I beg to move, That the Bill be now read a Second time.
This is a short, technical Bill, which clarifies and amends the law on the investment and borrowing powers of trustee savings banks. The law governing the activities of trustee savings banks is contained mainly in two statutes—the Trustee Savings Banks Act 1969 and the Trustee Savings Banks Act 1976. The 1969 Act was a consolidation measure. The 1976 Act extended the powers of trustee savings banks so that, in line with the recommendations of the Page Report on National Savings, they would extend their range of services and develop as a third force in banking.
I should like to make it clear that this Bill marks no change in the Government's policy towards trustee savings banks. The need for this Bill arises, unfortunately, because doubts have arisen about the effects of the 1976 Act. The purpose of this Bill is to make the law clear beyond doubt.
I think that it would be most helpful to the House if I explained the effect of the three substantive clauses, and the need for them.
Clause 1 declares for the avoidance of doubt that trustee savings banks may invest their funds freely, except as restricted by statute. In practice, the statutory restrictions are tight. Moneys deposited in trustee savings banks' ordinary department have to be invested with the National Debt Commissioners in accordance with Section 12(1) of the 1969 Act and, under Section 13 and Schedule 3 of the 1976 Act, the Treasury controls the investment of other sums owed to depositors, that is money deposited in cheque accounts and the various investment account facilities. Depositors' balances with trustee savings banks currently total about £4·6 billion, about £1·7 billion being in ordinary department savings accounts, and about £2·9 billion being in the new departments.
But the main purpose of the clause is to put beyond doubt trustee savings banks' powers to lend long term on the security of a mortgage. It was thought that Section 9(1) of the 1976 Act, which gave trustee savings banks the power
to carry on the business of banking".
would allow trustee savings banks to do mortgage lending. But sufficient doubt has been expressed about this—because it appears that banks do not in practice lend money to customers secured on a mortgage for periods as long as, say, building societies to make it necessary to clarify the law.
It is necessary to do this now not because trustee savings banks in general are planning to commence long-term mortgage lending—indeed, they have no immediate plans for doing so—but because one trustee savings bank, the Birmingham Municipal Trustee Savings Bank, has done some mortgage lending. The Birmingham Municipal Trustee Savings Bank is the successor body to the old Birmingham Municipal Bank, which always did mortgage lending and became a trustee savings bank only on the understanding that as a trustee savings bank it would be able to continue with its policy of doing a limited amount of mortgage lending. At the time of its change to a trustee savings bank on 1st April 1976 advances secured by a mortgage totalled about £9 million. These mortgages have not yet been transferred from the Birmingham District Council to the Birmingham Municipal Trustee Savings Bank, although it is intended that they should be transferred as soon as trustee savings banks' powers to do mortgage lending are clarified by the Bill. Since 1st April 1976 the Birmingham Municipal Trustee Savings Bank has advanced some £2½ million in loans secured by mortgages. Because of the doubts about trustee savings banks' powers to do mortgage lending, the granting of these mortgage loans must be validated retrospectively.
I should like to make it clear that it is not the mortgages themselves that have to be validated. It is the actual granting of the loans. The trustees of the Birmingham Municipal Trustee Savings Bank might otherwise be held to have acted in breach of trust in advancing loans secured by mortgages when they may not have had the power to do so. But the loans themselves are valid, and in the event of a default the security would be enforceable so that the loans would be recoverable. So we are merely concerned with a breach of trust on the part of the trustees and not with the validity of the actual mortgages granted.
Before my hon. Friend moves to Clause 2 will he explain Clause 1(3)? Does it mean that any loan on real security is validated'? It seems to me that there could be other grounds upon which a loan might be invalidated, such as improper valuations and wrong acts by the trustees. Does it necessarily have to be as full as the subsection makes it out to be?
My understanding is that this covers the actual validity of the granting of a loan. We are concerned here with the question of breach of trust. The valuation might not be correct. There may be other problems. But that does not go to the trust point, which is basic, in that if the valuation were not correct it would not necessarily follow that the loan was invalid and had to be validated. We are concerned simply with the question of breach of trust, which is validated. No doubt this point can be discussed again in Committee.
Clause 2 is required to correct an error made in the bringing into force of the 1976 Act. The 1976 Act is being brought into force gradually in a series of commencement orders. There have been four so far, and we are just about to make a fifth. The most significant of these commencement orders was the Trustee Savings Banks Act 1976 (Commencement No. 3) Order 1976 (Statutory Instrument 1976, No. 1829). This was made on 1st November 1976 and brought into force on 21st November the major part of the 1976 Act.
Critically to this Bill, this commencement order brought into force the repeal of Section 12(2) of the 1969 Act, which empowered trustee savings banks to operate special investment departments, and also the repeal of Section 13(1) of the 1969 Act, which provided, in conjunction with Section 13(4) of that Act, a definition of a "current account deposit". It was thought that these sections could be repealed because they were made redundant by the bringing into force of Section 9 of the 1976 Act, under which it was thought that a trustee savings bank would be able to continue to provide time deposit facilities, and of Section 12(1) of the 1976 Act, under which moneys placed in current accounts no longer had to be invested with the National Debt Commissioners.
Unfortunately, these two repeals had side effects which were overlooked at the time that the Commencement Order (No. 3) was made. Clause 2 enables trustee savings banks to carry on their business in the way that they and the Government intended, and as far as is necessary has retrospective effect. Perhaps I should explain this in more detail.
The repeal of Section 12(2) of the 1969 Act made it arguable that all deposits with trustee savings banks were ordinary deposits as defined in that same Section 12. Under the 1969 Act, as amended by the 1976 Act, all ordinary deposits—apart from the deposits, not exceeding 10 per cent. of the whole, which can be retained as "till" money—have to be invested with the National Debt Commissioners, and the trustee savings banks should pay no more than 4 per cent. per annum interest upon them. Strictly speaking, therefore, trustee savings banks have been acting ultra vires since 21st November 1976 in offering investment accounts, term deposits and so on. Their operation of investment accounts has to be validated retrospectively.
This element of retrospection does not detract in any way from anybody's rights. Indeed, it works for the benefit of trustee savings banks' customers. Investment account holders, who have been receiving up to 10 per cent. per annum interest on their deposits, will not complain because they have been paid more than the 4 per cent. laid down as the maximum rate of interest payable on ordinary deposits. Nor are depositors likely to complain that TSBs have built up their own investment portfolios rather than investing all their money with the National Debt Commissioners, and have offered certain new facilities—for example, personal loans—to their customers.
It is possible to put trustee savings banks' current accounts on a sound legal footing without recourse to retrospection. This can be done by a simple declaration for the avoidance of doubt
in Clause 2(2). Section 12(1) of the 1976 Act provided for moneys deposited as ordinary deposits to be placed to the credit of a current account not to be required to be invested with the National Debt Commissioners. But some doubt has arisen about the effectiveness of this provision because the repeal of Section 13(1) of the 1969 Act has effectively removed the definition of current accounts, and also because Section 12(1) of the 1969 Act is drafted in terms of
Save as otherwise provided by this Act …
As I have said, the doubts are very slight, but it seems sensible to clarify the matter in the Bill.
I have tried to explain the two main subsections, subsections (1) and (2). Subsections (3) to (5) are consequential to the amendments of definitions in the 1969 and 1976 Acts. The intention is to remove all reference to savings account deposits and current account deposits so that only one class of deposit is defined in the legislation—that is, ordinary deposits. It is these deposits that are subject to the requirement that they shall be invested with the National Debt Commissioners.
Clause 3 provides that trustee savings banks have the power to borrow, subject to obtaining the approval of the Trustee Savings Banks Central Board.
The 1976 Act left it unclear whether trustee savings banks have the powers to borrow. Sections 50 and 51 of the 1969 Act gave the trustee savings banks a limited power to borrow, but when these sections were repealed by the 1976 Act no alternative provisions were substituted. Since it is obviously desirable that trustee savings banks should be able to borrow, it seemed sensible to put the matter again beyond doubt in the Bill and at the same time to introduce adequate safeguards for the exercise of the power.
There was a doubt. Rather than rely upon that section, it seemed sensible to clarify the matter in the Bill and to make it absolutely clear.
I draw the attention of the House to just three points on the borrowing clause. For the purposes of the clause, borrowing does not include taking deposits from customers in the ordinary course of a trustee savings bank's business. There is, therefore, no question of a trustee savings bank having to seek the Central Board's approval for its normal business. The clause provides that no borrowing by a trustee savings bank may be secured. This is consistent with normal banking practice. Depositors' interests, therefore, will not be subordinated to those of other creditors.
Finally, and perhaps most importantly, trustee savings banks will not use their powers under this clause to change radically their mode of operations and become, perhaps, more like wholesale banks. The Treasury has agreed with the Trustee Savings Banks Central Board on how its powers of control over trustee savings banks' borrowing should be exercised. It will be made clear to the trustee savings banks that they will be allowed to do only a very limited amount of money market borrowing and that they would normally be expected to borrow on the money markets only to cover temporary liquidity crises brought on by sharp withdrawals of deposits.
I apologise to the House for the fact that my opening speech has been so detailed, but although very short, this is quite a complex Bill. I hope that a full explanation now of the purpose and effect of the three substantive clauses may help us to make better progress when it comes to considering the Bill in Committee. As I explained earlier, the Bill in no way represents a change in the Government's policy towards the trustee savings banks. It is a technical Bill, which I understand the TSB Central Board wants and is content with.
I ask the House to give the Bill a Second Reading.
I am sure that the whole House is grateful to the Minister of State for the clear way in which he has explained what is a rather complicated and technical little Bill. On both sides of the House, I think, we are admirers of the trustee savings banks. I do not think that that is in dispute. We wish them well. However, this Bill is the third legislative measure concerning the TSBs to come before the House in the past decade, the other two, as the Minister pointed out, being the Trustee Savings Banks Acts of 1969 and 1976.
In one sense, of course, this Bill is no more than a correction, in a variety of rather complicated respects, of poor draftsmanship by the Government in the wording of their 1976 Act. Although the Minister rather glossed over the point, it is clear from what he said that there were very serious drafting defects in the 1976 Act. We should note that and regret the fact.
Also, despite the technicality of the Bill and the narrowness, in one sense, with which it deals with these matters, it deals with a subject of great importance to the people of this country, and more particularly, perhaps, to those living in the North of England and Scotland, where TSBs play an even bigger role in life than they do in London and the South.
Overall, about one adult in every five or six in this country has an account with a TSB—about 8 million depositors in all. Their deposits amount to more than £4,500 million. Indeed, the TSBs—this is one of the reasons why we admire them so much—have been the only sector of the national savings movement to have achieved growth in savings in real terms in the post-war inflationary years. That is a considerable achievement. Therefore, any changes, however apparently small, in the law governing them demand our close attention.
The 1976 Act, as the Minister made clear, really revolutionised the whole structure and law under which the TSBs had in large measure operated since the Consolidation Act in 1863, and even before then. This revolution is rapidly becoming reflected in the practices of the TSBs, most notably in their introduction last August—after some delay caused by phase 2 of the Government's incomes policy—of their personal loans service, so that cheque books, overdrafts, foreign exchange, travellers' cheques, credit cards and, as the Minister made clear, perhaps mortgages in due course—although not immediately—are all now features of the new TSB service that is to be offered to the public.
Therefore, one can fairly say that the 1976 Act, which, of course, the Opposition supported, implemented many of the proposals of the Page Report on National Savings, published in 1973. It also had the effect of moving the operating procedures of the TSBs from the nineteenth century rather abruptly into the twentieth century, and they are in rapid process of turning themselves, under their Central Board, into what closely approximates to a joint stock bank, and one in terms of size of deposits not far behind Lloyds Bank and already larger than the smaller clearing banks.
The new legislation, of which this Bill is the latest example, has really turned the TSBs, now 19 in number, into the third force of banking. There is the private enterprise sector of banking—the joint stock banks—there is the public sector, consisting of the Giro and the National Savings Bank, which is still better known by the general public, I think, as the Post Office Savings Bank, and there is between them this mutual banking sector, consisting of the TSBs, which have their Central Board situated in Copthall Avenue, in the City of London, conveniently close both to the Bank of England and the Stock Exchange. This is, indeed, a far cry from the Dumfriesshire of 1810, where it all started.
Throughout the movement's cautious, honourable and almost wholly beneficial history, it has been what I think the authors of "1066 and All That" would undoubtedly have described as "a good thing." But we must take nothing for granted, and the Bill deserves close examination both in this Chamber and later in Committee.
If I understand Clause 1 aright—as the Minister went on with his explanations, it began to seem to me that the Bill was even more complicated than I had originally understood it to be—it clarifies the investment and mortgage lending powers of the TSBs. The Minister said that this clarification is necessary because the Birmingham Municipal Trustee Savings Bank, which, I mention in passing, is one of the many municipal monuments in Birmingham to the Chamberlain family, has always had power to lend on mortgage. But, as the Minister said, the remainder of the TSBs do not at present undertake mortgage lending. He went on to say that they have no immediate plans to do so.
Of course, implicit in what the Minister said is a very important statement indeed, because although the TSBs may have no immediate plans to enter the house mortgage business, they have been given legal power to do so, and the Bill clarifies that still further. Therefore, presumably, when the Minister said that the TSBs had no immediate plans to do this he was implying that sooner or later they are likely to do so, and that, presumably, is why they have been given these legal powers. This of course will bring them into direct competition with the building societies. Before we allow that to start happening in practice we would want an assurance that the trustee savings banks really do possess the necessary skills to operate in this entirely new field.
Building society operations are highly technical and professional and many men have spent their entire working lives in that field. The trustee savings banks may think that they can move into that market, but it is one of considerable political controversy at all times. One has only to read the article written by Mr. Kenneth Fleet, in the business issue of The Sunday Times last Sunday, or the leading article in the Financial Times on Monday this week to see that the whole position of the building societies is at present under most careful scrutiny. We should like a little more clarification from the Minister on the point about trustee savings banks moving into this mortgage field.
Clause 2 is required to clarify a serious matter. The Minister made it clear that a very serious drafting error had been made, and retrospective legal action had to be taken to put it right. The deposits held in investment accounts by way of term deposits by a savings bank have been ultra vires since 21st September 1976. This is a very serious drafting error which the Government have had to admit to the House.
On Clause 3, I want to pursue the interesting point raised by the hon. Member for Coventry, South-East (Mr. Wilson). He raised it about an earlier clause but it crops up at various stages throughout the Bill. Clause 3(1) says,
A trustee savings bank may borrow money from any source whatsoever with the approval of the Central Board.
We should like to know what the Government have in mind. Clause 2(1) and 2(1A) raise similar issues. On the face of it it looks as if the TSBs are being given unlimited borrowing powers and that they might be able to borrow, in certain economic circumstances, vast sums of money and use them to move into the mortgage field on a big scale.
The Minister of State told us that although the TSBs will have this great borrowing power—apparently uncircumscribed—they will be subjected to a Treasury directive on these matters, rather than legislation. Is that entirely satisfactory? Perhaps we could pursue that point in Committee. Would it be better for the proposed Treasury directive to be embodied in general terms in the Bill?
This Bill which we are being invited to use as a mechanism for putting right serious errors in and omissions from the 1976 Act inevitably raises the whole range of assurances that were given to the House when the 1976 Bill was before us. Arising from those assurances I shall now put certain additional questions to the Minister of State.
First of all, he will recall that the Finance Act last year—the first Finance Act of that year resulting from the eleventh Budget of this Government—raised the amount of interest that could be received free of tax by a depositor with a savings bank, whatever his marginal rate of tax, from £40 to £70. The Government have announced that they are withdrawing that tax allowance from 20th November 1979. Is that still the Government's intention? If so, will the necessary legislation be included in this year's Finance Bill—the thirteenth Budget—or will it be left to a Conservative Chancellor?
Secondly, the present Secretary of State for Trade when introducing the 1976 Bill in this House said on Second Reading:
The underlying securities at present show a deficiency of some £200 million because of a decline in market values over the long period during which the fund has operated. To give the authorities time to reduce and eliminate that deficiency the banks have agreed that this repayment should be phased over the expected seven years of the transition following the phasing out of the ordinary department".—[Official Report, 17th February 1976; Vol. 905, c. 1210.]
February 1976 was a few months before the IMF took charge of this Government's financial policies. British Government bonds were standing at depressed price levels, though they were not as depressed as they became as the year went on. Since then there has been a substantial recovery in the gilt-edged market. Has that recovery, as I would suppose, almost wiped out the £200-million deficit, and what are the Government's intentions on this matter? Is there now any need for this phased repayment over seven years? Has it been completed? If not, what is the time schedule involved for completion?
My third question involves the much larger sum of £1,500 million, excluding current account and other moneys, outstanding to the credit of the TSBs, which the Government have undertaken to repay to them. This amount is at present held in a portfolio by a body described by the Minister of State and other Government Ministers in a characteristically Freudian presentation as "the National Debt Commissioners". This body's correct title is the "Office of the Commissioners for the Reduction of the National Debt". It is not altogether surprising that Ministers who have borrowed more than £13,000 million overseas should have chosen to overlook that fact.
I understand that the Commissioners are planning to repay this £1,500 million to the TSBs in 15 half-yearly tranches over a seven-year period from 1979 to 1986, the first tranche is to be repaid on 21st November 1979. The reason for the long-drawn-out repayment procedure under the new arrangements set up in the 1976 Act has been delicately described as being "to avoid unsettling the market". In view of the recovery in the gilt-edged market since 1976 and the fairly rapid recent rise in the TSBs' reserves, is it intended to make the repayment of the £1,500 million more rapidly than originally envisaged? If not, why not?
My fourth question concerns the speech of the Secretary of State for Trade when he said in the House on 17th February 1976,
I have emphasised the importance of the banks building up their reserves at the same time as they develop their banking services for depositors."—[Official Report, 17th February 1976; Vol. 905, c. 1209.]
Am I right in saying that when the Secretary of State made that comment the reserves of the TSBs were only 2 per cent. of their deposits, and that a target was then set for them to reach a ratio of 7 per cent. of reserves to deposits by 1986? Is it also a fact that the reserves position of the TSBs has improved very markedly since 1976, and now stands at about 4.8 per cent.? If that is so, and if the 7 per cent. target figure is reached, as seems probable, well before 1986, will a higher target figure be set by the Government of the day, or is a 7 per cent. ratio deemed to be the ideal?
My fifth and final question to the Minister is: are the Government aware of the concern over the extent to which the TSBs, having been forced by trade union pressure to withdraw their service to the public on Saturdays, now find deposits being placed with the building societies, which open on Saturdays, rather than with them?
Was the last governmental word on this matter uttered by the Prime Minister yesterday at Question Time, when he advised everybody to bank with the Co-op? In that remark the right hon. Gentleman seemed to encapsulate the anxiety in the minds of many millions of depositors throughout the country ever since the Labour Party's national executive and its party conference committed a future Labour Government to nationalise all the banks.
I happen to have the document with me. It is Labour's "Programme for Britain 1976" and it is an official publication of the national executive of the Labour Party. The hon. Member for Liverpool, Walton (Mr. Heifer) is always telling us that what is handed down by the national executive must be regarded as the tablets of stone to be observed by the Labour Government.
May I, for the record, correct what the hon. Gentleman said? He said that Labour wanted to nationalise all the banks. That is not the proposition, and never has been. I suggest that he should do what I often advise many of his Conservative colleagues to do, and that is to read the original documents rather than the handouts from Tory Central Office.
I have read the Labour Party document from cover to cover, extremely carefully. If the hon. Gentleman will turn to page 20, he will see that it is clearly stated that
that is, the national executive—
called for action to ensure that institutional funds are steered towards investment in manufacturing. In 1971, however, Conference went much further than this and called for the nationalisation of the banks and insurance companies.
If that does not mean all the banks, I do not know what it does mean.
I refer the hon. Gentleman to page 20 of "Labour's Programme for Britain 1976". If I can have the hon. Gentleman's absolute assurance that his party does not intend to nationalise the banks, I shall be grateful to hear it.
Broadly speaking, the Conservative Party very much welcomes the fact that the recent legislation on the trustee savings banks is moving in exactly the opposite direction to that advocated by the hon. Member for Walton and his hon. Friends. The Bill's proposals are entirely acceptable to us in that sense because they reflect the recommendations of the committee under the chairmanship of Sir Harry Page, set up by the last Conservative Government. Those proposals have had the effect of increasing competition and of extending to millions of small savers a greatly extended and valuable range of banking services, particularly bearing in mind the fact that half the British people still do not carry a cheque book issued by any clearing bank. We favour the freeing of the trustee savings banks from the chains of Government by moving them gradually away from the skirts of the Commissioners.
We shall support the Bill, as we supported its predecessors. But many parents know that when they give their daughter a latchkey, they have to watch over her even more carefully than before. It is no secret, despite the eccentric views expressed today by the hon. Member for Walton, that many other Labour Members below the Gangway would like to put together the Giro, the National Savings Bank and the trustee savings banks to enlarge the public banking sector and to use their huge joint deposits—the savings of the people—as a form of creeping back-door nationalisation. The "Labour Programme for Britain 1976" makes no secret of that whatever. It makes no secret of the fact that there is a wolf at large. We in the Conservative Party believe that neither the trustee savings banks nor the joint stock banks should be cast in the role of Little Red Riding Hood. We give support to the general principles in the Bill, although there are many aspects of detail that we shall wish to scrutinise carefully in Committee.
As the House knows, I have supported the action taken by this Government, in quite the opposite direction from that described by the hon. Member for Horn-castle (Mr. Tapsell), as outlined in Labour's programme to free the trustee savings bank from the shackles of Government. The benefits to the consumer are already being seen, and this is a welcome development.
I hope that we shall give the Bill a speedy passage through the House—certainly those parts of it that are found to be necessary—because this will enable the banks to get on with the job and enable them to be masters in their own house, providing a wider range of service and greater competition in banking than now exists.
Having said that, my first reaction on seeing the Bill was one of intense irritation that it was even necessary. I and other Labour colleagues, particularly those in the Co-operative Group, have been pressing the Government to get other legislation which we believe to be vitally important through the House before the end of this Session. Therefore, it is profoundly irritating to us to find the time of the House being taken up with legislation which should not have been necessary. Some of us are very annoyed that we are now having to spend time on a Bill which would not have been necessary if a little more forethought had been given to the matter.
Having listened to the Minister and having examined the Bill, I still wonder whether some of its provisions are necessary. However, unfortunately, at the end of the day we shall, as always, have to take the advice of the lawyers. When the Minister says that it is not possible under Section 9(1) of the previous legislation for trustee savings banks to lend on mortgages, because that is not the normal run-of-the-mill banking business, I find that rather surprising. I have worked in two banking organisations. In the Midland Bank, for which I worked first, securities on mortgages were taken on a whole series of loans. Indeed, it is widely known that apart from mortgages given to customers by banks, all banks offer mortgages to their staff as the normal course of events. If there were any fear that Section 9(1) was not adequate to cover mortgages given by the trustee savings banks, the precedents which exist in all the clearing banks could have been used to justify the practice. I should be interested to hear the Minister's reaction on this point.
The Minister then said that the banks may not have power to give loans. He went into great detail, and perhaps when we study his comments and examine the relevant clauses we may find that he is correct. However it is staggering if the Minister is saying that we put through a Bill to give the trustee savings banks power to carry on banking business only to find that they have not the power to give loans. What a peculiar state of affairs.
That is why some of us are profoundly irritated to find that the Bill is necessary. If the banks do not have powers to make loans under the previous legislation, what the dickens were we playing at when we put the legislation through? They should have this power, and if it is not clear—and I should have thought that it was perfectly clear—the Government have been remiss.
The power to borrow which is being given was discussed at length in Committee and during the other stages of the previous Bill. During the discussions on how the banks were to be supervised, and what their powers were to be, there was no suggestion that the power to borrow or to make loans would raise any problems. I have to ask who has challenged the previous legislation. I have not found any evidence of the power being challenged. Who has questioned the power? Has it come entirely from within the Treasury or from within the banks themselves or has legal action been threatened against a trustee savings bank or the Central Board? Can the Minister give a little more evidence to justify the need for some of the clauses in the Bill?
The Minister said that the Bill is a small measure, but it has 20 subsections and is not as small as some Bills we have seen. It is by no means insignificant.
My right hon. Friend did not say anything about the general progress of the trustee savings banks in their transition and it would be useful to have a few general comments on how they are progressing and what developments are taking place. Are they recruiting the staff they need without difficulty? Are their new freedoms being exercised in the way that was expected? Is there a growth of business?
There was discussion on the earlier Bill about representation on the boards of trustees. Anxiety was expressed at the narrow range of people represented on the boards. It was pointed out that more than one-quarter of the trustees were aged over 70 and that 10 per cent. of them were aged over 75. An undertaking was given that the matter would be discussed with the trustee savings banks' representatives in order to broaden the representation to include trade unionists and others with a broader background so that the narrower representation could be changed and a much broader representation provided. I should be grateful if the Minister could comment on how this has developed.
My sympathy remains with trustee savings banks developing as rapidly as possible to provide a full range of competitive services, and I shall do all I can to speed the Bill on its way.
The very clarity of the Minister's introduction of the Bill made clear that it was necessary because two previous Bills were defective. Hon. Members have commented on this fact and it is becoming a feature of our proceedings that we have to legislate because of the defects of previous Bills.
The only solution is to legislate less. We attempt to do far too much. Gone are the days when Neville Chamberlain made his reputation by passing 24 Bills from his Department in one Session. The best epitaph that any Minister could have on his tombstone today is, "He was a very good Minister. He never introduced a Bill".
However, as the Bill has been introduced, I should like to discuss local savings and their disposal. Despite efforts to free them, the trustee savings banks are still under tight control of the National Debt Commissioners and the Treasury. I should like to see that control loosened to enable the banks to invest more locally. At present, trustee savings banks collect local savings, but then take them out of the places where they are generated. It is essential to channel local savings into local industry, trade, fishing, agriculture and so on and, possibly, mortgages.
Many regions with high unemployment have to look to smaller industries if they want more employment, and regional development is still important for this country. Unfortunately, savings banks are becoming less local.
I have some sympathy with the plea for the hon. Member for Thornaby (Mr. Wrigglesworth) that the composition of the banks' boards should be looked at, partly to broaden the pool from which they are recruited but also to keep their local contacts. We are talking not only of considerable sums nationally—about £4,700 million—but a surprising amount of savings that are collected in local savings banks. Such banks are regarded by many local people as the main means of saving, but the savings are taken out of the district.
In many places that have been short of capital, oil and, perhaps, redundancy payments, will bring in extra money and it is important that these funds should be reinvested in productive work in the areas where the savings have been generated.
Not long ago, I visited the 66 co-operatives at Mondragon in northern Spain, which are entirely run by the workers. Up to now they have been extremely successful, and central to their operation is the co-operative bank, the Casa Laboral Popular. It supplies a great deal of the capital and expertise. It collects the savings in Biscaya and channels them into local industry. That is exactly what I should like to see, but there is no equivalent in this country, and that is a serious defect in our regional and banking arrangements.
We take money out of areas such as the Highlands of Scotland, the North-East of England and South Wales and then set up elaborate machinery—such as the Highland and Islands Development Board and the Scottish Development Agency—to put it back. In the process, a lot of money is lost through administrative and other costs. It is illogical to strip savings from places that do not have enough capital and then set up large agencies to put the money back.
The same criticism applies to building societies. This is relevant because mortgages are included in the Bill. For years, no building society would give loans in remote parts of the country, particularly in my constituency, but when oil was discovered, they set up offices in prominent sites not to assist local inhabitants but to collect their savings and take them down to South-East England. It is still difficult to get building society loans in remote parts of the country and if the savings banks go into the business—and, if they have the expertise to do so, I would welcome that—they should lend in the places where they raise the money.
The question of skill available to the banks is a central question to my argument, but I believe that they should if necessary now be turning their attention to collecting the skills if they are to go into mortgages or local lending to industry. Certainly they should seek to gather the skills required for local investment. The local savings banks act in this way in Norway. They invest in local industry and have built up the skills which the ordinary bank manager in this country often has, to enable them to do this type of investment.
Up to now, under the tight regulations of the trustee savings banks' other savings, they have largely invested in Government stock. If it is said that my suggestion would be risky, I would point out that nothing has been more downright unfortunate than heavy investment in Government stock over the last 20 years or so. It cannot be said that the investors in the savings banks have got a good deal. I doubt whether they have anything like kept up with inflation. It is partly for that reason that the banks have now been organised to found a unit trust.
I wonder whether the banks are not going into the unit trust business at just the wrong moment. I fear that, like most unit trusts, they will put most of their funds into the big companies—apart from specialist examples, all unit trusts invest in ICI, Shell and so on—at the very moment when those big basic industries in this country will be more and more threatened by imports from Korea, America and other places, and Britain's economy may have to turn over far more into a new generation of industries. I doubt whether unit trusts will be in the van of that movement.
So if it is argued that the risk of my suggestion would be too heavy, I point to Norway and to the possibility of control. I would favour a separate form of deposit for local investment. I doubt also whether the present system has done much for the investor.
I would hate the right hon. Gentleman to develop an inaccurate argument. The trustee savings banks movement has had a unit trust since 1968 and already has over £75 million invested. That trust has done somewhat better than most of the Stock Exchange indicators.
I was not denying that. I know that the movement has had a unit trust for some years and that, as trusts go, it has done reasonably well. But I still doubt whether, taking account of inflation and so on, the investors would not have done better to buy whisky. Many pension funds are now turning to art. Those who clamour most for productive investment are often secretly buying up Impressionist pictures.
I have not examined the matter in detail but I should be surprised if the unit trust has done much more than keep up with inflation—if that. If it has done as much, it has done better than the investment of the House of Commons Pension Fund, of which I am a trustee, so I give it all praise. But those who invested in Government stocks over the last 20 or 30 years have not matched inflation.
So I am not against the TSB unit trust, but I wonder whether that should be the only form of equity investment open to the banks. One of the purposes of the banks, according to the 1969 Act, is to encourage thrift. I go along with that. It is very important to the Chancellor that as much money as possible should be mopped up by saving, but it might become part of the banks' duty to encourage local development as well. I hope that, if not in this Bill, as the banks gradually advance into new fields, the points that I have made will be kept in mind.
The Minister assured us that the Bill is a technical one to clarify the services which the trustee savings banks already thought that they could provide. To that extent, it will help the TSB movement. But it is an example of "If at first you don't succeed, try and try again". I hope that this time the parliamentary draftsmen have got it right and that the position of the trustee savings banks will be secure.
I agreed with much that my hon. Friend the Member for Thornaby (Mr. Wrigglesworth) said about the services which the banks might provide. The right hon. Member for Orkney and Shetland (Mr. Grimond) was right to stress the importance of the TSB movement to individual localities. They have grown up on that basis.
As the hon. Member for Horncastle (Mr. Tapsell) said, the movement originated in Dumfriesshire. I was a little bemused by what he said about 1066 because that date does not have the same connotations in Scotland as it does in England.
As a result of the Page Report and rationalisation in the last few years the number of individual banks is now down to 19 and there has perhaps been a growth in anonymity. I hope that some consideration will be given to the representativeness of boards of trustees. The movement will come up against a real problem here in the years ahead in involving lay people.
Although it is not at the moment envisaged that many of the trustee savings banks will want to undertake mortgage lending, I am sure that some of them will, in the near future. From discussions with trustees and management in the West of Scotland Trustee Savings Bank, I am sure that this is something that they would like to do.
I would certainly welcome such an intervention in the housing market. I hope that the trustee savings bank, with its local identity, will do what some of the building societies are diffident about doing—providing mortgages in difficult areas such as the central conurbation of Clydeside. In that area the building societies are often loath to provide funds for certain property, mainly tenemented, to either young or older people.
If the trustee savings bank is to become truly a third force, it will be important for it to remember that it is a bank, with a social purpose. Its origins are essentially local and that is one of the movement's strongest cards in its future operation.
Many people, like myself, became involved with the TSB movement simply because their grandparents or their parents took out a deposit account for them. I have subsequently become associated with the work of the Parliamentary Committee. In future, it may not be such a common practice for parents to open deposit accounts. If the movement wants to attract young people it will have to become more closely associated with services which many young people, particularly married couples, are now seeking, like mortgage lending.
Many valid points have already been made. I hope that we have things right this time and that we are doing what we thought we had done in the 1976 Act.
I begin by declaring my interest as a depositor in the trustee savings bank, a member of my local committee for 25 years, and a trustee of the largest savings bank in the country. Like the hon. Member for Glasgow, Maryhill (Mr. Craigen), I am a member of the Parliamentary Committee.
It is unfortunate that the parliamentary draftsmen got it wrong. However, they are human beings. We sometimes make a little too much of saying "Is it not a pity that mistakes have been made?" In some respects we would live in an undesirable world if occasionally human beings did not make mistakes. Ministers should not make mistakes because many people believe that they are not human. Civil servants cannot defend themselves and they should not be attacked by us. I acquit the parliamentary draftsmen of some of the things that have been said about them this afternoon.
I am grateful, Mr. Deputy Speaker. I think that you referred to the "right hon. Gentleman", but I am not sure. Hansard will doubtless tell me whether that was so.
Why is the Bill needed by the trustee savings bank movement? It is a tidying up Bill. I do not know what went on between the usual channels, but it seems that the Bill would have been an ideal candidate for a Second Reading Committee. I cannot understand why it has had to be dealt with on the Floor of the House. It is not necessary for it to take up much time. On this occasion there is no need for anyone to raise the wider arguments that most of us who are concerned with and who understand the trustee savings bank movement went through in great detail when putting the 1976 Act on the statute book. There is not very much in the Bill.
The hon. Member for Thornaby (Mr. Wrigglesworth) referred to elderly trustees. The hon. Gentleman will be aware that there was no discretion for the Minister because the Act stated that those trustees would have to retire at 70 years of age. A substantial number have already gone.
The hon. Gentleman spoke of the need to make the boards more representative. Proposals are being formulated by the Central Board to allow for the election of depositors. There was never any question of trade unions being represented. The depositors are those who matter. It is their money that is at stake. I am quite sure that some of them, like myself, are trade unionists. Considering the outstanding success of the trustee savings bank movement, we would be unwise to make too many changes in the composition of the boards that have ultimate responsibility for running the banks.
I take the hon. Gentleman's point when he says that it was never intended that trade unions should be represented. I hope that he will not misinterpret what I way saying and what has been said on other occasions. Reference has been made to trade unionists to illustrate the breadth of people who could sit on the boards and who are not doing so at present. It should be clear to the hon. Gentleman, if he does not already know, that the National Union of Bank Employees feels strongly that in these times of discussion about industrial democracy the trade unions should be represented at that level.
That is an issue to be considered. I wish that the National Union of Bank Employees would consider the interests of customers and depositors, and would not, for example, block the opening of banks on Saturdays. I am sure that many members of NUBE would qualify, because they are depositors. I should have no objection to that. My objection to that sort of industrial democracy is when trade unionists sit on boards to represent the unions and not the depositors, who are the key to the whole operation.
Important progress has been made since the Page Report. Last year, which was pre-Page, the trustee savings bank movement had £94 million in the current account with reserves of £90 million. In 1977 the current account increased to £224 million and reserves grew to £199 million. That is very satisfactory progress.
All the banks have done exceptionally well, although it is reasonable to note that there is still one bank that has not come within the ambit of the Central Board and does not seem to have done quite as well as the others. No doubt its depositors will have something to say about that at the right moment.
There are three or four other points of importance that need to be made. As has already been said, the banking system of the TSB movement is moving with the times. The number of cheque accounts in operation, which were introduced in 1965 against opposition from the joint stock banks, reached half a million in 1974, three quarters of a million in 1975, and doubled to 11 million by 1977. Much of that growth was as a result of the 1976 Act and the interest generated by the Page Report.
The other main change was the ability to operate credit services. The ability so to operate was delayed because it was disputed whether the wage agreement, the bonus and the productivity arrangements that were agreed between the bank and its staff fell within the Government's then criteria. I still think that they did. I believe that the TSBs should have fought a bit harder to get its views accepted and known. However, it did not and there was a delay.
Already the amount of loans outstanding are £26 million. That is a great credit to the bank as it indicates its willingness to operate such a scheme. As from November a TSB trust card will operate that will be part of the Visa card system. It will give customers of the bank the opportunity to participate more widely in general banking services.
It is fair to say, as the right hon. Member for Orkney and Shetland (Mr. Grimond) pointed out, that there are restrictions on the loans that the banks may make. Those restrictions are covered mainly by Schedule 3 of the 1976 Act. However, the banks make fairly substantial loans to local authorities in their areas. It is not right to say that all the money is taken away to go to the centre because the individual banks have the power—they exercise it quite frequently—to make such loans in their own areas. I hope that in the run-up to what is technically known as Day Y, much more freedom will be given to allow the banks to lend in wider areas.
The right hon. Member for Orkney and Shetland and the hon. Member for Thornaby wondered whether professionalism and skill are present in the TSB movement. I can only say as a layman that it is my opinion that we do have professionalism in the movement. It is not very encouraging to depositors to hear it being questioned whether it exists within the movement. The general managers and others who run its most successful unit trust movement are highly skilled. The bank depositors and those who put their money into the unit trusts are being exceptionally well served. I have no doubt that as Day Y reaches us and the freedom is available that the right hon. Gentleman rightly seeks along with the TSB movement, the banks will use it to the advantage of customers and depositors.
Who raised the queries that led to the introduction of the Bill? The query lying with mortgages in Clause I was raised by the Land Registry, which has so far refused to register many of the deeds which were the subject of a grant, as the Minister of State said, from Birmingham. It was not, as it were, an in-house legal quibble. It was the Land Registry.
Clauses 2 and 3 were raised by the trustee savings bank movement. Its lawyers seemed to suggest that there was a doubt. Clearly, the Treasury agreed. That is why those clauses appear in the Bill.
I turn to the repayment from the National Debt Commissioners; had the Central Board insisted on the immediate repayment of £1,500 million in cash, there would have been a catastrophic effect on the gilts market. Equally, the savings banks did not want to take over the grim portfolio that had been amassed over the years by Governments of both major parties.
The right hon. Member for Orkney and Shetland did not seem happy about the investment policy of the House of Commons Pension Fund trustees. I do not think that over the years the National Debt Commissioners have behaved brilliantly in the way that they have handled savings bank deposits—whether trustee savings banks or Post Office savings accounts. I am with the right hon. Gentleman 100 per cent. on that matter. It was agreed that there had to be this phased repayment in tranches. As it proceeds, I think that the banks will be satisfied that they will be able to provide the service that they want to give.
The one worry of those who have years of experience of the trustee savings banks has been that, to get the efficiency demanded by the 1976 Act, it has been necessary to reduce dramatically the number of banks. The banks are now viable, but they have the disadvantage that they know their particular localities less well. For example, when it comes to making loans to industry—the bank of which I am a trustee in the South-East covers an enormous area—the bank will put more responsibility on its professional management. That will in turn require more skilled trustees sitting on the appropriate board to evaluate the advice that is put before them. It is similar to the advice that Ministers have to take. They will always get advice which they are told by their advisers is good advice, but in the end they have to decide whether it is good advice. I f they are poor quality, some poor quality advice will slip through.
This tidying-up measure gives another opportunity for deciding how we are to get marching in step the obviously increased professionalism of the management of the trustee savings banks with the need for getting more highly skilled trustees. That will not necessarily be the result of having a proportion of trustees elected from the depositors. The figures show that the depositors have had no complaint about what has been done for them so far. I am concerned that that progress should continue. The Bill does nothing to hinder that progress, but it does a lot to help it. Bluntly, I hope that the Bill will get a fair wind and that it might be out of Committee in less than one full sitting.
It does not appear from the progress record to which we have just listened as though the drafting errors have had any adverse effects upon the trustee savings banks movement. Despite the mistakes, matters have gone on as we all hoped that they would.
I do not join in the criticism of parliamentary draftsmen. They have a difficult task to perform. Having sat on the Joint Consolidation Committee for the last 13 years and observed parliamentary draftsmen perhaps more closely than have many other hon. Members, I can speak only of my unbounded admiration for them. This has indeed been an exception.
I do not wish to follow the right hon. Member for Orkney and Shetland (Mr. Grimond) into the wilds of Norway or into the heat of Spain. I ask one simple question to which I should like a reply from my hon. Friend in winding up the debate. I suggest that depositors, when they read that they have received 10 per cent. interest instead of 4 per cent. interest and are assured that they will not have to repay it, will wonder whether my right hon. Friend the Chancellor of the Exchequer will demand that income tax be paid upon the extra 6 per cent. If it has been paid by mistake, as it has, and they have no lawful entitlement to it, will the Treasury seek to take some of it back under the heading of income tax? It is a mundane question. However, I suspect that many depositors are more likely to ponder that question than any of the others that have been raised today.
It is difficult to follow my hon. Friend the Member for Hampstead (Mr. Finsberg) because, despite calling himself a layman, he is obviously an expert on trustee savings banks.
This is a necessary Bill from what we have been told. But, as several hon. Members have said, it is extremely irritating that we should have to go over the same ground twice because the 1976 Act was so faulty.
We cannot blame the parliamentary draftsmen. The numbers recruited are in the hands of the Government. I think that Governments of both major parties have over the last few years over-pressed parliamentary draftsmen by far too much legislation. As has been said, there is always a great desire by every Department to put its imprint on several Bills. There are always Bills in the top or bottom drawers gathering dust which civil servants want to bring out for fear that they might be unemployed. There are always do-gooders who want to bring up the particular bees in their bonnets. Therefore, we pass far too much ill-digested legislation. Errors are not spotted because parliamentary draftsmen are overworked.
I declare my interest as a depositor in a trustee savings bank. But if I heard correctly that the Government are to withdraw their tax concession, I am not sure that I shall be a depositor after 1979.
I am a great admirer of the trustee savings banks. They are local, friendly banks used by large numbers of people. I find them more flexible than the main street banks. It is a pity that they have been forced to close on Saturdays. However, they have more flexible hours than other banks.
I was interested to learn that trustee savings banks can in certain circumstances lend on mortgage. I am not so against that idea as I thought I should be. My hon. Friend the Member for Horncastle (Mr. Tapsell) said that the trustee savings banks did not have the expertise. But expertise can be bought.
Perhaps I may clarify that point. I was not necessarily against the idea in principle. I merely wanted to be assured that the trustee savings banks would have the necessary expertise before embarking upon mortgage lending.
I am sure that the trustee savings banks are possibly even more cautious in some respects than other banks and that they would make sure that they had the expertise before embarking on such a course.
I should like to see more opportunities for people to obtain mortgages. The trustee savings banks are in touch with many working people who require mortgage help. The building societies have become very hidebound. There are certain areas in which they will not lend, despite the fact that they have enormous sums of money to lend. It would not be a bad idea if the trustee savings banks had a little competition.
I declare an interest as a chartered surveyor. I do not believe that the limitation on mortgages by building societies at the Government's request will have the desired effect. I believe that it will prevent people from moving from one part of the country to another. Such movement is important to employment. It will not stop prices from rising because building costs for new houses are rising and the price of old houses will rise in line with that. People will withdraw houses from the market, which is already inadequately supplied.
I hope that the trustee savings bank will not be tarred with the same brush as the other banks. There is talk of making opening hours less flexible and the Government intend to stop the tax-free allowances. That will take away some of the attraction of the trustee savings banks.
The right hon. Member for Orkney and Shetland (Mr. Grimond) spoke of investments in small local industries. This is an area which the trustee savings banks should examine. I understand that through local authorities they lend money to localities. We must look to small industries in small towns and villages to improve employment. The local knowledge of the trustee savings banks will stand them in good stead in that respect.
I am aware that several branches have been closed but the East Anglian Trustee Savings Bank, which has existed for a long time, has many people who have the requisite knowledge and expertise to advise on investment in local industry.
I wish the Bill a fair wind. I hope that the trustee savings banks will go from strength to strength. I hope that they will widen their activities so that they are of even more use to the localities in which they have grown up.
I shall try to deal with some of the issues that have been raised. The hon. Member for Horncastle (Mr. Tapsell) asked about mortgage lending and whether the trustee savings banks in general will move into this sphere. As I explained, this is now merely a problem which relates to the former Birmingham Municipal Bank. There are no plans at the moment for this to happen generally. The Treasury has power to designate trustee savings banks with the power to lend on mortgage. However, there is no present intention of doing that. The situation will develop over the years and the matter will be examined again.
The hon. Member for Horncastle said that this Treasury direction and the powers of borrowing should be in the legislation. On reflection, I am sure that he will appreciate that the powers necessary to supervise any bank should not be laid down in detail in legislation because circumstances can change rapidly. The supervisory authority—be it the Treasury, or the Bank of England in relation to other banks—has to have a certain flexibility. It is not practicable to enshrine that detailed supervision in legislation.
The hon. Member asked when the tax concession would be withdrawn. I understand that it must be withdrawn by the Finance Act 1979 at the latest and that it will be withdrawn in that legislation.
The hon. Member for Norfolk, South-West (Mr. Hawkins) seemed to mourn the fact that the tax concession is to be taken away from ordinary accounts. If it were not taken away the joint stock bank fraternity would complain, because if trustee savings banks are to become the third force in banking, as the Page Report recommended, they should compete on a more or less equal basis with the other banking forces.
That is a difficult question, which I shall not deal with now. I was explaining why the concession was being taken away.
The hon. Member for Horncastle mentioned the deficiency on the securities that are invested with the National Debt Commissioners. I believe that the deficit is about £50 million and that it has come down from the original £200 million. The hon. Member also asked about early repayment. That would be a call on public expenditure. I am sure that with the need to restrain public expenditure the hon. Member will not wish to aggravate the problem. He also asked about deposits and reserves. He mentioned a figure of 4·8 per cent. I do not know whether that is correct, but I have no reason to doubt it. The hon. Member asked if the target figure would be raised by 1986. I cannot answer for future Governments, but the agreement is as the hon. Member suggested.
My hon. Friend the Member for Thornaby (Mr. Wrigglesworth) asked why it was necessary to grant specific powers to the trustee savings banks to lend on mortgage when they could be covered by the phrase "carrying on the ordinary business of banking". It would not be covered by that phrase. I am not aware that joint stock banks lend money for longer than eight years for house purchase. They do not make the building society-type loans, although they may lend money to their staff for house purchase. For that reason it is better to clarify the power and make it clear in the Bill.
My hon. Friend then asked who raised the question of the ultra vires nature of the power to lend on mortgage. The hon. Member for Hampstead (Mr. Fins-berg) answered this, as he did many other points. I am grateful to him. We thought that it was right to clarify the matter for the House.
My hon. Friend the Member for Thornaby also referred to the narrow range of people represented on the boards. The hon. Member for Hampstead again came to my rescue and answered this question. He said that the 1976 legislation put a limit of 70 years of age on membership and that this would continue to have its effect upon the nature and age of members of the boards.
The right hon. Member for Orkney and Shetland (Mr. Grimond) made an interesting intervention, which he has made before, but it was none the worse for that. He raised a valid point. He said that there was a danger that when we had central supervision of these institutions, savings would be attracted out of the locality and invested centrally, to the detriment of local industry and business. There is much in what the right hon. Gentleman said. The dilemma here is that banks must have a certain amount of central supervision and control for the protection of depositors, but in the process of securing that the local connection tends to get lost.
This does not happen in other countries where there is not so much concern for the protection of depositors. In the United States, for example, there is a thriving local banking community which can plough resources back into the locality. That presents a very real problem for us, but it is a problem of which the TSB Central Board is aware. It appreci- ates that the TSB roots are local and regional. Whether those roots can be retained with the kind of central efficiency that is needed for an expansion of the business is not something that I can say. I hope, however, that this dilemma can be resolved.
My hon. Friend the Member for Coventry, South-East (Mr. Wilson) raised an interesting point. He said that the 10 per cent. that was paid on investment accounts in place of the 4 per cent. that should have been paid should not be taxable. The answer to that is the same as the answer to the point that he raised in his intervention; the quality of the payment is not illegal, and neither is the quality of the mortgage invalid. The issue in question is the power of the TSBs to make this payment. They may be accountable somewhere along the line for any damage that may arise as a result of it. In many cases, however, it is not clear to just whom they are accountable. The payment is in the pockets of depositors, and no doubt the Inland Revenue will recover the tax.
I hate to disagree with my hon. Friend, who is a distinguished lawyer, but of course the depositor has a right to the payment. The question of the validity of the payment is a matter between the trustees and those to whom they might be accountable.
As the hon. Member for Hampstead said, this is a small Bill, which is meant to put matters right. There were errors in the 1976 legislation. We should not be too hard on Ministers or parliamentary draftsmen for that, because the trustee savings banks are of a strange nature. They began a long time ago. For a bank to be run by trustees is a very unusual situation. Having grown up over the years, the system is bound to have anomalies and difficulties, and it is not surprising that when these banks are now being freed from the constraints of Government these problems should arise.
I hope that my hon. Friend will appreciate that it was in no sense of vindictiveness or antagonism that I expressed irritation. The irritation arose predominantly because there are other pieces of legislation that we want to see become law and we would prefer that they should have precedence over measures of this sort.
I appreciate that. I have no great desire to stand at this Dispatch Box to put this Bill through, except that it is necessary and it will enable the TSBs to carry on and increase and improve their services. It is part of the process by which they are to be freed from Government control. For these reasons, I hope that the House will see fit to give the Bill a Second Reading.