HL Deb 13 February 1990 vol 515 cc1248-50

3 p.m.

Lord Ezra asked Her Majesty's Government:

Whether it is their policy to encourage private savings, and if so, whether paying out only 6.5 per cent. on the average value of premium bonds is helping to achieve that objective.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, it is the policy of Her Majesty's Government to encourage personal savings which investors will retain for some time. Longer term savings of this kind help to reduce the level of consumer spending in the economy. Premium bonds can be repaid virtually on demand, and therefore do not contribute to this aim.

Lord Ezra

My Lords,is the noble Lord aware that in July 1988, the average return on premium bonds was reduced from 7.75 per cent. to the present level of 6.5 per cent? The reason for that was the reduction in interest rates. Since then interest rates have very substantially increased. Can the Minister say whether the Government are considering reviewing the position? Is the Minister also aware that people can invest in any building society and receive something like 11 per cent. interest, tax paid, for their money? If the Government are really serious about persuading people to hold their money in the long term, does not the Minister agree that the Government should move somewhat nearer to the market rate?

Lord Henley

My Lords, there is no fixed relationship with other interest rates in the economy. Premium bonds are not the kind of savings to which we attach the highest priority and the interest rate used to set the prize fund reflects that. It is entirely a matter for the individual where he wishes to invest his money.

Lord Winstanley

My Lords, does the noble Lord really believe that a potential return of 6.5 per cent. is fair and reasonable in the light of what has been happening to interest rates? No doubt the noble Lord himself is too sensible to put his own money into premium bonds, but does he not realise that our wives, however prudent they may be, insist on buying them? Does the noble Lord hold out any hope that the potential return on these investments of our wives might be a little better?

Lord Henley

My Lords, I repeat the answer that I have just given. The noble Lord might offer some advice to his wife, but I am sure that she is perfectly capable of making up her own mind. Speaking for myself, I have not the first idea whether my wife has any money in premium bonds. It is a matter entirely for her to decide in the light of the circumstances at the time.

Lord Hailsham of St. Marylebone

My Lords, is my noble friend aware that when the late Archbishop of Canterbury, Lord Fisher, declared it to be a sin, I immediately bought the maximum number of premium bonds?

Lord Henley

My Lords, I thank my noble and learned friend for those remarks. At the time of the introduction of premium bonds by the Chancellor of the Exchequer in 1956, the then Shadow Chancellor described them as a squalid raffle.

Lord Bruce of Donington

My Lords, in view of the fact that the Government have now privatised the public sector borrowing requirement and transferred it to the private sector, which is now facing very severe liquidity problems, will the noble Lord explain what steps the Government propose to take in order to restore the savings ratio, which is now standing at about 4 per cent., to its former and more desirable level of between 14 and 16 per cent?

Lord Henley

My Lords, I believe that the noble Lord asked more or less the same question of my noble friend Lord Caithness on an earlier occasion when a Question of this kind was put down by the noble Lord, Lord Ezra. I fail to see what this question has to do with the Question on the Order Paper.

Lord Mackie of Benshie

My Lords, surely the noble Lord cannot discard at this time this very popular form of saving because that, in effect, is what he has said. People other than wives like a little gamble. I remember Mr. Macmillan saying that to take a little gamble with the interest did not appear to him to be immoral. At that time the interest was set at a reasonable rate. Does not the Minister agree that for the Government actively to discourage this form of saving must be foolish?

Lord Henley

No, my Lords, I do not accept that. I merely said that the Government do not attach the highest priority to this form of investment.

Baroness Phillips

My Lords, is not the Minister aware that women are much more skilful in handling money than any man? When we have a woman Chancellor of the Exchequer we shall have a proper budget and one that does not have a deficit.

Lord Henley

My Lords, I quite agree with the noble Baroness. I remind her that we have a woman First Lord of the Treasury.

Lord Graham of Edmonton

Do not remind us!

Earl Nelson

My Lords, would my noble friend care to comment on the reasons why the minimum purchase of premium bonds has risen tenfold over the past few months? Does the Minister agree that that measure is surely not one that will encourage saving? Will the Minister also comment on why the minimum period for which a person has to hold premium bonds is still three months, particularly in view of the high interest rates at the present moment?

Lord Henley

My Lords, I am afraid I cannot comment on the second part of my noble friend's question. However, as regards the first part, the cost of processing claims is something of the order of £2. Therefore, we deemed it right to increase the minimum amount that can be invested from £10 to £100. I stress that I believe it is still possible to buy premium bonds in units of £10 for children under the age of 16.

3.5 p.m.

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