The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)
My Lords, I beg to move that this Bill be now read a second time. This is a somewhat unusual Bill. Its purpose is to enable the trustee savings banks to complete their transition from their present unique and anomalous status to independent banking companies in the private sector.
The Bill will enable the trustee savings banks to put into effect the policy that they, rather than the Government but of course in consultation with us, have worked out for their future. The Bill has the full support of the TSBs, and I know that representatives of the TSBs will be very happy to discuss their plans with any noble Lord who wishes to do so. The Bill does, however, tell only part of the story of the TSB reorganisation, as it deals only with that part of the reorganisation which requires statutory authority. In some respects the Bill has some of the characteristics of a private Bill to reorganise a bank's business; in others, it addresses questions of public policy.
Many of your Lordships will be familiar with trustee savings banks and Members of this House have made 1132 a major contribution, to which I am delighted to pay tribute, to the trustee savings banks movement over the past 170 years. However, others may be less familiar with the TSBs. The history and organisation of the TSBs are complex, so perhaps I may refer noble Lords to the summary of relevant, information on the TSBs—their history, present organisation, and plans for the future—which is contained in the White Paper published on 18th December last year. I shall not take up time in covering in any detail the background material which the White Paper sets out. I should, however, set out very briefly myself how TSBs evolved and how their role has developed, because this is essential to an understanding of the Bill.
The origin of TSBs lies in the early nineteenth century in Scotland. Local community leaders organised savings banks in which the poorer classes could put their pennies at a time when the banks would accept only pounds. The savings banks were run by trustees—from the best motives but essentially in a spirit of nineteenth century paternalism. Unlike building societies, TSBs have no membership structure. Parliament has regulated them since 1817 through a succession of Trustee Savings Banks Acts, of which this will be the last.
For very many years, TSBs operated as an arm of national savings, providing basic savings facilities to their depositors and a source of cheap funds to government. By the 1960s, it was evident that demand for this traditional service was falling and the TSBs were in danger of withering away. Depositors expected a fuller banking service, and took their business elsewhere when they were unable to get it from TSBs. In 1973, the Page Committee on National Savings—to which I shall return—recommended that the TSBs should substantially widen the services they offered.
The TSB Act 1976 provided the wider powers and the framework for co-ordination through the central board which made the growth of the TSBs over the past decade possible. That Act did not, however, address the fundamental question which the Bill now seeks to resolve: namely, the future constitutional form of the trustee savings banks.
Because of the special circumstances in which the TSBs evolved, ownership of them has never been established. The Government have considered the legal position very carefully and we are satisfied that neither depositors, staff, trustees nor indeed the Government themselves own the TSBs. As the White Paper acknowledges, the Acts are silent on this point. In the Government's view—and this is shared by the trustees who are currently responsible for the TSBs—it is essential that the issue of ownership should be clearly established for the future. Organisations of this size and importance should be clearly accountable to their owners.
One option would be to follow the route suggested in the Page Report and make the TSBs mutual institutions. I must stress that at present they are not mutual institutions because they have no membership structure or other mutual constitution. It is of course true that mutual institutions such as building societies and some insurance companies play a very important part in the financial services sector.
But mutuality, as it is called, is not without problems. In particular, it is difficult to establish the 1133 accountability of management to individual members, and mutual institutions do not have the access to additional capital from the markets which companies enjoy. There have been very substantial changes in the financial market place since the late Sir Harry Page (who died on New Year's Eve) made his recommendation.
On the one hand, the importance of access to the capital markets is now surely much more evident than it was 10 years ago. On the other, the TSBs have developed a range of financial services and a degree of sophistication and centralisation that could not have been imagined in the early 1970s. As the chairman of the TSB Central Board points out in paragraph 5 of his letter to my right honourable friend the Chancellor of the Exchequer, published in the White Paper, the TSBs today are radically different to those of 10 years ago. Not even the critics of the reorganisation proposals have argued that the TSBs will have difficulty in holding their own in their new role.
The TSB Central Board and the Government have therefore decided another course, which we believe is more appropriate in present circumstances. The Bill will therefore vest the business of the existing TSBs and of the financial services companies which collectively make up the existing TSB Group into new companies which will be set up for that purpose under the Companies Acts. The Bill fully protects the rights and position of TSB employees. The new holding company, to be called Trustee Savings Banks Group plc, will then issue shares to the public and the successful subscribers will become the owners of the new group. The TSB Central Board, not the Government, will be responsible for this operation under the powers which the Bill confers. The central board has already made it clear that depositors and staff will be offered priority in the share issue. To quote Sir John Read, the TSBs arefirmly set on the principle of wide ownership of our shares, with priority for our customers and staff".Those words appear in paragraph 8, on page 13 of the White Paper.
The Bill does not attempt to set out in terms how the flotation itself is to be achieved; that is surely the TSB's business, and in any event it is necessary to leave a great deal of the detail to be decided by the experts at the time in the light of market conditions. But the Bill does provide the central board with such powers as may be necessary in this connection.
I should also draw your Lordships' attention to the fact that the memorandum and articles of association of TSB Group plc will contain provisions to safeguard the independence of the new company. Specifically, the memorandum will provide that no person may own more than 5 per cent. of TSB shares during the first five years of the new company; thereafter, the articles of association will restrict maximum shareholdings to 15 per cent. Drafts of these documents are in the Library.
The main object of the Bill is to enable the vesting operation which I have described to take place; that is, the reorganisation of the existing TSB Group into the new Companies Act structure. It will place the new TSBs in precisely the same position as their main 1134 clearing bank competitors—as commercial banking companies set up under the Companies Acts with access to the capital markets. The proceeds of the sale will be retained in the TSB Group. That is extremely important.
However, the Bill also achieves another important object. It abolishes the special restrictive supervision which the Treasury has exercised over TSBs for very many years. The new banking companies will be supervised by the Bank of England under the Banking Act 1979 in exactly the same way as are their competitors. This will simplify the banking supervision system.
Over the years, a great many references to TSBs have accumulated on the statute book. Most of these are incidental, but some are major—notably the Trustee Savings Banks Act 1981, which consolidated all earlier TSB legislation then extant into one statute. The Bill makes arrangements for the dismantling of the 1981 Act and the removal of other references from the statute book as soon as they become redundant. This operation will be technically complex, and will be achieved largely by statutory instrument under the Bill. The Bill also contains a number of tax provisions which are necessary in order to allow the TSBs the same tax treatment during the reorganisation as they would have enjoyed had the old TSB Group been a group of limited companies.
Clause 6 of the Bill deals with another nineteenth century foundation; the Scottish "1819" savings banks, of which there is now only one—the Airdrie Savings Bank. It enables this type of savings bank to apply for authorisation under the Banking Act 1979 by remedying an oversight in that Act.
I should be happy to answer specific points on the Bill at the end of the debate as well, of course, as in Committee—but for the moment I will not burden your Lordships with further technical details. Discussions in the other place and outside have concentrated on two key questions: whether the Companies Act approach is the right one, and whether the Bill should contain additional provisions to govern or restrict the conduct of the new TSB banking companies once they have been established.
These are the most important points. I have explained why the balance of argument in the mid-1980s, and looking forward into the next decade, favours the Companies Act approach over the mutual approach. I do not believe that it would be right for Parliament to continue to apply any special legal provisions to the TSBs, whether these are adverse or favourable in nature. It would not serve the interests of the TSBs, their staff or their customers, to single the TSBs out for special treatment, and to make the TSBs come back to Parliament when they need a change to the legal framework which applies to them.
Some people may be concerned that the change in the status of the TSBs will in some way diminish the quality of the service they provide and change the character of the organisation; that is natural when dealing with such a well-known and long-established institution handling something so personal as people's financial affairs. I do not believe that these fears are justified and I draw the attention of the House again to Sir John Read's letter in the White Paper, which 1135 provides reassurance on this point. The strength of any organisation, and most particularly of a bank, depends on the customer base which it exists to serve. As Sir John Read says in his letter to my right honourable friend:First and foremost, we intend to maintain our traditions as a personal bank, proud of our achievements in the communities which we were established to serve.A change in constitution does not, however, imply a change in role or in the ability of the new banking companies to continue to provide the fullest possible customer service to their traditional customers. What these proposals do promise is security for the future in the sense that the TSBs will be placed on a basis where they can maintain and enhance their services in the 1990s and beyond. It is proper to recognise the enormous contribution that the trustee savings banks have made under their present constitution, and the Government are confident that the new constitution will enable them to continue to play a vital part in a financial market place which is likely to become even more different from that in which they passed their first 150 years. My Lords, I beg to move.
§ Moved, That the Bill be now read a second time.—(The Earl of Gowrie.)
§ 5.42 p.m.
§ Lord Stoddart of Swindon
My Lords, I should like to thank the noble Earl for his full and clear explanation of the Bill. Certainly the Bill is designed to end a series of changes in the trustee savings bank movement—changes which, in fact, began with the Page report and which led to the Act in 1976 which, as the noble Earl explained, radically changed the operations of the TSBs. These changes enabled the TSBs to expand their services and provide the conditions for a new dynamic in the movement which has been of great benefit to customers, staff and the world of banking itself.
The trustee savings bank movement has certainly had a long and distinguished history. It has been particularly strong in Scotland, where the movement began and, of course, in the north of England. As the noble Earl explained, the banks were established by local people whose main aim was to encourage thrift among poor people so that they would not become a burden on the public funds and also to assist people to obtain access to savings and the benefits that such savings could bring. Like so many other institutions in our society, the TSBs had small beginnings and modest aims, but they have developed into large organisations with great scope and ambition.
The changes since the first bank was set up in 1810 in Ruthwell, Dumfriesshire, have certainly been considerable. The TSBs now have about 6 million customers and 2 million credit card holders. The changes brought about by the 1976 Act have enabled the TSBs to provide full banking services, including making loans to depositors. In addition, TSBs have developed a range of services such as cheque, savings, and investment accounts, and fixed-term bonds. Insurance services are available and the TSB Unit Trust Company has proved highly successful since its formation. Mortgage facilities are available and there is, of course, the instalment and leasing company, United Dominions Trust Limited. The early founders 1136 of the movement would hardly have recognised in the modern TSBs the simple savings movement they had established; but I feel sure they would have only admiration for the present organisation which has developed to meet the needs of the times.
The Opposition accept that the further changes envisaged in the Bill do not amount to a privatisation measure; that is, in the sense of the British Telecommunications Act which was designed to sell off public assets for individual private gain and to bolster the Chancellor's policy of giving tax cuts to the well-heeled at the expense of the poor. There is no crock of gold here for the Chancellor to get his sticky fingers on. The Government do not own the trustee savings banks and, therefore, cannot benefit in a financial sense from this Bill. The money raised from the sale of shares will, as I understand it, be added to the existing reserves of about £600 million and be used for the further development of TSB services. Under these circumstances the Opposition will not oppose the Bill in principle, although amendments may be proposed during later stages to clarify and improve it.
Having said that, however, let me make it quite clear that we are not entirely happy with the route being taken to establish ownership of the TSBs. The public limited company route was not the only route possible. Indeed, the Opposition, while clearly recognising and understanding the developments in banking since the 1976 Act, nevertheless believe that mutualisation should have been given far better consideration than has been the case. The Page report rightly noted that the principle of mutuality operates in the vigourously competitive fields of building societies, insurance and some unit trusts. Further-more, the same report expressed the view that mutuality was highly suited to the needs of financial organisations such as trustee savings banks if they play a wider role in the provision of financial services. The report went on to say that there was no reason why the trustee savings banks, suitably reorganised, should not exist as mutual organisations primarily in the private sector of the economy.
Clearly, then, the mutualisation option was a real and relevant one. In fact, it was one that would introduce a third force into banking. With mutualisation there would be the clearing banks, Giro and the TSBs. As it is, with the TSBs reorganised as a PLC and likely to drift further towards the clearing banks, we shall have Giro and the clearing banks, and the option of a third force in banking is effectively closed.
I remain somewhat puzzled as to why the Government rejected the mutualisation option so firmly. After all, it is not opposed to their own oft-repeated philosophy of wider ownership. Indeed, mutualisation would achieve the widest possible ownership since the customers would be the owners and the sole beneficiaries of profits, either through direct bonuses or improvements in services at cheaper rates, or a combination of all those elements. One has to ask whether there has been any great pressure from account holders or the staff for conversion to a public limited company. If there has been, neither I nor anyone else has heard about it. The real pressure seems to have come from management who, for their own reasons, believe that better accountability will be 1137 achieved through the creation of shareholders, whoever they may be at any given point in time.
It is also true of course that the TSB wishes to raise new capital for further development and sees the PLC option as the best way of achieving that. One is bound, however, to say that there are alternative ways of raising capital for development, and indeed the TSB has itself already accumulated reserves of £600 million to date—a significant sum.
This brings me to the question of the possible takeover of the TSB by another bank or financial institution. It is of course true that Sir John Read in his letter to the Chancellor—which has already been quoted by the noble Earl—referred to protection against takeover. It might be as well to recall exactly what Sir John said. His letter is printed in the White Paper. He said:We have taken the view that it would not be right, given the history and traditions of the TSB, for the TSB Group to be unduly exposed to the risk of takeover, expecially in the early years following reorganisation. The draft memorandum of association of TSB Group plc therefore contains a provision that in the first five years following the issue no one may own more than 5 per cent. of its ordinary shares. The draft articles of association of the company provide that after this five year period has elapsed no one may own more than 15 per cent. of the shares. This arrangement will give the new Group a very fair degree of protection against takeover, particularly in the first five years".At first glance the safeguards against takeover seem reasonable and effective, and for the first five years may very well be effective. But five years is a comparatively short period of time and after that it is proposed that no one may own more than 15 per cent. of the shares.
The first question that I should like to put to the noble Earl is: what is his definition of "no one"? It is a very loose definition indeed. Does it mean no single individual or a single company? Does it refer, more importantly, to each of the four joint stock banks; or does the 15 per cent. limit refer to all the joint stock banks as one for the purposes of shareholdings? If each of the four joint stock banks bought 15 per cent. of the total shareholding, they would among them hold 60 per cent. of the total shareholding and would therefore be in a controlling position in the one bank, the TSB PLC, which would be their major competitor. I should certainly like to have the noble Earl's comments on this aspect when he winds up.
Furthermore, the 15 per cent. limit will be safeguarded not by statute as we should prefer, but simply by the articles of association of TSB PLC. While it is true that articles of association cannot be amended at the drop of hat, they can be so amended at an extraordinary general meeting, and if a bid offer is made attractive enough to the existing shareholders, the requisite majority to amend the articles of association is always attainable. We must, after all, understand that in the last analysis shareholders are primarily concerned—and this is quite understandable—with their own personal interest and are unlikely to be persuaded against their own interest by abstruse arguments about the future control of the company. Therefore this is a matter with which we may very well wish to deal at the Committee stage.
We must not overlook either the possibility that TSB PLC might wish to take over another bank either 1138 in the United Kingdom or overseas. In so doing it may very well overstretch itself or get its fingers burnt through bad judgment. The TSB PLC will of course be subject to control in such operations by the Bank of England, but the record of the Bank of England so far does not inspire confidence that it will be able to prevent unwise ventures that may hurt the TSB PLC's customers and shareholders in varying degrees.
Perhaps I should now turn to the question of the position of existing depositors and staff in relation to shares. There is in the Bill no provision as to the date or the time limit for flotation after the assets have been transferred to TSB PLC, nor is there any reference to the allocation of shares. Therefore we do not know under what conditions the shares will be floated; nor do we have any indication of the proportion of shares that will be set aside for purchase by depositors and staff. We know that a great deal of interest has been aroused, since there was a significant increase in the number of accounts prior to the closing date of 17th December entitling depositors to a pink priority slip for the purchase of shares.
We also have an indication from TSB chairman, Sir John Read, of the number of depositors who would become shareholders in the new company. According to press reports Sir John has said:If we could get a 10 per cent. response, we would feel very encouraged".I have to say that in my view and in that of the Opposition Sir John's target seems rather modest and we should be very disappointed if the takeup of shares by staff and depositors was not very much higher than 10 per cent. Do the Government agree with the assessment of Sir John Read, and, if so, do they not share our concern at the low level of expectation? We shall be interested in the noble Earl's reply, and in the light of that reply we may wish to return to the matter during later stages of the Bill, when we may also wish to raise the question of staff participation in the management of the new company.
I have one final point on flotation. Can the noble Earl make some statement about the sale of shares abroad? Is there to be a stipulation limiting the number of shares which can he held by foreign owned companies, so that control of the TSB PLC cannot fall under the control of foreigners? If there is to be such a stipulation, perhaps we can be given details? If not, perhaps we can he told why not.
I now turn to local involvement. We have all noted the assurance given by Sir John Read that the regional boards, which were set up on 1983 to take the place of the boards of trustees of the former TSBs, will be maintained to help to ensure a continuing close relationship between the TSB Group and local communities, and that assurance is to be welcomed. However, there is no statutory backing to this under-standing and therefore no certainty that at some future date all local involvement will cease, in which case the ethos of the Trustee Savings Bank movement will be entirely eradicated, and that would be unfortunate indeed.
We wish to see permanent involvement in local communities to help to ensure that services are maintained in what in strict commercial terms are less profitable areas of the country. It would be ironical 1139 indeed if areas in Scotland where the TSB movement began found themselves, as a result of this Bill, deprived of TSB service because the new board decided to concentrate its main thrust in the lucrative banking areas in the south of England. It would be useful to be assured that Scotland and the north of England will not be neglected and forgotten while TSB PLC concentrates all its efforts on forging ahead in southern England.
We would also hope that, as the new organisation builds up its commercial lending business, its ordinary private customers who have built up the total business of TSBs are not neglected and demoted to a second-class status. Of course it is well understood—and I appreciate it—that the existing management has no intention of doing any such things, but it is the future in five to 10 years that must give cause for concern.
As I have already said, we shall not oppose this Bill in principle, but I should have preferred a Bill that could have been welcomed wholeheartedly on all sides. During later stages we shall not obstruct the Bill in any way, but we reserve our right to come forward with amendments to write into it safeguards which we think necessary for the protection of depositors and staff and for the continued strength of the TSB movement.
§ 6.1 p.m.
§ Lord Banks
My Lords, I should like to join in thanking the noble Earl, Lord Gowrie, for his clear and lucid explanation of the Bill. I am afraid that I cannot speak as enthusiastically about the Bill itself. I am struck by the contrast between the picture of the future, so far as the TSBs are concerned, which was presented to us when the Trustee Savings Banks Bill of 1975 was before this House, and the picture of the future with which we are now confronted.
That Bill, which was introduced at the end of 1975, as has already been explained, followed the Page Committee report on national savings. That report dealt in detail with the trustee savings banks. The Page Committee found that at that time there were 73 trustee savings banks of varying sizes. They provided an outlet for small savings supported by a Government guarantee and subject to tight Government control affording a limited amount of tax relief and offering limited banking facilities. A £50 deposit was required before a current account was permitted. There were no overdrafts or personal loans in those days. The majority of depositors were in the lower income group. The trustee savings banks were on the fringe of commercial banking.
The Page Committee had to consider whether changes were necessary and, if so, in what direction the trustee savings banks should go. As has already been made clear in this debate, the Page Committee decided that the trustee savings banks should become mutual banks, freed from much of the Government restriction and offering full banking facilities for personal accounts only, The government of the day, which was the previous administration to the present one, accepted that. The Bill which came before us at the end of 1975 and the early part of 1976 facilitated that. It was not long before overdrafts, personal loans, credit cards, and mortgage loans were available, and arrangements 1140 were made for the relaxation of the restrictions on investment. In their report, the Page Committee said:A set of mutual Banks similar in organisational form to Building Societies seems to us an excellent way of promoting a competitive service for the financial needs of the small saver and depositor".The noble Lord, Lord Stoddart, said that there were to be three types of bank: the clearing banks, privately owned; the Giro, owned by the state, and the third force, which was to be different and was to be on a mutual basis. In this House, from these Benches, I welcomed those proposals, regretting the fact that it had been necessary to cut down the number of individual banks from 73 to 17, but realising the reasons why that was so. I expressed satisfaction that the regional structure, though greatly modified, was being maintained. A scheme was to be prepared by each bank for the appointment and removal of trustees by the depositors.
Our first major objection to the Bill from these Benches is that the concept of mutuality has been thrown overboard. The trustee savings banks are to become public limited companies, controlled by shareholders, just like the clearing banks. In other words we are creating—and I think the noble Earl, Lord Gowrie, said as much in his introductory remarks—another clearing bank.
The Page Committee in paragraph 263 of their report had this to say:The suggestion has been made that the Trustee Savings Banks should be hived off to the private sector as commercial concerns. If by this is meant that they should have shareholders and operate from the point of view of ownership like commercial banks we see such a solution as neither practicable nor desirable in principle".The noble Earl has said, and the Government say generally, that the current ownership of the trustee savings banks is obscure and that Parliament must determine it. I would agree with that. But Parliament can quite as easily determine that it should be a mutual ownership. As has already been pointed out, there are many successful mutual organisations operating today: the co-operative societies, the building societies, and the mutual life offices. Looking at that latter group, organisations like the Scottish Widows' Fund, the National Provident Institution, the United Kingdom Provident Institution and others, can hold their own with the best of the proprietary life offices. One must ask why that should not be so in the banking field as well.
The noble Lord, Lord Stoddart, raised the question of the degree to which members of the staff and depositors will take up the opportunity to purchase shares. I should very much like to know what is the estimate of the noble Earl of the percentage of shares which will be held by members of the staff and depositors, and how much of the concern they are likely to own.
Our second objection is to the abandonment of regional principle. Of course, there will still be regional boards and there will naturally be a proper attempt to try to maintain a relationship between the local area and the organisation generally. But the organisation itself will no longer be controlled from a regional level in any way. The number of regional banks has been reduced to four: England and Wales; Scotland; Northern Ireland; and the Channel Islands. As I 1141 understand it, at least up until now the confederal structure, with autonomous individual banks co-operating, has been maintained. It is now proposed that the TSB group should control the individual banks which will become subsidiaries of it. Thus TSB Scotland Limited will be a subsidiary of the group covering the whole of the United Kingdom and operating from headquarters in the south of England. In other fields in the past Scotland has had the unhappy experience of ultimate decision-making being transferred from Scotland to London.
The trustee savings banks have contributed much to meet the financial need of small savers in this country. They have been identified with the localities in which their depositors live. They have been able to act purely in the interests of their depositors. Naturally we, on these Benches, wish them well in the future in whatever guise they may operate. But I think that I have said enough to indicate how strongly we feel about the abandonment of the concept of mutuality and the loss of local identity.
§ 6.8 p.m.
My Lords, I should like to thank my noble friend, Lord Gowrie, for having introduced this Bill this afternoon. I apologise to him for something which I daresay he did not notice, which was that regrettably I was not here for the first few minutes of his speech. I should declare an interest by the fact that, in concert with about 6 million other people, I am a depositor and a user of a Trustee Savings Bank. I should declare an interest insofar as I was chairman of the Trustee Savings Bank of Eastern England. I was a director of TSB Trustcard and also of the Central Trustee Savings Bank.
I welcome this Bill wholeheartedly. I was a little disappointed with the reactions of the noble Lord, Lord Stoddart of Swindon, and of the noble Lord, Lord Banks. They were not as enthusiastic as one might have expected. The noble Lord, Lord Stoddart, I think found every bogy possible about the Bill. I do not blame him for that; that is the duty of Oppositions and it is the duty of Government to reply and ensure that those bogies in fact shall not become realities.
To witness the transformation of the trustee savings banks over the past 20 years has been an exhilirating experience. They were, after all, originally a Victorian depository for the slender funds of those who were commonly called, in those days, the working classes. Their money was copper-bottomed. They were guaranteed a modest interest. They knew that their money and their savings were safe. What the Government did with the money was not their affair. They received their interest. They got their money back. It transpired, in fact, that the Government used the money frequently as a very cheap form of finance. I do not blame them for that. That was the history and the pattern of those days.
How this system withstood the changes of the twentieth century up to and including the 1950s and the 1960s—changes that were taking place all around the country in other financial institutions but from which the trustee savings banks were excluded—is, for me, one of the most astonishing wonders of the British financial system. Even in the 1960s, the trustee savings 1142 banks were paying about 2½ per cent. on their deposits. And if you were really brave and had shown that you were a good boy and had a certain amount of money in the ordinary department—I think that it was £500—you were allowed to invest in the special investment department where you received 5 per cent. Of course, overdrafts and such like were taboo. They were against the ethos of the savings bank movement which existed for savings. Yet, for some extraordinary reason, despite the attractions and the wooings of the outside commercial world and outside bankers, people still put their money in the trustee savings banks. The deposits still grew. The trustees, despite the magnificence of their name, could virtually do nothing. They were hidebound by Government and by that model of inventiveness, the Treasury.
I shall never forget the endeavours to get one simple thing introduced—to allow cheque books to be used by trustee savings banks. The pleadings and the arguments went on for years. It was like trying to move Mount Sinai. But still the deposits went on. I thought in those days that there must be either a lot of very stupid people or a lot of very loyal people in the country. In fact, there were a lot of very loyal people indeed to the trustee savings banks. Then came the Labour Government, bless their hearts. I pay tribute to them for what they did. In a quiet and unobtrusive way and as a lone example, they did a volte-face on all their political doctrines. They denationalised the trustee savings banks. They set them free. They set them free from Government control. They allowed them to compete in the harsh competitive world of the financial money markets. No one realised the political profundity of what the Labour Government did in those days. But they did it. I congratulate them for having done it and for the way that they did it.
However, for the trustee savings banks, it was rather like telling a person, who, after a long illness, has had the plaster removed from both his legs, to take part in a rugger scrum. Of course, the patient wobbled. But, for some extraordinary reason, he did not collapse. He took part in the rugger scrum. What is more some of the other participants in the scrum said, "Who is this new boy with the unshaven face? It prickles and it hurts". Mark you, my Lords, people inside the organisation, too, began to wonder what was going on and to wonder whether they were employees or trustees. "Our cosy existence is going to be altered", said some employees. Some of the trustees said, "This is terrible. We are not going to be wanted any more". Fresh air was blowing in through the organisation from all directions. Some found it was healthy. Some found it was chilling. Some just wanted to get out, and they did.
The 72 banks amalgamated down to 18. This process of amalgamation was considered very avant-garde. But there were still 18 banks, all proudly individualistic and vigorously jealous of their historical background, bound together by the slender corporateness of the central board. It was rather like having 18 Jack Russells being taken for a walk on a lead, each straining to ensure that the fulcrum jolly well moved in his direction. Fortunately, now, that struggling will be over. Now there are to be four banks—territorially, four—but operating with a sense of oneness.
1143 The transition of the trustee savings banks in the past 20 years I consider to have been fascinating. Few would have believed, even 15 years ago, that that diverse set of financial depositories would have developed into an exciting, competitive, attractive and attracting organisation—part of the clearing bank system, lending money, giving overdrafts, mortgages, life insurance, hire purchase, credit cards, almost the lot. It has been a remarkable transformation. It has a very unique advantage. It has a very wide base of public involvement.
When you see in the mirror of your car a car coming up behind at speed in the fast lane, the others want to watch out. And so does the driver. I welcome the Bill as being the last Bill to set the trustee savings banks totally free. One always thinks that everything is going to be the last. It does not always work out that way. I remember during the last war that someone made the profound observation that this war, like the next war, is the war to end all other wars. That may prove to be so with Trustee Savings Banks Bills. But this Bill does set the trustee savings banks truly free to reorganise themselves into a Companies Act structure, to enable them to issue shares, to enable them to become fully part of the private sector.
I congratulate the Government. I congratulate the trustee savings banks. I congratulate whoever it was—I doubt if it was only one person—who devised a system of determining who actually owns the bank. It could only be in the United Kingdom that an organisation is built up with resources of £700 million and yet actually belongs to no one. Even that conundrum has now been resolved although the noble Lord, Lord Stoddart, is not too fascinated by it, and the noble Lord, Lord Banks, does not like it. But it is a conundrum that has been resolved. I am sure that, under the new organisation, the Trustee Savings Bank will have a stout and effective position in the financial system of the country.
§ 6.18 p.m.
The Earl of Iddesleigh
My Lords, I too must declare my interest. I have been connected with the TSB Group since 1970. In that year, I was first appointed a trustee to the then Devon and Exeter Savings Bank which was founded, I believe, in 1815. Today, following two reorganisations in the mid-1970s and 1983, I am a trustee of the TSB England and Wales and chairman of its South-West regional board based on Exeter. I am also a director of United Dominions Trust Limited, a subsidiary company of the group. I am a member of the TSB board here in London. At all times. I have been in a part-time non-executive capacity and, although prior to the mid-1970s, no fees were paid to board members, since I think 1975 or 1976, I have received a fee for my work. However, as I am not dependent on my fees for my bread and butter, I hope that I am not out of order in taking part in the debate. I also hold an account with the TSB.
I have naturally read with interest the Hansard reports of the debates in another place on this Bill. I should like to enlarge a little on some of the points raised there, and indeed in your Lordships' House this afternoon. First, I can assure the House that the 1144 decision to go public, assuming that the Bill receives Royal Assent, has not been taken lightly. Even before the passing of the Banking Act 1979 discussions and debates were taking place within the TSBs on their future and structure.
It may be appropriate here to remind this House of some of the provisions of that Act. I think that possibly too much has been made of the share issue, and attention has not been focused on this vital part of the legislation. The Explanatory Memorandum to the Bill which passed into law as the Banking Act 1979 stated that it would provide for the prior authorisation and supervision of institutions which took deposits from the public. A two-tier system of authorisations would be established whereby institutions satisfy a wide range of exacting criteria might be recognised as banks, and other institutions would be eligible for a licence to take deposits. The first crucial decision taken by the TSBs was to work towards full banking status rather than be just a licensed deposit-taker.
Certain institutions were exempted from these provisions. Among them, because of their special transitional relationships with Her Majesty'sTreasury, were the trustee savings banks. The Treasury was given power to vary the list of exemptions, and it was stated at the time that removal of the exemption of trustee savings banks was envisaged,at an appropriate stage of their development".This was compatible with an EEC Directive—No. 77/780—providing for member nations to establish, over a period of time,laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions".The time has now come for the trustee savings banks to be released from special Treasury regulation and to become appropriately subject to the requirements of the Banking Act 1979.
It is submitted that the provisions of this Bill now before Parliament, whereby a Companies Acts structure will be applied to them, provides the most appropriate means for the TSBs to achieve suitable status under the Banking Act. They are already recognised, in the general sense of the word, as a banking group. They enjoy a high reputation and standing and they provide the necessary wide range of banking services. This reputation has been enjoyed for some considerable time, and the full range of services has been developed by one of the most significant transformations of operations in banking history in the decade, following the publication of the Page report, as the noble Earl, Lord Ferrers, has just mentioned. It is now necessary to provide the TSBs with the means to enable them to demonstrate to the authorities responsible for banking registration and supervision that they have the management structure and accountability to qualify as a recognised banking group. As I have said, this Bill provides such a means.
I must confess that originally my regional board and I, and indeed many others in the group, were more in favour of keeping the existing more cosy, mutual type of organisation, even though this would have left unanswered the ownership and accountability questions. However, after considering all the arguments, the TSB Central Board, certainly my regional board and I, and, as far as I know, all regional 1145 boards, are unanimously in favour of the PLC answer. This decision was not forced on the TSB by Her Majesty's Government. It is the wish of the TSB Group itself, after literally many hundreds of hours of debate and discussions on this point.
As your Lordships know, the TSB is committed to reserving a large proportion of the share issue for its customers and staff if they wish to subscribe to our issue. I refer to the letter of 6th December of our chairman, Sir John Read, which the noble Earl, Lord Gowrie, has already mentioned. It is attached to the White Paper. In another place Questions were asked as to how large this proportion was going to be. I can assure this House that no firm decision has yet been taken. I am sure this House will agree with me that no firm decision can be taken until the group is closer to the day of its issue and market research has been done. I can further assure the House that it is the central board's intention to have initially (and to try to keep) a very large proportion of our shareholders from our customers and staff. I speak here for all members of the central board. As I have said, we are firmly committed to that.
It is true that this will mean a large register of shareholders. Even if the proportion is 10 per cent., that is 600,000 shareholders from our customers and staff. Consequently, the price of the administration of this register will be slightly higher in proportion than a normal issue of this size. Nevertheless, the central board accepts that—this will not be a normal issue. The TSB is not a normal bank. I say, "not a normal bank", because I believe, having worked for the TSB in a non-executive capacity, that I have the feeling of it. I realise that working for the TSB, or even being a customer of the TSB, engenders a rather special loyalty, which, again, the noble Earl, Lord Ferrers, mentioned. I do not think this loyalty exists to anywhere near the same extent in any other financial institution.
The noble Lord, Lord Stoddart of Swindon, and other noble Lords have raised several points and queries. Frankly, they are too many to answer now, on Second Reading, and I hope that if amendments are put down I shall be here in your Lordship's House to help answer them. However, I should like to try to answer one point which was raised by the noble Lord, Lord Banks. He mentioned the question of regional representation. From my own experience, I am quite sure that one of the reasons for this loyalty is that we have—and we intend to keep—strong, interested, non-executive regional boards. They are drawn at the present time from a wide range of professions and occupations. I can speak only for the Exeter-based hoard, but there we still have a large proportion of board members who are ex-trustees of their local banks. They regularly visit our branches and take an interest in all our staff. The newer members of my board have certainly caught on to the spirit we have established and are as enthusiastic as the older members as to our future. By retaining our regional boards and recognising their importance I feel the TSB Group is going a long way towards retaining not only its humble beginnings but also its rather special place now in the market place.
Finally, I strongly commend this Bill to this House. The TSBs have demonstrated that they are well 1146 capable of running their own affairs. Our clearing arm—the Central Trustee Savings Bank—has already established itself as a much respected organisation in the City of London. We are still increasing the range of services we can offer our customers. As your Lordships have already been told, the money raised by the share issue will go towards increasing this range of services. The passing of this Bill will complete the transition from a purely savings organisation to a fully-fledged bank and allow the group the independence it needs to compete fully in the high streets of England, Scotland, Wales, Northern Ireland and the Channel Islands.
§ 6.29 p.m.
§ Lord Wilson of Langside
My Lords, so far in the debate one simple point has emerged with clarity; that is, that this Bill enacted, as I am sure it will be, will see another chapter in a remarkable success story which began around 175 years ago. That success, achieved from such simple beginnings, is a fascinating tale, and the noble Earl, Lord Ferrers, touched upon it. The achievement was, of course, the achievement of the founders, the trustees, the managers and the staff, and was due to the thrift of the depositors. So far as I am aware, no group of political enthusiasts can claim any special credit in the matter at all. We know that successive Governments—Whig and Tory I suppose, and Conservative and Liberal, and latterly Labour Governments—have been concerned only to provide a statutory framework within which the banks could operate, defining the duties of the trustees and the rights of the depositors and, having provided that framework, to modify it from time to time as changing social and economic circumstances made necessary.
I gather that the principal criticism directed against this Bill and the framework which it provides centres upon the point that the Government have not followed the path recommended by the Page report and created a framework within which TSBs could operate as a mutually-owned third force for the banking world, but have opted instead for the PLC structure. I do not propose to enter into that argument because, frankly, as at present advised, I should not attach any very great value to my judgment upon it, and accordingly I shall not waste your Lordships' time in that area.
Faced with the competing dogmas of the political patent medicine men, and now women, too, of the Conservative and Labour parties, I have no difficulty in concluding that above all our country needs a third force in her political life; but as to the need or not for a third force in the world of banking, I shall suspend judgment and I hope, with your Lordships' assistance, I shall be able to reach a conclusion upon it by the time our debates are concluded.
Although over the years I have had some association with the old Savings Bank of Glasgow—as a customer in the 1930s and later as a trustee or manager ex officio—it never occurred to me to intervene in this debate until the very last minute when I recalled the village of Ruthwell, in Dumfriesshire, which I first came to know when, on one or two occasions, I was the Labour candidate in the county of Dumfriesshire. I then learned of the extraordinary Dr. Henry Duncan, the parish minister who had started it all. Dr. Duncan started the savings bank in Scotland in 1810, taking deposits of one shilling at a time when the banks would 1147 not take less than £10, which was as much as an agricultural labourer earned in a year in those days.
Then I thought that I might try speaking for five minutes or so on the early history of the savings bank when, unfortunately, I discovered that Sir Hector Monro, the Member of Parliament for Dumfriesshire, had done just that in the other place, and I did not want to be repetitive. However, there is one point worthy of comment in Sir Hector's speech. He referred to the close interest that the TSB had taken in Dr. Duncan and to the well-tended museum which had been established in his old cottage in Ruthwell. Sir Hector expressed the hope that all the financial pundits in the other place would visit it and kneel at the shrine of Dr. Duncan who began it all. I thought that that was a very good idea. Indeed, it was just the kind of thing that I would commend for the grandees of a great variety of our national groupings. It is just the kind of thing that I would commend to, say, lawyers and, perhaps, politicians as well as bankers: a pilgrimage for reflection and prayer at the shrine of the visionaries of whose wisdom they are the beneficiaries. It might induce a touch of humility. I do not know about bankers, but I can think of a few lawyers and an odd politician or two in whom a touch of humility would not go amiss. It might also of course inspire. Therefore, that is something that might be taken aboard—visits to the shrine.
As I thought about all that background and the constant use of the jargon word "unbanked" and the debates in the other place, there frequently intruded into my mind two lines of the words of W. S. Gilbert's "Gondoliers" about,The aristocrat who hunts and shoots, The aristocrat who banks at Coutts".Quite seriously, it will surely be important to remember the significance in the past of the special relationship between the savings banks and their depositors, of the bankers place in, and their involvement with, local communities, and of the need to provide a competitive service for the financial needs of the small saver and the small depositor. I would hope that, when the Bill is passed, the managements in this new framework, whatever form it takes, and whatever your Lordships decide to be the right one, will remain dedicated to these particular ends. No doubt in Committee we shall discuss whether we should include further provisions in those directions, but in any event, the Bill will no doubt pass before very long.
§ 6.39 p.m.
§ Lord Houghton of Sowerby
My Lords, I do not wish to take up too much of the time of the House at this stage, especially as I am due to speak in a subsequent debate of some importance. However, I want to say straightaway that this Bill makes me very cross indeed. I am astonished that the noble Earl, Lord Ferrers, should be so complacent about some of the proposals—not the provisions in the Bill, but the proposals in connection with the Bill. My grievance concerns the treatment of the depositors, of whom I, like the noble Earl, am one. My membership goes back many years; with my father before me, we have well over 100 years as depositors in trustee savings 1148 banks. I have regarded myself as a member, though technically speaking there is no membership of the trustee savings banks. But I felt that I was a member just as much a trustee savings bank as of a building society, or a co-operative society. It has not been noticeably different in the rewards that one gets for the investment.
This loyalty, to which the noble Earl, Lord Iddesleigh, referred, is a potent factor in all these movements which had their origins in working-class combination for self-protection. Unless that is understood, one can never appreciate how strongly some people feel about the institution to which they belong. Certainly I have felt strongly about it. I have felt that the trustee savings bank movement was something that I should support, and I have supported it. Whatever the conditions they offered, I have thought it a duty to foster the movement to which my own family have been attached for so long. That is something that noble Lords may not understand, but I am sure that it has a profound influence upon those who have remained loyal to the trustee savings banks and other similar institutions over many years.
My Lords, may I interrupt the noble Lord? While he has been saying that, he has been looking at me with a penetrating eye. I actually said that there were a great many loyal people—6 million of them. I hope he does not think that I was assuming that there were not a lot of loyal people, because I said there were a lot.
§ Lord Houghton of Sowerby
My Lords, I must apologise to the noble Earl for not having acknowleged that he referred to the point. Had not the noble Earl, Lord Iddesleigh, referred to it, I would have fastened on to what the noble Earl said in that regard. Coming from the quarter it did, from a member of the central board, I thought that I was entitled to refer to what he had said.
Now, why am I so cross about the way the depositors are being treated? The White Paper says:The making of a deposit with a trustee savings bank and the earning of interest on that deposit does not carry with it the implication of a share in the ownership, or a claim to the reserves, of the bank".That is what I dispute. In the few minutes during which I shall speak I want to deal with this central fallacy that the trustee savings bank belongs to nobody, and that when it does belong to somebody it should belong to those who subscribe for shares in the ordinary course of a flotation of a new public limited company.
I believe that depositors are entitled to a share of the equity of this company. What this proposal does is to question the right of the depositors to any preferential share of the equity, though I think when there is doubt as to who property belongs to one can take a commonsense line, and that is that property belongs to where the money is, and the money is the depositors' money. The whole of the trustee savings bank movement, its profits, its reserves, everything connected with it, has been built upon the deposits of the depositors. Therefore it is their contribution to the prosperity of the trustee savings bank which should now be acknowledged.
1149 Another point to bear in mind is that all small savers throughout the whole period of inflation have been cheated. They have been cheated by Government and they have been cheated by institutions because they have used the money of small savers at less than the going rate, and they have relied on the loyalty and the unsophistication of small investors to keep money available on such favourable terms to those who would take it.
Nobody who invested in the trustee savings bank over the years got any hedge against inflation, as nobody got a hedge against inflation in the Post Office, and as nobody got a hedge against inflation in the building societies. All small investors—the working-class movement which supported these institutions—have been cheated during this period of inflation. That is another reason why, when it is proposed to transfer an institution from its historic environment to a new and more competitive and, so to speak, capitalistic enterprise, now is the time to deal fairly with the depositors.
What is involved here is taking the depositors' share of the equity, selling it, putting it on the market, and telling the depositors that they can buy it back if they like, and priority will he given to them if they wish to buy back their own share of the equity and the assets of the bank. That is coming near to a sleight of hand. Indeed, people in the City have gone to prison for less than this. I could use a strong word in connection with this, but I shall say that I think the depositors are being diddled.
Just to safeguard their right to acquire at the market rate a share in the equity which really belongs to them anyway is not the bargain which this arrangement should offer to them. Even though we may have shareholdings and a public limited company, some means should be found of providing the depositors with a rights issue or other means of discounted purchase of the shares; certainly do not ask them to buy at the market rate and think you are virtuous in safeguarding their claim to some modest share of the total. This idea to give priority to depositors is just insulting. Depositors own the dammed thing, and I do not think that one can say that they are on sufferance at all. I feel that this is the central feature of the arrangements before the House.
As for the proposed safeguard against a dominant shareholding in the company, I do not think that the 5 per cent. limit over the next five years, or the 15 per cent. limit over the remaining 15 years, are any safeguards at all. As my noble friend Lord Stoddart pointed out, there is no way of preventing people acquiring shares over these limits if they want to, or if the company decides that they shall. That is another reason for giving depositors a firm stake of their own in the company.
The staff occupy a different position. I do not suggest for a moment that they should not also have preferential treatment, but certainly when a company is starting from the theory that nobody owns it, then is the time to try to dish out justice to those who have been engaged in the enterprise and have contributed to it over such a long period. After all, what is 5 per cent.? It takes only four people to acquire a 20 per cent. 1150 share, which is a substantial shareholding for a combination of four people in any public company. If later the four people get together to acquire 15 per cent. each, then they have control of the company. I do not see that that is an adequate safeguard against the possibility of being taken over or the possibility of a dominant shareholding which may seek to alter the course of the whole enterprise.
Mark my words, my Lords, I do not think that the term "trustee savings bank" will last for ever, either. One notices over the years how the original descriptions of institutions which had been quite proud to be related to their environment and origin are gradually shed because they are not in keeping with the status which it was hoped to have in a different world entirely. The Co-operative Building Society became Nationwide; the Workers' Travel Association became Galleon Travel. I could recite other examples. Where there has been a relationship with a movement from which they sprang there has been a tendency to move away from it and seek a title less associated with their origins. It is perhaps inverted snobbery. I do not think that the term "trustee savings bank" will last very long. It will not be thought to be in line with the clearing hank movement that they are going to join. That is the main point that I wanted to make.
I shall conclude by saying that I hope noble Lords will read the debates in the other place because there was a Division on Second Reading there as well as a Division on Third Reading. The Bill met with a very mixed reception there. It was not wholly on party lines and I wonder whether it is at all proper for the Government to be acting as parliamentary agents for what ought to be a Private Bill. This is not really, and should not be, a Government Bill. The Government's interest in this is to release the trustee savings banks from controls that have been put there by Parliament. Although I think that the Government should help to advise a trustee savings bank and other institutions that want to promote themselves in a different way, I do not think that the Government should he acting as the agents for them, defending from the Government Benches matters which are particularly related to the conduct and proposals of the company or those who are at present organising it for the future. My Lords, we are going to have a busy time at Committee stage.
§ 6.51 p.m.
§ Lord Bruce-Gardyne
My Lords, like the noble Lord, Lord Houghton, I shall aim to be brief although for a somewhat different reason: I think that I am probably infectious and I would rather limit your Lordships' exposure. Like my noble friend Lord Ferrers and the noble Earl, Lord Iddesleigh, I must begin by declaring an interest as a director of the Central Trustee Savings Bank, and perhaps also a secondary interest in that when I was a Minister in the Treasury I was very much involved in what might be called the building of the foundations of the edifice of which (what shall I say?) a facade is presented to the House tonight. So your Lordships will not be surprised if I say that I hope very much that this Bill will be given a fair wind and a rapid course to the statute book, and that I was a little disappointed by some of the responses from the other side.
1151 I was very interested to hear the noble Lord, Lord Houghton, pointing out that the working classes, as he put it, had been "ripped off" by the processes of inflation through the holding of their savings in institutions such as the Trustee Savings Bank. I think there is a lot of truth in that and I sometimes wish that the party of which he was such a distinguished member showed more concern about the impact of inflation on the poorer section of the community than they seemed to show when they were in office. But, that apart, I would not want to elaborate on the descriptive passages which my noble friend Lord Ferrers and the noble Earl, Lord Iddesleigh, gave your Lordships so eloquently on the background to the TSBs and the evolution which has been almost, one might say, miraculously achieved over a period since the publication of the Page Report to which there have been several references.
Because of my own direct involvement, I want to concentrate briefly on the more immediate past and in particular, on the argument about mutuality versus PLC status. Of course, it is true (as several noble Lords have already pointed out) that there was a lot of argument and discussion as to which was the more appropriate route to go down. But I have to say to the noble Lords, Lord Stoddart and Lord Banks, that I wonder—and I wondered at the time when these discussions were going on with the TSBs and within the Treasury—whether the building societies are necessarily in this respect such an ideal example of the consequences of mutuality as seems to have been suggested this evening. I wonder whether all depositors in recent years in some of the major building societies have felt that the principle of accountability of the directors of those building societies has exactly worked out to their satisfaction. That is not the impression that one is given, and it seems to me—and it did seem to me—crucially important that one should establish a clear principle of accountability for the TSBs as they left the wing of the Treasury and moved out fully fledged into the private sector. I must say to your Lordships that I could not see then and I do see now how that could be satisfactorily achieved except down the PLC route.
The noble Lord, Lord Houghton, felt almost the victim of highway robbery. I listened very carefully to his comments on the issue of what I believe is known in the jargon as the "ownership of produce", the produce of the bank, of the TSBs. I am no lawyer and I should not like to bandy legal provisions with the noble Lord; but I must say that it was my understanding at the time and has been my understanding ever since that the best available legal advice was that there was indeed no legal entitlement in the hands of depositors to produce. I have to put it to your Lordships that it is not immediately apparent, even supposing that there were to be conceded some legal entitlement to produce, as with whom precisely that ownership would rest. At what date would the ownership be struck? Should those who had happened to make their deposits on the eve of the publication of this measure or at a date fixed before which the chopper should come down, be entitled to produce?—while others who might have wound up their deposit accounts some weeks before, after having 1152 suffered precisely the depredations of inflation on the very modest interest that they had traditionally received, and to which the noble Lord referred, should be denied. Should the late comers be privileged and the ones who had been there faithfully (as my noble friend Lord Ferrers pointed out) through many long years be denied?
It is impossible, I submit, even if there had been any grounds for accepting that there was some entitlement to produce—and I believe that there was none—to see how that could conceivably have been established on a basis which would appear like equity to all those who had been or were presently concerned.
I must say that I find the responses of noble Lords opposite a little disappointing. I am bound to say to the noble Lord, Lord Houghton of Sowerby, that I wonder whether all his fellow depositors will be quite so unenthusiastic about the opportunity to acquire by priority (as Sir John Read has pointed out in his letter, to which many references were made) a stake in this business when the flotation occurs. I have to suggest to the noble Lord, Lord Houghton, and others that the enthusiasm which employees in British Telecom showed, and are still showing, to acquire an equity stake in that business hardly suggests that there is going to be a wailing and gnashing of teeth among the depositors and the employees of the trustee savings banks when the flotation occurs. I believe it will be very much the opposite.
I just want to pick up one reservation which the noble Lord, Lord Stoddart, made in his remarks, the question of protection against a possible future takeover. He made your Lordships' hair curl with the prospect of the four major clearing banks each taking a 15 per cent. stake in the business. I have to say to the noble Lord that if they tried doing that, they might in the first place have a certain amount of explaining to do to the take-over panel (in whatever form it may exist in that brave new world) which has tended to have a certain resistance to what are known as "coffee housing" or various other euphemisms for that kind of acquisition of ownership of a business. And, quite apart from that, if any one of the existing clearers acquired a 15 per cent. stake in the TSB when that will have become possible, I cannot see how that can fail to be a matter for the scrutiny of the monopolies commission which will still be there. Therefore I think to some extent that these anxieties are over-stated. But I must say that in my view, while it is perfectly right and proper during the period of its emergence from the chrysalis, as one might say, into its full-fledged status as a publicly-quoted PLC, that the management of the TSBs should enjoy a measure of security against the predators in the big wide world, I do not think that unlimited security in that respect could be regarded as desirable. The compromise which is set out in Sir John Read's letter gets the balance just about right.
My own hope and expectation is that although of course this is a totally different animal, as my noble friend the Minister has pointed out and as the noble Lord, Lord Stoddart, has acknowledged, from a genuine privatisation such as British Telecom and the like, nevertheless I believe there is every prospect that the TSB, when it comes to flotation, will achieve another giant step forward towards the concept of a share-owning democracy in this country, thereby 1153 building upon the achievement of British Telecom in that respect. I think that will be a consummation much to be desired.
Perhaps in conclusion I may, from my own experience, just express a word of appreciation for what I believe has been the remarkable achievement of the present chairman of the TSB, Sir John Read, in leading the banks together forward into this new era and presiding over what was bound to be a hazardous and difficult transition period. I think that has been supremely well achieved and I hope that when your Lordships—as I am sure you will—give godspeed to this Bill, the TSBs will emerge, if not precisely in the form that Page envisaged, nevertheless as a new force in banking from which the consumer, the employee and the depositor will all greatly benefit.
§ 7.3 p.m.
§ Lord Grimond
My Lords, I regret, like my noble friend Lord Banks, that the savings banks were not mutualised, but I follow the powerful arguments which have been advanced by the noble Lord, Lord Bruce-Gardyne, and I do not want to continue with that debate, which has been fairly fully explored.
I want to raise four questions. The first two are rather minor. One concerns the name. The name "Trustee Savings Bank" has a long and honourable history and meant something. It seems to me that it will mean very little in connection with the new bank: the word "Trustee" is not very relevant to it. As for the initials "TSB", I find it exceptionally boring and I very much doubt whether it is an attractive name for what is said is going to be a new, enterprising and forward-looking bank.
The second small point is this. I wonder whether the noble Earl could tell us a little more as to what is going to happen to the Airdrie Bank. Will that continue as an independent saving bank or will it be open to it to amalgamate with the new TSB? There were rumours that it might he taken over by one of the Scottish banks but it seems to me that it would he rather more to the advantage of the savings movement in general if it were to come into the TSB fold.
My two main questions are first of all, about local investment. I have been much struck, particularly looking at the accounts of the Aberdeen Savings Bank, which covers Shetland, at the great amount of money which it has been taking in, particularly of course from the oil areas. The fact is that it has at least until fairly lately—it now has a unit trust, of course—taken this money off to London, where it has been very useful to the Government but has not given a very good return to the investors, and of course has been steadily eroded by inflation.
What has really killed that form of savings has been inflation. What is lacking, it seems to me, in our financial arrangements is any machinery for directing local savings into local equity investment. Instead of that, we take it down to London; it is given over to Government in point of fact and then local industry depends almost entirely upon grants which come back from London. In most countries there is a far stronger local banking system which does to some extent channel local savings directly into local investment. I just wonder whether there is any chance, now that we 1154 are introducing a new form into the general banking system, of that being encouraged.
My second point is control in Scotland. As has been said, this movement grew up in Scotland and there seems to be now a very grave danger that it will be controlled from London. I know there are going to be four regions, and certainly Mr. Macdonald, the Chief General Manager in Scotland is a man of extreme enterprise who will do his best to maintain the Scottish identity of the Scottish Savings Bank. But looking at recent developments, all privatisation measures have really been of primary benefit to the City of London. It is the big City of London institutions which have carried them through and which have benefited chiefly from them, except of course for some employees who got special conditions. But even so, outside British Telecom, the number of shares available for employees was not very large.
I would ask the Government: is there any possibility that they may be able to take steps to ensure that Scottish control is possibly exercised over the operations in Scotland or at least that Scottish individuals and Scottish institutions have a fair crack of the whip when the next stage in the development of the savings banks takes place? I think it would be a tragedy from Scotland's point of view, and indeed from the banking point of view, if control were removed to London. I believe it would further encourage centralisation, which would be very bad for local investment. Therefore, while I welcome the opportunities which the savings banks now have, I believe that the really important point is what happens next and how the later development of the savings banks is done. With those reservations, I would certainly wish the Bill well.
§ Lord Jacques
My Lords, I apologise to the House for intervening in the gap but it will be for one minute. I want to put a question to the Minister which I hope he will be able to answer in his winding-up speech. The bank will keep whatever the shareholders pay for their shares. The bank will belong to the shareholders collectively. Therefore, whatever the shareholders pay for their shares, they will get the present bank as a gift. That is, I contend, fair and logical reasoning and I invite the Minister to fault it.
§ 7.8 p.m.
§ Lord Taylor of Gryfe
My Lords, as we are near the end of this debate, I will be brief. I should like first to thank the noble Earl, Lord Gowrie, for his usual clarity in introducing this Bill. He has been somewhat less controversial than in some of his more recent contributions to debates in this House, although he has upset the noble Lord, Lord Houghton of Sowerby.
We have benefited this evening from the experience, knowledge and enthusiasm of several noble Lords who have had, and still have, an association with the Trustee Savings Bank. Inevitably the debate has centred round the question of mutuality or PLC status, and I will return to that in a moment. Perhaps I may just say to the noble Earl, Lord Iddesleigh, that while I was impressed by his statement that he and his colleagues had given a great deal of thought to the question of mutuality or PLC status, I should like to quote a witness on the other side. Mr. Bryant, who until recently was Chief General Manager of the TSB, 1155 has appeared on television recently, regretting that the route of mutuality has not been taken. I would suggest that his experience in this field ought to be considered in arriving at our conclusions. I am not doctrinaire in these matters, but I believe that we have an opportunity in this Bill for doing something interesting and unusual.
I am a great believer in the mixed economy. I believe it is wrong to have a totally dominating state economy and it is equally wrong for any society to deny opportunities of experimenting in economic forms. We have a chance here in this Bill of recognising the existing powerful clearing banks with their rightful place in our economy. We also have the Giro bank, a state bank, a post office bank, and now we have the opportunity in this Bill to have a different kind of bank, a bank owned by the depositors, and this could be a real third force. This would bring an interesting variety in our banking experience and might be well worth while.
As has been stated in the debate, the Scottish connection is well established and the noble and learned Lord, Lord Wilson of Langside, has mentioned the question of pilgrimages to the home of the founder in Dumfries. I visited a very large mutual insurance society in the United States recently, Nationwide Insurance, and they have built themselves a magnificent new head office in Nationwide Plaza in Ohio. But next to the board room in that office they have rebuilt the farmhouse, or at least one of the rooms of the farmhouse, of the original and distinguished founder of that great organisation—a man called Mr. Murray Lincoln. It is a permanent reminder to the directors of that great insurance company that their origins were well established by a simple farmer of the Middle West and that they have some responsibility for maintaining the traditions and standards which were set by their founder.
In discussing this Bill we have to be mindful that we, too, are custodians of a tradition and that the people who at the beginning of the 19th century set up these banking institutions for the small depositor, to encourage thrift, made an important contribution to our society and to our social life. They collected the pennies, as was said before, while the major banks were concerned about the pounds. They arrived at a period in our history, like the co-operative societies and the friendly societies, and all of them in turn made an important contribution to our social life and to our communities. We should not readily discard that tradition in favour of creating just another clearing bank, because that is all we are doing. All we are doing is transforming this institution, with all its rich historical traditions and its importance for our communities, and creating just another bank on the high street or in the villages. So we should just think twice. It is like a Bill being introduced into this House to convert the co-operative societies of this country into Tesco's. It might have its attractions in some ways, but it would not be socially defensible.
Those of us who are concerned about the future structure of the TSB accept the need for change and for legislation. As has been evidenced in the discussions in the House this evening, there is confusion over ownership and that has to be clarified in legislation. I 1156 think everyone welcomes the removal of the TSBs from the supervision of the Treasury—in fact, they had become a branch of the Treasury in many ways—to the supervision of the Bank of England which is their rightful place, and I think we all accept the need for a national structure and even national direction of policy in many areas of the TSBs.
The development of chequeing services, the development of credit cards and the centralisation of investment policy are all essential to the good functioning of the TSBs and, inevitably, structural changes have to be taken care of. But at the same time most of us are concerned about the deep roots of the TSBs in the regions, and particularly in the Scottish region. If you look at the structure as outlined in the Bill, it provides that the shareholders will elect their board like any other PLC, but the board will, in turn, elect the regional directors—not the shareholders in Scotland electing their board, but the members of the Scottish board being appointed by the central board, which means that they are rather far removed from democratic control and election by the shareholders.
I am interested, too, and I am sure that the noble Earl, Lord Gowrie, is also interested, in some commitment that is made in the White Paper and in the Bill to contribution to foundations. Perhaps the noble Earl will tell us a little about the scope of these contributions, because that is important to the communities in which they operate, and it may even help the noble Earl with some of the problems that he has with the Arts Council at the moment. So that is important.
Then the question of widespread share ownership is a matter which concerns us, and I am sure that this concern is shared by others in the House. Some figures were quoted during the debate in the other place and it was said that only about 40 per cent. of the depositors were in a position to take up shares. That would be unfortunate if it were true, and I suspect that, since many of the depositors are very small depositors, it may be true and the possibility of the widespread share ownership which is envisaged may not, in fact, be realised.
A great deal has been said about the prospects, the inventiveness and the imagination of the present management of the TSB. I certainly pay tribute to them for many of the changes that they have made in the last few years. But, once they emerge in a period when there is a banking revolution going on in the City, they will have to assume certain responsibilities which include a degree of high risk. There will be pressures on the TSB for profits for their shareholders, at the same time as there will be a demand for a continuation of the services which have been traditionally maintained by the TSBs.
The Financial Times, reviewing the anual report to the depositors last week, quoted:The harsher climate of retail banking has already begun to tell on the TSB, well before its flotation.It went on:the traditional loyalty of TSB members will be tested to its limit unless the bank brings its rates more in line with building societies".There will be pressure on the TSB to service the new shareholders at the time as there will be pressure from the depositors to pay competitive rates, and that may 1157 not be easy. I should just like to add that in an interesting article on the same subject of the future of the TSBs, which appeared in the New Stateman last week, it was pointed out that the TSBs exist in areas where a community service is necessary like Easterhouse near Glasgow, where there are no clearing banks, there is 35 per cent. unemployment and there are 42,000 people who need a banking service, but only the Giro bank and the TSB choose to operate in that terribly depressed area.
As I say, there will be pressure on the TSB to maintain that kind of service. But, as everyone who is in the clearing bank business knows, their profits are affected at the moment—for example, in the case of the Royal Bank of Scotland—by the proliferation of a whole lot of branches all over the country, which is very expensive. The TSB will have to face the responsibility of maintaining the local and regional distribution of branches, some of which are uneconomic, which is traditionally their position, at the same time as the new shareholders will insist on strict economic discipline and high profit earnings.
These are some of the matters at which we shall be looking in the future. We wish the TSB well: there is no doubt at all about that. We are sorry that the mutual principle is not being observed in this case, and we hope that all the promises contained in the Bill and made by speakers from the other side of the House will be fully justified by the results.
§ 7.21 p.m.
The Earl of Gowrie
My Lords, I yield to no one in my appreciation of continuity, regional roots and the trust of communities which are served by institutions, but it is nonetheless forever fascinating to me that arguments against change and development are these days made far more by the opposite side of the House than by my highly conservative friends on the Back-Benches. At one point when the noble Lord, Lord Houghton of Sowerby, was speaking, I almost felt that he might be nostalgic for a system which delivered 1 per cent. or 2 per cent. in interest and delivered most of the money in the TSBs to the Government as an adjunct of National Savings.
I am glad that the noble Lord, Lord Stoddart of Swindon, felt that the Bill which I put before your Lordships was altogether uncontaminated by privatisation, as he would see it, and agreed that the Treasury was not going to do well out of it. The Treasury, like the country at large, has a great interest in a wider participation of people in our financial system. I believe that it is one of the most successful aspects of the Government's policy that wider share ownership has been promoted. I know that this is a principle dear to the Alliance Benches, though they seem to be greeting it with modified rapture this evening. I believe that this Bill will create a greater dispersal of share ownership than hitherto.
Many of the points made to me were of the kind which are liable to come up at Committee stage. Your Lordships gave me a good run in my opening speech, and I do not want to be too long now. The general philosophy of the Bill and, indeed, many of the criticisms put to me by noble Lords opposite, could not really be better answered than in the words of the 1158 noble Earl, Lord Iddesleigh, speaking from the Cross-Benches. He said that it was time for the TSBs to be released from Her Majesty's Treasury regulations and made subject to the Banking Act 1979. He said—and I hope I quote him correctly—that they are already recognised as a banking group; they enjoy a wide reputation and high standards; and they should be able to offer a wider range of services—not least, may I say to the noble Lord, Lord Houghton, in the interests of their depositors.
The mutualisation argument has been discussed extensively, and I dealt with it in my opening remarks. Perhaps I may say to the noble Lord, Lord Stoddart, if I may take a more minor or technical adjunct to the argument, that it seems to me wrong to confuse wider ownership—the ownership of shares—with mutual ownership. The noble Lord asked me what pressure customers and staff have exerted in favour of the Companies Act. The proposals have been widely known since August 1982, and very few comments have been made. The TSBs have kept staff fully in the picture, but that, of course, is their business. I agree with my noble friend Lord Bruce-Gardyne, who has taken a leading role in the build-up to the present Bill, that staff will use their preferential position, as indeed will many depositors, to acquire shares. But, of course, I cannot force them to do so, and nor should I be able to do so.
The noble Lord, Lord Stoddart, asked me what "no one" meant in relation to no one being able to own more than 5 per cent., or later 15 per cent., of the shares. That simply means any legal person. He asked me what was to stop groups of individuals or companies buying blocks of shares under their entitlement. Again, I think he was answered very well later on by my noble friend Lord Bruce-Gardyne, who suggested that the monopolies and mergers legislation would apply should this highly unlikely scenario of takeover take place.
As to the question of the sale of shares abroad, of course there is no stipulation in the Bill on the subject, but the TSBs are unlikely to offer shares abroad; and, in any case, the anti-takeover and monopoly and merger provisions to which I have referred apply equally to foreign as to domestic purchasers of shares. I do not believe it possible or indeed appropriate to control the residential status of purchasers of shares, which will in any case change from time to time.
A number of noble Lords were worried about loss of regional status of individual banks and about the loss of local identity. I shall come back to that briefly when I deal with some of the points that were made about Scotland by the noble Lords, Lord Grimond and Lord Taylor of Gryfe. But, generally, banking policy will be carried out by the individual banking subsidiaries in Scotland, England and Wales, Northern Ireland and the Channel Islands, not by the holding company. The holding company is not itself a bank.
The noble Lord, Lord Stoddart, asked me how many depositors will buy shares. I have to some degree dealt with this. I cannot possibly know. I hope that a great many will. The precedent of privatisation in another context and its popularity has indicated that the take-up will be good. The noble Lord, Lord Houghton, based his argument on the view that depositors were the owners of the trustee savings 1159 banks. My advice is that that is simply not the case. In my judgment it is also wrong of the noble Lord to say that the basis of the trustee savings bank tradition was working class self-help. The trustees of the original banks were employers, though admittedly of a benevolent kind.
We are dealing here with a great tradition of nineteenth century paternalism, but one which is not appropriate in this particular day and age—and it seems to me to be a little patronising to suggest that it might be. Of course, I profoundly agree with the noble Lord, Lord Houghton of Sowerby, that inflation hits the poorer or smaller groups of savers worst. That is why we are determined to get inflation down, and we have achieved some considerable success in that area. That is also why it seems to me right that a wide and diverse range of banking services should be offered by the TSBs in order to protect and augment the savings of depositors.
It would be inequitable if we were to distribute the proceeds of sales among individuals who happen to hold trustee savings bank accounts at a particular recent date, because the group's resources have been accumulated over generations. That is pertinent to the questions concerning ownership raised by the noble Lord, Lord Houghton. He also asked me why the Government were promoting a Private Bill. I do not deny that the Bill is an unusual one. Indeed, the first sentence of my opening speech said just that. But large parts of the Bill are clearly public policy, and all earlier TSB Bills have been public policy. Only Parliament can reform TSBs, and, given the Government's special relationship and Treasury controls over TSBs, it is natural and right that the Government should bring forward this particular Bill.
I share with the noble Lord, Lord Grimond, a distaste for acronyms. I tend to ask my officials to spell things out in my briefs whenever they can. But there is no doubt that acronyms have gone very deep in our society, and they are difficult to eradicate. I suppose that if I were a benevolent controller of the language up and down the land, with a Gowers remit, I might do something about "TSBs"; but surely in our present system they must determine their own name. They have decided to keep the name Trustee Savings Banks Limited for reasons of continuity, and I cannot find very profound reasons why they should not do so.
The noble Lord, Lord Grimond, asked me a particular question about the Airdrie Savings Bank. It will, assuming it receives authorisation from the Bank of England, continue as at present. If it wants to amalgamate with another bank, it will be able to do so as other "1819" savings banks have done; for instance, the Annan Savings Bank, which merged with the Royal Bank of Scotland on 31st January this year. Airdrie will choose its own future; and should it ever wish to merge with TSB Scotland, it may of course do so.
As to the points made by the noble Lords, Lord Grimond and Lord Taylor of Gryfe, concerning local involvement and Scottish control, TSB Scotland will be a major and powerful financial institution well able to preserve its identity—and it will continue to make a powerful local impact. My honourable friend the Economic Secretary to the Treasury noted in another 1160 place that he had visited TSB Scotland in Edinburgh and saw no grounds whatsoever for fears that Scottish influence would wane.
I am very grateful to my noble friends Lord Ferrers and Lord Bruce-Gardyne for the very warm welcome they have given to this Bill. I am also profoundly grateful to the noble Earl, Lord Iddesleigh, with all his experience, for what he said. I look forward to a lively and interesting Committee stage on the Bill, and am glad that the House in general has given the Bill a fair passage.
I should just say, to the conundrum posed by the noble Lord, Lord Jacques, as to how the trustee savings banks could offer shares in such a way as to avoid a bonanza, that the proceeds of the issue will supplement the existing considerable assets of the TSB. The pricing of the issue will therefore take account of the fact that bank shares stand at a substantial discount to their net assets.
§ Lord Jacques
My Lords, if the noble Earl will give way, I may say that, no matter what the shareholders pay, they will get the present bank as a gift. One can make the price whatever one likes because they will part with their money individually but will retain collective ownership of that money.
The Earl of Gowrie
My Lords, I am tempted to suggest that the noble Lord, on behalf of shareholders and depositors, should not look a gift bank in the mouth. Nevertheless, perhaps we may argue that point further at Committee stage. I feel that the noble Lord is not taking sufficient account of the accumulated previous assets that have been mentioned.
I now see that I have a note relating to a point made to me earlier by the noble Lord, Lord Taylor of Gryfe, as to whether local shareholders should elect the local board. They can effectively run their company in that way if they wish, and the Bill leaves that to them as its own business. In the same way, they will have their own charitable activities—and (dare I say it?) their own deep desire to sponsor the arts in Britain, including in Scotland. My Lords, once again I beg to move that the Bill be now read a second time.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.