§ 3.2 p.m.
§ The PARLIAMENTARY UNDER-SECRETARY of STATE, DEPARTMENT of INDUSTRY (Lord Melchett)
My Lords, I beg to move that this Bill be now read a second time. This Bill does three main things. It enables the Post Office to offer wider banking services; it provides the Post Office with a capital reconstruction in respect of its banking services; and it requires the Secretary of State to set the Post Office a financial target for its banking services. I think it would be for the convenience of the House if we could all agree to call the Post Office banking services by their simple and usual name, Giro. Although the word "Giro" appears only once in the Bill, it is Giro with which it is exclusively concerned. The reason why the Bill does not use the word "Giro "in its title Or content is because Gira has no legal identity. Giro is simply a division within the Post Office, comparable to a division of a company, and therefore it has neither assets nor debts of its own. These are possessed, or owed, by the Post Office itself.
Under the 1969 Post Office Act, the Post Office has power to providea banking service of the kind commonly known as a Giro System".Clause 1 of this Bill removes that qualification. Under the Bill, Giro will be able to provide banking services without them having to beof the kind commonly known as a Giro System".1211 There is no legal definition in this Bill, or in any other Statute, of a bank, a banker, or a banking service. If the House accepts this Bill, Giro will, subject to certain safeguards, be able to offer the kind of services that are normally provided by a bank.
The significance of removing the qualificationof the kind commonly known as a Giro Systemshould not be exaggerated. What the first part of Clause 1 does is to relieve Giro from the obligation of ascertaining what a Giro system is commonly understood to be, and from any obligation to identify the services common to the majority of Giro systems operated elsewhere, when the 1969 Act came into force. The effect of Clause 1 is thus largely clarifying and for the removal of doubt.
Giro, in addition to providing conventional cheque facilities, already has power under the 1969 Act to lend money and to offer overdrafts. It has been successfully running a personal loan scheme since June, and the Treasury has authorised it to provide overdrafts to nationalised industries and to local authorities. It has been authorised to do this within strict limits: at present a total of £2 million for personal loans, and £2 million for overdrafts. This cautious and limited approach will continue to apply to future approvals by the monetary authorities for new or extended banking services. So Clause 1 does not give Giro banking powers for the first time. It simply removes a somewhat obscure and technical restriction.
Noble Lords may wonder why we want to extend Giro's powers. We want to strengthen Giro, and so increase its contribution to the community. Giro's history, and the market research it has conducted, shows that a money transfer service by itself is not profitable. People and organisations tend to look to a single source to provide them with a range of banking services. A good example of this is the popular business deposit scheme where, because Giro cannot provide the flexibility afforded by an overdraft, a large proportion of the money collected into Giro is transferred rapidly to the clearing banks. Moreover, social and economic benefits will flow from the 1212 availability to ordinary people of bank accounts. A high proportion of weekly paid people do not have bank accounts, and may be attracted to do so through the familiar surroundings of the Post Office.
There are three aspects of Giro's banking activities I should like to touch on. First, there is the question of fair competition with other banking institutions. Giro will lend at normal competitive rates of interest and will not on-lend money from the National Loans Fund. We—that is, my Department, the Treasury, and the Bank of England—will not let Giro embark on new or extended services unless we are as sure as we can be that these will make a contribution to Giro's overall profits. In the case of Government business, Giro will not be given a preferential status. Our sole concern will be to see that Giro gets a fair crack of the whip in competition with its more established rivals. Giro will continue to pay, on the same basis as Government Departments, its fair share of the cost of using Post Office counters.
Secondly, there is the question of Giro's competence to run banking services. Giro did not fulfil the expectations set out for it in 1965, but this cannot fairly be blamed on Giro's existing management. The evidence points to Giro giving a good service and satisfying its customers. That evidence is impressive: an annual turnover of £25,000 million 180 million transactions a year; £3,500 million worth of business per year in business deposits; 20 million rent collection transacations a year. Giro made a small profit last year, due, I admit, in part to favourable movements in the stock market. More important, Giro has achieved a swing round in its trading results before interest from loss to profit of nearly £7 million over the past four years. With its new banking service Giro has made 4,000 personal loans so far without any bad debts. Giro's future will be carefully monitored by the monetary authorities, who will take into account its resources both in terms of financial assets and management capacity.
This brings me to the third aspect of Giro's banking activities with which I want to deal: namely, Giro's capital adequacy and the application of monetary and other controls to it. By way of background I should repeat what I implied earlier; namely, that Giro does not stand alone. It has the resources 1213 of the Post Office behind it. Its liabilities to its depositors are incurred by the Post Office. The capital adequacy rules agreed between the clearing banks and the Bank of England are meant to be flexible. So in authorising Giro to provide banking services we have taken account of the fact that a much higher proportion of the assets held by Giro are entirely risk free, compared to the proportion held by the major clearing banks. Also about 40 per cent. of Giro's customer balances are public sector balances which are not, by their very nature, subject to the same volatility as the balances of other customers.
Giro is not a bank on all fours with the clearing banks. But Giro conforms to those requirements which the monetary authorities consider necessary. For example, Giro's liquidity ratio is set at 20 per cent., at least as stringent, and probably more so, than the reserve asset ratio imposed on banks. As Giro develops, all the appropriate monetary, credit, and prudential restraints will apply.
I should like to turn to the capital reconstruction of Giro; that is, to Clauses 3 and 4 of the Bill. Under these clauses we propose to write off losses and introduce public dividend capital. Since it started operation in October 1968, Giro has accumulated losses, including interest on losses, of £33.4 million. That is up to the end of the last financial year, 31st March 1975. We have decided to write off half those losses; that is, to reduce them to £16.7 million. After this write-off, Giro's capital is reduced from £42.5 million to £25.8 million. The next stage of the reconstruction is to convert half of this remaining capital, £13 million, into public dividend capital. For legal reasons, the method of reconstruction adopted in the Bill is to write off a gross amount of £29.7 million in Clause 4—that is, £13 million plus £16.7 million—and to reinstate simultaneously the £13 million under Clause 3(6) as public dividend capital. We certainly do not relish writing off losses, but to do so is simply a recognition of reality. It does not make sense to expect Giro to carry on with its present burden of debt when it has little or no prospect of working this off in the foreseeable future. The proportion of the write-off, one-half of the accumulated losses, is not arbitrary, but I cannot claim that it is scientifically 1214 exact. It is based on our best judgment of how much indebtedness Giro might be reasonably expected to meet given the necessary management effort.
As I explained, from 31st March 1975 Giro will have a capital structure consisting of both long-term fixed interest bearing debt from the National Loans Fund and public dividend capital, on which Giro will be expected to pay dividends to the Government. The purpose of introducing PDC is to recognise that Giro is affected by changes in monetary conditions over which it has no control, and that these changes have a significant effect on its investment earnings and, hence, on its profitability. Unlike the obligation with fixed interest debt, it will be able to pay higher and lower dividends respectively in good and bad years. But the introduction of PDC should not be regarded as a device to provide Giro with interest-free capital. We shall look for dividends at least commensurate with the interest that would have been due on the replaced £13 million of National Loans Fund money.
The ratio of PDC to National Loans Fund indebtedness is 50:50. This gearing is not of crucial significance. To achieve the cushioning effects I referred to the PDC element has to be substantial, and we thought it right to follow the rough order of gearing which other nationalised industries, with PDC, already have. I referred to PDC not being a soft option. One way to ensure this is to set a financial objective. Clause 2 of the Bill makes this obligatory. We have already set the objective after discussion with Giro, and they have accepted it. Over the three years 1975–76 to 1977–78, Giro, after meeting interest charges on its remaining National Loans Fund capital, will have to earn an average pre-tax, pre-dividend return of 12½ per cent. on its public dividend capital plus retained profits. In order to achieve this objective, the return by the third of the three years is expected to be approaching 20 per cent. This is about the average achieved by the big four clearing banks in recent years. It is not an easy target. Giro will have to work hard to meet it, and do significantly better than it has in the past. At the other extreme, we have not set Giro an objective which it is unlikely to meet; there is no point in 1215 that. We believe l2½ per cent. is the highest practicable objective.
My Lords, Giro is an established and valuable service. I believe that was the conclusion reached by noble Lords opposite when they were in Government, after a searching inquiry. It is a conclusion which this Government fully endorse. I have tried to explain what the Bill is about and why the House should give it a Second Reading. It is a practical measure, in that it removes a technical doubt over Giro's freedom to provide the services its customers want. It is a realistic measure, in that it recognises that Giro cannot just go on with its present burden of debt. It is a responsible measure, because we are limiting the write-off of losses and setting Giro demanding objectives. Giro cannot be allowed to compete unfairly with its rivals. At the same time, it cannot provide a fully effective and competitive service while its hands are tied. This Bill represents an advance in the public sector, but only in the sense that the Bill enables Giro to improve on a public service provided by the Post Office and used of their own free will by many organisations and individuals. My Lords, I commend the Bill to the House.
§ Moved, That the Bill be now read 2a.—(Lord Melchett.)
§ 3.16 p.m.
§ Lord ABERDARE
My Lords, I am grateful to the noble Lord, Lord Melchett, for having explained this Bill to us. It is a complicated Bill and he has explained it extremely lucidly and carefully—and, I thought, with enormous confidence, launching into it, for the first ten minutes of his speech, without the presence of any official advisers to assist him. But, having said that to the noble Lord, I am afraid that is the last of the nice remarks that I can make because, quite apart from the undesirable nature of this Bill, it seems to us to be an extraordinary moment to bring it forward. We are bound to ask where the Government's priorities lie when, at a time of grave economic crisis such as this, they take up Parliamentary time with a Bill that in our view is wholly unnecessary, potentially dangerous and adds a further burden to public expenditure. How much more readily would the country rally to 1216 the Government's call to face the present economic situation and to combat inflation if only they would concentrate on matters of vital concern to the country's well being and at least postpone measures such as this, which are controversial and inessential!
The Chancellor of the Exchequer is always talking of an export-led recovery, and in the excellent debate that we had in this House last Wednesday my noble friend Lord Gowrie made the case that our most successful exports are our invisible exports. For that achievement, surely, the banks, among others, deserve our admiration and our gratitude; and here is one sector of our economy that needs no Government assistance and should be kept as free as possible of any form of outside interference. Of late there have been several Government statements—and very welcome they have been—emphasising the essential part played by the private sector in the creation of wealth. In that same debate last Wednesday, in a most forceful and admirable maiden speech, the noble Lord, Lord Northfield, urged his own Party to accept the private sector much more openly than it has ever done, and to champion its success and profitability and confidence in it.
That being so, why, then, bring the State into banking—the vital supplier of credit to the creators of wealth? It may be said that Giro's banking operation will be very small compared with those of the clearing banks or even those of the Trustee Savings Banks, but we know what happens when once the State gets its foot in the door. If any warnings were necessary, we have it in the words of Mr. Singer, the managing director of Giro, who is quotedin the Guardian of the 20th February as saying that the National Savings Movement, Giro and the Paymaster Generals Office could beneficially be combined into a State Bank the size of Barclays. I freely admit from what the noble Lord, Lord Melchett, has told us that the Bill does not go that far, but it is perfectly possible to imagine circumstances arising in the future, once Giro is providing banking services, when a Government—not necessarily this Government—will seize the opportunity to establish a powerful State bank by such means. Surely, the Post Office has more pressing priorities at the moment than launching 1217 into banking. Would it not be better for the Post Office to concentrate on its postal services and telephone services than to start making personal loans and giving overdrafts? The Post Office is at present undertaking a major review of its services. I should have thought it wise to await the outcome of that review before passing this Bill.
As the noble Lord reminded us, when we were in Government we conducted a thorough review of Giro with the aid of Cooper Brothers (now Cooper & Lybrand) at a time when Giro was losing some £6 million a year. We accepted the recommendations made by Cooper Brothers that Giro should continue but with substantial changes in management, financial control and marketing policy, in order to improve its performance. Certainly we did not at that moment contemplate that Giro would move into full banking services. What we did was to give it two targets to achieve: the first, to make a positive contribution to Post Office finances within a year of introducing new tariffs; the second, to cover its overheads including depreciation and interest on both assets and losses within five years. Giro has achieved both those targets ahead of time and, as the noble Lord has reminded us, for the first time has made a small profit in 1974–75. Why not let it continue to progress into profit, to repay its debt and to build up its reserves? This surely would be the normal way forward for any institution that sought to offer banking services.
My Lords, not long ago we passed through this House the Trustee Savings Banks Bill and that Bill had its Second Reading in another place on 17th February. In that debate the Paymaster-General said:The Treasury will continue to keep an eye on the banks' operations and development, particularly on the rate at which the banks build up their own reserves. The building up of the banks' reserves is, of course, a crucial element in the transition, which, indeed, cannot be brought to an end before an adequate level of reserves has been achieved."—[Official Report (Commons), 17/2/76; col. 1207.]"Of course," and "indeed"—but why did not the Paymaster-General or the noble Lord, Lord Melchett, say something about Giro in the same spirit. Giro's reserves are negative. After this Bill, it will have public dividend capital of £13 million against a written-down 1218 debt of £16.7 million—a deficit of £3.7 million.
I know that the noble Lord, Lord Melchett, repeated the assurances given in another place that the whole of the resources of the Post Office stand behind the Giro system; so that if losses occur they will be borne by the Post Office—and that means the taxpayer. I would ask the Government this. Why should we risk taxpayers' money on so speculative a venture when it is totally unnecessary? We have only to think of the recent plight of the Crown Agents which should surely urge caution upon us when venturing public money into this sort of field. We have seen already some of the trouble that secondary banks can get into and I wonder whether we can be really confident that Giro has the necessary skills to fare any better.
The noble Lord spoke of the skills of the management of Giro. I would not for one moment quibble with what he said, but Giro is now to move into something quite different, into banking services. Can we be sure that those same skills that have built up Giro as a money transfer system are going to be the skills necessary for banking? The clearing banks have had years of experience of giving credit and their bank managers are highly trained for this very purpose. They know their customers locally and they have the evidence of their local bank accounts before them. Not so Giro. It will not be the local postmistress who grants you a loan. She might be a quite shrewd judge; but it will not be her. It will be done on a points system, as I understand it, of centralised credit control. I think that if I were the managing director of Giro I should be having nightmares about the level of bad debts under such a system.
Moreover, it appears that Giro is to be free, under this Bill, to issue credit cards and to buy and sell in the foreign exchange market. If we are to judge by the example of those other credit card companies, Access and Barclaycard, credit card operations are immensely expensive to set up and are not always profitable to run. Again, I wonder whether this is the right time or whether it is necessary for Giro to have these powers—and foreign exchange transactions can certainly result in very heavy losses. We have only to think of the 1219 large loss of Lloyds International only a few months ago; yet Giro is to have no restrictions placed on its banking operations in this Bill.
What a contrast this is to the recent Trustee Savings Banks Bill. In that case we were told of a ten years' programme during which Government control would gradually be relaxed until only those restrictions placed on all banks would apply to the Trustee Savings Banks. Why then is it thought right that Trustee Savings Banks with their wealth of experience and large capital reserves need a ten-year transition period to full banking status while Giro with relatively little or no experience in the banking field, and few reserves, is to qualify at once? It seems illogical to me, and wrong. We know too, because the Government have told us, that they have in preparation new banking supervisory legislation which will deal, among other things, with the Trustee Savings Banks and the Giro. Surely this is again an added reason not to press ahead with this Bill at this time.
My Lords, to sum up our objections to the Bill: we see no need for it, especially in present economic circumstances, and we believe it has potential dangers both for the banking system itself and for the taxpayer who will have to carry the can for any failure. I would not wish to invite your Lordships to vote against the Second Reading, much as we dislike the Bill, but I hope we shall look at it carefully at Committee stage with a view to going into some of its more difficult propositions.
§ 3.30 p.m.
§ Lord BANKS
My Lords, the noble Lord, Lord Melchett, has set out the objectives of the Bill clearly for us; obviously those objectives do not commend themselves to the noble Lord, Lord Aberdare. The first comment I should like to make on the Bill is that it does not involve the establishment of any new institution, and that is a welcome change from much of the legislation we have in front of us. It seems to me there is no objection being presented from any part of the House to the continuance of the present role for Giro as a money transmission service. Indeed, as has been pointed out, the last Conservative Government carried out an investigation into Giro and decided it ought to be continued. 1220 I imagine that they, with the rest of us, would wish to see an expansion of that service.
It follows from that that there is no objection in principle being expressed to Giro's competing with the clearing banks and with the Trustee Savings Banks because it already does this in the sphere of money transmission. The objection is to the extension of overdrafts to business and personal account holders which, as I understand it, are already available to local authorities and nationalised industries. There is also objection to the extension of the personal loan facility which is already available at the present time and the provision of bridging loans, cheque cards and possibly credit cards, although there are no plans at present for the introduction of credit cards.
The objection to this extension of services has been made on several grounds. It is said that there will be unfair competition; that Giro, with something like £150 million to invest, will be competing unfairly with the Trustee Savings Banks with £4,000 million of depositors' money and the clearing banks, like Barclays, whose assets are something like £7,000 million. But we have been assured that Giro will not be subsidised by the rest of the Post Office, and that it is the intention that the new Giro credit operations will be self-supporting. Also, as the noble Lord, Lord Aberdare, pointed out, they will be subject to the same credit controls as apply to the banks. It could be argued that if Giro did not have this extension of services it would be operating with its hands tied behind its back (if I may use that metaphor) in competing with the clearing banks and Trustee Savings Banks since the latter are now to have this same extension of services: It is clear, for example, that if cheque cards are not available there are going to be many circumstances in which a Giro cheque cannot be used in order to make a payment.
It is said that there is not sufficient expertise in Giro, but it has been pointed out by the noble Lord, Lord Melchett, that there are some 4,000 personal loans at the moment and no bad debts, and these cover something like £1,500,000. Overdrafts at the moment, and in the immediate future. will not be extended for the purpose of investment capital but merely for the purpose of easing problems of cash flow. Mr. Alfred Singer, the 1221 managing director of Giro, was interview by the Guardian recently. This interview was dealt with in two articles. In one he seemed to be looking to future possibilities and the other discussed the immediate prospects. These articles attracted much attention. In discussing the immediate prospects he seemed anxious to make it clear that progress would be slow and cautious. It was going to be a gradual move from the present position.
The noble Lord, Lord Aberdare, said the vetting of loans would be dealt with centrally. This is a practice followed by many credit institutions and an expertise is already building up centrally. I should like more clarification on how many staff will actually be involved in doing this. This point was not satisfactorily dealt with in another place. At one time it was said that a manager and 14 people had already been employed in order to carry out this work; on another occasion is was said that if the Bill were passed they would be employed to carry out this work; and on yet another occasion it was said there would be no increase in public sector employees. It would be useful to know how many people are likely to be involved in central vetting, although that is a practice which is used by other credit institutions.
We are told that there is a possible loss to the taxpayer; of course that is true. But, if there is the cautious approach which has been outlined by the noble Lord, Lord Melchett, and to which Mr. Singer referred, this is not likely to occur. A gradual building up of the credit side of the business would obviate the possibility of any considerable losses for the taxpayer to bear. It is argued there is a lack of market research. The Government have been a little coy in saying exactly what has been done. Marplan and Lancaster University have carried out some researches. It is obvious that the details of those researches cannot be made public since they were carried out for the purpose of marketing by a concern in competition with other concerns. Nevertheless, it would be reassuring to have some more information as to the scope of the research which has been carried out.
There has already been reference this afternoon and in another place to a comment made by a Guardian reporter 1222 about something said by Mr. Singer in his interview. The Guardian reporter suggested Mr Singer had in mind the possibility of the establishment of a massive State bank. As I read it, what Mr. Singer was contemplating was the possibility that Giro, the National Savings movement, the National Savings Bank and the Paymaster-General's office might combine; there would appear to be some sense in putting together these Government operations which all take place at the moment. Of course the Trustee Savings Banks would not be involved in that, as might be inferred from the article. They have a separate role as neutral banks to perform.
The Page Report on National Savings pointed out that within the Post Office there are three different services for money transmission: first, Giro, which is a part of the Post Office service; then the National Savings Bank, which has been part of the Department of National Savings but for which the Post Office is an agent; then there is money transmission by means of postal orders, money orders and telegraphic money transmission services. The Page Report commented:If we had been charged with the task of establishing a State operation to cover current account banking, short and long term saving and ready facilities for transmission of money, both for members of the public who already participate in the banking savings system and those who are outside it, we would hardly have recommended the establishment of three independent systems which are subject to two different controlling bodies.Further, the Report says that in the longer term the merger between the two organisations might be the solution to the problems of both.
But of course any merger of that kind, or any development along the lines about which Mr. Singer was speculating, would have to be the subject of further legislation one's view about such a possibility should not prejudice one's attitude to the Bill which is before us this afternoon.
Finally, a great deal was made in another place of the threat of nationalisation, and the proposals contained in the Bill were somehow seen as paving the way for nationalisation. I do not believe for a moment that they do that. I am totally opposed to the nationalisation of the clearing banks. I know that the Labour Party has, on occasion, committed 1223 itself to such nationalisation, and I think it would help if the Government would say not merely that they have no plans —which I think was the phrase used by the noble Lord, Lord Jacques, when we discussed the Trustee Savings Banks Bill —but that they have no intention of nationalising the clearing banks and think that such a move would be wrong. My noble friends and I are completely opposed to the nationalisation of the clearing banks, but I say again that I do not see these present proposals as necessarily leading in that direction.
To sum up, I am all for competition between Giro, the clearing banks and the Trustee Savings Banks. I believe this to be a modest measure which would allow the Giro to compete on more equal terms and I believe that its customers will benefit from the new facilities. I should like, in conclusion, to stress again the importance of maintaining the declared policy of cautious advance and slow expansion in the credit field. So long as we are assured that that policy will be followed, I am happy to express general support for this Bill.
§ 3.42 p.m.
§ Lord DAVIES of LEEK
My Lords, I have not put my name down and therefore do not propose to take more than a few minutes. I think that this debate, though perhaps a small one, is of great importance. The noble Lord, Lord Banks (who is so appropriately named) having made a constructive speech about this sector of the banking system, I should like to follow him with a few remarks of my own. In passing, having listened with care to the speech of the noble Lord, Lord Aberdare, I think that there were caveats there of which one should take note. It is important, as both speakers—one from the Liberal Benches and the other from the Front Bench opposite—have pointed out, that we should know that the limits of taxation are the limits of the taxpayers' obligations to the system. But despite the occasional failures of the Post Office, I am a bit tired of the fact that in debates, whether here or in another place, somebody always "knocks" the Post Office.
It is time we realised the vast amount of work which is done for ordinary peopleby the Giro system and what is involved in the work done over Post Office coun- 1224 ters. I walked into a very obscure sub-post office the other day. It was, if I may use the expression, all "beezed up" —and I hope that the reporter will be able to spell that slang phrase because I am not quite sure of it myself—with thick glass and aluminium plating. I said to the person who, at terrible expense, was selling me some stamps, "Why all this?" The answer was: "This is for our protection because of all the raids on the Post Office". In other words, it is often forgotten by the Governments-that-be that a tremendous amount of money has to be spent on the protection of post offices and sub-post offices throughout the country because of the vast amount of work they do. One can think of the 9,000-odd civil servants employed in Newcastle on Tyne, who are needed to work the old age pension system—and I know about that from my previous experience as a Minister concerned with social security. There is a vast amount of work which is done for the ordinary person by the Post Office and upon which the ordinary housewife and other people depend. The work they do is indeed great.
I was in at the birth of Giro—and incidentally, what horrible words these are! "Giro" sounds like a female washing powder; it is a word which does not fit into the beauty of the English language and, believe it or not, roses by any other name do not always smell as sweet. I believe that more publicity and advice should be given in connection with the Giro system. The very word alienates many ordinary people, though the intention was to approach the ordinary housewife. This all adds to the vast amount of work which the Post Office has to do. I approve of the, as it seemed to me, very constructive suggestion which was made by the noble Lord, Lord Banks, when he pointed out that now National Savings and other forms of savings are going through the Post Office, it may be—and this was hinted at in a Guardian report the other day—the Government should look at means of co-ordinating the vast number of financial transactions now taking place over post office counters in thousands of towns throughout the British Isles.
I must point out to the noble Lord, Lord Aberdare, with all due respect' and he himself, as quite an athlete in the 1225 tennis world should know this—that competition is the spice of life. What is wrong with establishing a Giro bank which can offer fair, honest and constructive competition? The Opposition is always talking about competition. We need a little of it in this world of supermarkęs. The little shopkeeper used to blame the Labour movement for destroying him. He is not being destroyed by that: he is being destroyed by the ultra-competitiveness of the mighty supermarket and the hypermarket. Hypermarkets are now elephantine—especially the new one at Brent Cross where they have car parks for thousands of cars and where one street now has a hundred buses a day running along it towards the hypermarket. Why do planners think of these things in this super society in which we live? My noble friend speaks of "development". Yes, it is called "development". Does my noble friend want to interrupt me?
§ Lord SHINWELL
My Lords, my noble friend misunderstood my comment. The noble Lord sitting beside me made a remark, and I said that it seemed to me a little irrelevant. I did not refer to "development" at all.
§ Lord DAVIES of LEEK
My Lords, does my noble friend imply that his remark was irrelevant or that mine was? It does not matter. The irrelevancy of the remark does not matter. There is nothing wrong in developing a competitive side to the banking system. Finally, I think that more attention should be paid to the function of Giro and that we should try to get it across to the man in the street and the housewife, so that the facilities can be more used—for instance, in paying bills and in other elementary functions in the running of the home today—because it is something that we originally thought would be of great value to society.
§ 3.48 p.m.
§ Lord SLATER
My Lords, if noble Lords will excuse me for just two or three minutes, I should like to say that I was in at the birth, as it were, of Giro so far as the Post Office was concerned. I have listened to the speech made from the Liberal Benches by the noble Lord, Lord Banks, and to the observations made by the noble Lord, Lord Aberdare, when he said that the Opposition would not 1226 vote against the Second Reading of this Bill. I would say that I was not only in at the birth but I also saw the system in operation in Sweden and elsewhere. These systems were the forerunners of Giro, and we were able to make comparisons at that time. Giro was the forerunner of the commercial system of banking operations in those particular countries. I was also concerned when the Bill was being examined during the Committee stage upstairs. We had our arguments with the Opposition in regard to it. It took some getting off the ground in the first place. We had to meet many difficulties before this Giro system could become operative. I believe that the more people get to know what Giro means as a method of financial banking, the better it will be.
Not only did we introduce that Bill, which finally received the Royal Assent, but we also held various functions at St. Martin's-le-Grand in order to hear the observations of big industrialists from all over the country as to how it could benefit them and how wages could be paid through the system; for instance, those of local authorities. My noble friend Lord Davies referred to the name, but that is something which was brought into being not by us but by those nations which were the forerunners of this banking system. It is also true that we introduced the Savings Bank, and the Minister for Posts and Telecommunications at that time had power to fix the rate of interest. So the Post Office has not been standing idle on this issue.
I think I am justified in saying that Giro provided a scheme whereby we were able to absorb thousands of people into the service in that great building at Bootle, not far from Liverpool. It is there for everyone to see, and I advise any noble Lord who has not seen Giro in operation to make a special visit to see the amount of work that is done by the people who operate it. He will also see how the general customer receives every attention in regard to his investment, whether with the CWS, the Westminster Bank, Barclays Bank and so on. I am all in favour of what was said by the noble Lord, Lord Banks, about the credit card. This is something which we overlooked, and I see no reason why it should not be introduced. I hope that the Post Office will give serious consideration 1227 to some of the observations made by the noble Lord, Lord Banks, who, in general, supports the Bill, which is not a means of taking advantage of the Savings Bank or even the old Post Office, where our children put the coppers given to them at the weekend and saved them up. I sincerely hope that the House will not only give a Second Reading to this Bill, but will do whatever it can to extend the facilities by letting the general public know the services that will be accorded to them if they become members of Giro.
§ 3.54 p.m.
§ Lord MELCHETT
My Lords, I should like to thank noble Lords for the general—I would almost say "unanimous", but of course it was not quite that—welcome which they have given the Bill. First, I should like to join with my noble friends Lord Davies of Leek and Lord Slater in paying tribute to the service provided by the Post Office, and in particular by the staff of Giro. The Giro service is extremely efficient and well-run under Mr. Singer. I am grateful to the noble Lord. Lord Banks, for the tribute that he paid to the staff, and I am sorry that the noble Lord, Lord Aberdare, did not feel able to repeat the very fulsome tribute that was paid by the Front Bench spokesman in another place, to the quality of the service which the staff of Giro are providing.
§ Lord ABERDARE
I am sorry, my Lords, but I think I did. I said that I thought the management expertise was very high and very good, and I certainly repeat that now. I said only that there is no evidence that they are equally skilled in providing banking services.
§ Lord MELCHETT
My Lords, I qualified my criticism—if it was a criticism—of the noble Lord by saying that he did not quite repeat the fulsome tribute of his colleague in another place, and I think I am right in that. My noble friend Lord Davies had complaints about the word "Giro", but of course, as my noble friend Lord Slater said, this is an international term; and I think my noble friend Lord Davies will agree that "Giro", with its four letters, is a good deal preferable to the more cumbersome phrase, "Post Office banking services", which appears in the Bill.
1228 I can certainly give the noble Lord, Lord Banks, the assurance which he sought, that there would be a cautious advance and a slow expansion, which I believe are the words he used. This is exactly the approach that the Government see Giro making, and I hope that, having given him that assurance, he will be able to give the Bill full support. He asked me a question about the number of staff. I believe that there was a slight error in the Bill as it was first printed, and that may have given rise to some misunderstanding. The staff involved are of course Post Office staff, and are not civil servants. I understand that at the moment there is a loan manager and 14 extra staff already employed and engaged in the granting of personal loans. This is a point which the noble Lord, Lord Banks, made very adequately. Indeed, I think he did the whole of my job for me in answering the queries of the noble Lord, Lord Aberdare.
Giro is already engaged in providing personal loans. This Bill does not represent a sudden massive increase in banking in the public sector, with Giro leaping into the clearing banks' private preserves, or anything like that; it represents a slow, cautious advance and removes a technical and obscure qualification. I do not know whether the noble Lord, Lord Aberdare, knows what Giro services were commonly provided in the countries where there were Giro services in 1969, but I dare say it is something that is very difficult to find out, and that qualification on Giro is removed by the Bill. The personal loan service which Giro now runs commenced last June and since then, as I have said, about 4,000 loans have been made without any bad debts being incurred. Those 4,000 loans represent a total sum of about £1,500,000. I imagine, contrary to what the noble Lord, Lord Aberdare, suggested about Mr. Singer having nightmares, that he sleeps very soundly with that kind of record already behind him.
The noble Lord, Lord Banks, asked me about market research which has been undertaken by Giro. The most recent studies have been prepared by Taylor Nelson Associates, a subsidiary of Marplan, as the noble Lord himself mentioned, and by management consultants Peat, Marwick and Mitchell, Arthur Anderson and also by the 1229 Statistics and Business Research Department of the Post Office itself. I am sure the noble Lord will appreciate that such studies contain a great deal of confidential and commercially sensitive information, and I do not think it would be appropriate to go into the detail of questions which are really matters for the day-to-day management of the Post Office. However, it is clear that these studies, which cover between them both the personal account and commercial sectors, reinforce the general evidence to which I referred in introducing the Bill; the additional services which Giro is starting to offer and will be able to continue and slowly expand once the Bill is passed, will very much increase the effectiveness of the Giro service to many people.
The noble Lord, Lord Aberdare, referred to the question of public expenditure. Of course, the intention is that Giro's banking services will be self-financing, and the noble Lord acknowledged that they made a profit in the last financial year. The intention that Giro's banking service will be self-financing means that there can be no question of Giro on-lending Exchequer funds. Giro will have its own banking fund, consisting of moneys from its customers, and these will be the source of its investment plans and of its loans or overdrafts to its account holders. Giro's accounts will show the size of its balances and the nature of its investments. Giro's future capital requirements are small and are not, in the foreseeable future, directly linked with the extension of banking services. Calls on the National Loans Fund will be largely the provision of working capital.
I deeply regret that the noble Lord, Lord Aberdare, did not feel able to welcome a measure that will increase the extent to which Giro can compete fairly with its rivals. I should have thought that would have certain attractions for the noble Lord. If I may say so—I hesitate to accuse him of this—it appears that he has been reading some of the wilder speeches that were made from the Back-Benches in another place which bear absolutely no relation to what this Bill is about and what it implies for the future of Giro itself. The noble Lord asked me why we did not let Giro progress into profit. That is exactly what 1230 we are intending to do. The noble Lord did not refer to the research, to which the noble Lord, Lord Banks, referred, which shows that without some extension of the services which Giro can provide it is unlikely to be able to produce a really profitable service. The noble Lord did not make any reference to the very stringent objectives, outlined in my opening speech, which we have set Giro for the future. As I said in my opening speech, after a period of years Giro will have to be doing as well as the established clearing banks, with a long history behind them, are doing at the moment.
The noble Lord, Lord Aberdare, did not mention a matter to which my noble friend Lord Slater referred; namely, the extent to which Giro provides a service to the nation. In my opening speech I mentioned the fact that Giro now collects 20 million rents per year. This is a huge number and it is an extremely important service. It reduces by a great deal the cost of rent collection and, therefore, reduces public expenditure in that section. It provides a secure and safe service which, before, very often was not either secure or safe. It reduces the likelihood of crimes being committed. I should have thought that this example of what Giro is doing ought to be warmly welcomed. In view of what has been said in the debate this afternoon by the noble Lord, Lord Banks, and by my noble friends, I hope that the Bill will secure a speedy passage through the House.
§ Lord REDESDALE
My Lords, before the noble Lord sits down, I wonder whether it would be possible for him to explain further the market research aspect that he glossed over rather quickly. He said that this is extremely sensitive information. If market research is paid for by taxpayers' money, I should have thought that that information could be published and, therefore, that all of us might have a sight of it. I appreciate that there may be other aspects, but I should be grateful if the noble Lord could explain this point in a little more detail.
§ Lord MELCHETT
My Lords, I have tried to explain that Giro is in competition with several rival organisations. It is operating in a commercial field and has to operate commercially. If the noble Lord went to the managing director of Barclay's Bank and asked that 1231 bank to reveal its market research data, I think that he would get a short answer. If we expect Giro to compete effectively in a fair and open way, it is only fair that we should accord the same privacy to their confidential and commercial information as we accord to their rivals.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.