5 NS&I
76. Established in 1861, NS&I was originally
known as the Post Office Savings Bank. It became a Government
Department in 1964, then an Executive Agency of the Chancellor
of the Exchequer in 1996, and was re-branded as NS&I in 2002.
NS&I is one of the largest savings organisations in the UK,
with investments of over £97 billion at the end of March
2009 (representing 12.24% of National Debt) and annual flows in
excess of £35 billion.
77. NS&I's vision is "securing a better
financial future for our customers by providing the most valued
and trusted savings experience."[118]
However, as confirmed by its mission statement, it is part of
the UK's debt management arrangements:
Our overall aim is to help reduce the cost to
the taxpayer of government borrowing now and in the future. With
this in mind, our single, long-term strategic objective is to
provide the Government with cost-effective retail finance compared
with raising funds on the wholesale market.
Future challenges for NS&I
78. As we noted in section 2, from September 2009
NS&I successfully processed a record amount of new business
as—at the height of the economic crisis—customers
prized Government-backed security for their savings over the higher
interest rates offered by commercial savings institutions. These
exceptional circumstances posed a particular dilemma for NS&I
which, as presently constituted as an Executive agency of the
Treasury, has to tread a fine line between providing a good deal
for its customers (its vision) and supporting Government macro-economic
policy (its mission). During 2008-09 the risk to the Government
was that NS&I was becoming too attractive to customers, at
a time when it was seeking to re-inject confidence into the commercial
banking system. Equally though, closing NS&I to new business
could also jeopardise public confidence and hence financial stability.
Jane Platt, NS&I's Chief Executive, explained to us the reasoning
at the time:
In August of last year we were on track to be
raising £4 billion of net financing for the Treasury, which
was the agreed amount we had set off to raise. After the Lehmans
crisis it was very, very clear that we were going to be receiving
a large volume of unsolicited funds coming into NS&I, and
at that point we had to make a decision. Do we stay open for business
and allow net financing to rise very well above the amount we
had previously agreed, or should we actually stop not only marketing
our products but also allowing people to invest in them.[119]
The solution agreed between the Treasury and NS&I
was for NS&I, during the autumn and winter of 2008-09, to
"cease all discretionary marketing but stay open for business…Because
you could imagine what would have happened if NS&I had not
been open for business at a time when people were so concerned
about their savings." [120]
NS&I also reduced its interest rates across its product range.
For example the interest rate on premium bonds fell from 3.4%
on 1 May 2008 to 1.0% on 1 April 2009. Fixed interest savings
certificates offered at 3.5% AER in June 2008, were available
at 0.95% AER in February 2009.
79. At one level this was a pragmatic response to
a tricky dilemma, essentially aimed at curbing the volume of new
business by ensuring that NS&I did not draw attention to itself.
It does though show that, at the bottom line, the NS&I is
there for the Government rather than customers. We put this assessment
directly to Exchequer Secretary Sarah McCarthy- Fry MP, who endorsed
it:
Q529 Mr Brady: Can I ask what NS&I's top
priority for the future should be? Is it there to provide value
for its customers or to support government macroeconomic policy?
Sarah McCarthy-Fry: The sole aim of NS&I is to
reduce cost to the taxpayer of Government borrowing now and in
the future, and they do that through the sale of savings and investment
products to the retail market.
Q530 Mr Brady: So it is not there for its customers;
it is there for Government macroeconomic policy?
Sarah McCarthy-Fry: That is the purpose of it, and,
obviously, if they can help their consumers and their customers—they
do not set out to be the absolute best buy, so in that sense they
are not setting out to attract the customers. Their aim is to
reduce the cost to the taxpayer of Government borrowing.
80. As we noted in section 2, and in other recent
reports, extremely testing economic times are by no means at an
end, and it is likely that NS&I's particular role and priorities
will continue to come under scrutiny. For example, so long as
Northern Rock exists as a fully nationalised bank, NS&I's
unique selling point as the safest haven for savings appears compromised.
There is also the risk that, as confidence in the commercial sector
returns, the NS&I will experience a 'flight from safety.'
Equally, so long as interest rates remain low, and commercial
savings institutions remain under pressure to recover their positions,
NS&I will be vulnerable to accusations that its more attractive
products constitute unfair competition. It is noteworthy, in this
context, that NS&I's net financing target for 2009-10 is to
maintain a neutral position. NS&I and the Treasury will have
to steer a careful course over the next few years.
Siemens contract
81. NS&I signed a public/private partnership
contract with Siemens in 1999 for ten years, subsequently extended
to fifteen years, for the provision of operational services such
as call centres and back office product processing. Noting that
the amount paid to Siemens had increased by about £20,000
during 2008-09, we sought confirmation that this contract represented
value for money. Steve Owen, NS&I's Channel Delivery and Management
Director, confirmed to us that he was satisfied that Siemens was
not making excessive profit, asserting that "we did a great
deal of work to ensure the amount we paid to Siemens was the correct
sum"[121] and
that "we do continue to monitor on an ongoing basis."[122]
He also explained, in more detail, that:
…The other element that gives me confidence
that the amount we paid is not excessive is that we can compare
it with the average costs at the original tendering back in 1999
to see if we were paying more or less per transaction or per customer
than we were when we went to the market for a competitive tender.
And we are actually paying significantly less than we were back
in 1999 per customer or per transaction.[123]
Post Office contract
82. Finally, we asked NS&I about the future of
its relationship with the Post Office. The Post Office is currently
NS&I's core distributor, selling NS&I products over the
counter and through postal sales. As the table below shows, a
disproportionately large amount of the additional NS&I sales
during 2008-09 were conducted over the counter at the Post Office.
Jane Platt told us that "last year the percentage of business
that we did through the Post Office was about 60%"[124]
explaining that "there was definitely a discernible trend
that because people were very concerned about security overall,
it was important for them to have the physical transaction and
a piece of paper that was stamped in the Post Office when they
actually invested their savings."[125]
Table 8: Sales performance by principal
channels[126]
83. In the future, NS&I expects to reduce its
dependence upon the Post Office as it looks to develop other channels—postal,
telephone and internet. So, in 2009-10, when, as noted previously
NS&I is aiming to balance inflows and outflows, without any
overall business growth, it is expecting the percentage of business
conducted through the Post Office to fall to 50%.
84. Whilst it is perfectly reasonable for NS&I
to focus on its own future, its plans to reduce its dependence
upon the Post Office do play into a wider debate about how best
to secure the future of the Post Office network. The Government
provides a Social Network payment to sustain the Post Office network
which amounts to £150m a year. Last year, at the behest of
the Government, the Business, and Enterprise Committee[127]
considered what services could be provided by the post office
network to secure its future viability. In its report—"Post
Offices—securing their future"—the Committee
noted the disjunction between the Government's recognition that
the Post Office network performs a vital function and individual
departments' actions in reducing use of the post office to drive
down their costs. The Business and Enterprise Committee concluded:
it is bizarre that government policy recognises
the value of the network, but that individual departments do not
see that they have a role in making sure that everybody, not just
the web enabled, has access to their services, and that taking
this seriously by using the post office network more could contribute
to wider policy aims...[128]
Whilst we recognise that it may make business
sense for NS&I to move away from the Post Office, it is a
Government-owned body. We recommend, therefore, that the Government
considers whether there is a wider public interest in retaining
stronger links between the Post Office and NS&I both to ensure
that all sections of the public have easy access to NS&I products
and to help secure the future of Post Offices.
118 National Savings and Investments, Annual Report
and Accounts 2008-09, July 2009, HC 470, p 2 Back
119
Q 39 Back
120
Q 39 Back
121
Q 57 Back
122
Q 58 Back
123
Q 58 Back
124
Q 62 Back
125
Q 65 Back
126
National Savings and Investments, Annual Report and Accounts
2008-09, July 2009, HC 470, p 20 Back
127
Now the Business, Innovation and Skills Committee Back
128
Business and Enterprise Committee; Eighth Report of Session 2008-09,
Post Offices-scrutinising their future, HC 371-i, para
85 Back
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