§ 2.37 p.m.
§ Order of the Day for the Second Reading read.
§ THE FIRST LORD OF THE ADMIRALTY (THE EARL OF SELKIRK)My Lords, this Bill is designed to bring up to date the existing legislation for trustee savings banks. These banks have a long and honourable history in this country, starting, I believe, some 150 years ago in Dumfriesshire. They are held in high esteem on all sides and combine the promotion of individual thrift with our national need to increase real savings for capital investment. They are therefore an institution both individually and collectively of the greatest importance.
To-day there are 84 banks with a total invested capital of about £1,300 million and with rather over 1,000 branches. They 3 are non-profit making institutions and each bank is independently managed by a body of trustees. First let me pay a tribute to the work of these trustees, which is undertaken on a voluntary basis. Their work is an integral and important part of the National Savings Movement.
The basis on which these banks work is that in the Ordinary department interest at 2½ per cent. is paid on money deposited. This has been the rate since 1888, despite all variation of interest rates, and the Trustee Savings Banks Association has recently confirmed that it does not want any change in this respect: nothing in the Bill will affect this rate. I would mention that my examination shows no significant effect on these figures, either of deposits or withdrawals, since the increase in the bank rate last September.
The money received in the Ordinary department is invested with the National Debt Commissioners. The rate paid by the Commissioners is fixed by Treasury regulations but restricted under the 1954 Act to a maximum of £2 17s. 6d. for every £100 invested—that is, 7s. 6d. above the rate on which interest is paid to depositors. This is not quite enough to meet the expenses to-day and it is accordingly proposed in this Bill to increase the maximum rate to £3 2s. 6d.
The actual rate, however, will continue to be fixed by Treasury regulation within this maximum. It will start to operate in the half-year beginning on May 21 this year. The precise figure has not yet been settled but will be based on examination after this Bill has been passed on the most up-to-date estimate of cost of the banks. In the meantime, however, the banks are known to be running into a deficit and exceptional provision is therefore made in Clause 1 to enable a sum not exceeding £300,000 in total to be paid to the banks on that account.
There is one other provision in Clause 1 to which I should refer. Up to the present time the National Debt Commissioners have paid the same rate to all banks. In fact, however, management expenses have varied between different banks and the Trustee Savings Banks Association have formed a mutual assistance scheme. Under this, part of the surplus of the lower-cost banks is transferred to the higher-cost banks. This is a voluntary 4 scheme in which, however, one or two of the banks have not joined.
This Bill will allow the Treasury to pay a different rate, fixed according to its costs, to any bank which prefers to stay outside the scheme. This is not intended to penalise such a bank but it will remove the present incentive which exists for low-cost banks to stay aloof from the mutual assistance scheme.
Turning to Clause 2, I would point out that this relates to the other side of the trustee savings banks: that is, to the Special Investment department. Nearly all banks conduct such business and they are authorised to invest in certain types of securities as a result of which they pay a higher rate of interest to their depositors, rising to-day to about 4 per cent. to 4½ per cent. In recent times deposits in the Special Investment department have considerably increased but are still not much more than one-third of the Ordinary department.
It is now intended to extend the range of permitted investments and to give a measure of greater flexibility in the amount of each class of security which can be held. The new range of securities which can be held includes local authority stocks with maturities up to forty years, instead of fifteen as at present, Colonial and other Commonwealth stocks up to forty years (previously limited to one year), and also some minor additions which make special provisions for banks in the Channel Islands and the Isle of Man.
There are also a certain number of smaller amendments which are designed to improve the smooth working of the banks and ease the management of monies invested. All these amendments are acceptable to the Trustee Savings Banks Association. I do not think I need go into these in detail at the present time. I would only add that this movement continues to be of great importance. It has been repeatedly adjusted to meet changing requirements, and these adjustments have enabled it to fulfil its rôle both to the individual investor and to the general economy of the country. I feel sure that the House will be anxious to help the movement with this small Bill and, in doing so, to wish every success to those engaged in this important work, 5 and to express our thanks for the voluntary contribution which is made by the trustees. I beg to move.
§ Moved, That the Bill be now read 2a.—(The Earl of Selkirk.)
§ 2.45 p.m.
§ LORD MILNER OF LEEDSMy Lords, may I first declare an interest in this matter, in that I have the honour to be patron of one of the oldest trustee savings banks in the country, the Leeds Skyrac & Morley Savings Bank, formed as long ago, I believe, as 1818. I am sure the House will be obliged to the noble Earl for the lucid explanation of the Bill which he has given. He mentioned the sum of £1,300 million as being the capital of the banks. That sum, of course, represents the assets of the whole of the trustee savings banks in the country, not their own capital.
§ THE EARL OF SELKIRKDeposits.
§ LORD MILNER OF LEEDSDeposits, yes. This measure is, of course, constructive, and is designed to help trustee savings banks by increasing the rate of interest they receive, as compared with the rate they pay to depositors. The trustee savings bank pays £2 10s. per cent. to depositors in the Ordinary branch and has hitherto received a maximum of £2 17s. 6d. per cent. from the Treasury. II is now proposed that that maximum should be increased from £2 17s. 6d. per cent. to £3 2s. 6d. per cent. May I express the hope that the Treasury will be generous in this matter and go up to the maximum of £3 2s. 6d.?
Whether that be so or not, it is essential that some assistance should be given to the trustee savings banks. Many of them are at present operating with a deficit in their budget. The Leeds bank to which I have referred has to make a claim, under the mutual assistance scheme which was mentioned by the noble Earl, for a quite considerable sum in that respect. All expenses have increased, such as salaries, upkeep of properties, and so on, and it is desirable that these banks should have some reserve with which they can develop their operations.
The trustee savings bank movement provides, of course, one of the oldest forms of saving in the country and, I think, contributes something like £50 million a year to the National Savings Movement. It is rather remarkable that trustee 6 savings banks should be able to continue, and, indeed, to increase and develop, having regard to the very low rate of interest which, in present circumstances, they pay. Obviously the Government are receiving very cheap money. Money at present is costing them a maximum of £2 17s. 6d. per cent., and in future, unless some other alteration is made, will cost a maximum of £3 2s. 6d. I believe that the time may possibly come, if interest rates generally remain as they are, when all Governments will have to be rather more realistic and consider paying increased interest to depositors, because there is little doubt that monies are being put into alternative forms of investment which are more lucrative than investment in the trustee savings banks.
Trustee savings banks have, of course, great advantages: easy withdrawals; exemption from income tax on interest up to £15 a year (that is up to a maximum deposit of £600); and those monies are not liable to be reduced in value, except as the general value of money decreases. I think, however, that the primary reason why trustee savings banks have continued to find favour with the public is that they are, very largely, locally managed. The patrons, trustees and managers, and many other of their officials, are voluntary workers. Certainly in the North of England there is a great appreciation of that fact. Trustee savings banks are local institutions, and local patriotism accounts for a good deal. No doubt many people feel that their fathers and grandfathers have been in the habit of putting money into trustee savings banks, and it is for these reasons that the banks maintain their present position.
The noble Earl has mentioned the increased powers of investment given to the Special Investment department. Obviously that was desirable. Whilst it is not strictly relevant, I feel sure that some consideration will very shortly have to be given to increasing the range of investments open to ordinary trustees operating private trusts. As your Lordships well know, those investments are limited, under the Trustee Acts and nowadays it is essential, in my view, that ordinary trustees should have wider powers of investment. It is, of course, quite possible to give those by will or in the trust itself. But in so far as powers of investment are concerned, I hope that at no distant date some additional powers may be given to 7 all trustees. Again, this is not strictly relevant, but I have often wondered why such powers do not include power to invest in approved building societies where not only would greater interest be received but a valuable social purpose would be served. That, as I say, is outside the purview of this Bill. We on this side entirely support the Bill; we hope that the Treasury will be generous in giving the maximum, and that this Bill will result in continued development and success in this very worthy movement. Finally, I should like to thank the noble Earl, if I may do so, on behalf of the trustee savings banks, for his well-deserved tribute to the trustee savings banks of this country.
§ 2.50 p.m.
§ VISCOUNT MACKINTOSH OF HALIFAXMy Lords, I have no intention of taking up much of your Lordships' time over this Bill, which I am happy to think will receive as helpful, sympathetic and united support in your Lordships' House as it did in another place. As head of the National Savings Movement, of which the Trustee Savings Banks Association is one of the partners—and a very valuable one at that—it would ill become me if I did not support this Bill and pay my tribute to that fine body of men and women who make up the trustee savings bank movement. As a trustee and manager of a trustee savings bank I have been associated with the movement for over twenty-five years—that is, for some years longer than my association with the National Savings Committee itself, and I am a vice-president of the Trustee Savings Banks Association. So I speak of what I know.
I should like to congratulate the noble Earl, Lord Selkirk, on the clear, concise and sympathetic way in which he has presented the Bill, and my noble friend and fellow-Yorkshireman, Lord Milner of Leeds, for his support and his helpful speech. As your Lordships know, this is a sort of tidying-up Bill, but it contains two main features: first, as your Lordships have heard, to increase the interest paid by the Treasury to the banks, out of which they pay the interest to depositors and the cost of running the banks; and, secondly, slightly to widen the field of investments permitted to the 8 banks for the investment of the funds of their Special Investment Departments.
As your Lordships have already heard, the trustee savings banks are a very old institution, with more than 150 years of history and experience behind them. The first Parliamentary measure governing the banks was passed as early as 1817. In fact, they were more than 100 years old when the first National Savings Certificate was introduced and the National Savings Committee formed in 1916. At that time, 1916, the total deposit in the trustee savings banks was £77 million. To-day, it is £1,300 million, with over 8 million active accounts. I like to think that the co-operation of the National Savings Committee, the post office savings banks and the trustee savings banks, in what is now known as the National Savings Movement, has had something to do with this wonderful progress. But the main credit must go to the trustee savings banks themselves, so wisely and energetically guided by the Chairman of the Association, Sir Kenneth Stewart, and his colleagues.
Before I deal briefly with the Bill itself, I should like to pay my own tribute to the wonderful work done by the trustees and managers throughout the country. In a joint stock bank or building society they would be known as directors, but in this case they are either trustees or managers and, with us, they are all voluntary workers who come from every walk of life. These gentlemen operate eighty-four banks, with over 1,000 branches, and unlike the directors of commercial banks, and even building societies, who are paid substantial fees for their labours, our trustees receive not a penny for their services. Indeed, many of them, in addition to their services to the banks, are among the best voluntary workers of the Savings Movement; and this applies equally to a great many of the paid officials of the banks, who look upon their jobs as a social service.
The trustee savings banks are, indeed, a particularly British institution, being a happy combination between private enterprise, on the one hand, and the Government, on the other; between the local knowledge of local trustees (I was going to call them "directors" because I am so used to it) and the national interest; between voluntary and professional services. In fact, it is just the sort of product of common effort in a common cause 9 for which Britain seems to have a special genius. If you were to ask me what is the chief attribute of the trustee savings banks, I think I would say that it is the friendly and personal service—I underline the word "personal"—which they are able to give to their customers. They have only one job in life; and that is to help ordinary men and women to save. And they do it in a superlative way. Never has that service been more valuable to the country than at the present time, when the battle to beat inflation is so vital.
Your Lordships will have seen that the chief purpose of this Bill is to increase the permitted maximum rate of interest paid by the Treasury to the banks from the present figure of £2 17s. 6d. to £3 2s. 6d. per cent.—an increase of 5s., or one-quarter of one per cent. Out of this, of course, the banks pay their depositors £2 10s. in interest, the small balance being the margin on which the banks operate. I believe that I am right in saying that the present interest rate of £2 17s. 6d. has been unchanged for nearly forty years, during which time the banks have increased seventeenfold, but up to quite recently the increasing volume of business has been sufficient to meet the increase in costs of operation. Latterly, however, the increasing costs have overtaken the expansion of the business, and during recent months they have been running at a slight loss—this despite the fact that I know of no financial institution (and I speak as a director for many years of a building society and a joint stock bank) run as economically as the trustee savings banks. Indeed, that is as it should be, in banks which are leading exponents of thrift. It is this slight loss which this Bill is designed to correct.
Although the permitted maximum is to be raised to £3 2s. 6d., it is not anticipated that it will be necessary for the Treasury to pay the maximum at the present time, and if the nation can get on top of inflation, it may be a long time, if ever, before the maximum will be needed. T believe that the present approximate total cost of the banks, including the payment of interest on deposits of £2 10s. per cent., is round about £2 19s. per cent. It speaks wonders for the close personal relationship between the trustee savings banks and their customers that even in these days of highly competitive rates of interest, of up to 6 and 7 per cent., and even 10 more, the trustee savings banks still hold their customers with the traditional 2½ per cent. True, these banks are now able to offer the first £15 of interest per annum from the Ordinary department free of tax. Perhaps this is one of the reasons why the oldest and the newest form of national savings—that is, the trustee savings banks and the premium savings bonds—are the securities showing the best results at the present time.
The National Savings Movement is going through a very difficult time at present, and for obvious reasons. Anything that encourages personal savings, as this Bill certainly does, even if only indirectly, will have the support, I am sure, of your Lordships' House, for although there are many and diverse remedies suggested for inflation, some of them highly controversial, there is one thing on which all Parties and all sections of the community are agreed; and that is, that less spending and more saving is a sure way to beat inflation. I beg to support the Bill.
§ 2.58 p.m.
§ LORD PETHICK-LAWRENCEMy Lords, I do not want to detain your Lordships because I know that there is an interesting debate to follow, but I felt I should like to say one or two words in support of the Bill and of the whole Trustee Savings Bank Movement. I do not think that anyone has any but words of praise for this great institution, which has lasted such a long time and risen to such importance. The proposal to enable the banks to meet their expenses by an increase of the margin between what they have to pay out and what they receive from the National Debt Commissioners is one of which we can understand the importance and which I feel sure we shall all support. The only criticism I have heard, and I do not know whether it is in the least justified, is that the trustee savings banks might be open for deposits for a little longer hours and more frequently than they are at the present time. I do not know whether there is anything in that criticism. I mention it as the only one I have ever heard.
When these trustee savings banks were first started, many years ago, it was done with the idea of benevolence to the poorest section of the community, who brought their pennies to the banks and saved a few pounds in the course of their long lives to help them in their old age. 11 At that time no one thought that there would come a day when these institutions for taking the savings of small people would play a large part in helping the country in its hour of need. During the war they were of great assistance to the nation in the aggregate of their funds, and even to-day, when there is some possibility of investment and expenditure outrunning the savings of the people, these banks, in their aggregate, taken from quite humble people, are of the greatest importance to the welfare, well-being and financial position of this country.
§ 3.0 p.m.
§ THE EARL OF SELKIRKMy Lords, it falls to me only to thank noble Lords for the support they have given to the Bill. I am sure we are all glad to have heard the words of the noble Viscount, Lord Mackintosh of Halifax, who speaks with such authority on the subject, and of the noble Lord, Lord Pethick-Lawrence, whose support we greatly value. I would only say to the noble Lord, Lord Milner of Leeds, that I will not give any undertaking that Treasury regulations will move to the maximum, but I am glad to be able to say that the matter will not be dealt with in a niggardly manner.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.