§ Mr. Nicholas Wintertonasked the Chancellor of the Exchequer what is his policy for the rate of interest paid on deposits in the investment accounts of the National Savings Bank, and for the financing of those accounts.
§ Mr. LawsonThe Post Office Savings Bank Act 1966, later consolidated in the National Savings Bank Act 1971, provided for deposits to be invested in gilt-edged stocks and other public sector debt, and600W for the income from those investments to be used to pay interest to depositors and the expense of managing the accounts. The then Assistant Postmaster-General said that the interest rate paid to depositors would be adjusted to match variations in the fund's income and expenses.—[Vol. 721, c. 1864.]
The greater variability in interest rates in recent years has caused difficulties with this arrangement, since the income of the fund does not vary as quickly as do interest rates on competing deposits of comparable maturity. There has been some scope within the existing framework for varying the interest rate somewhat more than the income, by building up or running down the reserves. But this could only be a limited expedient.
The Government consider that for the future it would both be fairer to depositors and enable the National Savings Bank investment account to continue to play a significant role in funding the PSBR if the rate of interest were fixed by the Treasury from time to time in relation to market rates on competing deposits. As now at least, one month's notice of changes would continue to be given.
In these circumstances, the separate investment account fund would no longer have a useful role. It is therefore proposed that for the future, deposits will be paid into the national loans fund, and that the principal and interest due to the depositors will become a charge on that fund. The investment account fund will be wound up, and the proceeds of the sale or redemption of its securities paid into the national loans fund.
The necessary legislative provision for this will be included in this year's Finance Bill, subject to the House approving the necessary procedure and financial resolutions which my right hon. Friend the Chancellor of the Exchequer is tabling with the Budget resolutions today.