Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

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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