§ Order for Second Reading read.
§ 7.15 p.m.
§ The Paymaster-General (Mr. Edmund Dell)
I beg to move, That the Bill be now read a Second time.
The Bill arises out of the major recommendation of the Page Committee on National Savings. I suppose that few committees established by the Government have had so many of their recommendations accepted. I am particularly glad today to be moving the Second Reading of a Bill which creates the statutory framework within which the Trustee Savings Banks will be able to provide a much wider range of banking services to their 10 million or more depositors, mainly in the lower income groups.
The Trustee Savings Banks are, of course, a long-standing feature of our financial scene. They are independent bodies formed—in some cases over 150 years ago—on the initiative of groups of local citizens with the objective of providing simple savings facilities for the public. Typically enough, the origin of the movement was in Scotland, and no doubt it was a proper sense of values and perspective which led the editor of the Edinburgh Review to write editorially just after the Battle of Waterloo:After the great glory of the recent military victory has passed away, and after the impact of the new commercial strength of the country may perhaps have receded, it will yet appear that the Savings Banks will bring more happiness to the people of Britain.I owe that quotation to the Chairman of the Scottish Committee of the National Savings Movement, Lord Elgin.
Since those early days the banks have developed their activities significantly under the independent local direction of trustees. Although closely associated with Government savings arrangements, the banks' prime purpose has remained the provision of basic banking services to the public in their local communities. With the growth of their branch network—there are now over 1,500 branch offices—and the increase in the funds they now manage, the legislation under which they 1206 operate has been found to be no longer apt.
The previous Government, therefore, appointed the Page Committee on National Savings which reported in 1973. The Committee recommended radical changes in the banks' organisation, in the services which they offered and in their relationship with the Government. It made four interlocking proposals. First, the Committee believed that the Trustee Savings Banks should be entitled to operate full banking functions, including the making of loans to depositors. However, these were to be facilities for the ordinary public rather than for corporate bodies.
Secondly, the Committee recommended that the Trustee Savings Banks should have more freedom from direct Government control of a detailed nature. It was accepted that this new independence would have to be granted gradually over a transitional period. As a corollary, the organisation of the banks would need to be strengthened internally, and as part of this process the third policy objective would be the reduction of the number of separate banks, so that stronger units based on regions rather than large towns could emerge.
Lastly, to replace external Government control and to provide a co-ordinating mechanism, the Page Committee suggested that a strong central authority should be established mainly from within the movement.
No doubt those recommendations were being considered by the Government of the right hon. Member for Sidcup (Mr. Heath) before they went out of office. Immediately we came into office we began consultations and found that the Page Committee's recommendations were generally welcomed by the banks' own representative organisation and by the representatives of the staff. Of course, the prime consideration in the minds of the Government was the desirability for providing the millions of depositors with the Trustee Savings Banks with comprehensive banking services. On 31st July 1974, in reply to my hon. Friend the Member for Leigh (Mr. Boardman), I was able to announce the Government's acceptance of the recommendations of the Page Committee on the Trustee Savings Banks and our agreement that they should be 1207 empowered to develop along the lines recommended in the Report.
The programme for implementing the objectives of the Report have been discussed with the Trustee Savings Banks Association. The programme falls into three stages. The first is already in operation. It will run until the end of the banks' current financial year, on 20th November 1976. It has been essentially a time of preparation, laying the foundation for the future. It has involved major structural changes, brought about through the reduction, by amalgamation, of over 70 Trustee Savings Banks to the present figure of 17 which by reason of their size will qualify for representation on the Central Board. The nucleus of the staff required for the new central controlling and banking organization—the Trustee Savings Banks Central Board—is being recruited. The banks are gearing themselves to provide the new services which, if the House approves this measure, will come into effect at the beginning of the banks' next financial year.
In the second stage, which will run for three years from November 1976, there will be major changes in the form of Government control over the Trustee Savings Banks. A start will also be made on forging a new relationship between the banks and the monetary authorities, a relationship which will eventually develop into a form much more like that applied to the clearing banks. Depositors will begin to see an important extension in the services offered, notably the availability of personal loans. The basic ordinary savings account, whose funds are largely invested with the Government and to that extent guaranteed, will continue in its present form for three more years, as will the tax relief allowed on the first £40 of interest. At the end of those three years the ordinary accounts will become a form of savings account offering terms which the Central Board and the banks consider appropriate.
During the final stage of the transformation period, which the Government expect will last for about seven years until November 1986, the funds placed by the banks with the Government for reinvestment will be gradually handed back. The Treasury will continue to keep an eye on the banks' operations and development, particularly on the rate at which the banks build up their own reserves.
1208 The building up of the banks' reserves is, of course, a crucial element in the transition, which, indeed, cannot be brought to an end before an adequate level of reserves has been achieved. The progress of each regional bank towards an adequate reserve position will be monitored closely by the Central Board through a system of financial projections and regular performance reports. Each regional bank will be working towards financial targets prepared on a rolling three-year basis and approved by the Central Board. Closer scrutiny will be applied to any regional bank which appears likely to fall significantly short of its target. The Treasury will also monitor progress on reserves.
I should make it clear, however, that the Government do not envisage the introduction of any new fiscal aids for the Trustee Savings Banks. It is the intention that the Trustee Savings Banks should compete on equal terms with the commercial banks and other financial institutions. In due course the Trustee Savings Banks will become subject to the same regulations and controls as their competitors. The transitional period will not be extended any longer than is absolutely necessary.
The achievement of the objectives of the Page Report thus involves a considerable increase in reserves and changes in structure, management and relationship with the Government which are dependent on the legislation now brought before the House.
The Bill launches the Trustee Savings Banks on what we may call, in tribute to Sir Harry Page, the Page path—that is the establishment of the Trustee Savings Banks as a third force in banking, a third force which is mutually owned. I gave an assurance in my statement of 31st July 1974 that during the transitional period the Government would retain sufficient powers of control and intervention in order to protect depositors. This is assured by the Bill. The transitional phase will take place under the benevolent surveillance of the Government, but of a Government willing to withdraw from controls greater than those generally applied to the banking system as the Trustee Savings Banks are increasingly able to stand on their own feet.
I do not believe that the House will wish me to go clause by clause through 1209 the Bill, which came to us from another place, but there are a number of points to which I should draw attention. It is largely an amending and enabling Bill which builds on the existing Trustee Savings Banks Act 1969. The early clauses of the Bill deal with the structure and powers of the Central Board. Perhaps the key clause in the Bill is the short Clause 9, which empowers each Trustee Savings Bank to carry on the business of banking. It is this clause which enables the banks to extend their services, including the granting of credit. The banks will, of course, be subject to quantitive controls by the Treasury on the level of investment and loans.
Although the Bill does not limit the power of Trustee Savings Banks to conduct and develop their functions, it is not the intention that they should make loans to the corporate sector. The banks expect from the beginning of their next financial year to develop both their deposit services and their credit services. Their deposit services will include cheque accounts, savings accounts, investment accounts and fixed-term bonds.
The banks' cheque accounts have been expanding dramatically in recent years and they now total well over 700,000 Although this may appear low in relation to the total number of ordinary department savings accounts, it is expected that cheque accounts will continue to increase dramatically. As a consequence, a much wider sector of the community than in the past will be taking advantage of cheque book facilities.
The credit services will include overdraft facilities and a personal loan scheme, but in the short term these facilities are not expected to be significant compared with the total cash balances held by the Trustee Savings Banks. The Trustee Savings Banks will conform with any monetary policy guidance on overdrafts. As for the Personal loans scheme, at the outset loans under the scheme will be within the range of £150 to £1,500 and will be repayable in accordance with current regulations governing personal loan agreements.
I have emphasised the importance of the banks building up their reserves at the same time as they develop their banking services for depositors. An essential element is the removal of the present 1210 constraints on the investment of deposits. Clause 12 removes the present requirement on the banks to invest their current account deposits with the National Debt Commissioners. Together with Clause 16, it unravels the present financial links between the banks and the Commissioners.
Clause 13 and Schedule 3 enable the Treasury to determine the amount and proportion of the banks' funds which each Trustee Savings Bank may invest in a specified range of assets and in particular the overall liquidity position of each bank. This new and more flexible control will replace the existing more detailed control at present exercised by the Commissioners. It will nevertheless enable the Government to protect the interests of depositors by watching the way their funds are managed. It will also ensure that the Trustee Savings Banks retain substantial holdings of public sector debt.
Under Clause 16, the repayment of the ordinary funds invested with the Commissioners will take place. At the beginning of their next financial year, the total sum which will be outstanding to the credit of the banks, excluding current account and other moneys, is estimated at £1,500 million. It is this sum that the Government will be obliged to repay. Movements of sums of this size across the market could be disruptive. Accordingly, there is an agreed scheme to repay by instalments. Eventually the banks will receive the whole of their investment back pound for pound. The underlying securities at present show a deficiency of some £200 million because of a decline in market values over the long period during which the fund has operated. To give the authorities time to reduce and eliminate that deficiency, the banks have agreed that this repayment should be phased over the expected seven years of the transition following the phasing out of the ordinary department.
It may be appropriate here to consider the changes which will occur in the bank's taxation position. The tax relief on the interest paid to depositors in the ordinary department accounts will end when those accounts are phased out in November 1979. The tax position of the banks themselves is rather more complicated, because of the separation of the ordinary and Government side of 1211 their business from their own special investment accounts.
Under existing law, income from ordinary deposits held in the Fund for the Banks for Savings which is managed by the National Debt Commisioners is exempt from tax, so that the ordinary accounts system in practice is free of tax. On the other hand, the special investment department pays corporation tax on the surplus of its income after paying interest and expenses. A later Finance Bill will provide for the ending of tax relief for depositors in the ordinary department, and that income from the Fund for the Banks for Savings will continue to be exempt from corporation tax but the expenses and interest relative to that income will not be available for offset against other income. As the fund is gradually repaid, therefore, the banks will move progressively to the same taxation regime as that which applies to similar financial bodies.
Part III of the Bill deals with various miscellaneous provisions. Clause 24 provides for transferring certain functions from the Commissioners to the Registrar of Friendly Societies and enables the Registrar to regulate, if necessary, the advertising of Trustee Savings Banks. These clauses are required because the Trustee Savings Banks are not at present covered by the Protection of Depositors Act, but it is thought that in their new expanded rôle there should be provision for controlling advertising on similar lines to that applicable to analagous bodies, notably the building societies.
An important element in the future arrangements is that dealing with superannuation of staff. This is the question dealt with in Clauses 30 and 31. It was, of course, necessary to ensure that the staff representatives had a full opportunity for consultation in relation to this matter. The banks have always closely followed the terms offered by public sector bodies. Indeed, their representatives have consistently asked for parity. In future, the Trustee Savings Banks will run their own superannuation schemes. As is the convention in these matters, however, it is appropriate to make full provision for protecting the rights of existing employee and for ensuring that the banks' management has the appropriate powers to bring in new terms which are acceptable to the staff.
1212 We have been assured by the trade union representing the staff of the Trustee Savings Banks that it is completely satisfied with the provisions of the Bill in relation to superannuation. I am pleased to say that the management has given satisfactory assurances, in agreement with the union, which have been conveyed to the staff, about the future of their pensions.
One element in the move to greater independence of the Government is signified by Clause 32, which provides for the dissolution of the Inspection Committee and the preservation of pensions for its staff. The Inspection Committee has an honourable history of some 80 years, and I would like to pay tribute to the members of the Committee and to its staff for the excellent services they have given over the years. The Inspection Committee's main functions will be transferred to the Central Board and appropriate inspection arrangements will be set up.
This short Bill is of great importance to the 10 million or more depositors who have come to rely on the banks for the safe custody of their savings and for the provision of banking services. The Bill gives the banks greater independence and the opportunity to develop services for the benefit of their depositors. It maintains all the essential features of the Trustee Savings Bank movement, particularly the links with their localities. But it couples this with a national approach on policy matters which is important if the Trustee Savings Banks are in fact to develop as a third banking force.
I ask the House to give the Bill a Second Reading.
§ 7.34 p.m.
§ Sir John Rodgers (Sevenoaks)
I am sure the House will be grateful to the right hon. Gentleman for the clarity with which, without going into the Bill clause by clause, he has explained the new powers conferred on the Trustee Savings Banks and all the transitional arrangements which will be made before those powers are fully operative. All who listened to the Minister will agree that this is a useful and important Bill. It is also an unusual Bill. It is unusual first because it is one of those Bills which, in political terms, is completely uncontroversial. I am sure that it will commend itself to all parties in the House. Indeed, it should commend itself to all sections.
1213 I start by declaring my interest. For several years I have been a member of the Trustees Savings Banks Parliamentary Committee. In the past two or three years I have been chairman of that committee. The committee, like all similar bodies, represents all parties and both Houses. I make clear that I derive no pecuniary benefit whatever from my chairmanship of this body, but many benefits from serving and meeting the staff of the Trustee Savings Banks.
The second way in which the Bill is unusual is that although it sets up the Trustee Savings Banks Central Board, it does not extend, as most other Bills do, the Government's power. In effect, it is an instrument for the diminution of the Government's power and gives the Trustee Savings Banks, as the Minister has pointed out, a greater measure of self-government and extended facilities to their depositors. In effect the Bill will out the umbilical cord which for many years has attached the Trustee Savings Banks to the National Debt Office. It will give the banks greater responsibility for their own affairs and great opportunities, I hope, for expansion.
The Bill is unusual in one other respect. Over the years Governments have presented Bills dealing with industries or financial institutions when those bodies have been in financial difficulties. The Bills have been the Government's way to deal with that situation. We have been accustomed to the Government announcing their plans in order to correct various situations, such as Chrysler and British Leyland in recent times. This is not a Chrysler or British Leyland situation. The Trustee Savings Bank is a flourishing bank. It is not asking the taxpayer to come to its assistance in any way whatever. I think that the House will agree that that is unusual. It is also most gratifying.
As the Minister said when presenting the Bill, it follows the findings of the Page Committee's Report. That Committee recognised the great services rendered to the community by the Trustee Savings Bank movement.
I should like to present a few facts. It is interesting to note that one out of every five people in Great Britain has an account with a Trustee Savings Bank. That accounts for the fact that 34 per 1214 cent. Of all national savings are through the Trustee Savings Bank. The deposits in those banks are real cash deposits. They are the result of thrift and hard work by the depositors. The Trustee Savings Banks have encouraged saving by the ordinary people, and what a success story have they had ever since their inception 160 years ago when the first bank was established in Dumfrieshire. I shall come back to the Dumfrieshire bank in a moment.
Last year was the best year ever for the Trustee Savings Banks, with an overall increase of 10½ per cent. The funds for 1975 totalled £4,462 million compared with just over £4,000 million the year before. Good though these figures are, we must not be misled by them. Compared with the savings accounts of Trustee Savings Banks in Western European countries, we are the lowest but one. The only country lower than us is Ireland, which has 70 savings accounts per 1,000 population. The United Kingdom has 254 savings accounts per 1,000 population. However, we must contrast that with Germany, which has 915 accounts, and Norway, which has 1,000 accounts per 1,000 population. Although the United Kingdom figure seem low by comparison with European countries, this is attributable to the lack of building society competition and to the relatively higher penetration of commercial banks in the area of wage and salary earnings in the United Kingdom.
Although, as the Minister pointed out, the Trustee Savings Banks will be reduced not to one monolithic institution like the clearing banks, but from 70 Trustee Savings Banks of various sizes to 17 regional banks, these institutions will still provide local advice on monetary matters and protect the relatively inexperienced people in their localities by helping them to put their savings week by week into safer hands.
It should be remembered that half the population of the country does not yet have a banking account and that the new powers and the wider freedom to offer even more services than before under the Bill will enable the banks to play an ever-developing rôle in the financial life of the country. At this stage, after 160 years of the Trustee Savings Banks, we should express our gratitude to the trustees and staff who have built up this amazingly 1215 successful institution, which is now part and parcel of our financial life. I hope that the new set-up will find many dedicated and devoted people to look after its work.
Will the Minister tell us what the future holds for those banks which are in essence uncertified banks doing a similar job to the TSB, but not belonging to the Trustee Savings Bank Association? Five banks at Greenock, Airdrie, Annan, Dumfries and Lockerbie are not attached. I am told that the Greenock bank may go with the Glasgow branch and that possibly Dumfries will join Edinburgh. But are there any powers in the Bill to affect these banks? Will their ability to invest and lend against hereditable property be affected, for example? Would they lose anything by coming into the TSB movement, and if not will the Minister use his good offices to try to persuade them to join it?
Once again I thank the Minister for the way in which he has introduced this important and useful Bill.
§ 7.43 p.m.
§ Mr. R. B. Cant (Stoke-on-Trent, Central)
Having an interest as I do in banking and financial matters, I must give a general welcome to the Bill and congratulate the Paymaster-General on the brevity and clarity with which he presented it. The purpose of my contribution tonight is to bring to my right hon. Friend's attention some of the misgivings of the North Staffordshire Trustee Savings Bank, the headquarters of which are in my constituency.
I do not make this as a naked constituency point, because I am sure that the situation applies elsewhere. I am sure also that the misgivings of the North Staffordshire bank stem to a very large extent from the fact that this is the most successful Trustee Savings Bank in the country. Deposits of £44 million increased in the last year by £7 million, and that rate of growth was twice the national average. The profit ratio is the highest in the country and the management expenses, at £1.26 per £100 of deposits, are the lowest.
The North Staffordshire Trustee Savings Bank is quite prepared to accept the challenge implicit in the Bill. It is quite prepared to undertake an extension 1216 of the services in the area, for example, of personal loans. Characteristically, on a basis of pragmatism, it will start off in a small way and will extend the service as it is called for. I would like to make two points, however, and these should be taken into account by my right hon Friend.
It would be much happier about the future if it were allowed to keep the whole of its profits. It seems a strange situation in which this highly successful bank is compelled to pass on half of its £350,000 profit to help, not the lame ducks of the movement, but those who are experiencing difficulties because of either poor management or the environment in which they are operating.
The second item that it would throw out as a challenge to the Minister is that it would feel much happier if it were permitted a more flexible policy on the rate of interest. I see no reason why that should not happen. It believes that throughout its history it has played an important part in mobilising savings in the North Staffordshire area. There are about 140,000 accounts and about 450,000 people, a ratio well above the average. There is, however, an average of only about £250 per deposit.
I have made these comments in a subdued key and I now wish to come to the aspect of the Bill which arouses the trustees and the depositors of the bank to some considerable opposition to the proposals for amalgamation. I feel that the suggested amalgamation of North Staffordshire with Nottingham and Leicestershire is rivalled only in its stupidity by the decision to join Uttoxeter and Stafford in some sort of holy union with Wales. The proposals for North Staffordshire are nothing more than a sick joke for which it is difficult to find a charitable explanation. The suggested amalgamation is a complete denial of the facts of geography, an attempt to join areas with populations of completely diverse social characteristics. As an economist I might add that it is a travesty of the elementary principles of business organisation.
What is more serious is the pressure to which the North Staffordshire TSB is being exposed. One can understand the seductive overtures by Nottingham and Leicester, embracing the offer of perhaps a little local autonomy if North 1217 Staffordshire will put up only a token resistance to the amalgamation. But the innuendoes of the officers of the Trustee Savings Bank Association, coupled with overt hints about what might happen if resistance to this amalgamation is carried on once the Bill becomes law, are less acceptable.
I can understand that North Staffordshire is a small jewel which the new bureaucrats are anxious to include in their amalgamated crown. However, I hope that my right hon. Friend will make it clear to the association that the North Staffordshire bank is not prepared to carry on negotiations under this sort of duress. Being a diplomat by nature, I suggest that a way out can be found. The Page Report suggested that the amalgamations might produce between 16 and 20 new units. Even with an independent North Staffordshire Savings Bank, the number would total only 18.
The whole of our post-war history is strewn with failures that have occurred because we have had so many grand theories that have not worked out in practice. I shuddered when I read what some publications had to say about this Bill. The Banker said:
TSBs flex their muscles".The Financial Times referred to:A major new force in consumer banking".The marvellously conservative Daily Telegraph said:Plan for the Trustee Savings Banks heralds third force in banking".Even on Second Reading in another place one noble Lord said the Bill heralded a new era and another said it would cast aside the anachronism of a bygone age. These phrases frighten me.
The Paymaster-General talked about setting up institutions to introduce a comprehensive banking service and of recruiting bureaucracies. We should bear in mind our experience with other bureaucracies that have been recruited. I do not wish to refer to the computer centre in Swansea or even to the growth of the bureaucracy in the National Health Service, the water authorities and Giro. Those people with little native caution about the glowing prospects of these new institutions which have been superimposed on extremely viable and profitable units 1218 should be tolerant if some of those units protest just a little.
The area in which the North Staffordshire Trustee Savings Bank is situated is one with a low profile. It is essentially a working-class area with workers who spend their time handling many of the primitive things of life, such as steel, clay and coal. There is a peripheral engineering industry. They are honest working people who do not even have the apparently fashionable desire to go on strike. They regard the bank in their community as something which renders them a service.
I do not necessarily subscribe to the philosophy that small is beautiful, but many big things can be very ugly. I plead with the Paymaster-General to ensure that this one bank survives. If it does, it will undoubtedly continue to serve the people of North Staffordshire and will also be a very useful yardstick for the Paymaster-General to judge the progress of the rest of the new banking system.
§ 7.53 p.m.
§ Mr. Hugh Fraser (Stafford and Stone)
I should like to congratulate the Paymaster-General on his extremely clear exposition of the Bill and to congratulate the hon. Member for Stoke-on-Trent, Central (Mr. Cant) for his brilliant constituency speech. I agree with every word of it. This bank has every reason to be allowed to survive.
The idea of a national bank being formed from the various Trustee Savings Banks was rejected. It was rightly decided that the new banking system should be based on regions. However, if the Minister consults the new authorities, he will find good reason for saying that there are exceptions which should be allowed to survive for the reasons given by the hon. Member for Stoke-on-Trent, Central.
One should not put what is being achieved too highly. It will take the system several years to settle down and to work out its relationship with nearly 10 million depositors. The Government have not taken the view that these institutions should be called mutual banks. They are to be congratulated on retaining the title Trustee Savings Banks. However, we must recognise that the new system should not only go slowly overall, but should go very slowly indeed in the initial stages.
1219 There are branches of the North Staffordshire Trustee Savings Bank in my constituency and friends in the bank have suggested that one reason for the present low rate of management expenses per £100 of deposits may be the fairly simple services being provided for the hard-working, but not very rich, members of society who use the bank's facilities.
The fact that this is a mutual movement which is now being expanded raises the problem of how to run a banking exercise without capital or sufficient reserves. On the deposits of £4,000 million, even after the National Debt Commissioners have repaid the £50 million they have clawed back in the past 20 years, and adding the banks' own available reserves, there will be initial reserves for this very large savings movement of only about £70 million if it is to indulge in all the facilities provided by clearing banks.
I am not suggesting that we shall have the sort of banking investigation that is rocking the United States because of the inability of the largest banks to back their lendings with sufficient reserves, but this is a serious point which must be borne in mind by the Government. When these banks break free from Government control, they will need infinitely greater resources than the £70 million at present envisaged. There is about £250 million outstanding from the Government to these banks because of the fall in Government securities, but this will taken seven years to repay. There is also the question of tax advantages which accrue to depositors. I am not sure whether the Government have gone quite far enough in saying they should not be extended beyond 1979. It is questionable whether they could go a bit further.
The main point is that one must hasten slowly and where possible retain local loyalties and the special considerations which accrue to areas and not create under Clause 4 a too-powerful body that will try to force recalcitrant members who give excellent services to local depositors into a system which could be to the detriment of the depositors.
§ 8.0 p.m.
§ Mr. Ian Wrigglesworth (Thornaby)
I give a general welcome to the rôle of the Trustee Savings Banks which the Bill provides, although I have reservations 1220 about some of the details. The House will recognise the substantial changes which have taken place in the banking sphere in recent years, particularly the changes in the Trustee Savings Banks as a result of the recommendations of the Page Committee. As well as launching the foundations for the new work which will be carried out under the Bill, the reforming into 17 regional banks is a welcome and overdue reform which already should have brought considerable benefits to the customers of the banks. Like my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant), I am not a great believer in small being beautiful.
Although the reforms in the Bill arise directly out of the Page Committee's recommendations, they cannot be viewed in isolation from the tremendous changes which have taken place over the last few years in the banking world, the speed of which has not diminished in the recent past. The changes which have taken place and are taking place have gathered a momentum of their own which it may well have been wise for the Government to restrain while they took a long, hard look at the way the banking industry was going.
The developments in the Trustee Savings Bank movement have been described as the development of a third force in banking. I and many of my hon. Friends would have welcomed a much more co-ordinated development of public sector banking. The Committee stage of the Post Office (Banking Services) Bill has just finished. Its passage has been notable for having taken place in almost total isolation, without consideration being given to the rôle of the National Giro whose services it seeks to extend in relation to other sections of banking in either the public or the private sector or to various bodies responsible for the supervision of the banking system.
I should like the Government to have followed a coherent policy for the development of the various institutions which currently exist in public sector banking, including the Paymaster-General's Office, the National Savings Bank, the Trustee Savings Banks and the National Giro. I suspect that one reason why that has not happened is that so many Government Departments are responsible for different aspects of banking. I shall return to that later when I 1221 look at who is to supervise the individual Trustee Savings Banks and the Trustee Savings Bank Central Board outlined in the Bill.
As a result of the reorganisation which has already occurred and the new responsibilities which will be undertaken with the passing of the Bill, the Trustee Savings Banks, their management and their staff have been pitchforked out of a relatively peaceful rôle as a straightforward savings bank movement with simple cheque account facilities into a much more abrasive, competitive and inevitably risky world. Their customers have been able to rest easy because they had formidable Government guarantees to back their deposits, and there has been the strictest supervision by the Inspection Committee and the National Debt Commissioners.
As the noble—and Co-operative—Lord, Lord Jacques, said in another place, the bankshave to prepare their staffs, their customers, and the equipment for the lending facilities which will come in the following stage and for which they have comparatively little experience."—[Official Report, House of Lords, 9th December 1975; Vol. 366, c. 844.]Without reflecting in any way upon the ability or integrity of the staff and everyone involved in the trustee movement, the House needs to be assured that the extension of service into new areas will not be too rapid, that the staff will be adequately trained and capable of carrying it out and that there will be adequate supervision of the new activities by appropriate authorities.
To some extent these assurances have been given by the Paymaster-General today, but Clause 9 outlining the powers of the banks, is drawn very widely. Mr. Philip Keens, the Chairman of the South-East Trustee Savings Bank, forecast last November that the banks would eventually lend to corporate as well as private customers. Mr. Catt, the then General Manager of the Trustee Savings Bank, interviewed in October 1974 by the Trustee Savings Bank Gazette, said:We do envisage in the near future setting up a gilt-edged advisory and investment service which we hope to be able to operate for the benefit of the Trustee Savings Bank movement as a whole.1222 He added:we recognise that there are probably a number of other fields, such as personal credit and foreign exchange, which we will need to look at in the fairly near future.I have no desire to restrict these developments, but they represent a substantial change in the type of work being done by the banks and the House needs to be reassured that the banks and their staff are adequately equipped to carry it out. We also need to know exactly what new ventures they intend to embark upon, as the Lord Jacques flatly contradicted Mr. Keens when he said in the other place:I should say that it is not intended to permit the banks to give credit in the corporate sector—[Official Report, House of Lords, 9th December 1975; Vol. 366, c. 845.]I should be grateful if my hon. Friend the Minister would clarify that point.
The House should pay particular attention to the report of the Inspection Committee of Trustee Savings Banks for the year ended 20th November 1974, which was published last July and in which the following comments were made:Two cases notified in 1973 and reported upon in the current year involving many thousands of pounds revealed grave weaknesses in the administrations of the banks concerned… During the year many cashiers have inadvisedly permitted cash withdrawals against uncleared cheques involving some banks in heavy losses…these cases indicated that there had been some lack of supervision and ignorance of the basic elements of savings banking.In the 1973 report one finds the following comments:The number and amount of salad cash errors continued to grow and this trend is causing anxiety to management of certain banks…in a few cases, chiefly in relation to the purchase of motor cars and entertainment, it"—that is, the Inspection Committee—was obliged to take exception to certain items which were considered excessive or unnecessary. The continued growth of management expenses cannot but be a matter of concern both to the banks and to the Committee.As a result of those findings, the Inspection Committee went on to draw the following conclusions about the recommendations made by the Page Committee:It is felt that an independent Inspectorate is essential if the confidence of depositors is to be maintained, and that the Inspectorate should be required to publish annual reports.1223 The Committee went on to point out that its rôole had been:to ensure that management adopts standards which can be regarded as reasonable and acceptable to public opinion.The Committee went on to make the following recommendations for the future:the reason the Committee considers that the Inspectorate of the future needs to be independent is that experience has shown that management is not infrequently extravagant in its ideas on certain matters, that controls are often not maintained since 'familiarity breeds contempt', and that owing to fears of adverse publicity and criticism there is a wish to hide facts and not to take action.The House will agree that these are serious observations and recommendations made by a Committee of the highest standing. Its views need to be weighed carefully by hon. Members in relation to the Bill and to the new powers which it gives to Trustee Savings Banks. I hope that the Minister will reassure the House on these points.
It is proposed under the Bill that no longer will all the funds of the banks be invested in Government stock. I should be grateful if my hon. Friend could spell out tonight exactly what that will mean for the Exchequer and for customers of the banks.
It may be that the interest which the National Debt Commissioners have paid to the banks, plus the tax relief which the Government have allowed customers on their interest, adds up to the same sum as the Government will have to pay to seek the deposits elsewhere, assuming that they will have to seek such deposits. On the other hand, depositors will need reassuring that they will get a reasonable rate of return on their deposits with the banks. In this connection it would be helpful if the Minister could make clear when he anticipates that the Government's guarantees for depositors will be removed.
In addition, I believe that under the competition and credit control rules, the deposits of the Trustee Savings Banks were protected against excessively high interest rates of competitors. I should like to know whether this rule will remain in operation with the new status of the Trustee Savings Banks.
I notice that the £250 million deficit on the Fund for the Banks for Savings 1224 will, it is hoped, be recouped over the next seven years. Clearly there is an obligation upon the Government to ensure that the full amount is recouped. In the unlikely event of that not happening, will the Government make good any shortfall?
One of my strongest objections to the Bill is that it adds further to the panoply of banking supervisory agencies. It is ironic that, at a time when the Treasury is discussing with the appropriate bodies the text of a White Paper on banking supervision and the text of an EEC directive on banking, the Government should introduce two Bills which lay down systems of banking supervision which will clearly be partly—or, indeed, possibly wholly—outside the scope of the new scheme and will largely duplicate them.
I should be grateful if the Minister could make clear whether the new Central Board will be a purely servicing and supervisory body or whether it will also be a commercial bank. I have already made criticisms in this House of the conflicting functions undertaken by the Bank of England. I hope that this new Board will not have similar conflicting functions.
Despite the criticisms which I have made from time to time about the Bank of England, I think it is the most appropriate body to be responsible for all banking supervision in this country. As the recently-published report on the collapse of London and County Securities shows, the Bank of England has fully undertaken this rôle fairly late in the day, and only as a result of the largely self-generated crisis in the banking world which it brought about. However, the Bank of England is uniquely situated and qualified to perform this supervisory role.
The Treasury has various supervisory functions laid down in the Bill—for instance, approving the appointment of the chief officer of the Central Board. However, I see little rôle for the Bank of England in these proposals. If the Government propose to give it a central rôle in the supervision of banking, in my view it should have a rôle in every sphere of banking. None should be excluded from its oversight, including the Trustee Savings Banks and the National 1225 Giro. One simple way in which this might be done, which I hope the Government will consider, is to put a representative of the Bank of England on the Central Board as laid down in Schedule 1, paragraph 2.
However, the Bill not only potentially weakens the new system of banking supervision which we are to have but makes it more complicated than it is at present by bringing in the Registrar of Friendly Societies to perform certain supervisory functions relating to advertising, which for other banks are carried out by the Department of Trade under the Protection of Depositors Act. Bringing in the Registrar of Friendly Societies to carry out these functions may make historical sense, but it seems to have little logic and only further serves to confuse an already deeply confusing situation. I hope that the Government will think again about that proposal.
Finally, I should like to turn to another matter related to the question of supervision. I refer to the capital adequacy and liquidity of the banks as they develop under the terms of the Bill. I should like to know whether the banks will comply with the new prudential requirements which have been agreed between the Bank of England and the London and Scottish clearing banks published in the September edition of the Bank of England Quarterly Bulletin. I assume that they will also form the basis of the requirements which will be laid down in the White Paper to which I referred earlier. If the Trustee Savings Banks are to comply with those requirements, I should like to know from what date they will do so. These questions relate to the Central Board as well as to the banks. I should be grateful if the Minister could clarify the position. The banks, with the enormous resources available to them, should have no difficulty in arranging their assets to comply with the Bank of England's requirements.
In another place Lord Jacques said:the banks hope to build up their reserves so as to show, at the end of that transitional period, that they are able and fully capable of standing on their own feet. During the transitional period, the banks will be under the benevolent gaze of the Treasury for two reasons: first, the Government have a continuing commitment to look after the interests of depositors; and, secondly, the banks themselves have a continuous commitment to the main- 1226 tenance of a ratio of investment in the public sector."—[Official Report, House of Lords, 9th December 1975; Vol. 366, c. 844.]I think that the House needs to know what is meant bystanding on their own feet.The House also needs to know how long the Government'scommitment to look after the interests of depositorswill last, and what specifically is meant bya continuous commitment to the maintenance of a ratio of investment in the public sector.As regards the relationship which the Minister anticipates will exist between the Bank of England and the Trustee Savings Banks and their Central Board, I should like to know whether the trustee institutions will be expected to respond to calls from the Bank for special deposits and to its guidance on the quality and quantity of lending.
I end by reaffirming my general support for the Bill and the new powers which it seeks to give to the Trustee Savings Banks. It is right that they should be developed in the way envisaged. How-ever, I deplore the piecemeal and apparently haphazard way in which the Government are developing their banking policy in relation to both the growth of public sector banking and the system of banking supervision.
I was sorry to see that Sir Athelstan Caroe, the then Chairman of the Trustee Savings Bank Association, in his address to the 1975 annual conference, said:The longer the interval between the announcement of the Trustee Savings Banks' future rôle and its implementation, the greater the opportunity for our competitors to prepare against the day we finally assume our new status. In particular, I have in mind the proposed extended scope of the National Giro operations which has been annouunced by the Government.This betrays the wrong sort of attitude.
I should like to see the closest possible co-operation between the Trustee Savings Banks, the National Giro and other banking organisations in the public sector. I hope that the Government will seek to ensure that situation. I also hope that they will think again about the proposed system of supervision set out in the Bill and will make changes to link it in more closely with a better co-ordinated, better operated, more easily understandable and 1227 reliable method of supervision centred on the Bank of England.
§ 8.18 p.m.
§ Mr. Geoffrey Finsberg (Hampstead)
I am happy to welcome the Bill and to join in the tributes to Sir Harry Page, who was one of the most distinguished of local government treasurers, apart from heading the committee of inquiry.
Like my hon. Friend the Member for Sevenoaks (Sir J. Rodgers), I should declare an interest in Trustee Savings Banks. For nearly 25 years I have been a member of a local committee and served on a board which has twice beeen enlarged and taken over. On all occasions my activities were purely voluntary; I drew no sort of fee.
Trustee Savings Banks have grown over the past century and a half by enlisting the help of local people to encourage citizens to put in their money and gradually to expand the services available. The time for this change is long overdue. I can remember saying about 10 years ago that it was only the hostility of the joint stock banks that had prevented the TSB movement from issuing cheques much sooner.
I will try to raise my sights slightly higher than the Trustee Savings Bank of North Staffordshire, important though it clearly is. I am sure that it has many sagger-makers' bottom-knockers among its depositors. But I do not believe that the movement will be able to progress if extra banks are created. I believe that the figure hit upon by the Voluntary Association of Trustees of Savings Banks—not by any dictate of the Government: the Government set a parameter and the trustees, at various area meetings, decided the number—is probably about right.
Perhaps one of the most generous gestures made in this movement is the willingness of London to submerge itself. The London Trustee Savings Bank was itself an amalgamation of three banks. We then merged with the South-Eastern Bank to become the London and South-Eastern Trustee Savings Bank. As a result of these proposals, the bank will now be called the Trustee Savings Bank (South-East). I regret that the title of the capital city will no longer appear in the name of a Trustee Savings Bank.
None the less, I recognise that these small differences should not inhibit the 1228 progress that the banks wish to make. My right hon. Friend the Member for Stafford and Stone (Mr. Fraser) commented on the size of the reserves and was a little unhappy with the figure of about £70 million, which he quoted. My information is that at the end of the 10 years the reserves will be about 7 or 8 per cent., or about £275 million-plus. I am given to understand that the figure satisfies the Government's requirements, but no doubt the Minister will tell us if it is not accurate.
I pay tribute to the Paymaster-General for his interest in and support of the Trustee Savings Banks. We are very much the poor relation of savings banks in the Western world. The powers which up to now have been available to Trustee Savings Banks in this country are minimal compared with those available through-out Europe and Scandinavia, not to mention North America and points even further away. So these powers are long overdue.
In a rather questioning speech, the hon. Member for Thornaby (Mr. Wrigglesworth) made one or two errors and tried to make some assumptions from a reading of two Inspection Committee reports. For example, before he spoke about the reports, he quoted the new general manager of the Central Bank as saying that the banks wished to issue foreign currency and travellers' cheques and the like. We have been doing this for five or six years, so it is no new service.
The hon. Gentleman also said that the Trustee Savings Banks were, to paraphrase, not quite as "with it" as some of the secondary banks. I hope that they never will be. I realise that he was saying that they must get "with it" in the abrasive world that they seek to enter, but the movement has one of the most successful unit trusts and I should have thought that it was well capable of holding its own in the sphere that the Government have agreed upon.
I, too, welcome the retention of the name "Trustee". This was the wish of the banks themselves, not of the Government. Everyone was united against Sir Harry's wish to call the movement "Mutual".
It was also a trifle unfair of the hon. Member for Thornaby to single out of 1229 Inspection Committee reports the fact that there was concern about a number of small discrepancies in one or two Trustee Savings Banks. I doubt whether one joint stock bank or a branch of the National Savings Bank could say with its hand on its heart that it too, at the pace at which people have to operate, did not make mistakes. Even the National Giro has been known to lend money to people without authority. It is a little unfair to take these points in isolation. I recognise that the hon. Member was trying to be generally helpful, but he may have created the wrong impression.
§ Mr. Wrigglesworth
I hope that I have not created the wrong impression. I am not seeking to criticise staff or abilities. Of course mistakes occur in any organisation. What I am concerned about is that machinery should exist to ensure that the sort of mistakes which can be made are rectified and do not lead, with this new rôle that the banks are taking on, to a much more serious situation than in the past.
§ Mr. Finsberg
I understand the underlying philosophy that the hon. Gentleman is putting forward. From my own knowledge of the movement and with some practical experience, I do not believe that those responsible for guiding it—or the staff—would lightly have entered upon the prospect of these new responsibilities if they felt that they would not be capable of fulfilling their obligations to their customers.
It has always been the proud boast of the movement that the customer is important. The TBS has always been the small man's bank. I am glad that among some of the new powers which the banks will be able to exercise will be the power to make bridging loans for house purchase. That is a very valuable service.
Of course there must always be a tinge of regret when institutions which have been known for a century or more disappear and re-form themselves into large units. We should not necessarily go overboard for the concept that everything small is beautiful and everything large is ugly. There may be room for something in between. I certainly agree that it would be unfortunate had one Trustee Savings Bank been formed. That would have been a mistake; the geographical spread is about right.
1230 I am glad that the Bill proposes to remove the well-meaning but somewhat claustrophobic Treasury control which has been exercised for many years and which has sometimes been very frustrating to trustees and staff in their efforts to provide even better services for their customers.
I hope that the Bill will be given a Second Reading. The debates in another place were extremely interesting and produced very little difference of opinion on any side of the House. The hon. Member for Thornaby might think that it is unfortunate that there was not enough questioning. From my knowledge of at least one noble Lord, namely, the former Jimmy Hoy, I know that had he listened to some of the remarks made by the hon. Gentleman, he would have launched forth vehemently in support of the trustee savings movement and would have said "No, these questions are not very important." I should have agreed with him in this instance. They are rather more esoteric and are directed to the Government's overall banking policies than merely to the Trustee Savings Banks.
I have already apologised to my hon. Friend the Member for St. Ives (Mr. Nott) and I do so to the House for having to leave and not being able to listen to the winding-up speeches because of the re-arranged time of the debate. I hope that the Bill will receive a Second Reading. I also hope that the many depositors will accept that the new rules of the Trustee Savings Banks will be to their advantage, and that they will have nothing to fear from a gradual unloosening of No. 11's apron strings. I hope that in the 1980s the Trustee Savings Banks in this country will begin to give the same sort of service that their counterparts' customers in other countries have enjoyed for a long time.
§ 8.30 p.m.
§ Mr. David Knox (Leek)
Like my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) and the hon. Member for Stoke-on-Trent, Central (Mr. Cant), I have a strong constituency interest in the Bill because of its possible effects on the North Staffordshire Trustee Savings Bank. I am also interested in the Bill because it was only a few miles from where I was born that the Rev. Henry Duncan founded the first savings 1231 bank in Ruthwell in 1810 in the constituency of my hon. Friend the Member for Dumfries (Mr. Monro). I suppose I also have an interest because I was, and for all I know may still be, a depositor with the Lockerbie Savings Bank, which my hon. Friend the Member for Seven-oaks (Sir J. Rodgers) mentioned earlier and which is in the constituency of my hon. Friend the Member for Dumfries.
For a number of reasons, although I do not oppose the Bill, I cannot welcome it quite as warmly as did the Paymaster-General or my hon. Friends the Member for Sevenoaks and the Member for Hampstead (Mr. Finsberg). There is no doubt about the success of Trustee Savings Banks. They are the banks of ordinary people, far more than the joint stock banks. They are the banks that small savers use. One person in five in Britain today has a Trustee Savings Bank account. It is just as well that we should remember that before we think too ambitiously about giving the banks other functions. In those accounts there are deposits in excess of £4,000 million which by any standard, even in these days of inflation, is a lot of money.
Over the past century and a half the Trustee Savings Banks have had a record of great and considerable achievement and they are as successful today as they have ever been. Therefore, one wonders why, in view of this record of success, it is necessary to make some of the changes proposed in the Bill. I can see advantages in changing something that is not working well, but I find it difficult to see advantages in changing something that is working as well as the Trustee Savings Banks are working today.
The Bill stems from the Page Committee's Report on National Savings, to which my hon. Friend the Member for Hampstead referred. That Committee recommended among other things the rationalisation of the 70 Trustee Savings Banks of varying sizes into a small number of regional banks operating under a strong central authority. It also recommended the expansion of the powers of those banks. This rationalisation has already been carried out and there are now 17 regional banks and the North Staffordshire Trustee Savings Bank, which declined to participate in any amalgama- 1232 tion, for reasons to which I shall come in a moment.
At this stage I would merely comment that this rationalisation has been yet another attempt to create bigger units. I only hope that it will not have the same disastrous consequences as so many other recent rationalisations have had. Obviously, there are some instances where bigness is necessary, but the past few years are littered with examples of disastrous amalgamations where bigness has been totally inappropriate. I wonder whether it has been sensible to amalgamate the Trustee Savings Banks, particularly be-because of the close personal relationship which exists between the depositor and his bank. That relationship is of particular importance. I wonder whether in bigger institutions that relationship may not be lost.
I turn more specifically to the North Staffordshire Savings Bank. This is the most successful Trustee Savings Bank in the country for a number of reasons. First, it has about 140,000 depositors, which is well above the already high national ratio of depositors to population. Secondly, in the past year deposits have risen by twice the national average rate of growth. Thirdly, its management expenses are the lowest in the country, representing only £1.26 per £100 of deposits. Fourthly, its profit ratio is the highest in the country.
Compared with the new amalgamated giants, the North Staffordshire Trustee Savings Bank is a small bank. However, it is a small bank with a record of success, and it provides a real service to the people of North Staffordshire. Its successes over the years and at present show that it is meeting a real need for the people of North Staffordshire. There is, therefore, no need for it to amalgamate and no particular need for it to expand or to change the nature of its services.
In fact, the trustees declined to participate in any amalgamation for two very good and substantial reasons. First, they felt that North Staffordshire had little in common with adjoining or near areas. That is obviously true in relation to the Manchester area, Shropshire, or other parts of Staffordshire. Secondly, the trustees were not prepared—and rightly so—to amalgamate with less successful banks to the disadvantage of their depositors. After all, it is hardly fair to the 1233 depositors in a bank—and it would be unfair to depositors in the North Staffordshire bank—if their bank amalgamates with banks making less profit.
However, having, in my judgment rightly, refused to amalgamate, the trustees of the North Staffordshire TSB are now worried about the possible effects of the Bill. Although the North Staffordshire TSB is a successful bank, it is, as I have already pointed out, a small bank and it has deposits of much less than £100 million. This means that under the Bill the bank will not be entitled to a seat on the Central Board, but it will be under the direction of the Central Board.
As I understand it, Clauses 1 and 4 give substantial powers to the Central Board. It would seem that the Board would be able to curtail and interfere with the bank's activities, possibly to the detriment of the depositors. It would also seem that the Central Board could use its power to force the North Staffordshire TSB to amalgamate with some other bank. Both possibilities rightly worry the trustees. Already, before the Bill has been passed, pressure has been put on the trustees—the hon. Member for Stoke-on-Trent, Central mentioned this—to amalgamate with other banks with which they have little in common. The trustees are afraid, not surprisingly, that once the Bill becomes an Act, overwhelming pressure will be placed upon them to agree to some ridiculous amalgamation.
I hope that the Minister will be able to assure the North Staffordshire TSB, first, that under the Bill the Central Board will not be able to force the North Staffordshire TSB to amalgamate against the wishes of the trustees and against the interests of the depositors; secondly, that individual Trustee Savings Banks will be free to pay such rate of interest as their profitability allows; thirdly, that the Central Board will not be able to do anything to destroy the expansion by individual banks of their savings accounts business; fourthly, that the Government will consider amending the Bill to reduce the deposit qualification for the Central Board to such a level that the North Staffordshire TSB is entitled to a seat on the Board.
§ 8.39 p.m.
§ Mr. Hector Monro (Dumfries)
I hesitate to intervene in this North Stafford- 1234 shire debate, which has been putting the case so clearly. Indeed, I am beginning to have grave doubts about the Bill the more I listen to the debate. My hon. Friend the Member for Leek (Mr. Knox) was born, as he said, in Dumfriesshire, near to the very heart of the beginning of the savings bank movement.
The Minister, in opening the debate, referred to the Page Report, which recommended rationalisation of the Trustee Savings Banks—that is, the closing of smaller branches and amalgamating them into a number of large banks suitably placed in any particular region. The Bill will give greater participation by depositors if they really want it, though I do not know whether they do, and will also set up a Trustee Savings Bank Central Board. I wonder what that will mean in terms of salaries and pensions. There may be good intentions, but I am far from certain that there will be any improvement in the services or the expert advice already in existence at local level; and there may be increased expenditure.
I may be wrong, but I do not like casting away local pride and local branches. I feel that this is certainly unlikely to happen in my own area of Dumfrieshire. I am glad to speak in this debate because Sir Henry Duncan was born at Ruthwell, in my constituency, and many of us went there in October 1974 to celebrate the anniversary of his birth. It was in the middle of an election campaign but it was well worth attending that very splendid function. It is most interesting that the three banks nearest his birthplace—at Dumfries, Annan and Lockerbie—are still independent.
I want to put a question to the Minister on a subject raised by my hon. Friend the Member for Sevenoaks (Sir J. Rodgers). It may be a Committee point, but if I raise it now the Minister will have more time to think about whether an amendment is required when we come to the Committee stage. The point, which was raised in another place, is whether a savings bank which is not a Trustee Savings Bank can continue to invest funds in loans over heritable property in Scotland. At present the banks have power to do so under the Trustee Investment Act 1961, Schedule 1, part II, paragraph 13.
The noble Lord, Lord Jacques, replied by letter to my noble Friend Lord 1235 Drumalbyn on 28th January 1976. I quote his letter:The Trustee Savings Bank Bill is intended to give the Treasury powers, under paragraph 22 of Schedule 3, to approve 'assets of such other classes (including loans to a depositor or customer of the trustee savings bank) as may be designated'. I am glad to be able to say that if the Dumfries Savings Bank (and the other Scottish Savings Banks) did decide to join one of the Scotish regional Trustee Savings Banks, the outstanding loans made on heritable property would be so designated by the Treasury and would then not need to be repaid.The crucial word in that letter, which I was grateful to receive from my noble Friend Lord Drumalbyn is "if"—if the bank decided to join one of the regional Trustee Savings Banks. That gives a very strong hint that, unless the bank is prepared to conform and join one of the larger groupings, it might not be able to continue its policy over very many years.
I would like the Minister in replying to give me a little information. Would it be possible, and most certainly will it be possible without taking the steps about which there is much concern, to join or not to join the larger movement?
Then, what about future loans in relation to the subject of loans over heritable property? This is very important in an area where agricultural land is offered frequently as security. Will these non-trustee banks be able to make loans in the future? I am referring, of course, to making new loans rather than continuing existing loans. If the directors are prudent—and all savings banks directors are very prudent—and keep within their liquidity ratios, can new loans be made on this basis?
Finally, I repeat a point which has been dealt with in principle by all right hon. and hon. Members representing Staffordshire constituencies. Should a non-Trustee Savings Bank go into the movement? I hope that the Minister will spell out the advantages for a savings bank, as it stands at present, to amalgamate with one of the two big groupings in Scotland—or are there advantages in staying independent, giving exceptionally good advice, knowing local conditions and knowing the local people? Should all that be given up to come within this larger grouping? This is the crucial point which the Minister has to answer not only 1236 in relation to the much smaller banks in relative terms in Dumfriesshire but in the bigger context of the bank in Staffordshire.
I appreciate the great importance of the savings movement, and it has been epitomised by savings banks over 150 years. Everything that we can do to help them to bring in new depositors and to provide better services is to the good and to the advantage for the future. The banks have done a tremendous job in building up agriculture and industry over this period and in providing a sound place for the individual to deposit his savings.
I have these few fears and these few important questions which I leave with the Minister, but in general I accept the principles of his Bill.
§ 8.48 p.m.
§ Mr. Ian Stewart (Hitchin)
I do not wish to delay the House for very long, but I think that it is proper for a tribute to be paid by a practising banker to the staffs of the Trustee Savings Banks, especially those in the Central Trustee Savings Bank, who, by the conduct of their business over many years, have established such good credentials for allowing their movement to develop into some of the wider areas of banking. In declaring an interest as a banker, I am happy to learn that the bank which has employed me for 15 years was formed in 1810, like the first of the Trustee Savings Banks.
The situation has changed since then, of course, and in general we all welcome the sensible amalgamations which have occurred. A development of this kind depends considerably on the good will and the consent of the constituent bodies and, although I did not expect to be greeted by the strength of the Staffordshire lobby in this debate, I think that right hon. and hon. Members representing Staffordshire constituencies had an important point to make in that, where a savings bank has established its own identity with such success and in such an individual way, it is a pity if its qualities and abilities are submerged in a wider grouping. I hope the Treasury Ministers will look again at this point.
One of the main aspects of the Bill is that it does not follow some of the odder suggestions in the Page Report. 1237 It has not adopted the term "mutual banks", let alone the Page Report's first choice, which was for "people's mutual banks", which has a terrible connotation of economic collectivism which I am sure that we are wise to avoid.
Equally, on the financial aspects it has avoided the suggestion that the reserves of the Trustee Savings Banks should be topped-up at the outset by some grant from the Treasury and has said that they should be allowed to be built up gradually during the transitional period. I am sure that that is preferable. The Paymaster-General mentioned that there was a deficiency, which at the end of 1972 had been £117 million on the Fund for the Banks for Savings and that it was now £200 million. If I understood him correctly, he said that this would have worked itself off by 1983.
The hon. Member for Thornaby (Mr. Wrigglesworth) rightly asked whether it was wishful thinking on the part of the Treasury that by that date the fund would be able to come back into balance, or whether all of the stocks were short-dated and would have matured within seven years. It would be helpful to know what the position is about the volume of funds of the Trustee Savings Banks at present represented by the deposits with the Fund for the Banks for Savings. The hon. Member for Thornaby raised another important point—namely, the tendency of the number of bodies involved in banking supervision to proliferate. I emphasise that. I shall not rehearse the arguments put forward most effectively by the hon. Member.
It seems, if the ultimate intention is that the Trustee Savings Banks should come under the credit control and supervision of the Bank of England, that it would be better if this were to happen sooner rather than later. I hope that the Financial Secretary will be able to reassure us that one of the reasons for this not happening at the outset is not that the Treasury has some ulterior motive and is working against the interests of the depositors in that under the present system, indirectly, the funds of the Trustee Savings Banks support an important part of the National Debt. It would be right, in setting up new arrangements for the Trustee Savings Banks, and recognising this wider interest of the customers, for this to be dealt with at the beginning.
1238 I draw a contrast between these welcome proposals, for the Trustee Savings Banks—which have established their credentials by wise commercial behaviour over many years—and the proposals to give wider banking powers to the Giro. It seems absolute nonsense to attempt to produce a profit for Giro by grafting on to what is no more than a mechanical payment transfer system wider powers of commercial banking, with all the inherent risks, in the hope that this will enable Giro to make profits to offset the losses it has suffered.
The contrast is between not only the powers which are to be given to these two bodies but the ways in which they are to be developed. The granting of overdrafts and personal loans to customers of the Trustee Savings Banks is a perfectly natural extension of the existing functions of these banks and is thoroughly to be welcomed. The Page Report drew attention to the difficulty of defining a boundary between personal loans and loans for personal businesses. There is no absolutely clear boundary between personal and corporate borrowing. As I understand it, the Paymaster-General said it was clear that there was to be no corporate lending by the Trustee Savings Banks. I welcome that although I do not welcome the proposals for Giro.
My hon. Friend the Member for Hampstead (Mr. Finsberg) talked about some of the wider powers and activities of other savings banks in the rest of Europe. I would certainly be unhappy if it was ever to be contemplated that our savings banks should be allowed to engage in the sort of activities in the wider commercial banking area and internationally which have led some of the West German banks into serious problems in recent years. I hope that we can rely on the Treasury and the Bank of England or other supervisory powers which dictate these matters in the future to ensure that that kind of thing does not happen.
The Bill, and the proposals for the Trustee Savings Banks have been widely welcomed in banking circles. The admission of the Trustee Savings Bank to the clearing system in the City is evidence of that. The banks' performance and cautious but steady growth in the past few years augurs well for the development of the Trustee Savings Bank movement in its new rôle.
§ 8.56 p.m.
§ Mr. James Kilfedder (Down, North)
The Trustee Savings Banks have had an honoured and successful history since they were established 160 years ago. The movement has now become part of the nation's fabric. The savings, which were deposited through the thrift and hard work of working people together, with the hard work of the staff and the dedication of the trustees, contributed to the success of the movement.
But it has not been easy going. The movement has been through difficult periods. Sometimes the Trustee Savings Bank faced opposition from the clearing banks and the City but, to its credit, it was not intimidated. It served the modest saver and it now has unit trusts and cheque accounts, despite opposition from other banks.
As the Minister said, the Trustee Savings Banks have played an important part in the history of the country and have an even more important part to play. The enabling Bill confers new powers on the Trustees Savings Banks, including the ability to make personal loans, to grant bridging loans and to allow modest overdrafts. The new powers will help the movement to serve the community further.
Reference has been made to Great Britain. In the House of Lords reference was made to England, Scotland and Wales. Everyone appears to have forgotten that Trustee Savings Banks also exist in Northern Ireland. Hon. Members have referred to the success of various banks in Great Britain, but they should recognise that the Trustee Savings Banks in Northern Ireland acted as pace setter for banks in the rest of the United Kingdom.
The Trustee Savings Bank in Northern Ireland has become a regional bank with funds of £200 million. Amalgamation of the banks in the Province has been carried out and I think it has operated as a regional bank since 21st November 1974. I believe that this was about a year before regional banks came into operation in Great Britain. Let us therefore pay tribute to the Trustee Savings Banks in Northern Ireland. There are 55 branches in Northern Ireland with a total of 600,000 accounts. They have not been slow to use the powers that were granted 1240 to them some time ago. Twenty-five thousand cheque accounts have been established in Northern Ireland since the system was set up, in February 1970. All this has been done despite seven years of terrorism.
Tribute should be paid to the staff who have managed to carry on so successfully. Tribute should also be paid to the depositors who have continued to save their money. The Trustee Savings Bank movement in Northern Ireland is an example which other Trustee Savings Banks in Great Britain might follow.
I welcome the Bill on behalf of the staff, the depositors and the Trustee Savings Banks in Northern Ireland. The savings banks are ready to provide new services for the depositors, and it is hoped that new customers will come forward. The Trustee Savings Banks deserve public support.
§ 9.1 p.m.
§ Mr. John Nott (St. Ives)
We generally welcome the Bill, although my hon. Friend the Member for Leek (Mr. Knox) and, to a lesser extent, my hon. Friend the Member for Dumfries (Mr. Monro) have certain reservations. The Bill follows on the recommendations of the Page Committee. It is based upon discussions and consultations first set in train when we were in office. Naturally, the Labour Government had to take up the matter from where we left off in February 1974, but I am glad to see that the conclusion of the discussions is now embodied in the Bill.
Although this is very much a Committee Bill in the sense that we shall want to examine all the clauses in rather more detail upstairs, I am sure that we were right to have a Second Reading on the Floor of the House. The debate has brought out the great loyalties, the local feeling, and the regional interests which go back to the beginnings of the Trustee Savings Bank movement. Many of my hon. Friends have devoted a great deal of time and interest to the movement. It was useful to have interventions from my hon. Friends the Members for Seven-oaks (Sir J. Rodgers) and Hampstead (Mr. Finsberg). My hon. Friend for Hampstead has been connected with the movement for 25 years. That takes my hon. Friend back quite a long way. He enjoys an impressive record.
1241 The Bill marks a major change in the structure and future status of the Trustee Savings Banks. It is right that in Committee we should consider many of the clauses in some detail. I take this opportunity to congratulate all those who have served the movement so devotedly over the years as unpaid trustees, friends of the movement and employees. Further, it is right to congratulate the movement on the enthusiasm and speed with which the amalgamations have taken place.
One paragraph in the Page Report sets out very well some of the conflicting views which were received from the movement when the Page Committee was sitting. I suppose that it must have received those views in 1972 when it was taking evidence. Paragraph 189 makes the point that the Trustee Savings Bank Associationclearly had to reconcile the conflicting views among their member banks. Many in the trustee savings bank world seem to believe that the Government guarantee is the rock on which they stand and that their strength lies in their essentially local character.The Report then refers to the building societies where no such guarantee exists, and the loyalty to the National Savings Bank which is not local in any way. It continues:The National Savings Bank has national coverage and the largest of the trustee savings banks cover areas in which local acquaintance with trustees and their contact with depositors must be minimal.The Report goes on to say that on the other hand the Committee met many people in the movement who were anxious to move into new fields and to broaden and develop contacts with other banks. I remember that at one time when I was in the Treasury I had minor responsibility for savings matters. In 1972–73 there was a slight generation gap in the movement between those who favoured more traditional ways of proceeding and some younger members who wanted to move ahead.
§ Mr. Nott
I had noticed the 75-year limit. I had a different thought in my mind. I believed that the Government required some precedent for appointing 80 and 90-year-old members to the board of the BNOC. I know that they have appointed one member of 25 which brings 1242 the average age of BNOC down to about 75.
The hon. Member for Thornaby (Mr. Wrigglesworth) was a little unfair to talk about the banks being pitchforked out of their peaceful existence into a more abrasive and risky world, and he wondered whether the staff were adequately equipped to carry out the tasks. I see the point made by the hon. Gentleman, but there is an enormous amount of experience and inherent caution in the Trustee Savings Bank movement. One can compare the experience of management in this respect with the other banking sector named in the Queen's Speech. I refer to the Giro, which seems to be speeding headlong into areas which that organisation has neither the experience nor the foresight to embrace, particularly in dealing with foreign exchange and other matters. I have great confidence in the capacity of the Trustee Savings Banks and their managements to move slowly into these new areas of activity.
§ Mr. Wrigglesworth
Would the hon. Gentleman like to compare the situation with the 30 or so banks that would not exist at present but for the lifeboat operations carried out in the City which have saved those banks from falling into difficulty?
§ Mr. Nott
The hon. Gentleman made that interesting observation in his remarks and it was taken up by my hon. Friend the Member for Hitchin (Mr. Stewart) in a short intervention. He mentioned the supervisory aspect of banking and the relationship of the Bank of England to the Central Board. The hon. Member for Thornaby said that the Giro, the National Savings Bank and the Trustee Savings Bank should come under the overall supervision of the Bank of England. That touched a spark of agreement in my mind and no doubt my hon. Friend the Member for Hitchin would agree. No doubt we shall examine that matter in Committee.
The whole existing state of banking legislation is unsatisfactory and needs reforming, and I am sure that it will be reformed. That is an important subject which requires further examination on another occasion.
I am sure that the decision to move in the direction proposed by the Bill is right. Progress undoubtedly will be slow. 1243 There are millions of depositors and trust must be maintained.
The hon. Member for Stoke-on-Trent, Central (Mr. Cant) said that it must be disturbing to a number of local banks to be pushed in a direction in which they do not want to go. I remember other occasions when a county has been merged with another area and when there has been difficulty. If the North Staffordshire Trustee Savings Bank regards everything to do with Nottingham and Leicestershire as obnoxious and strange, maybe the Treasury needs to look at this aspect again. I am not able to judge, but perhaps we can look at this matter in Committee.
I am not entirely sympathetic with the observations of my hon. Friend the Member for Leek. The high moral tone which was associated with the formation of a Trustee Savings Bank is one—I do not mean this in any cynical sense—which he has often introduced into our debates. Having been born near the founder of this movement, I listened to what my hon. Friend said with great interest. However, it is rather difficult, if the overall view of the movement is for amalgamation, for one bank to say that because it has been very successful and its profits are very high, it has a right to hold out independently. Nevertheless, I hope that my hon. Friend will join us during the Committee stage of the Bill so that we can debate the independence of this bank at greater leisure.
It is right that my intervention should be short. I took the liberty of reading the speech of Lord Amory, for whom I have great admiration as an ex-Treasury Minister, as a West Countryman and because he is an ex-politician who can confine his remarks to about three minutes. On this occasion I have set out to do the same.
I read with great interest an extract in the Page Report. Paragraph 89 refers to some of the letters which were exchanged at the time the movement was founded. A report entitled "Summary View of Report and Evidence Relating to the Poor-house 1818" was written by S. W. Nicholl. He said:In every new disciple of the Savings Bank I see at least two apostates from the Poor Rate and in 15 to 20 years there is no reason to doubt"—1244 this was in 1818—that the inherent and progressive principle of the Savings Bank will have not only stopped the progress but will have entirely routed the influence of its antagonist the Parish Rate".There are about 5 million or 6 million people receiving social security benefits of one sort or another and 17 million people dependent on the State in one way or another, as employees or in receipt of benefits. Although the Trustee Savings Bank movement has made enormous strides and been an extremely valuable feature in our national life, alas, the Poor Rate, or its modern equivalent, does not seem to have declined in its importance with the rise in the importance of the Trustee Savings Bank movement.
This has been a useful but short debate. We shall want to spend some time on the details in Committee. However, in our view generally this is an uncontroversial measure and one that we welcome. I am glad that the Government have brought it forward.
§ 9.13 p.m.
§ The Financial Secretary to the Treasury (Mr. Robert Sheldon)
Naturally I too, am pleased with the general welcome, sometimes muted and sometimes a little involved, that has been given to the Bill. One matter which did not surprise me, although it is always interesting to hear evidence of it, is the large amount of local pride evinced about the Trustee Savings Banks. This is a feature that has always been associated with this movement.
The movement has always had a number of very specific and real advantages which have kept it going over a long period. It has had the moral guidance which was referred to by the hon. Members for Leek (Mr. Knox) and Dumfries (Mr. Monro). The banks have had low levels of expenses. In the early years of the Banks' formation a great number of people were prepared to give of their time and that achieved some of the efficiencies which were then not too readily available to small savers.
Small saving by its very nature can be a rather expensive operation to organise and the great merit of the Trustee Savings Banks is that they take in large numbers of fairly small sums and so are able to give to their depositors comparable rates 1245 —and in some cases higher rates—than those with larger sums to invest are able to secure elsewhere. This was the great justification for the whole movement that was started in the constituency of the hon. Member for Dumfries. Together with this there remains the specialisation which these banks are still able to employ, specialisation and expertise in the interest of the small investor.
These are two essential bases upon which the development of the TSBs rests. But it also rests upon a third factor on which we heard a considerable amount of eloquence from my hon Friend the Member for Stoke-on-Trent, Central (Mr. Cant), the hon. Member for Leek and others, and that is local patriotism. It is the combination of expertise and knowledge of the community that gives the Trustee Savings Banks their force today. People engaged in this movement know their locality and their customers and they know the business of small savings. When we consider the enlargement of their role, therefore, we must make sure that we lose none of the advantages which it is essential to retain.
My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) spoke of the need to retain the confidence of depositors. I could not agree more with him. This applies in all banking operations. It is an essential factor, but perhaps in a certain restricted way it applies even more to the small investor who may not be sufficiently knowledgeable. The kind of arrangement which would satisfy those who are more sophisticated and have a greater understanding of the financial world might not be sufficient to satisfy the small investor. When my hon. Friend the member for Thornaby spoke of the need for caution, I was wholly with him. I think that what I have to say might go some way to satisfy his very real concern.
With the changing approach which is represented by the Bill the Trustee Savings Bank will assume a larger rôle. I am sorry that it does not include, as my hon. Friend would wish, a co-ordinate approach between the clearing banks and Giro, but this is not lacking from the Government's intentions. As he knows, there will be new banking supervisory legislation which will deal with the Trustee Savings Banks and Giro among 1246 others. That is something for another legislative occasion and it cannot be dealt with by this Bill. I hope that my hon. Friend is satisfied with that assurance.
A lot of the questions put to me tonight are matters for the new Central Board once it is established. But in so far as we can predict what might happen I shall attempt to answer them. The strong and concerted efforts by hon. Members in connection with the North Staffordshire Trustee Savings Bank must be dealt with first. I have been aware of the representations made on this matter and of the correspondence that my right hon. Friend the Paymaster-General has had with a number of hon. Members about the amalgamation and its effect upon the North Staffordshire Trustee Savings Bank.
Although the Bill is based on the assumption that the Trustee Savings Bank movement will be strengthened by the regional groupings envisaged in the Page Report, it does not require any particular kind of regional grouping. Any grouping involving the North Staffordshire Bank is essentially a matter for the Board and the bank's management to discuss in detail in the first place. There may be some misunderstanding of the positions on either side. I am advised that a delegation from the Trustee Savings Banks Association is to meet the North Staffordshire bank's management in a week's time to go over the whole matter again. I can assure hon. Members that there is no question of negotiations under duress and what is sought here is an advantage not only for the bank, but for its depositors generally. I am sure it is in that light that the new Board will deal with the matter.
My hon. Friend the Member for Thornaby, the hon. Member for Hitchin (Mr. Stewart) and others referred to the problems facing Trustee Savings Banks when they are pitchforked into the competitive world. Perhaps I can offer some reassurance. The headquarters of the Central Board will be in Gracechurch Street—in the very vicinity of the Bank of England—a fact I am sure my hon. Friend the Member for Thornaby will welcome.
Trustee Savings Banks are not run by an incautious body of people. They have long experience of the financial affairs 1247 of the community they serve and the kind of customers with whom they have dealings. Although it is hoped that they will acquire a newer kind of expertise, the legislation has been based on the fact that this will take some time and separation from control will be as gradual as my hon. Friend the Member for Thornaby would wish. The general policy will be the maintenance of a very high level of liquidity with little expansion, certainly no rapid expansion, where there is little experience.
It is expected that out of a total of £4,460 million, the personal loan scheme will amount to about £35 million—considerably less than 1 per cent.—by November 1977. Even a year later it is only expected to reach £50 million—just about 1 per cent. This indicates that the policy of caution will be about as complete as most hon. Members would expect.
It is the aim over this period that there should be an increasing provision of common services—unit trust facilities have been mentioned and further expansion in this field is envisaged—and we shall allow the banks to set their own ceiling, bearing in mind the control we shall continue to exercise and the monitoring which will be possible over this period.
The hon. Member for Dumfries talked about heritable loans. If the Dumfries Bank opts out of joining the Trustee Savings Banks in the new system, it will continue as it is at the moment. That is the general message.
I agree with what my hon. Friend the Member for Thornaby said about the importance of the Inspection Committee. The Central Board will take over this rôle and will provide the staff to pursue the accounting and audit efficiency which is an essential requirement in the operation of Trustees Savings Banks. My hon. Friend the Member for Thornaby and the hon. Member for Hampstead referred to the deficiency in the Fund for the Banks for Savings. As my right hon. Friend said, the deficiency is £200 million, and we aim to eliminate it during the 10-year period. I give the assurance that if there is a deficiency at the end of the day, the Treasury will pay it out under the Trustee Savings Bank Act 1969.
1248 So we have the launching of this new venture. As one would expect, there is nothing too dramatic in a Bill which deals with these banks of varying talents and considerable local pride and interest. Commanding the support of the people in the areas in which they operate. We are making sure that the Trustee Savings Banks are able to play their part in providing the kind of banking services they have provided until now, extending them modestly and cautiously over the period ahead and making sure that, as success is shown to be apparent, so the controls can be relaxed slightly, piece by piece, until finally we achieve the third force in banking which was the vision of the Page Committee.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills.)