§ 2.52 p.m.
§ LORD BESWICK
My Lords, I beg to move that this Bill be now read a second time. Your Lordships will be familiar with the Trustee Savings Banks movement, and I am sure will be disposed to help it and all the devoted people who serve it. This Bill should enable the banks to make still greater progress in the years to come. The Bill makes two main changes. In the first place, it raises the maximum rate of interest which the banks receive from the National Debt Commissioners on deposits in the banks' ordinary departments; secondly, it introduces a new way for the banks to be provided with capital finance. Every bank has an ordinary department. The capital and interest and all deposits in these departments are guaranteed by the Government. Deposits earn 2½ per cent.—this rate is fixed by Statute and unaffected by the present Bill—and since 1954 the first £15 interest has been free of income tax, but not of surtax, so the 1050 return to the standard rate taxpayer is equivalent to 4¼ per cent. gross.
The banks pay all deposits received in the ordinary departments into the Fund kept by the National Debt Commissioners. The National Debt Commissioners invest the Fund's monies in Government guaranteed stock, and from the income pay the banks a rate of interest on the deposits to cover the 2½ per cent. interest which the banks in turn pay depositors, plus the banks' own management expenses. This overall rate of interest which the National Debt Commissioners pay to the banks is at present subject to a statutory limit of £3 2s. 6d. per cent. The banks have received this maximum since November, 1965, and changes which have taken place since then have now made it difficult for many banks to cover their expenses.
Clause 1 of the Bill therefore increases this statutory limit to £3 13s. per cent. The actual rate which the banks receive will continue to be fixed by Order. The exact figure for the new rate, which will be based on the banks' expenses for the financial year ending November, 1967, is not yet known, but is expected to be in the region of £3 10s. per cent. This will mean that there is a margin of something like 3s. per cent. which, on the basis of past experience, should be enough to cover any further increases likely to be needed in the next few years.
The second important provision in the Bill is found in Clause 2. This clause empowers the National Debt Commissioners to make loans of up to £10 million for approved capital purposes. The figure of £10 million is a round figure, based partly on what the banks are known to need for what might be called traditional capital expenditure, that is expenditure on land and buildings and partly on preliminary estimates of the likely needs for mechanisation in the next few years. The loans which will be made from the Fund for the Bank for Savings will earn a market rate of interest and will be repayable. There will therefore be no direct burden of net costs falling on the Exchequer.
The reason for this provision is that the existing methods of supplying the banks with capital are inadequate to meet the demands made by mechanisation. Some trustee savings banks have already installed computers. Others are working 1051 on schemes to be introduced within the next few years. In the long run these schemes will save money, but in the short term they demand a large outlay of capital expenditure which could not be met satisfactorily within the present statutory framework. The new scheme, and indeed all the other proposals in the Bill, have been discussed and drawn up with the full agreement of the banks themselves.
The rest of the provisions are, I think, self-explanatory. Clause 5 simplifies the accounting procedures and provides that the accounts, which are at present prepared and laid before the House at different times in the year, will be presented to the Comptroller and Auditor General before May 31 each year and that he shall then lay them before the House with his report. I trust that the whole House will join with me in welcoming these measures to keep the trustee savings banks in the forefront of the savings field, and I therefore have great pleasure in inviting your Lordships to give this Bill a Second Reading. I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Beswick.)
§ 2.57 p.m.
§ THE EARL OF DUNDEE
My Lords, this is just a small Bill, which amends in only two respects the previous Acts of 1954, 1958 and 1964, and it would not be appropriate to try to use this Bill as an occasion for greatly and more fundamentally amending the whole machinery of our trustee savings banks. But I should just like to take the opportunity of saying this on the Second Reading of the Bill. For 150 years the trustee savings banks have performed a very great voluntary service to this country. The people who have organised them have not been paid anything. They have done their work entirely gratuitously. The banks have helped vast numbers of small investors, who might not otherwise have been able to save anything, to get their money nut into a safe investment; and for that they deserve our gratitude. But I think most of us would agree that the machinery of the trustee savings banks, great public service as it is, is becoming a little out of date, and it would be a good thing if the Government were to undertake a review of the whole functions of these trustee savings banks.
1052 The first thing your Lordships will have noticed about this Bill is that it increases the amount which the National Debt Commissioners may pay to the trustee savings banks from £3 2s. 6d. to £3 13s. per cent. What delightfully small sums of interest in these days! All that the ordinary depositor is allowed to get in interest on his deposits, as distinct from the special investment depositor, is 2½ per cent. on the money which he agrees to save. I should like to make it plain that I am very much in favour of low interest rates, and I always have been. I did not like what I thought were the very high, but which are now, I suppose regarded as rather moderate, rates of interest which prevailed in the last two or three years of the Conservative Government. When the other side won, in the autumn of 1964, I was not generally very pleased, of course, but I thought: "At least there is one consolation—interest rates will now go down", because it was one of the chief planks of the Labour Party programme to have lower interest rates. My Lords, I know that one of my great faults is that I am much too apt to believe what I am told, and I have often suffered from it; but I suppose one ought always to keep on hoping.
Let us see what the position is now. We now have a bank rate of 8 per cent. What does that mean? It means that an ordinary, small farmer or tradesman who is overdrawn has to pay a good deal more interest than that. In Scotland, it is 2 per cent. over bank rate, and I think that in England it is nearly as much. In Scotland, you have to pay 10 per cent. on your overdraft. Let us take a farmer with a small or moderate-sized farm. One year he may have a bit of luck; he may have a very good harvest, and he may find that he is £500 to the good. If he puts it into a trustee savings bank, what interest does he get on that £500? He gets £12 10s. a year, that is all. But suppose his luck goes the other way, and he has to overdraw another £500 from his bank. At the present time, he has to pay £50 a year in overdraft interest. My Lords, I do not think that is really fair. I do not think that is in accordance with social justice. On the one hand, if these small investors have to overdraw they find that their creditor is a Shylock who charges 10 per cent. On the other hand, if they happen to be 1053 lucky and are able to lend money, they find that their debtor is a Scrooge who will pay only 2½ per cent. They get the worst of it both ways.
I do not know whether the noble Lord, Lord Beswick, can tell me what the National Debt Commissioners do with this money when they get it. They have to pay £3 2s. per cent.—it is now being raised to £3 13s. per cent.—and the depositor gets £2 10s. of that. That is quite reasonable, because you have to allow for all the overhead expenses of the trustee savings banks. But do the National Debt Commissioners re-invest this money at more than £3 13s. per cent.; and, if so, at how much more? Do they use it to buy up Government stock? If so, then surely at present prices they must make a very large profit out of these small investors who are lending their money at 2½ per cent.
My Lords, a hundred years ago it was quite easy to understand the case for this. People were asked to put their money into these savings banks at 2½ per cent. because by law it could be put only into investments which were guaranteed by the Government and there was absolutely no chance of the value of their money going down or of their investment being lost, which might have happened if they had put it into some less gilt-edged kind of undertaking. A great many people in all classes were content to invest at 2½ per cent. knowing that the value of their money was entirely and unquestionably safe.
But what is the position now? For the last twenty or thirty years, every year the value of money has got less, and on three occasions—in 1931, 1949 and 1967 —the whole value of money in this country has been reduced by devaluation. It has gone down and down and down, from 4.80 dollars to the pound, first to 4.00, then to 2.80 and now to 2.40. It is not really fair, just because it is guaranteed by the Government, to expect people to invest a large amount of money in a thing which the Government almost guarantee to devalue. If it goes on at the present rate, in the year 2000 it will be worth only about half what it is now. What is the good of investing money at 2½ per cent.? It is no wonder that our National Savings are not coming along in such large quantities as we should like.
1054 My Lords, in the investment section, it is true that the trustee savings bank s, subject to the very strict conditions, are able to put their depositors' money into some kind of investment which brings in a larger annual return, provided they inform their depositors that this is not guaranteed by the Government. I should have thought that it was rather an advantage nowadays for an investment not to be guaranteed by the Government; but anyhow, the conditions with which they have to comply are very strict. Would it not be possible to assimilate or merge the ordinary deposits with the investment section in these savings banks? I do not think it is in keeping with the times that people should be asked to invest their small savings at such a very meagre rate of interest when the capital is almost certain to be devalued, and when the same organisation might, with great advantage to everybody, organise some plan to make a unit trust, so that the investors could get a rate of interest which would be comparable with what industry is earning and which might be a much better protection against deflation.
I have already paid tribute to the work which has been done by the directors of the trustee savings banks—all for nothing—but in these times, with high taxation and high travelling costs, I do not think we can expect people to give so much of their time and their money, too (because they have to travel about and pay expenses), for no remuneration at all, any more than we can expect Members of Parliament, in the late 20th century, to do the work which many were proud and glad to do for nothing in the 19th century; because our present fiscal system makes it impossible to get the same service. I would therefore suggest that the Government should consider authorising payments to be made to the directors of savings banks.
I would also suggest that trustee savings banks should be given more powers or more facilities to advertise, because theirs is really a great social service. It ought to be well advertised and well known. If people see gambling institutes and football pools advertised, it catches their attention and they may feel it is a good thing to use their money for that purpose. But people ought to be given an equal chance of seeing thrift advertised, with the advantages of it prominently displayed. This, 1055 in my view, is a social service which is costing the country very little, or nothing, and we are making a great deal out of it. I think we ought to be prepared to pay a little to enlarge it, and to make it more efficient and more modern.
My Lords, I do not go into any detail of this because my noble friend Lord Lambert is to follow me. He has been a director of a trustee savings bank for a very long time, and he will be able to put to your Lordships the proposals which I have outlined only very vaguely with far more knowledge, more experience and more authority than I can bring to bear. All I would say is that our social services in this country, so far as they are concerned with relieving want, on the whole have advanced with the times. But this equally important service of encouraging thrift, which is a very high form of social service, has lagged behind very much. I think it is time that it was brought up to date.
§ 3.10 p.m.
§ VISCOUNT LAMBERT
My Lords, it is unnecessary for me to declare my interest in savings banks because my noble friend Lord Dundee has done it for me. But I am, and have been for a considerable time, chairman of the Devon and Exeter Savings Bank, and I am a member of the Savings Bank Executive Committee. I should like to thank the noble Lord, Lord Beswick, for the very deserved tribute he has paid to the work of the savings banks over the years. I should also like to congratulate him on explaining so clearly and concisely the purposes of the Bill.
I have been looking into the costs of running savings banks. During the past twenty years, the costs have risen to a most alarming extent. In 1947, the total overhead costs of the savings banks were £1,750,000, of which approximately £1½ million was contributed from the ordinary department, and £270,000 from the special investment department. For the last year for which I have the figures, the year ended November 30, 1966, the overhead costs had risen to no less than £12 million, of which £6,250,000 came from the ordinary department and £5,750,000 from the special investment department. From these figures, it becomes quite plain why there is for the Treasury the necessity to increase the rate 1056 of interest payable on the deposits in the ordinary department by 10s. 6d. per cent. If my calculations are correct and if the maximum is paid, I understand that it will mean an increase to the savings bank of about £5 million a year.
One of the reasons for the large increase in overheads is the fact that the savings banks have expanded so enormously during the past twenty years. In 1947 there were 870 branches; by November 30, 1966, the number had risen to 1,405. This expansion was made possible by a far-sighted scheme thought out and put into effect by the then-chairman of the Association, Sir Kenneth Stewart. Under his scheme the richer banks had to help the poorer banks; and the richer banks during the past twenty years have contributed no less than £4 million to the poorer ones. My own bank, which is a medium-sized bank, with deposits of £35 million, has given no less than £140,000 under this mutual assistance scheme. The result is that all the banks, the smaller banks, and the comparatively well-off banks, are short of capital. This is the reason why I am so delighted that under the Bill £10 million is to be made available for the banks for capital expenditure.
During the last twenty years, also the deposits attracted by the banks have risen to an amazing extent. In 1947, the total deposits were £700 million; in 1966 they were £2,150 million, and I gather that to-day they have gone up by a further £200 million. In other words, there has been a threefold increase in deposits during this period. It is only fair to point out, however, that the biggest increase took place in the special investment department. In that department in 1947, there was only £100 million. By 1966, the total had increased elevenfold, to £1,100 million. During that period the ordinary department increased by only about £400 million. The increase in the special department was due in large measure to the fact that from 1952 onwards the banks were able to pay an increased rate of interest in that department. To-day, some banks are paying as much as 6 per cent., and until recently the Post Office had been able to pay only 2½ per cent. on deposits. But I think it right to point out that the staff of the savings banks are much less impersonal than clerks in the post offices 1057 when people come to deposit their money with them.
One thing that is certain is that to-day, both from the national point of view and from the individual point of view, savings are more than ever necessary. I feel it is now time to take stock to see whether the savings banks, which have grown so enormously, are able adequately to fill their role in the community. I should like to inquire whether they are properly equipped to encourage thrift and whether the voluntary principle—a relic of Victorian times—is outmoded. I personally think that there must be great changes. I would urge the Government to set up a special committee of investigation, on the lines of that set up in 1926 by the then Chancellor of the Exchequer, Sir Winston Churchill, under Lord Bradbury.
My Lords, to make my case it is my unpleasant task to highlight the various weaknesses in the Savings Bank Movement. Whilst it is a movement for which I have every loyalty, I feel it is my duty so to do. There are 77 or 78 separate savings banks. The smallest bank, in Scotland, has 911 depositors and £182,000 in deposits. The largest bank, another Scottish one, has 611,000 depositors and £148 million in deposits. The remarkable thing with both banks is the very large proportion of the population which they serve that has accounts with them. In the smaller bank no less than 40 per cent. of the population have accounts, and in the larger 30 per cent.
I am not competent to judge whether or not the smaller banks should be amalgamated, but I would say this. The small bank enjoys a tremendous good will and loyalty among the people it serves. Each of the banks, my Lords, has a chairman and trustees, or managers (the term is synonymous), all of whom give their services voluntarily. In addition, they have a chief executive or general manager. The trustee savings banks issue a Year Book and in it they give "potted biographies" of the chairmen of the various banks. I have been looking at this Year Book, and I find that no less than 25 per cent. of the chairmen are a little coy about their age; it is not given. Of the remainder, no less than 15 per cent. are over 80 years of age.
1058 It is not for me to say anything about old age. When I was young one used to believe in the Seven Ages of Man. Today I understand that there are only three— "Youth"; "Middle-age", and "My God! You're looking well". I aria afraid that I belong to the latter cute-gory, and I only hope that I am looking well. My view is that chairmen should now be paid, and this view was reinforced by a very senior actuary who told me that he was a little diffident about asking his chairman to undertake too many tasks. I spend about thirty half-days a year in the service of my hank—quite a considerable time. Quite frankly, if chairmen are paid it will not affect me, because I have announced my decision to retire in two years' time, when I am 60.
I also feel that the geographical areas of banks should be looked into. They have grown up in a haphazard kind of way. A large proportion of banks serve an area within in what I might call a ring fence. But there are glaring exceptions. I know only the southern area to which my bank belongs, but the London Trustee Savings Bank seems to have a very unwieldy area. It serves a part of the country which has the highest population density, yet it extends from Bedford, in the North, to Southampton, in the South, and from Andover, in the West, to Southend, in the East. Many banks have branches in the intervening areas. The London Bank area, it would appear to me, is too large and unwieldy, and I am reinforced in my view by the fact that only 7.3 per cent. of the nearly 9 million people in the London Bank's area have accounts with that Bank, corn-pared with 30 per cent. which has accounts with the largest bank in Scotland. Therefore I should have thought, the areas served by the banks should be rationalised.
So far as administration is concerned, the country is divided into five areas. I have an intimate knowledge only of the southern area. The chairmen and actuaries of each of the banks in the southern area meet twice a year, and they are entitled to elect four representatives to the Executive. The Executive meets five times a year, and one would have thought that if there is to be proper consultation between the banks and their area executives, the areas should meet a week or two before the Executive meet; 1059 not twice, but five times a year. The area can select either a chairman or an actuary as a representative on the Executive Committee. If a chairman is selected, he is accompanied by his actuary, and therefore the Executive Committee is too large and unwieldy. If all chairmen are selected, there could be no fewer than 41 members of the committee, which I should have thought was too many for the committee to be efficient. I would much sooner see an Executive consisting of not more than ten or twelve people.
My Lords, the Executive Committee has five standing committees, one on legislation, another on mutual assistance, a clearing centre committee, a Parliamentary committee and even an international committee. But there is no policy committee. The result is that new ideas put forward can originate only from the banks, and it takes a very long time for them to be put into effect. I have had a certain amount to do with the unit trust which the savings banks have set up, and I should like to express my gratitude to Mr. Callaghan, the then Chancellor of the Exchequer, for giving permission to the banks to start this new and latest facility. I would point out, however, that while it took the Chancellor four months to make up his mind—and the Treasury is meant to be slow—it took the savings banks four years to make up their minds to ask for a unit trust. The trust was set up, and we wanted it to provide unsophisticated investors with a "hedge" against inflation.
Since it has been set up two extraordinary anomalies have arisen. The savings banks set up a management committee of six members, I think, though only five have so far been appointed. By law they cannot be paid, yet they are responsible for setting up and running the unit trust. They are advised about investments by an investment advisory committee, and there was considerable discussion about whether one could get the most able people in the City—able so far as investment knowledge was concerned—to give their services for nothing. It was decided that you get only what you pay for, and they are paid. But the two representatives of the savings banks on the management committee who attend the investment committee—in fact 1060 one is the chairman—are not paid. To me this seems quite ridiculous.
The other anomaly is that only depositors with £50 in their ordinary accounts may put money into the special investment department. Yet anyone can buy unit trust units, whether or not he is a depositor, or whether or not he has money in the ordinary department. Even agents, such as accountants and solicitors, can sell these units. One wonders, and I am worried about it, whether they will point out—particularly the agents—that the unit trust carries no Government guarantee whatever. If they do not, and the value of the units goes down, the good name of the savings banks will be jeopardised; and savings banks can be successful only if they have the complete confidence of the people they serve.
I am afraid that I have spoken for too long, but I have endeavoured to show that the savings banks, in spite of their success during the past twenty years, should be reorganised. An attempt was made some five or six years ago to introduce a very small reorganisation. It produced little or no result. Therefore I would ask the Government to set up a strong Committee to go into the whole matter and make recommendations. I am sure that if that is done, the savings banks will be able to do as much for the good of the country and the poorest sections of the community during the next 150 years as they have done in the past.
§ 3.31 p.m.
§ LORD PEDDIE
My Lords, the noble Earl, Lord Dundee, described this Bill as a small Bill. It is; but without question it is one that will bring a tremendous amount of assistance to a great social movement. Unlike the noble Viscount, Lord Lambert, who not only looked well but spoke well and convincingly, I cannot claim a direct association with the trustee savings banks. But my memory goes back forty years ago when in my teens I submitted a thesis successfuly on the history and future of the trustee savings bank. During the past weekend I have been trying to root it out, but unsuccessfully, because I wanted to know whether I had won the prize for my prognostications or for my literary ability. But I can say, without any shadow of doubt, that, no matter how optimistic I may have been in that essay, that optimism 1061 has been justified by the degree of progress that has been made over the past forty years.
We have heard so far some criticism, justifiable criticism, of the trustee savings banks, and I believe that a great deal of good will flow out of this debate. I do not want to speak on the various aspects of the Bill, with which my noble friend Lord Beswick has dealt very adequately. I want to concern myself with only one part of the Bill: that dealing with the power of the National Debt Commissioners to make loans for capital purposes. I think that this is the most significant part of the Bill, which offers an opportunity to the trustee savings banks to facilitate expansion and development.
Reference has already been made to their considerable contribution to the encouragement of thrift over the years, but I believe that the need for savings banks is greater to-day than it has been in the past. It began as a social movement, but now it has a significant function in the nation's economics in encouraging small savings, along with the National Savings movement, the building societies and cooperative savings. Never was there a time when there was greater necessity for encouraging personal savings than now. In the present economic climate there is no doubt that personal consumption is too high and savings are too low, and that has been a long-term tendency. Of the 14 leading countries in the world, in 1966 Britain had the lowest savings ratio to national income, of 18.1 per cent., while 7 of the 14 nations had savings ratios of 25 to 33 per cent. The same applies to individual householders, where again the United Kingdom had the lowest savings ratio of 5.1 per cent. It is perfectly obvious that this is reflected in the low level of national investment, which represents nearly 14 per cent. of our national income compared with an average of 20 per cent. elsewhere. I mention these figures to justify my plea for greater activity on the part of the trustee savings banks, and I join with other noble Lords who have asked for much more to be done to encourage greater personal savings.
Basically this is a voluntary movement, and long may it remain so, but along with the noble Viscount, Lord Lambert, I believe that the trustee savings banks 1062 should themselves move towards a great rationalisation of their organisation. We cannot destroy local associations, but in these days of computers and sophisticated techniques there are greater opportunities, and I believe that the possibility of securing assistance in the form of loans should give a great impetus towards development along these lines. The trustee savings banks, individually and collectively, will be making a great mistake if they do not take full advantage of the opportunity that is presented to them.
The trustee savings banks were first regulated by Act of Parliament in 1870 and then, according to their records, there were 78 banks. There are still 78 banks in existence. Over the years the character of the banks and the area they have covered have changed, but the number remains the same. The noble Viscount made powerful reference to the great variation in size of the banks and mentioned the two largest. His figures were most interesting. He indicated the variation in the rate of development—the London area, with a low development, and Glasgow, with a much higher one. But I should like to mention that there are other cities with a very high development. In my own city of Hull, 48 per cent. of the population have accounts with their trustee savings banks, with an average balance per head of population of £79, which is higher than that of any other English town.
I feel that I cannot refer to the town in which I live, because it adds weight to my argument, without making reference to the appalling tragedy that has afflicted that city. I am sure that the House and, indeed, the nation will feel the deepest sympathy towards those who are bereaved. For generations trawler-men have lived with danger and their families with unending anxiety. Hull to-day is a stricken city. In paying tribute to the courage of these men and in expressing sympathy. I would say that this is not enough. There is a need to do something to reduce the risk of this toll in human life.
Perhaps I should go on to say that the figures of savings which I have quoted reflect the fact that the people of Hull have for so long lived so close to adversity. The character of the people is reflected in their voluntary organisations 1063 —in the trustee savings banks, in particular. And I believe that every voluntary organisation reflects the character of the people it serves. In the trustee savings banks we have a social movement which has done an enormous amount of good. When one examines—and I invite your Lordships to do so—the degree of development in large areas of the country, it adds enormous weight to the arguments which have been advanced by noble Lords opposite, and which indicate the necessity for some degree of rationalisation and co-ordination.
The noble Viscount, Lord Lambert, made reference to the new unit trust, and I think that is the most significant step forward the trustee savings banks have made in 150 years. I was pleased to be associated with him in making these approaches to the Financial Secretary to the Treasury. But I think one should note, as the noble Lord hinted, that the drive and initiative within the trustee savings banks movement comes from individuals and individual banks, and not from the collective associations. That is a great pity. I believe, quite frankly, that out of this debate and the discussions that have taken place in both Houses of Parliament the trustee savings banks can find some inspiration, and re-order their house in such a manner as to make them more effective in the next 150 years than they have been in the first 150 years.
Reference was made to the Report of the Bradbury Committee, which I believe reported about forty years ago this month. A copy of the Report came into my hands recently, and I should like to quote part of one paragraph in which it makes reference to the trustee savings banks. It says:The financial basis of the trustee savings banks is so sound, and they are so firmly established and have in the course of their long history come to inspire such great confidence and indeed affection in the minds of many depositors, that we think it desirable that their activities should be more widely extended, their facilities better advertised and their popularity made even greater than at present.That was written in a Report forty years ago, and it is just as applicable to-day. I hope that out of all the attention that has been devoted to the trustee savings banks, and indeed the justifiable compliments that have been paid to them, they 1064 will find inspiration to allow them to make an even greater contribution to social welfare.
§ 3.43 p.m.
My Lords, we are grateful to the noble Lord, Lord Beswick, for having introduced this Bill this afternoon. I should like at the outset to declare my interest, as I, too, am a trustee of a trustee savings bank, although, as has been pointed out before, this is not a position of financial reward. This is a welcome Bill, as it arises largely out of the wishes of the savings bank movement. It really arises out of a desire for a change in some of the practices, and notably one.
The system of apportioning the expenses of running trustee savings banks as between the ordinary department, on the one hand, and the special investment department, on the other, has been based on the balance due to the depositors. This has been manifestly irrational, as the expenses of a bank are in relation, not to the size of its funds, but to the transactions which are carried out by it; and it stands to reason that the ordinary department, which is akin to a current account, has many more transactions than the special investment department, which consists of money that people put on deposit, and which, in effect, they do not wish to touch for a period of time. Hence, in the past it has not been possible for the special investment department to accumulate reserves as fast as it should, or, alternatively, to pay as high an interest as it could, because it has been subsidising the management expenses of the ordinary department. This Bill alters this, and the change is welcomed by the savings banks.
But although the Bill raises the interest which the Treasury may pay to the savings banks on funds deposited with them from £3 2s. 6d., as it is at the moment, to £3 13s., two points arise. First, it is highly unlikely that the Treasury will pay to the trustee savings banks, at least at present, the full £3 13s. allowed under the Bill. I assume that a lesser figure will be the starting point, and that later it will be increased by Statutory Instrument. I wonder whether the noble Lord, Lord Beswick, when he comes to reply, will be able to say what sum is intended to be paid to the trustee savings banks, and on what date this new payment will be operated.
1065 Secondly, although the Treasury pay to the savings banks £3 2s. 6d., or the new increased amount, the banks may still by Statute pay to their depositors only 2½ per cent., the difference being taken up by the management expenses of the banks. My noble friend Lord Dundee referred to this, and I am bound to say that I feel very much in agreement with him, because I believe that the time is corning when the Government will have to raise above the present limit of 2½ per cent. the interest which the trustee savings banks can pay to depositors.
It is, I always feel, one of the anomalies of our times that the trustee savings banks, which one might feel arose from and belonged to, an earlier more frugal and less affluent era, in fact play an increasing part in our national life, and secure bigger deposits each year. To give a measure of this—and, indeed, my noble friend Lord Lambert gave some extremely interesting figures—my own bank, the East Anglia Trustee Savings Bank, has doubled the balance due to depositors, from £39 million in 1961 to £82 million in 1967. This was over a period of six years. Yet the interest paid to depositors on the ordinary department is restricted to a paltry 2½ per cent.
In what I am about to say I am expressing my own views; they are not intended to represent the views either of the bank or of my colleagues in the bank. But I think the noble Lord will find that the figure of 2½ per cent. was fixed in 1888, or possibly even before that, and it has remained as such ever since. I do not think I could be accused of being an extremist if I said that at least there is an argument that this rate should be increased. I know it can be argued, and with some force, that the money deposited in savings banks is guaranteed by the Government, and that savings banks have continued to pay out the sum of 2½ per cent. even when bank rate was below 2½ per cent. Indeed, in support of that, one can recall the fact that between 1932 and 1951—as recently as that—bank rate did not rise above 2 per cent. except for a period of two months. But times have changed; we are now living in an era of high interest, and even the most optimistic would not anticipate an early return to a 2 per cent. bank rate era.
1066 Trustee savings banks have to live and operate in a commercial world, and they have to compete for depositors in a commercial market. If the success which they have had in the past is to be sustained, and if savings are to be encouraged—as, indeed, they are, and as, indeed, the Government always say they are—then consideration must be given to allowing trustee savings banks to offer a more realistic rate on deposits in the ordinary department. I could imagine that such a suggestion would not find ready acceptance with the Treasury, who are not noted for their readiness to display the characteristics of Lady Bountiful, but I am bound to say I believe they will have to face this fact.
In support of this, I would merely underline the fact, as I have said, that the trustee savings banks have to live in a commercial world. Here in this in Clause 2, we have the Government setting aside £10 million for the trustee savings banks to use in a capital way for the purchase of land and buildings, equipment and computers. The money can be borrowed from the Treasury, but et a commercial rate of 7 per cent. or 8 per cent. It seems hardly logical for the Treasury, on the one hand, to pay £3 13s. 0d. per cent. on money it obtains from the banks and yet, on the other, to require interest of 7 or 8 per cent. on money which the banks obtain from the Treasury.
I believe that this Bill, with this one reservation of the rate of interest chargeable on the capital sum of £10 million, is a welcome Bill. But I beg the Government not to feel that, once this Bill is on the Statute Book, the savings banks problems has been dealt with for another ten years. My noble friend Lord Lambert called for an inquiry into the whole of the savings bank movement, and produced some very sound arguments for it. I believe he was right. I would support him in it, for we all want to see the trustee savings bank movement organised in the future in such a way as to enable it to serve the public in the best possible manner and to encourage savings.
§ 3.53 p.m.
§ LORD BURDEN
My Lords, I hope that, after the wide-ranging discussion We have had this afternoon, I may say just a few words. First, I should like to 1067 express appreciation to the noble Lord, Lord Beswick, for the manner in which the Bill was presented to your Lordships; and secondly, so far as the noble Earl, Lord Dundee, is concerned, I would acknowledge his appreciation of and the credit he gave to the trustee savings banks. I wondered how many times he used the words "2½ per cent." in his speech. He seemed to be obsessed with that figure. I suppose it is because it goes back to Victorian times. But it ought to be mentioned that the first £15 is now free of income tax, and that is itself some considerable benefit, and, secondly, the moneys can be moved by a depositor from the ordinary department to the special investment department and will carry more that 2½ per cent. So far as the noble Viscount, Lord Lambert, is concerned, all I can say is that I have heard some of those arguments before, and probably shall hear them again, because there is another platform upon which I am sure the noble Viscount's views will get an opportunity of being voiced at the appropriate time. So I do not think it would be a bad thing if for a few moments we got back to the Bill and what it hopes to achieve.
The Bill sets out to achieve two major objects: first, to place the special investment department of the trustee savings bank and the investment department of the Post Office Savings Bank on the same footing. That is the first object. The second is to introduce a new source of capital moneys required by the trustee savings banks for the provision of bank office accommodation and of office equipment or machinery—in particular, computer installations. Dealing with the first of these major objects, it should be explained that up to the present time the special investment department of the trustee savings bank—I am speaking broadly, of course—has subsidised the ordinary department. That situation has arisen from the fact that the management expenses of the banks are apportioned between the ordinary and the special investment departments on the basis of the deposits held by the two departments, which is, broadly speaking, on a one-for-one ratio. This means that the S.I.D., with one-twentieth of the transactions of the O.D.—that is, one-twentieth of the work 1068 involved—is meeting about one-half of the total management expenses. In the case of the Post Office Savings Bank, however, the investment department is costed separately and does not, to any appreciable extent, subsidise the ordinary savings account section. The immediate result of this difference in procedure is that the Post Office Savings Bank is better able to pay a higher rate of interest to depositors on investment accounts.
It is accepted that it was never the intention of the Government that the Post Office Savings Bank should be in a more favourable position than the Trustee Savings Bank with regard to their respective investment departments, and therefore the National Debt Commissioners are desirous of being in a position to authorise the trustee savings banks to apportion management expenses between the two departments on a more equitable basis—that is, the work involved in administering the two departments rather than in accordance with the ratio of deposits—and this necessary change is provided for in Clause 6.
Before the Commissioners can authorise any new apportionment to the benefit of the special investment department, it will be necessary for the ordinary department to be in a position to meet an increased proportion of the banks' management expenses. Hence, Clause 1 of the Bill provides for an increase in the maximum rate of interest payable to the banks of 10s. 6d.; that is to say, the maximum rate of interest is to be raised from £3 2s. 6d. per cent. to £3 13s. 0d. per cent. When the maximum becomes law, the Commissioners will be able to increase the rate of interest paid to the banks—now, of course £3 2s. 6d. per cent.—to, say, £3 10s. 0d. per cent. This in turn will enable the banks to switch management expenses at present borne by the special investment department to the ordinary department to the extent of about 5s. or 6s. per cent., thus placing the trustee savings banks in a better position to match the rate of interest paid on special investment deposits with that paid by the Post Office Savings Bank on its I.D. deposits. Some part of the increased rate of interest to be paid on O.D. moneys invested with the Commissioners will serve to cover the rising costs of the trustee savings banks and assist them to meet some of their capital expenditure.
1069 Another factor relating to the attainment of the desired parity with the Post Office Savings Bank investment department is the provision of identical powers of investment in respect of special investment department deposits. This will be achieved by Clause 3 of the Bill, which affords the trustee savings banks the same powers of investment as those enjoyed by the Post Office Savings Bank.
The second main object, the provision of a new source of capital moneys, will be achieved by Clause 2 of the Bill, which will enable the Commissioners to make loans from the Fund for the Bank for Savings to meet capital expenditure in respect of land, buildings and office equipment or machinery. This provision is of particular importance, as the trustees savings banks are faced with a continuing necessity to improve and enlarge, and at times to rehouse, existing offices, and also to open new offices in localities not previously served by the Trustee Savings Bank.
At the same time the trustee savings banks are on the threshold of the computer age, and within the next few years it is expected that many savings bank offices will operate computer systems for the recording of depositors' accounts. This will necessitate capital outlay for the provision of computers on a regional basis to serve fairly substantial numbers of offices, and without the capital assistance envisaged in this clause the introduction of computers would possibly be delayed for several years.
I have only one or two minor things to mention in addition. Clauses 4 and 5 are in the nature of "tidying-up" clauses which will facilitate transactions between the Commissioners and the trustee savings banks and provide for the revision of the arrangements necessary for the submission of accounts by the Commissioners. Clause 7 extends the transferability of pensionable savings banks service to include service with the Savings Banks Institute as well as with the trustee savings banks, the Trustee Savings Banks Association and the Trustee Savings Banks Inspection Committee. It is expected, too, that with the introduction of decimal currency the one penny which is in the rules at present as the charge for supplying a copy of the annual accounts will no longer be valid, and therefore the penny charge is being 1070 wiped out. I think most people are not aware of the penny charge for the accounts, incidentally, and they are in any case supplied free. Finally, Clause 9 of the Bill provides for the payment out of the Consolidated Fund of any increase in charges to that Fund which may be attributable to the Bill as a result of the introduction of the foregoing changes. In another place it was not anticipated that there would be any charge on the Consolidated Fund.
My Lords, this Bill received a cordial welcome in another place, both in the. House on Second Reading and at the: Committee stage. At the Committee stage I believe there were just two Amendments, widening the scope of a clause to cover machinery as well as office furniture. The Report stage and Third Reading passed without comment, but there was general approval on all sides of the House of the provisions of the Bill I commend it to your Lordships, despite the pessimistic note which has beer sounded by one or two of your Lordships. I am convinced that this Bill, humble in its way, will be another stet forward in the march of progress of the trustee savings banks.
§ 4.5 p.m.
§ VISCOUNT ECCLES
My Lords, wish to detain the House for only one minute in order to make two points. The first is that I think we ought to do nothing to undermine confidence in our in moneys If one looks at what is going on to-day or the Stock Exchange, at Sotheby's or Christie's, it can be seen that the British people are beginning to prefer things to money. This is very serious, and therefore I hope we shall have real regard to those, who represent £2,000 million, who have confidence in our money. I do not like to see an institution which has Government backing in other respects building into it something like a unit trust in ordinary shares. If people are-advised to get out of Government securities and to buy ordinary shares they are being advised to lose confidence in the pound. It is essential that we should do nothing of that kind to-day, because if we cannot restore confidence in our money we shall have very little chance of restoring confidence in our economy.
My second point is that I do not like the idea of eating into a voluntary system. Of course there are many more 1071 people to-day who have time to spare, and it would be a good thing if voluntary service could be extended even more than it has been in the past. But the idea that out of the rates and taxes we should now pay people who in the past have served us so well because they believed in their neighbourhood and in the community, is to me most distressing. I hope that great care will be taken before the voluntary principle in any respect, and certainly in respect of this great movement which has gone on for 150 years, is sacrificed for the sake of paying professionals.
§ VISCOUNT LAMBERT
My Lords, may I ask the noble Viscount how the payment of chairmen would be a cost on the rates and taxes?
§ VISCOUNT ECCLES
My Lords, I understand that the Government are putting up money, in the sum of £10 million, for the building of the savings banks. If the savings banks' current expenses increase, it means that they will not have the money to pay for the buildings themselves.
§ LORD BURDEN
My Lords, perhaps I may be permitted to say just one thing. Surely this is a matter which concerns the movement as a whole, and it will have to make up its mind and then go to the Government. It is surely not a thing which can be decided off hand. The voluntary principle has built up a great movement, and like the noble Viscount, Lord Eccles, I think it would be a tragedy if that voluntary spirit were to be shattered on the altar of payment.
§ 4.9 p.m.
§ LORD BESWICK
My Lords, I should like to express gratitude for the general welcome which has been afforded to this Bill. I am particularly grateful for the tributes paid to the voluntary workers by the noble Earl, Lord Dundee, my noble friend Lord Peddle and the noble Viscount, Lord Eccles. I trust that the noble Viscount, Lord Lambert, and the noble Earl, Lord Ferrers, will feel that a measure of those tributes was directed to them, because they have indeed served this movement well. I was particularly interested to hear what the noble Viscount, Lord Lambert, had to say because, before I came into the Chamber, I had been reading the report of the annual 1072 general meeting of the Devon and Exeter Savings Bank, and I was greatly impressed by the successful year's work which was reported to that meeting; and, if I may say so, I was also impressed by the two very constructive speeches made on that occasion.
I would say to the noble Viscount, Lord Eccles, that he was somewhat unduly perturbed about the use to which Government money was to be put in this connection. It is not proposed that the £10 million should be used for the payment of chairmen, unless they come under the general category of "mechanisation", and I do not think this would be the case. The noble Earl asked me whether I could tell him what the National Debt Commissioners did with the money from the ordinary savings department entrusted to them. I confirm to him what I suspect he already knows: that the National Debt Commissioners in turn invest this money in Government securities. The special investment department deposits, of course, are invested by the banks in a wider range of securities. The noble Earl, Lord Ferrers, asked about the new rate of interest. As I think I said in opening, it is expected that the rate will be around £3 10s. per cent. and it will become payable (and I did not say this in opening) from May 21.
The noble Earl, Lord Dundee, went on to tell us of his objection to the present high rate of interest, and I must say that I share with him, although I am surprised to find I do, his objection to usury. I, too, should like to look forward to the days when we can think again in terms of 2½ per cent. bank rate, or even, as the noble Viscount said, as once was the case, 2 per cent. bank rate.
The noble Earl went on to suggest that possibly the right thing here was to merge the ordinary branch with the special investment department. I think that possibly he has not quite understood that there are really two different functions here. It is not simply that two different rates of interest are paid. I quite agree that the ordinary branch, in paying 2½ per cent. interest, is paying a rate which is low, and it is a fact that it is the rate which was originally fixed in 1888. It is fair to say, as the noble Lord, Lord Burden, said, that the tax exemption, up to the first £15 of interest, 1073 does make a difference to the standard-rate taxpayer. Nevertheless, it is a low rate of interest at the present time. But research has suggested that deposits with the ordinary branch are not affected unduly by changes of other rates, either up or down. At one time, 2½ per cent. was considered generous. It is now very low, but the deposits in the ordinary branch remain roughly the same.
I emphasise the fact that there are really two different functions served by these two different departments. The depositors in the ordinary department are mainly concerned with the ready encashment facilities, ready access and convenient opening hours; and to a large extent many of them use the ordinary department as a current account.
§ THE EARL OF DUNDEE
My Lords, may I ask the noble Lord a question? He says that interest rate paid remains the same. But as our economy grows, ought it not to be very much increasing? If the National Debt Commissioners are using this money to buy Government stocks, surely they are getting a return of 5 per cent. or 5½ per cent. on that. If that is so, could they not afford to pay a little more than 2½ per cent. to ordinary depositors?
§ LORD BESWICK
This is a point of view, but again I stress that the facilities which are available at the ordinary branch are an attraction, and possibly as great an attraction to the depositors there as higher interest rate. Certainly if the rate was increased it would be necessary to look at this tax exemption limit, and unless one put it up very high the advantage would be lost. I think that, on reflection, the noble Earl might agree that there is an advantage in having a known and unfluctuating rate over the years.
He also suggested, as did the noble Viscount, Lord Lambert, and the noble Earl, Lord Ferrers, that there should be a general review of the work of the 1074 trustee savings banks. I was greatly interested in the points that were put very cogently by the noble Viscount, and it may well be that there is substance in them. I understand that he put them forward as his own personal point of view, and this leaves me in some little difficulty in replying to him. As he will appreciate, if the Government were to discuss matters of this kind the proposals should themselves come from the Trustee Savings Banks Association. They are jealous of their independence, and I believe they are somewhat sensitive to any hint of further Government control. I should not like them to think that we were in any way short-circuiting any correspondence that we have with them.
The noble Viscount, Lord Lambert, pointed out that the areas for which the banks are responsible are now in some respects unwieldy or anomalous. There are anomalies and they have arisen from historical factors, but I think that the development of computerisation, and co-operation in the use of computers, may have some effect in the future in rationalising the boundaries within which the separate independent banks operate. As for the rest, I would simply say that if there is an initiative from the Trustee Savings Banks Association, if they express a desire to consult with the Government, then I can assure him there will be no reluctance on the part of the Government to discuss constructively with them the kind of points which the noble Viscount and others have raised. With that, I trust that this Bill will be given a Second Reading.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.