TRUSTEE SAVINGS BANKS (SPECIAL INVESTMENTS) BILL. [H.L.] (Hansard, 20 June 1934)

§ THE UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (EARL STANHOPE)
My Lords, I hope that the business which I now have to bring before your Lordships will not take so long as the business which we have not succeeded in transacting in the last three hours. This Bill consists of only two clauses and I hope that your Lordships will treat it as non-controversial as has been the custom with legislation in the past dealing with trustee savings banks. This Bill deals with the special invest- 101 ment departments of these banks. I may explain to your Lordships that trustee savings banks are the oldest and indeed the original savings institutions in this country. All of them have an ordinary branch, but a great many of them have two blanches. The ordinary department accepts deposits up to £500 a year from any one individual at a fixed rate of interest of 2½ per cent. Both in regard to capital and interest the deposits are guaranteed by the Government. In regard to the special investment department which some of these banks have, deposits can be accepted up to £1,000 provided the depositor has £50 in the ordinary department. In that case neither capital nor interest are guaranteed by the Government and the interest varies in accordance with the transactions of the Bank. In most cases now it varies between 2¾ per cent. and 3 per cent.
The Government for many years have exercised control ever the investments in the special investments branch. In the ordinary departments the whole deposits go direct to the National Debt Commissioners, but in the special investment branch the Government exercise control and the type of investment has to be approved in accordance with legislation which has long been in existence in this country. The main purpose of this Bill is to enlarge the powers of investment which these banks now have. What has happened is that these banks have made most of their special investments in mortgages raised by municipal authorities. Owing to the low rate of interest on capital in general many municipalities have been converting their mortgages and funding them at a low rate of interest and of course for a long period of years. These trustee savings banks have to keep their money in funds which can be readily realised if they should require to call on capital. Therefore it is now proposed to give these banks rather wider powers of investment.
Perhaps it will be sufficient if I put the matter briefly by saying that the term of years is somewhat lengthened in regard to some of these investments. The Bill enables investments to be made in the funds of municipalities with a population of over 50,000 and also in Government securities which have rather a longer life. Your Lordships may be surprised 102 to hear how great is the extent of the funds of trustee savings banks in this country. It is a very remarkable story. At this moment there are exactly 100 banks with 538 offices. There are no fewer than 2,024,000 active accounts in the ordinary department and there are 304,000 in the special investments department. The bank year for these trustee banks ends on November 20 and the deposits at November 20 last in the ordinary department amounted to very nearly £88,000,000 and to £82,000,000 in the special investments branch. The actual amount has increased very materially in the past two years owing to a variety of causes—to the conversion of the 5 per cent. War Loan and for other reasons. It has increased in the ordinary department by no less than £10,000,000 in the last two years and by £17,000,000 in the special investment department. It now amounts, as I have said, to the enormous sum of nearly £88,000,000 in one branch and £82,000,000 in the other.
The purpose of Clause 1, as I have stated, is to increase the investments in which these banks can invest their special investment funds. Subsection (2) of Clause 1 is intended to make it more easy to start a new bank. They have to keep a good deal of their money liquid but they want to earn such interest as is possible. They will be entitled under paragraphs (a), (b) and (c) of this subsection to put their money into other banks and obtain interest on it. They are limited as to the amount they can put into another bank and they are also limited in regard to the proportion of their funds which they can put into another bank. In regard to subsection (2) (b), that makes it clear that the National Debt Commissioners can order these funds to be withdrawn from another bank if they see fit to do so. Subsection (3) of Clause 1 is to make it clear that trustee savings banks have the right to open an account for their special investment branch in any other bank, not being a trustee savings bank. That has, as a matter of fact, been the habit of banks for a great number of years. It is not quite clear that they were in fact entitled to do so, and therefore the power is given to them by this Bill.
The whole of this legislation has been asked for by the Trustee Savings Banks Association, which is the central body of trustee savings banks, and the pro- 103 posals in the Bill are such as the Association have approved. The application from the Association was considered by the Government, who thought that it was a very legitimate one, and that is why it appears in this Bill. I do not know whether there is anything further that the noble Lord, Lord Strabolgi, would like me to say on the Bill, but perhaps I may be able to answer him if he has any point to raise. I beg to move that this Bill be now read a second time.

LORD STEABOLGI
My Lords, I want very briefly to comment on this Bill on behalf of my noble friends, and the first thing to say is that this is a shockingly bad example of legislation by reference. In the discussion during the last three hours (to which the noble Earl referred as ending in nothing) we heard a great deal about drafting. Here is an example on which that expert we heard so much about earlier in the afternoon might have been set to work. I defy anybody to understand this Bill without going through five Acts of Parliament. Again and again it refers to Acts. The first one is the Trustee Act, 1925; then we come to the Trusts (Scotland) Act, 1921; then we come to the Trustee Savings Bank Act, 1918; and then we come to an Act which does not exist, for there is no such Act in existence as the one which is referred to in line 18 on page 2 of the Bill as the Trustee Savings Banks Act, 1863. At least I have not been able to find it in the Library, with the very able assistance of the courteous officials in the Library. What no doubt is meant is an Act of 1863 which is called the Savings Banks Acts Amendment Act—nothing about trustee savings banks. Then, to continue, it is necessary to refer also to the Savings Banks Act, 1929.
Those are five separate citations, and it is impossible to understand this highly technical Bill, dealing with a subject which is in any case a difficult one for the ordinary layman, without referring to all those different Acts. I would appeal to the noble Earl, and I would appeal if I may to the noble Viscount the Leader of the House, on this matter. This is a Bill originating in your Lordships' House, and I repeat that without being armed with five Acts of Parliament, one of them going back seventy years, it 104 is impossible to understand it. It may be all right for the bankers themselves, but we have to think of the many hundreds of thousands of trustees, solicitors and ordinary depositors who may have to refer to this Bill in the future when it becomes an Act of Parliament. Surely the time has come when it is possible to draft Bills to become Acts of Parliament in language which the ordinary layman can understand, and when it is necessary to cite old Acts, to give extracts from them—rubrics if you like, or something of that kind—in the margin explaining what they are. This is really a very serious matter, especially in view of the amount of legislation which has been turned out by both Houses of Parliament during recent years, and it does really need most serious attention. I am sorry to make this complaint, but I do assure the noble Earl that if this matter could be gone into and remedied, it would be of great advantage to the ordinary public.
With regard to the material of the Bill, speaking on broad lines my noble friends and the Party to which we belong are very anxious to see better control over the use of other people's money by trustees or anybody else. We welcome anything which prevents the dissipation of the people's savings by incompetent or careless persons to whom it is entrusted. This Bill simply widens the field of investment, but nevertheless there are very stringent safeguards remaining, and needless to say we offer no opposition at all. But on those broad lines, may I point out to the noble Earl—or rather remind him, for he knows this very well— that the habits of the people have changed a good deal. Whereas in the past the small man invested as a rule only in a savings bank, there has now grown up a class of business known as investment trusts, which take small men's money and invest it on the whole very soundly and very efficiently. The majority of them that survived the recent slump are efficiently and honestly managed, but there are others which have not been honestly or efficiently managed, and people's money has been lost.
While we are talking of the safeguarding of the investor and saver, the Party to which I have the honour to belong believes that this matter should receive equally close attention, and that when you are legislating for the better control 105 of savings banks—and the legislation has been going on for nearly a hundred years—the time has come when the Treasury and the Government should turn their attention to the other form of encouraging saving by the people and the investment of money—namely, the investment trusts. Only a small minority, I repeat, need special attention, but that is always the case. In the old days it was only a small minority of banks that needed special attention in this country, fortunately; but that is why we have the present Bank Acts.
This Bill, I understand, does not apply to the Post Office Savings Bank, and I am therefore spared the necessity of making a few caustic remarks about the use made by His Majesty's Government to-day of Post Office Savings Bank funds, and the extremely unscrupulous scares which were raised at the last General Election. I need not refer to those matters now, although there may be another opportunity; but I would like to ask this question: Are the restrictions which are contained in the Bill, such as those for instance in paragraph (a) of subsection (2) of Clause 1, where it is provided that the total liabilities in respect of moneys received in respect of special investments shall not exceed £20,000, and paragraph (c) of that subsection, which provides that the amount which the trustee savings bank may deposit with other banks shall not exceed £5,000, intended in any way to hamper the future development of municipal banks, on the lines of the Birmingham Bank and others?
I would be very glad if the noble Earl would give an assurance on that point, perhaps at a later stage of the Bill if he has to look up the information. That is the only matter about which we think some assurance is needed, because we do not want to support anything which will hamper the development of municipal banks, especially with all the safeguards which exist under the various Bank Acts. I apologise for these few remarks and for delaying your Lordships at this late hour, but this is an important subject, it deals with a very large branch of banking and affects many thousands of people, and my noble friends thought these few remarks were necessary.

§ EARL STANHOPE
I can assure the noble Lord opposite that the powers re- 106 ferred to in subsection (2) of Clause I have, of course, no connection whatever with municipal banks. As I stated, this Bill deals entirely with the special investment branches of these trustee savings banks, and with them only, and therefore nothing in this Bill would have any connection with municipal banks, which are a different thing altogether.

LORD STRABOLGI
Or with co-operative banks?

§ EARL STANHOPE
Or with co-operative banks unless they are in fact trustee savings banks. I am not clear as to what a co-operative bank is. Some of them are possibly on the same lines as these, in which case, of course, they would have to come under the ordinary law affecting trustee savings banks.

LORD STRABOLGI
There is only one, I think. I believe that the Co-operative Wholesale Bank is the only one.

§ EARL STANHOPE
That would come under the same law as all other savings banks in the country. These regulations are put in only because the Treasury and the National Debt Commissioners think they are advisable. Of course, there is no question of restricting banking at all. In fact, we are anxious to increase thrift, but to see that its funds are properly safeguarded. As regards the second point, the noble Lord may be interested to hear that I asked this morning whether there had been any failures with regard to these banks. I understand that although in some cases they had to close their doors, in every case they paid the deposits in full and always with interest as well, having a balance in hand. These banks have very large reserve funds, amounting to over £9,000,000. Therefore, they axe in an extremely safe position.
The complaint he made that this is legislation by reference is one that I am afraid people who stand at this Box hear on almost every occasion, to whichever Party they belong. I admit that perhaps it is rather a bad case, but I understand that the whole of this legislation for trustees savings banks has gone on for so many years that it has a phraseology peculiar to itself, and several instances have been pointed out to me in this Bill of language not usual in legislation in these days. Of course the Bill will not 107 be construed by the ordinary depositor. It is of no interest to him to know that the bank puts money into this or that. The only people who have to deal with it are accountants, who go through the funds and audit, and see that the investments are made in accordance with the Acts of Parliament in force, and to some extent the trustees and managers, who get guidance from the National Debt Commissioners.