National Savings Certificates (Hansard, 11 October 1989)

The Paymaster General (The Earl of Caithness)
My Lords, I confirm that this is the policy of Her Majesty's Government. Matured national savings certificates can be encashed at short notice with virtually no penalty, and so offer Her Majesty's Government only poor quality funding. For that reason, the interest rate offered on certificates held for more than five years has been set at a modest level.

§ Lord Ezra
My Lords, does the Minister agree that, at some 3 per cent. of GDP, personal savings are now at an abnormally low level and that they should be raised by every possible means to a higher level in order to correct the various imbalances in the economy? Does he not feel that it is therefore somewhat paradoxical that holders of national savings certificates should be discouraged from continuing to hold those certificates? Is there not a risk that when they cash in those certificates, having held them for more than five years, part of that cash finds its way into further consumption?

The Earl of Caithness
My Lords, of course we are keen to encourage more personal savings but our priority for national savings is to attract funds that investors will leave for a number of years.

Lord Bruce of Donington
My Lords, further to the Question put by the noble Lord, Lord Ezra, are the Government able to give any explanation of why the ratio of personal savings to personal disposable incomes has declined from a norm of somewhere between 12 per cent. and 16 per cent. of disposable income to 3.2 per cent. (in the latest quarter)? That, in itself, represents an acceleration from the already low figure in the previous quarter of 5.6 per cent. 297 Is the Minister satisfied with existing government policy in relation to the drastic fall in the level of personal savings which are now at their lowest level for half a century?

The Earl of Caithness
My Lords, I am keen to debate these matters with the noble Lord but perhaps he would look at the Question on the Order Paper and relate his supplementary questions to that.

§ Lord Stoddart of Swindon
My Lords, is it not true that the Government have broken faith with their own savers? Is it not a fact that the Government are not only discouraging people from saving but, because of their monopoly in respect of the payment of interest gross rather than net, they are cheating some of the people who most need money; namely, the poor? An example is national savings income bonds which are on three months' notice and which pay net only 8.6 per cent. Anybody going to a building society can obtain more than that also paid net. It seems to me that the Government, who I hope will take this into account, have recognised their monopoly position and in fact are defrauding their savers.

The Earl of Caithness
My Lords, I contest the last remark made by the noble Lord. National savings have very important tasks. For instance, they provide a home for the savings of non-taxpayers including many pensioners and children. Interest on the investment account, income bonds and capital bonds is paid gross of income tax; so are dividends on government stock held on the national savings stock register. National savings can also encourage longer term saving and offer within the available resources the best possible service to the many millions of investors in national savings.

§ Lord Peston
My Lords, I am not sure that I fully understood the noble Earl's general answer. We all agree with him that long-term saving is to be encouraged. However, it is not obvious to me why the Government do not offer a premium on the reinvestment of national savings so long as the reinvestment is for the longer term. I took the drift of the Question to be precisely that point. Does he not agree that the Government should be encouraging reinvestment of those certificates for very long periods of time, which would certainly help the economy at the present time?

The Earl of Caithness
My Lords, we certainly encourage long-term saving. That is why a fixed rate of interest is paid after five years for certain of the savings certificates. When those certificates are mature they can be encashed at short notice. In a period of substantial budget surplus, the Government are no longer seeking short-term money from national savings in that way.