§ 2. £197,677 (Supplementary), Savings Banks and Friendly Societies Deficiencies.
§ SIR ALBERT ROLLIT (Islington, S.)
said the deficiency in respect of trustee savings banks and friendly societies arose, according to the note on the Estimate, from the—
amounts by which the interest accrued in the year ended 20th November, 1903, from securities held by the National Debt Commissioners on account of the 'Fund for the Banks for Savings' and the Fund for Friendly Societies was insufficient to meet the interest which the said Commissioners are obliged by statute to pay and credit to trustees of savings banks and to friendly societies.The amount payable to trustee savings banks and friendly societies was 2¾ per cent. in order to enable them to pay a maximum interest of 2½ per cent. to the depositors. In the case of the Post Office Savings Bank the interest was also 2½ per cent. The deficiency was caused by expenses of management and the like. The Committee had had no opportunity really of discussing the matter on the Estimate itself because the deficiency could not be ascertained until the close of the year in respect of which the deficiency arose. He noticed that the original Estimate this year was merely a nominal sum, the amount being copied apparently from that of the preceding year with the full 1154 knowledge that the Estimate for the present year must be, as compared with previous years, completely different.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. AUSTEN CHAMBERLAIN,) Worcestershire, E.
said the sum taken in the original Estimate this year was for the deficiency of the preceding year. The sum now asked was for the deficiency this year.
§ SIR ALBERT ROLLIT
said the original Estimate could not possibly provide for the real deficiency which would arise at the close of the year. His object in drawing attention to the matter was not to reduce the Vote, though he admitted that it showed a considerable increase on revious Estimates and one regretted always any increase in national expenditure. He ventured to say with some knowledge of the subject that savings banks were both directly and indirectly a source of saving to the State, that they prevented many who would otherwise be in that position from making any demand on the rates, and that they encouraged habits which were conducive to the welfare of the State, and were calculated to reduce the obligations likely to come upon it. The primary cause of the increase in the Vote was the automatic reduction in April last of the interest on Consols from 2¾ to 2½ per cent. A Select Committee considered this subject in 1902, and at that time 1155 there was another element of difficulty to the Chancellor of the Exchequer in the abnormal price of Consols, which were then something like 113,114, or 115. [Cries of "No."] At any rate they were at an abnormally high price. At the present time they might be taken, he hoped, to be abnormally low. In order to enable the House to form a judgment on the sums to be dealt with in this matter, he should like to draw attention to the number of deposit accounts and to the amount of the deposits in the savings banks, because not only had there been differences of opinion as to these matters, but he had recently read a leaflet which spoke of them in a way which, he thought, did not indicate the advantage they were to the nation. It depreciated both the amount and the consequences of our savings. The total number of deposit accounts was now 11,117,700. That was a very large proportion of the total population of the country, being nearly a quarter of the whole. It was, however, a much larger proportion of the adult population. The cash deposits amounted to £198,240,000, while in stock there was to the credit of the depositors £18,248,300. The total deposits were, therefore, no less than £216,488,300. He should like to add that as compared with Great Britain the statistics of the Irish banks were very nearly equally satisfactory. The deposits in the Irish savings banks had in the last twenty years increased from £4,000,000 to £12,000,000; and the number of depositors in the last fifteen years—for which alone he had figures—had increased from 186,000 to 451,000. These figures from an economic point of view were, to say the least, satisfactory and acceptable.
§ SIR ALBERT ROLLIT
said the figures indicated the saving habits of the people, and he hoped, what they all hoped, the increasing prosperity of Ireland. He should say that the management of the banks both in Great Britain and Ireland, and their disposition to give facilities for saving, had materially improved. The increase in the number of depositors and the amount of depositors had been 1156 continuous at any rate since 1893. He should like to observe that previous to that year there was a period which for savings banks was marked by collapses, and that, worst of all crimes, a great deal of plunder of the poor. That had apparently ceased, because there had practially been no similar case since, and that was a change which justified the legislation of 1891. He thought that carried with it a tribute to the manner in which the hon. trustees and the managers of savings banks had readily comformed to the requirements of the Legislature. There was at first some little friction and difficulty, but he was bound to say that there had been a disposition to meet all the reasonable requirements of the Statute, to revise the rules, and to bring them up to date. Beyond some comparatively trivial cases of complaint which had generally been recognised, there was nothing but praise to give to those trustees and managers whose services, in his opinion, were a great national asset. Whatever might be said as to the value of the Post Office Savings Bank there was room for both these and the trustee banks, and he was sure that the facilities given by the latter were a source of great advantage to the country. The Act of 1891, instead of increasing, on the contrary, rather tended to stem the decrease of the deficiency by requiring more efficiency. The opening of banks was much more frequent, and branches were established in a large number of instances, bringing opportunities of saving to the poor. The cost of management had been reduced to a comparatively low point, and the interest had been raised in a large number of cases to the maximum. As the result of long observation, aided by expert opinion on the subject, he believed that the banks served substantially the classes which were in the contemplation of Parliament. The users of the banks were wage earners and domestic servants, and those classes who had no other opportunity of investing their savings. These were circumstances which made a claim on Parliament for this really economic expenditure. The leaflet to which he had referred had done an injustice to the savings banks, British and Irish, in comparing them to their disadvantage with the savings banks in other countries. In that leaflet Great 1157 Britain was put at the bottom of the list, leading to the inference that thrift and saving were declining in this country; and that these qualities were promoted more thoroughly in other countries. There was no basis for these statistics when it was said that the British savings only amounted to £4 2s. 5¾d. per head of the population. He maintained that the figures should be £6 8s. 7¾d. The fact was these matters were incomparable. There could be no true comparison when there was such a diversity of conditions. Take the case of Prussia. In that country there was no general limitation either in the amount deposited or the amount to be deposited, and the conditions of deposit were most variable, being fixed by each locality and not by the central Government; and there were also lotteries, which were most attractive to business, but which were most derogatory to the principle of savings banks and disadvantageous to those who availed themselves of them. In Sweden, the maximum interest paid was something between 4 and 5 per cent., which placed that country outside the pale of comparison. Then in the United States the savings banks did a commercial business at the same time. Account must also be taken in this country of such institutions, not mentioned in the leaflet, as the Yorkshire Penny Savings Bank, which had £15,000,000 in deposits, and of benefit and building societies, whose contributions were only another form of thrift.
Another difficulty discussed in the Committee was the abnormal price at which Consols were at that time. That had disappeared for the moment and would probably do so for some period. Of course it was obvious that at the price Consols then were, the Chancellor of the Exchequer had a difficult problem to contend with. He spoke with diffidence, because the Committee had witnesses who assured them that the condition of affairs was likely to be more or less permanent. They were, however, indebted to the late Chancellor of the Exchequer, the right hon. Member for West Bristol, for having appointed the Committee over which he so ably presided, and for having given to it a great amount of time and thought in dealing with a very difficult and complex problem. 1158 Ultimately that Committee, after large discussion and some difference of opinion, arrived at the conclusion that the circumstances of the day demanded a reduction in the rate of interest paid by the State by one-eighth per cent. He was bound to add that that was, to some extent, a compromise; and in dealing with the matter and all its surrounding difficulties, there was no indisposition, but on the contrary, on the part of the Chancellor of the Exchequer, to recognise the economic result of these social institutions. But he submitted that circumstances had now materially changed, and these had modified the conclusions at which the Committee had arrived; and he had no doubt the Chancellor of the Exchequer would see his way now not to press the lowering of the rate of interest—a change which, he believed, would be an economic and social disadvantage to a large number of the population, and would re-act very materially on our national character and habits. As a reason for not taking such a course, he would suggest that the time would come when the deficiency in the case of the trustee savings banks would be materially reduced. When the Annuity Act of 1880 had served its purpose, which would be in 1911, there would be a capital fund, once more bearing interest, which would make a large contribution towards the deficiency; and therefore he hoped that help would be given in tiding over the time when the House would not have to vote the large deficiency which at present existed. He consequently ventured to urge a reconsideration of the settlement of the programme under the altered circumstances, and that the Chancellor of the Exchequer, in the interests of the banks and of the depositors, would now dispel, once for all, all uncertainty about this matter. He did so because the announcement in His Majesty's Speech last year led to a considerable withdrawal of a large number of deposits; and although there was no similar announcement this year, a cloud overhung the horizon, which was most oppressive not only to the management of the banks but deterrent to depositors, who cared not only for the safety of their deposits but for the interest to be paid them thereon. For 1159 those reasons, and also in acknowledgement of the honorary services of the trustees and managers, which were of great national value, he hoped that consideration would be given to this matter. He would repeat that the banks were of the greatest service to the country, and that it would be a most retrograde and unfortunate step if, in the absence of the necessities of the recent past, such a change as was proposed were made. He desired to say again to the Chairman of the Select Committee that for working the administrative reforms recommended by the Committee into shape they were all greatly indebted to him. He hoped that they would not only have a settlement of the question of interest, but that they would also have administrative improvements which would make the work easier, better, and less onerous on the part of trustees and managers.
§ MR. YOXALL (Nottingham, W.)
said that as the manager of one of the largest trustee savings banks in London he should like to join in the appeal to the Treasury to take no steps whatever in the direction of reducing the interest on the money invested in the savings banks. He submitted to the present Chancellor of the Exchequer that he of all men, could not propose, on economic grounds, to reduce the rate of interest on those small deposits. During the present session they had heard again and again from the Prime Minister denunciation of the policy of laisser faire. The reduction of the statutory rate of interest on deposits in the savings banks would be resorting to a policy of laisser faire. He submitted to the Chancellor of the Exchequer that he should not adopt that doctrine, which would not be in consonance with his own view, or in consonance with the interests of the country. The right hon. Gentleman should do all he could to foster those banks by enabling them pay more interest than would be paid if the money were invested in the open market, even if the cost of the deficit were to be paid by this House. Two or three years ago the right hon. Gentleman the Member for West Bristol brought the matter before the House. At that time the right hon. Gentleman's difficulties were exceptionally great. Ho had to face the investment of money 1160 supplied by those savings banks year by year in proper, sound, trustee funds, principally Consols, and he was in exceeding difficulty, because Consols were at that time particularly high. That difficulty had, however, now passed away. Consols did not stand as high now as they did then; and, therefore, the only factor in the problem which remained to be discussed was whether or not a higher rate of interest should be paid to depositors in those banks, in order to encourage action on the part of subjects of the King which would be not only good for them but which would be good, for the country as a whole, at a slight additional cost. He submitted that the question should not be argued on a purely economic basis. Those banks were to encourage people in this country; they were to encourage thrift among the working classes, which was by no means exhausted; and, in that respect, he hoped the Chancellor of the Exchequer would not be deceived by the leaflet which had been circulated. That leaflet showed that, in spite of the efforts of the Treasury and the labours of philanthropic persons to encourage thrift, deposits were smaller per head in this country, and smaller, on the whole, than in most other, countries. It said that £4 2s. 6d. represented the investments per head in this country. In Denmark, however, the amount exceeded £10, and it decreased for various countries, leaving England at the bottom of the list. His hon. friend had pointed out some of the fallacies which underlay a comparison in this matter between England and some other countries. In some other countries there was no maximum per annum, and no total maximum, and there were not so many ways of investment as there were in this country. In the countries to which the leaflet referred, trustee or private savings banks, building societies, friendly societies, co-operative societies, and trades union accumulation of funds; had not attained to anything like the scope and extent they had in this country. Therefore any comparison was unreliable and wholly fallacious; and he hoped the Chancellor of the Exchequer would not attach importance to it such as might lead him to propose that interest on deposits in those banks should be reduced. They ought to continue to encourage, even at the cost of a few thousands, or 1161 a few hundred of thousands, per annum, the deposits in savings banks by the class of people who used them. Every care was taken that those deposits did not interfere with the ordinary course of business by other banks. A great deal of good had been done in the past by the system, and he hoped it would continue for many years.
§ SIR GEORGE BARTLEY (Islington, N.)
said he did not suppose that anyone would think for a moment that he was not keenly interested in savings banks, and in their success. He had spent a great many years of his life in the promotion of thrift, and he had striven in every way he could to encourage those banks. He agreed with his hon. friend that the exercise of thrift very largely depended on the facilities which were afforded for its exercise. If the facilities were increased, and if people were put in the way of depositing their money, and, above all, if the deposits were readily withdrawable without friction or trouble, then he was sure they would encourage the habit of thrift throughout the country. He thought that the savings banks had achieved an incalculable amount of good. They stimulated thrift and made people see the value of small savings, and he believed that the Savings Bank Act was one of the most beneficial ever passed. He should like to say a few words on the problem they were now discussing. Of course, it was extremely easy and extremely pleasant to say that they did not want to reduce the interest, that it was very desirable it should be increased, and so on; but he would ask the Committee to consider what would be the practical effect of supplementing by taxation the interest that was earned. That was really the question. He was quite sure that if Mr. Gladstone had been asked, when the savings banks were established, whether money should be voted to supplement the interest earned by deposits he would have been the very first to object. The principle was that the banks should be carried on as a business undertaking and that the State should guarantee its security, the great element being that the security should be absolute. That was now assured; and he ventured to say, as one who had given the matter great personal 1162 attention, that the amount of interest payable to the depositors was quite a secondary matter. He did not say it was not an important matter, because it was, but the great question was that the money should be saved. The £250,000 they were now asked to vote represented just one-eighth per cent, on the money invested. That was to say that they were to give 2s. 6d. percent, more to every depositor in a savings bank who had deposited £100 for a whole year than that amount would fairly earn in the market. He did not say that 2s. 6d. per cent, was not a consideration, bat he wished to ask whether it was the first consideration to the comparatively few men who had £100 in the Post Office for a year as compared with the other advantages offered by the Post Office. The maximum holding was £200; and, therefore, the maximum grant that could be given to any individual was 5s. Was it desirable that they should take away the self-supporting and independent character of those banks when the maximum amount any individual could get was 5s.? But the average holding was under £20. That meant only an extra 6d. His experience was that if they desired to foster thrift it was the smallest men who should be encouraged. He had always found that the difficulty lay in the beginning in inducing a man to pay in the first sixpence. When that habit had been acquired the rest was easy. But he did not believe that to tell such a man that when he had saved £100 he would get £2 10s. a year instead of £2 7s. 6d. would have any influence on him whatever.
The great work of these institutions was to promote thrift in the beginning and persuade them to pay small sums into the bank, but he looked with some alarm at this sum of £250,000 to supplement the savings bank interest. Although he desired to see the utmost amount of interest paid to the depositors, he thought the very small increase they were giving would not promote thrift. It seemed to him that these institutions should be carried on in such a way as not to cast additional burdens on the State. There was a danger of a reaction setting in if they increased taxation for this purpose. It was not reasonable that a man who had saved £200 should have 5s. given to him out of taxation, and to the 1163 small depositors having £8 to £10 in the bank the difference would be absolutely nothing. It was far better to inculcate the idea that these banks should be carried on on business lines, and that no burden should be thrown on the State although the State gave every security. Although he could not object to the present Vote, he urged upon the Chancellor of the Exchequer the necessity of these banks in aid of thrift being made sell-supporting institutions. When Mr. Gladstone fixed the rate of interest at 2½ per cent., Consols were at 95 and paying 3 per cent., and there was an ample margin of profit in carrying on these institutions, and although the country had benefited largely by the large sum deposited, still it was never the intention of the founders of these institutions that they should form a charge on the State. That was most emphatically the view of Mr. Gladstone, who fixed the interest at 2½ per cent., and it was a wise view, because it was an encouragement to the men who had large holdings to draw their money and put it into Consols, so that they might obtain a greater amount of interest on it, and if that were done that was a good step in the right direction. It was, therefore, desirable to regulate the interest fairly and liberally, but at such a rate as to give inducements to persons with holdings of £100 and £200 to withdraw their money from the bank and put it in Consols. It was for these reasons that he had made the remarks he had. His desire was to treat the depositor generously, but looking at this matter from a larger point of view, he thought, in the interests of the country, it was not wise of them to build up a great rate of interest at the expense of the taxpayers, but that these banks should be carried on in a business-like way, as was originally intended by their founder.
§ MR. JOHN ELLIS (Nottinghamshire, Rushcliffe)
said they were discussing a matter of very great interest, not so much with regard to the amendment involved, but as to the principle. They all agreed that these trustee savings banks were very useful, and they all hoped they would go on and prosper in the future. The point before the Committee was surely whether the taxpayers of this 1164 country were to be called upon to pay artificially, a rate of interest which the depositors of the savings banks enjoyed. At the moment there was a statutory obligation upon them and they must take the obligation upon themselves, there being no option. But he would be very glad to learn from the right hon. Gentleman the Member for West Bristol or the late Chancellor of the Exchequer, who had given a great deal of attention to this matter, what their opinions were upon the whole subject. Of course the present Chancellor of the Exchequer had entered into his high office under circumstances of exceptional difficulty, and he had not had quite the experience which his predecessors had enjoyed. He himself (Mr. Ellis) took very much the same view as the hon. Member for North Islington. He had listened almost with amusement to the speech of his hon. friend the Member for West Nottingham, and to the cavalier way in which he talked about it being a matter of only a few hundred thousand pounds. The time was coming when they would have to scrutinise very carefully items of one or two hundred thousand pounds. Besides that, it was rather placing the matter upon a sentimental basis. He took the view that those banks should be self-supporting institutions, and he believed that thrift would be very much better promoted by teaching men exactly where they stood. They should not have an artificial rate of interest beyond what the money would earn, by means of that small Vote. He would therefore urge the Chancellor of the Exchequer, so far as he could, to take a severer view than had hitherto been taken on this matter. He felt that the time was coming when the whole subject must be overhauled. They ought no longer to go on burdening the taxpayers with those grants, and he had yet to hear any good reason why they should be called upon, year after year, to vote money for that particular purpose.
§ MR. AUSTEN CHAMBERLAIN
explained that as this was a Vote to make good deficiences arising on the savings bank account, it obviously could I not be framed until the savings bank year was closed and the amount of the 1165 deficiencies were known. Those deficiencies could be made good either by a Supplementary Estimate in the current financial year or by an original Estimate in the next financial year. The original Estimate this year was for the deficiency in the last savings bank year, but, being desirous that the question should come before the Committee as early as possible this session, in view of the fact that upon the views expressed by the House depended the decision of the Treasury as to the future rate of interest to be paid on savings bank deposits, he had brought in as a Supplementary Estimate this year the Vote which might have been introduced as an original Estimate next year. He hoped that that explanation would satisfy the hon. Member for West Islington that there had not been any loose or reckless estimating. As the hon. Member for the Rushcliffe Division had rightly said, the Committee had no alternative but to vote this money. They were bound by Statute to pay a certain rate of interest, and this Vote was merely to enable that statutory obligation to be fulfilled. The question the Committee had really to consider was whether they ought to continue to make good the deficiencies on these accounts, or whether the rate of interest allowed to depositors ought not to be so altered as to eliminate the necessity for future Grants in Aid. The difficulty had arisen in its present form in consequence of the reduction of the rate of interest on Consols. The difficulty was foreseen by the right hon. Gentleman the Member for West Bristol, at whose instance, in March, 1902, there was appointed a Select Committee which had presented a valuable Report on the subject. With regard to trustee banks, the Committee pointed out that in only six years between 1876 and 1901 had there been a surplus on their income account, and that the total net deficit which had had to be made good by the taxpayers during that period amounted to £503,615. In the same years, however, the Post Office Savings Bank had paid to the Exchequer a net surplus of no less than £1,601,285. Against this had to be set the deficiency of the trustee banks to which he had referred, and the Deficiency Annuity, established in 1880, to run for twenty-seven years, for the purpose of making good the deficiency on the capital of the savings 1166 banks caused by their income having; been insufficient in their earlier stages pay the interest directed by Parliament, and by their having had to spend capital to pay that interest. The result during those six years was to leave a net charge on the taxpayers of £617,000. The Committee pointed out that owing to the increase in the maximum sum which any person was permitted to deposit in a given year, from £30 to £50, and to the great cheapness of money, the total deposits were exceptionally large in the years from 1894 to 1897, while the price of Consols was abnormally high. For instance, the increase of the balance due to depositors in the Post Office Savings Bank, which between 1888 and 1892 had averaged from £4,000,000 to £4,500,000 a year, rose in 1894 and 1895 to £8,500,000 in each year, and in 1896 it actually exceeded £10,000,000; and the Committee then proceeded—For this reason and because of the gradual extinction of loans made at comparatively high rates, the rates of interest earned by the Commissioners' investments fell from £3 0s. 9d. in 1887 to £2 15s. 2d. in 1901. Of these investments, £19,284,606, on behalf of trustee savings banks, and £64,915,818 on behalf of Post Office Savings banks, were on 31st May, 1902, in Consolsthe rate of interest on which was reduced from 2¾ to 2½ per cent, from 5th April last year—and the loss on this, together with a similar loss on the amounts of Consols which remains to be replaced by terminable annuities will involve an annual loss of income to the trustee hanks of £67,500, and to the Post Office banks of £181,000.The Committee also estimated the financial effect of this loss upon the income account of the two funds for the next six years, their anticipations, briefly stated, being that on trustee banks there would be a deficiency in 1903 of £85,735 rising to £128,479 in. 1907, and the falling again to £85,862 in 1908, as to interest on the fund accumulated by the Deficiency Annuity was set free for income account, and rising subsequently as deposits increased; and that on Post Office Savings Banks there would be a deficiency in 1903 of £136,811, rising to £237,133 in 1908, and continuing to increase thereafter. That was the serious prospect which the Committee had to face. The figures were 1167 calculated upon the assumption that certain amounts of new money would be placed on deposit in these banks every year, and that interest would be attainable on all new deposits at the rate of 2⅝ per cent. The Committee then went on to state—It may be observed that such a rate could not be obtained from Consols which stood at 90 on 16th July, 1902, unless they were purchased at an average rate of 95¼, and that Mr. Daniell, the broker of the National Debt Commissioners, is doubtful whether it can be safely anticipated;and on the facts before them the Committee suggested that unless something was done the deficiencies to which he had referred might actually be exceeded.
Under these circumstances the Committee set to work to consider what might be done. They examined and rejected various proposals which had been made, and which were set forth in the Committee's Report. They considered and rejected the suggestion that the area of investments should be enlarged. They examined into the question of the expenses of management, and decided that the expenses were very moderate, and could not be further reduced—a view with which all who had watched the transactions with the banks would agree. They also considered whether there was any force in the contention which had been put forward in the course of the debate to some extent by the hon. Member for South Islington, and in a more uncompromising form by the hon. Member for the Rushcliffe Division. The Committee were of opinion that what the depositors mainly had regard to was the security for their money and the readiness with which it could be made available when required, and they gave reasons for not believing that a trifling reduction in the rate of interest would seriously discourage thrift. In this matter he was wholly of the opinion of the hon. Member for North Islington, that if they desired to encourage thrift it was at the beginning that the encouragement was most important. Whilst he agreed with the promotion of thrift as a matter of great national importance, both from a social and political point of view, he was bound to say that he did not think the subsidising of these trustee or Post Office savings banks was the best way to promote thrift, even if 1168 money was available for the purpose of promoting thrift. It was not the best way, because it might be withdrawn at any moment. A good deal might be said for assisting people to make provision for illness and old age, but they had no kind of security that the money would be reserved for those conditions, for it might be withdrawn at any moment. He thought it was a great mistake to assume that the money in these banks was wholly the money of poor people. On the contrary, a great part of it was the money of the well-to-do, who had taken advantage of the raising of the amount that might be deposited in one year. In the course of 1903 there was an increase of less than £100,000 in the case of trustee banks as compared with an annual increase of £500,000, which the Committee presided over by the right hon. Gentleman the Member for West Bristol thought it fair to take as the basis of the calculation, and the money due to the depositors in the Post Office Banks increased by £1,395,000 in the same year, as against an increase when securities fell, and money was cheap, in one year of £10,000,000.
§ *MR. McCRAE (Edinburgh, E.)
asked if the right hon. Gentleman would give the number of depositors?
§ MR. AUSTEN CHAMBERLAIN
said it did not matter from his point of view whether the money was deposited by a great or a small number of people.
§ *MR. McCRAE
thought the number had a great bearing upon the point as to whether the poorer classes were continuing to deposit or not.
§ MR. AUSTEN CHAMBERLAIN
said he did not doubt that fewer people were continuing to put money in the savings banks. What he stated was that the money in the savings banks was by no means confined to the poor people. Hon. Members had quoted from a 1169 pamphlet which compared the amount of savings per head in savings banks in this country with foreign countries. He did not think simple comparisons of that kind led to any satisfactory results as to the state of the prosperity of the people, because they left out of consideration a great number of circumstances which must be considered before any fair conclusion could be drawn from them. He had put before the Committee the state of affairs as foreshadowed by the Select Committee, and he had told the Committee of the remedies for that state of affairs which the Select Committee had examined and rejected. Having rejected their alternatives the Committee proceeded—For these reasons they consider that such a reduction in the rate of interest to depositors in savings banks as would suffice to meet the deficits that may be caused by the fall in the interest on Consols might be carried out without diminishing the inducements to thrift or injuring the trustee savings banks.They estimated the sum required for the reduction at one-eighth per cent, (assuming the amount of earnings of new money for the next six years to be as already given), provided that certain other charges were made. This would turn the deficiency previously anticipated into a small surplus and place them in a solvent position independent of any annual grant from Parliament. The expenses of management were moderate and could not be reduced. The legislation which they recommended was not carried through, but he thought everyone would desire to see it carried and he intended to introduce a Bill to deal with it. The Committee recommended—(1) That the income of the Trustee Banks Fund should be increased by the interest on the securities purchased by the Deficiency Annuity, the annuity being extended for about ten years in consequence.(2) That the expenses of the Post Office Savings Banks should be diminished by making the entry in the depositors' pass book a legal acknowledgment by the Postmaster-General of the receipt of deposits under £1, the Central Office ceasing to send an acknowledgment by post to the depositor.(3) That both trustee and Post Office banks should be relieved of the obligation to send a notice to depositors whose balance exceeds £200, that such balance will be invested in Government stock unless otherwise directed, the balance being allowed to remain without 1170 earning interest until the depositor otherwise directs.As to these three recommendations he thought there would probably be no difference of opinion, and he hoped they might be treated in a non-controversial spirit. The proposal for a reduction in the rate of interest was more contentious and more likely to give rise to debate in the House. He had already expressed the opinion that there ought not to continue, as a permanent condition of affairs, a state of things in which the taxpayer had annually to vote a Grant in Aid on account of these funds to make good the difference between the interest that was paid to the depositors and the interest which the State was able to earn by investing the depositor's money. The question arose whether that was going to be permanently the condition of things or was it merely a temporary state of affairs which was diminishing year by year and which might possibly, within a reasonable time, pass away altogether. The Select Committee said it would be impossible to anticipate that it would be otherwise than permanent, but circumstances had changed very materially. Consols were now about 86¾ and were not likely to see a great rise. But that was not all. It was perfectly clear now that all the new money in the savings banks could be invested so as to pay certainly 3 per cent, or over in annuities under loans, local loans, stock, etc. They had to provide a considerable amount of terminable annuities which formed a very satisfactory investment, and he thought that for the next six years there were good prospects for all new money paying 3 per cent. Under these circumstances he had had the calculations of the Select Committee remade. They had been able to invest their money already on better terms than the Committee thought possible. The result of the recalculation was to show that in 1903 the deficiency on trustee savings banks account was £76,000 instead of £86,000, as anticipated by the Select Committee, and on the Post Office banks £108,000 odd, instead of nearly £137,000. That was to say that on the two funds they were nearly £38,000 less badly off than the Select Committee anticipated, and in future years he anticipated no difficulty in investing new money at 3 per cent.
§ MR. AUSTEN CHAMBERLAIN
said the hon. Gentleman would perhaps have patience and allow him to pursue his argument. In order to make it clear he must be allowed to state the considerations which the Committee would have to bear in mind. The Select Committee's calculation was based on the rate at which they could invest new money and the amount of new money which would be received. He anticipated no difficulty in getting a higher rate on the new money; but, on the other hand, he did not think it safe to allow for as much money as the Committee thought it reasonable to anticipate. They made their calculation on the supposition that new money in trustees' banks would increase by £500,000 a year and Post Office bank's by £2,000,000 in 1902 and 1903, by £2,500,000 in 1904 and 1905, and by £3,000,000 in each subsequent year. Any estimate of this kind was very speculative, and, as a matter of fact, the actual increase in 1902 in trustees' banks was £643,585 and in Post Office banks £4,212,172. In 1903 the increase in trustees' bank was £93,479 and in Post Office banks £1,394,912. So that it was more than the Select Committee estimated in each case in 1902 and less than they estimated in each case in 1903. This year there had been special circumstances to induce withdrawals or to cause money to be invested elsewhere owing to the great cheapness of high-class securities and in the extent to which municipalities were taking money on deposit—not, he thought, an altogether commendable proceeding. Under all the circumstances he had recalculated the deficiencies on the assumption that the present rate of interest was maintained to depositors and that new money was invested at 3 per cent. On this assumption a deficiency on trustee banks would be £95,000 in 1904, would fall to £11,000 in 1905, to £2,000 in 1907, and by 1908 would have rounded the corner and would have become a surplus of £3,000; and that in the case of Post Office banks the deficiency would be £118,000 in 1904, and would fall in the course of six years to £71,000. The Committee would see that these figures were much more favourable than 1172 the anticipations which were placed before the Select Committee. Of course, the doubtful element in the calculation was the amount of new money they were going to receive. In taking the figure for the two banks at the average of £1,500,000 a year he had been, he thought, rather under-sanguine than over-sanguine; and, though he admitted it was pure speculation, and he had no right to speak with any authority, if he had been under-sanguine the figures of the accounts would be even more favourable and the deficiency would be still further and more quickly reduced than he had anticipated. Under all these circumstances, and after giving the matter the most anxious consideration he could, he had come to the conclusion that he would not be justified in proposing, under these entirely altered conditions and with entirely different prospects now, to reduce the rate of interest paid to depositors. He repeated his concurrence with the Committee and with his right hon. friend the Member for West Bristol that they were not called upon permanently to subsidise these banks or permanently to pay the depositors a rate of interest which the Government could not earn themselves. But he thought it would be admitted that they ought not, especially when they had regard to the large surplus paid into the Exchequer on account of Post Office savings banks during many years, to lower the rate of interest unless there was a permanent necessity for doing so. They ought not to do it merely upon a temporary difficulty, and that argument would be strengthened when he reminded the Committee that the lowest reduction they could make, one-eighth, would even in the first year take from the depositors more money than they needed to balance the accounts, and in every subsequent year a great deal more than was needed. Under all these circumstances, he had come to the conclusion that, while it was necessary for the Government to introduce a Bill in order to carry out the other recommendations of the Select Committee, it was not his intention to propose any reduction in the rate of interest. He hoped that, in the altered circumstances, the deficiency would be rapidly reduced, and that before very long it might be altogether abolished. When the Bill came before the House he 1173 hoped he should have the general support of Members on both sides.
§ SIR M. HICKS BEACH (Bristol, W.)
said he desired to congratulate his right hon. friend on the extremely clear and able statement he had just made to the Committee, and he thought there would be general satisfaction with the attention which he had devoted to a difficult and complicated, but most important, subject. Two years ago this subject gave him very great anxiety as Chancellor of the Exchequer. He felt that the income of both classes of savings banks would be reduced by something like £250,000 in April, 1903, by the reduction of the rate of interest on Consols, in which so much of the money of the depositors in those banks had necessarily been invested. The calculations of the Select Committee were based on the best evidence that was obtainable from the experts at the Treasury and the National Debt Office, from the Government broker, and from other sources as to the probabilities of the future in this matter. Any one could see now that those expectations had been entirely falsified. He hoped the expectations of his right hon. friend the Chancellor of the Exchequer might be more fortunate for the benefit of the savings banks, though whether that would be a fortunate thing for the country, when Consols were standing at such a figure as 86½, was a matter on which a good deal might be said from different points of view. To-day, however, they were only dealing with the position of the savings banks. He wished to dissociate himself as strongly as he could from the doctrine laid down by the hon. Member for Nottingham that these banks ought to be subsidised by the State. They were a great advantage to the country, but they were, after all, only one form of thrift, and he did not think it was a form of thrift that ought to be subsidised. He did not think the taxpayers should be called upon to bolster up the rate of interest paid to the depositors in this class of banks beyond the point which their deposits could earn when properly and safely invested on behalf of the taxpayers in whose hands they were placed as bankers, and not as trustees. Therefore, if he thought that the prospects held out by the evidence taken by the Committee, and summarised in their report, 1174 were likely to be fulfilled, he could not agree with the decision of his right hon. friend not to reduce the rate of interest as the Committee recommended. But he must frankly say, having presided over that Select Committee, and having devoted very great care and attention to the matter, that, if they had known, if they could have foreseen, what had actually happened in this matter, he did not think they would have arrived at the recommendation to reduce the rate of interest by one-eighth per cent. His right hon. friend, in his closing remarks, had given a very strong argument against any such proposal at the present time. One-eighth per cent, did not seem much, but one-eighth per cent, on the enormous amounts of deposits that were held by the State in behalf of the depositors in connection with these banks came to a very large annual sum; and to reduce the rate of interest paid to these depositors by a sum which was obviously greater than the loss which, in a few years to come, it was probable the taxpayers would sustain by paying the present rate of interest, would, to his mind, be a policy which would not be justified.
He did not wish to quote any of the figures which the Chancellor of the Exchequer had placed before the Committee in regard to the calculation of what was likely to happen in the future. That right hon. Gentleman, of course, had gone to the best authorities—he had no doubt gone to precisely the same authorities as had been drawn upon by the Committee. He did not wish, he had no right, to question these authorities or the calculations and estimates of the position at which the right hon. Gentlemen had arrived with the best advice at his command; but he could only say—and this was the sole object with which he addressed the Committee—that he thought the right hon. Gentleman was justified in the conclusion at which he had arrived, that he did not intend, in the present session, to reduce the rate of interest. But he hoped his right hon. friend, should he remain long enough in his office, would keep this question in his mind. He was glad to hear his right hon. friend state strongly his opinion that the depositors ought not to be subsidised at 1175 the cost of the taxpayers; and should the right hon. Gentleman occupy his present position next year, and should he find at that time that his calculations, either as to the price of Consols or the new money which the savings banks would receive, had been falsified, he hoped the right hon. Gentleman would have the courage to come down to the House and state that he proposed to decrease the interest, although that day he had held his hand in the interests of the depositors. He himself did not doubt that there were two sides to this question of the position of the depositors in the savings banks. No doubt a very large number—a large majority—consisted of the very class for whom the savings banks were intended. No doubt those banks did an enormously valuable work in promoting the beginning of thrift; but they were also used—especially the trustee banks, in connection with which his right hon. friend the Member for Islington, had taken such an active part—as a mere means of investment by not a few persons who were perfectly capable of looking after their own affairs, and who did not want to be urged to thrift, or to any inducement to thrift. That had been absolutely proved, as was manifest to anybody who looked at the Report of the Committee, by the fact that when the rate of interest had been for a time increased, or when either through investments in corporation securities, or in any other way, the were able to obtain a better interest for their money, there had been large withdrawals from the savings banks in order that such investments might be made. He believed it was largely due to that fact that less money had gone into the savings banks in the last few years than in previous years, when the rate of interest was very low in the country. But there was another reason. He was afraid that all of them had not as much money as they had some years ago; and he hoped the Chancellor of the Exchequer would consider that matter also, and likewise consider whether from the decrease in new investments in the savings banks he might not learn lessons, in the future, of economy in national expenditure.
§ Mr. SYDNEY BUXTON (Tower Hamets, Poplar)
said he need only offer a few 1176 words on this matter. The Chancellor of the Exchequer had made out a perfectly unanswerable case for not dealing with the question at this moment. Under present conditions, and looking to the short future, the deficiency to fall on the taxpayers would not be equal to any reduction that might be made on the interest, and therefore the reduction on interest would be to the profit of the taxpayers at the expense of the depositors. But he was bound to say that he thought the statement of the Chancellor of the Exchequer was very depressing indeed, when the right hon. Gentleman stated that the average deposits in the savings banks were not increased in the proportion he had hoped. The right hon. Gentleman had based his figures on a low estimate of the new money to be deposited; and the right hon. Gentleman said that if the deposits were decreased he would be able to make a larger profit. He had heard with considerable alarm that the right hon. Gentleman had based that estimate on the suspicion that the price of Consols would be very low for some years to come. He desired to enforce what had fallen from the late Chancellor of the Exchequer, the right hon. Member for West Bristol, that they ought to look to any Government in office to turn their principal attention to the question of national economy, so that the burden of taxation on the people should be relieved. He believed the present Chancellor of the Exchequer could have done nothing else than he had promised to do; although the Committee could have come to no other conclusion than that at which they arrived, in the circumstances under which they met. Unfortunately the circumstances were now different, because they (the Committee) based their Report on the then price of Consols, and the limited area of investments. The only good which had arisen out of the present financial condition was that investors in the savings banks would be able to receive their current rate of interest for some time to come.
§ *MR. BRIGG (Yorkshire, W.R., Keighley)
said he was glad the Chancellor of the Exchequer did not see any necessity for lowering the rate of interest in the saving banks. This decision would be received 1177 with great satisfaction indeed in his con stituency. He was glad the late Chancellor of the Exchequer, although he did not agree entirely in all the present Chancellor had stated, confirmed what he had said as to the grounds on which he looked at this question. Circumstances which had arisen had no doubt given a large amount of anxiety to those gentlemen who took an interest in this subject; for it appeared that if a lower rate of interest was obtained from Government securities it would not be possible that small investors could receive the same rate of interest as at present, and something would have to be done. Happily, they were saved at the present time from that position, by virtue of having dear money. They must bear in mind that they were dealing, in connection with these banks, with the poorer class of people, and it would be a great satisfaction to them to think that they could make their investments with confidence, believing they had the power of the Government behind them. There were other savings banks besides the banks they were now considering. He himself knew a local savings bank with an accumulated capital of £13.000,000. It paid a fair rate of interest but its investments were of a very different kind to the investments of the Post Office Savings Bank. He was rather surprised that the Chancellor of the Exchequer should not have suggested that the Commission might consider the question of extending the area of the investments of the Post Office Savings Bank. As far as the large number of people who were saving money in small sums were concerned, it was a matter of the greatest importance that they should have confidence in the savings banks; and as long as the investments remained as they were that confidence would be maintained.
MR. GIBSON BOWLES (Lynn Regis)
said he trusted that the Committee or Chancellor of the Exchequer would not entertain the idea of extending the area of the investments of the savings banks. The principal if, not the only, thing that a depositor in the savings banks looked to was the safety of his money. The rate of interest was a secondary matter. What the depositor wanted was 1178 to feel that the strong box into which he put his money was strong; and it would be most unsafe and, in his opinion, most improper for a State savings bank to extend the area of its investments beyond the limits already reached. In his opinion, those limits were already too large and he was in favour of reducing them rather than increasing them. As to the manner in which the savings banks were to be treated, he confessed he was still of opinion that the recommendations of the Committee were sound. The ex-Chancellor of the Exchequer admitted that the circumstances were now so changed that the recommendations were not at present fully applicable. He did not agree, he thought on the whole that the views of the Committee were founded on considerations which were likely to be permanent; and they were more likely to be sound than the views of the present Chancellor of the Exchequer. He supposed the right hon. Gentleman derived his information from the Government broker, who had already shown himself not quite certain in his predictions. His own opinion was that whatever happened the State ought not to pay any considerable amount for the upkeep of savings banks. He passed from that to what he considered to be rather a serious feature in the Estimates. He did not know whether the Committee realised that they were now asked to pay two years deficits in one year on the trustee savings banks and the friendly societies. In the present year's Estimates, a sum of £48,619 was taken for trustee savings banks and friendly societies. Now they were asked, to vote in the same financial year a further sum of £76,287 for the trustee savings banks and £13,003 for the friendly societies. Consequently they had in the same year one year's deficiency on the Estimates and another year's deficiency as a Supplementary Estimate. He thought the right way would be to put the deficiency either on the year's Estimates or to leave it out of the year's Estimates and put it on the Supplementary Estimates. His opinion was that it ought to be put on the year's Estimates, because, firstly, he was dead opposed to Supplementary Estimates of any kind; and, secondly, because he did not think the reason assigned for putting it on the 1179 Supplementary Estimates was sufficient. That reason was that they could not exactly ascertain the precise amount of the deficiency until after the Estimates had been made up. But an attempt in that direction was made last year, and he did not think it was very far out. They had no explanation as to why they were now asked to provide two years deficiencies in one year.
§ MR. AUSTEN CHAMBERLAIN
said he gave a full explanation on the point but the hon. Gentleman was not in his place. He came in later.
MR. GIBSON BOWLES
said he was very sorry that he missed the explanation of the right hon. Gentleman, and he only trusted it was satisfactory. Certainly as a general rule it could not be right to put two years charges into one year's Estimates, and he hoped in future that the deficiency would be put either in the year's Estimates or in the Supplementary Estimates.
§ MR. BUCHANAN (Perthshire, E.)
said he was present when the Chancellor of the Exchequer made his explanation; but the right hon. Gentleman's justification was confined to his action in bringing forward the Supplementary Estimate. The right hon. gentleman said that it was for the convenience of the House that the matter should be considered at the present time, possibly with a view to legislation; but the right hon. Gentleman did not make any attempt to deal with the point raised by the hon. Gentleman the Member for King's Lynn as to why the Committee was asked to vote services for two years in one Supplementary Estimate. As regarded the ensuing year he observed that there was no Estimate for this purpose. That might be the natural consequence of the fact that they were now voting services for two years in one Supplementary Estimate. It was another instance of the way in which the Estimates were introduced. It led to confusion both at the moment and in the future when any comparison of expenditure over a series of years was attempted. The Estimate before the Committee was put down under Class 7 although it should be under Class 6. He assumed that was a misprint.
§ THE FINANCIAL SECRETARY OF THE TREASURY (Mr. VICTOR CAVENDISH,) Derbyshire, W.
said it was a misprint. His attention had been called to it.
§ MR. BUCHANAN
said, as far as he could gather from the Chancellor of the Exchequer, there would undoubtedly be a deficiency in the ensuing year and for several years to come. Surely, the right hon. Gentleman ought to be able to give an Estimate.
§ MR. AUSTEN CHAMBERLAIN
said, as far as he knew, an Estimate had never been presented to the House of Commons until after the savings bank year had ended. Then an Estimate was presented for the sum required to make good the deficiency during the savings bank year. Therefore it was only possible to make provision for the deficiency within the current financial year by means of a Supplementary Estimate or by an original Estimate at the beginning of the next financial year. If the hon. Gentleman wanted a sum to appear on the original Estimates next year it would be the sum he was now asking for. It had been the practice during the whole of the time that his right hon. friend the Member for West Bristol was Chancellor of the Exchequer and during the whole of the time that he was Secretary of the Treasury to provide the sum by a Supplementary Estimate. He thought it desirable to bring the matter before the House at the earliest opportunity.
§ SIR M. HICKS BEACH
explained that when he came into office he found it was the practice to take the Vote for the deficit of the trustee savings bank—in those days there was no deficit in the Post Office Savings Bank—in the original Estimates of the year; but as it was impossible to tell the actual result until the close of the savings bank financial year he gave directions to have the Vote for the purpose included in the Supplementary Estimates, and that had been done during the time he was Chancellor of the Exchequer. For some reason which he could not understand that practice had not been followed last year.
§ MR. BUCHANAN
said he quite understood, but he still maintained that they 1181 ought not to be asked to vote the two items in one year. The advantage of the practice adopted by the right hon. Gentleman to himself was plain. The right hon. Gentleman saved in the Estimate £250,000. He was glad to be assured that there was no immediate urgency for the reduction of the interest, and that it was possible by a temporary measure to avoid it in the immediate future. As he understood, the 2½ per cent, interest was guaranteed by the Government, for no particular fixed term, and it being a Government guarantee could not be altered until altered by Parliament.
§ MR. AUSTEN CHAMBERLAIN
said he proposed to revert to the practice of his right hon. friend, which he thought the wiser course, Why it had not been followed last year he was unable to explain.
§ SIR FREDERICK BANBURY (Camberwell, Peckham)
hoped the Chancellor of the Exchequer would not extend the investments in savings bank securities. Depositors in savings banks desired two things—security for their money, and power to be able to realise their deposits at any moment. If the savings banks were allowed to extend their investments in order to obtain a higher rate of interest they might find it difficult to realise when they desired to, with the result that the depositor might be unable for a long time to withdraw his money.
§ MR. AINSWORTH (Argyll)
threw out for the consideration of the Chancellor of the Exchequer the suggestion that when a depositor's account in the Post Office Savings Bank reached £100 everything over and above that amount should be automatically invested in Consols in the name of the depositor. Such a system, he thought, would mean a saving to the ratepayers.
§ *SIR EDGAR VINCENT (Exeter)
congratulated the Chancellor of the Exchequer in having come to what he considered was a wise decision. In a matter of this kind it was extremely difficult to foresee what a few years would bring forth. Throughout the world there had been a fall in the level of all first-class 1182 securities, and it was highly probable that in a few years, instead of showing a deficit, the Post Office Savings Bank account would show a surplus. He objected to the criticism of the Vote as something in the nature of a subsidy. This payment of interest was a guarantee by Act of Parliament. Even if it were a subsidy there was no purpose for which he would sooner vote money than to encourage thrift among the working classes. [Hear, hear!] As sums like £20,000,000 sterling were voted freely for non-remunerative purposes, it seemed somewhat pedantic to criticise in a tone of virtuous indignation a Vote of £150,000 or £200,000 which might possibly lead to a considerable increase in national thrift, and as a consequence, to a considerable increase in national wealth. There was a lack of preparation in such an attitude. A further point in respect of which these banks were entitled to consideration at the hands of the Treasury was that they had been very good clients in the past. Not only had the rate of interest been less than the rate at which money could be raised elsewhere, but the large sum in the hands of the Government had greatly facilitated the operations of the Treasury in respect of Debt Commissioners. For these reasons he would be sorry to see too niggardly a spirit displayed by the Treasury towards depositors in the various savings banks.
§ MR. LOUGH
said that in this matter the Chancellor of the Exchequer was following a course which for seven years past he had strenously advocated in the face of much opposition. The whole of the agitation in favour of reducing the rate of interest arose from the cheapness of money during certain years, and his contention had always been that in a matter of so much importance they ought to take, not the experience of a few years, but the experience of the whole country over a long period. He entirely agreed with the decision at which the right hon. Gentleman had arrived. The other recommendations of the Committee were most reasonable, and everybody would agree as to the desirability of carrying them into effect, but any proposal to reduce the rate of interest would be received with great displeasure in the country. It should not be forgotten that 1183 with a population of 40,000,000 or 42,000,000, there were more than 11,000,000 depositors in these banks; and that consequently, if any deficiency had to be made good, these 11,000,000 depositors would bear a large share of taxation, so that it was merely putting money into one pocket and taking it out of the other. The Estimate itself, however, he regarded as very unsatisfactory, and no good reason had been given for the form in which it was presented. He desired to know whether the note at the bottom was strictly accurate—that the Estimate provided for the deficit only to 30th November, in the case of the friendly societies, and to 31st December in the case of the savings banks.
§ MR. AUSTEN CHAMBERLAIN
explained that the Estimate was to make good the deficiencies for the last completed year of each class of bank. Their respective financial years ended on the dates given.
pointed out that the point to which the hon. Member was referring had been already fully discussed.
said that that point had been fully discussed and dealt with, he believed to the general satisfaction of the Committee. The hon. Member was not entitled to take advantage of his absence to inflict upon the Committee arguments which had already been dealt with.