him and for the community that we should have savings on an increasing scale. Clearly, investment is paramount to the survival of our nation. Investment means increased productivity, which means an increasing standard of living—and that can be derived only from encouraging savers to save knowing that at the end of their days of saving those savings will not have 55 been eroded to the point of being virtually meaningless.
The hon. Member for Kingston-upon-Thames quoted parts of the Page Report. I want to quote Table 13, on page 154 of that report, which presents the figures in stark reality—figures which the ordinary unsophisticated saver simply does not understand. The ordinary saver thinks to himself, "My £100 of 1951 is now worth £210." In real terms in 1972 it was worth £94. Between 1951 and 1970 the sum had been eroded. Over the last three years, since the date of those figures given in the Page Report—since the 1970 figures—the value is bound to have fallen again. After 20 years or so, the saver's £100 of 1951 was worth about £95 at the end of 1972. In cash terms, of course, he would have got 113 pound notes for £100 saved in 1970. But he had been penalised to that extent over that period.
One can go through the Page Report and see that the small saver in particular has been robbed over the years. What I object to very much—I was about to say "slightly" but it is more serious— is the comment of the hon. Member for Surrey, North-West (Mr. Grylls) when he talked about the Government penalising people who had £l,500-a-year in investment income. I do not know where such people live. Not many of them live in Central Fife. If they live there, they will not vote for me. An investment income of £1,500 a year means savings of at least 10 times that figure. On a presumed return of roughly 10 per cent., such people must have savings of £15,000.
Later today, or, perhaps, early tomorrow morning, I shall have an Adjournment debate about nurses. I wonder how many retired nurses have £15,000 of investments on which they receive £1,500 income annually?
§ Mr. Grylls
I was not making the point with regard to nurses, because everyone will agree that a nurse is of far greater priority than someone with an investment income of £1,500. I was saying that someone receiving £1,500 a year was not a rich person. That is the only point I was making.
§ Mr. Hamilton
It depends. I do not know the kind of world in which the hon. Gentleman lives. In my part of the 56 world such a person is extremely rich. I represent miners, nurses and agricultural workers, none of whom has any hope of getting a fraction of that kind of investment income. The biggest savers in my constituency will be damned lucky if at the end of 50 years of working life they have more than £2,000 or £3,000 of savings, which means an investment income of perhaps £1 or £2 a week. Let us understand, therefore, the kind of people about whom we are talking and about whom I am concerned.
The hon. Member for Surrey, North-West could not answer the question asked by my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) about how many of these people had that kind of investment income of £1,500 a year. That is £30 a week of investment income. The people about whom I am talking do not receive that sum as a living wage. There are hundreds of thousands —certainly thousands in my constituency —who have not got a take-home pay of half that sum. I should be the last person in the world to criticise the Chancellor of the Exchequer for taxing people who receive investment income of £1,500 a year.
§ Mr. Terence Higgins (Worthing)
The hon. Gentleman should put what he is saying against the fact that average industrial earnings are now about £42 a week.
§ Mr. Hamilton
I accept that. But the hon. Gentleman must for his part accept that in large parts of the country earnings are vastly below that level, and people with £l,500-a-year investment income have not been on earnings of that sort. They could not have £1,500 investment income if they had been making average earnings throughout their life. They will have been on far larger incomes than that to have that sort of investment income.
Therefore, when the hon. Member for Surrey, North-West refers to such people, he is thinking of those who have been very comfortably off for the whole of their lives. Of course, they are suffering, but their suffering is infinitesimal compared with the experience of the people whom I represent.
§ Mr. Michael Alison (Barkston Ash)
The hon. Gentleman is making an important point in trying to show, from his point of view, that £15,000 as a lump sum 57 is way beyond the means of many of his constituents. But does he realise that with the current yield on British Government securities a person would have to save only £6 a week for 20 years to secure a £15,000 lump sum? That is not a particularly extravagant saving to make out of average earnings of £30 or £40 a week.
§ Mr. Hamilton
That shows the enormous gulf between the language which hon. Members opposite use and the language we on this side use. If the hon. Gentleman came to my constituency and said that it was a reasonable assumption that people were able to make, and were making, savings of £6 a week, he would be laughed out of court. They simply cannot do it.
I had a group of nurses come to see me in this place this morning. Three of them, from the Bethlem and Maudsley Hospitals, tell me that they are all in the red in their bank accounts. Yet they are doing marvellous jobs. The hon. Member for Barkston Ash (Mr. Alison) was responsible for the service which allowed that kind of thing to go on. Nurses are dis-saving, not saving £6 a week. Agricultural workers are not saving. Miners are not saving, even with the increase which they have had. One could go through the list of industrial workers and many professional workers, too. Not many teachers would claim to be saving £6 a week. The hon. Gentleman is talking a foreign language.
§ Mr. Hugh Dykes (Harrow, East)
I do not deny what the hon. Gentleman says. There is enormous sympathy on these benches—indeed, on both sides of the House—for the low-paid categories, of which nurses are a very good example, and I hope that something will be done for them as soon as possible. But will not the hon. Gentleman agree that the way in which he is presenting the argument—I accept that some of it is valid —shows where the underlying fault is and serves to emphasise how important it is that all saving, including saving by the small saver, should be encouraged? One of my hon. Friends was perfectly right to make a comparison with average industrial earnings. The case is well made with reference to all savers, including those whom the hon. Gentleman would regard as having a fairly substantial unearned income.
§ Mr. Hamilton
I agree that all savers are suffering basically from the effects of inflation, and the smaller the saver the less sophisticated he tends to be. He gets his children to buy savings stamps at school—the biggest fraud we have in national savings—yet we encourage it and up to now we have not paid sufficient attention to the Page recommendation that it be scrapped.
Before this series of interventions, I was about to say that the Government were currently in discussion about what to do regarding implementation of the Page recommendations. I take it further than that. They must do something to protect less-informed savers—which means small savers, not savers at the level to which the hon. Member for Surrey, North-West referred.
Page recommended that there should be an index-linked security. At the same time, however, it put the counter-arguments. Implementation of that idea is not as easy as might be imagined. In paragraph 566, the Page Committee said:If a Government were to issue an index-linked security it would, by so doing, severely damage its own efforts to contain inflation, because it would be acknowledging the possibility—or even the probability—of its own failure ".The committee went on to say that it thought that there were weaknesses in this argument, directing attention to paragraph 578 where it set them out. Further, in paragraph 566, the Page Committee said that experience in other countries of this kind of security was not particularly good. However, in its recommendations, it said that the Government should look at the idea anyhow. I hope that that will be done.
I agree with the general proposition that the only way to safeguard the small saver is to get on top of inflation. All Governments have committed themselves to doing that, but none has so far succeeded. The list of ways to go about it ranges widely. The present Government are doing it through a variety of measures —food subsidies, the social contract, or compact—whatever it is; I am not quite sure. [Laughter.] Hon. Members may laugh, but they were in complete disarray on this matter, and the people gave their answer at the last election. They did not approve of the policies which the Conservative Government were pursuing.
59 Certainly, inflation did not slow down under the Tories. Whether it will slow down under the present Government depends on a variety of factors, many of which are outside the control of any Government. But one can only do one's best, and this is where the solution to the problem lies—not in trying to devise an inflation-proof bond or security but in getting on top of inflation itself. It is much too early to judge this Government on that score, however, and I am glad— I hope that other hon. Members will take the same line—that those who have spoken so far have not sought to make a great deal of party-political capital out of this matter. It is of supreme national interest that we get on top of inflation. That is the only way to protect the small saver.
§ 4.57 p.m.
§ Mr. Richard Wainwright (Colne Valley)
It will be a sadly lost opportunity if the House allows itself to be sidetracked by the hon. Member for Surrey, North-West (Mr. Grylls) into confining this debate largely to a specific type of saver; that is, the saver with an investment income of about £1,500 a year. I recall speaking in the Finance Bill debate on the same matter, and I hope that we shall not take that line now. The motion, so admirably phrased and so thoughtfully introduced by the hon. Member for Kingston-upon-Thames (Mr. Lamont), refers to savers—all savers. 1 shall base my argument on the hypothesis that we are talking about savings as a store of value and that we can forget about investment income, considering interest only in so far as it offers some offset against the erosion of inflation.
My proposition is that it is a fundamental duty of the Government to maintain for the citizen of normal means a store of value, just as it is the duty of Governments to preserve the standard of weights and measures and the like. It is their duty so to arrange matters that the ordinary citizen of modest means may provide for himself a store of value on which, give or take a little, he may depend for a lifetime. That was certainly not achieved by the Conservative Government. Indeed, 1973 was the blackest year ever for saving of any kind in this country since currency was introduced, 60 and 1974 does not look like being any better.
I am particularly concerned that the Government should draw no complacent comfort from a temporary and, as I find it, inexplicable rally by national savings in the month of April. We all know that corporately—I am not speaking of the Minister—the Treasury has a hard heart, and there is a danger that, after the improved April figures, it may feel that it can turn over and forget about the Page Report for a little longer. I hope that this will not happen.
The Treasury should feel ashamed of the rally in national savings in April because it shows that a large number of worthy people are still being grossly misled by national savings advertisements. It is astonishing, after the Chancellor quite properly stated in his Budget speech that current issues of savings certificates and savings bonds are out of date and not a satisfactory investment, that during April no less than £7.2 million of out-of-date savings certificates offering a return over the period of only 5.73 per cent. were actually bought by the gullible British public. By waiting until early June they could have received savings certificates with an advertised return of 7.59 per cent. tax free. Similarly, no less than £1.2 million of the old savings bonds, which are to be replaced by a more realistic issue very shortly, were sold during April. It is a matter for regret that so many people should have fallen for a form of saving which is markedly vulnerable to inflation. In that respect the Government, like their predecessors are falling down on their duty of providing a store of value for people of modest means.
The hon. Member for Kingston-upon-Thames referred to the restriction introduced by the Conservatives last December on the interest permitted on deposit accounts with the clearing banks. The limitation is of interest at 9½per cent. on deposits of less than £10,000. I refer to them not out of any concern for interest on money but because the ½per cent. is a most inadequate protection against the loss of value of the capital sum deposited with the bank. People who cannot afford to leave more than £10,000 with the bank are obliged to see their savings eroded by a rate of inflation 61 which is markedly in excess of the maximum interest which the banks are allowed to pay.
I am disappointed that so far— although there is still time for hope— the Government are doing no better in dealing with this injustice than their predecessors. The Paymaster-General wrote to me on 16th May and indicated that the removal of this restriction might make the building societies' position more difficult to sustain. He held out, without any commitment his personal hope that eventually it might be possible to get rid of the restriction, and we Liberals say "the sooner the better". It discriminates most unfairly against people who have a comparatively modest sum to deposit with the bank. It also highlights the most unfortunate and widespread impression that a building society investment is a good one for every type of saver.
It cannot be emphasised too often that an investment with a building society is a poor bargain for all those who do not pay income tax on virtually the whole of the interest that they receive under a normal calculation. The Department which deals with consumer protection should do more to bring to the attention of small savers the poor bargain they are getting if, as non-income tax payers, they invest their money with a building society. No matter how valuable the results of saving may be for home ownership, the national economy or anything else, it is hopeless if saving is to be induced by semi-fraudulent methods, and the sooner there is a return to higher standards in these matters the better.
I take issue with the hon. Member for Fife, Central (Mr. Hamilton), who said that it was more important to get on top of inflation than to adjust the provision for savings to the inflation that now exists. For many years I shared his point of view thinking that it would be dangerous to come to terms with inflation and that the major task was to get on top of it. However, in my opinion inflation has now reached such a serious stage that it is not fair to those with only a short expectation of life to be told that they must wait until inflation has been brought under control.
There should be urgent investigation into the provision of index-linked bonds, and in the meantime artificial restrictions 62 on the amount of interest small savers can derive should be abolished.
§ 5.6 p.m.
Mr. Robert Banks (Harrogate)
I welcome the chance to speak in the debate because I feel that the retired people are the most severely affected by the inflation which has eaten into their savings. I have a very simple view about retirement savings. The average person wishes to see his capital retained and to receive a reasonable amount of interest from it. That, quite simply, is what we must strive to achieve. Many people play the markets with their capital. They go either for a fixed rate of interest or a fluctuating rate of interest by varying their investments from one company or one source to another. It is the Government's responsibility, however, to deal with the problems of inflation and to bring it under control. Inflation is eating into the value of people's capital and that breeds insecurity which causes so much worry to people in the later part of their lives.
It is vitally necessary for the Government to grapple with the problem and, while bearing in mind the needs of wage earners, to remember, too, the people who rely on incomes from small investments. A person on a pension lives to a certain standard of living, and is in most cases dependent upon the income from investments saved over the years. The erosion of the value of the income hits him in two ways. He sees his capital reduced daily by inflation and the purchasing power of his income correspondingly reduced. The Government must discover a positive way in which they can help such people. The Government should seek to evolve a scheme to compensate them for the inflationary effects on our currency. Their savings invested with companies, building societies or whatever cannot offer a compensatory factor for the devaluation of currency by inflation.
I propose, therefore, that we should go for a new type of savings unit called, perhaps, a retirement unit. It would allow people over the age of 50 and not earning, or over the age of 60 for women and 65 for men who have retired, to purchase units of up to £100 each to a maximum of £25,000. I do not present this as a cast-iron solution and I am not seeking to introduce a Private Members' 63 Bill, although my suggestion could suitably be introduced in that way. The maximum amount could be varied. Each unit would be paid an amount of interest equivalent to the average amount of interest paid by the banks on deposit account over the past five years. That would enable a rate of interest to be struck that would take into account the good years and the bad years.
Interest for each unit at, say, 8 per cent. would be paid on 25th March, quarter day, each year. For simplicity's sake, and to cut down the cost of administration, that type of unit would be calculated to the nearest quarter day after the date on which the unit was purchased.
In addition, an amount would be paid to compensate for the fall in value of each £100 unit. That second payment, which would vary from year to year, would maintain the value of the original £100 placed in the unit. The payment could either be made to the holder of the unit or retained as a separate extra unit of, say, £5 in value. We must have a unit of a rounded monetary value. The second unit could be retained with the original capital unit to earn interest.
Interest would be subject to income tax in both cases. Whenever the second unit, the unit to compensate for the devaluation of the original unit, was paid out, it would rank for income tax payable by the owner. If the owner left it to someone in his will, it would rank for the standard rate of income tax.
We need to produce a system of that sort, which could be an extension of the national savings scheme. I am not particularly enamoured of the national savings scheme as it exists today, but the system could be administered through the same channels.
Such a scheme would be a positive approach to dealing with the problem of people who rely on the income from their reasonable investment. They would see that their capital would not be eroded by inflation, and that they had a chance of a reasonable and fair return at an average rate on the amount of money they had put by.
Many people have the problem of making ends meet although they have been diligent over the years in saving to try to provide for their old age. They feel 64 that they have a little put by and they calculate how they wish to live with the income they receive from their investments. Many such people are harassed today and are having to reduce their standards because of the problem of inflation that has been with us for the past two or three years. They see no hope of being able to switch to other investments which can compensate for this inflationary factor, which is eating into their income, their standards of life and what they have to look forward to.
The future is grim for them. It is one of constant anxiety about whether they can afford to carry on and whether they will be left with any capital.
§ 5.14 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I do not approach the subject in any way wishing to debate with the hon. Member for Fife, Central (Mr. Hamilton), the last representative of the Labour Party still to be present, the merits or demerits of egalitarianism. I would say to him that many of my constituents who suffer the burden of rising mortgage interest rates, the colossal increase in rates, the limitation upon their incomes under stage 2 and stage 3, and the rising prices and taxes under the Budget, might well be much worse off already than any of the hon. Gentleman's constituents, who are beneficiaries of the recent miners' pay claim. On top of that, those of my constituents who receive part of their income from shares, Government stocks or other forms of investment have not only had no increase but have suffered a loss in value.
Egalitarian debates are much better carried out on a budgetary occasion or during the passage of the Finance Bill. But I do not want the hon. Gentleman to get away with the idea that all those with investment incomes are rich and all those who live on wages are poor, because the reverse is true.
There is another way of looking at savings and investments, which is from the point of view of the economy. Apart from my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), who opened the debate, and others of my hon. Friends, the great weight of the speeches from the other side of the House has not been directed to the economic advantages of saving among the people. It is in that respect that I should like 65 to discuss investment and saving, irrespective of the amount which any particular individual may or may not receive.
Of course, all those who have said that inflation is the cause of our ills are right. Nobody would dispute that. It is the appalling effect of inflation upon fixed interest saving that is perhaps the worst feature of the debate which my hon. Friend so rightly initiated.
Over last year the market value of gilt-edged securities went down by £3,000 million. In saying that, I am taking the same group of securities and ignoring maturities and new issues. I had down a Question to the Treasury on the subject ready for this year's Budget. It is as relevant to quote the figures to the new Chancellor of the Exchequer as it would have been to quote them to the previous Chancellor. There is still another £15,000 million in gilt-edged to go. There has been an actual decline in capital value, although the income of those who hold the securities has remained the same.
National savings certificates and bonds have been mentioned. They have gone down a great deal in real value. The rates of interest are still trifling compared with what can be obtained if the money is liquid and invested in whatever is the current right investment.
I think that it was the right hon. Member for Birmingham, Stechford (Mr. Jenkins) who introduced Save-As-You-Earn. Many people, including many Conservative Members, said at that time that the terms were too generous, that the Government should not have to pay so much to attract savings as was involved in that scheme. I must confess to having been a mug on the basis of that advice. I joined the scheme myself. I have done the five years, and accumulated £600 savings. I did a calculation to see whether it paid me to wait for one year and receive a further £120 tax-free or to wait for two years and receive a further £240 tax-free. Those figures represent 20 per cent. per annum tax free.
Although I do not think that I can do better by investing my £600 anywhere else, I would point out that with inflation running at 15 per cent. and the current rate of interest running at 10 per cent. I ought to be receiving not 20 per cent. but 25 per cent. Therefore, even to keep my Save-As-You-Earn money with the Government for another year or two 66 would involve me in a loss of both value and income. It is a pretty parlous state, when we add the falls in property bonds and the equity and the property market, and when we see the extent to which those who have saved, or who have had money which they have invested, have suffered from roaring inflation.
Another matter which must be considered is the life assurance policy. There was a time when to take out such policy and to receive a capital sum at the end of 10 or 20 years was an attractive thing to do financially. In addition to the capital sum, a person enjoyed tax relief. However, with current rates of inflation, the sums which life assurance policies will yield will be derisory compared with what it is necessary to receive even to retain the real value of the investment. If confidence in life assurance policies were shaken too, saving would take a further knock.
The extraordinary thing is that people continue saving and continue buying Government securities, saving certificates and bonds. It is a fraud, as many hon. Members have already said. The extraordinary thing is that the national savings movement has begun to realise it. I had a letter today from Sir Robert Bellinger which I expect all hon. Members have received. It says:Throughout this conference much concern was expressed over the promotion of fixed-interest saving with inflation at the present level, although delegates expressed confidence in their ability to develop a viable future role in the expectation that Government will control inflation or protect the purchasing power of investors' savings.That is the covering letter, and much the same thoughts are engendered in the motion.
How can it be that members of the National Savings Committee are justifying their continued worthy, voluntary and busy activity only in the belief that somehow or other at this late hour the Government will stop inflation? It is assumed from that sentence that if they did not believe that the Government were going to stop inflation not only would they cease to sit on the National Savings Committee and promote national savings but it would be positively fraudulent for them to do so. That is because they know that they are taking people's money and giving it to the Government at rates of interest which are scandalously low and 67 with capital surrender values which are not inflation-proof.
The members of the National Savings Committee are in a dilemma. They must ask themselves whether they should continue to do their work. The Government are in a dilemma, and they must give the answer for themselves. They must decide whether they should still ask people to con the public for their savings. If the Government wish to protect people's savings and if the National Savings Committee wishes to do so, let the committee put its savings into a Renoir, old Hyde Park Gate, or some desirable property or work of art which might conceivably continue to keep its value. But that is no good. We know that that is not practical. From there we come up against the dilemma that practically every form of saving becomes a losing asset with the present rates of inflation.
I shall argue that there is a way out; namely, the method that has been adopted in Brazil. If the saver were to understand what is happening to his savings he would not go on saving or lending his money or investing it. We are now passing Brazil in the acceleration of our rate of inflation. The rate of inflation in Brazil is decelerating. As we pass briefly on the escalators—the United Kingdom going up and Brazil going down—we might ask what Brazil has done.
The answer is that Brazil has indexed practically everything. It has progressively reduced the growth of the money supply over the whole of the period, little by little. During that process it has indexed practically everything—for example, gilt-edged securities, Government stocks, deposits at banks and building societies, social benefits, low wages and pensions. I add to that list two other factors that we might index, namely, the base rate for calculating capital gains and the levels for calculating depreciation in industrial firms. We could also index the declaration of industrial and commercial profits.
It must be remembered that we must keep people's confidence. We must keep people confident during the process of deceleration that they can still save, invest and make a profit. They must feel that they are not certain to be taken for a ride as has happened in the past. Not 68 only would that protect those who in the past have continued investing and saving to help the national effort—and God knows that they are in need of protection by now; they have suffered enough already—but it would enable the necessary monetary and fiscal action to be taken without causing further panic and further flight from the major sectors of economic activity.
Further, the Government should take the recommendation contained in the Page report and produce an index-linked bond. That is urgent and overdue. If that could be extended to many other forms of economic investment, in due course we would begin to build the framework in which deceleration from the current horrifying rates of inflation would become possible. The whole House will expect the Minister to tell us that such a bond is on the way. The need for that type of bond has been represented by many of my hon. Friends. Something of that sort must be done.
If such a bond were introduced a major switch from existing investments could be expected. If there were a switch from one form of Government investment to another, so be it. I realise that an index-linked bond would cost more. We would have to pay more interest to those who bought the bonds and we would have a bigger liability when they took them out. However, that is as nothing compared to the need to secure confidence that the existing commercial and financial system of Great Britain will continue and that people will continue to behave rationally.
I believe, as I said at the beginning, that some of my constituents are reaching the stage when they believe that it is better for them to spend than to save, and when they despair of seeing a future for their own economic activity within their own lives. To them inflation seems to have reached the stage where there is no hope of solving their problems by using the democratic process and the system which we now operate.
§ 5.28 p.m.
§ Mr. Hugh Dykes (Harrow, East)
A lot has been said already and I could incur without difficulty the charge of being repetitive. That accusation could be made justifiably because of the quality of the debate.
69 Although the hon. Member for Fife, Central (Mr. Hamilton) exhorted us all not to be party political, I must echo my feelings of depression and sadness that, despite the fact that this is Private Members' time and despite the fact that this has been an extremely interesting and worthwhile debate, there has not been another permanently ensconced Member on the Government benches during the debate apart from the hon. Member for Fife, Central. The reality is that the Government are only temporary and it would be easy to refer to them as the Opposition.
The fact is that Government back benchers have not been present today. If I were a small saver in the constituencies of many Government hon. Members and if I did not have the chance of listening to the debate as it took place but only read about it later, I would be utterly depressed and indignant that Government hon. Members did not regard small and hard-pressed savers as being deserving as a collective member of the community. But of course they are. There is plenty of evidence of genuine hardship in this sector—hardship which the traditional ethos of the Labour Party rejects out of hand and pays no attention to.
The hon. Member for Islington, South and Finsbury (Mr. Cunningham) came into the Chamber briefly, tried to argue with my hon. Friend the Member for Surrey, North-West (Mr. Grylls), and, when he did not succeed in prevailing, went out again after only a brief interval. I have the misfortune to reside in the hon. Gentleman's constituency. When I come across small savers throughout the country I shall bear in mind his attitude because it reflects and sums up the prevailing attitude of the Labour Party. I hope that that attitude will not be reflected by the Paymaster-General. I am sure it will not be, because he is much more responsive to these problems, both as a Minister and as a person, in a way quite different from the collective attitude of the Labour Party, which is so dispiriting.
There is so much evidence not merely that small savers have had a tough time but that we have reached a crisis stage in inflation and in the situation of small savers. I add my congratulations to those already bestowed upon my hon. Friend the Member for Kingston-upon- 70 Thames (Mr. Lamont) on initiating the debate.
In chancelleries in South America, during conversations with members of the British Foreign Service, no doubt protests have been made by South Americans at the use which so many people in this country still glibly make of the term "A South American rate of inflation ". It is really rather disgraceful that we should do so in view of our own rate of inflation, which the South Americans might well call "La inflacione Inglesi". It is a rate of inflation which bids fair to outstrip not only the rate of inflation in Brazil, as has been suggested, although one has to be careful with these statistics, but that of every other Latin American country as well. The fact is that the old music hall joke has been turned on its head and we have the embarrassing task of finding methods of tackling the grievous and horrible problem of inflation which for so long we associated with other nations.
I want to read a short passage from a book dealing with the period from the beginning of the 1950s to the middle of the 1960s. It says:The period of increasing saving in the decade and a half has also been a period in which the value of money has fallen fairly rapidly, a period moreover which has been punctuated by phases of acute public consciousness of inflation and of fear that it had come to stay.A United States Secretary of the Treasury is reported as having said that either the fear or the fact of inflation would in the long run lead to a shortage of savings to finance investment in plant and equipment that was essential to economic growth.I quote from that book with some trepidation because it was written by that rather controversial person, Mr. Enoch Powell. It is called "Saving in a Free Society ". It was issued, I believe, in the mid-1960s. At that stage, judging by the book, there was a psychological feeling about savings and a lip-service to them. The book was probably one of Mr. Powell's least controversial utterances. It was written several years after the beginning of the boom on the Stock Exchange in industrial shares, which really got going in 1958 and 1959 as a result of the unconscious acceptance that industrial shares were at that stage the only real protection against the ravages of inflation. I use the word "ravages" 71 but it is wryly amusing to realise that one was talking in those days of a rate of inflation of 2½ to 3 per cent.
The stock market then took ample care of savers, both large and small. The result was that those who were able to accept and realise that they were being "conned", even if it was not the deliberate intention of the State so to do, about the traditional long-standing media of investment and saving—national savings and so on—were able to protect themselves increasingly as more and more of them studied the financial journals. Even small savers, whom one might regard in those days as being unsophisticated in comparison with the grand capitalist class, were able to "hedge", to use the technical term, and protect themselves in spectacular fashion.
But those days are over and here we come to both the root cause and the symptom of the crisis. The fact is that the rate of investment, of net domestic capital formation, is grotesquely low in this country in comparison with that of other countries. There is an absence of saving in sufficient quantities to provide for the future. Instead, and largely the cause of it, we have enforced saving by the State in higher taxation, itself a factor in inflation. Time does not permit me to go into all the other dangers associated with inflation—social unrest, and so on. But we undoubtedly have to go into the situation with great thought and care.
One is always reluctant to burden the House with too many statistics, but one should recall, from the mid-1960s to the present day, the movement in the various parameters of saving in our society. I take them from the April 1974 edition of the Government's own financial statistics, dealing in terms of net acquisition of financial assets from 1968 up to and including the 1973 calendar year.
There has certainly been a progression. Savings rose from £692 million to £1,460 million. That is net acquisition of financial assets after all other transactions have been taken into account. But, flipping further through this interesting, encouraging but nevertheless sobering document, one sees the ways in which savings have been deployed and to which media they 72 have gone during this not excessively long period.
In terms of national savings, there has been a continuous dis-saving and disinvestment. In Premium Savings Bonds however—the great gambling arrangement of which we are so proud—there has been a continual inflow of funds, reaching £53 million last year. While there was a reasonable figure for the trustee savings banks at the end of the 1960s, there has been a decline in the net injection of private savings funds into them since that period.
On the other hand, despite what my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) did as Chancellor of the Exchequer to reduce personal tax rates, taxation—a scourge and scandal of inflation—has taken an increased amount. Institutional and collective forms of savings have also attracted savers as individuals. For example, the net acquisitions of superannuation funds rose from £598 million in 1969 to £1,340 million in 1973. A similar story is to be found in acquisition of insurance policies, and so on. One has to be cautious about statistics, of course. I am not being discourteous about the Government services here, but one often finds enormous balancing items at the end of each table.
But the overall picture is clear. In this country there has long been an historical propensity to save. In studying the past, one is impressed by the spirit and actuality of thrift among our people at all levels, both small and large savers. This has been eroded to an alarming extent, and the State has a severe and overriding obligation to find ways and means of dealing with these grave problems. Our society faces all sorts of as yet unnamed horrors until we can grapple with inflation.
I agree with the hon. Member for Fife, Central when he says that that is much more of a priority than the various technical ways of tampering with the rate of inflation. I am not doctrinal in any sense on this issue, not rampantly for or against using the various kinds of Government savings media available, for it may be a good thing in some respects to use Government media. However, although I hope that the hon. Gentleman will forgive me if I inject a note of doubt, I for one do 73 not accept, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) accepted, that the movement out of other savings media, or other State-administered or State-operated media, can be viewed with equanimity and calm, for a substantial number of problems are raised.
None the less, although the overriding problem of the State remains to comfort people and provide genuine consolation and solace, the Government should look again—and I am not making any party political point in the short-term sense—at the rates of personal tax and at the absurd distinction between so-called unearned and earned income. We made that attempt when in office, but the present Chancellor has reversed the trend. I trust that we can get away from such distinctions in our society, and I hope that the Government will at least consider the whole situation again.
I am not speaking in any flippant or cavalier sense when I say that that attitude is reflected in institutions such as schools in the London area. The schools that I have visited in detail in my own area and elsewhere do not show any inculcation of the spirit of saving and thrift. They may be correct in that, for what is the point of saving when inflation takes some and taxation takes the rest and when there is a hostile ethos in society against the activity of saving? It is another of the dispiriting factors in saving in our society that there is no rationale, no spirit of saving, in the schools, that they play about with saving stamps, but that is a mixture of a form of amateur stamp collecting and playing Monopoly, and there is no way of knowing whether the masters and mistresses entrusted with this task are fulfilling it with the relevant degree of consciousness and conscientiousness. Overriding that attitude in the schools is the fact that the attitude of the rest of society is against saving.
The hon. Member for Fife, Central did a disservice when he immediately sought to transcend and colourise the image of the small saver that is in the minds of most hon. Members, the classical image, by making comparisons with nurses and perhaps with radiographers and other important and deserving sections of the public service. I would stand with any in espousing their cause for better treat- 74 ment, and, incidentally, better conditions, which are often as important. But that is to move away from the problem of providing new encouragement for small savers.
I echo what was said about the limit of £1,500 of "unearned" or saved or invested income for tax allowances for pensioners. Allowing for the accretions of value that have occurred in the past when people were able independently to deploy their money, whereas nowadays inevitably, through no fault of their own, they are just like rabbits staring into the headlights of the fast-approaching vehicle called accelerating inflation, the sum of £1,000, or even of £1,500, invested or saved income does not represent much capital over that period.
I believe that the Labour Party's philosophy will become increasingly clear to members of the public who will find that they are not able automatically to save and that as time goes on the public will become increasingly disillusioned as they see the effects of that philosophy. However, despite that philosophy and despite the Government's political orientation, I hope that they will recognise that they have an obligation to the whole community, and I hope that the Paymaster-General will not make the kind of response that one expects from Ministers speaking in Private Members' time on these occasions. I am sure that he would not do so personally if he had the choice, but he may have been enjoined to pay lip-service and say how important small savers are, but to say no more than that. I hope that he will say what may be done by the Government to encourage the small savers in our society.
I do not mean only those of retirement age, although they are a major preoccupation, particularly with the recent extremely mean, ungenerous and narrow-minded proposals by the Chancellor for a surcharge on unearned income. It is harrowing to elderly people who have skimped and saved all their working lives to find that they are now penalised in an entirely arbitrary way. BBC2 and the other trendy manifestations of our Sunday supplement society condemn and disregard such people as being unimportant members of society. I am speaking, too, of earlier generations who are still earning and trying to save.
75 I have recently been visited by two married couples, both having difficulty finding a house. They were having difficulty purchasing, but both were trying to find a house by one means or another, possibly from the municipality. I found it fascinating but saddening to compare their attitudes to the problem. One couple had saved a substantial deposit— no mean achievement in these days. The other couple had a nice new motor car, but had saved no money at all, regarding the local authority as available to provide housing as a service and looking for assistance on those lines.
However much one sympathises with the second couple, and one understands their position—for a higher standard of living for all is a good objective—how much more impressive was the attitude of the first couple! I assure hon. Members that that is an accurate representation of the facts of that episode. The first married couple should have received ample encouragement from the State as a mark of their tremendous personal effort in saving a sizable sum.
Although that is outside the specific subject of small savers, I hope that the Paymaster-General will be able to allude to what the Government may do to help young marrieds in such circumstances with additional schemes of assistance so that they may buy their own homes. So far the Government have not been prepared to do anything by way of providing extra help for house purchase.
I should like to hear more about indexation in all aspects, but most important I should like the Government's attitude to savers, especially small savers, to change.
§ 5.49 p.m.
§ Mr. Michael McNair-Wilson (Newbury)
If as a society we believed that savings ought to be the base of our economy and the base from which our prosperity should proceed, I suspect that the House would be very full this afternoon. The fact of the matter is that the possession of wealth, be it in large sums or small, is no longer considered admirable but as something which creates inequality and unfairness between those who have, or seek to have, and those who prefer to cast their personal responsibilities on a benevolent State or its agencies, 76 which, in the words of the credit advertisement, "take the waiting out of wanting".
As my hon. Friend the Member for Harrow, East (Mr. Dykes) suggested, thrift is no longer taught at school or in the home because it is no longer considered to be the cornerstone upon which each individual will build his wealth throughout his life or through which he will pay for his responsibilities and those of his family, and from which he will seek to leave some part to his children when they come after him.
The reason for this is that we are now dealing with a set of social values which are different from those that have gone before. Although we may say that inflation is the reason why saving no longer has a shining place in our lives, I suspect that it is much more because of this new atmosphere in society, than the simple economic argument. I even go so far as to say that inflation to many people remains a mystery. They consider it to be something which politicians talk about, but which seldom, they think, applies to them. As we move towards a socialised State the man who seeks to make his own way seems an oddity when a benevolent State will provide housing, health and education services and all welfare benefits. I do not decry any of these benefits, nor do I wish to suggest that they should not be, but if it is the State which ultimately provides everything, some people will ask, "What is the point of self-sacrifice and denying oneself things in order to have a slightly better and different standard of living?" Therefore, it follows that the money-box is becoming a rarity and will no doubt become an antique, by which time it will have appreciated in value. As it is those who provide for themselves today, are, far too often, older rather than younger people——
§ The Paymaster-General (Mr. Edmund Dell)
Surely the hon. Gentleman will approve of money-boxes becoming a rarity, because no interest is paid?
§ Mr. McNair-Wilson
In simple economic terms I suppose the right hon. Gentleman is right, but it used to be part of every child's upbringing to have a moneybox—now it is not.
We have to ask whether the intention of all of us—let us take here the point made by the hon. Member for Fife, 77 Central (Mr. Hamilton), and not make this a partisan matter—is that saving should once again be a cornerstone of our wealth, or whether it is to be a fringe benefit for those who choose to put themselves out, but not an essential part of the ability of each of us to pay for our lives. That depends on our moral attitude to savings.
The approbrium which attaches to those who have money of their own is not likely to encourage them to make self sacrifices. We see that the pound in 1973 is, due to inflation, worth only 19 per cent. of the pound in 1933. Inflation must play a part in the calculation, but at least some people continue to save.
I believe that each individual, because he is uniquely different, has a demand within himself to express himself. The only way he can do this is to opt out of all the institutions around him which tend to make him just one more average person and thus deny him his personality. Yet I am bound to say that the man who is able to save is going to have, even under present circumstances, a richer life than the man who relies entirely on the State, and he will enjoy a greater measure of freedom, expressed in the way he lives, the car he drives, the school to which he sends his children, the holiday he takes and even the medical attention which he receives. His choice is wider and the fulfilment of his desires is more certainly satisfied than are those of the man who relies entirely on the State.
The man who is able to save is an asset to society—I hope no one disagrees with this—because, surely, by saving he is creating real wealth. In his savings he is helping to accumulate wealth and is in no sense adding to inflation which is linked to massive hire-purchase borrowing, which has become one of the peculiarities of this contemporary age. Thus it seems to me that he is a socially useful and valuable member of society, in a way that his colleague who does not seek to save, is not.
I remind the Minister that if those who chose to pay for the education of their children decided that they would rather not make the self-sacrifice involved the State would have to provide a further 414,000 places and the money at present spent in providing State places would have to be increased. This is one of the most 78 important points to bear in mind about the sort of person who seems to get so little thought and sympathy from us. The real tragedy is that we cannot decide what sort of society we want to live in and how we want that society to regulate its economic affairs.
This brings me to a letter I have received from a constituent. The letter seems to sum up the quandary I am talking about. The writer says:people such as 1 have committed ourselves to too much expenditure over long periods without retaining any reserves to meet the worsening situation … We have been encouraged to consume. We have been told by government after government that they are aiming for a higher standard of living for the population. The money has been there, the goods have been there, and we have consequently bought them, assured by you gentlemen— the writer means the politicians—that our prosperity would increase rather than diminish. Promises of economic growth have been the norm, and to the consumer that means growth in consumption and a higher standard of living. Possibly the only distinction that can be drawn among working people is that some have been prepared to gamble to a greater extent than others on government's visions of increased prosperity. That is to say that some have decided to buy houses and some have not. If you must have a 'class' distinction, then that is as good as any at the moment.We do not encourage saving because at least half of the hon. Members in this House think that the provision of personal wealth is anti-social while the half to which I belong is not quite sure where the saver fits in in a world built on a wealth of debt represented by hire purchase. Until we can get the balance right the future is unlikely to be bright for the saver.
If I wanted to pick out one area in which year after year, decade after decade, questions to Ministers of all complexions have not resulted in any definite action it would relate to those who in 1932 or earlier bought War Loan 3½ per cent. How they have been forgotten. How all of us have shed our crocodile tears. What is the reality of their plight? The savers who bought War Loan 3½ per cent. in 1932 have seen their investment dwindle away in the post-war years, particularly in the past 10 years, to the point where £100 worth of stock is currently worth £25, and, allowing for inflation, is worth only between £4 and 79 £5 at 1932 prices. There is no hope for them because no Government, however soft-hearted at an election time, are able, or even wish to put a date upon when that stock will be repaid at par. I suppose that in the end all the holders will die and we shall have cleared our conscience, but these are one group of savers for whom we should spare a thought.
It is true that the stock market now provides little encouragement to those who wish to invest money either for capital gain or for high interest, or even for reasonable interest.
Capital gain is taxed, but there is not much of that. Dividend rates are so fixed that the income to be derived turns away more and more people. National savings are down to a figure below the 1972 figure. If we allow for inflation they are possibly even lower.
I return to the question of the society in which we live and its values. One of my most distinguished predecessors was Lord Butler, who said at a Conservative Party conference many years ago that in 10—or was it 20?—years we could have the battery hen society. He was always a prophet. How right he has been about where we are heading! As the responsibilities are taken from our shoulders by the State so, day by day, we become battery hens, with all the security enjoyed by those creatures. No doubt when the food is there, the water is there and we have a roof over our heads we, too, will lay an egg.
But if we have security we will surely lose the one essential which makes life real and worth living, and that is freedom. If we are to depend for all we do in life upon the State and do not make provision for ourselves we shall deny ourselves that freedom. If we really care about democracy and a healthy society making its own way, being prepared to take its responsibilities, the saver deserves a very special consideration from us all.
We have heard about the Page Report. Perhaps I can add six points of my own. First, there should be the belief that money will not lose its value, as at present predicted. Second, there should be less reliance on hire purchase and consumer credit for maintaining living standards—what I describe as the wealth 80 of debt. Third, there should be a fiscal policy aimed at encouraging those who want to save and be self-dependent. Fourth, there must be a commitment to a capital-sharing democracy, be it help with house purchase via subsidised mortgage rates, worker shares or lighter taxation on investment income below certain levels. Fifth there ought to be the introduction of a Government index-linked bond; and, lastly, a date on War Loan 3½ per cent.
§ 6.3 p.m.
§ Mr, Terence Higgins: (Worthing)
This is essentially a back-bench occasion and I do not want to speak for any longer than my back-bench colleagues. I wish to intervene and support my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) and congratulate him on taking the opportunity to bring before the House these two important matters of saving and the problem of those on fixed incomes.
The situation on the other side of the House is deplorable. We started off with two hon. Members on the back benches opposite. One intervened several times and then left the Chamber and has not been seen since. The other hon. Member, the Member for Fife, Central (Mr. Hamilton) made a speech. I thought that in many ways, it was an interesting one. Then he, too, left the Chamber. Since then there has been no representation on the Government back benches at all. Surely hon. Members opposite also have constituents living on fixed incomes. Their absence is most unfortunate.
At the centre of our discussion has been the question of inflation and the effect which the rise in the cost of living has upon savers and those living on fixed incomes. There is a tendency at present —in the period after the last General Election, as we seem to be having a period of good weather, pleasant weekends and so on—for the impression to be gaining ground that in some way if we just do not think about it inflation will go away. That is a dangerous delusion.
The reality of the situation is that things are deteriorating, and many of the Government's actions are hastening that deterioration. That in turn has a serious effect on savers and those on fixed incomes. It is right that we should take this opportunity to bring out that point 81 as strongly as we can. The Chancellor took some pride in the fact that he proposed to reduce the borrowing requirement by £1,500 million, although he has taken quite a lot of action since which will substantially increase that. That is something about which those of us concerned about inflation are right to be worried. I pay tribute to the Paymaster-General who, in a speech to the savings movement a few days ago, also pointed out that money supply figures were coming down rather satisfactorily. He attributed that to the action taken by the previous Government. I am sure it is common ground that the figures are showing a somewhat improved trend.
I take up a phrase which my hon. Friend the Member for Dorset, West (Mr. Spicer) used a few weeks ago in an Adjournment debate. He said that people on fixed incomes were poor, proud and provident. That is true, and we all know that to be the case. We also know that their real standard of living has been declining steadily as a result of inflation. While it is true that those on national insurance pensions or supplementary benefit may have the effects of inflation offset, nevertheless those who are living on a national insurance pension and some savings and rely on the savings to maintain their standard of living have found that inflation has hit those savings and that their standard of living has been declining.
It is worth pointing out that although there has been an increase in national insurance pensions, which we welcome and which has done something to help the group to which I am referring, I do not recall any mention during the course of the last election campaign—when the figures for the proposed increase in national insurance pension were given— that there would also be an increase of 10 per cent. in income tax paid on those national insurance pensions. That is something which many people in this group will have in mind, as will those part pensioners, particularly the over-80s who have perhaps suffered longer than anyone else from problems in the decline in the value of money.
We have seen a big increase in pensions. However, we saw that between 1964 and 1966. The performance of the Government after the 1966 election was significantly less good than their performance immediately after the 1964 82 election. The hon. Member for Fife, Central completely missed the point. He was complaining bitterly about the position of his constituents who were wage earners when compared with someone living on a fixed income of £1,500 a year derived from investment.
The hon. Member did not seem to understand that this person was getting significantly below average industrial earnings. It was not, therefore, fair to make the comparison which he did. It has been pointed out, in the Budget debates and this afternoon, that if we take the example of someone living on a fixed income of between £1,500 and £2,000, who is hit by the Chancellor's proposals for the investment income surcharge, the result is that the retired person with a State pension and an investment income together totalling £1,600 will be paying the 10 per cent. surcharge on £100 of that investment income even though his total income is below that of average male industrial earnings, now about £42 a week. This needs to be brought out, because if this sort of thing were being done to wage earners and members of trade unions we would at least have some back benchers opposite, whereas we have none at all.
A number of my hon. Friends have made the point about War Loan, dividend restraint and the disregards on supplementary benefit. There is one point that has not been fully brought out and which stems from an article inThe Economist this week. It points out that if a person earns £10,000 a year and if the present rates of inflation and taxation continue he will need £40,000 a year by 1978 merely to maintain his present living standards. The Economist goes on to say that, in its view, "you will not get it." Hon. Members opposite will say, no doubt, "If you have an income of £10,000 a year, why worry?" The crucial point is that savings come from a number of people in these groups, and if they are going to be squeezed in the way which The Economist brings out —it elaborates the case in great detail —the effect on savings generally will be serious, and savings come from earnings. The attitude taken by the present administration to those on fixed incomes is not one which encourages people to save for the future.
83 The Economist also points out that the effect of fiscal drag was to a considerable extent offset by the proposals of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) because he cut tax rates, where as the present Government are piling on top of fiscal drag an increase in tax rates with a corresponding effect on those who might otherwise save.
The present Chancellor of the Exchequer was right in stressing that to the extent that we get greater savings we do not have to raise sums in taxation. That is a crucial point. But I add one word of warning to those who argue from the Brazilian experience and from the latest dicta of Professor Milton Friedman on indexation. In that area one is first of all arguing that one ought to try to live with inflation rather than control it, which I regard as a dangerous point from which to start. Also if one suddenly went in for indexation on a general scale, one would have to have regard to what the effect would be on those with War Loan. Clearly, the effect of indexation on War Loan might be very severe indeed.
Therefore, while no doubt it is right to debate the question of indexation in this House and analyse it as best one can, we should appreciate that there may be real dangers to those on fixed incomes in any actual move along this road.
§ Mr. Ridley
My hon. Friend gave as one of the reasons for being frightened of the Brazilian example that to admit to indexation was to admit that we had inflation. Surely we have got to admit that there is inflation, that it is very high and that it will continue and may get higher. Therefore, to pretend that by not indexing we do not acknowledge the existence of inflation and that, therefore, it goes away cannot be a valid argument.
§ Mr. Higgins
With respect to my hon. Friend, he obviously did not hear what I said. I said that there is a distinction between trying to live with inflation and seeking to control it. My hon. Friend misquoted me slightly. I should like to pursue this point, but I promised to be brief and I cannot elaborate upon it in the time available.
84 The point that I was seeking to bring out is that it is right that we should debate it but that we should appreciate that some of those groups who would suffer from indexation are the groups about whom we are concerned this afternoon; namely, those on fixed incomes. I think that there is here a real danger that by pursuing various policies the Government find themselves in a position where the whole savings structure is in danger.
One of my hon. Friends referred to a letter which was sent out by Sir Robert Bellinger. I pay tribute to his enthusiasm and, indeed, to the enthusiasm of the entire national savings movement. But, quite clearly, the movement is very worried about the present circumstances. We appreciate that hon. Members opposite will need to have taken time to study the Page Report and to form views on it, but I hope that we shall have some good news from the Treasury Bench this afternoon. We look forward with interest to what the Paymaster-General says on the subject.
§ 6.14 p.m.
§ The Paymaster-General (Mr. Edmund Dell)
I know that a number of other hon. Members would like to speak in this debate, and I shall therefore try to deal with the questions which have been raised as rapidly as possible, in the hope that, at any rate, some of those hon. Members will be able to get into the debate.
Mrs. Elaine Kellet-Bowman (Lancaster)
May i draw the right hon. Gentleman's attention to the fact that there are no back-bench Members on the Government side when we are debating a matter of such importance?
§ Mr. Dell
That point has already been made a number of times. I can assure the hon. Lady, who has just come into the Chamber, that her assistance was not required to draw attention to that point.
I congratulate the hon. Member for Kingston-upon-Thames (Mr. Lamont) on initiating this debate. I find his motion entirely acceptable, although I do not find equally acceptable many of the things that were said in support of it. Of course the Government accept the importance of savings; it is ridiculous to suggest otherwise. This is perhaps a field 85 in which we might quote the Leader of the Opposition and say that action is more important than words—even the words of my absent hon. Friends! After all, it is the present Government who have been left with the responsibility, after about a year in which it was in the hands of hon. Members opposite, to decide what to do about the Page Report —not a high level of activity from right hon. Gentlemen opposite when they were in government. We have introduced the new securities to which some hon. Members opposite have referred and to which they paid tribute as encouraging savings. Indeed, we have helped young families to buy their houses in the current difficult conditions, which is a form of saving, by what we have done about mortgages. There is no question whether we are interested in saving. Of course we are interested in saving. The Chancellor of the Exchequer, as has been quoted in the debate, emphasised that fact, and the beneficial effects of saving.
This motion has been concerned mainly to emphasise the serious consequences of inflation for people who save. It emphasises the need to fight inflation. Of course, some hon. Members opposite, including the hon. Member for Kingston-upon-Thames, have taken it as an opportunity to repeat the debate which took place the other night on the investment income surcharge. I should have thought that that matter was best dealt with during the debate on the Finance Bill.
I have some figures which I can give the House to show that a married couple with an investment income of £2,000, and with the benefit of the new national insurance retirement pension, are likely to be, after tax, slightly better off than before. But I do not deny the effect of inflation on such incomes.
§ Mr. Dell
I am comparing the next financial year with the last financial year. I am not denying the effect of inflation on investment income or any other type of income. Of course I am not denying that, but the question which the Government have to decide is one of priorities, and it is, after all, an accepted fact that the social priorities of this side of the House differ from the social priorities of 86 the other side of the House. That is what politics in this country are about.
I say to hon. Gentlemen opposite, in so far as they have tried to convert this debate into a party political debate, that inflation is a national problem which we have certainly not had time yet to bring under control, which the previous Government did not bring under control, and many of the problems from which small savers are currently suffering are problems which have been accentuated by policies of the previous Government.
One of the facts which I would have thought greatly influenced the contentment of the people about whom hon. Members opposite have been speaking this afternoon is what happened to the Stock Exchange under the previous Government, the catastrophic fall—the motion uses the word "catastrophic"— in the value of investments in the Stock Exchange, and the fall in the capital of small savers who invested their money in the Stock Exchange. I should have thought that that was the most damaging thing that has happened to small savers in the last year—nothing that the present Government have done but something that happened under the previous Government.
§ Mr. Ian Gow (Eastbourne)
It is characteristic of the Labour Party that it should criticise the Conservative administration when the value of investment went down, but I wonder what the Minister would say if the value of investment had gone up as dramatically as it went down.
§ Mr. Dell
That is not my point. Hon. Members opposite have spent today criticising the present Government's actions, which, they say, have been damaging to small savers. I have pointed out what has happened to the capital owned by many small savers who have invested, through one mechanism or another, on the Stock Exchange in the last year. That is a fact which hon. Members opposite should take into account when talking to their constituents on whose behalf they claim to have been speaking.
An expression of our social priority has been the major increase—the largest increase ever—in the pension which we introduced as soon as we came into office.
87 I have said that the Conservative Government had the Page Report in their hands for about a year before leaving office. Hon. Members opposite say that they are interested in the situation of the small saver. I was hoping to hear from the hon. Member for Worthing (Mr. Higgins) what the Conservative Government's decisions on the Page Report would have been. The report was made by a committee which they appointed and only one decision arising from it was made by them in the year that they had the report in their hands. It would have been enlightening to hear what their decisions on the Page Report would have been.
It has been said that hon. Members opposite are looking forward to my saying what our decisions on the Page Report are. I must disappoint the hon. Member for Cirencester and Tewksbury (Mr. Ridley), because I shall not announce today any decisions on the report. The Government have been in office for two and a half months. We are considering the Page Report and we shall make an announcement about it and what should be done as a result of it. We are, however, entitled to know what the Conservative Government would have done about it.
I understand from what the hon. Member for Worthing said that the Conservative Government would not have introduced an index-linked savings bond.
§ Mr. Higgins indicated dissent.
§ Mr. Dell
It seems that I incorrectly understood the hon. Gentleman; I cannot even take that as an expression of view of the Conservative Party. Apparently nothing—public or private—had been decided. The Conservative Government had not decided to do anything about the stamp, about which my hon. Friend the Member for Fife, Central (Mr. Hamilton) made some remarks. After all this time with the serried ranks of hon. Members opposite, and with their interest in savings, we have had no decision from them on the Page Report.
§ Mr. John Nott (St. Ives)
What we decided to do was to keep going the voluntary movement, which was constantly abused by the present Chief Secretary.
§ Mr. Dell
Even that decision was not unqualified, as the hon. Gentleman knows. In what form or with what structure the national savings movement would have been kept was not specified by the Conservative Government on the day that they published the report.
Everyone agrees, and the motion states, that the main problem is inflation. No one need have any doubt but that the Government are conscious of the effect of inflation on people's savings and of the danger that it could be destructive of the will to save. The question is, what is the most hopeful way of protecting people's savings in an era of inflation? Is it, as many hon. Members opposite have proposed, to index savings? Is it to conduct the sort of battle against inflation which the Government are initiating, plus allowing a competitive rate of interest on savings, or is it to do both?
Some hon. Members opposite have evidently come to the conclusion that the Brazilian experience is decisive in this context. I heard what the hon. Member for Cirencester and Tewkesbury said on the subject. There was a debate late the other night in which the Brazilian experience was put forward as evidence that widespread indexation is the way to deal with the problem of inflation. Authoritative comment has recently been made by Mr. Sam Brittan in the columns of the Financial Times to the effect that wide indexation is the right way to deal with inflation.
There are characteristics about Brazil, in addition to indexation, which I would not advocate this country following, and I wonder whether some of them, rather than indexation, are more responsible for the success of the Brazilian Government in bringing down the rate of inflation. Whatever other arguments may be adduced for indexation, I remain sceptical, though ready to be educated, about whether it would reduce the rate of inflation.
Whether or not that is a general answer to the problem of inflation, it does not necessarily answer the specific problem raised by the motion, which is not whether we should deal with inflation generally by means of indexation but whether we should deal with the problem of small savings by such a method. 89 Taking account of the fact that, as some hon. Members have suggested and as is the experience of successive Governments, inflation is not entirely within the control of national Governments and that such factors as commodity prices and interest rates have an influence on inflation in a country as open to the world as this country, and whether or not indexation is an answer to inflation in general, should we attempt to protect people's savings by introducing indexation, at any rate of small savings, in the way recommended in the Page Report?
I am clear that the first priority is to fight inflation. I shall later consider the question of indexation in the context of the specific proposal made in the Page Report.
We are doing what we can to fight inflation. We are reducing the borrowing requirement. We welcome the reduction in the increase in the money supply. The hon. Member for Worthing said that I had stated at Scarborough that this was the result of the measures—the supplementary scheme—introduced in December by the Conservative Government. What I said at Scarborough, as I remember—the speech was not written down —was that I welcomed most those policies adopted by the Conservative Government when they changed their mind. The supplementary scheme introduced in December was an example of the Conservative Government's changing their mind and taking steps to control the growth of the money supply.
We have continued and developed that technique. We have introduced food subsidies and the rent freeze. I have mentioned what we have done about mortgage rates which, if increased, would have stimulated inflation. We have taken action to reduce interest rates and have sharpened price control. All these actions have been taken to assist in achieving the main object, which is to bring inflation under control.
§ Mr. Alison
Does the right hon. Gentleman acknowledge that the paradoxical net effect of the measures taken by the Government, in so far as they were taken in the Budget, has been to increase the retail price index by about 2.3 per cent.?
§ Mr. Dell
Leaving aside the increase in nationalised industries' prices, the net effect of the Budget was to reduce the 90 retail price index. If we had not increased nationalised industries' prices, there would have been a deficit on the nationalised industries of £1,400 million or more. That is also inflationary. There is demand inflation as well as cost inflation. For us not to have done that would have been inflationary.
Hon. Gentlemen opposite know that the previous Government intended to increase nationalised industry prices. It is not an honest contribution to a discussion on inflation in this country to suggest that that increase in prices would not have taken place and was not inevitable.
We are taking action to fight inflation. The question is whether we should go further and in addition index national savings, at any rate in the way that the Page Committee recommended, by introducing an experimental index-linked bond. Page's motive in making the proposal was one of social justice to protect people's savings.
There have been many experiments in indexation on a confined scale in a number of countries. I am not referring to Brazil, where it was done on a widespread scale. There are specific examples of indexation in a number of countries. These are discussed in the Page Report They have also been discussed in a recent OECD publication called "Indexation of Fixed Interest Securities". Having studied the report, I do not suggest that the lessons of these experiments on indexation have been encouraging. Many have been wound up because, in the view of Governments, when they faced serious inflationary crises they were themselves contributing to inflation. For example, in France and Finland they were limited or abolished because they were found to be stimulating rather than containing inflation.
The Page Report, if I understand it aright, was rather nervous about this proposal. It talked of a small experiment and emphasised that it was a modest experiment for the benefit of small savers.
The question can be put in this way: why do the Government provide national savings securities? According to the Page Report, the Government should provide national savings securities primarily for social reasons, but only to the extent that they are not made available by other providers of opportunities for savings. 91 The report stated that Government provision for small savers should depend on facilities elsewhere in the market. It pointed out that the growth in private sector provision for personal savings since 1950 has reduced the importance of national savings and therefore the Government's need to provide personal savings facilities was less urgent.
The hon. Member for Kingston-upon-Thames asked whether the State should be in national savings at all. On this interpretation the trend by which national savings have become less important as a proportion of total savings is desirable. At any rate, that would appear to be what the Page Committee was arguing. But on that argument indexation, if it were done effectively, might change that trend and have an effect directly contrary to what basically the Page Report and the hon. Member for Kingston-upon-Thames seem to be arguing in this other respect. There seems to be some conflict unless indexation is being proposed on a very wide scale.
No one who claims that national savings should play a smaller part than in the past can support a proposal for the indexation of national savings, or believe in the creation of an index-linked bond, at any rate if they believe that it will be effective in the sense that people will invest in or switch to it.
The Government's view on national savings is rather different. National savings have the social objective of assisting the small saver. It is true that national savings have declined as a proportion of personal savings. It is probably equally true that little that we could do about national savings that would not completely change the nature of the savings market would greatly increase the contribution that national savings make to the nation's savings as a whole. But that does not mean that we regard it financially as unimportant in providing the Government with assistance in meeting the borrowing requirement. It enables us to tap a source of funds that would not be attracted by other forms of Government debt.
In short, the Government want the money as well as providing the service. No one is forced to lend to the Government if terms are unacceptable or uncom- 92 petitive. If the Government want the money they must maintain the competitiveness of national savings. That is what we have attempted to do with the new securities that we have introduced.
The question about the desirability of an experimental index-linked bond can be put in this way: what weight should the Government put on the social objectives compared with the financial and economic consequences of an index-linked bond so far as they can be foreseen? What priority would this have against other priorities of a social character taking account of the emphasis put by Page on the social objective of national savings?
The social objective is clear. It is to protect small savers against inflation. Unfortunately, this is not an unmixed situation. The hon. Member for Kingston-upon-Thames referred to the cost of money to the building societies and questioned whether they were a desirable form of saving for the small saver. We must take some account of the effect of an index-linked bond on the cost of money to building societies. Would the intention be to make the building societies follow suit? What effect would that have on the prices of houses?
When considering savings and national savings the Government must take account of the effect of what they are doing on other forms of investment and on how far money may be diverted from other purposes which are also highly desirable. An experiment restricted to £500 or even £1,000 per person, as Page recommends, might have only a limited competitive impact, thought there is doubt about that. We do not know before experience. If it does not have a significant competitive impact it will not help with the problem of protecting the interests of small savers.
One question that we must consider in this context is whether an index-linked bond, such as that proposed by Page, would be attractive. Page proposes an experimental bond with a 2½per cent. rate of interest perhaps. Compared with other forms of national savings securities and of lending which are available to the small saver, such as the building societies, which would be offering much higher rates of interest, would such a bond be attractive? Would it perform the objective that Page has in mind, would there be a switch out of national 93 savings securities into building societies —in which case it would have certain undesirable consequences—or, as some people think, would it make no impact on the situation at all?
Another conflicting element is the effect on the Government's policy for reducing interest rates. The Governments success so far in this policy is, on the face of it, against the interests of small savers, in that the interest rates so reduced may be even further behind the current rate of inflation than before. On the other hand, this has an effect with wider implications than Page itself considered. If one wishes to encourage investment in manufacturing industries, it is, after all, desirable to reduce interest rates.
So the whole time we have these uncertainties in the situation—these conflicting elements—it may be that such are the conflicting interests in society that the best hope of helping the small saver— I emphasise "the small saver"—is by redistributive taxation of property, progressive taxation of income plus competitive interest rates on savings to encourage savings and the determined battle against inflation on which we are engaged, together with a good national superannuation scheme plus various social security provisions with as little means-testing as possible—but that, too, is a matter of Government priorities.
Hon. Members may say that many of the questions that I have asked are unanswerable without experience, although there is experience elsewhere. In particular a question which cannot be answered without experience is how successful a Page index-linked bond would be. Obviously one could try an experiment confined within the limits which Page suggests. One could have an index-linked bond alongside other fixed interest national savings securities.
This is what the Government are considering. They have come to no decision. The hon. Member for Kingston-upon-Thames quoted the views of the Treasury as reported to the Page Committee. I am clear on the strong reasons for providing people, particularly the weaker elements in society, with protection against the consequences of inflation. One may be able to do that much better, without stimulating one's own further infla- 94 tionary pressures, by the kind of battle against inflation which we axe now conducting, plus the provision of more competitive interest rates on national savings securities such as will be introduced next month.
I have tried in this way to open my thinking on this subject so that the House may be aware that the Page Report, which is relevant to the motion, is being taken seriously by the Government. I cannot meet the desire of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) to give an answer to this question this afternoon, but I hope that he will accept that the report and all the elements in the problem are being seriously considered.
§ Mr. Michael McNair-Wilson
Are the Government giving any consideration to the owners of War Loan 3½ per cent.?
§ Mr. Dell
Yes, we have given consideration to their position, but I can hold out no hope whatever of the Government setting a date for the repayment. In that respect, our position is no different from that of the previous Government or the Government before them. We understand the position, but for me to say more would be to be guilty of the crime to which the hon. Member himself referred—the shedding of crocodile tears. No one who holds this stock and has held it from the beginning would feel warmed in his heart if I said that I was sympathetic with his position. The Government cannot contemplate setting a date for the redemption of War Loan 3½ per cent.
I have tried to explain the Government's thinking to the House. We shall come to our conclusions as soon as possible. But it must be emphasised that even if we introduced an index-linked bond such as Page proposed it would be only marginal, within the full context of the problems created by inflation. The Government's prime responsibility, within their capacity, must continue to be to conduct the battle against inflation and to bring down the rate of inflation so that people can feel more secure both in their savings and in their conditions of life generally, and to eliminate, or at least to reduce so far as possible, the unfortunate elements of conflict and confrontation which have come into our society over the last few years.
§ Mr. Speaker
It has been put to me that I should put this motion and that then the House should proceed to the next one.
§ Question put and agreed to.
That this House regrets the catastrophic effects of inflation upon savers and those on fixed incomes; and calls upon the Government to take positive measures to give both adequate protection and incentive to savers.
§ 6.46 p.m.
§ Mr. Barry Henderson (Dunbartonshire, East)
I beg to move,That this House deplores the damaging effects of Government policies on small savers and other groups of people who are on fixed and low incomes.There are many social and economic benefits in the encouragement of savings and there are also great problems suffered by those who have to live on low fixed incomes. One Labour Member who looked in for a moment implied that we should not be debating this subject because only a small number of people were involved. There are hundreds of thousands of people, even within the category to which he referred, with savings incomes of £1,500 a year, but there are many more—millions more, I suggest— who are saving less but are still saving.
The point that many of us are trying to get across to the Government is that there are not nearly enough savers— that one of the most depressing things, as we see the rise of income levels, is that there is not a proportionate rise in savings. One reason is that there is not enough incentive, particularly when many savers feel that all they are achieving is saving the State the problem of looking after them in their old age.
My hon. Friend the Member for Newbury (Mr. McNair-Wilson) referred to some of the social desirabilities of encouragement of savings. These are, particularly, the encouragement of independence, security and stability. In his speech on the last motion, the Paymaster-General suggested that his party had nothing against savings. One finds this hard to believe, in view of various actions which it has taken. I often wonder whether one of the reasons for a Socialist Government's being unwilling to encourage savers—with their statements about soaking the rich or else we shall all 96 be drowned—is that they are frightened that savings bring independence. Independence is something which we believe to be a desirable end for as many people as possible.
It is difficult today, particularly for wage earners who are after all in the majority, to accumulate capital out of earned income. This is not the problem of the rich. Plenty of rich people no doubt have all sorts of gambits for avoiding the problems that face the wage earner. They have their tax havens in Liberia, and so on, but the vast majority of us seek to accumulate a small amount of savings, and thus capital, out of earned income. The reasons are that most savers seek to establish for themselves a degree of certainty, which is of immense benefit to the nation because of the stability it affords.
There are also great economic benefits in the encouragement of saving. In a time such as the present it should be the Government's interest to encourage savers as against spenders. I am assured by economists that £1 saved is £1 less that is required in tax.
The other significant benefit from savings, small or large, is that the accumulation of savings is channelled through the appropriate institutions into industrial investment and building societies. If there was not this accumulation of many small savings channelled into useful economic ends, it would be very serious for the nation.
When replying to the previous motion the Paymaster-General seemed to blame all the problems of savers on the Stock Exchange. It is not the desire of the Stock Exchange that there is a low level of stocks and shares.
§ Mr. Henderson
There was a good reason why the Stock Exchange fell in the last part of the previous Government's term of office. It was because many people feared that we were about to have a Labour Government who would be bad for investment. Since the Labour Government came in there has undoubtedly been an enormous squeeze on companies, and this has had a very serious effect on the small savers who had invested in 97 them, either directly or through institutions to encourage savings. In that context, surely one of the most alarming things for the Stock Exchange and also for savers of all categories, particularly small savers, is the threat of right hon. and hon. Members opposite to nationalise some of the principal savings institutions.
The motion mentions the problem of those living on low incomes. In view of the limited time available I shall shorten my speech by saying that I believe that it is very depressing that the Government have not seen fit to proceed with the tax credit scheme which was available when they came to office. That scheme offered an opportunity of dealing with some of the difficulties of those on low incomes.
Many low incomes are also fixed incomes. I was talking today to a retired nurse who had a grand total of £995 gross income before tax—£850 net. That is a fixed and a low income. The hon. Member for Fife, Central (Mr. Hamilton) says that there are few people who can accumulate the kind of capital which was being discussed so as to provide the incomes that we were talking about. Such a capital accumulation can be achieved with no great difficulty by a person who has been living in a house which accrues in value; the breadwinner dies leaving the widow with no source of income; the widow sells the house, which may provide her with precisely the level of income which the hon. Gentleman thinks it would be beyond ordinary people to have.
§ Mr. Ronald Brown (Hackney, South and Shoreditch)
That does not apply in my constituency, where people have no houses to sell. Even if they did, if they sold their house they would still have to buy another to live in.
§ Mr. Henderson
I suspect that the hon. Gentleman comes from a Socialist local authority area.
Many small savers are disheartened by the way in which they believe they are substituting, through their efforts, what they might otherwise have got through the social security system. It is almost a cliché to talk about the ladder and the net as the basis of Tory philosophy. I believe that the net has some horrible holes in it and that the Government are trying to 98 kick the ladder away. I submit that the value of saving has been diminished, is diminishing, and should be increased.
§ 6.55 p.m.
§ Mr. John MacGregor (Norfolk, South)
At this late hour I shall refer quickly and briefly to only a few points.
I wish to add my voice to those which have been raised in the House pointing to the problems of retired people living on modest investment incomes. I have many thousands of such people in my constituency. During the last election campaign it was this group for whom I was speaking most when I urged action on inflation, in particular action to deal with excessive wage demands, for this is the group for whom I feel most sorry, beyond, of course, those on very low incomes. These people are the small shopkeepers who have retired having built up small savings and sold their shops. They are the small businessman, the very small farmer, or even the professional man who has not had a good occupational pension scheme.
These people have had to rely on savings and are in a worse position than those who have retired having been in good occupational pension schemes. Reference has been made to the ways in which these people have suffered over the past few years. Like everyone else, they have been ravaged by inflation, but unlike everyone else they cannot keep pace with rising prices by regular increases in wages. They have increases in pensions, but these alone are not sufficient to maintain their incomes in real terms. Like everyone else, they have seen their savings reduced in real terms, but unlike everyone else they have no hope of adding to them. In fact, they face the prospect of their nest egg being further eroded. Like everyone else they have been knocked sideways by the recent increases in rates, but often they make very few demands on local authority services.
Like everyone else these people have to pay higher taxes this year, but they have been singled out for special tax treatment and have to pay a surcharge on investment income between £1,500 and £2,000. The Paymaster-General, in replying to the debate on the previous motion, said they would benefit from increased pensions, so that this year they 99 are better off than they were last year. That may be true in gross terms, but because of the extra £50 surcharge they have been asked to pay in taxation on that portion of their investment income they find themselves worse off in net terms than those with more modest savings. They come to this situation paying tax rates on their income saved throughout their lifetime of 43 per cent., a high rate by any standards, and tax rates on their investment income much higher than they could ever have expected to pay when they saved.
These people are not on the breadline, but they have 20 years of life to look to and they wonder whether it was worth while to make these savings. Seeing their nest egg go in this way, they are on the verge of despair, because they feel that they are unable to do anything about it and that no Government will stand up for them.
These people have had this year a higher rate bill because of the switch of the rate support grant from the rural to the urban areas and they have had a much higher tax bill. They have earned the right to that little extra comfort through their personal sacrifices during their working lives, but they now see it eroded.
Worse than the effect of the penalising of their thrift is the effect on their children. Their children, looking at the present situation, must wonder, when they see what is happening to their parents, whether it is worth while their saving. They must come to the conclusion that they should spend now. I can think of no period in my lifetime when people talked more than at present of going out on a spending spree and not saving. It would be tragic if we had in the future to rely for saving only on enforced savings partly through occupational pension schemes, but mainly through the tax system. Yet that is the situation which we are facing—that savings in the community will come through these two areas alone. It is largely caused by the factor of inflation which, as the Paymaster-General said and we all admit, is a problem which all Governments and all sections of the community have had to face. What we ask is that in that situation, in which one sees 100 the plight of the retired and the outlook of their children on savings——
§ It being Seven o'clock, the proceedings on the motion lapsed, pursuant to the Order of the House [13th March].