HL Deb 28 January 1975 vol 356 cc372-4

2.47 p.m.

Lord TREFGARNE

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government why Premium Bonds cease to be eligible for the draw 12 months after the death of the holder; why the Treasury reserves the right to declare bonds bought before a certain date to be ineligible for further draws; and whether the notional rate of interest of 4⅞ per cent. per annum is now realistic.

Lord JACQUES

My Lords, this question is in three parts. First, Premium Savings Bonds are not transferable on the death of the holder. A limit of 12 months' participation after the death of the holder gives reasonable time for most estates to be wound up, but also ensures that bonds are not deliberately left in the deceased's estate for an indefinite period. Secondly, the reserved right of the Treasury to declare bonds ineligible for further draws enables the Government to wind up the Premium Savings Bond scheme if the need should ever arise. Thirdly, the rate of interest applied to determine the value of the prize fund was increased from 4⅞ per cent. to 5½ per cent. per annum as from 1st July last. Prizes are free of tax. The gross rate is 8.21 per cent. Bonds are repayable on demand.

Lord TREFGARNE

My Lords, while thanking the noble Lord for that reply, may I ask whether he is aware that the application form (which is called a "prospectus"), available from post offices, still refers to the rate of 4⅞ per cent., and that the form which I collected a moment ago from the Post Office in the Central Lobby actually shows a rate of 4¾ per cent.? Would it not be better to have the correct rate on these forms, bearing in mind that a good deal of notice was given regarding the recent increase?

Lord JACQUES

My Lords, since the Bonds were introduced in 1956, the rate of interest has increased five times. The rate of interest is printed on the prospectus, but I expect that the Government Department concerned is deeply interested in saving paper and that, consequently, it is using up the forms which remain in stock.

Lord SHINWELL

My Lords, may I ask my noble friend whether, so far, the Treasury has used its reserve powers to make ineligible any of the Bonds?—because I have a suspicion that that may be the case, judging by what has happened to me. I have great difficulty in getting anything out of the scheme.

Lord JACQUES

My Lords, may I first assure the noble Lord that his Bonds are going into the draw. Secondly, the reserve power has never been used. It is there for use only if it were ever necessary to wind up the scheme. The idea is that the winding-up could be spread over a period if it were done in this way. Certain Bonds which were taken out before a given date would be declared ineligible, the holders would be invited to apply for their money and this would take place over a period until the scheme was liquidated. I do not think it is ever likely in our lifetime to want to do that.

Lord HARVEY of PRESTBURY

My Lords, bearing in mind what the present Prime Minister had to say about Premium Bonds when they were started—I think he referred to them as a "racket"—is it not time that the Government came into line with the proper interest rates, whereby people are getting 12 and 14 per cent. in the open market, and gave more generous prizes for Premium Bonds, if we want to be fair to the public?

Lord JACQUES

My Lords, in a scheme of this kind a stabilised rate of interest is absolutely essential, so that you do not put yourself in the position where when interest rates are falling you have to declare that the prize fund is being reduced. You must at all costs avoid that position, so the Treasury have acted very cautiously. As I have already indicated, since 1956 they have increased the rate of interest five times, but have never reduced it. So you cannot go too far up; if you do, you have to come down and the consequences of coming down would be too great.

Lord ROBBINS

My Lords, the noble Lord gave the House the gross rate of, I think, 8 per cent. Would he be so kind as to let us know the equivalent real rate in purchasing power terms?

Lord JACQUES

My Lords, the real rate would depend upon when you bought the Bonds and since I do not know that I could not answer that question.

Lord DERWENT

My Lords, did the noble Lord promise that interest rates would continue to come down?

Lord JACQUES

My Lords, I made no such promise.

Lord THOMAS

My Lords, is the noble Lord aware that the way in which the Treasury look after the savers who buy Premium Bonds is extremely dedicated, accurate and far more effective than the rather wide-ranging discussion we are having now?

Lord JACQUES

My Lords, I have pleasure in confirming that.