Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 1-19)


19 OCTOBER 2005

  Q1 Chairman: Mr Cook, may I welcome you back to the Sub-Committee? Can you introduce yourself formally, and your assistant, please?

  Mr Cook: Alan Cook, Chief Executive of National Savings and Investments, and I am joined by Trevor Bayley, who is Finance Director of National Savings and Investments and also Deputy Chief Executive.

  Q2 Chairman: In your Annual Report and Accounts, which forms the basis for our session today, you refer to last year as being "another successful year". Where in the report and accounts are your sales figures?

  Mr Bayley: Page 34.

  Q3  Chairman: You mean the chart on page 34?

  Mr Bayley: Yes.

  Q4  Chairman: Is it not rather odd, in 76 pages of accounts, not to have your sales figures totalled?

  Mr Cook: I think it is clear what the achievement is. Our focus has always been—well, here they are, actually. "Gross sales of all National Savings and Investments products", £11.06 billion—in the little blue box to the right-hand side of the page.

  Mr Bayley: The little table beneath the chart.

  Q5  Chairman: Which page are you at?

  Mr Bayley: Page 34.

  Q6  Chairman: If we look at the chart though, if you add up these columns it looks as if last year you did £9.4 billion sales whereas the previous year was £11.1 billion. That is a fall of 15%. What puzzles me is why you describe this as "another successful year", if your sales have fallen 15%. Can you help us on that?

  Mr Cook: I am just looking at it now.

  Q7  Chairman: Normally, trading organisations publish their figures and put the previous year's figures alongside them. You have not totalled the table, have you?

  Mr Cook: No, we have not totalled the table. You are correct.

  Q8  Chairman: Is that because you did worse than last year?

  Mr Cook: The net growth, as you know, in the organisation was some £2 billion in terms of total funds invested in the organisation.

  Q9  Chairman: So why were sales lower?

  Mr Cook: These are pure sales to brand-new customers; there is a lot of business which rolls over at the end of a term. For example, if you take out a five-year bond, at the end of the five years you have an option to take the money away or roll it over. So your net financing, the total amount invested, is an end product of both your sales and your retention of the existing business.

  Q10  Chairman: I just want an answer to why there were actually fewer sales than there were in previous years. Is it because of the economic decline?

  Mr Cook: No. In the previous year we increased the maximum on Premium Bonds from £20,000 to £30,000, and that produced a huge boost in sales in May of that particular year. I think we took £1.4 billion in that month alone. So there was a huge, pent-up demand, if you like, which was a one-off effectively—where customers who had held £20,000 worth of Premium Bonds had the opportunity to go to £30,000, and that did produce a significant increase in Premium Bond sales that year.

  Q11  Chairman: You see, you have had to tell us all that. It might have been useful if we had a table of the previous year's sales, so that we could compare like to like.

  Mr Cook: Point taken.

  Q12  Chairman: There have been recent reports in the media that you have had a policy of cutting your interest rates, to cancel out the tax breaks that are available on the tax-free products, so that the tax foregone is actually priced into the interest rate offered.

  Mr Cook: We have not been cutting interest rates. That has always been the pricing policy ever since I have been with the organisation, in fact prior to the last quinquennial review. We have 12 products for sale; seven of them produce a taxable return; five are tax-free. One of those tax-free is an ISA, which is the same as anybody else would sell in the market. The other four are unique to National Savings and Investments and are tax-free, and the cost of the tax foregone to the Exchequer has always been priced into the return that the customer gets.

  Q13  Chairman: So the minutes published under the Freedom of Information Act, the minutes of June the previous year, the unnamed board member saying, "We priced in the element of tax foregone on the tax-free products"—is that not accurate?

  Mr Cook: That is what I am saying. We do price in the element of tax foregone, but—

  Q14  Chairman: You do price in the tax foregone?

  Mr Cook: We do.

  Q15  Chairman: When did you start doing that?

  Mr Bayley: Certainly pre-1999.

  Mr Cook: 2000 was the last quinquennial review, and it was in place then. It has certainly been in place ever since I have been with the organisation.

  Q16  Lorely Burt: I would like to continue about the decline in sales, and also the products that you have. On page 34 it shows that Post Office and direct postal sales, which accounted for approximately 80% of sales, declined by about 25%. I wondered what analysis you have done of the reasons for the 15% decline in the sales of products.

  Mr Cook: In general or in the Post Office do you mean?

  Q17  Lorely Burt: I am particularly interested in the post offices. I wonder whether it has got something to do with the reduction in the numbers of Post Office outlets.

  Mr Cook: I guess the objective of National Savings and Investments has been to broaden and diversify distribution. At the time I joined the organisation some 90% of sales were through the Post Office. My position has always been that I would like that level of absolute sales from the Post Office to continue as far as is possible, but also for us to seek alternative routes to market; primarily, over the last 18 months, through the telephone and through the internet. Everything we can do to keep Post Office sales at their current level would be more than welcome, but the Post Office also have their own aspirations in financial services and, in some instances, they have products that are similar or comparable to our own. For example, our guaranteed equity bond we no longer sell through the Post Office, because they have their own—branded as Post Office. It is a very constructive relationship, however, and one where we are working together to make sure that the best result for both organisations is achieved.

  Q18  Lorely Burt: To what degree would you think that the decline in the physical number of post offices has contributed to the decline in sales?

  Mr Cook: I am not an expert in which post offices have closed, but the vast majority of sales activity for National Savings and Investments is focused in the larger Post Offices. I could not give you the precise percentages, but most of the action is focused in the big, directly managed branches—which have not been closing, as I understand, to the same degree. So I would not equate a relationship between the number of the Post Offices per se. Clearly there must be some relationship, but I think that it would be pretty modest.

  Q19  Lorely Burt: Perhaps I could ask you about your figures for 2005-06. What impact would you say your internal sales have on your overall sales figures, given the dramatic rise in sales by the website since the re-launch in January this year?

  Mr Cook: What impact? I am sorry?

  Chairman: Internet sales.

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