POST OFFICE SAVINGS BANK BILL (Hansard, 28 February 1966)

§ THE PARLIAMENTARY SECRETARY, MINISTRY OF TECHNOLOGY (LORD SNOW)

My Lords, I beg to move that this Bill be now read a second time. When this Bill was brought before another place it was welcomed on all sides. This is a happy situation, and therefore I need not trouble your Lordships with a long explanation of its general principles. In fact, on these—and, indeed, on the whole business—I hope to be quite short. The Bill is designed to give effect to a proposal announced by my right honourable friend the Chancellor of the Exchequer when he reviewed the Government's saving services in his Budget speech last April: that the Post Office Savings Bank should introduce a new form of savings account to be known as an investment account. The Post Office Savings Bank is, in fact, the most widely used of all the small savings facilities provided by the State, and by increasing the scope of its service the Bill will make a valuable contribution to the achievement of the Government's economic objectives. We hope, indeed, that it will to an extent encourage saving.

People with small savings are now tending to be more selective in their choice of investments and to weigh more carefully the interest and facilities offered by the various alternatives. The Government have concluded that there is a strong case 470 for supplementing the present service of the Bank by providing for deposits on longer notice than the present ones, which could therefore be invested to earn the depositors a better rate of interest. I use the word "supplementing" advisedly, because we are in no doubt that the present type of account should be continued side by side with the new accounts. The 2½per cent. interest rate on the present type of account is not an unreasonable rate on deposits which are repayable on demand or at very short notice—especially as the first £15 of a person's annual interest is free of income tax. Twenty-one thousand Post Offices serve as outlets for the use of savings bank accounts, and at any of these a depositor can deposit or withdraw his money with a minimum of formality. The fact that over 20 million people operate the present accounts and make about 100 million deposits and withdrawals a year is evidence of their continuing usefulness.

We propose to keep this present type of account and to introduce a separate series of accounts for the new kind of longer-term deposits. With a rather smaller range of withdrawal facilities and less activity in transactions, the Post Office expects to be able to administer these rather more cheaply. This, with the better income that should derive from the investments, will enable a higher rate of interest to be paid to the depositors. I should like to make it clear straight away that the Post Office is not seeking any unfair competitive advantage over the Trustee Savings Bank in the extended service it is now planning. The Post Office Savings Bank serves many areas which are not so conveniently served by Trustee Savings Bank branches, and its service covers wider hours of business; but the main concern now is that Post Office Savings Bank customers should wherever possible have access to a range of services as comprehensive as that available to Trustee Savings Bank customers. The Bill, then, is to authorise the Postmaster General to run an investment deposit service and to invest the deposits received in a wider range of securities than that permitted under the Post Office Savings Bank Act, 1954 for ordinary deposits.

I will now run through the clauses of the Bill. Clause 1 brings the new deposits within the scope of the 1954 Act, but excludes certain provisions, such as 471 those relating to the 2½ per cent. interest rate and the investment arrangements applicable to ordinary deposits. Clause 3 provides for the creation of a new and quite separate account or fund through which the whole of the investment deposit business will be transacted. The balance of deposits over withdrawals and other payments will be invested to provide the income of this Fund, and the Fund will meet all the outgoings of the business, including all its costs. In other words, investment account business is to be strictly self-supporting and without any expectation of help from outside—subject only to a final Government guarantee provided by Clause 3(4). Unlike the Ordinary Account Fund, it will not be required to transfer any surplus at the end of the year to the Exchequer, but will retain this in the fund for the benefit of the investment account depositors.

The underlying principle on which the Post Office will conduct the whole of the investment deposit business will be to serve the interests of the depositors—and I want to emphasise this point. The objective will be to invest the deposits within the authorised range of securities so as to obtain the best possible income, consistent with maintaining the capital value of the Fund and a necessary margin of liquid funds to cover expected payments. The income earned will basically determine the rate of interest that can be paid to depositors. The better the rate of interest that can be paid, the more attractive the service will be—that, I think, is not one of the most original statements of all time—and the greater the benefit to the nation in extra savings. In other words, the interests of the depositors are to all intents and purposes the same as those of the Government.

Clause 4 of the Bill provides for a wider range of investments than the Government and Government-guaranteed securities authorised for ordinary deposits by Section 17 of the 1954 Act. It does this by giving the Treasury power to make Orders which will permit investment of the deposits in a selection of the investments within Part II of the First Schedule to the Trustee Investments Act 1961. This device will give the Treasury reasonable flexibility in prescribing an investment range for any future situation. The selection of investments will thus be prescribed 472 by Statutory Instrument which will be laid in draft before both Houses of Parliament. I can say now that we intend to make an Order including local authority loans and securities within the permitted range. These, together with Government securities and securities of the nationalised industries and undertakings, will start the service with an adequate choice of investments offering good yields with adequate security of capital. Within this range it will be the responsibility of the Post Office, in agreement with the Treasury, to decide precisely how the investment portfolio should be composed. In this it will have the benefit of the experience and advice of the National Debt Office and will take any other financial advice which may be desirable in the interests of the business and the depositors.

The Post Office will provide information annually on its stewardship of this new service by a statement of accounts to be presented to both Houses of Parliament, under Clause 5. These will be prepared in accordance with the best commercial principles. They will, for example, include a statement of the investments and their cost and recent valuation so that the position of the Fund in relation to its liability to depositors may be readily seen. Like other Government accounts, the accounts will be audited by the Comptroller and Auditor General whose report will be presented to Parliament with them.

Your Lordships will have appreciated from what I have already said that the rate of interest to depositors will be variable and will depend on the income earned and the expenses of the service. Clause 2 provides for the Postmaster General, with the consent of the Treasury, to determine the rate and to vary it. Any alteration of a rate will be suitably published and advertised. For obvious reasons, my right honourable friend the Postmaster General will try to avoid frequent alterations, so that a reasonably stable rate can be achieved over a period. The Postmaster General and the Treasury cannot yet fix the rate with which the service will begin, but we hope that this may be about 5 per cent. Investment account interest will be subject to tax, but tax will not be deducted at source.

Clause 2 also provides for certain conditions of investment deposits to be laid down by regulations. These will provide for the manner in which interest is to 473 be calculated and added to capital and for the terms as to notice of withdrawal. The use of regulations will afford a useful measure of flexibility. Under the clause it would be possible (if this were considered desirable) to introduce a series of accounts for deposits on differing periods of notice at different rates of interest. The period of notice could never be less than one month.

Passing next to Clause 7, subsection (1) will enable regulations to be made fixing the minimum amount of deposits required to be held in an ordinary account before a person may pay money into an investment account. This will be fixed initially at £50. This is a condition to which the most careful consideration has been given. It has been suggested that it could constitute an unnecessary obstacle to the success of the new service. The Government do not see it that way. The Trustee Savings Banks are bound to a similar condition by statutory requirement, and we understand that many of these banks look upon it as a useful protection for the finances of their special investment departments. It would in fact amount to unfair competition with the trustee Savings Banks if the Post Office operated without such a condition. That unfair competition we are anxious to avoid. As a partner with the Trustee Savings Bank in the National Savings Movement, the Post Office Savings Bank is certainly not seeking such an advantage.

There are three other supplemental provisions in Clause 7 which call for comment. Clause 7(1) enables orders and regulations made under the principal Act (not this Bill) to make different provisions with respect to ordinary and investment deposits. Section 4 of the principal Act empowers the Treasury to make orders fixing annual and total limits on the deposits a person may make. No annual limit is proposed for investment deposits, but there will be a total limit of £5,000. Subsection (2) of Clause 7 and the Schedule to the Bill are somewhat complicated, but their purpose is merely to simplify procedure. They will enable the National Debt Commissioners to invest deposits in loans to local authorities under the powers conferred by Clause 4 without the need for formal mortgage deeds. It will be sufficient for the Commissioners and the local authorities con- 474 cerned to enter into simple agreements to effect the loans. These provisions are in fact modelled on similar ones in the Public Works Loans Act 1965.

Thirdly, there are the provisions relating to tax in Clause 7(5). So far as ordinary deposit business is concerned, the Post Office is not liable for contributions in lieu of corporation tax on income or capital gains derived from the investment of these deposits. The Trustee Savings Banks also have exemption from corporation tax in respect of their ordinary deposit business. As regards their special investment deposits, however, the Trustee Savings Banks have a liability to pay corporation tax on income and capital gains arising from the relative investments but subject to a limited exemption and relief. This exemption extends to the amount of income and gains that Trustee Savings Banks apply in payment or credit of interest to the depositors; and they enjoy relief in respect of management expenses. The Post Office Savings Bank's new accounts are to have similar tax treatment to the Trustee Savings Banks' special investment accounts and so the investment account fund is to make contributions to the Exchequer in lieu of corporation tax calculated on a similar basis. Clause 7(5) makes the necessary technical provisions to achieve this.

I have spoken so far of the provisions in the Bill designed solely for investment deposits. Clauses 6 and 8 make certain provisions which apply to ordinary deposits also. In these clauses we aim to bring up to date parts of the principal Act which are now out of line with current Savings Bank practice and experience. For instance, the Act still assumes that all deposits are made over post office counters; but there are now many organised savings schemes in industry and H.M. Forces which account direct to Savings Bank Headquarters. And on occasion individual depositors post deposits to Savings Bank Headquarters for credit of their accounts. In such respects legislation has not kept pace with the development of the Bank. Clause 8 will put this right.

Again Section 3 of the 1954 Act makes somewhat rigid provisions for the Headquarters office to send acknowledgements of larger deposits. These provisions are relatively little used because, by virtue of 475 regulations, the minimum amount acknowledged has been increased until it now stands at £250. We think that the time has now come to discontinue the acknowledgement of individual deposits. Indeed, the whole of the provisions in Section 3 about acknowledgements and deposit book entries have now outlived their usefulness, and Clause 6 substitutes power to make regulations covering all the matters now dealt with in the section. This is especially desirable at the present time. It will give the Post Office Savings Bank greater freedom to adapt its business arrangements now that the scope of its services is to be widened to include the investment deposits and it is approaching the introduction of computer working.

Clause 6 will also enable minimum amounts of deposits to be fixed by regulations. For investment deposits the Postmaster General proposes a minimum of £1 and he is considering an increase in the present minimum of ls. for ordinary deposits. This latter figure has remained unchanged over the whole of the Bank's history and is of course now quite out of line with current costs and money values.

Clause 9 extends the Bill to Northern Ireland, the Channel Islands and the Isle of Man, so that investment deposit business can be transacted at all the post offices which give the present Savings Bank service.

If the Bill receives your Lordships' approval and is passed fairly soon the Postmaster General hopes to lay the necessary draft regulations quickly and to launch the service early in June. The new service will he administered from Glasgow. This is the first major task the Savings Bank will perform from its new location under the Government's dispersal plans. Preparations for this are going well. I am afraid that this Bill is of a technical nature and is not glamorous. But I would invite your Lordships to consider this project in a somewhat broader perspective. With investment accounts at one end of the spectrum and the Giro at the other, the Post Office will at last answer the need for a popular bank on a national scale giving a reasonably full range of simple facilities for transferring and investing money. I believe that these two major innovations ensure that this will come to be regarded as one 476 of the most creative and significant periods in the history of the Post Office. I beg to move.