§ 2.49 p.m.
§ Lord Beswick
My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government why it was considered necessary on the 1996 Treasury Stock issue to eligible institutions to pay an index-linked interest in addition to the index-linking of the capital when the retirement bond for eligible individuals is indexed only as to capital.
§ The Minister of State, Treasury (Lord Cockfield)
My Lords, the two instruments are not comparable; they are aimed at very different markets and necessarily have different features. While the retirement issue national savings certificates do not bear interest as such, a terminal bonus of 4 per cent. of the original purchase price is paid. In addition, the certificates may be encashed at their uprated value at any time after the first twelve months.
§ Lord Beswick
My Lords, while I thank the noble Lord for that Answer, may I ask him whether he is aware that I am referring to the two different markets and ask why there is a difference in the returns that are offered to these two markets? Despite what he says, and bearing in mind the fact that the bonus has now been dropped, does it not seem inescapable that either the institutions are being guaranteed too much or the individual too little?
§ Lord Cockfield
My Lords, I think that the answer to all of the noble Lord's questions is, no. My right honourable friend the Chancellor of the Exchequer announced that the 4 per cent. terminal bonus would be available on the second index-linked national savings certificates. So far as the other matters are concerned, I point out that the national savings certificates have certain advantages which are not available to the index-linked bonds and the index-linked bonds have certain advantages not available to the national savings certificates. All in all the two types of security are tailored to the requirements of the particular market. In the case of savings certificates in particular, the National Savings Department offers a range of securities from among which the saver can choose.
§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that anything which encourages indexation is a time-delayed bomb which may well explode and cause a lot of damage later on, and that this is something that ought to be looked at before it is given as a permanent encouragement? I remember discussing this with bankers in Brazil who were very much the victims of this. Is my noble friend aware that those bankers in Brazil said that, while this index road is something to use if one is on the point of death, the things that flow from it after one overcomes it are much worse than the things that one tries to avoid? This is a road which, I suggest, we should look at very closely before we go any further.
§ Lord Cockfield
My Lords, I fear that I disagree with my noble friend. The Government are committed to reducing the level of inflation on a permanent basis. The problems that my noble friend envisages will not, therefore, arise. I do not think that there is any true comparison between conditions in this country and conditions in Brazil.
§ Lord Davies of Leek
My Lords, is the Minister aware that the grannies of Britain are leaving the bingo halls of Britain and patriotically buying his bonds? Will he ensure that he takes not too much notice of the last questioner?