HL Deb 07 June 1990 vol 519 cc1510-3

3.23 p.m.

Lord Donoughue asked Her Majesty's Government:

Why the amount of personal savings in relation to income is currently close to its lowest ever level.

The Paymaster General (The Earl of Caithness): My Lords, a number of factors have tended to reduce the personal savings ratio since 1980, including lower inflation, financial deregulation and innovation, declining employers' contributions to pension schemes, increased wealth and the confidence inspired by greater economic stability and prosperity. At the same time, some of those factors have tended to raise savings by other sectors of the economy. Saving in the economy as a whole has remained almost constant in relation to national income.

Lord Donoughue

My Lords, I thank the noble Earl for that reply, which I am sure has illuminated the understanding of the whole House. It cannot all be wrong. However, will he agree that the real explanation is the credit boom and the property borrowing explosion which was generated and encouraged at the time of the last election? Will he also give an assurance that no such phoney boom will be generated ahead of the next election? Further, can he tell us whether the Government have any further measures in mind to improve this deplorably low personal savings ratio?

The Earl of Caithness

My Lords, I disagree with the main thrust of the noble Lord's questions about the credit boom. As to ensuring savings in the future, he will be aware of the measures contained in the Budget of my right honourable friend the Chancellor of the Exchequer, in which he announced the setting up of a new tax-exempt savings account (known as TESSA). I am sure that the House will also welcome the abolition of the composite rate of tax on income, which will mean that some 14 million people who do not fall into the tax bracket and who automatically pay tax at the moment will not be paying tax. The noble Lord will be delighted to know that the Government this week announced further measures on national savings which I hope will be published in the Official Report today.

Lord Boardman

My Lords, does my noble friend agree that if the Labour Party's proposals for a new tax on income were ever to be implemented, they would have a disastrous impact on the savings ratio, whatever the level previously?

The Earl of Caithness

My Lords, my noble friend is right. A new tax would not help. From what we have been able to glean of the Labour Party's proposals, I understand that the tax on unearned income would increase by 70 per cent, above the present level. I am sure that that is something to which no one would look forward.

Lord Grimond

My Lords, does the Minister agree that at times of high and increasing inflation to save is a very bad bet?

The Earl of Caithness

My Lords, that was shown conclusively by the noble Lord's party when it was in cahoots with the Labour Party at the end of the 1970s. Those who tried to save found that under Labour their saving incomes fell by 16 per cent, in real terms.

Lord Bruce of Donington

My Lords, I revert to the Question, which refers to personal savings as distinct from the other savings to which the Minister was good enough to refer in his first Answer. Does he regard it as being satisfactory that personal savings, which some seven or eight years ago were running at between 14 per cent, to 16 per cent, of personal disposable incomes, are now running at some 2 per cent? I do not like to press the Minister, as he knows full well; but do the Government applaud that move from 14 per cent, to 16 per cent, down to 2 per cent? Do they approve of it, do they disagree with it or are they indifferent to it? In any case, does the Minister appreciate that all that has really happened is that the public sector borrowing requirement has been converted into the private sector borrowing requirement?

The Earl of Caithness

My Lords, I am not sure that I can agree with the noble Lord's figures. It is true that the personal savings ratio declined in the 1980s. It reached a low in the third quarter of 1988, since when it has been increasing again. We do not believe that it is high enough, which is why my right honourable friend the Chancellor of the Exchequer has sought to encourage the savings culture by announcing certain measures in his Budget. The noble Lord will be fully aware of the fact that the personal savings ratio fell in most countries in the 1980s.

Viscount Eccles

My Lords, does my noble friend think that the way in which credit cards are advertised and pressed upon the public has something to do with it?

The Earl of Caithness

My Lords, no, I do not believe that it has, because there has been considerable concern felt by those who are lending. They do not wish to lend money to those who will be unable to repay it in due course. That would not be considered financially prudent.

Baroness Seear

My Lords, does the Minister agree that if those institutions are so concerned, it is a bit odd that we receive through the post so many unasked for letters offering to lend us money?

The Earl of Caithness

My Lords, there has been a considerable increase in wealth which has benefited everyone in the country, and that may be one reason.

Lord Ezra

My Lords, will the Minister say whether his reference to prospective changes in savings certificates means that those people who are long-time savers in savings certificates may cease to see the value of their investment eroded?

The Earl of Caithness

My Lords, I am aware that the noble Lord has a great interest in that matter because he has already asked Questions about it. His question might be slightly wide of the Question on the Order Paper, but if he would like to put it down I should like to try to answer it in due course.