HL Deb 13 March 1990 vol 516 cc1460-2

2.57 p.m.

Lord Airedale asked Her Majesty's Government:

Whether, in the light of Lord Hanley's statement that "there is no fixed relationship with other interest rates in the economy" (H.L. Deb., 13th February 1990, col. 1248), they will further explain the Paymaster-General's reference to "the rate of interest used to calculate the size of the prize fund" for premium bonds (H.L. Deb., 19th February 1990, col. 134).

The Paymaster-General (The Earl of Caithness)

My Lords, premium bonds are repayable on demand without penalty and therefore do not represent good quality funding for the Government. The modest interest rate reflects the fact that this is not a form of national savings to which the Government attach priority. For each prize draw, the prize fund is calculated at the rate of 6.5 per cent. a year of the value of all bonds eligible to participate; that is, all bonds which have been held for three months or longer.

Lord Airedale

My Lords, I am obliged for that information, but is the noble Earl proud of a 6.5 per cent. interest rate in these times when general interest rates have risen spectacularly? Is there some inverse ratio operating between these two rates?

The Earl of Caithness

My Lords, with a budget surplus we need to borrow less net from the public than we have done in the past. Premium bonds are not a form of national savings to which we attach priority because, as I said earlier, they can be repaid on demand without penalty. It is those factors, not the movement of other interest rates, which influence the premium bond rate.

Lord Barnett

My Lords, will the Minister qualify the Government policy in relation to personal savings in general and premium bonds in particular? For example, is it the Government's view that they do not need to worry about the very considerable fall in personal savings from around 13 per cent. to 5 per cent. of personal disposable income because total national savings have remained steady at around 20 per cent.? Is that the real reason?

The Earl of Caithness

My Lords, the noble Lord tempts me into a slightly wider question than that on the Order Paper, but I can reassure him that we have a number of measures to encourage longer-term personal savings, of which I am sure he is aware. There is the national savings capital bond, save as you earn schemes, personal equity plans and of course the Budget measures that my right honourable friend introduced last year.

Lord Hailsham of Saint Marylebone

My Lords, should we not also remember that when premium bonds win prizes, as mine have done more than once, they are free of income tax?

The Earl of Caithness

My Lords, my noble and learned friend is absolutely right. He is indeed lucky to have won on more than one occasion.

Lord Bruce of Donington

My Lords, can the noble Earl give further consideration to the matter in view of the fact that interest rates today are considerably in excess of the minimum lending rate of 15 per cent. and that small businesses have to pay between 17.5 per cent. and 18.5 per cent. for their facilities which is disastrous for many of them? Surely the Government's interest rate policy needs re-examination. Further, will the Government make up their mind as to whether the existing rate is required to sustain the rate of exchange or to dampen down inflation? Why do they not say what their real policy is?

The Earl of Caithness

My Lords, alas, the noble Lord, Lord Bruce of Donington, does not seem to have been as fortunate as my noble and learned friend in winning on the premium bonds. The whole question of interest rates is kept under review on a day-to-day basis.

Lord Ezra

My Lords, does the noble Earl agree that there is something of a paradox in the Government saying that they wish to stimulate personal savings while on the other hand, in very large parts of the national savings campaign, interest rates are paid which are no stimulus whatever? Does that not call for some revision of government policy, perhaps in the forthcoming Budget, to encourage people to save rather than spend on consumer goods which unfortunately, due to the reduced capacity of manufacturing industry, we cannot produce in this country and which have to be imported from abroad?

The Earl of Caithness

My Lords, I know that all Members of your Lordships' House are keen to know what is in the Budget. I should remind noble Lords that we only have to wait a week in order to find out.

Lord Tordoff

My Lords, is the noble Earl saying to the House that the Government do not want people to buy premium bonds? If that is the position, perhaps he would say so in simple words that the public can understand rather than kidding them into buying things which are a very bad buy.

The Earl of Caithness

My Lords, I contend the assertion of the noble Lord that premium bonds are a bad buy. There is no question of kidding people into buying them. There is a choice of options which people can undertake and there are many benefits for those who have national savings, especially non-taxpayers such as pensioners arid children, whom I am sure the noble Lord would seek to encourage.

Lord Williams of Elvel

My Lords, the noble Earl said that interest rates were reviewed on a day-to-day basis. Can he tell us what is the Government's view today as opposed to that of yesterday?

The Earl of Caithness

My Lords, if the noble Lord would like to table a Question on the matter I should be more than happy to answer it.