HL Deb 06 May 1968 vol 291 cc1301-20

4.32 p.m.

LORD MITCHISON rose to ask Her Majesty's Government whether they are satisfied with the results of the investment of the National Insurance (Reserve) Fund and whether they will introduce legislation to amend the statutory provisions relating to the investment of this and other funds held by the National Debt Commissioners. The noble Lord said: My Lords, I am afraid I am hound to take a little time in giving your Lordships the background to the Question that I wish to ask. I admit at once that I have a bit of a "bee in my bonnet" about this. I think it is a major scandal of a rather complicated kind, and attributable not to one particular Party—neither to the Party opposite nor to that here—but to Parliament as a whole.

I should like to begin by getting rid of, as it were, the National Debt Commissioners, a committee of seven distinguished men which has never met since it met in 1860 under the chairmanship of Mr. Gladstone. The fact of the matter is that there are only three of them who function, and the three who function do so by virtue of an Act passed in 1818: they are the Chancellor of the Exchequer, the Governor of the Bank of England and the Deputy Governor of the Bank of England. That being so, perhaps it is not altogether astonishing that the Treasury have never found it necessary to give them advice.

The National Insurance Act 1965 is a codified Act, and Sections 83 and 84 reproduce without any material alteration two sections of the Act of 1964. Those sections provide for two funds: first of all, the National Insurance Fund. to receive all contributions, including any Exchequer contribution, and to pay out all benefits; and then the National In- surance Reserve Fund as its reserve, the income from that Reserve Fund to be paid periodically into the National Insurance Fund. Both Funds are now under the control and management of the Minister of Social Security. There are provisions for investment out of them, and they are the subject matter with which I am really concerned.

Section 83(5) of the 1965 Act provides that: Any monies forming part of the National Insurance Fund may from time to time be paid over to the National Debt Commissioners and by them invested, in accordance with such directions as may be giver by the Treasury, in securities which are for the time being authorised by Parliament as investments for savings banks funds. That means any Government or Government guaranteed securities. It does not even include municipal securities, let alone anything by way of an equity or the like. That is the subsection applied to the National Insurance Fund, and there is a subsection later which applies that to the much larger National Insurance Reserve Fund.

The National Insurance Funds between them took over from the previous Health, Pensions and Employment Insurance fund, £886 million of investments. That was when the original Act came into operation. Of that £886 million—and that is a market value figure— £100 million went to start the National Insurance Fund, and the remaining £786 million went to the Reserve Fund. Subsequent payments brought the Reserve Fund up to the figure of £1,168 million at the end of March, 1967. But that huge figure is the figure of total cost, and the total market value is only £845 million. That shows a depreciation of £323 million, or over 27 per cent., on the money that has been put in. The yield from these investments—the investments that had cost £1,168 million—was only £48 million in 1966–67, less nearly £5½ million losses on realisation; that is to say, a not yield of about£3 13s. per cent.

I have always had a great deal of sympathy with the chimpanzee at the zoo who could not count more then five, and when one gets to figures of this magnitude it is a little difficult sometimes to realise what one is dealing with What one is dealing with by way of quality is the pounds, shillings and pence that are contributed to the National Insurance Fund, partly by the employer, partly by the employed or self-employed, and to a certain extent by the Exchequer. It is the first two types of contribution that are by far the largest. It is out of those contributions that the whole National Insurance Scheme is paid for. Therefore, what we are dealing with is the investment of the whole reserves behind the National Insurance Scheme. My Lords, it is a staggeringly large figure, and in view of the size of the figure I wonder very much why that subsection was put by my Government—the Government I support—into the 1946 Act. There it is.

For the moment I forbear from further comment on that point, and I go on to the year 1957 when evidence was given before the Radcliffe Committee on the Working of the Monetary System. The Radcliffe Committee on the Working of the Monetary System were naturally interested in funds of this kind, and particularly this Fund. The point which the Committee were putting to witnesses from the Bank of England and to witnesses from the Treasury, to whose evidence I am going to refer your Lordships for a moment, was this: Are you using the funds and the investment of the funds to support the general monetary system, or do you regard the purposes of the National Insurance Acts—that is to say the whole National Insurance Scheme—as having the first claim?

There is no doubt whatever what both the Bank of England and the Treasury replied on this point, and although the evidence is rather long I will quote a very short part of it to your Lordships. First of all, at Question 627, the Chief Cashier of the Bank of England, who happens now to be the Governor and therefore one of the National Debt Commissioners, was asked some questions about the support of Government issues. These are supported by the departments to the extent that the public does not take them up, and "the departments" means in effect the Issue Department of the Bank of England which just takes up the surplus. He was asked whether the National Insurance Fund played a part in this, and his reply was: There is a very great distinction. 'The Departments', for this purpose, normally means the Issue Department". Then he went on to a few words that I think are immaterial. He then said that some funds, and the National Insurance Fund, have their own investment policy which they follow like any other fund in accordance with their liabilities". That is to say, they consider what their duty is in relation to the National insurance Acts and liabilities under them and it is that which governs their investments.

There were other following questions which I propose not to go on with; they were all to the same effect. The Treasury witnesses—and I really think this is interesting—said substantially the same There were three questions, and I refer to the first, No. 1047. It was a short question, but it elicited an uncommonly long answer and I will give your Lordships only what I think is the material part of it. What we would like to know", said Professor Cairncross, who asked the question, is how far the National Debt Commissioners receive guidance from the Treasury on the investment policy to be pursued? Sir Edmund Compton replied: There is a constitutional point on that. The National Debt Commissioners, the active ones, are the Chancellor, the Governor and the Deputy Governor". The Chancellor in that capacity is a different person … from the Chancellor as the head of the Treasury. He has, after all, several roles. He is the Minister for the Treasury, he is a National Debt Commissioner, he is a Church Commissioner; he has a number of different functions and this is one of those different functions". Someone of the same name as the present Chancellor of the Exchequer once described this place as "Mr. Balfour's Poodle". I feel inclined to say that the Chancellor seems to be Mr. Wilson's Hydra with many heads.

I go on to the end of the answer: I think the answer to Professor Cairn-cross's question about policy is that they have a wide discretion and pay attention to the needs of, and their duties to, their depositors, and that in carrying that out the National Debt Office keep in close touch with the Treasury. So far there has not been any occasion, that I know of, of any feeling of cleavage between their duty as trustees, if you like to put it so, and the advice the Treasury would wish to give them on grounds of either investment policy or monetary policy". I regard those answers as perfectly fair. The thing that in the view of the Treasury governs, and ought to govern, the investments of the National Debt Commissioners is their duty as trustees, their duties to their depositors, and that after that, and only after that, they should have regard to any advice the Treasury may give them in relation to general monetary policy.

I go from 1957 to 1961, and this was an occasion when the Trustee Investments Bill, which your Lordships had to consider the other day, was before a Committee of the House of Commons, and the opposition was very voluble. I took a part in it. I am not going to quote my own speeches (I think it is an abominable habit) but I am going to quote the speeches of my principal supporter, who was Mr. Diamond. Mr. Diamond is now the Chief Secretary to the Treasury, and Mr. Diamond is such an honest man and spoke with such conviction that I feel sure he will not have changed his mind. The subject we were discussing was an Amendment to give the National Debt Commissioners in respect of this Reserve Fund and a number of other slightly smaller funds—well, distinctly smaller funds—the powers that were given by that Bill to private trustees. I must just say very shortly that when I moved the Amendment I put it on those lines and said there was no reason why trustees for the public should not have the powers of investment that were being given by the Bill to trustees of private funds in cases, of course, where there were no special provisions in the trust deed.

I was answered by Mr. Barber, who was then the Economic Secretary to the Treasury, and still occupies a very prominent place in political life. I think it is rather significant that Mr. Barber did not say, "We cannot give these powers of investment to the National Debt Commissioners because to do so would deprive the Treasury of essential powers over the general monetary system". On the contrary, having perhaps an indifferent case, he thought this was the moment to slang the plaintiff's attorney, and slang him he did, and quite rightly, and very nicely and very fairly, and what he said, in effect, was: This is creeping Socialism. If you let these people invest in equities you will have the State attired as the Devil creeping in by the back door.

We have heard this kind of thing before, and I hope that after the powers that were given by your Lordships to the local authorities the other day, we shall not hear so much of it again; because if, after all, it is creeping Socialism for the State to have reasonable powers of investment, well then you ought never to allow councils through an investment trust or otherwise to speculate on Wall Street in the way they were allowed to by the Bill your Lordships approved the other day. He said this, and said it rather shortly; and, quite frankly—I hope I am not being unfair to someone for whom I have a great respect—I did not get the feeling that he had a very great belief in it all. Be that as it may, Mr. Diamond then went for him, and with considerable vigour. Mr. Diamond said, first of all: I am very interested in many people putting up a lot of money which the Government are losing for them."—[OFFICIAL REPORT, Commons, Standing Committee B; 4/5/61, col. 497.] That, of course, is a reference to the contributions under the National Insurance Fund, and your Lordships will remember the extent of the losses—over £300 million in depreciation cash losses. And, incidentally, we were told of £40 million on realisations the other day; but that is a different way of looking at it.

Then Mr. Diamond went on, at col. 498. It is ridiculous that the Government should seek to stick to an outmoded pattern of refusing to invest in equities, for reasons which I do not understand and which, with the greatest deference to him, the Economic Secretary does not understand, either. Later he said this—and it was a reference to what the Economic Secretary has said: I do not know why the Government seek to introduce prejudice into an objective Amendment by referring to such matters. It is simply a question of a body, which is entrusted with the money belonging to a vast number of people, carrying out its trust in modern terms and efficiently. If the Commissioners had the power which the Amendment seeks to give them to invest in equities they would be able to offset the fall in gilt-edged investments—the great fall in long-dated and irredeemable investments—by the rise in equities which has taken plat and which everyone is satisfied will continue to take place." (col. 500.) My Lords, Mr. Diamond is an expert accountant in private life, and I do not think it is necessary for me to-day to express views, one way or another, as to how the powers should be used, but that the powers are necessary seems to be perfectly clear.

To quote Mr. Diamond again, he said that the Amendment: gives the trustees the right to get out of the chains which have bound them to gilt-edged investment and gives them freedom to look after their beneficiaries fully". (col. 501.) I cannot see the answer to this sort of argument. Later on Mr. Diamond suggested various methods by which, if it were thought necessary, investment of this fund could be limited in relation to any particular company, either by a percentage or a limitation of votes, so that they could never get control. That seems to be a comparatively minor point. My main point is: what is the reason for persisting in the clause which is now in the National Insurance Act, and to limit these people to a kind of stock on which they have already made these immense losses and on which, so far as I can see, they may again have to incur others? I am not prophesying about the future of the gilt-edge market; I am only talking about powers.

What happened the other day was that the Local Authorities' Mutual Investment Trust Bill came along. What was it about? The very same Trustee Investment Act about which I have been speaking gave the local authorities, under a scheme to be approved, power to invest in equities, and so on. There was provision for Treasury approval, and it was found that this power was not wide enough; and the Bill which came before your Lordships' House the other day in fact gave them power to invest in Wall Street in dollar securities. Your Lordships will find it in the Bill. This is only one instance—perhaps the most extreme instance—of the widening which that Bill gave to the powers of investment of local authorities through their trust. The Bill passed another place without a Division; it was not divided on here, and nobody has objected to it. Is there any sense whatever in allowing local authorities to invest in this sort of way and refusing it to those who are responsible for the contributions of the National Insurance Scheme? I simply cannot understand it, and I get baffled and cross with myself because I cannot understand it.

What is the motive behind this extraordinary business? Mr. Barber might reasonably have said at the time: "This is a Bill rather about other things; this is a fairly late stage of it and although this is not all that important as a Bill, it is an important Amendment and it ought to be dealt with separately." He said something of the sort, and I quite understand that. But now the Government have come in—and they came in on an Election pamphlet called New Frontiers for Social Security. On page 14 of that pamphlet, which was introduced by my right honourable friend who is now the Lord President of the Council, we find this: The contribution income will enable a National Pensions Fund—as outlined in National Superannuation—to be built up. This will be controlled by Trustees appointed by the Government who will have the same opportunities to carry out profitable investment of their funds as Trustees of private pension schemes and insurance companies. It was part of a larger change, but the principle is quite clearly accepted.

In the same way, when the Local Authorities' Investment Bill came before another place there was a passage from the Minister's speech in support of it. I quoted it the other day, and I beg leave to quote it again because it is directly and, so far as I can see, conclusively in point. He pointed out in effect that what was being done was to give powers. He said: I do not believe that we should attempt to supervise the Trust like a nanny in what it is going to do with the options it is proposed the House should give it. We should give these powers without tormenting ourselves as to hypothetical misuse or folly. The simple principle to be decided is whether we should widen these powers of the Trust in the knowledge that this is a very well run Trust in charge of very responsible people and that these powers are unlikely to be misused."—{OFFICIAL REPORT, Commons, 22/3/68; col. 792.] I take those as the Government's general views, and I shall apply them to this case.

There is no doubt that there has been an enormous loss on this Fund and a very bad income yield from it, but is that due, as I think it is, to the restrictive terms of the Statute, which prescribed its investment in Government securities only? Or are we to be forced to the view that it is due to the incompetence of the Chancellor, the Governor of the Bank of England and the Deputy Governor of the Bank of England? I boggle at that last conclusion. If we are to talk about a "well-run Fund" this must be treated, whatever its limitation, as a well-run Fund, and if so, is there any harm in giving these increased powers—legislation will be needed for the purpose—and in leaving the exercise of them to these very responsible gentlemen?

I wish the Hydra would put his heads together a little. It must be very difficult for the Chancellor to disengage himself from his responsibility as the operative National Debt Commissioner (for that is what he is), his responsibility towards the insurance contributors on the one hand, and on the other hand his responsibility as Chancellor for the general monetary system. But he must make a distinction, and perhaps it would help him in the process if he considered his third responsibility. This is the Church Commisioners; he is one of them. They do it better. They have a mixed fund. I am not going to take up your Lordships' time any more with the figures, but they have a mixed fund with a yield of over 6 per cent. They do not seem to lose any money. They do pretty well out of even the fixed-interest part of it, and in their Report they talk about preference shares and debentures of industrial companies, and so on and so forth. I wonder whether perhaps we should do better to take the Fund away from the National Debt Commissioners and hand it over to the right reverend Prelates who grace us with their presence and are always so shy about talking on economic questions.

The fact remains that here is the loss, and the Chancellor of the Exchequer has done uncommonly badly with the contributions of men and women all over the country towards the National Insurance Scheme. And these are not small amounts. This Reserve Fund equals roughly, the contributions for a whole year. I think it is probably kept at that; and if the amount that has been lost were now available those contributions could be lowered or the benefits increased without further charge on the taxpayer. What is the objection to giving power to do that? I do not ask any more. Do not ask me to run a fund like this; I would not for a moment claim to be competent to do so. But surely one can and some-body. The local authorities have succeeded in doing so, the Church Commissioners have succeeded in doing so. Surely the Treasury, in all its infinite wisdom, might be able to manage it.

There is one last point, but it is an important one. Roughly speaking, the voluntary pensions funds at present appear from the Morgan Report to amount to about the same capital as the National Insurance Fund. Of course they go to different people; the quantities are different (incidentally, they are not always larger), and there are all kinds of differences; and there is always the broad question whether it is right to compare this with retirement pensions only. But there is no doubt that they are comparable in volume. Not only are they comparable in volume but they have this distinctive feature. I have never heard of anyone outside a lunatic asylum and who had to run a pensions fund who would have put a condition of this sort into the deed. Of course they have mixed funds and they all operate as mixed funds. If my noble friend who is to reply is searching for some exception, all I can say is that he will find only a very small one.

The general principle is perfectly clear. What is the sense of letting insurance companies and other companies invest their funds in equities, for the purpose of providing pensions and the like, when the State, which has the same responsibility to provide pensions and the like, or a very similar one, is precluded from buying the kind of thing which these companies, by experience. have found paid? It cannot be the success of the alternative to which the State has been forced. And this lamentable history, as I see it, reflects no great credit on Parliament. I do not know how these sections got into the National Insurance Act; I do not know what they meant when they got there. Why not say, if that is what you mean, that the whole thing is going to he run by the Chancellor of the Exchequer, in relation, however, to his duty to the depositors?

What you do is take this dead body which has not met since 1860; you call up again, by some curious invocation, the ghost of Mr. Gladstone—I do not want to hurt the Liberal Peers by mentioning him —and you then trust to this fictitious body, subject to direction by the Treasury, the narrowest of all possible investment powers. What was the object? Was it the case that those who were responsible for the Bill at the time wanted to have a separate fund to keep it out of the usual machinery of Exchequer control and thought they were doing so by this clause? I do not know. But if I were the Fulton Committee I would have a very good look indeed at this section; at how it got there, how it has worked out and what the present result of it is.

Of course the Government are going to get up and say the usual Treasury thing, I am afraid: that "There is a lot to be said for it; you have put it very clearly; it is quite competent and we congratulate you on doing so much work," and all the rest. Then they will say, "There is a good deal to be said for it in principle and we will consider it." Then they will say, "By now we have come to think there may be something in it, but not yet". Never yet, my Lords: tarry, tarry, dingle and dally. You put these things before the Treasury, as I have so often done over Finance Bills, and the first answer is always, "It is impossible"; and the second answer is, "It is partly impossible". Then the third time they come forward triumphant, and do it. On this occasion they are losing so much money a year (and it is not their own money but that of the contributors to the National Insurance Find) that I hope they will break all their rules and concede at once legislation which is needed for the purpose—but I do not think they will.

5.7 p.m.


My Lords, I must first of all apologise to the noble Lord, Lord Mitchison, for not being present during the first few moments of his speech; the news of his getting up did not appear to come through on the "blower". I think, with due diffidence, that I must also, on behalf of my fellow Church Commissioners and myself, refuse his kind offer to take over the National Insurance Fund. I feel that we have quite enough funds to look after at the moment.

The noble Lord has raised what is, in effect, a tragedy. He has raised it only in connection with the National Insurance Fund, which is a big impersonal Government pool. But the component parts of this problem affect as a tragedy many hundreds of thousands, if not millions, of people up and down the country who have their savings, in some cases even their life savings, in Government stock, often of an undated character, which they have seen depreciate in purchasing power ever since the war.

I have not personally gone into the exact figures the noble Lord quoted, but I suspect that a good portion of the capital loss, and the reason for the extremely low rate of interest which this Fund appears to earn, may well spring from what I have seen termed the greatest confidence trick in history, which was when a Labour Chancellor of the Exchequer managed to sell hundreds of millions of pounds of 2½ per cent. stock at par. It is now quoted at about 40.


My Lords, I thought that somebody would probably say this, so I took the trouble to look over the first Fund. The first Fund that they took over from the existing Fund included a large batch of what are commonly called Dalton's, and the Dalton's went up for a year or two and then went down again. The fact of the matter is that this is the fault of both Governments, and it is not the least use trying to make a Party point out of it. One was just as bad as the other, and each has been equally slow to remedy the obvious mistake in the original Act.


All Governments since the war are responsible for the inflation, but there was only one Chancellor who succeeded in getting the market into such a condition that he was able to float this paper off, at 2½ per cent., at par; and a great deal of these Government funds have lost a great deal of money in the process since. But periodically people suggest that some of these undated stocks should be given a date, even a distant one; and though I know it is absolutely against Treasury rules ever to alter the terms and conditions of a stock once it has been floated, I feel that something on those lines ought to take place. There is in fact one stock, I think at 3½ per cent., which has some form of rather minute sinking fund which amounts to a date, albeit a distant one. But the noble Lord's remedy, which is apparently to release some of this money at this extremely low return and invest it in equities—


My Lords, I am sorry to intervene, but I do not want this kind of thing foisted on me. I said that I am not proposing anything but to give powers, and I made it clear that I did not claim to know how to exercise them. I ventured the opinion that there might be somebody who would know.


Well, my Lords, to give the people the powers and then say they do not propose to use them really has not much point. But if the powers were given to invest in equities, presumably there would be investments in equities, and the immediate return at the moment would be extremely low.

But what I wish to point out is that the noble Lord is advocating a flight from his own Government's paper, which is not a good example to the rest of the market. One of the greatest tragedies in the financial situation of this country at the moment is that the world in general has lost confidence in Government paper, and the first duty of the Chancellor should be to try to restore that confidence. He could do no greater service to this country than again to get people willing to lend to the Government at 5 per cent. Every effort that he makes should be concentrated on that theme rather than on producing methods of being able to put Government funds into equities.

He should encourage savings, because that is the only way by which money can become of value again in this country. A volume of savings is required. The noble Lord, Lord Douglass of Cleveland, was speaking about this not long ago. The richer classes in this country have ceased to save because they have been so heavily taxed that they have no money left to save. The middle classes are saving quite heavily, chiefly through life insurance, which in the end represents about 20 per cent. of the money going into the gilt-edge market, and also in house purchase. But the wage-earning classes in this country are saving remarkably little, yet some of them are making a lot of money. If the Chancellor could persuade the better off wage-earning classes of this country to save steadily and to put their money into Government securities, it would make all the difference to the price of gilt-edge, the price of money, the bank rate and everything else. I do not think that the Chancellor is doing anything of that kind at the moment. Certainly the noble Lord's plea that the Government should fly from its own paper is not likely to reinforce the gilt-edge market.


My Lords, before the noble Lord sits down, surely he would agree with me that it would take a miracle maker to persuade anybody, after the experiences of the last twenty years, that it was better to invest in gilt-edge securities than equities.

5.15 p.m.


My Loris, my noble friend Lord Mitchison has put me into something of a difficulty. He says that if I congratulate him on the way he has put his case he will simply say, "I told you so. This is the typical Treasury reply to a good case". All I will promise him is that, unlike the right honourable gentleman who replied to him before, I will not slang the prosecuting attorney. My noble friend has put an interesting point of view in an attractive manner, and I am quite sure that it will make even more interesting reading to-morrow. He really launched his case last week during the discussion which we had on the Local Authorities' Mutual Investment Trust Bill. On that occasion I put it to him that there was a distinct and basic difference between the National Insurance Reserve Fund and the Local Authorities' Mutual Investment Trust Fund which was then beir g discussed, and indeed between the National Insurance Fund and all the other funds to which my noble friend referred this evening.

I think the first thing that I ought to do, therefore, is to stress that the public sector funds which we are now discussing—and I refer to the Savings Banks Funds and the other funds held by the National Debt Commissioners as well as the National Insurance Fund—are quite different in purpose and character from the private sector pension and insurance funds. The level of income earned by the public sector funds' investments does not affect either the level or the contributions to the fund or the level of pensions or other benefits paid out of the fund. The level of pensions and benefits is determined not by the yields on securities in which the fund is invested, still less by the market value of the fund, but by the Government of the day, in the light of the needs of the pensioner and other beneficiaries, and of what the nation as a whole can afford. For any given level of benefits the Government must take a given amount of spending power out of the economy, whether by way of taxation, contributions or dividends received, to offset the spending power injected into the economy by payment of the benefits. There may well have been some cases in the past—and one thinks of the 'twenties and the 'thirties—when an inflationary injection of increased benefits would have put the economy on its feet, but to-day the situation is entirely otherwise.

There are some who would argue, in opposition to my noble friend's point of view, that effectively contributions to these public funds are part of the Government's income whilst pensions are part of the Government's expenditure. On this view the existence of the funds merely reflects the way in which past surpluses of income over expenditure in one part of the public sector have been accounted for, and the investment of the funds in gilt-edge is seen simply as one of several possible accounting devices. Given this difference between the public and the private sector funds, it is therefore, as I put to my noble friend, a misconception to apply to the public sector funds the test which one normally, and rightly, would apply to the private sector pension and insurance funds.


My Lords, I am sorry to interrupt my noble friend, but I wish he would not put it all on me. These are indeed my views, but they are also the views of Mr. Diamond in Opposition, of Mr. Crossman in Opposition, and of Mr. Harold Lever in Government. Perhaps we could be told what is wrong with their views as well as what is wrong with mine.


My Lords, perhaps my noble friend will say to what extent he is briefed by Mr. Diamond or Mr. Crossman to speak this afternoon. So far as I am concerned, I can answer only my noble friend. What views the Chief Secretary of the Treasury now holds, or what views Mr. Crossman now holds, I am not in a position to say. All I can hint is that the Chief Secretary of the Treasury has seen the brief on which I am to answer my noble friend. However, the position is—and on this I agree with my noble friend—that there is the Reserve Fund, which is a substantial fund, and he is suggesting that it is not being invested to the best advantage. Possibly I could try to deal with that. What we must bear very firmly in mind is that the investment policy of the National Debt Commissioners must be in accordance with the best interests of the nation as a whole. It is impossible to differentiate between the members of the public whose money the Fund is and the nation, since the nation is made up precisely of those same members of the public.

The evidence given before the Radcliffe Inquiry certainly made it clear that the National Debt Commissioners had to bear in mind two responsibilities: first, the national monetary considerations, second, their responsibility as managers of the Fund. But it was never stated in the Report that the latter responsibility should override the former; nor indeed can one look after the public, whose contributions are invested in the Fund, if one at the same time damages the interests of the nation as a whole. Therefore I suggest to my noble friend that it would not be in the interests of the nation, or of the public who go to make up the nation, if the investment policy of the National Debt Commissioners were changed. And I say that for the following reasons.

I doubt whether anyone would dispute that the Government must cover their financing requirements, so far as possible, from income available to the public sector rather than from borrowing outside. If these funds were not made available to the Government, the Government would have to borrow correspondingly more gilt-edge funds on the market. Clearly, if they themselves were not prepared to invest their own funds in gilt edge (I think that this was the point made by the noble Lord, Lord Hawke) then a considerably higher interest rate would have to be offered to attract gilt-edge investment. Surely this would not be in the interests of the public.


My Lords, I must ask my noble friend not to look round at me, or he will get an answer.


I am grateful to my noble friend: I will look firmly in front of me. The Government's problem of debt management would be made very much more difficult, and I cannot see that the national interest would be served by intensifying this problem.

My noble friend makes the point, and it has created some interest outside, that because of this restriction upon their investment policy, the Debt Commissioners have lost considerable sums of money. But this is by no means as simple as it sounds. Capital value may have gone down, but the income from the Fund has increased. In 1948 the income, expressed in terms of the cost price of the assets, was less than 2½ per cent. By 1955, it was 3.3 per cent., and by 1967 a little over 4 per cent. It is inevitable that with the general rise in interest rates the market valuation of gilt-edge securities should go down. But it is only when the securities are realised or converted that a loss can occur. Sales of securities are made only in order to rearrange the portfolio of assets. For example, if there are too many short-dated stocks, they are exchanged for longer-dated securities. The losses of £40 million over the past ten years have been the result of the rearranging of the portfolio, but during this time, though the capital has declined by that amount, the annual interest from the Fund has grown from £40 million in 1957 to £48½ million in 1967.

Looked at from the point of view of the past investment performance of the Reserve Fund, there is no significance in the fact that on any particular day the market value of the assets in the Fund shows a deficit. Probably I might add just one further thought on this question of investment policy. It is not at all certain that in any given period in the future investment in equities will yield higher returns than investment in gilt-edge. I notice in The Times of April 6, for example, the statement that: It is perhaps surprising to know that there have been 19 years since the end of the First World War in which gilt edge stocks have performed better than equities in capital terms. The article goes on to say that a piece of research by a firm of stockbrokers points to the conclusion that: It is not too early to consider what should be done if signs of a revival in the gilt edge market are seen. The noble Lord, Lord Hawke, made some reference to what he called the "confidence trick" of selling fixed interest stocks. And my noble friend, by implication at any rate, was denigrating the gilt-edge security as against the equity.


No, my Lords; that is not fair. This is in regard to the suggestion that the Government should take powers. Why should I or the noble Lord, Lord Hawke, be fathered with the management of the use of the powers? Neither of us looks like a nanny or is a nanny, to quote the language of Mr. Harold Lever the other day.


The noble Lord, Lord Hawke, used some strong words about what he called "Government paper". I am bound to agree with Lord Hawke that if my noble friend had not thought there were advantages in switching from Government stocks to equities, then I see little purpose in demanding the powers for which he now asks. I was going on to make the point that I agree that we are going through a difficult period in regard to the gilt-edge market. The point I make is that the situation is not made easier by those—I do not here refer particularly to my noble friend—who continually decry the value of Government securities. Nobody who looks at the weekend Press and sees all the advertisements applauding the merits of equity stock as against the gilt-edge can escape the fact that they are themselves creating the very dangers against which they advise their readers to beware.


My Lords, the noble Lord and I are absolutely at one. I want to see a strong gilt-edge market and the Government buying at 5 per cent. again. But let the Chancellor of the Exchequer take a whole page in the Sunday Press pointing out the performance of his stock over the last twenty years in purchasing power. If they come up to the others, he is welcome. I do not think that he could do it.


My Lords, I am glad to hear that the noble Lord is on my side—although towards the end of what he said I was beginning to wonder whether he was. I was simply going on to say that the more one argues about the advantages of the one, the more difficult it makes the situation for the other.

I have made some inquiries about the cost of advertisements paid for by the Unit Trust people in the Press these days, applauding the advantages of equity shares, and—by inference, at any rate—questioning the stability of fixed interest stocks. One estimate given to me shows that in March alone Unit Trusts advertised to the tune of £182,000. When one sees that kind of advertising and compares it with the whole of the expenditure by the National Savings Committee in some months of only £50,000, one can see that there is a good deal of propaganda all on the one side. I shall not venture further into this delicate area, but it seems to me that the more we harp upon the disadvantages of the gilt-edged market, the less favourable to it is the psychological climate in which investment decisions are made.

My noble friend has put forward an argument in favour of giving the National Debt Commissioners wider powers of investment. May I now summarise the arguments against? The insurance funds within the public sector are different in many significant respects from the private sector insurance and pension funds. To agree to the National Debt Commissioners switching, or even having the power to switch, from the public sector to the private sector might given an immediate apparent advantage, but it would not be in the public or national interest. Such a policy would inflate the price of equity shares and would make borrowing for the Government a much more expensive operation. The fact that the book value of the securities in these funds has fallen does not mean that the income from the investment has fallen, or that the benefits payable to the pensioners and other beneficiaries has been affected. For all these reasons, therefore, the answer which I have to give to the latter part of the noble Lord's Unstarred Question is that the Government do not propose to amend the statutory provisions relating to the investment powers of the National Debt Commissioners.

House adjourned at half-past five o'clock.