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Mr. McKay : No. To give the hon. Gentleman his due, financially his arguments are right but morally he is wrong. The Government are saying to ordinary people, "We shall tell you where to put your money." I would not have the arrogance or the cheek to tell people what they should do with their money.
Mr. Quentin Davies : On a point of order, Mr. Deputy Speaker. I have not been a Member of Parliament all that long, but am I not right in thinking that a convention of the House is that when one hon. Member refers persistently and critically to another hon. Member he should allow the hon. Member to whom he has referred to reply?
The hon. Member for Stamford and Spalding (Mr. Davies) is right as regards finance but morally he is wrong as regards the attitude that is being taken towards the £10 premium bond. We want to give little people the chance to do exactly what they want. However, the Government are steamrollering them into the ground. All that they want to do is to buy £10 premium bonds.
Mr. Quentin Davies : On a point of order, Mr. Deputy Speaker. Do you not agree that for one hon. Member to be accused three times in a speech by another hon. Member of being morally wrong--I repeat morally wrong--is serious and deserves the right of reply?
Mr. McKay : Have you ever had the feeling, Mr. Deputy Speaker, of being harassed? I feel that I am being harassed and steamrollered. About 25,000 people sent me here to represent them and to act as the voice of ordinary people. I shall continue to do that. Small savers in my constituency have asked me to put their point of view, and I intend to do so. The Government ought to have more on their mind than worries about the £10 premium bond.
The Economic Secretary to the Treasury (Mr. Peter Lilley) : This has been a fascinating debate, not least because, as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out, it has told us about the Opposition's priorities and the general satisfaction that they manifestly felt for the bulk of the contents of the Finance Bill. That is why they have given priority to the precise means by which we make announcements about changes to the value of premium bonds.
The hon. Member for Islington, South and Finsbury (Mr. Smith) began his speech in a statesmanlike fashion by spelling out the history of premium bonds. I shall not, therefore, have to repeat it now, although it may be necessary later to recapitulate their history. The present position has scarcely been mentioned by the Opposition Front Bench spokesman--that the Government are repaying debt rather than borrowing, net, from the public. In such circumstances, it is appropriate for the Government to reconsider their public finance priorities.
Our national savings priorities should be to improve the quality of the borrowing and the way in which we finance debt. That means relying increasingly, where we can, on committed long-term savings rather than on extremely liquid instruments that can instantly be withdrawn, or withdrawn at little cost or loss to the saver, and that therefore are more likely to increase the liquidity of the economy and the level of consumer spending in the economy.
Mr. Chris Smith : If the Economic Secretary is worried about the instant withdrawal of premium bond holdings during the last 20 years, is he able to say whether the pattern has fluctuated during that period?
Mr. Lilley : I cannot do that. However, £300 million was put into premium bonds last year and £134 million was withdrawn. As well as coming in, money goes out. Every premium bond holder has a legal right instantly to withdraw his money. That is what determines the quality of the saving. One can never be sure that the money will not be withdrawn in certain circumstances in large amounts by large numbers of people.
It cannot be disputed that instant access can be had to this money. That has always been a feature of premium
Column 845bonds and the advertisements refer to it. That must be one of the attractions of premium bonds. A considerable number of people have had small quantities of premium bonds given to them, or have bought small quantities, and have then lost the certificates. We cannot base Government finances on the hope that people will lose their certificates.
Mr. James Couchman (Gillingham) : My hon. Friend says that money is put into and goes out of premium bonds at short intervals. Is he able to tell me the average length of holding of a premium bond? I presume that he is basing much of his argument on the volatility of this form of saving to justify his case.
Mr. Lilley : I am sorry that if during the brief period that I have been speaking I have already managed to mislead my hon. Friend. I have not said that it is highly volatile. I have said that it is highly liquid, in that everyone has the right to withdraw his money, a right that is not enjoyed with certain other assets. In the management of the Government's debt we are particularly concentrating on encouraging an increasing amount of money to be permanently, or at least for the longer term, committed to savings rather than to easy and ready access. We are not basing it on a particular analysis of the statistical habits of savers. Experience shows that, although money can apparently be stuck in particular forms of saving for quite a long time, there can be considerable outflows in general extension rate money. Our first priority is to improve the quality of the Government's debt. The second must be to reduce the costs. As a number of hon. Members, including my hon. Friend the Member for Stamford and Spalding (Mr. Davies), have pointed out, it costs about £2 per transaction, regardless of the amount of money that is put into premium bonds. Consequently, that must be taken into account when considering the minimum amount that people should be permitted to invest or save in that form.
I have said in the past that only some 12 per cent. of the money raised is in amounts of £100 or less. The Opposition have made great play of that and have suggested that I was trying to cover up the fact that about 80 per cent. of the number of deposits is in sums of less than £100. But that is precisely the point. The cost is roughly the same whatever the amount, so 80 per cent. of the cost raises only 12 per cent. of the money. That should not pass without notice by the Department for National Savings and we have duly taken it into account in reaching the decision to raise the minimum amount that anyone can invest in National Savings.
The hon. Member for Islington, South and Finsbury asked whether administrative costs overall were very low. He gave the figure of some 1.1 per cent. of the gross amount invested in premium bonds as the costs every year. That figure is roughly correct, but it is 1.1 per cent. of the total stock invested, not of the amount going in each year. He mentioned the 1,300 staff employed by the Department for National Savings, but quite a lot of additional staff accounting for quite a lot of the costs are employed by Girobank, providing the transaction facilities which represent a high proportion of the total estimated cost of some £2 per investment. The hon. Gentleman also suggested that the 1.1 per cent. was low compared with unit trusts and other investment media. It strikes me as a not abnormal figure for managing investments. I have seen higher and lower in the private sector. It is only right that
Column 846the Department for National Savings should be seeking constantly to minimise its costs consistent with providing a decent and fair service.
The hon. Member for Kirkcaldy (Dr. Moonie) asked me to give a comparison of the administrative costs of national savings products. I happily do so. The costs for ordinary accounts are on the high side--about 3 per cent. of the amount invested every year. On the other hand, the costs for savings certificates are at the low end of the scale--only about 0.5 per cent.--and likewise for income bonds. The figure for premium bonds is 1.1 per cent. and for investment accounts it is roughly 2 per cent. So premium bonds are roughly in the middle of the spectrum of the Department for National Savings' costs. There are plenty of opportunities available to small savers to save their money instead of premium bonds if they do not wish to accumulate £100 before putting money into premium bonds. Those opportunities are provided by the Department for National Savings and in the private sector. There are opportunities for a higher yield, less risk and a better quality in other Department for National Savings products. To mention just one within the Department for National Savings' range of products, amounts as small as £5 can be deposited in investment accounts where the gross rate of interest is 10.75 per cent. There are similar opportunities in building societies, Girobank and so on.
Why do the Opposition believe that there should be made available to small savers in particular a form of savings which is risky, which they have described as gambling or a flutter, when Parliament, in its wisdom, has always seen fit to forbid the private sector to provide any comparable product?
We have thought it wrong that any private bank, building society or other institution should make available to the general public--large or small investor--any opportunity to invest their money and flutter in the interest that money yields. Are the Opposition demanding that that parliamentary restriction, that prohibition on gambling in interest and offering forms of saving and investment where the investor gambles on whether he will receive any interest, should be available in the private sector? Are they asking us to liberalise the private sector to increase those opportunities? I give way to the hon. Member for Islington, South and Finsbury, if he wishes to reply, before giving way to his more daring colleague.
Mr. Lilley : I shall not comment on Barlow Clowes, but we go to great lengths to ensure the safety of individuals' investments in the private sector. Hon. Members on both sides of the House would wish that to continue. We do not want unnecessary and unwarranted risks to be run by large or small investors, but I still await an answer to my straight question. If it is such a good thing, why do the Opposition still support the parliamentary prohibition on anyone in the private sector offering that facility to replace the element of it which is being withdrawn by the public sector? I have received no reply, so I must note the inconsistency in the Opposition's argument.
Mr. Quentin Davies : My hon. Friend has set out a sensible case in the most compelling fashion. Does he agree that it is surprising to hear the Opposition advancing specifically the view that financial rationality is fine and desirable when applied to the investments and portfolios of large investors, but somehow does not apply to the small guy? It is particularly shocking to hear that line of argument advanced by what used to be regarded as the party of the people.
Mr. Lilley : My hon. Friend is absolutely right, although I am not quite sure that any of us thought of the Opposition as the party of the people. They have demonstrated a lack of concern in putting forward that argument today about the security, safety, riskiness and yield of small savings by the least well-off savers with the least amount of money available to put at risk.
Mr. Lilley : The prospect of not getting any return on one's money-- that is insecure, and it is the very nature of the asset. That brings me to risk. In Committee I enunciated with no great clarity the law of large numbers, as I termed it and thought that it was generally known, to the effect that if one invests a lot of money in a risky product such as premium bonds the likely yield has less deviation from the average than if one invests only a small amount. That was disputed by several Opposition Members. My hon. Friend the Member for Beaconsfield stated the position extremely clearly, both in the beginning of his speech, when he put it pithily, and in the numerical examples that he gave of how a large investor will receive a regular series of returns whereas a small investor may receive nothing or a large amount.
Mr. Allen McKay : The Minister is still missing the point on premium bonds. The majority of people I know who have premium bonds bought for them or who buy them themselves only keep them for a short period. Even if they have not won and accepting that they have lost interest, they receive a lump sum which they can invest somewhere else. That is the magic of it. That is what people were encouraged to do.
Mr. Lilley : I will not dispute for an instant what the hon. Gentleman says, although he has blown a torpedo through the point that his hon. Friends were making because they said that the money was never withdrawn or was held for a long period. He is saying that in his and his constituents' experiences the money is withdrawn after a short period.
Dr. Moonie : The Minister cannot tell us whether bonds are held for a long period or not because he does not have that information. However, let us go back to the mythical law of large numbers. I stated clearly that no statistician would disagree that the more bonds held, the greater the chance of winning. However, the amount added for each additional bond is the same. There is no magical way in which the probability increases geometrically with a larger holding.
Mr. Lilley : The hon. Gentleman referred to the mythical law of large numbers and I saw his hon. Friend the Member for Wrexham (Dr. Marek), who is a distinguished mathematician and probably more so than any other hon. Member in the Chamber and certainly
Column 848more so than myself, flinch at that reference. The law of large numbers is not a political law in dispute in the House, but part of the way creation has been made. If one has £10,000, the average return each year will differ from the 6 per cent. average across all premium bonds. The deviation from that average will be smaller than for the little chap who has only £10 or £100. That is the point I was making. If one has only £10, it is all or nothing. For many years there is no return at all, but after 116 years my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) is confident of getting a return. That is what I call a high degree of risk. My hon. Friend may die before then, although I have equal confidence with him in the ability of the National Health Service to keep him alive for that time. My hon. Friend the Member for Beaconsfield made it clear that if one has £10,000 one can expect a prize most months, so the return most years will average roughly 6 per cent. One would not have to wait 150 years before seeing that average achieved.
That is the reason why we do not think that it is a form of investment for the very small investor, investing small amounts which may represent quite a high proportion of savings, that we should go out of our way to encourage and facilitate even to the extent of implicitly subsidising small investors. Those investors are imposing the greatest costs on the system. We do not, therefore, find the Opposition's argument convincing.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) asked why, if premium bonds were such a bad investment, we encouraged people to do more rather than less of such saving. At first sight, he has posed a convincing little paradox. However, there are two points to take into account. First, the return to different investors depends on their tax position. The person who pays no tax will receive only 6 per cent. on average over the investment, which is the pool that is put aside. Obviously, such an investor could receive more if he invested in a gross product--such as investment bonds which, as I mentioned, provide 10 per cent. and on which he would pay no tax. A basic rate taxpayer would get that amount less 25 per cent., which is still more than premium bonds provide. For high rate taxpayers, after paying 40 per cent., 6 per cent. is not too bad a return. For the high yield taxpayers, it is more attractive--that is why we put an upper limit of £10,000 on the amount put in. We should not make unlimited tax-free investment opportunities available to the higher rate taxpayer. For the basic and higher rate taxpayers, premium bonds are more attractive than for non-taxpayers and, typically, non-taxpayers are able to put in only very small amounts.
Secondly, the risk in large numbers is less, as I have already said. Anyone putting in a reasonably large amount receives a more guaranteed average amount back over a period of years than a person who puts in a little. The large investor, of course, is better able to look after himself and less a matter of concern for Government than the small, least sophisticated investors. That is why we are happy to let the bigger investors, who make a reasonable return at reduced risk and at lowest cost to the Government, put in money, rather than encouraging small investors, who are making an inadequate return in respect of their tax position, running a higher risk and imposing the greatest cost on Government. That is a consistent view. One issue raised in the course of general discussion in the country as a whole is whether we are impeding syndicates from operating and preventing groups of
Column 849people getting together, as it appears that they have done in various parts of the country, to put in £1 or £10 per week, pooling the risk and sharing the prizes. The Department for National Savings has never given any recognition to unofficial syndicates and makes it clear to any who inquire about running a syndicate that it recognises only the registered holder of the bonds--the individual in whose name they are bought--as sole owner. Nevertheless, the department is well aware that many such syndicates exist and it has never prevented individuals from buying premium bonds on a syndicate's behalf. If members of syndicates are keen to continue to buy premium bonds, I can only suggest that they save up to £100 for each purchase, but for many syndicates that would mean making less frequent purchases, although they could continue to operate.
The Opposition also made an important point about encouraging savings. They said that surely it was important to encourage saving and that surely we wanted to see more personal saving in the economy as a whole. We do indeed, but we are in the happy position where it is not the Government who need to borrow those savings. We want to see savings available to finance the investment boom that industry is currently enjoying. That is why in the Budget my right hon. Friend the Chancellor of the Exchequer concentrated his fiscal incentives on improving the private equity plans to encourage savers to put savings directly into investments in British industry. That is where such savings are needed, as my hon. Friend the Member for Esher (Mr. Taylor) pointed out. We need savings, yes--but Government borrowing, no.
If the Government were to boost the amount put into premium bonds, given their requirement to run up a public sector debt repayment of some £14 billion this year, the more they draw in from there, the more they would have to repay of other forms of saving. It would be absurd for us to encourage a lower quality of saving only to find ourselves forced to repay higher quality forms of saving. That cannot be right and would not be sensible. I cannot think that the Opposition have thought the matter through.
The Opposition's attitude to premium bonds has changed dramatically. When the scheme was first introduced, back in 1956, the then Leader of the Labour party, who is now Lord Wilson of Huyton, talked of Britain's strength, freedom and solvency depending on the proceeds of a squalid raffle. James Simmons said that the Labour party had been built up by appeals to the ideals and high aspirations of our people, and that premium bonds were the very opposite of the Socialist principle of putting service before self. Premium bonds were described as a cheapjack idea, and the Chancellor was urged by Dr. Horace King to reconsider.
Mr. George Howarth (Knowsley, North) : The Minister quoted Harold Wilson, who represented part of my constituency at one time. He was wrong on two counts. First, Harold Wilson was not the Leader of the Labour party in 1956 and, secondly, he is Lord Wilson of Rievaulx.
Mr. Lilley : I apologise to the House for my two errors. However, Lord Wilson of Rievaulx was wrong far more frequently than I have ever been, and his views as expressed then were in conflict with the views of the Opposition today. I can only suggest that the hon.
Column 850Member for Islington, South and Finsbury (Mr. Smith) explains this great volte face and tells us why what was described as "a squalid raffle" is now so important that it should be made available to those who are the least well-off, the least sophisticated, have the least tax advantage in taking part and who cost most to the Exchequer if they invest their funds in this way. I cannot believe that there is a satisfactory answer to these questions and I therefore ask the House to reject the new clause.
Mr. Chris Smith : Nothing could demonstrate more clearly Conservative Members' sense of priorities and the sort of world in which they live than the remarks of the hon. Member for Beaconsfield (Mr. Smith), who said that this was a small and trivial matter, and of the hon. Member for Stamford and Spalding (Mr. Davies), who said that this was a tertiary issue. We are talking about a matter that is of interest to the 24 million holders of premium bonds. This matter is far more important to most of them than the entire contents of the rest of the Finance Bill put together. If the hon. Member for Stamford and Spalding wants to find tertiary issues, he need only open the Bill at virtually any page. He will find tertiary issues aplenty in clause after clause of a Bill that is largely composed of such issues. Premium bonds are not a tertiary issue for the many hundreds of thousands of people who are extremely concerned about their future ability to buy premium bonds in quantities that they can afford.
That is the issue at stake in the new clause and Opposition Members make no apologies for introducing it because it deals with a matter of great concern to many ordinary people who have never been, who never will be and who never aspire to be directors of Morgan Grenfell but who are concerned about their ability to do what they want with their money. Those are the people for whom we speak and it is on their behalf that we have tabled the new clause.
I want to deal with the points of substance that the Economic Secretary raised. I strongly disagree with him about syndicates. Many people get together in informal clubs--usually at the workplace--to contribute a small amount each week towards the joint purchase of premium bonds which are then allocated to the individuals in the club or syndicate. That is a common form of saving and it is very popular. The change that the Government are making acts powerfully against those people's interests, because at a contribution of, say, £1 a week it will now take a long time for each member of such as syndicate to be entitled to receive a premium bond for his weekly contribution. What is possible now on a relatively short timescale will become much more difficult and take much longer in future. The principal argument that the Economic Secretary advanced was that he wanted to increase the quality of the Government's debt. He said that the important thing was for the Government to rely for their finances on long- term
Column 851savings and on money that could not be withdrawn instantly. Yet when we challenged the Economic Secretary about the pattern of withdrawals and accruals to the premium bond account over a period he was unable to give us an answer about the long-term flow and long -term stability of premium bond funds. That is the key. Of course, potentially, premium bonds can be withdrawn instantly. Potentially, every single premium bond held could be withdrawn tomorrow if the holders of premium bonds so wished. But that has never happened and it is very unlikely to happen. It is by the overall pattern over a period that we must judge the stability of the financing available to the Government through this form of savings.
The Economic Secretary also said that there were plenty of other opportunities available to small savers and that by removing the possibility of purchasing premium bonds in relatively small amounts the Government were not removing the possibility of other forms of saving, which the Economic Secretary said, somewhat implausibly, provided a higher yield with less risk. Of course, other forms of small saving present less of a risk, but the potential yield from a premium bond investment-- especially the yield from a small premium bond investment--is very great. That is precisely why many people want to purchase premium bonds even if it is only on a small scale. My hon. Friend the Member for Kirkcaldy (Dr. Moonie) spoke about his mother-in-law, who he said had won two or three times on a holding of less than £17. My hon. Friend described precisely the sort of opportunity of which those who purchase premium bonds seek to avail themselves. People do not purchase premium bonds because they know that they will get a regular return. They do so because they believe that they might, at some stage in the future, turn lucky and win big. That is why people want to save by means of premium bond purchases. The opportunity--the potential--that premium bonds offer them is completely different from that offered by other more regular and more guaranteed forms of saving.
By introducing the change, the Government are removing that opportunity from small savers. The Government are fond of lecturing us about choice and the need for customers to be able to decide for themselves what to do with their money. Here is an opportunity for the Government to allow people who do not have £100 to invest in premium bonds but who want to purchase some none the less because of the opportunity that it gives them to do so. Here is the Government's chance to restore the position that they changed on 1 July and make available to small savers the chance to buy premium bonds in the way that they wish. The Government have removed that opportunity from them. We wish to restore it to them.
Question put, That the clause be read a Second time :
Column 852The House divided : Ayes 195, Noes 266.
Division No. 292] [6.39 pm
Abbott, Ms Diane
Adams, Allen (Paisley N)
Archer, Rt Hon Peter
Ashdown, Rt Hon Paddy
Banks, Tony (Newham NW)
Barnes, Harry (Derbyshire NE)
Barnes, Mrs Rosie (Greenwich)
Beith, A. J.
Benn, Rt Hon Tony
Bennett, A. F. (D'nt'n & R'dish)
Bray, Dr Jeremy
Brown, Gordon (D'mline E)
Brown, Nicholas (Newcastle E)
Brown, Ron (Edinburgh Leith)
Buckley, George J.
Campbell, Menzies (Fife NE)
Campbell, Ron (Blyth Valley)
Campbell-Savours, D. N.
Clark, Dr David (S Shields)
Clarke, Tom (Monklands W)
Clwyd, Mrs Ann
Cook, Robin (Livingston)
Cunningham, Dr John
Davies, Rt Hon Denzil (Llanelli)
Davies, Ron (Caerphilly)
Davis, Terry (B'ham Hodge H'l)
Dunwoody, Hon Mrs Gwyneth
Ewing, Harry (Falkirk E)
Ewing, Mrs Margaret (Moray)
Field, Frank (Birkenhead)
Foot, Rt Hon Michael
Garrett, John (Norwich South)
Godman, Dr Norman A.
Golding, Mrs Llin
Grant, Bernie (Tottenham)
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Harman, Ms Harriet
Heffer, Eric S.
Hoey, Ms Kate (Vauxhall)
Home Robertson, John
Howarth, George (Knowsley N)
Howell, Rt Hon D. (S'heath)
Hughes, John (Coventry NE)
Hughes, Robert (Aberdeen N)
Hughes, Roy (Newport E)
Jones, Barry (Alyn & Deeside)
Jones, Ieuan (Ynys Mo n)
Jones, Martyn (Clwyd S W)
Kaufman, Rt Hon Gerald
Kinnock, Rt Hon Neil
Lestor, Joan (Eccles)
Lloyd, Tony (Stretford)
McKay, Allen (Barnsley West)
Mahon, Mrs Alice
Marek, Dr John
Marshall, David (Shettleston)
Marshall, Jim (Leicester S)
Martin, Michael J. (Springburn)
Michie, Bill (Sheffield Heeley)
Michie, Mrs Ray (Arg'l & Bute)
Moonie, Dr Lewis
Morris, Rt Hon A. (W'shawe)
Morris, Rt Hon J. (Aberavon)
Oakes, Rt Hon Gordon
Orme, Rt Hon Stanley
Owen, Rt Hon Dr David
Pike, Peter L.
Powell, Ray (Ogmore)
Quin, Ms Joyce