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

EARL FERRERS
My Lords, the Government are coming in for a lot of congratulations this afternoon, because I would also congratulate them on bringing forward the Post Office Savings Bank Bill. We are grateful to the noble Lord, Lord Snow, for his clear and detailed exposition of the Bill. As he said, it was given a welcome in another place and I think that he can rest assured that it will receive a welcome here, too.
It is a simple Bill, basically, because what it does is to encourage savings. That is a welcome step for us all, in whatever part of the House we sit. One cannot help but reflect that between 1951 and 1964 savings multiplied sixteen times. The fact that this happened during a Conservative period of office one merely mentions in passing. The point is that it did not occur by accident, and it did not occur by passing Acts of Parliament. It occurred basically by encouragement, by assistance and by various other methods which help people to save on their own. While this Bill, in itself is not likely to increase the savings of the country sixteen times, it will at least encourage those who have their money in the Post Office Savings Bank, by giving them the opportunity of a more realistic interest on their money, as compared to the existing 2½ per cent.
It is a fact that since the war people own far more, whether it be houses, land, cars or money. Much more money 479 is owned and there is a greater body of opinion concerned with seeing that that money is put to the best possible use. I think it would be fair to say that increased earnings and increased ability to save have not been matched by a corresponding increase in the knowledge of how best to save. Unit trusts have done a good deal in this respect, and more people now own shares than ever before, even if only about 9 per cent. of the population are owners of shares. The other people do their savings through the Post Office Savings Bank, the Trustee Savings Bank and Premium Bonds.
These are basically, of course, small savers, but that does not mean to say that they are short-time savers. We must bear in mind that people who save through the Post Office save because they probably go to the Post Office every week, or possibly two or three times a week, and while they are occupied with other business they make use of the Post Office Savings Bank. The result is that their money in the Post Office Savings Bank has accumulated over the years and represents, in many cases, lifelong savings. If these are long-term, life-long savings, then I think that Parliament must be concerned that those who invest their money this way should not have any advantage taken of them, simply because they regard the Post Office as a secure place for their money and interest of 2½per cent., with no form of capital appreciation, is not giving them anywhere near the best use of their money.
I think that one of the reasons for this Bill is that, over the last ten years, Post Office Savings Bank funds have been relatively static, compared with the Trustees Savings Bank and Premium Bonds, whose deposits and funds have increased considerably. Recently local authorities have been offering very high rates for short-term loans, and they have been getting them. In a number of cases, the Trustee Savings Bank have been able to take advantage of these loans by purchasing them and passing on to the depositors the benefits of these high rates. They have done this by the special investment department of the Trustee Savings Bank. This facility has been de- 480 nied to the Post Office, and this Bill will rectify the position.
One cannot help wondering, in passing, how this might be contrasted with the exhortations of the right honourable gentleman the Chancellor of the Exchequer, who has told us over a number of months how prices must be kept down, how wages must be kept down and, indeed, how dividends must be kept down, as well. Here comes his right honourable friend the Postmaster General with a Bill asking permission to increase his dividends by 100 per cent. I am myself by way of being a trustee of a Trustee Savings Bank, and in our particular bank, the East Anglian Trustee Savings Bank, for a period of some six months we were denied the opportunity of increasing the interest paid on the special investment department by ¼ per cent. Though the bank was able to pay 5¼ per cent., the depositors were denied the ability to receive that extra payment, simply because the National Debt Office, presumably under the jurisdiction of the Chancellor of the Exchequer, said that the increased payment must not be paid. But, as I have said, here comes the Postmaster General seeking permission to increase his interest payments by no less than 100 per cent. I think that one appreciates the reasons why this has been done.
This is a good Bill, and we are in favour of it. However, I should like, if I may, to ask the noble Lord, Lord Snow, one or two rather more detailed and pointed questions, for this reason. It is entirely commendable that the Post Office should be brought more into line with the Trustee Savings Bank, but I think it would be a pity if by this Bill the Post Office should be given the opportunity of outbidding the Trustee Savings Bank—and I think the noble Lord said that this was not the intention—whether this would be by intent or by inadvertence. The noble Lord said that this was not the purpose of the Bill, but I should like to highlight one or two particular facets of it so that, if he can, he will give an answer this afternoon, or, failing that, will look at it before the next stage of the Bill, because I am not so convinced that the Bill is as innocuous as it may at first sight seem.
Clause 3 refers in general to the Post Office Savings Bank Investment Account Fund, and what may be debited to it, 481 and relevant powers. But it is, in effect, a Government guarantee against a deficiency. At the moment, the Ordinary Department of the Trustee Savings Bank and the existing Post Office Savings Bank have this guarantee against a deficiency. But the Special Investment Department of the Trustee Savings Bank does not have this guarantee. It would appear, therefore, that the Post Office Savings Bank Investment Account may be going to enjoy a certain degree of security which at the moment is not enjoyed by the Trustee Savings Bank.
Clause 4 deals with the investment of money in the Fund and says that this must be done in accordance with Part II of Schedule 1 to the Trustee Investments Act 1961. Part II of Schedule 1 to this Act includes Commonwealth loans and debenture and loan stocks of British companies with a share capital of £1 million and which have paid dividends for the five preceding years. This, of course, differs from the investment powers allowed to the Trustee Savings Bank, for they are allowed to invest only in mortgages to local authorities, dated Government securities or dated corporation securities. They are specifically prevented from investing in Commonwealth loans by the Trustee Investments Act 1961. This closed a line of investment that was previously open to them, and which, incidentally, was very remunerative. Nor are they allowed to invest in British securities. There have been, for instance, since the last Budget, many debenture issues, such as I.C.I. and British Insulated Callender's Cables, to take but two, where a yield of 7 per cent., and better, has been obtainable. This, as I understand the Bill, will be permitted to the Post Office Savings Bank, and yet it will not be permitted to the Trustee Savings Bank. One wonders whether this is an intentional differentiation.
Here I should like to ask the noble Lord whether it is proposed that a depositor may not take any advantage of the Investment Account Fund unless he has a holding in the Ordinary Department of the Post Office Savings Bank. I think the noble Lord said that you had to have a holding of £50. This is so at the moment in the Trustee Savings Bank. One wonders—and I assume this provision has been put into this Bill be- 482 cause it also refers to the Trustee Savings Bank—whether the noble Lord would consider re-thinking this. I find very little purpose in this rule. I cannot see why a depositor should be made to receive only 2½ per cent. on £50 in order that he may thereafter receive 5 per cent., or thereabouts, on his remaining investment. This seems to me to be a rather pointless provision, both in this Bill and in the Trustee Savings Bank Act. I should have thought that it would possibly discourage people from investing their money. Maybe this is supposed to discourage them from removing it. I shall be grateful if the noble Lord will consider looking at this again, because I do not see that it contains any great inherent value.
I wonder, also, whether the noble Lord would be prepared to explain a little further than he did the tax position of the Fund, because under Clause 7 it would seem that any profit made by the Investment Account Fund is to be tax free. I thought the noble Lord said it was not to be tax free, but my reading of the Bill is that it is. If this is so, this is again in marked contrast to the Special Investment Department of the Trustee Savings Bank, where both income tax and capital gains tax has to be paid.
Moving to the Schedule I would draw to the noble Lord's attention paragraph 2, which refers to loans being made to local authorities, not by mortgage, which has been the practice in the past, but by agreement. I think this is a relatively new venture, and it may be welcomed. The Bill says that stamp duty will not be paid on these agreements, but instead, the aggregate of the sums that would have been paid in stamp duty will be paid over in block. What, therefore, is the purpose of this provision if the same amount of money is to be paid as would have been paid if the stamp duty had been paid? I fail to see this, unless it is for one very significant reason, which would allow the stamp duty, or its equivalent, to be paid, not by the borrower, the local authority, but by the lender, who in this case would be the Post Office Savings Bank. If this is so, of course it would be a significant difference between what happens in Trustee Savings Banks, and this would immediately put the Post Office at a substantial advantage over the Trustee 483 Savings Banks, as any local authority would obviously prefer to lend money where the lender, the Post Office, would pay the stamp duty, rather than where the borrower, namely themselves, would pay the stamp duty.
I have mentioned these specific points, not in order in any way to deny a welcome to this Bill or, indeed, to denigrate it in any way at all, because it is a good Bill and I welcome it. But if it is to enable the Post Office to move into an area of being more competitive, then I think it is right that one should see that the competition which is envisaged is fair and just, and I think this is the purpose in the noble Lord's mind. I hope that this Bill, when it becomes law—and, indeed, I suppose one may say if it becomes law now—will encourage not only the savings of the country but also the savers themselves.

LORD HAWKE
My Lords, I should like to say a few words of welcome to this Bill, because for some time now one of the strange things about our economy has seemed to be the apparent indifference of the Chancellor of the Exchequer to the importance of savings in our economy. I should have thought that a few hundred millions swung from current consumption into savings—and that means capital formation—would have made a tremendous difference in our battle for the pound. He is alleged to rely on the advice of economists who originated in other countries; and it may be that, as we know, the serfs of Hungary never had any savings at all, and for that reason savings have been rather overlooked in this context.
Now that he is moving on the savings front, I think the Post Office ought to undertake a great deal more publicity to try to get people to put money in the new accounts they are creating. If one considers the purpose for which people save, one finds there are two overriding desires among a great proportion of our population. The first is a motor car, and the second is some sort of dwelling on marriage. The majority of people who own motor cars do not provide a proper depreciation against their wearing out and against having to buy a new one. These accounts would be an ideal repository for an annual payment in of a 484 motor depreciation account. A large number of teenagers are tending to marry at very early ages nowadays, and Parliament has to make all sorts of arrangements for them to have low deposits and cheap mortgages on houses. If only somebody would persuade them to start saving their very large wages early and to put them into something like this, it would be much more to the purpose.
Finally, I should say that there is one slight element of deceit (I think I may call it) in all Post Office Savings accounts. They say that the first £15 is free of Income Tax. They do not also say, "But the first £15 will definitely not be free of surtax." I have always thought that this is a silly and petty provision, and rather unworthy of Her Majesty's Government. With those few remarks I welcome the Bill.

§ LORD SNOW
My Lords, I am glad of the welcome that this Bill has received from the noble Earl, Lord Ferrers, and the noble Lord, Lord Hawke. I think I can reassure the noble Earl to the extent of at least 90 per cent. of his worries. There is genuinely no intention of taking an unfair advantage of the Trustee Savings Banks, and where there appear to be differences, those differences are theoretical. For instance, it is perfectly true that the Government have a guarantee on the Ordinary deposit accounts, exactly as the Trustee Savings Banks have. The Trustee Savings Banks do not have a guarantee on the Special investment deposits. On the other hand, the Government must be able to give a guarantee to all its accounts. This is a condition of Government saving in this way. So there is a theoretical advantage, it is true, in favour of the Post Office Savings Bank as against the Trustee Savings Banks, but it seems to us that this advantage is purely theoretical. No one thinks that the Trustee Savings Banks are not going to be able to meet their depositors, and we cannot depart from the broad principle that the Government must be able to guarantee their accounts, but we should not think that this made any difference in the competitive position of the two systems.
Similarly in the investment powers which are referred to in Clause 4, here the range of investments has been deliberately widely drawn. But the Government intend that the securities to be prescribed, 485 initially at any rate, shall be those in paragraphs 1, 2, 3, 8 and 9 of Part 11 of the Schedule to the Trustee Investments Act, which bring them into line with the powers granted to the Trustee Savings Banks. That is, the securities which it will be possible to invest in for these investment accounts will be Government securities of the United Kingdom, Northern Ireland and the Isle of Man, Government guaranteed securities, securities of public authorities, nationalised undertakings and local authority loans and securities. This is the same fistful that the Trustee Savings Banks have at their own disposal. It is purely a matter of flexibility in the future that the possibilities are left open, and presumably there is always the possibility of extending the trustee powers in exactly the same way.
The question of the £50 limit has been fairly carefully considered, but we will have another look at it in the light of what the noble Earl said. The actual arguments were, first, that our understanding is that not all Trustee Savings Banks are certain that they would not like the £50 limit. That was the first consideration. The second was that if there is no money in the 2½ per cent. accounts, then all movements have to be at one month's notice, which might not be convenient for depositors and would tend to reduce the earning power of the investment accounts. I admit that these points are somewhat small and technical, but they have some substance. Nevertheless, we are perfectly prepared to have a look at it.

EARL FERRERS
My Lords, I wonder whether, while he is looking at this matter, the noble Lord would also look at whether or not the proviso to have one month's notice before withdrawing is also sensible. It might be possible to join the two together and to say that, not only was it unnecessary to have a deposit of £50, but also the one month's notice could be reduced, which I should think would be an advantage.

§ LORD SNOW
That will be looked at. The fourth point was the tax position of the new fund. There the position is exactly the same in the Post Office Savings Bank and the Trustee Savings Banks. The investment account business will have similar liabilities to tax to the Special investment deposit business of the Trustee Savings Banks. The new 486 Fund is to make contributions to the Exchequer in lieu of corporation tax on income and capital gains arising from the investments of the Fund but subject to a limited exemption and relief similar to that enjoyed by the Trustee Savings Bank. The exemption extends the amount of interest credited to the depositors, and the relief to the costs of management. In fact I mentioned that in my speech, but it probably was not clear. Indeed the position is exactly equivalent.
Finally, we come to paragraph 2 of this Schedule and the problem of stamp duty. This is merely a matter of technique. It is supposed to provide a convenient procedure for the recovery of the stamp duty in respect of loans which are secured by agreements under paragraph 1. Under paragraph 2(1)(a) the National Debt Commissioners will account to the Inland Revenue periodically for the aggregate amount of duty that would have been payable if the loans had been secured by mortgage deed. The Commissioners will then be able to recover the amount of this duty from the local authorities concerned under paragraph 2(1)(b). This is purely a technical matter which seems to us to be sensible and convenient.

EARL FERRERS
My Lords, I am sorry to interrupt the noble Lord again. This is possibly a matter of detail, but in fact I think there is nothing in the Bill to say that this is recoverable from the local authority. The Bill merely says that the Postmaster General may recover it. Can the noble Lord say whether it will be written into the Order that the money will be recoverable, because this makes a substantial difference?

§ LORD SNOW
My Lords, my understanding is that "may" is to be interpreted as "will", but I shall have to investigate the position and write to the noble Earl.
On Question, Bill read 2ª, and committed to a Committee of the Whole House.